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The reason is that the market value of companies who pay 39x is less than those who pay 40x. 40 may not be the perfect number, but the market is working toward
by johnrob 16y ago
The reason is that the market value of companies who pay 39x is less than those who pay 40x. 40 may not be the perfect number, but the market is working toward finding it.
In other words, CEOs get paid X under the premise that they will cause the value of the company to increase by more than X.
- three14 16y agoI don't understand why people assume efficient markets. This is a good example of a market where I'd assume that the market is not efficient - there are poor information flows about CEO value; empirically, CEOs who are paid a lot don't often seem to steer their companies well; there are skewed incentives for the board since board members may very well be CEOs at other companies; there's very indirect shareholder control over pay; the company as a whole is unlikely to fail if they overpay since CEO pay is usually a small part of the whole budget, etc. Shouldn't you have to prove the surprising premise that the market is working?