3 ms·

It seems logical, but the problem with basing executive compensation on company performance is that, in a public company, it just incentivizes the executives to

by witten 18y ago

It seems logical, but the problem with basing executive compensation on company performance is that, in a public company, it just incentivizes the executives to chase quarterly profits at the expense of medium- to long-term goals. This means that executives will do anything they can to pump up quarterly numbers, especially if they know that their tenure at the helm of their company is fairly finite.

dhimes 18y ago
In a public company, the pressure to chase quarterly profits exists anyway because of the shareholders. If company A does something of questionable morality or risk, but it nets their shareholders a lot of value, it gets hard for the executives at company B to say 'no' to the strategy, even if they know better. My suspicion is that this is why some companies start out as good and are later perceived as evil. The game changes once you have legal fiduciary responsibilities to shareholders. It seems to me that it can get very hard to defend your strategy of not maximizing profits when others around you are raking it in.
- lisp_padawan 18y ago
  indeed, corporations are in legal terms considered with legal equivalence to an individual, and a public traded company is legally bound to maximise shareholder profit, we have basically created a legal psychopath, they're (the board, ceo etc) legally bound to do anything within the law to generate profit/growth. As you say, hardly surprising that companies with mottos like 'do no evil' end up censoring bloggers in the PR of China.
jcromartie 18y ago
They do this anyway.
sanj 18y ago
I've heard this argument a lot and it seems like a solvable problem: Put the money in a 5 years escrowed account. If the changes that you made were sound and the company continues to succeed, you get it. Otherwise, you forfeit.
- ctkrohn 18y ago
  What you've just described is a stock option. This is an extremely common form of executive compensation. The problem is that it incentivizes greater (and potentially dangerous) risk taking. Greater risks increase the probability of large payouts and losses. But if there's a great loss, the CEO still makes the base salary -- he can't be held financially responsible for all the company's losses. So to the executive it doesn't really matter whether the company loses small or loses big. But there's a big difference between winning small and winning big.

by witten 18y ago

dhimes 18y ago

In a public company, the pressure to chase quarterly profits exists anyway because of the shareholders. If company A does something of questionable morality or risk, but it nets their shareholders a lot of value, it gets hard for the executives at company B to say 'no' to the strategy, even if they know better. My suspicion is that this is why some companies start out as good and are later perceived as evil. The game changes once you have legal fiduciary responsibilities to shareholders. It seems to me that it can get very hard to defend your strategy of not maximizing profits when others around you are raking it in.

lisp_padawan 18y ago
indeed, corporations are in legal terms considered with legal equivalence to an individual, and a public traded company is legally bound to maximise shareholder profit, we have basically created a legal psychopath, they're (the board, ceo etc) legally bound to do anything within the law to generate profit/growth. As you say, hardly surprising that companies with mottos like 'do no evil' end up censoring bloggers in the PR of China.

jcromartie 18y ago

They do this anyway.

sanj 18y ago

I've heard this argument a lot and it seems like a solvable problem: Put the money in a 5 years escrowed account. If the changes that you made were sound and the company continues to succeed, you get it. Otherwise, you forfeit.

ctkrohn 18y ago
What you've just described is a stock option. This is an extremely common form of executive compensation. The problem is that it incentivizes greater (and potentially dangerous) risk taking. Greater risks increase the probability of large payouts and losses. But if there's a great loss, the CEO still makes the base salary -- he can't be held financially responsible for all the company's losses. So to the executive it doesn't really matter whether the company loses small or loses big. But there's a big difference between winning small and winning big.