The Finch Formerly Known As Gold

12 June 2006

Time to save some real money

I can definitely get behind this idea:

So far, outsourcing manufacturing and services has led to higher chief executive compensation, at the expense of shareholder profit. For example, IBM's chief executive, Samuel J. Palmisano, who has been moving jobs to India, last year saw his total compensation rise 19 percent to $18.9 million — even as the total return for his company's stock fell 16 percent.

That's proof that globalization hasn't gone far enough. China, India and other emerging markets offer shareholders a virtually unlimited talent pool from which to draw chief executives. With an increased supply of candidates, a truly independent corporate compensation committee would be easily able to hire superior leaders at salaries and benefits that are a small fraction of what their American counterparts in those fancy corner offices demand.

And saving money isn't the only upside, either:

Major American corporations have been shifting their factories and labor force to China and India for some time now. It would make sense for the chief executive of an American corporation to come from, and be based in, those areas of the world where the potential for market growth is the greatest. It would be reassuring to have a chief executive who understood the local business practices, the country's cultural underpinnings and the language.

Also, given the importance placed on performing well in science and math in countries like China and India, it would be more likely that an offshored chief executive would have had a rigorous technical education instead of degrees in the "softer" management disciplines that are common at American business schools.

A win-win situation all around. Admittedly, saving $10 million or so on a CEO pay package isn't that huge a deal, given the sheer size of some of these operations, but given the fact that the guy's going to get his contracted salary-plus-benefits even if he runs the place into the ground, it is only prudent to minimize the company's potential expense, and, well, $10 million is $10 million. If they've got a hundred million shares in play, their earnings per share just went up a dime.

This does not mean, of course, that every business should immediately outsource its CEO. There would be no benefit, for instance, from filling the top slot at 42nd and Treadmill from New Delhi; it requires an uncommonly-specific skill set, one which is not easily duplicated at a distance, and one for which no effective curriculum exists.

But the outsourcing of CEOs, I think, might help to address, perhaps even ameliorate — slightly — the post-Enron perception of corporate executives as common thieves with uncommon expense accounts.

(Via Population Statistic.)

Posted at 7:00 PM to Dyssynergy

They should only outsource those jobs Americans don't want to do. And I'd happily be CEO of, say, Exxon for, say, 1% of what Exxon's current CEO makes.

And I could run the company into the ground in half the time!

Posted by: McGehee at 9:25 PM on 12 June 2006

Outsourcing CEOs to India or elsewhere is a great idea. It would keep them out of the the way, out of our hair so we could get some actual work done. My last 5 years with the Fortune 50 company was spent about 30% doing what we were hired to do, 60% trying to justify our existence and budget to those nosey executives, and 10% bitchin and moanin' about it.

Posted by: Winston at 6:03 AM on 13 June 2006

To a certain extent, this is already happening, as multinationals come to rely more and more on high level locals.

Posted by: China Law Blog at 1:37 PM on 13 June 2006