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The way I look at it, a good CEO can save a company millions (or even billions if it's a large company like Sony) by negotiating better contracts. That is a ski

The way I look at it, a good CEO can save a company millions (or even billions if it's a large company like Sony) by negotiating better contracts. That is a skill some CEOs have. Now, if you're going to hire a CEO with that skill, do you think he's not going to also negotiate a good contract for himself? He has that skill.

aaroninsf 9y ago
There is an unvoiced logic here that I question. The contention is that a CEO saves $x million, and thereby 'earns' some [preposterous] fraction thereof, as a finders' fee. This is a similar logic to a broker taking a percentage of a large market transaction. That part I disagree with and think many upset about CEO compensation (or market speculators/industry windfalls) is that this is earning in any meaningful way. In particular, the presumption that there is some intrinsic relationship between the compensation earned and the numbers transacted seems baseless. The CEO and market trader alike do not provide the value; they are simply in a desk where the numbers are large. The reason a CEO can 'save millions or make billions' is merely because they have been seated where their quotidian decisions (however talented) have disproportionate leverage and consequence. That is not a result of ability or skill, except in the unconvincing sense that they had the skill to weasel (my word) their way into that desk, nominally on personal merit, in fact, usually by virtue of connection and political merit. That sort of 'earning' does not pass the smell test for most of us who have not lucked into those seats, and never shall.
- nnfy 9y ago
  So management in general doesn't deserve more than $X? CEOs do much more than simply broker deals, and the rest is explained by basic market principles-good CEOs are scarce, and therefore well compensated.
  - learc83 9y ago
    There's much more to it than that. Executive compensation doesn't correlate well to company performance. Companies are historically horrible determining what makes a good CEO. Other potential explanations for inflated CEO pay (relative to previous decades) include executive compensation boards staffed by executives in similar positions from other companies, and boards that want to keep up appearances by having a highly paid CEO.
    - TheOtherHobbes 9y ago
      I think the latter is the real reason for insane comps. The logic seems to be: Rich CEO = successful company = investor opportunity No one cares about the shlubs doing the actual work. Indeed, a lot of the time no one cares about the actual work, or the long-term prospects of success.
- tertius 9y ago
  I would make the contention that it is up to the company and the board of the company to decide the compensation of any of it's employees, including the CEOs. "Luck" has a lot to do with it, but it also has a lot to do with many other types of success that most people don't have problems with.
  - michaelmrose 9y ago
    "I would make the contention that it is up to the company and the board of the company to decide the compensation of any of it's employees, including the CEOs." Is it any shock that a class of people value people in their own set over the people that actually do the work?
  - jernfrost 9y ago
    It is largely random, and heavily influenced by culture. E.g. CEOs in different countries make vastly different salaries yet don't have noticeable difference in performance or outcomes. CEO salaries has more to do with political ideology of a country than market realities. It is no coincidence that the country were people have the most unrelenting belief in the magic powers of the individual, America, also pays their CEOs the highest. Also no coincidence it happened after the 80s philosophy of "greed is good". Research, logic, and reason simply doesn't support the myth of the CEO. But board members and CEOs themselves like to indulge in that myth.
MikeTheGreat 9y ago
I'm curious - is it common to hire CEOs and then compensate them with a commission of their negotiated savings? I'm sure that the devil is in the details, but for a company that is already up-and-running it seems like it should be possible to measure how much the company is spending currently, then how much less the company spent after the CEO negotiated, and then give the CEO a fraction of that.
- argv_empty 9y ago
  That seems like what stock compensation is aimed at. If the company gets a better deal on something, it retains more of its assets and is thus worth more to its owners.
  - MikeTheGreat 9y ago
    Yeah, but the stock price is affected by too many factors to make the argument that it's a good proxy for any one thing. Certainly, the stock value isn't going to rise or fall appreciably for most of the deals that the CEO will negotiate - it would have to be big enough to 'make the news' and/or show up in a press release, at a minimum. I feel like I've heard the argument that "CEOs negotiate great deals and that helps to justify their compensation" before, but I've never heard of anyone actually basing a compensation schema on that directly. Given that we live an an Era Of Data I'd expect companies to be doing this (or trying to do this).
    - lmm 9y ago
      The stock price is what the investors value; they want the CEO to increase it by whatever means. Any other incentive structure would presumably lead the stock price to fall, or rise less, which wouldn't be what they want.
erikpukinskis 9y ago
A good customer support person can save a company millions too. Same for a good engineer or a good sales person. The purpose of a company should be to support every employee to make those kinds of contributions. If they can only happen at the top it's probably because the employees at the bottom are handcuffed, which totally negates the million dollar contributions the CEO is making.
jernfrost 9y ago
CEOs don't generally get a high salary because their amazing negotiation skills. It is far more mundane than that. Also you perpetuate simply a myth about how amazing a CEO is for a company. He/she simple isn't. See: http://blog.translusion.com/posts/CEO%20Salaries/ http://blog.translusion.com/posts/CEO%20Salaries/

aaroninsf 9y ago

There is an unvoiced logic here that I question. The contention is that a CEO saves $x million, and thereby 'earns' some [preposterous] fraction thereof, as a finders' fee. This is a similar logic to a broker taking a percentage of a large market transaction. That part I disagree with and think many upset about CEO compensation (or market speculators/industry windfalls) is that this is earning in any meaningful way. In particular, the presumption that there is some intrinsic relationship between the compensation earned and the numbers transacted seems baseless. The CEO and market trader alike do not provide the value; they are simply in a desk where the numbers are large. The reason a CEO can 'save millions or make billions' is merely because they have been seated where their quotidian decisions (however talented) have disproportionate leverage and consequence. That is not a result of ability or skill, except in the unconvincing sense that they had the skill to weasel (my word) their way into that desk, nominally on personal merit, in fact, usually by virtue of connection and political merit. That sort of 'earning' does not pass the smell test for most of us who have not lucked into those seats, and never shall.

nnfy 9y ago
So management in general doesn't deserve more than $X? CEOs do much more than simply broker deals, and the rest is explained by basic market principles-good CEOs are scarce, and therefore well compensated.
- learc83 9y ago
  There's much more to it than that. Executive compensation doesn't correlate well to company performance. Companies are historically horrible determining what makes a good CEO. Other potential explanations for inflated CEO pay (relative to previous decades) include executive compensation boards staffed by executives in similar positions from other companies, and boards that want to keep up appearances by having a highly paid CEO.
  - TheOtherHobbes 9y ago
    I think the latter is the real reason for insane comps. The logic seems to be: Rich CEO = successful company = investor opportunity No one cares about the shlubs doing the actual work. Indeed, a lot of the time no one cares about the actual work, or the long-term prospects of success.
tertius 9y ago
I would make the contention that it is up to the company and the board of the company to decide the compensation of any of it's employees, including the CEOs. "Luck" has a lot to do with it, but it also has a lot to do with many other types of success that most people don't have problems with.
- michaelmrose 9y ago
  "I would make the contention that it is up to the company and the board of the company to decide the compensation of any of it's employees, including the CEOs." Is it any shock that a class of people value people in their own set over the people that actually do the work?
- jernfrost 9y ago
  It is largely random, and heavily influenced by culture. E.g. CEOs in different countries make vastly different salaries yet don't have noticeable difference in performance or outcomes. CEO salaries has more to do with political ideology of a country than market realities. It is no coincidence that the country were people have the most unrelenting belief in the magic powers of the individual, America, also pays their CEOs the highest. Also no coincidence it happened after the 80s philosophy of "greed is good". Research, logic, and reason simply doesn't support the myth of the CEO. But board members and CEOs themselves like to indulge in that myth.

MikeTheGreat 9y ago

I'm curious - is it common to hire CEOs and then compensate them with a commission of their negotiated savings? I'm sure that the devil is in the details, but for a company that is already up-and-running it seems like it should be possible to measure how much the company is spending currently, then how much less the company spent after the CEO negotiated, and then give the CEO a fraction of that.

argv_empty 9y ago
That seems like what stock compensation is aimed at. If the company gets a better deal on something, it retains more of its assets and is thus worth more to its owners.
- MikeTheGreat 9y ago
  Yeah, but the stock price is affected by too many factors to make the argument that it's a good proxy for any one thing. Certainly, the stock value isn't going to rise or fall appreciably for most of the deals that the CEO will negotiate - it would have to be big enough to 'make the news' and/or show up in a press release, at a minimum. I feel like I've heard the argument that "CEOs negotiate great deals and that helps to justify their compensation" before, but I've never heard of anyone actually basing a compensation schema on that directly. Given that we live an an Era Of Data I'd expect companies to be doing this (or trying to do this).
  - lmm 9y ago
    The stock price is what the investors value; they want the CEO to increase it by whatever means. Any other incentive structure would presumably lead the stock price to fall, or rise less, which wouldn't be what they want.

erikpukinskis 9y ago

A good customer support person can save a company millions too. Same for a good engineer or a good sales person. The purpose of a company should be to support every employee to make those kinds of contributions. If they can only happen at the top it's probably because the employees at the bottom are handcuffed, which totally negates the million dollar contributions the CEO is making.

jernfrost 9y ago

CEOs don't generally get a high salary because their amazing negotiation skills. It is far more mundane than that. Also you perpetuate simply a myth about how amazing a CEO is for a company. He/she simple isn't. See: http://blog.translusion.com/posts/CEO%20Salaries/ http://blog.translusion.com/posts/CEO%20Salaries/