Mr. Pareto, the guy who discovered the 80/20 rule, is always right. 20% of what’s going on always gets 80% of the attention. Got this email from Roundtable member Dave Seldon:
Amidst the hue and cry over the AIG bonuses, I was struck by;
Amount of AIG bailout : $170B
Amount of AIG bonuses: $0.165B
Bailout/Bonuses ~1000:1
Noise about bailout: 90dB
Noise about bonuses: 120dB
Bailout/Bonuses ~1:1000
The bailout costs 1000X more than the bonuses.
Yet politicos of every stripe, media commentators, bloggers, and all their sheeple talk, write, and worry 1000X more about the bonuses.
Pareto principle is everywhere. As you have said.
Regards,
Dave Seldon
To that I would add: Paying huge bonuses to heads of failing companies is something that shareholders should not put up with. I heartily agree with that.
Obama wants salaries capped at $500,000.
That introduces a new problem, which is:
What sane, competent executive would volunteer to untangle that kind of morass for only a half million a year?
I sure wouldn’t.
I’ve got quite a few students, friends, customers and Roundtable members who make more than $500K and I don’t know a single one of them who would ever want to walk into that spray of machine gun fire for an income level which, though comfortable, is far from extraordinary.
What kind of president or CEO are you going to get for $500K a year?
Not a very good one.
So now what we have is companies propped up by the government, in a situation where free market forces are no longer allowed to be in play, where failing companies are being subsidized by the state. A planned economy, run by Central Administration.
When the government runs businesses, it is inevitable that quandaries like this get created.
None of these companies will ever return to normal health. They will drag along in a sea of mediocrity as a banking equivalent to United Airlines.
It’s only different from the old Soviet Union by degree: Grumpy, incompetent, poor service, laden with bureaucracy, and always squealing so loud that nobody ever quite has the guts to put them out of their misery.
Let’s hope they don’t cap everyone else’s salaries as well.
Perry Marshall
P.S.: Related thought — Chrysler chairman Lee Iaccocca, in his legendary autobiography in the 80’s, said that presidential cabinet members should all make $1 million a year. That way the positions would attract super competent people. He had a good point, and remember, that was 20 years ago. Only some people fully understand, government is not the meritocracy that the entrepreneurial world is.
Iaccocca was also grilled by Congress about his corporate jets. He said something like, “If I’m paying some guy a quarter million a year, I don’t want him spending half his afternoon sitting around at O’Hare airport.” That of course was before cell phones and computers – I think layover time is probably more productive than it used to be – but in all fairness the auto executives should fly to DC in their corporate jets. Their time is valuable.
Or…. perhaps I should say, if they were competent leaders who legitimately deserved their multi-million dollar bonuses, their time would be valuable.
Remember, Iaccocca took a salary of $1.00 the year he took over Chrysler. Voluntarily, not under presidential orders.
Say whatever you want about entrepreneurs, all the ones I’ve ever met are razor sharp. Especially the crooks and sales lizards. You’ll not generally find the same thing to be true in government, or even in many parts of the corporate world. Where bureaucracy rules, positions are gotten based on a whole different set of merits.
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About the Author
Perry Marshall has launched two revolutions in sales and marketing. In Pay-Per-Click advertising, he pioneered best practices and wrote the world's best selling book on Google advertising. And he's driven the 80/20 Principle deeper than any other author, creating a new movement in business.
He is referenced across the Internet and by Harvard Business Review, The New York Times, INC and Forbes Magazine.
14 Comments on “Bailouts, AIG Bonuses & the 80/20 Rule”
Some quotes from the article if you don’t want to read the whole thing:
“It would not have been open this summer, and it probably wouldn’t be open next summer,” said Bruce Pleas, a local surfer who helped organize the volunteers. “They said it would probably take two years.”
“And after only eight days, all of the repairs were done, Pleas said. It was a shockingly quick fix to a problem…”
“When it gets to a state level, it just gets so bureaucratic, something that took us eight days would have taken them years,” said Troy Martin of Martin Steel, who donated machinery and steel for the repairs. “We got together — the community — and we got it done.”
CNN Article about Hawaiian Small Busines Owners fixing an access road in 8 days with volunteer manpower because the government estimated $4M project didn’t have funding and their businesses depended on traffic from the road.
Not ripping on government. It is what it is. Just don’t expect it to be anything other than what it is.
http://www.cnn.com/2009/US/04/09/hawaii.volunteers.repair/index.html
You might be interested in what Drayton Bird, who used to work with David Ogilvy (and of whom I’m sure you know), said about your article, Perry:
http://drayton-bird-droppings.blogspot.com/2009/03/tax-bastards-or-not.html
Perry, that’s a great point about Lee Iaccocca and the million dollar salary.
I’ve made Singapore my home for about 8 years now, and one thing that strikes me – is how proud and well equipped public servants are. The salaries of the government executives are based on the current pay scale of the Fortune 500 companies.
Hence the Prime Minister of Singapore makes 2.4 million a year (I think he might have taken a voluntary pay cut bcoz of the recession). Other cabinet officers also get paid at least in the 500k+.
There’s actually a sensible financial argument for a young person to work in public service and not worry about getting cheated out of money.
Anyway, the 80/20 point in Dave’s email brings back a good idea – in the 1000s of things we do in our business, one 1 needs to be newsworthy. And the people would normally publicize the business (media, bloggers, JV partners etc) … would scream at a 1000% volume because of that one thing – now I gotto find that one thing for each of my businesses … :)
Great post – keep rocking.
Perry,
Just read this month’s ‘Perry Marshall Marketing Letter’ and it brought back all the angst of selling $800 sets of pots and pans in college to pay my way. You pour this out on the page so well that maybe you could write it as a novel so as not to hurt the innocent. And it’s still everywhere, just a new wrapper. Just last month a buddy from college is trying to enroll me in Acai Berry MLM and another old colleage sitting in his soon to be foreclosed on home in Florida putting his hopes in some MLM that “pays you a commission on everything you buy”. It’s times like these that make us anxious and vulnerable. Thanks for exorcising your demons in the NL.
Dave
Good quote from Solomon, Perry
Sorry to hear about the Kitty cr*p Nick – sounds like a good metaphor for the whole can’t pay, won’t pay situation. I had similar happen to me a couple of times last year with fairly large sums – won in court, but then was told there was nothing I could do to actually get back the money the court says was owed to me. Since then I’ve restructured payment terms to mitigate future losses (not exactly “if you don’t pay we return the kitty c**p” but you get the idea).
Talking of unpopular elitism – does anyone remember Kipling’s Jungle book (not the Disney one – which is fun, but has had all its allegories removed for fear of confusing or upsetting the audience).
The Monkeys represented normal people in modern democracies and he notes of their life:
“the monkeys gathered by hundreds and hundreds on the terrace to listen to their own speakers singing the praises of the [themselves], and whenever a speaker stopped for want of breath they would all shout together: “This is true; we all say so.”
This sounds exactly the basis on which people choose their leaders, media and education – on the basis of who flatters them most and who tells them that spending their lives watching reality TV on overextended credit makes them as good in every way (or better even) than the most talented and skilled.
” Chattering, foolish, vain, — vain foolish, and chattering — are the monkeys. . . . They grow tired of the nuts they pick, and throw them down. They carry a branch half a day, meaning to do great things with it, and then snap it in two.”
The Iaccocca P.S. was very well taken. It reminded me of one of the most important things I’ve learned about progress in life – not only in business.
From Perry to Dan Kennedy to Tony Robbins to Napoleon and all the way back to scripture there is a common principle of success – immunity to other’s peoples criticism of what you’re doing.
Compare that with Chris Dodd trying to dance around whether or not he put the “Executive Bonus Loophole” in the bill. Why is he dancing? Because by definition he has to care what other people think.
It seems fairly universal that the greatest historical achievements were most often made by a single person or small group of people who didn’t care what other people thought.
Let’s see….where else is private property seized by the government “in the name of the people”? Hold on kiddies, it’s going to be a rough ride…
In between the lines, this whole thing is manufactured as Obama is trying to get support for the idea of LEGISLATING ALL Pay…
That will certainly make the lazy people happy …
Hey, Australia, do you have a room and bed for me for a few years? This BS is getting ridiculous…
“Where bureaucracy rules, positions are gained based on a whole different set of merits.”
The bureaucrats will always be over-matched by the crooks. Look at the recent revelations about the SEC’s failures.
Only a handful of people on the planet understood the exotic financial instruments being created, and those people weren’t in the agencies supposedly charged with oversight.
Nick,
Sounds like you’ve got the 80/20 thing down real good.
To that I would add, your posts are always right on the money.
Yes, you will find that out of the general John Q Public population, only 20% really “get it” at all. Yeah I know how elitist that sounds. I defer to my favorite business author of all time, Solomon – in Proverbs 1:
Wisdom shouts in the streets.
She cries out in the public square.
She calls to the crowds along the main street,
to those gathered in front of the city gate:
“How long, you simpletons,
will you insist on being simpleminded?
How long will you mockers relish your mocking?
How long will you fools hate knowledge?
Come and listen to my counsel.
I’ll share my heart with you
and make you wise.
Narrow is the path.
I’m a liberal and I’m dirt poor but I’m not offended by the these bonuses.
# 1 – I haven’t heard a discussion on how bonuses function in that world. I’m sure it acts as an incentive, but what else? What’s their base pay? Are these commissions for transactions, bringing in new clients what?
#2 – These people, unlike the rest of us, negotiated their contracts. They were able to ask and they were given. Something wage slaves don’t understand.
#3 – The Boards of these companies allowed it. Yes a bad business decision.
#4 – Congress and all the bigwigs could have caught this. They didn’t, why? And no they want to levy a 90% tax on these people way after the fact?
#5 – I agree about maxing out the salary. Though I’m sure there are a capable and valiant few willing to charge into this mess for the good of the country/world.
#6 – Would all these talented managers leave this industry if they didn’t get their bonuses? What else is out there at this time? But industries in the past have lost talented workers making recovery difficult. (Sorry can’t remember my source).
#6 – Most Americans participated in this mess in one way or the other. Now everyone is trying to find someone to blame.
Just my 2cents.
I agree, but bonuses and salaries are different. A bonus is commensurate with performance. And I daresay, their perfomance is far from being worthy of any bonus.
But capping their base salaries? Hell, no. And the point you make is a perfect one.
Who would want to work 10x harder in a job that’d normally pay 7 figures under normal circumstances? And have to put up with the leftover crap?
Hmmm. Certainly not me, either.
http://www.cnn.com/2009/US/03/13/reality.check/
According to this ‘Recession Reality Check’ a Pew Research poll shows that 79% of Americans polled believe it’s impossible to improve their economic standing during this recession.
So, there’s both sides of the coin – a government who thinks they know how to create jobs and “save” the economy better than entrepreneurs, and you’ve got a mass general public who thinks that sounds pretty good.
So, applying the 80/20 rule – should we assume that those same 79% are likely the one’s we don’t want as customers anyway? People who like stuff for free and want people to save them when they’re in trouble in my experience are bad clients. Maybe not bad people, just bad clients.
I used to clean carpets in a prior existence. A new client asked me if I could please help her out. She was in bad health and needed the carpets cleaned now but needed me to wait 1 week until she got paid. So, I helped her out.
I cleaned cat crap, tangled cat hair, and who knows what else out of her 3″ shag carpet for 4 and half hours. You think my check ever came a week later? Of course it didn’t.
If she’d just told me she couldn’t pay for it and was looking for a cleaner who could do it for free, I would have done it anyway and felt great about it. But instead she just straight up punked me.
I’m going to take a stab here that that lady is one of the 79%.
Charity to the powerless is one thing. Handouts to the weak and depressed is not that thing.
For some reason I’m flashing back to life guard training – another former existence. First rule of saving someone in the water. If they grab and try to take you down with them – immediately escape, swim away, and wait until they’re subdued (unconscious) enough for you to help them.
Enough rant, I’m just thinking out loud and trying to deepen my understanding of 80/20.
Sad to watch really. A Republic that started off so youthful and promising degrading inevitably into a democracy and all its encumbent woes.
You know the forefathers spotted the likelihood of this kind of thing…that’s why they went for the whole Republic deal.
You guys got sold out years ago and no-one even noticed.