It's hard to imagine a more operations-oriented business than that of the mostly-multi regional and always multi-divisional public home building enterprise.
The specific role of operations chief execs among home builders--as in broader business contexts--varies widely across the organizations, and, as this Harvard Business Review analysis notes, has a great deal to do with being yin to a CEO's yang.
As a matter of fact, HBR researched and outline seven types of COO, or first lieutenant, and we see evidence of these key characteristics in many, if not all, of the No. 2-ranking executives in home building enterprises' chain of command.
The types are: the executor, the change agent, the mentor, the other half, the partner, the heir apparent, and the MVP. The piece notes:
There is no single agreed-upon description of what the job entails or even what it’s called. Often, companies turn responsibility for all areas of operations over to the COO—this typically includes production, marketing and sales, and research and development. In some firms, the job is to be Mr. Inside to the CEO’s Mr. Outside. In others, the mission is focused on a specific business need. For example, last summer Microsoft filled the long-vacant position of COO with Kevin Turner from Wal-Mart. In announcing his appointment, the company stated that Turner was expected to use his retail experience to lead Microsoft’s effort to grow the consumer products business. The most cursory survey of COO job designs shows real disparity in spans of control, decision rights, reporting structures, and the like.
Without doubt, however, public home building company COOs' mission-critical importance--especially these days--to the successful performance of the organization can hardly be overstated. "Operational excellence," such that it is, starts with this individual.
Matters such as dealing with labor capacity and the risk-to-plan constraints pose, as well as impacts of building materials price fluctuations, floorplan streamlining, and ever-more-data driven marketing and sales initiatives all fall under the purview of the COO. Experimentation and exploration of offsite panelization or integrated offsite solutions as offsets to labor cost and capacity challenges fall under the accountability aegis of COOs as well.
Further, as public companies still rank as a collective major player in the strategic acquisition of other home building companies--to deepen or expand market opportunity, or to gain entree into a product portfolio strongly suited to a customer segment not currently being served, or essentially, to secure a 2021 and 2022 lot pipeline in the teeth of a land cost marketplace that's getting more expensive each day--COOs are where the rubber hits the road on integration.
The moment an acquisition deal gets announced these days--even before it closes--the clock starts ticking on decisions and strategies on people, processes, brand portfolio, infrastructure, etc., all of which need to be accomplished with velocity to reap rewards in overhead efficiencies, local market scale gains, and alignment of the newly purchased team and assets with the mothership.
That said, here's the way 2017 compensation worked out for COOs in public home building land. Given the momentous year that Lennar had on all of the fronts we've discussed above, it's little surprise that its No. 2 and No. 3 executives--Rick Beckwitt, the newly-appointed CEO of Lennar and Jon Jaffe, now President and COO--rank at the very top of the top of the comp chart.
Base salaries for the peer class clock in with averages in the $600s, representing, on average, around 20% of these executives' total pay packages, given that in-year performance goals and disciplined alignment with stakeholders' long-term interests are important components of "operational excellence."
And here we can take a look at an entirely artificial-but-interesting metric, comparing the percentage change in each executive's compensation with the percentage change in total closings of the organization during calendar year 2017.