The Cost of Talent

French President Francois Hollande intends to lower the pay of CEO's of French companies to 20 times that of the lowest paid employee. For most this will mean a cut in salary from $1,900,000 to $550,000 a year. This will take the typical CEO from earning 64 times what the lowest paid employee makes to 20 times as the lowest paid. The CEO's will not starve. The national debt will be unaffected. But, as the President explained, this is an effort to call attention to the "intolerable hyperinequalities" which currently exist in France.


Of course, there have been howls protest from the CEO's and those who support them, with all the expected dire warnings--CEO's will quit and go work for companies where their talents are adequately compensated and France will suffer. I wonder--where will all those CEO's go? Will hundreds of CEO's find new CEO jobs outside France, uproot their families, leave their roots behind in pursuit of that extra 500K a year?

What, exactly, does a CEO do which makes him/her worth all that money?


Take the case of the CEO of Exeter (New Hampshire)  Hospital: This CEO  has presided over a shutdown of the hospital over a dispute over reimbursement from Blue Cross, which lost the hospital and the community practices it owns untold numbers of patients. And then there was an outbreak of hepatitis C among patients catheterized at the hospital's  cardiac cath la, owing to an employee who was self injecting the Fentanyl drawn up for the patients, and then substituting saline in the now contaminated syringes.  Lawsuits against the hospital are still piling up for that one. Most conspicuously, and most egregiously and over many years,  this same CEO  missed hiring the best physicians, who went down the road to Portsmouth and found employment at the competing hospital there. For this stellar record, he has made roughly $1 million a year.


Of course, whenever something happens, like the hep C fiasco, the CEO says there was nothing he could have done,  to have prevented that.  So, when things go wrong, it's not his fault. But if the hospital turns a profit, all the credit goes to the CEO.


This reminds me of a conversation I had with a lawyer from one of Washington DC's priciest firms at a cocktail party. Larry Summers had just been sacked from his job as the president of Harvard, and I said I could not understand why they paid Summers so much for doing that job. The lawyer, resplendent in his shirt with white collar on blue trunk, yellow power tie and his $100 haircut objected:  "Oh, I beg to differ. Larry had such a rare combination of talents and insights--someone like him, with his vision and energy, and his c.v. comes along only once a generation."


"And, what, specifically were those talents?" I asked. And when he could not bring any to mind, I said, "President of Harvard has got to be one of the easiest jobs in the world.  All you have to do is keep your mouth shut, except once a year, when you have to give some forgettable, and hopefully brief, commencement speech."


I believed that then and I believe that now.


In the world of academic medicine, I did see where a strong leader made a difference: We had a disaster of a department of surgery at Cornell Medical Center in the early 1970's--patients were not making it off the table alive, after by pass surgery.  Then they hired a taciturn man  who was a pretty spectacular surgeon, and he went about getting rid of the bad surgeons, attracting new good surgeons, fixing the problems which in turned lowered the mortality in the operating rooms, and he brought anesthesia under control, fixed the recovery rooms, improved the training and recruitment of surgical residents in training and he was worth whatever they paid him. If that was 64 times what the guy made who mopped the operating rooms between cases, then that chief of surgery was worth that. 


But he, of course, could move to any of a variety of other academic medical centers, and, in fact he did. Not because they didn't pay him enough at Cornell, but because his wife hated living in New York City.

Now, in his case, you could see what people meant by "talent."  You could measure it in his mortality statistics, in the time it took him to repair a heart, in the low rates of post op infections--by all the many measures they track for surgeons. And you could see how other surgeons wanted to be in his department because they wanted to be around a surgeon like that.  He was not a very good teacher--he was surly and he had no idea about the different levels of sophistication among different people in his department, so he'd ask a medical student a question appropriate only for a senior resident, and he'd humiliate the medical student.  But people learned that about him, and they set that aside because they knew he was good for the department. 


But what does the CEO of a hospital do? What does the president of a university do? What does the CEO of a financial institution have to know?  Or the CEO of Hewlett Packard?  Or General Motors?  Can you dream up a certification exam which would select out good people for these positions? 


In the case of Penn State, we have recently seen what the high cost talent at that university was worth. It cost plenty, but was it worth it?