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Something I find curious is the degree to which HN seems to want to break out the torches and pitchforks when a CEO profits handsomely by increasing shareholder

Something I find curious is the degree to which HN seems to want to break out the torches and pitchforks when a CEO profits handsomely by increasing shareholder value. There doesn't seem to be the same animus towards ordinary developers becoming millionaires in a few short years by getting lucky and landing at the right unicorn startup pre-IPO. CEOs interests are aligned perfectly in this situation: increase shareholder value. The vast bulk of CEO pay is derived from the stock that's granted to them and vested over time just like it would be for any employee that received RSUs or stock options. I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk. A big part of my compensation is commission and another big part is RSUs. If I don't deliver results and if I don't align my goals with that of the major shareholders and the market, I don't make as much money. I don't see how this contravenes the startup/get-rich zeitgeist here in HN. Capitalism for me but not for thee?

maxerickson 9y ago
I'm not particularly animated by the issue but I'm also not convinced the compensation has much to do with relative ability and performance. It's based on lucky positioning and risk averse ass covering (the board thinks it is more defensible to pay lots for a star than take a risk paying less).
- Nrsolis 9y ago
  Who gets to decide this? As I understand it, it's the board of directors that put together a compensation committee. It's not like they are spending your money. They're spending the shareholder's money. If only you owned stock in CVS or Aetna you'd be able to make your voice heard.
  - maxerickson 9y ago
    What's your point? You think I should keep my opinion to myself or something?
    - Nrsolis 9y ago
      I don't understand the animus towards CEO pay. It can easily be applied to any major celebrity or athlete. If anyone could do what they do, they'd be paid accordingly. The market (via the shareholders) sets the rate of pay. Why the general public cares about one and not the other is beyond me.
      - maxerickson 9y ago
        My post questions the ability of the market to price CEO value a lot more than it expresses outrage. Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention. A more rational species would substitute cheaper entertainment.
        bkanber 9y ago
        > Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention. And a Fortune 500 CEO's pay is a natural consequence of being a Fortune 500 CEO. There are only 500 of them. This is the top of the game, just like pro athletes. > A more rational species would substitute cheaper entertainment. But we aren't, and we don't.
      - jimbokun 9y ago
        "If anyone could do what they do, they'd be paid accordingly." This is not at all self evident. There is a lot of reporting suggesting CEO compensation is not really tied to the best interests of share holders. As cited elsewhere in this thread: http://www.berkshirehathaway.com/letters/2005ltr.pdf http://www.berkshirehathaway.com/letters/2005ltr.pdf
- bkanber 9y ago
  You're right, partially. The thing about free markets is that the average value across all data points will converge to the free market value, and there are outliers on both sides. There are lots of CEOs that are under-paid for their abilities as well as lots of CEOs that are over-paid for their abilities. If you were to look at all CEO salaries averaged over all companies in an industry, you probably would get a pretty fair view of what the average CEO is worth, but of course an N=1 can deviate greatly from the average. A company's performance may be strongly correlated to a CEO's ability and performance, or not. These salaries aren't set algorithmically and there's no way to predict ahead of time exactly what the impact of a given person on an organization will be. Past performance is not a guarantee of future returns, but there's really nothing else to determine CEO salary by except for experience, fit, and past performance. The salaries are set by whatever the board and shareholders are willing to pay, which is influenced by all the data (objective and subjective alike) -- a central tenet of free markets. The truth is there's really no other way to do it.
  - maxerickson 9y ago
    You are begging the question. First you have to prove that the CEO market is efficient. Then you can praise the free hand.
    - bkanber 9y ago
      All free and competitive markets are taken to be efficient. In a market where a million wannabe-CEOs are vying for one of the top 500 spots, you get tough competition and the compensation is commensurate with the level of competition.
      - maxerickson 9y ago
        Lots of people willing to do the job should drive down the compensation. High compensation is partly a result of businesses choosing from a small pool of candidates...
        9y ago
pg314 9y ago
> CEOs interests are aligned perfectly in this situation: increase shareholder value. That is wrong. The CEO's risk is asymmetric. Huge upside with limited downside, which encourages reckless risk taking. It is also shorter term (until his grants vest), encouraging short term profit over long term value. > I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk. Is the CEO not an employee? Why would he be owed a share of the capital gain, and other workers not?
- Nrsolis 9y ago
  His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO. I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't. I'd also suggest you try the job of leading people and groups of that size. There are very few who can do this sort of work effectively. Also consider that a CEO has to consider the types of challenges he or she would like to tackle. A Board of Directors is shopping for talent and trying to get the right fit. Why does a CEO not get the same opportunity to negotiate a pay package?
  - s73ver_ 9y ago
    "His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO." But what actual risk is the CEO taking? Sure, the board might decide to let them go. But that usually comes with a multi-million dollar severance package. They're not hurting. There is no practical downside. On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own. "I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't." They land on their feet more often than not. And, again, they're not hurting for money. If they don't find another job, their children are not going to go hungry.

maxerickson 9y ago

I'm not particularly animated by the issue but I'm also not convinced the compensation has much to do with relative ability and performance. It's based on lucky positioning and risk averse ass covering (the board thinks it is more defensible to pay lots for a star than take a risk paying less).

Nrsolis 9y ago
Who gets to decide this? As I understand it, it's the board of directors that put together a compensation committee. It's not like they are spending your money. They're spending the shareholder's money. If only you owned stock in CVS or Aetna you'd be able to make your voice heard.
- maxerickson 9y ago
  What's your point? You think I should keep my opinion to myself or something?
  - Nrsolis 9y ago
    I don't understand the animus towards CEO pay. It can easily be applied to any major celebrity or athlete. If anyone could do what they do, they'd be paid accordingly. The market (via the shareholders) sets the rate of pay. Why the general public cares about one and not the other is beyond me.
    - maxerickson 9y ago
      My post questions the ability of the market to price CEO value a lot more than it expresses outrage. Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention. A more rational species would substitute cheaper entertainment.
      - bkanber 9y ago
        > Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention. And a Fortune 500 CEO's pay is a natural consequence of being a Fortune 500 CEO. There are only 500 of them. This is the top of the game, just like pro athletes. > A more rational species would substitute cheaper entertainment. But we aren't, and we don't.
    - jimbokun 9y ago
      "If anyone could do what they do, they'd be paid accordingly." This is not at all self evident. There is a lot of reporting suggesting CEO compensation is not really tied to the best interests of share holders. As cited elsewhere in this thread: http://www.berkshirehathaway.com/letters/2005ltr.pdf http://www.berkshirehathaway.com/letters/2005ltr.pdf
bkanber 9y ago
You're right, partially. The thing about free markets is that the average value across all data points will converge to the free market value, and there are outliers on both sides. There are lots of CEOs that are under-paid for their abilities as well as lots of CEOs that are over-paid for their abilities. If you were to look at all CEO salaries averaged over all companies in an industry, you probably would get a pretty fair view of what the average CEO is worth, but of course an N=1 can deviate greatly from the average. A company's performance may be strongly correlated to a CEO's ability and performance, or not. These salaries aren't set algorithmically and there's no way to predict ahead of time exactly what the impact of a given person on an organization will be. Past performance is not a guarantee of future returns, but there's really nothing else to determine CEO salary by except for experience, fit, and past performance. The salaries are set by whatever the board and shareholders are willing to pay, which is influenced by all the data (objective and subjective alike) -- a central tenet of free markets. The truth is there's really no other way to do it.
- maxerickson 9y ago
  You are begging the question. First you have to prove that the CEO market is efficient. Then you can praise the free hand.
  - bkanber 9y ago
    All free and competitive markets are taken to be efficient. In a market where a million wannabe-CEOs are vying for one of the top 500 spots, you get tough competition and the compensation is commensurate with the level of competition.
    - maxerickson 9y ago
      Lots of people willing to do the job should drive down the compensation. High compensation is partly a result of businesses choosing from a small pool of candidates...
      - 9y ago

pg314 9y ago

> CEOs interests are aligned perfectly in this situation: increase shareholder value. That is wrong. The CEO's risk is asymmetric. Huge upside with limited downside, which encourages reckless risk taking. It is also shorter term (until his grants vest), encouraging short term profit over long term value. > I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk. Is the CEO not an employee? Why would he be owed a share of the capital gain, and other workers not?

Nrsolis 9y ago
His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO. I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't. I'd also suggest you try the job of leading people and groups of that size. There are very few who can do this sort of work effectively. Also consider that a CEO has to consider the types of challenges he or she would like to tackle. A Board of Directors is shopping for talent and trying to get the right fit. Why does a CEO not get the same opportunity to negotiate a pay package?
- s73ver_ 9y ago
  "His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO." But what actual risk is the CEO taking? Sure, the board might decide to let them go. But that usually comes with a multi-million dollar severance package. They're not hurting. There is no practical downside. On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own. "I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't." They land on their feet more often than not. And, again, they're not hurting for money. If they don't find another job, their children are not going to go hungry.