3 ms·

Well, to us, it obviously looks like too much money. But do you agree that CEO's decision making could take a company stock to anywhere between -5% and +5% its

Well, to us, it obviously looks like too much money. But do you agree that CEO's decision making could take a company stock to anywhere between -5% and +5% its current value in the next year? That's a lot of value at risk. It's orders of magnitude higher compared to the risk related to decision making of regular top management (who already earns in excess of millions).

jordanpg 5y ago
I agree about the magnitude of the risk, but it is not obvious to me that risk magnitude is proportional to compensation. Clearly there is some relationship between the two, but I don't see why it would be directly proportional. If we think of executives as machines or devices, then it makes some kind of sense, from the standpoint of a balance sheet. If there's a $5M risk, you might buy a $3M device to mitigate it and still clear $2M. To this I would observe that executives are unlike machines in several important ways. There is no guarantee that they will perform the way they are advertised, or as well. They are generally guaranteed to be lavishly paid, whether they succeed or not. Most importantly, if, as I believe, the compensations are synthetically high and there is no genuine supply and demand basis for these compensations, then there is no economic need to pay them so much. Those same jobs could be done by those same people for less. There is nothing particularly special about these people other than their ability to be identified as a magic, oh-so-wise business executive. My central premise (that I assert without evidence) is that the astronomically high compensations of these people is a social construct. It is shored up by years of legal and corporate machinations that have worked a bit too well. Not any sort of basic economic force. And now it is fait accompli.

3 ms·

Well, to us, it obviously looks like too much money. But do you agree that CEO's decision making could take a company stock to anywhere between -5% and +5% its

by villasv 5y ago

jordanpg 5y ago
I agree about the magnitude of the risk, but it is not obvious to me that risk magnitude is proportional to compensation. Clearly there is some relationship between the two, but I don't see why it would be directly proportional. If we think of executives as machines or devices, then it makes some kind of sense, from the standpoint of a balance sheet. If there's a $5M risk, you might buy a $3M device to mitigate it and still clear $2M. To this I would observe that executives are unlike machines in several important ways. There is no guarantee that they will perform the way they are advertised, or as well. They are generally guaranteed to be lavishly paid, whether they succeed or not. Most importantly, if, as I believe, the compensations are synthetically high and there is no genuine supply and demand basis for these compensations, then there is no economic need to pay them so much. Those same jobs could be done by those same people for less. There is nothing particularly special about these people other than their ability to be identified as a magic, oh-so-wise business executive. My central premise (that I assert without evidence) is that the astronomically high compensations of these people is a social construct. It is shored up by years of legal and corporate machinations that have worked a bit too well. Not any sort of basic economic force. And now it is fait accompli.