Have you ever wondered why CEOs get paid so much? Or, perhaps if they deserve to be paid so well? I’ve begun to wonder just whether our love-in with the concept of leadership is perhaps the equivalent of worshipping false idols.
I just googled the term leadership and received 150 million results. A search on the term followership resulted in 416 thousand results. A similar search on the chapters.ca bookstore website resulted in 26,404 hits for leadership, and 7 hits for followership. We are truly in love with the idea of leading.
Yet this romance might be misplaced. James Meindl’s research on the “Romance of Leadership (Academy of Management, 1987, Vol. 30 No. 1) shows that we consistently give leaders far more credit and blame for results than they actually deserve. Our best evidence shows that leaders account for about 15% of the variation in performance between good and bad organizations. The rest can be accounted for due to external uncontrollable factors, and factors like culture, systems and collective action outside of a leader’s control. Robert Sutton, in a recent article for McKinsey Quarterly, suggests that our romance with leadership is cognitively more attractive, that is, it’s easier for us to attribute success or failure to a person than to random chance or complex hard to understand factors that influence outcomes. We like clear explanations. That’s why, according to Sutton, about 50% of the credit or blame gets assigned to the leader.
Another recent study by Markus Tervio (2008, American Economic Review) suggests that the link between CEO competence, pay and performance isn’t all that straightforward. Using econometric modelling, Tervio showed that CEO pay was associated primarily with the size of the firm, rather than the competence or performance of the CEO. While there are some methodological limitations with this study, it does suggest that organizations might be better off with less expensive CEOs.
Aside from the issue of pay versus performance, we also see some interesting research that suggests that incivility or “meanness” increases with pay/power gaps. Perhaps if we paid less attention to leadership as a silver bullet to solve our organizational problems, and more attention to developing effective skills in the workplace for all levels of employees we might all be better off. Afterall, if leadership only accounts for 15% of the difference between good and bad organizations, it’s possible that having productive, effective employees just might have more impact than leadership.