Do charismatic leaders make of break companies? Check this out
PEPSICO announced this month that Indra Nooyi would step down as chief executive in October, ending the 12-year tenure of one of the country’s most prominent female CEOs.
A trailblazer who revamped Pepsi’s lineup of sugary sodas and unhealthy snacks to include more wholesome alternatives, Nooyi was also known for her candour about some of the myths faced by women in leadership roles: They cannot, she admitted, “have it all.” Here are four other misconceptions about CEOs that linger.
Myth No. 1: The CEO makes or breaks the company.
When Steve Jobs was battling pancreatic cancer, his leaves of absence sent shudders through Apple’s stock price. Yet seven years after Jobs’s death, Apple is the world’s first trillion- dollar company. It’s a frequent theme: Marissa Mayer was hailed as a possible saviour for Yahoo before she shouldered the blame for its demise.
There are certainly examples of chief executives who’ve had a big impact on a company’s success - think Alan Mulally turning around Ford amid the financial crisis. But the notion of the omnipotent, all-powerful CEO who should get all the credit or blame for a company’s fortunes is wrong, says Jim Westphal, a professor at the University of Michigan’s business school. “CEOs are attributed way too much responsibility,” he says, pointing to research on the erroneous “romance” theory of leadership.
Myth No. 2: CEOs need high pay packages to motivate and retain them.
In the world of CEO compensation, the concept of “pay for performance” is dogma: Chief executives supposedly need those high potential payouts - average CEO compensation, including realised stock options, rose to US$ 18.9 million last year, according to an analysis released by the left-leaning Economic Policy Institute. That’s supposed to ensure they have the same goals as investors, to keep them from jumping ship and to motivate them to spend all those hours jet- setting around the globe managing their sprawling domains.
When Tesla announced a new pay package that would tie CEO Elon Musk’s compensation entirely to performance metrics, the company explained, “This ensures that Elon will continue to lead Tesla’s management over the long-term.” As one University of Chicago professor wrote in a 2013 paper, “The market for talent puts pressure on boards to reward their top people at competitive pay levels in order to both attract and retain them.”
But while the link between pay and performance for CEOs may be debated, researchers and pay reform advocates have questioned how much outsize pay is really needed to motivate chief executives. Some point to research showing that creative, complex tasks like CEOs’ are not well- suited to performancerelated pay. They are already high achievers, so that supersize pay isn’t clearly needed for motivation.
Myth No. 3: The CEO makes what the company puts in its compensation table.
It pops up repeatedly in stories about CEO pay: the millions that a chief executive “took home” the previous year
But the phrase is typically shorthand for a figure that companies must report in their proxies’ “summary compensation tables” and doesn’t necessarily reflect the amount a CEO deposits in his or her bank account. The table represents the estimated “fair value” of the huge buckets of stock options and equity awards CEOs receive when they are granted; these are often multi-year awards that will be available to CEOs only over time, depending on performance and tenure.
Because of those vesting schedules, and because stocks rise and fall, the listed figures can differ wildly from a CEO’s “realised” pay, especially during booming market periods. For instance, an analysis by Axios found that Netf lix CEO Reed Hastings’s listed pay was US$ 24.4 million, but what Axios called his “actual pay” for 2017 was US$ 178.8 million.
It can also work in the reverse: Broadcom CEO Hock Tan’s compensation for 2017 was listed at US$ 103.2 million, thanks to a new stock grant that will pay out over several years, but his “actual pay,” according to Axios’s analysis, was US$ 42.1 million.
Myth No. 4: Extroverted, charismatic leaders make the best CEOs.
The stereotype of the gladhanding, back- slapping CEO who easily works a room remains in place for a reason. Chief executives’ outgoing personalities are often cited in magazine profiles of successful business leaders.
But additional research is showing that introverts can perform just as well, if not better, at least in certain situations. Introverts can be more effective when employees are trying to be proactive - they’re more likely to listen and less likely to feel threatened. — Washington Post.