A rule of thumb on executives’ salaries: They aren’t overpaid if there’d be no company without them
September 1993 | Volume 44, Issue 5
But Sears, a salesman who “could sell a breath of air,” was preoccupied with writing copy and dreaming up new items for the catalogue. He still needed someone to count the beans and bring order to the sprawling, often chaotic company. Sears found a new partner when Aaron Nussbaum, who owned a firm that made pneumatic tubes, called on him hoping to sell a tube system. Nussbaum sold the system and bought into the company with his brother-in-law, Julius Rosenwald. Sears, Roebuck’s astonishing growth began immediately.
In 1895, Sears did a gross business of almost $800,000. By the turn of the century it was $11 million, surpassing Montgomery Ward, a company that was twenty years older. But Sears did not get along with Nussbaum. In 1901 he demanded that either Rosenwald and Nussbaum buy him out, or that he and Rosenwald buy Nussbaum out. Rosenwald had to choose between his brother-in-law and the man he knew was indispensable to the continued success of Sears, Roebuck. He chose Sears and together they bought out Nussbaum’s one-third interest for $1.25 million, fifty times what Roebuck had sold his half-interest for only seven years earlier.
Yet Sears was now expanding so rapidly that they were able to pay Nussbaum off in only two years. No small part of this success was due to Rosenwald’s executive abilities.
He instituted new systems that made sure orders were processed promptly. Incoming orders were weighed (they averaged forty per pound) to indicate how many clerks would be needed. By 1906, when Sears, Roebuck moved into a vast new plant in Chicago, orders were averaging 20,000 a day, 100,000 a day in the Christmas season.
Richard Sears “could sell a breath of air”; but he needed someone to bring order to his sprawling, chaotic company.
Each day of the week was assigned an order slip of its own color, so that delayed orders would stand out and get first attention. Conveyor belts and gravity chutes were installed to speed the flow of orders and merchandise, bringing everything together at an assembly point. Henry Ford inspected this system and was mightily impressed. The following year he adapted the assembly-line principle to automobile manufacturing and changed the world. (One can only wonder if he noticed the weighing of incoming orders and misapplied it to invoices.)
Rosenwald was also way ahead of his time in employee relations. In 1916 he established the Savings and Profit Sharing Pension Fund of Sears, Roebuck. Employees could contribute up to 5 percent of their salaries and the company contributed a portion of the profits according to a sliding scale (the more profits, the greater the percentage contributed to the fund, up to a limit of 10 percent). From the beginning, much of this fund was invested in Sears, Roebuck stock. So the Pension Fund not only greatly fostered employee loyalty—a hallmark of Sears for years—it also gave the employees a strong self-interest in the success of the company.
And succeed the company certainly did. By the mid-twentieth century, Sears, Roebuck was part of the very warp and woof of American civilization. The writer S. J. Perelman said that its catalogue had the same affect on him as madeleines had on Proust. Sen. Gene Talmadge thought that the Georgia farmer had only three friends in the whole world: Jesus Christ, Sears, Roebuck, and, of course, Gene Talmadge. Franklin Roosevelt joked that the way to convince the Soviet Union of the superiority of the American system would be to bomb it with Sears, Roebuck catalogues.
Unlike poor Roebuck, both Sears and Rosenwald died immensely rich, thanks to Sears’s genius as a salesman and Rosenwald’s genius as an executive. The salesman left $25 million when he died in 1914, and the executive $17 million in 1932. Of course, by that time Rosenwald had given away to worthy causes fully $63 million.
Most of the article on Julius Rosenwald in the Dictionary of American Biography , the standard multivolume reference work on great Americans of the past, is devoted to detailing his endless charities. But guess how much of the article is devoted to his talents as an executive, talents that made his vast beneficence possible: exactly one sentence.
As I said, executives get no respect.