The FINANCIAL — Imagine a board of directors denying an executive a pay raise. There’s a good chance you can’t as such jobs aren’t a dime a dozen and therefore valued quite highly.
The number of CEOs in Georgia is increasing rapidly due to the heightened intensity of international brands coming to the country, bringing with them a modern system of management.
A chief executive officer (CEO) or chief executive is the highest-ranking corporate officer, administrator, or executive, in charge of the total management of a corporation, company, organization, or agency, reporting only to a board of directors. In internal communication and press releases, many companies capitalize the term and those of other high positions, even though they are not proper nouns.
As Tony Turner, newly appointed CEO of HSBC Georgia, the newly opened Europe’s number one bank, claimed, “HSBC has no hard-and-fast pre-requisites. Generally CEOs of the group have international experience of working in different countries and markets; many have spent their careers in a wide variety of different countries. Representational and “ambassadorial” skills in what is a service industry are important alongside technical banking experience at this level. However male or female, young or old, can display the necessary talent. Greed is not good; but a fair profit is.”
“Successful experience of a similar CEO role in neighbouring Armenia; some understanding and experience in and of the southern Caucasus in general; and a readiness to get my hands dirty with some basic, “nuts-and-bolts”, start-up tasks in terms of infrastructure, systems and property in particular. These might be the major factors conditioning my becoming CEO of HSBC Georgia,” declared Turner.
In regards to the tips for choosing the best route to finally getting on the CEO candidacy track, Turner advised: “Don’t underestimate luck, fate and/or “being in the right place at the right time”. Promotion is sometimes a matter of fortunate timing. There is no conspiracy within HSBC – but occasional mistakes made, as in any company. Always be prepared to be flexible and take advantage of opportunities which may arise both internally (within the group) as well as externally (i.e. commercially).”
As HSBC Georgia’s CEO defined, commercial experience and success for the institution are paramount. Energy is vital. CEOs, especially in a service industry like banking, need to enjoy the company of colleagues (both above and below them in hierarchy) and most importantly the company of customers. Cultural, interpersonal and other “softer” skills are important as well.
In Turner’s words, most of HSBC Group’s CEOs (including me) are made and found within the group without the involvement of recruiters.
Although, recruiters are the very bodies companies address while searching for the best professional CEO candidates.
“Top executives are among the highest paid workers in the economy of the countries where our company is presented. However, salary levels vary substantially depending on the level of managerial responsibility; length of service; and type, size, and location of the firm. For example, a top manager in a very large corporation can earn significantly more than a counterpart in a small firm,” Michael Lelashvili, Managing Partner, Brain Source International – Georgia, told The FINANCIAL.
In Lelashvili’s words, median annual earnings of wage and salary chief executives are greater than USD 145,600; some chief executives of large companies earn hundreds of thousands to over a million dollars annually, although salaries vary substantially by type and level of responsibilities and by industry.
In addition to salaries, total compensation often includes stock options and other performance bonuses. The use of executive dining rooms and company cars, expense allowances, and company-paid insurance premiums and physical examinations are also among benefits commonly enjoyed by top executives in the private industry. A number of chief executive officers are also provided with company-paid club memberships and other amenities.
“To find the right CEO is hard work for the experienced Head Hunter. As generally we approach the direct search (Head Hunting) techniques for CEO Search assignments,” stated Lelashvili.
As he later said, search process steps are: Job Profile Analysis & Consulting, Research & Approaching, Assessment, Short list presentation, Negotiation & Decision-Making, Follow up. Our team of dedicated consultants possess the skills-set and experience to challenge the most complicated assignments across a variety of industries. BSI places quality at the centre of everything we do and solicits candid feedback at every opportunity in order to continually improve our service to clients. The company offers our clients advice on their leadership need, conducting CEO search assignments across a range of industries and functions, always of the spirit of partnership. BSI builds strategic partnerships with its clients by delivering the best solution in a timely and responsive manner. The company strongly believes that its success is best seen in the success of BSI’s client companies.
“Many top executives have a master’s degree in business administration, liberal arts, or a more specialized discipline. The specific degree required often depends on the type of organization for which they work, they also need to have extensive experience in the field of their operations,” noted Lelashvili.
According to Lelashvili, Top executives must have highly developed personal skills. An analytical mind able to quickly assess large amounts of information and data is very important, as is the ability to consider and evaluate the relationships between numerous factors. Top executives must also be able to communicate clearly and persuasively. For managers to succeed they need other important qualities as well, including leadership, self-confidence, motivation, decisiveness, flexibility, sound business judgment, and determination.
Chief executives have overall responsibility for the operation of their organizations. Working with executive staff, they set goals and arrange programs to attain these goals. Executives also appoint department heads, who manage the employees who carry out programs. Chief executives also oversee budgets and ensure that resources are used properly and that programs are carried out as planned.
“Experienced managers whose accomplishments reflect strong leadership qualities and the ability to improve the efficiency or competitive position of an organization will have the best opportunities. In an increasingly global economy, experience in international economics, marketing, information systems, and knowledge of several languages also may be beneficial,” said Lelashvili.
As he concluded, all organizations have specific goals and objectives that they strive to meet. Top executives devise strategies and formulate policies to ensure that these objectives are met. Although they have a wide range of titles – such as chief executive officer, chief operating officer, board chair, president, vice president – all formulate policies and direct the operations of businesses and corporations.
“CEOs are most often compensated in complex packages. Their salary is only the basic/symbolic part of their remuneration packages. More and more, we are seeing companies rewarding their CEOs for their clear contributions to company and shareholder value. These are most often measured in financial benchmarks such as EBITDA, Economic Value Added,” Sabit Tapan, new partner and co-owner of Pedersen & Partners, told The FINANCIAL.
According to Tapan, CEOs (in Georgia, Ukraine and other countries Pedersen & Partners operates in) are seen to have basic salaries starting from USD 150,000 to 600,000 annually and variable portions of their packages can go up into 100% annual basic to several multiples of their annual earnings.
Most common professional and personal qualifications sought by companies, Board members, private entrepreneurs on their CEO candidates can be summarized in to very basic and common sense credentials and attributes: Personal- Loyalty, Courage and drive, Communication Skills and Professional Vision, Experience, Leadership.
“We have experienced consultants who have worked on candidate assessments for extensive periods of time. Our assessments are customized for each search depending on technical, professional, environmental and cultural concerns. We bring together expertise in each of these areas to provide a multi-dimensional, objective assessment on candidates,” declared Tapan.
As Tapan noted, the picture of a company searching for its own CEO is similar to a person doing his own dental work. It can be done, but is not the most advisable process. In the modern world, specialization allows professional services to provide expert knowledge, experience in each area of concern, hence Executive Search is a specific tool/service which would apply to searching and assessing management talent for critical positions. The CEO role is high on this list.
“In Kazakhstan, with the fast growing market together with the revenues from the Oil & Gas industry, we have seen CEOs become multi millionaires in a very short period of time,” said Tapan.
In his words, In Central Europe in mid to large size companies base gross salaries start from EUR 80,000 and go up to EUR 300,000. Plus there are bonuses of up to 100% of annual basic salary and stock options or net profit share. The salary range however is significantly lower in many smaller emerging markets, where they often do not exceed USD 100,000 (depending on the sector).
“We also developed a reputation and a network among the business community in the region that allows us to cross information and references on the past performances of CEOs we contact, this ensures that the candidates we present to our clients are already recognized and respected on the market,” said Tapan.
As he later added, people (decision-makers) in many firms frequently jump to the conclusion that they know all the important executives in emerging markets, but Pedersen & Partner’s responsibility to its clients is a thorough identification and approach to the broadest number of potentially suitable candidates to ensure that the presentation of the final candidates is based on both a quantitative and qualitative coverage of the market.
“This approach optimizes the quality of final candidates for our clients and also provides our consultants with a greater depth of current market/sector knowledge related to each project that is utilized in making the final candidate selection,” Tapan clarified.
As Tapan stated, for CEO candidates, industry and specified country experience may not be required in all cases, but usually this is expected from clients. Many candidates express the belief that once they have proven themselves in a role, they can be successful in any other firm, sector or country. This is potentially true, but clients also assess the risk of hiring individuals who do not have direct market or sector experience when making their final candidate selection.
“We also encourage an open minded and creative approach in the way we can select executives. In CEE, the experience shows a successful CEO is before all a personality who inspires trust in its teams and business partners,” declared Tapan
Problems with executive compensation came to a head in 2007 with large severance packages given to CEOs of companies at the centre of the mortgage crisis. The International Monetary Fund estimates that the financial turmoil set off by the collapse of the mortgage market could total nearly USD 1 trillion. Yet, chief executive officers of the firms most responsible for causing the crisis collected hundreds of millions of dollars in pay last year. This highlights the need for further reform to protect companies and their investors.
At a company such as Walt Disney Co., with around USD 3 billion (around Rs12,945 crore) in after-tax profits, a CEO capable of boosting profits by a modest 5% could – even if we capitalize earnings at a modest price-earnings multiple of 5 – raise corporate value by USD 750 million. In this context, the “outrageous” salary earned by Disney’s ex-CEO, Michael Eisner, of around USD 100 million does not seem so outrageous.
The chief executive of a Standard & Poor’s 500 company made, on average, USD 14.2 million in total compensation in 2007, according to preliminary data from The Corporate Library.
Presidential hopefuls are also interested; Sen. Barack Obama, for example, supports requiring corporations to let shareholders have a “say-on-pay”. Companies are now also required to disclose executive pay in detail, breaking out options and other compensation components, and valuing them.
As CNN Money reported on May 29, 2008, the study finds a slowdown in CEO pay raises. But top executives at S&P 500 companies continue to see 16% increases.
The Corporate Library, an independent corporate governance research firm, surveyed compensation data from 614 small and mid-sized U.S. companies based on SEC documents filed in the first quarter of 2008.
Overall, the median rate of increase in CEO pay for all companies in the study was 5%, which is down from nearly 13% the year before, and marks the second consecutive year that pay raises have slowed.
Meanwhile, CEOs of companies in the S&P 500 saw their pay raise nearly 16% thanks mostly to higher profits from stock options and higher value gained from vested stock awards.
The study also found that costs related to executive perks unexpectedly rose.
Nabeel Gareeb, chief executive of semiconductor part supplier MEMC Electronic Materials (WFR), was the highest paid CEO so far this year. He took in more than USD 79.5 million in total actual compensation, an increase of about 1,430%, largely due to a USD 77 million profit on stock options.
The largest “discretionary” bonus – nearly USD 30 million – went to Goldman Sachs (GS, Fortune 500) CEO Lloyd Blankfein. Many of the highest bonuses went to CEOs of financial institutions, including Wachovia (WB, Fortune 500), Bank of New York Mellon (BK, Fortune 500), Prudential Financial (PRU, Fortune 500) and American Express (AXP, Fortune 500).
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