Keyword: CEO

Today’s Wall Street Journal observes “Limits on Executive Pay: Easy to Set, Hard to Keep”.  It is just one more sign that as long as executives are rewarded for the wrong things, their pay will continue to spiral out of control.  It’s the “A-Rod’ing” of executive compensation.

In case you don’t know who “A-Rod” is, he is Alex Rodriguez, the highest paid player in baseball.  A-Rod was the mercurial former star of the Seattle Mariners where he was the youngest player to achieve greatness.  I watched him excel before his 18th birthday, with dazzling defense on the diamond, wonderful prowess at the plate, and the three C’s: charm, class, and charisma.  He was, in short, a delight.

The Mariners nurtured A-Rod until he became a free agent and his agent, Scott Boros, threw chum in the water and attracted all the usual sharks to the feeding frenzy.  After an exceptionally vigorous bidding battle, the Texas Rangers (of all people) outbid the big boys — notably George Steinbrenner and the New York Yankees — to land Alex with a breathtaking contract worth $25 million a year for 10 years, and a huge signing bonus.  So large was the package that it remains unmatched even today, many years later.

I’m betting, even if you aren’t a follower of baseball, you can guess the rest of the story.  As I noted in this post about teamwork, it takes a bit more than one superstar to make a team.  So things just didn’t work out for A-Rod with the Rangers.  It turns out that casually discarding your journeyman shortstop to bring in a single over-priced superstar wasn’t popular with the rest of the team.  It didn’t help that he was paid more than 10 times any other player on the team, sucking up something like 60% of the payroll.  I bet the snickers in the dugout after each strikeout still reverberate in his head.

And A-Rod wasn’t happy either.  He’s a fierce competitor and losing just rubbed him raw.  And it turns out playing outside in Texas in the summer is hot — who would’ve guessed that?  So he begged to be traded.

Here too, I’m sure you can predict the rest of the story.  The only team with the revenue or chutzpah to be able to pick up his contract was the New York Yankees.  So A-Rod joined the Yankees, a team filled with over-priced talent.  A-Rod was right at home with his fellow multi-millionaires.

But alas, the New York crowds are brutal, and they love to chew up and spit out people who don’t live up the the hype.  Even while performing well, A-Rod seems miserable.  And the Yankees certainly are, having been summarily dismissed from the playoffs more times lately than suits Mr. Steinbrenner.

Translating this to the executive pay world, the same is true.  Having the CEO or top executives quite publicly paid exorbitant sums makes everyone sick — from the stockholders to the employees.  It just doesn’t make logical sense that anyone is worth that kind of money.  And just like in the world of baseball, it makes even the mediocre players demand silly pay packages, spiraling the whole thing out of control.

The moral here is clear: relying on superstars alone to build a winning team doesn’t work, and rewarding people like it does just makes it worse.  Everyone needs a compensation plan that doesn’t reward them for greatness, but rewards them as part of a great team.  There should be little individual gain that is not backed up by outstanding teamwork.

No, I don’t think socialism (everyone gets paid the same) works.  First, people are individuals, and deserve to be treated as such.  Pay packages that don’t recognize this are doomed to failure.

And yes, (as I’ll note in another article) I fanatically believe that great performers aren’t just better than average, but as much as 10 times better.  So there needs to be some significant commensurate compensation difference as well.

But when companies start abandoning reasonable rules like limiting executive pay to 10 (or 12 or…) times that of the average worker, things are getting out of control.  You have to believe that in setting it to 19x at Whole Foods there was someone who had some kind of internal alarm go off that said “no, we can’t set it to 20, that would be laughable”.  I mean after all, can you really look anyone straight in the face and say that Jim is worth 20 times what John is?

Companies cry “but we can’t get the talent” or “our managers are being poached by other firms”.  They fail to understand the basic fundamental rule of compensation that it’s not all about the money.  News Flash: People work for things other than money.  Like a challenge, or respect, or a great work environment, or a great team, or …  fun.

Smart companies need to realize that when the new CEO candidate demands an absurd pay package, perhaps this isn’t the right candidate.  No matter what excuses about “what the market will bear” exists, maybe it’s more about what the team will bear.  And perhaps the better choice is to go for the best team builder, not the best negotiator.

And today’s WSJ also has a great article with tips for boards on conquering the problem of executive pay.  Not coincidentally, they bring up many of the same points.

Apple Logo

There has been more than a little noise about executive compensation in general, and stock option backdating in particular.  I have been quite vocal about the ridiculous level of CEO pay, it is just silly that people should be getting 9-digit pay — for anything including professional sports.  I have witnessed some of the ugliest side of this, with supposedly mature executives arguing to me that, in some way in their mind, their mid-8-digit net worth was inadequate.  Little in this realm shocks me any more.

So when the charismatic do-no-wrong CEO of Apple, Steve Jobs, got caught up in the whirlwind of backdated stock options, I was not really surprised.  Only just a little disappointed.  But in some way, it proves little more than that Steve is, in fact, a mere mortal.

Now, time for a disclaimer.  I’m both a huge Apple fan and a shareholder.  I’m writing this on a MacBook Pro, am very close to swapping out my Windows desktop for a new MacPro, and have at least eight iPods in the family.  I love the simplicity, the way things just seem to work, and the passion for nice design.  And the stock has been a winner for us as well.  I am as excited as the rest of the planet about the future of the company, especially with the new iPhone in the works.  So I am admittedly biased to see the Apple glass more than a little half-full.

Recently it was revealed that Apple issued stock option grants that don’t meet with the standards of scrutiny that should be expected.  Specifically, grants were issued with dates that were the most favorable to the grantees, and this news forced the resignation from the board of the CFO at the time of the grants.  To Apple’s credit, they admitted the issue, although some complain not quickly enough.

What impressed me the most is that the release disclosed quite frankly that Steve was aware of the issue.  Most companies would first deny that anything like this happened, and their CEOs would almost certainly distance themselves from the fallout as quickly as possible.  It is refreshing to see at least one company and the CEO admit the issue.

Steve Jobs

But to be clear, Steve is no saint in the realm of money.  He is famous for his $1 a year compensation, but this belies his huge stock and option stake in Apple that has made him extremely wealthy.  Combined with his Pixar (now Disney) stake, Steve is well off with an estimated $4.9b net worth, placing him at number 49 in the Forbes 400 list.  In sum, he ceratinly hasn’t been short-changed with respect to compensation.

In Steve’s defense, however, is the fact that he made his money on the stock of his companies.  He doesn’t hold the companies hostage for some huge pay package, he simply owns stock, makes the company and stock grow, and both he and the other shareholders benefit.  In short: he earned it.

As a CEO compensation critic, this is just fine with me.  As a purchaser of technical products, I love the fact that he has advanced the state of the art and am happy to let him get his just reward.  And as a stockholder, I’m ecstatic.  The stock is up 10-fold in the last three years.  And if that works for Steve too, that’s great.

I have written more than a little about Home Depot and its CEO Bob Nardelli.  From their top-heavy “Culture Change Offensive” (which I found offensive here), and the silly army mentality Nardelli tried to force down everyone’s throat (and got stuck in my craw here), to Bob’s stunning pay package (which rubbed me raw here), and even his autocratic shareholders meeting (which I recounted here) Nardelli has provided plenty of fodder for these pages.  Well, it seems that the company and the board have finally come to their senses.

ATLANTA, Jan 03, 2007 — The Board of Directors of The Home Depot and Bob Nardelli announced today that they have mutually agreed that Nardelli would leave his position as The Home Depot’s chairman, president & CEO and as a Director effective January 2, 2007.

In other words: “get out…  like yesterday”.  Clearly the company simply tired of all the bluster and noise that went along with Bob’s “Army Mentality”, and the corporate results have been lackluster since he arrived.  And as I said in this piece, the mood in the stores is rancid.  It is a wonderful sign that the company saw the insidious effect Nardelli had, and chose to put an end to it.

But, the company didn’t completely come to their senses.  They continued to give Nardelli completely ridiculous payouts even as he exits in disgrace:

Nardelli and the Company have agreed in principle to the terms of a separation agreement which would provide for payment of the amounts he is entitled to receive under his pre-existing employment contract entered into in 2000.  Under this agreement, Nardelli will receive consideration currently valued at approximately $210 million (including amounts which have previously been earned or vested).

Holy Cow!  Even in the face of amazingly generous pay packages to CEOs, this one is a stunner.  This means that Nardelli has received, since becoming CEO of Home Depot, a whopping $400+ million in compensation!  During the same time, HD (the stock) has gone from a high of around $70 to the mid-30s.

And worse, much of this is clearly a golden handshake, or simply “go away” money.  It is optional, the board didn’t have to agree to it, but just wanted him out so badly they were willing to pay almost anything to have him go away:

This consideration will include a cash severance payment of $20 million, the acceleration of unvested deferred stock awards currently valued at approximately $77 million and unvested options with an intrinsic value of approximately $7 million, the payment of earned bonuses and long-term incentive awards of approximately $9 million, the payment of account balances under the Company’s 401(k) plan and other benefit programs currently valued at approximately $2 million, the payment of previously earned and vested deferred shares with an approximate value of $44 million, the payment of the present value of retirement benefits currently valued at approximately $32 million and the payment of $18 million for other entitlements under his contract which will be paid over a four year period and will be forfeited if he does not honor his contractual obligations.

The bulk of this is sickening…  I’m sure there were clauses in his contract that would have allowed the company to fight most of this.  I haven’t seen it, but I’d be shocked if it was all carved in stone.  I’m betting they didn’t have to accelerate his unvested and/or deferred options, they didn’t have to buy out his retirement plans, they just did it to get rid of him.

While I applaud Home Depot for ridding themselves of this jerk, I wish they had the backbone not only to fire him, but to not pay his blackmail too.  But I’m sure the company is better off without him.  The markets surely agree, the stock is up over 3% today alone on the news.

My mother called it back in June.  Billy Ford wasn’t long for this world.  I grew up in the shadow of Detroit, and my family always had connections into the auto industry.  She knew the Ford family was restless, and that Billy was in trouble.

The board [family] forced him out.  In a way, that’s too bad, since he is a really nice guy, charming, bright, “from good stock” as they used to say.  But, clearly, it was long overdue.  His departure is kind of sad for the Ford family, yet nothing but good for the company.  It also says something about family leadership and the challenge of passing down a Fortune 500 company generation to generation.

Bill Ford was probably doomed from the start.  If you think about his challenge, it was simply too much to ask of anyone, let alone a nice guy like little Bill.  He grew up in this company.  He toddled around the offices for years, sat on the laps of key leaders, and cut whatever business teeth he had under the big blue oval logo.  Even if he had a great vision of how to overhaul the stodgy old company, it was simply too much to ask someone to shake up a culture that was generations old — generations of his family.

These last few years must have been a nightmare for Bill.  He must have been in countless meetings where he said emphatically “we have to change, we have to do things differently, we have to shake off these cobwebs!” [ed: At least let’s hope he did (see my post here)] Only to be greeted by layer upon layer of senior management that looked blankly at him, shook their heads marvelling at how little Billy had grown, pinched his cheek and said something like “but that’s not how Henry would’ve done it.”  He couldn’t fire some of these people, it would be like firing your uncle.  For the family to expect him to make “bold moves” was simply unrealistic.

Alan Mulally and Bill Ford

Now the Ford board has made a super choice: they have selected Alan Mulally, formerly of Boeing, as CEO.  I’m a huge Mulally fan, if only from my view outside the company.  But throughout his turn at the helm of Boeing’s Commercial Airplane group, he was a sharp, effective leader.  And since his promotion opportunities were limited at Boeing by a new top dog (see my post here), moving on makes great sense for him.

I first became familiar with Alan Mulally during the development of the 777 airplane.  This was a huge deal in these parts, as it was the chance for the “Lazy B” to shake its old cobwebs and really develop something new and different.  Leading up to the launch, Mulally had numerous opportunities to appear in the press, and he always managed to do it with aplomb and to show his leadership skills.  At the launch (covered as if it were the Second Coming around here), he outshined the rest of the Boeing leadership as the clear, thoughtful, and talented one of the bunch.  Then, the incessant airing of the “Making of…” video on the local PBS station allowed us an even closer look at what a solid leader Alan really is.  He had done it, turned around the supertanker, practically in its own boatlength.

Recently, Mulally spearheaded the “Dreamliner” project, an even more ambitious plane that is, if leading-edge sales are to be believed, eating Airbus’s lunch.  It was a bold move, at a time when Boeing clearly dominated the huge plane market with it’s 747, and a simple tweak to that plane could offer again the largest plane in the world, he bet on moderation.  According to friends I have on the 787 (as the Dreamliner is now called) team, and they tell of Mulally passionately arguing of the demise of the monster busses with wings, and the coming move to smaller, more fuel efficient, point-to-point aircraft.  And how right he was, as if he could see $4.00 gas from the dust of 9/11.  It has been a brilliant move, and the 787 is a bold and beautiful plane.  Now all they have to do is ship it (no small feat, I hear the carbon fiber parts aren’t fun to manufacture).

Mulally seems, therefore, perfectly suited to follow through on Ford’s “Bold Moves”.  He’s the kind of person who seeks out a vision, and can get a whole, huge corporation behind it.  To paraphrase an old Ford advertisement, maybe Mulally does “have a better idea”.  The family and shareholders are certainly betting on it

James McNerney took over as CEO of Boeing a little more than a year ago.  But you haven’t heard much about him for the last year.  That might lead you to think he’s not been busy.

But he’s been doing what any good deciple of Jack Welch would do when taking over a company — “deep dives”, taking a long hard look way down in the organization to see what he inheritted.  I’m sure it was an eye-opener.

Jim McNerney

Boeing has taken a lot of hits for a long time, not just in the recent ethics scandals.  In Seattle, Boeing has been ridiculed as the epitomy of bloated big business.  One nickname from the late 20th century was “the lazy B”.  Around here, you can pick out the Boeing employees just like the Microsoft ones.  They are stereotypical nerds all, differing largely only by the generation.

The tens of thousands of proud Boeing plane builders are local fixtures, and their relationship with company management has been rocky since the beginning.  Not aided by a argumentative union (see my post on that here), the ebb and flow of the company’s fortunes take the larger local economy with it.  This effect has been lessened, but by no means removed, by the additional of software and biotech to the local scene.

Boeing’s relationship wtih Seattle hit a big low, when the former CEO Phil Condit made the rather absurd move to take it’s headquarters to Chicago.  This choice was ridiculous because the company had essentially no business operations nearby (and was shuttering those it did have).

In an amazing show of hubris, Condit held a public contest to see which city would give the most largesse to Boeing for moving their headquarters there.  In an over-hyped press event, the company selected Chicago while on board a Boeing jet headed for…  may I have the envelope, please…  Chicago!  It was a ridiculous spectacle, it moved less than 0.1% of the employees there, and (rumor has it) was only done because Condit and his wife wanted better restaurants and night life.  The reasoning was to put them in the middle of their customers, within a short flight to them all.  But, in point of fact, their largest growth market for the company is the Pacific Rim, and Seattle is far closer to those customers.  Yet another reason why Condit is long gone.

All of this makes McNerney’s challenge even more important especially to those around here.  He needs to restore a sense of sanity in a company that seems to lost its way much like Enron, Worldcom, and the other famous debacles of the end of the last Century.

His biggest challenge may well be finding a a way to get this behemoth, famous for everything from commercial aircraft, huge government contracts, and questionable ethics, to focus on something…  anything.  The company appears to be involved in all manner of large military and aerospace projects and master of none.  As I have said repeatedly, focus on some vision, any vision, is important.  McNerney seems to agree.

With recent wins in the big plane arena, whether because Airbus is stepping on its own tail or not, McNerney has a great chance to celebrate some successes, and move toward the future.  Their new “Dreamliner”, the 787, looks to be a hit — just what the company needs right now.  If they can actually ship the thing (friends inside tell me this will be no small accomplishment) they stand to regain their crown as the world’s planemaker.

This gives Jim McNerney one great leg upon which to rebuild the company, and I wish him the best of luck.  Not only because my own selfish interests wish well for Seattle, or because Boeing is the strongest exporter fighting in our national balance of trade war.  Mostly I wish them well because the whole country needs to see a large company that clearly lost its way in the last century regain it in this new one.

Bill Gates

With the announcement today that he’s going to step aside, a load of my Bill Gates memories have flooded back for me.  Forgive me while I share those with you.

I’m a fortunate man; I’m among a very small group of people who’ve had the priviledge of working closely with Bill Gates.  When I was VP of HR, he and I had a number of private and quite frank conversations about key members of the Microsoft leadership team.  We worked together to set compensation, decide assignments, and make tough corrective choices.

I’ll never forget the time we worked on his own salary together — it was almost comical.  I had to implore him to take a reasonable number that even vaguely reflected his peers at the top of the Fortune 500.  There I was, trying to convince the world’s richest man to take a reasonable salary.  The company was moving to deemphasize stock and put more weight on salary; I wanted him to lead by example.  To his credit, he pushed back relentlessly and I ended up recommending to the board’s compensation committee a number about 33% lower than what I thought was right.

Bill is a very special person, with legendary business insight to be sure, but it is coupled with a remarkable sensitivty and concern for his key associates.  He treats them much like family-members, with all the good and bad that goes with that.  Yes, his blow-ups are legendary, and he can carve new orifaces with the best of them.  But more often than not, he is concerned about their welfare, about their family, about their mood and attitude.  He values loyalty above most other things, and does not handle defection well at all.

I can think of no one in the world for whom I have more respect, and I know his presence at Microsoft will be sorely missed.  Although well divorced from the day-to-day in recent years, he always served as a settling and humanizing force in the company.  In the face of Steve Ballmer, a legendarily gruff and difficult manager (which I can personally confirm), this influence should not be underestimated.

I will have much to say about the future of the company in the hands of the new management team, but that will have to wait.  Now I’m just too busy enjoying reliving the time I had working with one of the most special people in the world.

I had the wonderful fortune to drive from Seattle to L.A. and back a couple of weeks ago.  You see a lot of nothing and do a lot of thinking in those 40 hours.  Spotted on a truck was this statement:

Providing customer solutions through trust and innovation.

OK, so now the quiz: what does this company do?  The answer is at the end (no peeking).  Your choices:

• Computer systems integration
• General freight handling
• Food services distribution
• Electrical contractor supply

I’m a huge believer in visions.  I think every organization and every project needs one.  You simply can’t have too much focus on a team — people really need to know what they are doing and why.  It’s not optional.  It’s so important the better part of a chapter of my upcoming book is devoted to it.

But quality is at least as important as quantity.  Just opening the corporate buzzword dictionary and choosing at random doesn’t work.  Take this example.  Please.

There just is nothing there.  What the heck does this mean?  How does this inspire?  What is a “customer solution”?  How does this help me do my job?  Can I make any decisions based on it?  What would I choose to do or not do based on this statement?  I have a lot more to say about visions, why they are important, and how to develop and use them.  But let’s just make one thing clear, this statement is worse than nothing.

If you are an employee at this company, this statement is painful.  Not only does it not mean anything, you can be sure it was rolled out with fanfare and lots of sincerity.  You probably sat there at the announcement and went “huh?”  You couldn’t believe what you were hearing.  You thought: “the CEO and his team spent months and how many thousands of consultant dollars to come up with this?  What a waste.”  You wondered why they didn’t put the energy into fixing the stupid products we sell, or the health care plan, or the silly payroll glitches, or heck, even the toilet in the bathroom.  You are deeply depressed.

This vision is worse than no vision.  At least with no vision, the employees don’t know the management team is a bunch of idiots.  As the old saying goes: better to say nothing and be thought a fool, than to open your mouth and remove all doubt.

Much more on visions to follow.  But in the mean time, your answer: it was a food services company.  They move boxes of Cheetohs from the warehouse to the grocery store.  Where are the “customer solutions” there?  What “innovation”?  Sheesh…

Big pay package, perks aplenty, hobnob with the famous…  who wouldn’t want to be a CEO?  And there is no shortage of wannabes and/or scoundrels among the CEO ranks.  But I’ve been around a large number of CEOs and one can tell the good from the bad pretty quickly.  And today I stumbled across a symbol for the downside (and I’m big on symbols).

CEO Express

I was just trolling around the net and found a stunning site [ed: stunning has many meanings, here I mean it literally — knock your socks off, take your breath away].  The site is CEOExpress, and it defines for me the problem with many CEOs today.

Open CEOExpress’s front page [ed: go ahead, I’ll wait].  Just the front page, no need to go further.  If you can breathe again, let me know.  My immediate response was “holy cow!” (ok, I lied, see this post).  My second response was that this is the perfect symbol for all the bad CEOs I know.

Half of you know exactly what I mean, the other half are saying “what? what’s the problem?”  The problem is that both the webmaster and the CEOs who like this page need a double dose of ritalin.  There must be 200 links on this page, all lumped into some random collection of categories.  There are moving graphics, headline tickers, and ads aplenty.  It’s so busy, it’s hard to even focus.

But worse is the tag line: “connecting busy executives to information that matters”.  That’s only true if the information that matters is all the information on the entire internet.  There’s no discretion here.  No attempt to separate the wheat from the chaff.  Oh, OK, some links have little symbols next to them, but really, it’s just a massive link page.  It’s just a “business porn portal”.  For me it’s a symbol of the bad CEO because it’s just as scattered, unfocused, and random as the worst CEOs I know.

You see, the best CEOs have a vision for their company.  They have decided what’s important and what’s not, and they hone in on that vision.  They repeat it constantly, they work toward it daily, they focus other people on it rigorously.  And they reject chaos, interruptions, and distractions.  Sure they are busy, yes they get interrupted, and of course to an outsider they look like they are a chicken with their head cut off.  But the reality is the opposite.  They are focused and guided by their vision.

The last thing they would want is a web page like CEOExpress.  If an employee walked in their office and started being as random as this web site, they would be fired on the spot.  That’s what makes it the perfect symbol for the bad CEO.

As if all the other things about HD weren’t enough, Bob Nardelli of Home Depot ruled with an iron fist over their annual meeting the other day. Reports are that he controlled all the discussion, allowed no dissent, and brushed off concerns over his massive pay package.

Perhaps most shocking however is that not a single member of the board (or at least the compensation committee) showed up.  That’s right, one of the most over-paid CEO’s in America holds an annual meeting and no member of the paymasters decides it’s worth their time to see what the owners think.  Sad.

Apparently it went so poorly that HD’s PR team issued a release saying that the company “apologizes if the absence of the board offended anyone” (or something like that).  I guess even the most strident generals realize when they get caught with their junta down.

Not long after Home Depot’s Bob Nardelli unleashed his silly PR offensive designed to get him more money (see the post here), he managed to get someone to whip up an article designed to show he reads management articles too.

The Harvard Business Review’s Ram Charan wrote a puff piece on “Home Depot’s Blueprint for Culture Change” in the April 2006 issue.  I’d love to give you a link to the article, but the HBR is subscription only content (you can, however buy this article for $6 here).

This article is PR work at it’s finest.  Sure the HBR requires there to be some real content, and even perhaps some kind of learning about how to do thou likewise.  But the miracle here is the stench of spin.  You can smell it in the lead in:

Deep, lasting culture change requires an integrated approach that remodels a company’s social systems.  The leadership team of Home Depot employed a remarkable set of tools to do that.

The remarkable set of tools was “boot camp”.  See my blog entry on that here.

But, to be fair there are some really interesting ideas in the article about how to catalog change, and monitor what is happening.  The problem is, it didn’t work at HD.  And I know why.

This culture change didn’t “take” because it didn’t go deep enough.  It was decided by the top 17 executives at an offsite meeting.  It was rolled out in a “huge event” to another 1,800 more.  But Home Depot has over 345,000 employees in over 2,000 stores.  That means fewer than one-half of 1% of the employees even got briefed on this big change.  And 0.005% of the employees had input.  No wonder they hate the required Monday morning “BobCasts”.

Bob, sir, forgive me, but even in the military you have to explain things to people, get their buy-in, heck even consider that private’s opinion.  This fancy “culture change” ain’t working, and no amount of force-feeding’s going to make it work.  But you don’t care, you’re off to the bank.

PS - The author, Ram is to be forgiven — he was the consultant working on the project for HD.  He’s just trying to get a little PR for himself.  You can be sure he didn’t get anything like Bob’s pay package…

Back in March Home Depot unleashed what could only be called a PR offensive [ed: pun intended].  There was this great BusinessWeek cover story, a couple of other minor articles and mentions, and then a Harvard Business Review piece, all about how Bob Nardelli was wonderful.  Heck, the BusinessWeek article was even titled:

Renovating Home Depot
Skip the touchy-feely stuff.  The big-box store is thriving under CEP Bob Nardelli’s military-style rule.

But the problem is, it’s a PR crock.  By any measure Home Depot is not thriving, the people there hate it, and it shows — all the way through to the check-out line.

Sure the article(s) talk all big about ex-marines, and “tough under fire”, and all that junk.  But the point of fact is the retailer is not the military, people don’t like being treated like that, and the stuff doesn’t work.

Walked into a Home Depot lately?  Tried to find help?  Tried to find someone who cared?  Tried to find something you went in wanting to buy?  It’s a nightmare.

Just for fun, pull an orange apron aside and ask them what they think of the place.  But only if you have an hour to spare.  They will rant all over you, and endlessly — like they have nothing better to do.  Ouch.  And the BW article even alludes to this: “Some describe a demoralized staff and say a “culture of fear” is causing customer service to wane.”  Executive turnover is rampant.  And Bob’s pay package can’t help (see this entry).

Customers see it too:

The University of Michigan’s annual American Customer Satisfaction Index, released on Feb. 21, shows Home Depot slipped to dead last among major U.S. retailers.  With a score of 67, down from 73 in 2004, Home Depot scored 11 points behind Lowe’s and three points lower than much-maligned Kmart.

And perhaps just as importantly, it doesn’t work in the market, either.  HD’s results are pitiful: Since the day before Nardelli’s arrival on Dec. 14, 2000, Lowe’s split-adjusted share price has soared 210%.  Home Depot’s is down 7%

So, tell me again how great this military stuff is, Bob?

Job titles serve a number of purposes, and treating them lightly is done at your peril.  Job titles help to indicate organizational structure to newcomers and outsiders, they tell people the relative importance of the person they are working with, and they reward their holders.

Some companies are famous for their disdain for titles, even mocking them, using titles such as chief humor officer, head honcho, and the like.  Imagine what the new person, especially from another culture, thinks when they see “head honcho” on a business card.  Even if they do understand what the words mean, they either think this person is a joke and not worth working with, or they are confused as to who this person is.  Are they so important that they can get away with this joke, or are they such a low person that no one cares what they put on their business card?

These people are missing an important aspect of titles: they communicate to people you meet, in a short and easily understood format, where in the organization this person stands.  You see a business card that reads “CEO” or “Managing Director”, and you immediately know that this is the top person in that organization.  You can assume they have the power to commit the other organization to agreements you might make.  If you see “vice president” you can tell they are not a peon, but that there will be more work ahead to get a commitment on behalf of the entire company (especially if it’s a bank, where VPs seem to multiply like rabbits).

Having titles that are clear, common, and well understood is very important.  Choosing “Top Dog” over CEO may seem cute at the time, but it can reflect badly on you and your company.  In that respect titles also can communicate company culture, where Top Dog may be fine for a surf shop, but not good for an auto parts manufacturer.

Some use titles to communicate other aspects of culture.  For example, in the US choosing Managing Director over CEO sends a message about the company, and perhaps its heritage and even ownership.  Many feel that this lends a sophisticated European air to the firm.  Of course, that can be overused and even ridiculed, but it is one example of where titles can be used to present one element of organizational culture.

Finally, titles are seemingly vital to their holders.  Some employees get so wrapped up in their title, that concern over it can get in the way.  Even I am guilty of this, writhing in pain over being simply a Vice President of Human Resources at Microsoft, rather than “Senior VP” or “Executive VP” (or, heaven forbid “Chief People Officer” {ugh}).  For me it was a matter of respect among my peers in the outside world, where every person in a comparable position in a Fortune 500 had a fancy title.  In the end, it really didn’t matter, but I only realized that years later.

This leads people to use titles as compensation, but that’s another question, and you can find that in “Can Titles Be Compensation?”

So, all in all, yes, titles are really important.  Design a clear organizational structure, assign clear, common, and well-respected titles, and dole them out sparingly.