Fat Cats

The average Fortune 500 chief executive makes 344 times the pay of a typical American worker—and that doesn’t even include former Merrill Lynch CEO John Thain’s $1,405 trashcan. In this edition of Drucker Apps, you’ll find tools that will help you understand why bloated executive compensation is so corrosive and why the government has felt so compelled to step in. These insights—at once timely and timeless—are based on the ideas and ideals of the late Peter F. Drucker, the father of modern management.

The ethics of bloated pay

“Primum non nocere, ‘not knowingly to do harm,’ is the basic rule of professional ethics… American executives, in particular, tend to violate the rule…with respect to executive compensation.”—Peter F. Drucker, Management: Revised

• Be careful what you ask for. Lavish pay causes social disruption. Read more on page 222 here.
• How should corporations regain our trust? Former Drucker Scholar-in-Residence Charles Handy weighs in here.

So what should CEOs earn?

“The hostility to top management…on the part of middle and even upper management is very hard to exaggerate. The next downturn I think will turn against them.”— Peter F. Drucker, “The Changing World Economy”

• Feeling indispensable? Remember: “The company matters; the person doesn’t.” See page 23 here.
• Does a 20-1 pay ratio sound fair to you? Read Rick Wartzman’s BusinessWeek column here.
• A real leader engages in “pain sharing.” Former Drucker student William Cohen explains here.

Obama’s $500K pay cap may be just the start

“Whenever an undesirable impact is not prevented by [business], it ultimately boomerangs. It leads to regulation, to punitive laws, and to outside interference.”— Peter F. Drucker, A Functioning Society

• How laws that result from scandal are “invariably bad.” Read more here.

How much does money matter to you?

“I too, many years ago, had to decide between what I was doing well and successfully, and my values… And I saw no point in being the richest man in the cemetery.”— Peter F. Drucker, Management Challenges for the 21st Century

• What to do when your values conflict with your wallet. Read more here.
• Are you part of the entitlement epidemic? Watch Daniel Yankelovich, founding father of public opinion research, discuss what excessive pay says about our culture.