Dan Vasella stepped aside from the CEO role at Novartis yesterday to be succeeded by Joe Jimenez, the head of their pharmaceutical business. Along with this, the other person in contention, Joerg Reinhardt, quit the company to look for options elsewhere.

This reminded me of a course we had, on Managing Teams, taught by Henry Moon, this brilliant guy who somehow made everything sound so simple.

In one of the classes he was explaining why CEO salaries are so high. His contention was that the brilliant people at the level below the CEO are the ones that drive any organization and the position of the CEO is like the reward. And they know only one out of many will reach there. Therefore, in order to incentivize everyone to actually fight for the spot and perform at their best, it was important to keep the reward high, just as you would do in a lottery. If the chance of winning is low the reward has to be high to compensate for it.

One of the drawbacks of such a system is that when some one wins, the others in the race generally leave the company, and that is a concern. However, Prof. Moon said that this is inevitable and was necessary to promote fresh blood. He gave the example of GE – when Jeff Immelt became CEO, the others in contention left to head other organizations. When this played out again yesterday, I couldn’t help wondering if there is no other option.

As they say in hindi, “Ek mayan mein do talwar nahi reh sakti.

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