Being the top paid CEO in the automobile industry might not be much to crow about in our world of TARP bailouts and Japanese dominance, but for Ford CEO Alan Mulally, his take home pay is significantly greater than his U.S. and Japanese counterparts. A June 29th article for Auto in the News titled Ford CEO Mulally Gets Paid More Than Top Three Japanese Execs Combined tells us that: “As the only Big Three automaker that didn’t get a bailout and fall into bankruptcy… [Ford’s CEO] Mulally has been an integral part of the Blue Oval’s ongoing turnaround, and as a result his efforts are reflected in his salary. In 2009, Mulally reportedly earned $17.9 million in cash and bonuses. This officially makes him the world’s top-paid auto chief.”
Perhaps these seemingly huge paychecks are part of our national culture of “rock stars” where entertainers, athletes and, maybe even CEOs are paid because they are the product. No question that a company’s CEO isn’t your average “Joe”, and it is clear that Mulally is, if not “the product” per se, he has become at least a hero of sorts for the Ford Motor Company.
Interesting, though, research shows that only about 30% of the success (or lack thereof) of a company can be attributed to its leadership – that’s alpha. The remaining 70%, the beta, are market and economic and other forces beyond the control of the executive team. That being said, 30% is a pretty significant number and assuming the alpha effect is positive that kind of differential can bring eager investors and low cost capital for necessary investments.
The Mulally effect, if you will, is akin to the quarterback on a winning football team getting the lion’s share of the credit and blame for the team’s performance. Sure he is the general out on the field, but the reality is that he is attempting to execute a strategy that is designed by the head coach (and assistants), the same coaches who selected and prepared him for the role. Certainly Mulally has done a great job for Ford to date, but Ford’s Board of Directors also deserves acknowledgement for having the foresight to hire outside the industry. Mulally came from Boeing in 2006 after disappointing results from the Ford family stewardship and made some dramatic changes at Ford which at the time seemed questionable, but ultimately positioned the company well during the economic downturn. When Mulally joined Ford in September 2006, the stock price was under $9 a share, on July 16 it was trading at over $11 a share. While that might not sound like ground-breaking performance over 4 years, its terrific when considering GM went bankrupt, and Ford itself bottomed out in November 2008 at a low of $1.43 a share.
On being asked “How are you going to tackle something as complex and unfamiliar as the auto business when we are in such tough financial shape?”, Mulally is famously quoted as saying: “An automobile has about 10,000 moving parts, right? An airplane has two million, and it has to stay up in the air.”
Ford’s Board is likely walking on air as well with the result.
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