Imagine that every Fiat business were to switch to a RADs-based pay system. What would this RAD Distribution look like?

Imagine that every Fiat business were to switch to a RADs-based pay system, but they insisted on doing it very slowly. Their thinking might be that this would give people who can not accept the Radical model time to find a Fiat job elsewhere. This means that for the first couple of years the pay levels would remain the same. We would have to artificially give everybody enough RADs to end up with the same pay, given their revenue. What would this RAD Distribution look like?

For example, Lockheed’s CEO gets paid $16M. How many RADs would he have to have, given their revenue and profit?

To answer that question one the authors, Adrian, had to find the Executive team compensation,

1. You’ll find executive compensation is usually not packaged with the Annual Reports.
2. Instead I found the Proxy Statement for the company by searching for “Lockheed Martin Proxy Statement Executive Compensation.”^∇
3. Then I searched for a table that shows all the executives and their total compensation (see Appendix).

All told, Adrian discovered that executives received over $80M in 2020. At the other end, according to payscale.com,^∇ the average employee compensation was $85,000 plus a $3,000 annual bonus.

For the denominator, he also had to find out the number of people who work at Lockheed Martin. According to Wikipedia, they have 115,000 employees, of which 60,000 are engineers and scientists.^∇ I found nothing for contractors, which seems suspicious to say the least. Google, for example, employs 121,000 temps and contractors, while only employing 102,000 full-time employees. In any case, I was left to wonder what Lockheed Martin’s real headcount is. We only found this, “it is estimated that most large companies have an employee to contractor ratio of 1:1 now.”^∇ In any case, we will not include contractors here.

But… They Deserve It!

I have friends who say with an entirely straight face that the executive salaries are entirely justified because they do that much more than the average employee.

In the case of Lockheed Martin, if we look at the ratio between the CEO and the average employee. He earns over 265 times as much. So here is an engineer working on a satellite or missile, but the CEO is supposedly contributing 265 times more. Maybe he is sending emails 265 times as fast. But of course it’s not about quantity and speed. It’s about quality and value to the business. So, does that mean that the CEO has ideas that are 265 times as valuable as that satellite engineer’s?

I would admit that the ability to make deals that create or destroy sources of revenue, is valuable. But it is not a factor of savvy, as much as it is a function of the power to make decisions on that scale. Take anyone in the company and give them the same power and access to information, and they will able to make decisions that create or destroy sources of revenue as well.

Many would say that homo economicus is not going to be motivated to make money for the shareholders unless they get something out it, too. So we would have to pay them all what we pay the top Boss and his crew of Lesser Bosses. And that’s and that is one of the foundations of the Fiat system.

In a Radical company everybody is the equivalent of the CEO in terms of being able to make decisions in behalf of the company (Decentralization) and access to information (Transparency). They all participate in creating value and they benefit from the value they create.

Doing It Differently

Imagine this: What if we take the bonuses for the employees and distribute them equitably to everybody? What if we also take the executive bonuses and distribute it equitably as well?

We could give everybody the same about but that doesn’t work for long. We could add things like years of schooling and service, but that is pretty arbitrary and biased. In any case, it has little to do with contributions.

Equitable Distribution

“Equitable” sounds good, but there isn’t a generally agreed formula for it. People have tried all kinds, but none really work for long and are often tweaked. Eventually, they become unintelligible, and mistrusted, to most people.

We have not discovered a formula for it, either. What Radical supports, and what RADs do is that it lets employees determine what a valuable contribution is.

As an experiments, we could do the following,

• Lockheed Martin employees would co-own the employee bonus pool.
• Each co-owner would recognize the contributions of other co-owners.
• Each employees would recognize the contributions of the handful of people each knows.
• Everybody would be recognized this way.

At the end of the Distribution period, the number of recognitions each co-owner got is divided by the total number of recognition each co-owner gave. This ratio is multiplied by RADs in the “bonus” pool to calculate the number of dollars each co-owner gets.^∇

Each employee/co-owner gets to recognize the people they work with. They do this based on whatever they feel is their contribution. Managers would not have to waste time agonizing over this. Next, managers can participate as co-owners of the fund (i.e., which would now include their bonus pool as well). Over time, more and more bosses, and their bonus pools, would be include in this until, finally, the top executives, and their bonuses, would be included.

But, Wait: THERE IS MORE!

This still leaves us with the pay gap between executives and employees (e.g., the CEO makes 265 times what an average employee draws). For that we would have to do something about the imposed, Fiat hierarchy (i.e., it is not a given for businesses, as usually we assume). Once that’s done, Lockheed Martin would be ready to align salaries with RADs instead of titles.^∇

APPENDICES

Wealth Extraction by Lockheed-Martin Bosses

For the year 2020, this is what I found,

James D. Taiclet Chairman/President/CEO	$915,385 Salary $18,611,850 Stock Awards $2,896,200 Non-Equity Incentive Plan Compensation $936,934 All Other Compensation $23,360,369 Total	Marillyn A. Hewson Strategic Advisor to CEO; Former Chairman/President/CEO	$1,877,519 Salary $12,818,340 Stock Awards $10,639,900 Non-Equity Incentive Plan Compensation $719,066 All Other Compensation $26,054,825 Total
Kenneth R. Possenriede CFO	$1,000,769 Salary $3,973,848 Stock Awards $2,337,700 Non-Equity Incentive Plan Compensation $170,581 All Other Compensation $7,482,898 Total	Frank A. St. John COO	$981,202 Salary $3,984,777 Stock Awards $3,177,700 Non-Equity Incentive Plan Compensation $406,495 All Other Compensation $8,550,174 Total
Richard F. Ambrose EVP, Space	$947,212 Salary $3,418,465 Stock Awards $3,177,700 Non-Equity Incentive Plan Compensation $181,380 All Other Compensation $7,724,757 Total	Michele A. Evans EVP, Aeronautics	$947,212 Salary $3,845,716 Stock Awards $2,497,700 Non-Equity Incentive Plan Compensation $218,638 All Other Compensation $7,509,266 Total

ENDNOTES

1. Lockheed Martin Proxy Statement Executive Compensation. <https://radicals.world/V4Hf8o>

2. payscale.com. <https://www.payscale.com/>

3. The number of people who work at Lockheed Martin. <https://en.wikipedia.org/wiki/Lockheed_Martin>

4. OnContracting. <https://diigo.com/0q9atx>

5. The word bonus is in quotes because by itself it indicates that this is a reward given by the benevolent bosses for doing good work. In reality, this (plus the Executive Bonus, plus any other dividends distributed) is the wealth created by the work the employees did. For more details, see RADICAL COMPANIES: Without Bosses or Employee. <https://radicalcompanies.com>

6. Matt Perez, Adrian Perez, Jose Leal. RADICAL COMPANIES for the Impatient. 2001. <https://radicalcompanies.com/2022/05/03/radical-companies-for-the-impatient.html>