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The short answer to that question is yes. A good CEO will invest $200 million in a good asset (i.e. factory), resulting in a great return for the organisation.

The short answer to that question is yes. A good CEO will invest $200 million in a good asset (i.e. factory), resulting in a great return for the organisation. A bad CEO will invest $200 million in a bad asset (i.e. Tumblr, $1.1bn -> $3m) and lose their shirt. Say the decision of the good CEO makes the company $100m. How much is he worth? A lot.

devoply 7y ago
You invest in assets using tools like NPV. CEOs don't have crystal balls. Some might have a gut instinct, but then they are no different than your gambling stock trader... who might be up today and down tomorrow. It's a function of luck, not a function of ability. You have founders like Stuart Butterfield who can claim over 2-3 successes to make products worth billions. I doubt most CEOs could do the same thing.
- charlesdm 7y ago
  You're basically saying good investors don't exist and everything is priced to perfection? This could range from investing in equipment, to expanding in a new business line, to acquiring a competitor and realising synergies that someone else would not have noticed. Putting 1 and 1 together in specific business focus areas might result in 3 for the well trained eye or the smart mind. Plenty of people are good at investing (understanding how it all ties together, and understanding how they take risk) outside of the public markets. And plenty are horrible (i.e. mom and pop investing in the mutual funds of your bank).
  - rootusrootus 7y ago
    > saying good investors don't exist I am probably misremembering many key details here, but didn't Bogle make a pretty good case for this?
RobertDeNiro 7y ago
Sounds like it should be entirely commission based ? I don't think anyone sees an issue if you get a share of the amount you generated, but getting large salary without having achieved anything seems a bit unreasonable.
- criddell 7y ago
  I think that's the idea behind compensating with equity. The problem with that is it can lead to short-term thinking.
Falling3 7y ago
The question wasn't what pay was deserved for a _good CEO_. It was whether a a raise was deserved simply by being a CEO. And the fact you're pointing out - such a large difference in results between a good and bad CEO - points to the answer being "no", not "yes".
- charlesdm 7y ago
  So how should a CEO be compensated then, if you're so sure the answer here is no instead of yes?
- devcpp 7y ago
  As with all things, it's a matter of demand and offer. If a potential CEO has a choice between a company that pays well no matter what, and a gamble which could leave him out of a job and without money, he'll choose the sure outcome. On the other hand, a good CEO is such an important thing that companies will bend over backwards to meet their demands. So they do that. A few million bucks is cheap change for potentially higher earnings. You might argue that incentivizing CEOs should be more important than getting a good one, but you'll have to ask shareholders at major companies why they don't insist on that instead. Whether this is "deserved" or not is irrelevant. What matters is profitability, not fairness.

devoply 7y ago

You invest in assets using tools like NPV. CEOs don't have crystal balls. Some might have a gut instinct, but then they are no different than your gambling stock trader... who might be up today and down tomorrow. It's a function of luck, not a function of ability. You have founders like Stuart Butterfield who can claim over 2-3 successes to make products worth billions. I doubt most CEOs could do the same thing.

charlesdm 7y ago
You're basically saying good investors don't exist and everything is priced to perfection? This could range from investing in equipment, to expanding in a new business line, to acquiring a competitor and realising synergies that someone else would not have noticed. Putting 1 and 1 together in specific business focus areas might result in 3 for the well trained eye or the smart mind. Plenty of people are good at investing (understanding how it all ties together, and understanding how they take risk) outside of the public markets. And plenty are horrible (i.e. mom and pop investing in the mutual funds of your bank).
- rootusrootus 7y ago
  > saying good investors don't exist I am probably misremembering many key details here, but didn't Bogle make a pretty good case for this?

RobertDeNiro 7y ago

Sounds like it should be entirely commission based ? I don't think anyone sees an issue if you get a share of the amount you generated, but getting large salary without having achieved anything seems a bit unreasonable.

criddell 7y ago
I think that's the idea behind compensating with equity. The problem with that is it can lead to short-term thinking.

Falling3 7y ago

The question wasn't what pay was deserved for a _good CEO_. It was whether a a raise was deserved simply by being a CEO. And the fact you're pointing out - such a large difference in results between a good and bad CEO - points to the answer being "no", not "yes".

charlesdm 7y ago
So how should a CEO be compensated then, if you're so sure the answer here is no instead of yes?
devcpp 7y ago
As with all things, it's a matter of demand and offer. If a potential CEO has a choice between a company that pays well no matter what, and a gamble which could leave him out of a job and without money, he'll choose the sure outcome. On the other hand, a good CEO is such an important thing that companies will bend over backwards to meet their demands. So they do that. A few million bucks is cheap change for potentially higher earnings. You might argue that incentivizing CEOs should be more important than getting a good one, but you'll have to ask shareholders at major companies why they don't insist on that instead. Whether this is "deserved" or not is irrelevant. What matters is profitability, not fairness.