I expected to read this as another '$1 a year salary' story, wherein the CEO was still _actually_ rich, but only brought in a meager 'salary', owing the rest to dividends.
What I got instead was a story about what seems to be a brilliant boss. He lowered his own salary along with everybody else's. He's accessible. He actually rides his planes and lets people know he's the CEO of the airline.
In short, he is accessible to both his customers and employees. In the startup world this probably isn't that uncommon -- when you have a staff of four or twenty, accessibility is easy to get. Wikipedia lists Japan Air as having over 30,000 employees.
This is impressive to me, however, it's worth pointing out that despite this practicality and accessibility, the article linked was written in 2009, and Japan Air filed for Chapter 11 bankruptcy last year.
I expected to read this as another '$1 a year salary' story, wherein the CEO was still _actually_ rich, but only brought in a meager 'salary', owing the rest to dividends.
Without reference to this particular CEO, since I don't know him from Adam, much has been made of Japanese CEOs being compensated modestly and it is mostly an accounting fiction. For example, the CEO at a particular Japanese company might not be able to afford a dhh-style automobile, but if he desires to drive one, one will be made available for him from the corporate fleet. He lives, like many of his employees, in company housing, but his company-provided housing is decidedly not in the dorms with the 22 year old trainees. He will, like many of his employees, spend the majority of his meals working officially or unofficially on company business, and most of these will end up on the expense account of either his firm or one of his business partners'. etc, etc
Compare it to being President: you may be cash-poor by the standards of the rich, but that is not a meaningful barrier to desired consumption.
Speaking of which: I recently filed my taxes in Japan. The Japanese equivalent of the Schedule C (small business tax return form) has, like the Schedule C, an entry for meals & entertainment. Mine read 0 yen. A helpful person informed me that that was anomalously low, and that, wink wink, the routine practice is to claim that the company paid for every meal because, wink wink, we all know how being a salaryman works.
So the difference is merely in career security, I guess.
Now I understand why CEO pay got so high so quickly: corporate job security plumneting. It corresponded with the rise of CEOs bouncing from one company to another and being executives for hire.
If you know you're set for life as an executive of a company, who needs a huge amount of personal wealth? But if you could be cut loose from your comfortable SVP gig due to circumstances beyond your control, you have a much greater need to be personally really comfortable. The company's not going to pay your country club dues for the rest of your life, after all.
I can't believe I didn't understand this before, but then I suppose I don't think about the realities of being a senior executive at a huge company.
The unfortunate part about this is that replacing cultural security with individual economic security almost always introduces inefficiencies. In this case, giving big company execs the incentives of a founder or entrepreneur doesn't give them the attitude of one.
A good place to look is professional athletes where careers are very short on average and the amount of money they earn seems absurd. I think in football I heard something like average pro career being 6 months. It's no wonder the contracts are frontloaded/bonus based. In a sport like hockey where salary is guaranteed no matter what, you don't see the same bonus but frontloading occurs on really long contracts to circumvent salary caps. Back to CEOs, it just looks like rational behavior given average job length and amount of money needed to maintain a lifestyle.
I don't get the sense of that, though it may well be the case. Specifically, as they referenced that he takes the bus to work, wears suits off the rack, etc.
Honestly though, I'm MUCH more impressed with the accessibility -- knocked down the walls of his office, eats lunch in the regular cafeteria, etc. I know very little of Japanese culture, but he at least gives the impression that it's sincere, and as I mentioned, my initial expectation was quite cynical.
Offtopic (bearing in mind my Japan-ignorance), having an excess of meals and entertainment on your business tax returns is an invitation to be audited here in the states. You might want to speak with someone who can give you legal advice without winking. ;-)
I totally understand the bit about it being an audit flag in the US. In Japan, it is apparently considered routine practice, in the same fashion that the IRS would never question a business deduction for a subscription to the Wall Street Journal. (I edited out the identity of the person giving the helpful suggestion shortly after posting. Suffice it to say she speaks from a position of authority on the matter.)
Isn't it different than here where a CEO gets a golden parachute even when they drive the company into the ground? Here the CEO doesn't have to remain at the company to have the perks.
There are other professions that bring more status than CEO in Japan.. one of the former Toyota heads emphasized his status as a professor in a renowned university over his being a top executive.
I imagine most would. Even here (US), "professor of _ at Harvard" sounds more respectable than "top executive," including "top executive of Toyota" in certain circles (like to most of the public).
One commands respect, while the other sounds powerful and possibly evokes stereotypes of evil, rich guys.
I mean, there's no hiding it if you're a top executive at a big company, but putting the other title first gives off a certain impression to most normal folk. No?
Regardless of whether or not life's necessities are provided for the CEO(s) outside of their salary, the fact that he is taking a relatively massive, honorable paycut remains... which frees up a hefty sum of money every year, allowing workers to keep their jobs and support their families. Even if it's a small handful of workers or just one... it is a very honorable thing to do and should not be cheapened in any way. I wish every other CEO or person in a position of power/wealth would follow suit.
This story reminds me of an experience I had on a Virgin Atlantic flight between London and LA in 1999. I was flying economy class and was one of the few passengers on the flight who was awake at 4am.
Richard Branson, the owner of Virgin, walked up from the front of the plane and surprised me by asking if he could sit in the empty seat next to me and chat for a few minutes about my experience with Virgin Atlantic and how it could be improved.
I got the impression that he was genuinely interested in listening to my feedback and that he cared passionately about his airline. It made a huge impression on me and set the standard by which I have judged senior executives ever since.
Branson encourages people to write his head office with feedback.
Back in 2002 I sent them a letter because I was frustrated with the kiosks at the Virgin Mega Stores and suggested some improvements (you'd scan the barcode on a CD and it'd pull up a 30-second samples of songs on the album that you could listen to. Good idea in concept, but the implementation was horrible.)
I got a letter back several weeks later saying my feedback had been passed on to the appropriate parties and they'd get in touch.
A couple weeks later I got a phone call (!) from the VP of Product of the Virgin Mega Stores thanking me for my feedback and explaining that he knew the kiosks were sub-par, but their hands were tied by licensing arrangements.
I can't begin to explain how impressed I was that
a) Branson's address was on the Virgin website,
b) his office responded by mail to my letter,
c) they passed on my feedback to the relevant party, and
d) the relevant person himself called me to explain the situation and thank me for caring enough to write
I was pretty damn impressed by the experience, and Virgin has been a great example of a company that focuses on great products, and customer and employee happiness as I build my company.
fwiw, which very well may be nothing, it's funny that virgin came up as the second example, since you'd be damned to find one of those kiosks anywhere in the US now.
I see your point and I agree with you. Look over the article describing the bankruptcy announcement, it states that "Some 15,600 jobs are expected to be cut."
That is quite damaging for a company of such degree and the family of all those employees.
I think the lesson here is that it's important to be close to your employees, regardless of how rich you _can_ be.
Actually, I think the message is that it's more important to be competent than nice. Most of those laid off would have probably preferred an overpaid, aloof manager who kept the company afloat.
Not saying you have to choose, of course. But being competent at management doesn't require you to be loved by all your employees.
This seems to be a classic example of correlation vs. causation.
Airlines have been having a rough time in recent years. Against a background of people bashing them on environmental grounds and promoting alternative modes of transport, often hypocritically, they have seen major costs such as fuel going way up, their market suffering because a lot of air travel is a luxury that people aren't so willing to pay for in a depressed economy, and in many cases significant staffing problems due partly to the same economic conditions.
We can't say whether Japan Air failed because of its CEO's apparently folksy style of management. For all we know, it would have gone to the wall two years earlier if he'd been claiming millions and not so aware of what was really happening from his customers' and staff's points of view.
I didn't say anything like that. In fact, I'm arguing the same point: we can't say his folksy style had any effect on the bottom line, good or bad. I'm just saying that it's clearly not required for good management.
I'd say that's pretty dependent upon one's definition of "good management". Not running the company in the ground is merely acceptable. Looting the company and distancing yourself from the people that sustain your lofty position while not running the company in the ground still seems pretty crap to me compared to engaging your employees directly and keeping your consumption (read salary) in line with the rest of the company while not running said company in the ground. YMMV
They canceled the common share in December and gave the company away to the top executives in a private stock offering. These are not the benevolent capitalists you are looking for.
Has anyone written a good book on Japanese corporate/management/business culture? I hear a lot of tidbits about it, both good and bad, mentioned in recurring news articles like this one. They're intriguing enough that I'd like to read something deeper and well-researched, but I can't seem to find anything that looks like a good overview book.
The only books I can find seem to either be of the "teach Westerners how to do business in Japan" variety (not my interest), or very specialist academic books and paper anthologies on narrow aspects.
I don't think you should take much stock in Japanese business culture. While there are some great aspects 'toyota way'/continuous improvement...
There's also a lot of drawbacks. The management by consensus, hammering the nail that sticks out, the lack of willingness to deal with real problems, putting cultural norms before economic logic -- these are all major issues with Japan that are partly responsible for why they have been stuck in an economic malaise for the last 20 years.
As I mentioned in a reply below, Japanese business culture (the good side of it, anyway) was heavily influenced by Peter Drucker in the 60s, and carried it forward decades, long after he became a sort of side show in the U.S.-business-mogul ratrace. For example: http://www.economist.com/node/16481583
A book like "The Toyota Way" or "Product Development for the Lean Enterprise" I'd recommend to understand Lean (which isn't pervasive in Japan, but of course is known to have originated in a couple of automakers).
I think it's Jim Collins's book Good to Great that says that managers that perform at a high level for a long time are recognizable by the fact that they remain modest while their business units make great results.
"A Primer for Japanese Business Success" by Masami Atarashi is probably meant to be the former type of book, but it was refreshingly free of stereotypes and "it's a Japanese thing--you won't understand" attitude.
I wonder if a book can really capture the dynamics and differences which they have here in Japan. Depending on the company the "rules" can vary greatly.
I have been here since years now, but I still struggle with this. Even after reading many books on japan and studying various cultural background of Asia.
but of course, you have to understand - they have to pay those guys millions, because how else would they attract the top talent? you know, that talent that led to untold numbers of wealth being systematically destroyed? You don't just find talent like that working for, say, $500k. You gotta pay millions to get talent that capable.
yeah, because they'd go work for the other investors who are making money hand over fist...you know...the other Wall Street...because there are so many and their skill set and salary requirements translates so well to other industries.
You have to pay millions because other people on Wall Street are paying millions thus the best talent goes there.
What you're implying is that we should have top-down wage controls (i.e. a command economy) or bottom-up wage controls (i.e. collusion). The first is an idea which is seductive, but historically a failure. The second is illegal under our current rules and should remain illegal lest you want every department store to collude to pay their workers minimum wage + 1 cent.
I'd argue that if the government (us) hadn't bailed everybody out, the firms would fail and then they'd make $0. If a small firm could afford to pull in some of the unemployed traders, more power to them, but then it's an employer's economy and the salaries (and bonuses) would be more reasonable. The market would more or less work itself out (though it could be painful in the short term).
> because there are so many and their skill set and salary requirements translates so well to other industries.
The skill set of completely fabricating what you and the company can accomplish, getting other people to believe it, accepting a "modest" salary of 10% of this fairy tale, deflecting all blame for anything that goes wrong, and looting the company in your severance package (because you would do the same for your good old boys on the board), most surely does translate to just about any industry.
I agree that majority of managers are attracted by large sums of cash and other perks and were probably even more just a few years ago, but not all. JAL's CEO cut his own wage (from article it seems like that only his wife didn't like idea too much;) ), he's Japanese and I don't know their culture and values good enough to understand if that's normal or not for them.
However founders don't work 24/7 for the reason of cash primarily. I do work to show my talent, to create great work, perhaps even change the world for better. Can't do it for nothing as I need some cash for living, but you get the idea.
While a lot of what he does is admirable, I find it reprehensible that he pays himself so little (assuming he's not compensated in some other way). Either he is actually worth that little, or he's pretending to be worth less to make people feel better.
If it's the former, the airline should hire a new CEO.
If it's the latter, it's a petty pretense aimed at petty people. And a self-respecting "ordinary" person who has a sense of the value of her time would consider it a slap in her face if her boss doesn't see fit to apply the same sorts of standards to his time.
There was an old Peter Drucker adage that the top executive should only be at a 20-to-1 compensation ratio from top executives to entry level positions. In the U.S., this is now around 260-to-1. (http://thedx.org/2011/02/turning-up-the-heat-on-ceo-pay/)
In short, there's a limit to most people's tolerance for inequality in pay, especially in the face of it being mostly decoupled from performance. The question is whether there that matters, and what the consequence is.
Japan Air's profits haven't been amazing, and in fact, they filed for Chapter 11 in January 2010. I presume (with no actual knowledge) that if the airline were doing very well, he would pay himself significantly more. However, in a world where banks in America have to be bailed out while their CEOs give themselves raises, this is, I think, the preferred way to go.
Airline unions usually negotiate the payout contract to between 95% to 98% of the expected airline's profits (what is the airline going to do? shut down?).
When the airline does not make the expected revenue, by numbers, they end up having to borrow money and pay out a sum that ends up being over 100%.
with all those nasty unions stealing all your money it's amazing that the executives want to carry on running the airline - it must be the pure love of flying that keeps the CEOs in the job
Hollywood doesn't claim that the blockbusters make a loss. They can't get that creative with their accounting to make millions/billions of dollars vanish from the IRS. What they do is shuffle the profits around between their sub-companies. Say you sign a contract with Universal Pictures to get 20% of the profits of the movie. Now Universal Pictures takes a loss on the movie by moving all of the profits to Universal DVD Distribution or some other company under the "Universal" umbrella. So that other corp has record profits, while the one you hold the contract with reports a loss. [ The money can be 'moved' between companies by just charging exorbitant prices for their services rendered. E.g. Universal DVD Distribution charges huge amounts of money to Universal Pictures for the DVD production. ]
My point was that the money goes somewhere. They move things around through sibling corporations, so that if you have a contract for a percentage of profits with one of them, then they move the profits to another sibling corp that you don't have a contract with. It doesn't have to specifically be the DVD production/sales that they are moved around through.
He's also going against a basic economic motivator:
"The ugly truth is that your boss is probably overpaid--and it's for your benefit, not his. Why? It might be because he isn't being paid for the work he does but, rather, to inspire you. In other words, we work our socks off in underpaying jobs in the hope that one day we'll win the rat race and become overpaid fat cats ourselves. Economists call this 'tournament theory.'"
I've heard this theory again and again and as someone who works in a (non-tech) industry where it is the norm for people at the bottom to work very hard for very little,while the bosses travel the world and live in huge beautiful homes, this does NOT seem to be the case in reality. Myself and my colleagues find it hard not to become bitter about it and to stay motivated to work hard. I only graduated 6 months ago but about half of my class has already become so discouraged by this system that they are thinking about - or already have- switched careers.
On the other hand, in my previous job the boss paid us As much as he could afford to ($17/hr, not bad for retail) and in his life was by no means rich at all. He drives a beat up car and wears second hand clothing. We all respected him so much and felt much more motivated to do well, and also felt like we were an actual part of his company and took it personally how well the company was doing. In my position now, and my colleagues agree, we feel totally cut off from the company and have no interest in how well a collection does (I work in fashion.)
Basically I feel like this theory only works if the CEO is overpaid and the workers are fairly paid. But in the end I think feeling part of a team is better for the company than feeling like you are in a tournament.
I would also like to add that 90k is hardly embarrassingly low. That is quite a comfortable wage that many people will never see in their life.
Your post reminds me of some statistical data I saw a while back that says that Americans have a very poor view on the actual economic status of those around them and the rest of the country.
An important factor is how much you feel in control of your fate (whether the control is real or imaginary is less important). Tech startups feel it's much more up to their skills and creativity to make it than a lowly employee working for the Man in a big bureaucratic multinational, even if statistically they have about the same chance. It's similar to why most people are more afraid of flying than driving, even though the former is much safer statistically.
I would still prefer not to be in a company that ran economic motivation in this way even if it did encourage my employees. It seems like a bad company culture to be in.
Maybe he just understand the concept of "enough", something many CEOs fail to grasp. $90/k is a decent salary, at least in US. What if he simply believes in his company and wants to put more money in developing it, rather than let it stockpile in some Swiss account? Does that decrease his "worth" as a leader? I don't think so.
Well... he is the boss so, yes, at the top of the responsibility ladder.
BUT the article says he is paid less than the ''pilots''. Flying a plane is not necessarily a dangerous job, but is has risk, requires skill (with reasonable initial investment in training etc.) and comes with a ''personal and immediate responsibility for a number of lives''.
So when you balance the job descriptions; who should get paid more?
My logic was definitely relying on the premise that how much someone is worth to a company isn't or at least shouldn't be unrelated salary.
As other other people have already said, it may be the case that this was actually the boss's value to the company (given its low profits and eventual bankruptcy). This would make it a lot better, but it's not how the motive comes across in the article.
But why? The salary should certainly be lower than what someone is worth for the company but I can’t think of any reason why it could be too low if the employee has no problem with it.
Not to be negative but he might be doing it to avoid income taxes. So many silicon valley CEO's do that. The real questions are what is compensation + stock options. The article does not provide that information.
Nonetheless, its a good idea to appreciate people's value with good pay.
When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others.
- Francisco D'Acconia
But how many times did he get a taxpayer funded bailout / corporate wellfare? The real value of the american CEOs isnt that the run profitable business, it's that they get other peope to pay for their fuck ups.
Cynically, I reckon this kind of behaviour is about manipulating morale, tax and dividends. I applaud his actions - but I'd be very surprised if he wouldn't have benefited from any increase in company profitability.
What I got instead was a story about what seems to be a brilliant boss. He lowered his own salary along with everybody else's. He's accessible. He actually rides his planes and lets people know he's the CEO of the airline.
In short, he is accessible to both his customers and employees. In the startup world this probably isn't that uncommon -- when you have a staff of four or twenty, accessibility is easy to get. Wikipedia lists Japan Air as having over 30,000 employees.
This is impressive to me, however, it's worth pointing out that despite this practicality and accessibility, the article linked was written in 2009, and Japan Air filed for Chapter 11 bankruptcy last year.