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Some good points in the article, but I am not sure I agree with all of its conclusions. CEO pay is going through the roof because of a ratcheting-up effect tha

Some good points in the article, but I am not sure I agree with all of its conclusions. CEO pay is going through the roof because of a ratcheting-up effect that has been going for years. The board brings a consultant to evaluate the CEOs pay. Said consultant is in tight with board, and is looking for their next consulting gig. Not a chance they are going to recommend a significant cut, or a performance plan that is aligned with long term (5+ year) shareholder interests. I'd like to see CEOs treated like true investors. Want to make 50 million if the company does well? Cool. Company loses money? You owe $60 million. The current status quo is all upside for CEOs - they have no skin in the game.

badsock 11y ago
I'd be happy with just a minimum vesting term for options, like 5 or 10 years. That way they're in the same boat as the rest of us schmucks who can't go golden-parachute job-hopping every few quarters. Something that would motivate them to make decisions in the interest of the company's overall future, not just the next earnings report.
- prostoalex 11y ago
  How many shareholders are pursuing 5 to 10-year horizons? It seems like most shareholders today are just shareflippers, and if all the shareholders care about is next quarter's earnings report, they will inevitably hire staff that mirrors their interests. Perhaps moving long-term capital gains tax benefit from 12 months to something like 60, and taxing the rest at regular income rates would change the game.
randyrand 11y ago
There's no reason to limit that kind of obviously beneficial practice to just the CEO. Imagine how beneficial it would be to apply it to all the employees. Company is earning money? You get your paycheck. Company is losing money? Cough up.
- lfam 11y ago
  Sounds like a co-op.
- lostcolony 11y ago
  Having to cough up is, I agree, excessive. But having a CEO's compensation tied to performance is the same as all the schmucks under him have to deal with. Only, while they're on the hook for delivering, he's on the hook for providing vision. So making it take 5 years to vest or similar, so the effects of his decisions can be seen, and he has to plan long term, seems sensible. In the same way that tying a worker bee's bonuses to the delivery of a project seems sensible.
  - randyrand 11y ago
    Yup. Stock and options and delayed vesting are frequently used for these reasons. From normal employees all the way up to the CEO.
randyrand 11y ago
Things that would happen: - CEO like any other investor is driven to apply mostly by speculation. - CEOs would bail ship very quickly when things turn sour - Failing companies would be doomed to fail as no one wants to be their CEO. Competition decreases as companies become more volatile on the downside. As for the upside? - HN and reddit pitchfork mobs are happy as they are less jealous of CEOs. IMO, definitely worth it. Every company should implement this idea.
pcurve 11y ago
I would basically like to see stock options eliminated. If you want shares of company, you need to buy it just like everybody else. With your taxed income. This makes decisions to buy stocks much harder, and it will really show you're putting money where your mouth.
- jazzyk 11y ago
  The idea behind stock option grants was to tie CEO's pay to the company's performance.Good idea, but It is not quite working out because CEOs are primarily interested in pumping up the stock price short-term, rather than in long-term health of the company. The vesting period should be spread over 5 years or so. I would also grade company's performance relative to its peers/competitors/industry, not on just the stock price growth, which may be caused by other factors (like the Fed inflating markets through ZIRP).
  - pcurve 11y ago
    Agreed. I would just like to see it go away for everyone, period. With options, it always feels like paper money, so those granting it do so in huge amount without proper consideration for its true costs to shareholders. It's not just CEOs making obscene amount of money. Many ordinary executives are routinely granted high six, 7 figure worth of options on the backs of their employees and shareholders. 1/3rd of the top 1% are company executives.
- herval 11y ago
  What would be your perceived benefit of that (specifically for employees)?
erikpukinskis 11y ago
I think the popularly accepted notion of "market rates" basically leads to a social status ladder with the kind of jobs that "high class people" tend to do at the top and "low class work" at the bottom, and there might be a correlation with how much each person contributes to the bottom line of the company, but it is my belief that the within-groups variation is larger than the between-groups variation, which makes it basically a farce. The best support person is probably bringing in more revenue than the worst engineer while making less money. This system endures because if you are in a higher class, there is no incentive to upset the popular notion of market rates. The top half of the pyramid tends to control pay, and why wouldn't they want a graduated scale based on status? As engineers, we protect this status by releasing our tools when they are robust and easy enough for ourselves and other professional engineers but stop short of polishing our tools until an end-user could use them. We also maintain a complex set of cultural practices that need to be navigated in order to get access to additional layers of information and institutional knowledge. It's in our interest to prevent people from getting in, because under the Market Rates system, that's how you make more money. CEOs are just another tier in that system. Like engineers, they keep their knowledge amongst themselves, and require you to work up the ladder in order to get the information and knowledge you need to access successive tiers. I wish more people would spend more energy in actually trying to tease apart where profits are coming from and give compensation based on that. Or, even better: expect everyone to make a full-bodied human contribution and recognize that that's what is truly valuable, and no human is more valuable than any other. I realize that's a little too woo-woo for many people, and I respect that. Maybe do the profit-assignment model then. But I really wish people would stop talking about "market rates" as if it's anything other than rent-seeking on a cultural scale.
mturmon 11y ago
You believe you found a problem, but your objection was addressed and dismissed in an evidence-based fashion in TFA: "The idea that high CEO pay is ultimately due to poor corporate governance is a commonplace [...] Yet as an explanation for why CEOs get paid so much more today than they once did, Stiglitz’s argument is unsatisfying. After all, back in the 1960s and 1970s, when CEOs were paid much less, corporate governance was, by any measure, considerably worse than it is today [...] "Shareholders, meanwhile, had fewer rights and were less active. Since then, we’ve seen a host of reforms that have given shareholders more power and made boards more diverse and independent. If CEO compensation were primarily the result of bad corporate governance, these changes should have had at least some effect. They haven’t. In fact, CEO pay has continued to rise at a brisk rate."
tsotha 11y ago
>I'd like to see CEOs treated like true investors. Want to make 50 million if the company does well? Cool. Company loses money? You owe $60 million. I'd like to see people not worry about what other people get paid. Unless you're a shareholder, what difference does it make? It's not your money.
- enraged_camel 11y ago
  It makes a difference when someone is paid several orders of magnitude more than others in the company because it massively increases inequality, which affects everyone.
  - tsotha 11y ago
    How?
    - ci5er 11y ago
      I've kept this thread open in a tab for days now hoping you would get a coherent answer. Because being 'anti-poverty', I get. Extreme poverty sucks. But being anti-inequality in a small-world networked, coupled, non-linear dynamic system just seems like being against the laws of physics or math (to me). I'm going to close this tab now. If you ever get a (coherent) response, would you drop me a line letting me know that you have underneath this comment?
- sumedh 11y ago
  > Company loses money? You owe $60 million. How about the CEO does not get a golden parachute? > Unless you're a shareholder, what difference does it make? It's not your money. It is your money when you bail them out when a too big to fail company fails.
  - tsotha 11y ago
    >How about the CEO does not get a golden parachute? How about we let the CEO and the board work it out? >It is your money when you bail them out when a too big to fail company fails. There's no reason to bail companies out.

badsock 11y ago

I'd be happy with just a minimum vesting term for options, like 5 or 10 years. That way they're in the same boat as the rest of us schmucks who can't go golden-parachute job-hopping every few quarters. Something that would motivate them to make decisions in the interest of the company's overall future, not just the next earnings report.

prostoalex 11y ago
How many shareholders are pursuing 5 to 10-year horizons? It seems like most shareholders today are just shareflippers, and if all the shareholders care about is next quarter's earnings report, they will inevitably hire staff that mirrors their interests. Perhaps moving long-term capital gains tax benefit from 12 months to something like 60, and taxing the rest at regular income rates would change the game.

randyrand 11y ago

There's no reason to limit that kind of obviously beneficial practice to just the CEO. Imagine how beneficial it would be to apply it to all the employees. Company is earning money? You get your paycheck. Company is losing money? Cough up.

lfam 11y ago
Sounds like a co-op.
lostcolony 11y ago
Having to cough up is, I agree, excessive. But having a CEO's compensation tied to performance is the same as all the schmucks under him have to deal with. Only, while they're on the hook for delivering, he's on the hook for providing vision. So making it take 5 years to vest or similar, so the effects of his decisions can be seen, and he has to plan long term, seems sensible. In the same way that tying a worker bee's bonuses to the delivery of a project seems sensible.
- randyrand 11y ago
  Yup. Stock and options and delayed vesting are frequently used for these reasons. From normal employees all the way up to the CEO.

randyrand 11y ago

Things that would happen: - CEO like any other investor is driven to apply mostly by speculation. - CEOs would bail ship very quickly when things turn sour - Failing companies would be doomed to fail as no one wants to be their CEO. Competition decreases as companies become more volatile on the downside. As for the upside? - HN and reddit pitchfork mobs are happy as they are less jealous of CEOs. IMO, definitely worth it. Every company should implement this idea.

pcurve 11y ago

I would basically like to see stock options eliminated. If you want shares of company, you need to buy it just like everybody else. With your taxed income. This makes decisions to buy stocks much harder, and it will really show you're putting money where your mouth.

jazzyk 11y ago
The idea behind stock option grants was to tie CEO's pay to the company's performance.Good idea, but It is not quite working out because CEOs are primarily interested in pumping up the stock price short-term, rather than in long-term health of the company. The vesting period should be spread over 5 years or so. I would also grade company's performance relative to its peers/competitors/industry, not on just the stock price growth, which may be caused by other factors (like the Fed inflating markets through ZIRP).
- pcurve 11y ago
  Agreed. I would just like to see it go away for everyone, period. With options, it always feels like paper money, so those granting it do so in huge amount without proper consideration for its true costs to shareholders. It's not just CEOs making obscene amount of money. Many ordinary executives are routinely granted high six, 7 figure worth of options on the backs of their employees and shareholders. 1/3rd of the top 1% are company executives.
herval 11y ago
What would be your perceived benefit of that (specifically for employees)?

erikpukinskis 11y ago

I think the popularly accepted notion of "market rates" basically leads to a social status ladder with the kind of jobs that "high class people" tend to do at the top and "low class work" at the bottom, and there might be a correlation with how much each person contributes to the bottom line of the company, but it is my belief that the within-groups variation is larger than the between-groups variation, which makes it basically a farce. The best support person is probably bringing in more revenue than the worst engineer while making less money. This system endures because if you are in a higher class, there is no incentive to upset the popular notion of market rates. The top half of the pyramid tends to control pay, and why wouldn't they want a graduated scale based on status? As engineers, we protect this status by releasing our tools when they are robust and easy enough for ourselves and other professional engineers but stop short of polishing our tools until an end-user could use them. We also maintain a complex set of cultural practices that need to be navigated in order to get access to additional layers of information and institutional knowledge. It's in our interest to prevent people from getting in, because under the Market Rates system, that's how you make more money. CEOs are just another tier in that system. Like engineers, they keep their knowledge amongst themselves, and require you to work up the ladder in order to get the information and knowledge you need to access successive tiers. I wish more people would spend more energy in actually trying to tease apart where profits are coming from and give compensation based on that. Or, even better: expect everyone to make a full-bodied human contribution and recognize that that's what is truly valuable, and no human is more valuable than any other. I realize that's a little too woo-woo for many people, and I respect that. Maybe do the profit-assignment model then. But I really wish people would stop talking about "market rates" as if it's anything other than rent-seeking on a cultural scale.

mturmon 11y ago

You believe you found a problem, but your objection was addressed and dismissed in an evidence-based fashion in TFA: "The idea that high CEO pay is ultimately due to poor corporate governance is a commonplace [...] Yet as an explanation for why CEOs get paid so much more today than they once did, Stiglitz’s argument is unsatisfying. After all, back in the 1960s and 1970s, when CEOs were paid much less, corporate governance was, by any measure, considerably worse than it is today [...] "Shareholders, meanwhile, had fewer rights and were less active. Since then, we’ve seen a host of reforms that have given shareholders more power and made boards more diverse and independent. If CEO compensation were primarily the result of bad corporate governance, these changes should have had at least some effect. They haven’t. In fact, CEO pay has continued to rise at a brisk rate."

tsotha 11y ago

>I'd like to see CEOs treated like true investors. Want to make 50 million if the company does well? Cool. Company loses money? You owe $60 million. I'd like to see people not worry about what other people get paid. Unless you're a shareholder, what difference does it make? It's not your money.

enraged_camel 11y ago
It makes a difference when someone is paid several orders of magnitude more than others in the company because it massively increases inequality, which affects everyone.
- tsotha 11y ago
  How?
  - ci5er 11y ago
    I've kept this thread open in a tab for days now hoping you would get a coherent answer. Because being 'anti-poverty', I get. Extreme poverty sucks. But being anti-inequality in a small-world networked, coupled, non-linear dynamic system just seems like being against the laws of physics or math (to me). I'm going to close this tab now. If you ever get a (coherent) response, would you drop me a line letting me know that you have underneath this comment?
sumedh 11y ago
> Company loses money? You owe $60 million. How about the CEO does not get a golden parachute? > Unless you're a shareholder, what difference does it make? It's not your money. It is your money when you bail them out when a too big to fail company fails.
- tsotha 11y ago
  >How about the CEO does not get a golden parachute? How about we let the CEO and the board work it out? >It is your money when you bail them out when a too big to fail company fails. There's no reason to bail companies out.