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CEO’s Home Isn’t Where Your Heart Is

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CEO used to equal rock star.
 
Okay, it’s not as bad as it was in the ‘80’s when even non-business magazines had smiling CEOs on the cover, but I still think most of us want our CEO to have a certain amount of star quality. Call it the Trumpification of the corporate world. 
 
Who would you rather have leading your company? Casper the friendly ghost or a Genie who can make all of the company’s wishes come true (even if he does have a comb over)? Let’s face it, shy and retiring just doesn’t cut it when you’re responsible for the livelihood of lots of people. When it comes to effective CEOs, bigger always seems better. Or does it?
 
Arizona State University’s Crocker Liu and New York University’s David Yermack have a really interesting take on rock star CEOs and how much they can cost a company. Even better is the creative way that the two professors came up with to study this issue—they compared the size of the CEO’s home with corporate performance. Call it entitlement, focusing on the wrong things, an inferiority complex, short man’s syndrome or a bunch of guys spending other people’s money—this study found that we all pay when the CEO literally lives in a castle.

Let’s start with the numbers. In 2004, the median home price for CEOs was $2.7 million.
Compare that to the median price for all homes in U.S., $195,200. The average size of the CEOs home, 5,600 square feet. Heck, if you are a titan of industry, wouldn’t you want 4.5 bathrooms? Actually I’m shocked the number isn’t at least 7, if you are so darn important, how could you possibly use the same bathroom more than once a week? Come on, these are really important people. (Okay, I’ll attempt to reduce the sarcasm for the remainder of this blog.)
 
But the study gets really interesting when it examined 12 percent of the S&P 500 CEOs with homes that were larger than 10,000 square feet or were on at least 10 acres of land. The companies that were run by this group of landed gentry lagged the S&P 500 by 25 percent over the three years following the home purchase.
 
That bears repeating. The biggest CEO houses significantly increased the odds of poor corporate performance.
 
I’m guessing that those of you reading this article are in one of two camps right now. The first group is ready to storm the Bastille and scream about CEOs living large off the sweat and tears of the rest of us.
 
But I’m sure there are also readers who still believe that a big ego is a necessary part of the mix. That these two professors, and me, are making a mansion out of a molehill. I may be, but you may feel differently after you read this.
 
Approximately a third of CEOs exercised stock options and sold shares in the year before they bought a home. Consistently the shares peaked right before the purchase. Given the brouhaha over backdating stock options, I find it fascinating that the stock prices tended to peak so consistently just before a mansion was purchased. Maybe that big house isn’t something that was earned but rather something that was scammed.
 
Ironic isn’t it. Putting a CEO in a mansion, more often than not, puts you in the poor house. 

About the Author: Bob Rosner is a best-selling author and award-winning journalist. For free job and work advice, check out the award-winning workplace911.com. If you have a question for Bob, contact him via [email protected]


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Voters rebel at ‘fat cat’ bailouts

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Do not bail out the fat cats.

Voters made that perfectly clear, and their re-election-obsessed congressional representatives took heed.

Delaying a Wall Street bailout wasn’t wise for the international economy, but chalk up points for the worker bees.

They finally got someone’s attention in Washington!

Nobody bails me out if I make bad financial decisions.

And, while we’re at it: No more multi-million-dollar parachutes for executives who mismanage other people’s money.

How quickly the “bailout” became a slightly more politically palatable “rescue.”

Note to Congress:

You’ve noticed that “trickle down” hasn’t worked very well lately, haven’t you?

Average CEO compensation last year was 275 times that of average U.S. worker pay, based on average hourly pay for about 80 percent of the U.S. workforce (the folks who actually produce the products and services that make companies work).

In a single work day last year, a typical big-company CEO earned as much as one of those workers did in their entire 260-day work year.

The well-paid corporate compensation consultants counterpunched, of course, telling Congress not to “handcuff” companies by putting limits on executive pay. They said pay ceilings will hurt companies’ ability to attract top talent.

Yeah. It’s been working so well.

It’s over-reaching the cure to demand a shareholder vote on top-exec compensation. But as the nation works through this financial crisis, the folks in the trenches must be heard.

Enough is enough.

Executives who earned more than they were worth to start with should not, by all that is right and just, be rewarded when they leave behind organizations littered with pink slips.

And have you looked at the value of your 401(k) this week?

Ouch. The only trickle-down there is the sound of assets swirling down the drain.

And where is the call for privatizing Social Security now?

Not exactly an election-time winner this go-around, huh?

Yes, the economy is cyclical. Has been. Will be. But the hurt on the downsides must be shared.

Unless legislators do what corporate compensation committees haven’t had the backbone to do, most of working America will continue to suffer from the greedy mistakes of a few.

Regulation? In this case, bring it on.

Unlimited executive greed has severed people from jobs and jobs from the economy. It’s gnawed away retirement security and college education funds in hard-working families.

And the architects of this economic collapse?

Greet them if you’re ever in Sun Valley…or Aspen…or Tuscany…or…

About the Author: Diane Stafford is the workplace and careers columnist at The Kansas City Star. A veteran journalist, she has held several reporting and editing positions at The Star on both the business and metropolitan desks. Currently, she writes columns that appear in The Star on Thursdays and Sundays as well as other business and economic news articles throughout the week, accessible at www.kansascity.com. Her daily “Workspace” blog also is available at www.workspacekc.typepad.com. She is the author of “Your Job: Getting It, Keeping It, Improving It, Changing It,” a career advice book. She holds bachelor’s and master’s degrees in communications from Stanford University.

Cross-posted at Workspace.


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CEO’s Home Isn’t Where Your Heart Is

Share this post

CEO = rock star.

Okay, it’s not as bad as it was in the ‘80’s when even non-business magazines had smiling CEOs on the cover, but I still think most of us want our CEO to have a certain amount of star quality. Call it the Trumpification of the corporate world.

Who would you rather have leading your company? Casper the friendly ghost or a Genie who can make all of the company’s wishes come true (even if he does have a comb over)? Let’s face it, shy and retiring just doesn’t cut it when you’re responsible for the livelihood of lots of people. When it comes to effective CEOs, bigger always seems better. Or does it?

Arizona State University’s Crocker Liu and New York University’s David Yermack have a really interesting take on rock star CEOs and how much they can cost a company. Even better is the creative way that the two professors came up with to study this issue—they compared the size of the CEO’s home with corporate performance. Call it entitlement, focusing on the wrong things, an inferiority complex, short man’s syndrome or a bunch of guys spending other people’s money—this study found that we all pay when the CEO literally lives in a castle.

Let’s start with the numbers. In 2004, the median home price for CEOs was $2.7 million.

Compare that to the median price for all homes in U.S., $195,200. The average size of the CEOs home, 5,600 square feet. Heck, if you are a titan of industry, wouldn’t you want 4.5 bathrooms? Actually I’m shocked the number isn’t at least 7, if you are so darn important, how could you possibly use the same bathroom more than once a week? Come on, these are really important people. (Okay, I’ll attempt to reduce the sarcasm for the remainder of this blog.)

But the study gets really interesting when it examined 12 percent of the S&P 500 CEOs with homes that were larger than 10,000 square feet or were on at least 10 acres of land. The companies that were run by this group of landed gentry lagged the S&P 500 by 25 percent over the three years following the home purchase.

That bears repeating. The biggest CEO houses significantly increased the odds of poor corporate performance.

I’m guessing that those of you reading this article are in one of two camps right now. The first group is ready to storm the Bastille and scream about CEOs living large off the sweat and tears of the rest of us.

But I’m sure there are also readers who still believe that a big ego is a necessary part of the mix. That these two professors, and me, are making a mansion out of a molehill. I may be, but you may feel differently after you read this.

Approximately a third of CEOs exercised stock options and sold shares in the year before they bought a home. Consistently the shares peaked right before the purchase. Given the brouhaha over backdating stock options, I find it fascinating that the stock prices tended to peak so consistently just before a mansion was purchased. Maybe that big house isn’t something that was earned but rather something that was scammed.

Ironic isn’t it. Putting a CEO in a mansion, more often than not, puts you in the poor house.

About our Author: Bob Rosner is a best-selling author and award-winning journalist. His web site, workplace911.com, contains a comprehensive archive of strategies for surviving today’s workplace. He is a fan of Workplace Fairness and can be reached via [email protected]


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