If your CEO "wears multiple hats," can you claim for them the full pay of every job whose functions they handle? Is the fact that one may straddle a number of jobs a good excuse for extra pay?
There is no hard and fast rule about what to pay someone who encompasses a number of jobs found in other organizations. One might say that they have a hybrid position (a unique job that does not precisely match any benchmark); but the “multiple hats” argument generally applies to an executive post that is broader than most. It clearly justifies above-average pay but rarely supports the concatenation of pay attributions.
“I wear multiple hats” was the most frequently encountered justification for CEO “unreasonable compensation” in the hundreds of cases I worked. The argument rarely stands up to close examination, for the following reasons:
• CEO is the easiest job to benchmark because the CEO is responsible for everything.
• CEOs who develop competent subordinates create backups who better assure the institution’s ability to survive… executives who are “selfishly” over-controlling tend to devalue the firm’s long-term value.
• Downside to the prior logic stream is: the fewer competent backups you have, the more the organization is forced to depend on you alone and the more essential (and consequently invaluable) you are at any given moment.
• Exempts are not paid by the hour, so hours worked are irrelevant to executive pay.
• The average CEO works 65 hrs a week; “more than 40 hours” is normal for CEOs, less is highly abnormal and most work constantly as long as awake.
• CEOs are paid not by the time spent but by the results produced… examples abound…the 1996 Tax Court case, Estate of Paul Mitchell v. Commissioner, U.S. Tax Court, Honolulu, was a perfect example, where John Paul DeJoria was CEO of literally scores of enterprises starting with the famous hair products line and it made no difference how diffusely he sprayed his time-attention long as he produced results.
• Job values are not additive if someone touches a bit of another function… I do keyboarding and answer phones, etc., but doing pieces of various other jobs is essentially assumed in every position.
• Anyone splitting the CEO function with a lower level specialty is thereby reducing the amount of effort dedicated to chief executive functions and thus minimizing their otherwide relatively automatic entitlement to higher-percentile range comparison standards where the most valuable incumbents appear.
• Overall, those who specialize in one job are more productively efficient than those multi-taskers who divide their attention between many diverse unrelated functions or activities; so those hopping from sales to accounting are rarely as effective in each for the time they spend in each as the person who focuses their entire compete attention to that one element without interruption.
• Very few enterprises (especially small non-conglomerates without a lot of bureaucracy) have large numbers of VPs and subordinate executives for every single activity, so the highest percentiles of CEO pay will capture the highest range of normal competitive practice for the most highly regarded, most skilled, experienced, longest service, most productive, including those with the fewest subordinates and with the least amount of subordinate executive assistance, operating in the most difficult, most hazardous environment, etc., without counting “other jobs.”
I think that’s all the salient points from my original reports for IRS Examination Agents, Appeals Officers and District Counsel. You can probably find the original with a FOI filing to IRS, if you can wait a few years. But don’t bother giving yourself extra pay for the job of Correspondence Clerk.
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.
Image: Creative Commons Photo "What happens when your straightener breaks" by SashaW
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