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More than CEO salaries themselves, due to tax laws and McKinsey style advice, CEOs have huge incentive pay schemes. Most of these are tied to the stock price.
by cameldrv 7y ago
More than CEO salaries themselves, due to tax laws and McKinsey style advice, CEOs have huge incentive pay schemes. Most of these are tied to the stock price. This does two things:
1. The stock market effectively becomes the CEO. The stock market is not a very good CEO because it doesn't have access to all of the detailed information that the CEO and the board do, and so it must go based on the numbers it receives and obvious metrics. A CEO of a private company can explain himself and his strategy at length to a board of directors who can give a lot of time and has access to private company information. This lets them potentially act at a much longer time horizon. This is essentially the Berkshire Hathaway thesis, and it's worked well for them.
2. The natural balance of interests between the stockholders, the workers, and the community, enforced by social norms, is disrupted, and only the stockholders interests are respected, because the CEO has a much stronger personal interest in the stock under an incentive scheme.
- WalterBright 7y agoA long time ago, Bill Gates was asked if he adjusted things to make the stock rise. He said he didn't pay any attention to the stock price - he concentrated on making profits and the stock price took care of itself. It reminds me of when Senna (Formula 1) was asked what his strategy for winning was. He replied: "start in the pole position, and stay in front."
- jariel 7y agoHis Finance Team 100% made adjustments to the finances, that's their job. Mostly though it's to 'smooth' earnings and match expectations. The market really likes predictability and consistency.
- manigandham 7y agoSame thing Jeff Bezos says with Amazon. Focus on the business and the stock price will follow.
- techslave 7y agoi’ve not found this senna quote. is it on video or in print somewhere? would love to see it in context
- WalterBright 7y agoI'm sorry I don't remember where I saw it. It was a long time ago. I remember the quote itself only because I loved it :-)