JimPinto.com - Connections for Growth & Success™
No. 39 : April 9, 2001

Business, marketing & futures commentary.
New attitudes, no platitudes.
Stay e-tuned....

  • GE - Hit the road, Jack !
  • CEO Compensation - How much is enough?
  • The Silicon Car
  • The Future - minds & machine become one
  • ABB - Mind the GAAP
  • eFeedback
    • Insights on 'complaining'
    • Cluetrain feedback

GE - Hit the road, Jack !

This is the title of a hard-hitting article in the March 19, 2001 issue of Industry Week. It insists that Jack Welch (65) could uncharacteristically be making a major management mistake by hanging onto the chairman and CEO's job at GE until the end of this year, 13 months after designating Jeffrey Inmelt (45) as his successor.

After announcing his own retirement-date (originally April 2001) and Inmelt's appointment as CEO-designate, Jack Welch suddenly smelled what he thought was an opportunity to buy $ 23b-sales Honeywell. So, he delayed his retirement (until year-end) to supervise and coordinate the merger.

In the meantime, as discussed in our last eNews (No. 38, March 28, 2001) the European Commission has delayed approval of the merger for several months because of the avionics overlap (the very segment of Honeywell that GE wanted) and the due diligence on some parts of Honeywell have turned out to be ugly. So now, given the ugly-delay, will Jack Welch extend his retirement still further? Or will be simply back off and allow Inmelt to welch, uh squelch, the Honeywell deal?

Jack insists he's not "the old fool who can't leave his seat, who loves the job so much he can't go home." But, if this Honeywell saga persists, he might well be proving that he is exactly what he says he is not.

In my humble opinion, Jack Welch should step aside now, to validate Inmelt's leadership and avoid confusion about who's really in charge.

Click Hit the Road Jack! Industry Week (March 19, 2001)

CEO compensation - how much is enough?

CEO pay is typically set by a board "compensation committee" which tracks competitive practices but often ignores short-term performance and economic downturns. At company expense, staffers provide data showing that the CEO is paid less than peers. After the tough decision to lay off thousands of employees, the CEO often gets a pay-raise. If the stock declines, the CEO often sheds old higher-priced stock-options and is awarded new options at a lower-price. Finally, when the decision to fire the failure is clear, the CEO typically receives significant contractual severance payments - the golden handshake. Meantime, the members of the board compensation committee continue to collect their $ 1,000-per-meeting fees.

This problem excessive chief executive pay is getting worse - as expected when the proverbial fox is left in charge of the hen house. In an era of cost-cutting, downsizing, and performance-based compensation, many CEOs are still getting a free ride, walking away with an increasing and undeserved slice of the corporate profits.

Because many of the JimPinto.com eNews readers hail from industrial automation, we thought we'd provide a CEO compensation list for the automation majors. All numbers are from company annual reports or Yahoo company-profiles. Listed in order of total compensation. The +$m items below refer to stock-options exercised, plus bonus and incentives paid.

CEO Compensation - Industrial Automation Majors
Tyco International Dennis Kozlowski $ 26m + $ 100m
General Electric Jack Welch (Retiring CEO)
Jeffrey Inmelt (CEO-designate)
$ 16.8 + $ 57.1m
$ 3.6m + $6.4m
Emerson Chuck Knight, Chairman
David Farr, CEO
$ 10.8m + $1.7m
$ 1.1m
Honeywell Michael Bonsignore $ 7.1m + $ 5.1m
Eaton Alex Cutler $ 2.4m + 1.2m
Danaher George Sherman $ 2.3m
Rockwell Automation Don Davis $ 2.2m
Allen Yurko Invensys $ 1.86m

Note : Some of the numbers listed may be up to a year old - in the meantime, some of these people may have had significant salary increases, to offset the decline in their shareholdings and options.

Read these interesting articles on the web :

Click Chief Executive Magazine (Sept. 2000) CEO Compensation Review

Click Motley Fool article : The problem only gets worse

Click UK Independent News On CEO Salaries

The Silicon Car

Most of our time, effort and resources go into moving the solid, not the virtual, things of life. And most of the moving is still orchestrated by click-click, bang-bang mechanical and hydraulic systems. The intelligence, such as it is, resides in valves, gears and complex contours painstakingly machined into camshafts.

Silicon will soon take over, says Peter Huber in Forbes magazine (Dec. 25 2000). The combination of smart silicon and power silicon (microprocessors and power switches) make control of heavy-duty electric motors super-effective. It's happening now, says Huber. Electric drives are lighter, smaller, faster and more responsive than any mechanical system.

A 130-horsepower automobile is really a 100-kilowatt (peak power) machine, with only two kilowatts (peak) of its power electric and the rest being shafts, belts and hydraulics. An electric cable an inch thick can convey as much power as the engines of a jumbo jet.

Huber predicts that drive-by-wire electric power steering and all-electric brakes will appear in some production vehicles within a couple of years. Springs and shock absorbers will give way to powerful linear motors that move wheels vertically as needed to maintain traction beneath and a smooth ride above. Electric valves will replace mechanical ones on the cylinder head. Electric drives will turn the wheels, knocking out the gearbox, drive shaft and differential. Torque, traction, braking, skid control, fuel economy and emissions all depend on the complex interaction of engine, battery, suspension, steering and brakes; the magic lies in the intelligent coordination of all the parts, which silicon makes possible. With the conversion to electric, the car sheds bulk and weight.

Click Peter Huber's Forbes article

Mind & Machine will become one

Ray Kurzweil has predicted that by the second half of the next century, there will be no clear distinction between human and machine intelligence.

Biological brains are already being enhanced by neural implants : for example, to counteract symptoms of Parkinson's disease, and to allow stroke victims to communicate via PCs. Soon, neural implants will be used to improve our perception, memory and logical thinking. These implants will allow a person to connect with the web and have sensory experiences as realistic, detailed and subtle as physical reality.

While intrinsic human biological intelligence is essentially not growing, non-biological intelligence is growing at an exponential rate. Synthetic brains will be created which will extend human brains. By the end of the 21st century, non-biological thinking will be trillions of times more powerful than that of its human progenitors.

Many new technologies waiting in the wings that will allow this to happen : nanotubes, three-dimensional chips, optical computing, crystalline computing, DNA, and quantum computing.

Click Ray Kurzweil's article in Business 2.0 (Dec. 99)

Kurzweil Book Review Ray Kurzweil's book : The Age of Spiritual Machines

ABB - Mind the GAAP

Following my eNews discussion of ABB (No. 34, 21 Feb. 2001) suggesting that ABB would fall into "GAAP-goop", Deutsche Bank has just published a note (dated 30 March 2001) entitled "Mind the GAAP".

Deutsche Bank downgrades ABB "courtesy of the greater transparency of US GAAP" and cuts their 2001-2003 earnings forecasts by 30-34% to reflect "the considerable non-operating gains which have been recorded by ABB over the last three years."

The DB report, written by Mark Cusack, "focuses primarily upon the results of a detailed review of the 2000 accounts, drawn up for the first time in accordance with US GAAP. During the 1998-2000 period, it now appears that some 28% of reported net income came from non-operating sources (property and business disposal gains). In 2000, operating net income was 43% lower than the reported figure (although there was considerable restructuring last year). We believe that investors will strip out such gains to arrive at an estimate of sustainable operating earnings."

Click Deutsche Bank website

To get a copy of the Deutsche Bank report, contact :

  • Mark Cusack
    Tel : (UK)(44) 20 7545 9836
    email : mark.cusack@db.com

  • Peter Reilly
    Tel : (UK)(44) 20 7545 9835
    email : peter.reilly@db.com


Anthony Kerstens [akerstens@zarpac.com] provides this e-truth and insight :

    "Regarding some of the "real-inside-story" you've been receiving, yes, there is truth in there hidden between the lines.

    "In a recent post to control.com I said: "The only reason to bitch and complain about something is to seek consolation. That consolation is obtained by soliciting a negative response from others to justify your own negative feelings. That action drags down the demeanor of others, is negative behavior, and is unacceptable at the water cooler, meetings, or anywhere else people gather for discussions."

    "In short these people that are sending you the "real-inside-story" are attempting to make themselves feel better by poisoning the rest of the apples.

    "I assert that the truth this sort of behavior reveals is that companies are not helping their people communicate effectively, and allowing a festering mess to grow unchecked in their own house. If these people find that nobody in their hierarchy is listening, then they need to speak up rather than mutter in shadows. Easier said than done, I know, and altogether necessary for corporate and personal survival."

Bob Holland [bholland@vvi.net] e-wrote on Cluetrain :

    "I bought Cluetrain last week and was very disappointed. Sure, something is happening to us. Buckminster Fuller, Marshall McLuhan, Yeats, et. al. convinced me of that in the '60s. And the thing that's happening is complex, confusing and beyond our control - a global culture shift. So, a group of authors gets together, presents some pretty generally accepted ideas as a "manifesto" and spends a lot of time ranting and raving about things about which they have only a shallow, adolescent perspective. They repeatedly refer, for instance, to advertising is some sort of evil lie that will soon go away. Advertising is simply information transfer. It makes commerce possible. It has always been a part of human life. So is commerce disappearing too? Cluetrain is what is going away, in a year we won't even remember it."

Hey, I get regular lots of regular e-feedback that continues to motivate me to do what I'm doing:

    "Thanks for publishing the JimPinto newsletter. It's the only news letter I read. It's good to get the straight story from someone not afraid of offending a potential sponsor. I especially liked your report of Honeywell/ GE and Allen Yurko. I ordered the Cluetrain Manifesto book but have not got it yet. Keep up the good work. We're out here and were listening."

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