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October 2016 • SMT Magazine 23 DO THE HIGH PAID MANAGERS IN YOUR ORGANIZATION ADD VALUE? One important point of clarification: A pri- vate sector company can have its stock (or own- ership) either privately held or publically trad- ed. When a private sector, privately-held com- pany is said to "go public," through an initial public offering (IPO), it's still a private sector company. However, it is now permitted to raise funds from the general public. The private own- ers are effectively selling partial ownership in the company to the general public by the issu- ance of stock. The stock an investor buys pro- vides them with an ownership or equity posi- tion in the company. As the company operates, the value of the initial stock offering price in- creases and decreases depending on the per- ceived value of the company. The stock shares are traded on a stock exchange. In a public sector company, the government supplies the money, typically from tax revenue. Managers with Ownership Positions The point of this is as follows: Compa- ny management members who are sharehold- ers have a different stake in the company than do managers who are not equity owners. Very often, the former invest funds from their own bank accounts, or borrow the needed start-up funds using personal assets like their house as collateral. These funds are risk. The latter non- equity managers don't. They simply are em- ployed to perform indirect tasks within the or- ganization. In our discussion, the distinction between the two types of managers needs to be made. The capital suppliers who have an equity (ownership) stake in the company can be par- ticipants in the ongoing operation or silent members. We will call operational managers who have ownership positions within an orga- nization, manager/owners. In either case, peo- ple with equity positions, whether operation- al or silent, have one basic objective—getting a good return on their investment. Their invest- ment is at risk. If the company performs poor- ly, their investment decreases in value, or in the worst case becomes worthless. We have traditionally collected personnel of common education, background and responsi- bility into groups. Those groups organized into departments. So manufacturing engineers are in the manufacturing engineering department. Personnel who do the buying for the compa- ny are found in the procurement department. Directors will be responsible for several depart- ments with the mangers of each reporting to them. This hierarchy has formed the business pyramid. Personnel directly assignable to the assem- bly of a product are classified as direct labor and form the direct labor cost. Personnel who cut across many products, or are general employees not directly involved in a product's assembly are classified as either indirect, overhead, or gen- eral and administrative. The cost associated with all of these employees is loaded on or absorbed into the average direct labor cost to form the la- bor sell rate (when profit is added). These costs must be budgeted and managed. Typically, each department manager has this responsibility. The Difference Between Management and Leadership The other basic distinction that needs to be made is the difference between management and leadership. We often use the two terms in- terchangeably. However, they are very different. 1. Managers maintain the status quo. They plan the work and work the plan. They operate to schedules and budgets. All activities are con- ducted under the aegis of the company's stan- dard operating procedures (SOPs). They may have the administrative responsibility for a de- partment—again, assigning work and measur- ing the performance of the members in their " Directors will be responsible for several departments with the mangers of each reporting to them. This hierarchy has formed the business pyramid. "