What’s Wrong with P&G?
I worked for P&G for 24+ years, retiring in 2019. P&G treated me well, and I was always proud to be a Proctoid. I still hold P&G stock and P&G stock options. Said another way (to use a P&G phrase), I am saddened to write this and have no malice toward P&G. I left P&G in 2019 to become a financial advisor. I went from a job where I worked to give my family a good life, to a “passion job” where I am excited to help people every day. It’s a job where I now interact with P&Gers as my clients rather than as my peers, subordinates or bosses. These P&Gers come for financial advice. We often start by talking through their current job and what they want next. Their morale is, well, poor. They tell me they don’t love their jobs. They tell me they are working there for the pay. They are counting the weeks/months/years until they can leave to do something they truly enjoy.
I’m going to propose some things that I believe have led to P&G’s low morale, stagnant growth and declining stock price.
Vision & Motivational Leadership:
I witnessed the leadership of John Pepper. He inspired with his wholesome familial ties and he created a culture of respect. He struck me as a genuinely nice guy, someone who I wanted to work for. Jager was next and had a disastrous stint as he tried to do too much, too fast. This set the stage for AG Lafley. The simplicity of AG Lafley’s “Consumer is boss” or the Who-What-How marketing framework had tremendous value as organizational rallying points. It’s hard getting 100,000 people to sing off the same sheet of music, and these elements solidified a vision that everyone rallied around. Notably, he had a CMO, Jim Stengel, who believed in marketing and who had a vision for making marketers at P&G believe in themselves.
In my time at P&G, Bob McDonald’s tenure was the most cringe-worthy. Bob tried to tie P&G brands to a purpose. It was a bridge too far for me and many of my colleagues. Maybe most cringe was that he got up in front of the organization time after time and talked about “touching more lives, more completely”. This oft repeated phrase was done with intense frequency making it inauthentic and off-putting.
I believe David Taylor’s stint as CEO was generally regarded as successful by employees. His themes of superiority (best in class products), constructive disruption and the “decency quotient” resonated with employees. People enjoyed being at work, empowered to perform at their best. I was in a role that was significantly removed from the core business and communications about it, so I frankly was quite as connected as I was through other CEOs.
Fast forward to Jon Moeller’s tenure. I was in several meetings with Jon, and he is wicked smart. I was amazed at how he connected concepts and remembered a ton about a business I was in that was far away from the main business. However, when I see Jon on CNBC for the quarterly results, the statements about how the great employees at P&G delivered on a quarter, the words feel flat. At the same time, Jon’s message to Wall Street was “Superior brands + superior execution + continuous disruption = long-term value creation”. Even for an engineer, that sounds an awful lot like an equation vs an inspiring rally cry. I had a current employee and friend of mine boil it down to “Be more productive. And then be more productive than that”. Yuck!
In summary, like at all companies, the CEO's vision and ability to motivate has a huge impact on morale and ultimately on performance. I believe P&G is currently in a lull with respect to that vision and motivation. Let’s hope that the next CEO has a strong feel for how to motivate and inspire P&G employees.
Valuing people in the organization through compensation:
Like many other companies, P&G continues to handsomely reward its CEO, however, much more so than 25 years ago. In 1999, John Pepper’s last year as CEO, he earned $4.3 million in total compensation according to the proxy statement. In fiscal year 2024, Jon Moeller earned $22 million. That’s a 5x increase in 25 years. When I started at P&G in 1995, the compensation package was pretty amazing. It might not have been CEO-like, but the combination of pay, profit sharing, and several extras was impressive. And raises were excellent as long as I continued to move up the ladder.
However, during that time when CEO pay went up 5x, the following happened to rank and file employee compensation at P&G:
In the early 2000’s, for long-tenured employees, P&G halved the benefit known as “flex comp”. When I first started, flex comp for long-tenured employees was 3%. In 2007 or 2008, it was dropped to 1.5%
P&G has twice reduced the percentage company contributions that go into Profit Sharing. At one time, an employee with 20+ years of service received over 25% of their salary as profit sharing. That highest percentage was lowered to ~20%, and then to 13.9%. The profit sharing reduction isn’t just significant at 20+ years, it impacts each plan year throughout an employee’s time with the company. It is still higher than most companies, but is it truly a game changer any longer? In order to realize a healthy 401k balance over time, an employee now must contribute far more of his or her own money, impacting their quality of life during their working years. This doesn’t feel like a recipe for motivated and inspired employees.
In the early 2020’s, P&G implemented more performance based compensation at each level. In theory, this connects each employee’s contribution more directly to the performance of the company. However, setting aside for a minute that it’s often difficult for an employee to understand their connection to results in a large, matrix organization, it also further lowered the amount P&G contributed to profit sharing since less of the compensation was part of the base that went into the profit sharing calculation. One way or the other, there’s a significant shift in how the company expects to motivate its employees - it used to lean more on ownership of P&G stock, with less emphasis on “at risk” annual pay. The shifts over the last 20 years have swung the balance more toward at-risk annual pay and less toward behaving like an owner through stock ownership.
Finally, just recently, P&G announced an end to preferred shares as part of profit sharing. While this might not directly affect motivation to move the stock price or deliver for the company, it is yet another benefit a rank and file employee lost - that of a favorable tax treatment for P&G stock when the employee retires. We process P&G retirement rollovers, and the use of the Net Unrealized Appreciation provision is an incredible perk of the preferred shares. The NUA provision allows P&G retirees to have a nice chunk of P&G stock in a brokerage account with long term capital gain treatment for the stock.
The company liked to talk about how the needs of the organization and the individual are inseparable. They promoted the concept that people were the most important asset. Unfortunately, events of the last 20 years suggest some people are worth much more to the company than others.
Marketing Quality:
P&G has long been held up as one of the world’s great marketers. Having worked in P&G marketing on Olay and Tide while also having some experience in marketing meetings with companies as varied as Ford, Kellogg’s and Intuit, the title is legit. And yet, I believe the quality has dropped significantly. We were always taught that a great ad started with a great “ad idea”. This is some consumer insight that connects a consumer to a brand by upending a preconceived notion. It gives a brand a “way in” to a consumer. A different way to say that is we would follow the model: Accepted Consumer Belief -> Benefit -> Reason to Believe. I will give an example. Progressive’s “Young Homeowners becoming their parents” is a campaign that makes the consumer think about how we might all become State Farm or Nationwide customers because that’s what our parents did. Of course, it connects to the humor associated with how we want to be different from our parents, but have such a hard time doing so. And importantly, the insights in the commercial are things that we, as Gen X’ers do. The recall on the ads must be off the charts.
Besides Old Spice and maybe Gain, I am hard pressed to find P&G brands that have similar ad ideas. Consider a recent Bounty ad. On YouTube, it’s called “Building Furniture”. A young couple is building a DIY coffee table. They don’t build it correctly and the table falls apart, dumping a drink that needs to be cleaned up. What exactly is the ad idea here? Is it common for people to put furniture together incorrectly and need Bounty for cleaning up? I don’t see anything heart or mind opening about this ad.
And how about Crest? Crest is doing this “Reality Checkup” campaign where a dentist creates a dentist chair out of thin air for Crest to tackle some sort of problem. In “Flight Attendant”, A woman is doing something to her teeth on a plane that the flight attendant sees. She ends up in a dentist chair getting information on white strips. Do people whiten their teeth on planes? What percentage of the population spends any amount of time on a plane other than short domestic flights?
I would like to see P&G ads that start with an ad idea and are paid off with an inspiring or heart opening benefit offered by a P&G brand. These are the types of ads that drives brand equity and, ultimately, share growth.
Summary:
P&G has lost its way. Rank and file employees are unhappy. The stock is up a total of 6.3% in the past 5 years. While the CEO benefits, the rest of the organization is frustrated with less long-term pride in the company, less incentive to drive the stock price and less feeling of success. P&G has been in the S&P 500 since its inception in 1957 and was considered a growth company long before that, in the 1940s and 50s when it launched brands like Tide and Crest. I would like to see the company assess how to motivate its employees with a vision and compensation structure that fosters fantastic products and inspires great marketing to drive continued growth.
Jared Kline