Executives With Huge Pay Packages Preside Over More Product Recalls
The more reason you give them to be aggressive, the less they'll care about risk.
CEOs in America makes about 354 times what their average unskilled worker takes home. Surely their expertise and drive merit those rich rewards, bringing value to the company, right? Turns out, it’s more likely to be the opposite.
A study out of the University of Notre Dame, published this summer in The Strategic Management Journal found a strong correlation between major option grants for executives and serious product recalls.
“If options are generally causing C.E.O.s to be more aggressive, then it makes sense that more mistakes could occur and consumers could be affected,” Adam J Wowak, co-author of the study along with Michael J. Mannor and Kaitlin D. Wowak, told the New York Times. “Options could be making C.E.O.s ignore the downside potential of some of their actions.”
Companies whose top executives had been at their jobs longer, or who founded the companies, had fewer recalls, possibly because concern for their reputations or protection of a large amount of acquired stock has made them more cautious.
The researchers examined 386 executives from companies with assets of at least $10 million that were closely watched by the FDA from 2004 to 2011. The study identifies the companies by sector only: Some produced consumer staples such as foods, beverages, and personal care products, while others made health care products. Those sectors accounted for 85 percent of all product recalls over the time-period researchers examined.
In recent years, some of the biggest product recalls in those industries have been a 2011 Tyson Fresh Meats recall of 40,000 pounds of ground beef across 16 states because of concerns of E. coli contamination; a recall of 60,912 bottles of Tylenol caplets by McNeil Consumer Healthcare that same year; a 2013 Kellogg recall of 30,000 boxes of Special K Red Berries cereal because of glass fragments; and a 2014 Kraft recall of 1.2 millions cases of cottage cheese that had been improperly stored. Maybe it’s inevitable, over time, that a gigantic, dynamic economy would suffer the occasional tragedy, such as bacterial contaminations that kill people who eat ice cream. Or maybe offering incentives to take risks creates dangers in places where we should rightly expect none.
