4 ms·
Agreed. There are a lot of great studies out there that show why great-performing CEOs really are worth the money-- GREAT! But then the flip side of it is, in o
by rconti 7y ago
Agreed. There are a lot of great studies out there that show why great-performing CEOs really are worth the money-- GREAT! But then the flip side of it is, in order to attract those great CEOs, you need a comp package that looks generous enough, which includes de-risking their decision to join your company.
I wish there was a good enforcement mechanism to tie their pay to performance -- for good AND bad.
- MiroF 7y agoSource? reminder that CEO pay is negatively correlated with company success (https://www.wsj.com/articles/best-paid-ceos-run-some-of-worst-performing-companies-1469419262 https://www.wsj.com/articles/best-paid-ceos-run-some-of-wors...)
- dragonwriter 7y agoIf you assume CEOs are basically success signalling devices without active influence on success whose prestige (and thus, the success they signal) is harmed by association with failure, that makes sense: the added pay is compensation for harm to prestige.
- MiroF 7y agoYes that would probably explain the negative correlation. That said, if good CEOs actually controlled the direction of the company and were compensated higher to attract talent - I would expect that to override the negative effect for a net positive. Since that's not the case, I think as you suggest that CEOs are "without active influence on success"
- agilebyte 7y agoWhen hiring for a CEO a company that offers negative reinforcement linked to performance will lose out against a company that'll promise you the moon regardless of the performance. It's the CEOs that have their pick.
- mars4rp 7y agothe bad is not possible, if a CEO make a decision with a chance of 50/50 being a good or bad decision. if it is a good decision CEO makes lots of money, if it is bad they get 0. that is not a good thing, out of 2 monkeys throwing darts one of them will make money.
- mulmen 7y agoThats not how business or probability works.
- mars4rp 7y agoit is defiantly how probability works. if you bet on an event with 50% chance of earning $1 or 0. your bet is worth $0.50 you need the bet to worth $0, and that is only possible by making CEOs financially liable, and that would never happen, nor is realistic, a CEO's decision could cost company billions. so by this analogy the riskier the CEO's actions the outcome is greater for them. if the bet pays off, they win big, if it doesn't the shareholders lose.
- dv_dt 7y agoThere are also studies that CEO pay doesn't correlate at all as a predictor of their success.
- pembrook 7y agoNumerous studies show the opposite. See here: https://www.institutionalinvestor.com/article/b1db3jy3201d38/The-MBA-Myth-and-the-Cult-of-the-CEO https://www.institutionalinvestor.com/article/b1db3jy3201d38... ...TL;DR version here: https://eomail1.com/preview?p=d9e18eae-6673-11e9-9307-06b4694bee2a&pt=campaign&t=1556101007&s=fad440ca5338bc1a92a229534c3562917c431f245224f98024e530365a4868e5 https://eomail1.com/preview?p=d9e18eae-6673-11e9-9307-06b469... ...here's another: https://www.wsj.com/articles/best-paid-ceos-run-some-of-worst-performing-companies-1469419262 https://www.wsj.com/articles/best-paid-ceos-run-some-of-wors... ...and here's another: https://www.epi.org/blog/ceo-pay-still-not-related-to-performance/ https://www.epi.org/blog/ceo-pay-still-not-related-to-perfor...
- rhizome 7y agoPlease link to three of those studies.