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  • Why The Forward is Wrong on J-Org CEO Pay

    by Steven I. Weiss

    Singling out CEOs as the culprits behind economic woes is nothing new, but the blame laid at heads of Jewish organizations by the Forward this week for not cutting their salaries while laying-off staff doesn’t have a correlation with the way the economics of these things really works. This is suggestive of a general problem with lay-personomics, whereby people who make lots of money to do their jobs seem to be hated for that reason alone, and those who make less are seen as entitled to a specific slice of CEOs’ pie.

    The Forward gets it wrong on five points:

    1) J-Org Jobs Aren’t Tzedakah, Nor an Entitlement
    By suggesting in the first place that CEOs should be taking pay-cuts to keep laid-off staff around, the Forward seems to think that ensuring the college-educated, middle-class-or-better employees at J-orgs still have jobs is the business of what J-orgs do as part of their charitable mission. But the reason a J-org employee is employed is not to be doing good for that employee, but to ask that employee to do good for others.

    There isn’t, or at least shouldn’t be, any mission of a J-org to try to employ as many people as possible, just as it shouldn’t have a goal to make salaries as high as possible.

    If one can be critical of an organization for laying off people when funds are tight, one should be similarly critical of those organizations that have access to capital but aren’t using it to hire more people. That latter suggestion doesn’t make a lot of sense, which is why the Forward’s suggestion that drastic steps should be taken to keep organizational employees in their jobs doesn’t make a lot of sense, either.

    Further, the job one gets at any place of work isn’t something one’s entitled to, and Jewish organizations are no exception. The purpose of a Jewish organization is to further the specific mission determined by its donors and board; when an organization finds funds are less available to further the mission than they once were, it should make the appropriate cuts to preserve the pursuance of its mission, and it’s much more likely that various lower-level employees — who are often hired without ever meeting upper management — are not critical to the organization’s mission, than that the CEO — who is hired and has their salary set by the donors and board — is not needed to pursue the organization’s mission.

    The only way to justify CEO pay-cuts on this point is if CEO salaries themselves are seen as charitable acts by the organizations and their donors and boards. But the organizations don’t see CEO pay that way, just as they don’t see rank-and-file jobs that way, even though the Forward is suggesting they should.

    2) A Low Tide Reveals Who’s Swimming Without a Bathing Suit
    This paraphrase from Warren Buffett — whose approach to redistribution of wealth is presumable quite welcome to the Forward — is an analogy to much of what goes on in a recession. In boom times, with abundances of cash flowing into organizational coffers, an organization can find itself both moving beyond its core goals and expanding its pursuit of those core goals quickly, while failing to achieve the greatest levels of efficiency. When all of a sudden those same organizations are focused on retraction instead of expansion, all manner of inefficiencies can surface, and all manner of spending on additional initiatives can suddenly cease.

    The thing that can’t cease is spending on core initiatives and essential personnel, or the organization might stop pursuing its mission at all. And, since the CEO is the one person acting with the most direct input and oversight from donors and board-members, the CEO is the one person whom donors and board members don’t want to push out the door, and asking them to take a 10% pay-cut when they very well may be able to make more money in the private sector is exactly the kind of thing that may just make them want to leave. And when a CEO leaves, the costs incurred in finding a new one dwarf at least several rank-and-file salaries.

    And what’s more, even in boom times people get laid off; an anticipated new venture doesn’t work out, or a new technology makes certain jobs outdated, or certain employees’ productivity so heavily outranks others that it doesn’t make sense to keep those latter divisions around (all of which and more, by the way, could be part of the reason why these layoffs are happening now, as well. The Forward headlines its editorial, “CEOs Should Lead” — and is suggesting that taking a pay cut when others lose their jobs is part of what being a leader is all about. Well, does that apply when any layoffs happen, or only during a recession? If the Forward were being consistent, it’d say both, but of course it’d never say that because it sounds foolish.

    3) J-Org CEO Pay Isn’t Correlated to Financial Performance
    Unlike in the corporate world, J-org CEO pay isn’t determined by profits, and doesn’t escalate in line with the achievement of greater financial goals during boom times. That’s because J-org’s don’t have a goal of achieving surpluses or retaining a certain amount of wealth; their goals are, you might say, philanthropic.

    J-org CEOs have no method for receiving bonuses if Hebrew literacy jumps 10%, if more homeless get fed, or if more Americans take trips to Israel.

    The principle of key executives taking pay cuts in the corporate world when times are bad relies on this counter-balancing reality of those same executives making more money when times are good. The principle is that if you share in the good, you share in the bad. Further, the expectation is that by sharing in the bad now, corporate CEOs are helping to ensure greater profits down the road, when they’ll be entitled to some of those additional earnings.

    But if J-org CEOs don’t make more money when times are good, it’s out-of-line with economic realities to suggest they should make less when times are bad. Unless the Forward wants to also argue that non-profit CEO salaries should go up in good times (which we shouldn’t hold our collective breath waiting for), it shouldn’t argue that CEO pay should be reduced in bad times.

    4) The Personal Charitable Spending Habits of J-Org Employees Shouldn’t Be Determined By Their Own Organizations — or The Forward
    The Forward is asking J-org CEOs who lay off staff to make what are essentially de facto charitable contributions of 10% of their salaries to their own organizations, so that they can save a single employee’s job in each case.

    But in a recession particularly, when charitable funds are hard to come by and more people are starving as a result, does the Forward really want J-org CEOs applying an additional 10% of their giving to keep a middle-class J-org employee in their job? $70,000, or 10% of Howard Rieger’s pay, whose salary is singled out by the editorial, could buy meals for thousands of people.

    But the Forward would rather mandate that Rieger keep $70,000 worth of salaries around at the UJC. Is there any moral justification for that? How any one person choose to appropriate their charitable giving is largely their own business; and usually 10% of one’s salary is seen as an ideal goal. Instead of these CEOs choosing where to place their 10%, the Forward wants to tell the CEOs not just where to tithe, but to appropriate that tithing toward specific salaries for middle-class employees. But what if $70,000 won’t make very noticeable impact in fulfilling UJC’s mission (which, given its more than $1 billion in assets, is quite likely), while it would make an impact in the bellies of thousands of hungry people?

    Why should where one’s employed be the determining factor in one’s choices for charitable giving? Unless the Forward is willing to mandate its own employees’ charitable giving, it shouldn’t be arguing the same for others.

    5) J-Org CEO Pay Isn’t Grossly Inflated

    Symbolism is important, no doubt about it, but the power of a pay cut extends further and deeper. Ten percent of some of these top salaries can literally save a rank-and-file job. (The fact that there exists such a profound salary gap in some Jewish organizations is a disturbing issue for another day.)

    The Forward seems entirely out-of-touch on this issue of CEO compensation. The best example to offer is Ben & Jerry’s, the ice-cream maker that once set social activism as one its premier management goals, including when it came to CEO pay. The company, when run by its founders, initially had a goal of keeping any executive from making more than 5 times the lowest wage of anyone in the company; even while its founders were in charge, it had to revise that upward, so that the highest-paid employee would make at least seven times the pay of the lowest-level employees. And when it set out on a search in 1994 for a new CEO, it found the need to revise that cap further to a multiple of 14.5; and that CEO stuck around barely more than a year, when the next guy in charge required yet more. For a company that constantly sacrificed success to try to keep this ratio under control, a multiple of less than 14.5 was simply unattainable.

    And yet the Forward thinks a multiple of 10 is “disturbing.” The marketplace suggests the J-org CEOs are actually getting a lot less than they could, just in relation to other non-profit workers.

    And it’d probably come as no great surprise if J-org CEOs stated in unison that they think they could be making much more in the private sector than they currently do in the non-profit world (which, for the lawyers and former financial professionals among them, is almost undoubtedly very true), and that they already think their level of pay is something of a sacrifice for the sake of the greater good. After all, is there any lower-level J-org employee you’ve ever met who didn’t complain their own level of compensation was too low? I’ve yet to meet one. And if their salaries are too low, multiplying them by 10 presumably wouldn’t do much to satisfy CEO lifestyles, either.

    On an individualized basis, is any one CEO making much more than they should? Almost certainly there are some. But the Forward doesn’t want to investigate the merits of any one CEO’s salary, they want to propose a blanket cap on CEO compensation that belies how little they’ve researched the issue of executive compensation overall.

    In summary, the Forward wrongly blasts J-org CEOs for not “modeling the values and behaviors we have a right to expect in the Jewish world.” Because, as we can plainly see, the Forward has extremely unrealistic and poorly-researched expectations for the Jewish world. The Forward would do better to look around a bit more before leaping to attack an entire group of professionals the next time around.

    And if one were looking for a reason why the Forward abandoned traditional thoroughness and investigation before launching this attack, it’s possible there’s an answer in the Forward’s conclusion:

    Several months ago, the Forward offered to convene a public conversation between Jewish communal leaders and members of the communities they serve. Many readers sent in their questions and concerns to feedback@forward.com. Precious few leaders waved their hands to respond.

    The offer stands, and it’s now more important than ever.

    Adding that paragraph likely makes most readers think that this editorial was nothing but a ploy to finally get people to attend their conferences. Mixing in that agenda with their editorial only serves to further damage its integrity, and suggests that maybe they didn’t care how right or wrong they were, so long as they could get some big-shots to show up to their events.

    June 15, 2009 | Read more Newsdesk posts. 2 Comments »

    Comments

    2 Comments »

    1. See also Seth A. Cohen’s blog post from June 23, 2009 Jewish Communal CEO Salaries: Did the Forward’s Coverage Take a Step Backwards?

      Comment by Joel Katz — June 24, 2009 @ 12:00 am

    2. Jewish Communal CEO Salaries: Did the Forward’s Coverage Take a Step Backwards?
      http://bit.ly/75lMY

      Comment by Joel Katz — June 24, 2009 @ 12:03 am

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