Smart? Then Act That Way.

A few months ago Dan wrote a post lauding Whole Foods and its CEO, John Mackey, specifically with regards to executive pay.  While many other companies are giving massive salary and perks to their top executives, ostensibly to acquire and retain top talent, Whole Foods went against the grain.

The company raised the cap on executive salaries to 19 times average pay in order to retain its top talent.  Notwithstanding the increase in the salary cap, the company’s top six executives hit the maximum, and had to forfeit as much as $237,000 for which they were eligible under a bonus program.  (According to the Institute for Policy Studies, in 2005 the average big company CEO made 411 times the typical US worker.)  You’d think that with such a low compensation ceiling — and with real, quantifiable lost income — executives would be leaving in droves.  But they’re not.

John Mackey and Whole Foods leverage attributes other than salary that provide value to the types of people they want as employees. 

Executives say they stay for other reasons.  The company prefers to promote from within, so executives tend to be loyal veterans.  Whole Foods’ top 25 executives have an average tenure of 18 years, and a 2% annual turnover rate. . . .  [The company’s] corporate culture is another draw.  Paula Labian, vice president of human resources, says the company’s egalitarian philosophy — all employees vote on their benefits packages every three years — and its many social-welfare and environmental projects keep her there, despite offers of twice as much in pay.

As Dan pointed out, there’s a lean aspect of this phenomenom.

Think of the muda that Whole Foods reduces with their policy: they don’t squander shareholder money on gargantuan pay packages, they don’t lose talented managers, and they don’t lose critical institutional experience and know-how.  For contrast, think about Home Depot and its former CEO, Bob Nardelli.

This John Mackey chap must be a pretty smart dude, eh?  At least someone of high ethics, social activism, and above average smarts, right?  Well, maybe not.

For about eight years until last August, the company confirms, Mr. Mackey posted numerous messages on Yahoo Finance stock forums as Rahodeb. It’s an anagram of Deborah, Mr. Mackey’s wife’s name. Rahodeb cheered Whole Foods’ financial results, trumpeted his gains on the stock and bashed Wild Oats. Rahodeb even defended Mr. Mackey’s haircut when another user poked fun at a photo in the annual report. "I like Mackey’s haircut," Rahodeb said. "I think he looks cute!"

For an executive to use a pseudonym to praise his company and stock "isn’t per se unlawful, but it’s dicey," said Harvey Pitt, a former Securities and Exchange Commission chairman. Told of the Mackey posts, Mr. Pitt said, "It’s clear that he is trying to influence people’s views and the stock price, and if anything is inaccurate or selectively disclosed he would indeed be violating the law." He added that "at a minimum, it’s bizarre and ill-advised, even if it isn’t illegal."

Yes, he had an online persona where he played some rather unethical financial games.  In addition to trumpeting Whole Foods stock, he also bashed the stocks of companies he was thinking about acquiring in an attempt to drive down the price.  As The Stalwart surmises,

So here’s John Mackey, the most knowledgeable Whole Foods investor in the world, with deep insights into its business and that of its competitor, Wild Oats, and what does he do?  He drops right down to everyone else’s level, engaging with the baiters and doubters in a childish way, rather than attempting to bring anything civilized or worthwhile to the debate.

Mr. Mackey is a successful businessman, of a socially- and people-sensitive company to boot.  That usually takes a modicum of smarts and ethics.  For some reason success occasionally throws those attributes out the window.  How many CEO’s, high government officials, and even highly-respected clergy have we heard of that can’t seem to keep their hands out of the cookie jar or their flies zipped up?  The drug of power, the blinders of ego.

Act your smarts.