The Pay Model

IV .,..-- 'I
125
J.Z'^J
Gap*
100 'Whole Foods
75 '• •* .
Change * ~•
in CEO 50 McOraw-ffin
Pay 25
Verizon*
from Q
Last m n
Year ~25 . • Mzer*
-50 Texas Instraments
•
Anheuser Busch
-75
-75 -50 -25 0 +25 +50 +75 +100%
Stock Fell Stock Rose
Total Shareholder Return

How To
Read the
Exhibit

The Relationship between Shareholder Return and Change in CEO Pay

Source: "Pay for Performance? Sometimes, but Not Always," New York Times, April 9,2006, p. B6. Data from Pearl Meyer & Par

Managers
For managers, compensation influences their success in two ways. First, it is a major expense. Compet
pressures, both global and local, force managers to consider the affordability of their compensation decis
Labor costs can account for more than 50 percent of total costs. In some industries, such as financi
professional services and in education and government, this figure is even higher. However, even withi
industry, labor costs as a percent of total costs vary among Individual firms. For example, small neighborh
grocery stores, with labor costs between 15 percent and 18 percent, have been driven out of busines
supermarkets that delivered the same products at a lower cost of labor (9 percent to 12 percent).14 Superma
today are losing market share to the warehouse club stores such as Sam's Club and Costco, who enjoy an
lower cost of labor (4 percent to 6 percent), even though Costco pays above-average wages for the indu
Exhibit 1.3 compares the hourly pay rate for grocery store clerks.15 Whole Foods Markets, which is inclu
in Fortune Magazine's list of 100 best companies to work for, pays pretty close to its competitors, y

14 Glen Kazahaya, "Harnessing Technology to Redesign Labor Cost Management Reports" Healthcare Finandtl Management,
2005, www.findarticles.com/p/articles/mi_m3257/is_4_59/ai_nl3621284.
15 Stephen Greenhouse, "Can't a Retail Behemoth Pay More?" New York Times, May 4,2005.