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Partly, the emphasis on extreme short term gains, in turn accentuated by short term trading (options) and HFTs disincentivizes any management actions that try t

Partly, the emphasis on extreme short term gains, in turn accentuated by short term trading (options) and HFTs disincentivizes any management actions that try to optimize for the long term. The CEO will be under tremendous pressure if he/she tries to optimize for a 1 year timeframe (for example) as opposed to quarter-by-quarter. I wish boards can come up with a compensation structure for execs which optimizes for long term.

Bartweiss 7y ago
> The CEO will be under tremendous pressure if he/she tries to optimize for a 1 year timeframe (for example) as opposed to quarter-by-quarter. Its bizarre to talk to well-meaning execs (even below C-suite) at public companies and hear them overtly say this. "Well we know X and Y are sound investments for the company's success, but it's a question of finding a way to sell something that long-term without tanking our stock price." I try not to cry market inefficiency without good evidence, but "shareholders promote good corporate governance" starts feeling pretty bizarre when the people running a company describe shareholders like corporate raiders encouraging them to destroy value for a quick payout. > I wish boards can come up with a compensation structure for execs which optimizes for long term. For all the talk about "when founders should get out of the way" and "what makes a good founder doesn't always make a good CEO", it's interesting to see that research still finds companies with founder-CEOs performing substantially better. Higher share prices (which might stem from overconfidence), but also better long-term financials, more R&D spending, more influential patent filings, etc. And that doesn't necessarily mean founders are super-geniuses, exceptional managers, or even unusually attuned to their market. They get less of their salaries in cash, hold options and stocks longer, and vary their behavior less in response to compensation structure. (Also, they often hold so much stock they can't sell in full without panicking the market.) So it really does look like we just haven't found a good way to compensate non-founder CEOs: their behavior is extremely responsive to their compensation, but nobody has found a scheme that makes them act long-term to the degree a founder would.
Apocryphon 7y ago
As an aside, it’s sort of insane that there are some ideologies that consider democracies suspect because of office holders are focused on winning short-term elections, when modern corporations make decisions on even shorter timeframes!
whatshisface 7y ago
HFTs aren't related to business short-termism. Welch's short term lives on the month to month scale, HFTs live on the nanosecond scale and are mainly concerned with pricing every option in the universe down to the picopenny.
wpietri 7y ago
Absolutely. In recent decades CEO tenure has fallen by ~half, while CEO compensation is circa 10x bigger. I think that's behind a lot of current business and economic problems. Giving someone only a short time to extract a lot of money is an absolutely terrible setup for creating sustained value delivery.
- TuringNYC 7y ago
  Spot on. Any doubters can go check out GE stock. After several rounds of mining, there is nothing left in the poor rock. PS You know things are really bad when the stock chart starts to go to log price scale because it has gone down so much!
dantheman 7y ago
Look at elon musks tesla compensation - extremely long term and ambitious.

Bartweiss 7y ago

> The CEO will be under tremendous pressure if he/she tries to optimize for a 1 year timeframe (for example) as opposed to quarter-by-quarter. Its bizarre to talk to well-meaning execs (even below C-suite) at public companies and hear them overtly say this. "Well we know X and Y are sound investments for the company's success, but it's a question of finding a way to sell something that long-term without tanking our stock price." I try not to cry market inefficiency without good evidence, but "shareholders promote good corporate governance" starts feeling pretty bizarre when the people running a company describe shareholders like corporate raiders encouraging them to destroy value for a quick payout. > I wish boards can come up with a compensation structure for execs which optimizes for long term. For all the talk about "when founders should get out of the way" and "what makes a good founder doesn't always make a good CEO", it's interesting to see that research still finds companies with founder-CEOs performing substantially better. Higher share prices (which might stem from overconfidence), but also better long-term financials, more R&D spending, more influential patent filings, etc. And that doesn't necessarily mean founders are super-geniuses, exceptional managers, or even unusually attuned to their market. They get less of their salaries in cash, hold options and stocks longer, and vary their behavior less in response to compensation structure. (Also, they often hold so much stock they can't sell in full without panicking the market.) So it really does look like we just haven't found a good way to compensate non-founder CEOs: their behavior is extremely responsive to their compensation, but nobody has found a scheme that makes them act long-term to the degree a founder would.

Apocryphon 7y ago

As an aside, it’s sort of insane that there are some ideologies that consider democracies suspect because of office holders are focused on winning short-term elections, when modern corporations make decisions on even shorter timeframes!

whatshisface 7y ago

HFTs aren't related to business short-termism. Welch's short term lives on the month to month scale, HFTs live on the nanosecond scale and are mainly concerned with pricing every option in the universe down to the picopenny.

wpietri 7y ago

Absolutely. In recent decades CEO tenure has fallen by ~half, while CEO compensation is circa 10x bigger. I think that's behind a lot of current business and economic problems. Giving someone only a short time to extract a lot of money is an absolutely terrible setup for creating sustained value delivery.

TuringNYC 7y ago
Spot on. Any doubters can go check out GE stock. After several rounds of mining, there is nothing left in the poor rock. PS You know things are really bad when the stock chart starts to go to log price scale because it has gone down so much!

dantheman 7y ago

Look at elon musks tesla compensation - extremely long term and ambitious.