4 ms·

It looks more like the idea that paying CEOs lots of money because they are worth it really isn't working. Because they aren't worth it.

goldenkey 9y ago
Well a good CEO would ideally be someone who understands the intricacies and drawbacks of cost-cutting measures. Unfortunately, the intersection between CEOs with large personal networks, and actual chops is vanishingly small. Most experienced employees working at B&N could probably do a better job than the current CEO. But they don't play golf and know the CEOs of other large companies.
pjc50 9y ago
"The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself." -- JK Galbraith In certain failing businesses, the activities of senior management aren't directed towards trying to save the sinking ship, but to free up as much cashflow as possible and direct it to themselves. Rather than the creditors who would get it in bankruptcy. MG Rover is my go-to example, but there are plenty: https://www.theguardian.com/business/2011/may/08/mg-rover-directors-banned-collapse https://www.theguardian.com/business/2011/may/08/mg-rover-di...
TheOtherHobbes 9y ago
They're worth it to themselves. This is what you get when your business culture rewards quick profit-taking by a small sub-class of actors over long-term business building that benefits customers and employees. It's more profitable - personally - to asset strip a struggling company, even if it still has prospects, good will, and loyal employees, than to put in the creativity and hard work needed to make it prosper.
bluGill 9y ago
A good CEO, of which there are a few are worth the money. There are a few cases (Steve Jobs comes to mind) where a new CEO has come in and turned a failing company around, or a new CEO has come in and tanked a great company. If a company finds such a great CEO who leads the company into making billions, then they are worth a lot of money as reward for their efforts. Business schools have studied this. One of the strongest indications of a great CEO is how long they worked at the company before becoming CEO. The best CEOs started 20+ years ago and worked their way up the ladder (ie first job out of school). The worst CEOs were hired externally for the CEO role. There are exceptions that you can think of, but when a company brings in an outside CEO that should be a red flag: they don't have the internal development in place to make someone who knows the business the leader. Sadly investors have for the most part not caught onto this. (Warren Buffet knew is in the 1950s which is why he buys companies for their great leaders and keeps the leaders in place)
- eloisant 9y ago
  The thing is Steve Jobs was taking a $1 salary. Even if you can find a great CEO with a great plan with your company, I don't think paying him 10M$ instead of 500k will make him more efficient or be necessary to retain him. Also I don't think the CEOs salaries are a results of competition for the best (like tech workers), but CEO being generous with themselves (and their peers as they're all in each others' board).
  - bluGill 9y ago
    You are correct, but that doesn't invalidate anything I said. If someone is a great CEO for you, and they tell you they will retire to a less stressful job unless you pay them $10m it is worth it, even though you know next year (and $10m richer) they will retire. Their success over that one year should more than make up the money you spend. Of course this assumes that one more year of development is required for the next CEO to be ready. Great CEOs try to have a replacement (or several) in training at all times. Note that I'm assuming a great CEO - most are not great.
  - mratzloff 9y ago
    Jobs demanded a $40 MM private jet and large equity increases from the board.
    - eloisant 9y ago
      I'm pretty sure he was well compensated, but still - the success he had at Apple was not a consequence of his compensation. And I don't think he was more expensive than the previous Apple CEO (Gil Amelio?) or any alternative they had at the time.

goldenkey 9y ago

Well a good CEO would ideally be someone who understands the intricacies and drawbacks of cost-cutting measures. Unfortunately, the intersection between CEOs with large personal networks, and actual chops is vanishingly small. Most experienced employees working at B&N could probably do a better job than the current CEO. But they don't play golf and know the CEOs of other large companies.

pjc50 9y ago

"The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself." -- JK Galbraith In certain failing businesses, the activities of senior management aren't directed towards trying to save the sinking ship, but to free up as much cashflow as possible and direct it to themselves. Rather than the creditors who would get it in bankruptcy. MG Rover is my go-to example, but there are plenty: https://www.theguardian.com/business/2011/may/08/mg-rover-directors-banned-collapse https://www.theguardian.com/business/2011/may/08/mg-rover-di...

TheOtherHobbes 9y ago

They're worth it to themselves. This is what you get when your business culture rewards quick profit-taking by a small sub-class of actors over long-term business building that benefits customers and employees. It's more profitable - personally - to asset strip a struggling company, even if it still has prospects, good will, and loyal employees, than to put in the creativity and hard work needed to make it prosper.

bluGill 9y ago

A good CEO, of which there are a few are worth the money. There are a few cases (Steve Jobs comes to mind) where a new CEO has come in and turned a failing company around, or a new CEO has come in and tanked a great company. If a company finds such a great CEO who leads the company into making billions, then they are worth a lot of money as reward for their efforts. Business schools have studied this. One of the strongest indications of a great CEO is how long they worked at the company before becoming CEO. The best CEOs started 20+ years ago and worked their way up the ladder (ie first job out of school). The worst CEOs were hired externally for the CEO role. There are exceptions that you can think of, but when a company brings in an outside CEO that should be a red flag: they don't have the internal development in place to make someone who knows the business the leader. Sadly investors have for the most part not caught onto this. (Warren Buffet knew is in the 1950s which is why he buys companies for their great leaders and keeps the leaders in place)

eloisant 9y ago
The thing is Steve Jobs was taking a $1 salary. Even if you can find a great CEO with a great plan with your company, I don't think paying him 10M$ instead of 500k will make him more efficient or be necessary to retain him. Also I don't think the CEOs salaries are a results of competition for the best (like tech workers), but CEO being generous with themselves (and their peers as they're all in each others' board).
- bluGill 9y ago
  You are correct, but that doesn't invalidate anything I said. If someone is a great CEO for you, and they tell you they will retire to a less stressful job unless you pay them $10m it is worth it, even though you know next year (and $10m richer) they will retire. Their success over that one year should more than make up the money you spend. Of course this assumes that one more year of development is required for the next CEO to be ready. Great CEOs try to have a replacement (or several) in training at all times. Note that I'm assuming a great CEO - most are not great.
- mratzloff 9y ago
  Jobs demanded a $40 MM private jet and large equity increases from the board.
  - eloisant 9y ago
    I'm pretty sure he was well compensated, but still - the success he had at Apple was not a consequence of his compensation. And I don't think he was more expensive than the previous Apple CEO (Gil Amelio?) or any alternative they had at the time.