4 ms·

> Entrepreneurial reward for managerial duty. That is such a perfect way to sum up the pay disparities in large corporations these days. I have no problem wha

> Entrepreneurial reward for managerial duty. That is such a perfect way to sum up the pay disparities in large corporations these days. I have no problem whatsoever with someone making $300MM from the sale of the business they created, but making the same amount for manning a desk? Seems like madness.

ScottBev 9y ago
Depends on what they accomplish during their tenure. I've seen non-founder CEOs take a $100M business to $4B, and others take a $4B to $500M. $100M to $4B deserves the reward.
- bedhead 9y ago
  There are exceptions, but even then they're not only few and far between, but also occupy a vague area where it's all one big counterfactual argument about whether someone else could've done the same thing and whether the die was largely cast anyway.
- freehunter 9y ago
  That's where stock instead of cash makes sense. If you are solely responsible for the direction of the company and overseeing the execution of that direction like a c-level executive, you should get paid in stock. If you do your job right, your stock value goes up and you become richer as a reward for doing a good job. If you do poorly, you lose money as a punishment. If a CEO is making $100m per year in cash, there is no incentive to do a good job. Especially if they do so poorly they get fired, which means they get a $500m bonus as a reward for being fired.
- MrBuddyCasino 9y ago
  The whole problem is that CEO pay is not correlated to performance, and performance metrics can be gamed if they are not long-term.
  - zymhan 9y ago
    That's not true, CEOs are increasingly compensated in stock options, which are at least theoretically correlated with performance. https://www.washingtonpost.com/news/on-leadership/wp/2014/02/11/how-stock-options-lead-ceos-to-put-their-own-interests-first/ https://www.washingtonpost.com/news/on-leadership/wp/2014/02... https://www.bloomberg.com/news/articles/2017-09-21/key-question-on-equifax-options-trade-is-who-initiated-the-order https://www.bloomberg.com/news/articles/2017-09-21/key-quest...
    - jgamman 9y ago
      share buy backs...
- kbart 9y ago
  Yeah, so CEO just single-handedly drove company from $100M business to $4B and the rest of company workers had nothing to do with it? Or did they all received multi-million compensation for that? Nobody denies that CEOs have huge impact on company as they make strategical decisions, but their compensation is vastly exaggerated just because they are first in the line after money, can see how much company really makes and accurately measure their actions in monetary value imho. The last part is especially important, because every time I've asked for a raise the first question is: "what did you do for a company and what positive impact it has had?". Answering that question in lines of: "oh, I made that decision which increased every worker's efficiency by 300% doing this operation thus saving company X millions, here's a chart to prove it" is much stronger than saying: "I wrote a tool that saves my co-workers extra few clicks, nothing fancy actually", even though when talking about the same thing.
alehul 9y ago
To be fair, Elon Musk has done a lot while 'manning the desk' for Tesla (he wasn't involved until after he led their Series A round). It's tough to distinguish who 'created' a company in situations like those — do we define it by the original incorporation papers, or by who had the largest effect on turning the company into what it is today? Where do we draw that line?
karlkatzke 9y ago
The right person manning that desk is worth a lot to the business. It's a huge gamble from the business's point of view, so they pay more to make sure that the right person is there. Bad management has cost the last company I worked for millions of dollars this year. I don't know why it's SO disparate, but it's way more than manning a desk.
- plandis 9y ago
  Doesn't this case prove that this is faulty thinking? The company loses but the CEO makes out with hundreds of millions.
elihu 9y ago
I think part of the reason for extravagant compensation (especially stock options) for executives is that it ensures that the incentives of the executives are aligned with the stockholders and not the employees. From time to time, a CEO will have to choose between increasing employee compensation and benefits or increasing profits or dividends. The CEO works with employees all the time and most normal human beings would naturally tend to side with the employees because they're the ones that are working hard to generate the profits that the shareholders receive. Stock options create a financial incentive to override that tendency, so that the CEO will side with shareholders more often. An interesting thought experiment is to consider: what would happen to a CEO if he or she refused to accept stock options and would only agree to a modest salary? What would the board of directors do? Would they be happy that the CEO is being a responsible steward of the company's finite resources, or would they regard the CEO as untrustworthy and remove him/her at the first opportunity? Perhaps stock options aren't a "reward" for services rendered, but in fact one of the necessary qualifications for holding the office.
- bussierem 9y ago
  >From time to time, a CEO will have to choose between increasing employee compensation and benefits or increasing profits or dividends. The CEO works with employees all the time and most normal human beings would naturally tend to side with the employees because they're the ones that are working hard to generate the profits that the shareholders receive. Do we live in the same world? In all seriousness, not meaning to be a jerk - this is not how corporations or CEOs think. They don't "work with the employees all the time". They don't choose employee compensation/benefits over increasing profits. We're lucky that they _sometimes_ choose "minimizing deaths" over profit, and even that track record is spotty at best.
  - elihu 9y ago
    What I meant by "work with" is that CEOs work in proximity to and interact with employees pretty much every work day. I didn't mean to imply that their interests were aligned. I assume most CEOs don't talk to their board of directors every day. Most normal people will empathize with and want to please the people they work with to achieve some common goal (i.e. create a good product, grow the business, and beat their competitors). To the stockholders, that would be an undesirable trait, and so the board of directors gives the CEO stock options to encourage the CEO's self-interest to override his or her innate desire (if it exists) to treat employees well at the expense of profits and dividends.

ScottBev 9y ago

Depends on what they accomplish during their tenure. I've seen non-founder CEOs take a $100M business to $4B, and others take a $4B to $500M. $100M to $4B deserves the reward.

bedhead 9y ago
There are exceptions, but even then they're not only few and far between, but also occupy a vague area where it's all one big counterfactual argument about whether someone else could've done the same thing and whether the die was largely cast anyway.
freehunter 9y ago
That's where stock instead of cash makes sense. If you are solely responsible for the direction of the company and overseeing the execution of that direction like a c-level executive, you should get paid in stock. If you do your job right, your stock value goes up and you become richer as a reward for doing a good job. If you do poorly, you lose money as a punishment. If a CEO is making $100m per year in cash, there is no incentive to do a good job. Especially if they do so poorly they get fired, which means they get a $500m bonus as a reward for being fired.
MrBuddyCasino 9y ago
The whole problem is that CEO pay is not correlated to performance, and performance metrics can be gamed if they are not long-term.
- zymhan 9y ago
  That's not true, CEOs are increasingly compensated in stock options, which are at least theoretically correlated with performance. https://www.washingtonpost.com/news/on-leadership/wp/2014/02/11/how-stock-options-lead-ceos-to-put-their-own-interests-first/ https://www.washingtonpost.com/news/on-leadership/wp/2014/02... https://www.bloomberg.com/news/articles/2017-09-21/key-question-on-equifax-options-trade-is-who-initiated-the-order https://www.bloomberg.com/news/articles/2017-09-21/key-quest...
  - jgamman 9y ago
    share buy backs...
kbart 9y ago
Yeah, so CEO just single-handedly drove company from $100M business to $4B and the rest of company workers had nothing to do with it? Or did they all received multi-million compensation for that? Nobody denies that CEOs have huge impact on company as they make strategical decisions, but their compensation is vastly exaggerated just because they are first in the line after money, can see how much company really makes and accurately measure their actions in monetary value imho. The last part is especially important, because every time I've asked for a raise the first question is: "what did you do for a company and what positive impact it has had?". Answering that question in lines of: "oh, I made that decision which increased every worker's efficiency by 300% doing this operation thus saving company X millions, here's a chart to prove it" is much stronger than saying: "I wrote a tool that saves my co-workers extra few clicks, nothing fancy actually", even though when talking about the same thing.

alehul 9y ago

To be fair, Elon Musk has done a lot while 'manning the desk' for Tesla (he wasn't involved until after he led their Series A round). It's tough to distinguish who 'created' a company in situations like those — do we define it by the original incorporation papers, or by who had the largest effect on turning the company into what it is today? Where do we draw that line?

karlkatzke 9y ago

The right person manning that desk is worth a lot to the business. It's a huge gamble from the business's point of view, so they pay more to make sure that the right person is there. Bad management has cost the last company I worked for millions of dollars this year. I don't know why it's SO disparate, but it's way more than manning a desk.

plandis 9y ago
Doesn't this case prove that this is faulty thinking? The company loses but the CEO makes out with hundreds of millions.

elihu 9y ago

I think part of the reason for extravagant compensation (especially stock options) for executives is that it ensures that the incentives of the executives are aligned with the stockholders and not the employees. From time to time, a CEO will have to choose between increasing employee compensation and benefits or increasing profits or dividends. The CEO works with employees all the time and most normal human beings would naturally tend to side with the employees because they're the ones that are working hard to generate the profits that the shareholders receive. Stock options create a financial incentive to override that tendency, so that the CEO will side with shareholders more often. An interesting thought experiment is to consider: what would happen to a CEO if he or she refused to accept stock options and would only agree to a modest salary? What would the board of directors do? Would they be happy that the CEO is being a responsible steward of the company's finite resources, or would they regard the CEO as untrustworthy and remove him/her at the first opportunity? Perhaps stock options aren't a "reward" for services rendered, but in fact one of the necessary qualifications for holding the office.

bussierem 9y ago
>From time to time, a CEO will have to choose between increasing employee compensation and benefits or increasing profits or dividends. The CEO works with employees all the time and most normal human beings would naturally tend to side with the employees because they're the ones that are working hard to generate the profits that the shareholders receive. Do we live in the same world? In all seriousness, not meaning to be a jerk - this is not how corporations or CEOs think. They don't "work with the employees all the time". They don't choose employee compensation/benefits over increasing profits. We're lucky that they _sometimes_ choose "minimizing deaths" over profit, and even that track record is spotty at best.
- elihu 9y ago
  What I meant by "work with" is that CEOs work in proximity to and interact with employees pretty much every work day. I didn't mean to imply that their interests were aligned. I assume most CEOs don't talk to their board of directors every day. Most normal people will empathize with and want to please the people they work with to achieve some common goal (i.e. create a good product, grow the business, and beat their competitors). To the stockholders, that would be an undesirable trait, and so the board of directors gives the CEO stock options to encourage the CEO's self-interest to override his or her innate desire (if it exists) to treat employees well at the expense of profits and dividends.