leadership development

1 Handling the Unhealthy Employee

Bill is an award-winning newspaper reporter for the city news who can crank out twice as many feature articles as anyone else. To keep relevant in a period of downsizing in the newspaper industry, Bill also maintains the newspaper blog and social network pages. Over time, his work hours grew. He often chain-smoked his way to 3 hours of sleep or less. He gained weight and started to develop a considerable waist. He always had snacks by his desk because he had little time to go out to a restaurant or make a home-cooked meal.

Bill was known to be irritable and often yelled at his colleagues for not getting information he needed for articles. “Time is important. The second reporter to the story might as well be the last reporter to the story.” His colleagues thought he was too pushy and often yelled back at him.

One morning he collapsed at his office desk. He was rushed to the hospital via ambulance. Doctors found that he’d had a retinal stroke with loss of significant vision in his right eye. Doctors said he would be fine as long as he would lose weight and take better care of himself.

Diane is the owner/manager of the newspaper and is concerned about Bill’s condition, along with that of with the other overworked reporters and editors who have been survivors of the many downsizings over the years. She has decided to implement several stress and health management policies to help maintain productivity while keeping the employees healthy. In an employee meeting, she mentioned several new initiatives as follows:

“First, in the past, smoking has been limited to offices. Now smoking will be banned from the building. If you want to smoke, there will be a designated smoking area in back of the building.

“Second, in the past, vending machines have had junk food. Now the machines have been eliminated. Fresh fruits and vegetables will be provided for free in the cafeteria.

“Third, periodically, courses on healthy eating and exercise will be provided by experts. These courses will be regarded as important as mandatory staff meetings. The courses will last for approximately 1 hour and may involve minor physical activity.

“Fourth, health checks by a nearby medical service will be available for free twice a year. This will be totally paid for by our organization.

“Finally, if management feels that you are overworked or overstressed, we would like to sit down with you and talk to see what is happening.”

Bill was aghast at this new policy. In discussions with a colleague, Bill said the following:

“Diane is trying to impose her will and culture upon me. Smoking relaxes me. I write better when I smoke. Now that there is a no-smoking policy in the office, this is the one thing that would increase my blood pressure through the roof.”

“The vending machines were a convenient way to get food. I am a carnivore, and I like my occasional beef jerky. I like my chips. Granola is for the birds.”

“The mandatory classes concerning nutrition and exercise are a waste of time for the staff. If there is a great story out there, it is more important to get the story in the middle of the day than waste time on Diane’s religion. The newspaper provides significant financial incentives for each feature that is published every week. I write the most features because I am good at it, I write fast, and I need the money. My wife’s sick in the hospital, and I’ve got two teenagers to feed. I might lose my house.”

“The ‘free’ medical service and management visits about health are basically nosy efforts by management to pry into personal business. It is none of management’s business to intervene in my personal affairs.”

There are several other reporters in the office who feel the same way as Bill and have threatened to resign if Diane’s initiatives go through. The reporters offered a very simple alternative of having the newspaper add 3 days of sick leave benefits per year. They feel that Diane has no right to impose her lifestyle and her culture on them. Diane especially has no right to monitor the lifestyle and personal habits of employees that do not affect work.

Diane counters the group by saying that lifestyle and culture can affect work. “If you are not healthy, in the long term, you will not be productive. I want you around for a long time.”

Questions

1. What are the causes of stress in Bill’s organization?

2. Has Diane gone too far in imposing a smoking policy, removing junk food from the vending machines, and offering free medical service and management visits?

3. Diane has selected several ways to reduce the stress and improve the health of her employees. What other ways did the chapter mention she could also use to reduce stress and improve employee health?

4. What do you think about the reporters’ sick leave proposal?

Case created by Gundars Kaupins, Boise State University

Case 15-1 CEO Compensation: Do They Deserve Rock Star Pay?

Can’t sing, dance, or hit a baseball out of the park? You can still earn “big bucks” by becoming a CEO of a Fortune 500 firm, according to the AFL-CIO, who used data gathered from the Department of Labor, Bureau of Labor Statistics. The average pay for a CEO in 2016 was $13.1 million based on an analysis of 420 firms in the S&P 500 index. From the worker’s perspective (average earnings of $37,632), a CEO earns in 1 day what a worker earns in 1 year (335 times an average worker’s pay in 2015, 347 in 2016). Worse, while the pay of the average worker increased by 2% from 2015 to 2016, CEO pay rose by 6%. Taking inflation into account over a 50-year time period, wages of this workforce were actually less than stagnant; in 1967, workers earned 10% more than in 2016, the equivalent of $41,473 adjusting for inflation.

The AFL-CIO’s research clearly indicates that while the country as a whole has grown and unemployment is at a near all-time low, the worker in the United States is not similarly prospering as compared to his or her counterpart in corporate headquarters. There is a growing wage gap, a gap clearly that does not seem equitable from the largest federation of US labor unions as well as the general public.

Why such a high salary given the fact that the US economy has grown at most 2% per year over last few years, one-third of the growth of CEO salaries? US CEO pay is often high because it is based upon the average pay of their peer group. The AFL-CIO suggests that to eliminate this practice, similar to British concerns, shareholders have binding votes on CEO compensation. Yet the reality is that in 2015, 91% of investors’ “advisory votes” in S & P 500 firms supported CEO pay levels.(1)

Stockholders aside, the general public certainly feels that CEOs are overpaid. Stanford University’s Rock Center for Corporate Governance in 2016 ran a national study (1,202 participants who reflected US socio-demographics including age, gender, race, household income, state residence, and political affiliation) tapping into people’s beliefs concerning the compensation packages of the 500 largest publicly traded corporations.

The net result? Nearly three-quarters (74%) think CEO pay is out of synch with worker compensation, with only 16% thinking otherwise. Socio-demographic differences aside, most individuals feel quite adverse when discussing CEO compensation. According to Professor David F. Larcker of Stanford Graduate School of Business,

There is a clear sense among the American public that CEOs are taking home much more in compensation than they deserve. While we find that members of the public are not particularly knowledgeable about how much CEOs actually make in annual pay, there is a general sense of outrage fueled in part by the political environment.(2)

CEO pay needs to be dramatically cut since their salaries are off the chart. How this is to be accomplished though, with or without government regulation, is where disagreement arises and usually along political affiliations. For example, while both groups feel that there should be a ceiling on CEO pay (nearly 65%), those who hold Democratic and Independent affiliations differ with Republicans by almost 15% (66%/64%/52%, respectively). When it comes to actually setting a cap on CEO pay, those surveyed thought that six times the average worker pay was acceptable. This is way below the average multiple of all CEO pay, which is 17.6.

Interestingly, there was nowhere near a majority consensus on how to use regulation to limit CEO pay. Some advocated large tax increases over a certain level (28%), others opted for setting dollar amounts relative to worker wages (25%), while a minority wanted to set pay ceilings not tied to worker pay (17%), and a similar percentage wanted CEO pay directly tied to firm performance. Only 9% thought to eliminate stock options, while another 8% would cut out all forms of equity compensation.(3)

Yet many experts do not agree with the public and would argue the public does not have all of the facts. Jannice Koors, managing director at Pearl Meyer & Partners in Chicago, has a different perspective on CEO compensation.

I think most companies are on the right track with their [executive] pay programs. Yes, CEO pay increased this year—because average company profits and share prices grew. Compensation is more closely tied to performance than ever before, which is exactly what shareholders have been pushing for. Today, only a very small percentage of a typical CEO pay package is in the form of a guaranteed annual salary.(4)

Donald Delves, director, Towers Watson in Chicago, justifies CEO pay as follows.

CEOs are paid about three times as much as the next level of executives. . . . In my experience, it is a very rare person who has the skills and experience required to run a huge global corporation. And their average tenure continues to decline. There is not a lot of patience shown by shareholders and boards when a company underperforms.(5)

Author of The Taboos of Leadership Anthony Smith noted that

The reality is that the free market is alive and well, and is the true dictator of CEO pay. While what one’s peers are making is still a legitimate barometer, critics should look at the macroeconomics of “stars” in all fields (after all, CEOs are the “stars” of the business world), and not just the microeconomics of CEO pay, if they are serious about understanding the calculus in determining compensation. Such valuation analysis must factor in the track record of the CEO; his or her potential; competing job offers; personal enticements; what he or she is leaving behind; their reputation on the “street”; and the team of other executives he or she is likely to bring or attract. . . . Only a handful of people are capable of leading major multinational corporations with 100,000+ employees and $50+ billion in annual revenue. Bottom line: true stars are in short supply and high demand. It’s pure Economics 101.(6)

Whether you agree or disagree with the fairness of CEO pay, CEOs make as much in one day as the average worker makes in one year.

Questions

1. How does ethics apply to this case?

2. What factors might contribute to what some perceive as unethical behavior concerning CEO pay?

3. What are the differing ethical approaches, and how might they apply to this case?

4. How might the issue of CEO compensation be dealt with in a firm’s code of ethics?

5. How might the issue of CEO compensation be used by a firm to create and maintain an ethical organization?

6. Use the “legal doesn’t mean it’s ethical” argument to disagree with current CEO compensation practices. What makes it legal, and why might it still be unethical?

7. What is your own opinion about CEO compensation? Provide facts and arguments supporting your position from this case.