Reducing Supply

Seth Godin had a good post the other day about Executive compensation. He argued companies were so poor at marketing when searching for a CEO they defaulted to one tactic; pay. Like a sales guy discounting a deal because he can’t sell the benefits of the product. Companies increase salary to attract candidates, because the can’t adequately market the position.

I’m not sure I completely agree with Seth on this one. I think there is another aspect in play. Companies are afraid to hire wrong. The idea of hiring the wrong person is so crippling companies artificially reduce supply. With a potential of 100’s of capable candidates, organizations quickly reduce the list to a small “Who’s, Who” in the industry. The selection criteria has less to do with capabilities and more with status and name. Like big free-agent signings in professional sports, corporations throw big money at industry names .

Like the saying goes; “no one ever got fired for hiring IBM”. Board of Directors and the search committees are unwilling to be seen as having made a poor decision in such a high profile hiring. Therefore they hedge failure by securing the most measurable qualifications and hiring the candidate perceived to be the best choice by everyone else NOT in the hiring process. No one in the hiring process wants to have to defend their decision later.

To protect their reputations and avoid failure Boards artificially limit the supply of qualified candidates and in turn offer giant compensation packages to make sure their candidate doesn’t get away. If they do, they are left with few options.

Big money to CEO’s is more about fear of failure than it is about inability to attract and keep good talent. It’s supply and demand, except in this case supply is artificially reduced.

Doesn’t feel very market driven does it?