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> Unless the shareholders are idiots or impotent and the board set the wrong incentives. That's quite a big leap. Humans are exceptionally good at gaming objec
by virgilp 6y ago
> Unless the shareholders are idiots or impotent and the board set the wrong incentives.
That's quite a big leap. Humans are exceptionally good at gaming objective metrics if that's all that matters... setting the right incentives is by no means something any non-idiot can do; it's in fact exceptionally rare to find people able to set right incentives for an entire organization (or for it's leadership; if the leadership doesn't inherently have the right motivation, I don't actually think you can fix that via a set of incentives; probably the best you can do is constantly-modifying incentives, tracking aggressively any sign of misaligned motivation etc)
- eru 6y agoYes, that is indeed a problem. However, CEO and shareholders are playing a repeated game here. So they can retro-actively reward last years performance by giving more (or less) money for next year. Mostly, shareholders do want CEOs to take some amount of risk. And giving your CEO eg stock options means you want to encourage risk taking. If you want your CEO to be careful, you pay them in eg long term company debt instead. Exactly how you align the precise risk appetites is a harder problem. And there might be some loopholes clever management can exploit. But the broad strokes are clear.
- appleflaxen 6y ago> Humans are exceptionally good at gaming objective metrics if that's all that matters I think that's OP's point: the board should understand that, and set them appropriately.
- virgilp 6y agoAnd my point is that's basically impossible to "set them appropriately", and one shouldn't throw around strong words such as "idiots or impotents" for those failing to do so. Did the board fail in its mission? Obviously. But do only the idiots fail?