8 ms·

It blows my mind the degree to which 1. C-level execs are given massive compensation, with the justification that a good one is well worth the price. AND 2.

by rurp 4y ago

It blows my mind the degree to which 1. C-level execs are given massive compensation, with the justification that a good one is well worth the price. AND 2. There's no good objective way to measure C-level performance. That alone should make people deeply suspicious about these compensation packages. On top of that, the best person for a given CXO job often just so happens to be a golfing buddy and/or have outside business dealings with half the board. I'm not surprised by ambitous execs grabbing what they can, it's what they do after all, but I am pretty disturbed by how many people outside of those elite cliques will carry water for them and pretend like the C-level hiring market is some sort of efficient meritocracy.

deleted 4y ago
[deleted]
jonbischke 4y ago
One measure of a high-quality C-level performer is the quality of their teams. The best C-level people can bring in very high-quality managers and individual contributors underneath them. Below average C-level people really struggle on this front. Also, for some C-level roles there are good and objective ways to measure performance. For example, for a Chief Revenue Officer you have (obviously) revenue. There are a ton of confounding variables of course but in general CROs who consistently out-perform plan are better than those who consistently under-perform plan.
- rxhernandez 4y ago
  I've definitely seen CEOs with enormous amounts of success (in the companies they led previously) bring in dogshit teams to their current company. I've also seen dogshit CEOs bring in amazing people.
koolba 4y ago
It’s game theory and asymmetric information at its finest. Throw in a healthy dose of survivorship bias, a pinch of appeal to authority, and you get a perfect recipe for astronomical out of whack compensation packages.
LukeShu 4y ago
> 2. There's no good objective way to measure C-level performance. > On top of that, the best person for a given CXO job often just so happens to be a golfing buddy and/or have outside business dealings with half the board. > C-level hiring market [isn't] some sort of efficient meritocracy Those 3 things aren't contradictory, they each follow from the other. In absence of an objective way to measure performance, the best thing is "I have experience with this person, and can vouch that they're good." And so it totally makes sense that this sort of network-based hiring is what we see instead of a meritocracy.
lifeisstillgood 4y ago
I am convinced that we need to move companies from effective hierarchical dictatorships to more democratic institutions. A CxO should be like an elected politician - representing some manifesto that is a coherent (!) package of measures and gets appointed maybe by an election amount employees / shareholders. As such they need to persuade a majority of people who will supply the (human / financial) capital that their manifesto is the best option. They essential earn their way into the office. Edit: I am also semi convinced that the hierarchical thing is half the problem. Having a single person make "the hard decisions" is usually a way to have the wrong decision made about 50% of the time. Somehow humanity has found science as good means of improving those odds. But for the sort of decisions we make in business (very little hard science) then I suspect democratic consensus might be a much better way to get a good decision. (no this is not about decision by committee.)
- zamfi 4y ago
  This is a bit of a weird take IMO -- CEOs already need to persuade most employees (human capital) and most investors (financial capital) that their manifesto is the best option, or the employees will quit and the investors will take their money elsewhere. With some exceptions, no one is really forced to invest / remain employed as they might be in an actual dictatorship. Observe the benevolent-dictator-for-life phenomenon in open source software -- I fully support democracy but it's not obvious to me that its benefits scale down (or perhaps transfer sideways) to corporations; if they did, wouldn't we see a lot more organizations structure this way? Most of government is already not organized around democratic norms, with one extreme being the military. I'm curious -- what convinces you of the need for this shift?
- zdragnar 4y ago
  I've seen this in a startup that grew to around 500 people, and it wasn't pretty. The office is full enough of politics as is, and it only gets worse when you have to campaign for your job. Hiring externally side steps all of that, and can bring a fresh perspective.
  - q7xvh97o2pDhNrh 4y ago
GuB-42 4y ago
Playing devil's advocate here. Maybe being a golfing buddy does qualify for being a good CXO. To be a "golfing buddy", you need money and connections. Connections are important for that job, and wealth correlates with success and good finances, again important. Some of them are just born in wealthy families, but this is a positive, not a negative: wealthy family often give their kids good education, have lots of connections, and are used to being leaders. Golfing buddies also need to make good conversation, including on business topics, otherwise they won't stay buddies for long, again a valuable skill. Being a golfing buddy certainly isn't an objective criteria, but it is not completely worthless, and it is easier to detect fakers when you spend a lot of time with them, or at least, it requires more effort from the faker. Objective criteria typically include past work, and CXOs usually have that too.
- ryanbrunner 4y ago
  Maybe a good solution for CEOs in that situation is to be pretty clear about that - make the CxO role a purely "public face" role, and leave day to day operations to VP / SVPs. In my experience that rarely happens, the "golfing buddy" types may be good at the golfing buddy stuff but also exert a lot of influence (often quite forcefully) on the overall org where their actions tend to be mostly negative.
  - etempleton 4y ago
    In theory a good leader does exactly this. I once heard leadership defined as creating consensus. It is only when two VPs can’t make a decision does the good CxO step in to make a judgement call based on the arguments of all sides. Even Steve Jobs talked about losing arguments at Apple and not getting his way. He hated it, but he recognized he maybe didn’t always know best and trusted people to make the right call if they could defend their rationale. Too many leaders think their job is to be a decider, when it is really their job is to hire people they trust to make most decisions and then they make a few critical ones.
- deleted 4y ago
  [deleted]
- 4y ago
doctor_eval 4y ago
If a CEO or other C-level sets some targets, then you’d think they would be held accountable for missing them. But from what I’ve seen, this is very rare. So the board is just as responsible for what happens as the CEO. I have seen cases where the board holds executives accountable, and that results in a better company lead by competent executives. But that kind of accountability is unusual in small companies because the board and executives are often one and the same group. If there’s anything I’ve learned over my career it’s that the theoretical structure of a company has no inherent relationship to reality. If the CEO, chairman and board members are all mates then they will pat each other on the back until well after the iceberg has ripped a hole in the side of the ship.
- lovich 4y ago
  It expands beyond just one company’s corporate leadership once you have members who are on multiple boards. https://en.m.wikipedia.org/wiki/Interlocking_directorate https://en.m.wikipedia.org/wiki/Interlocking_directorate This also makes it so that they care less about any one particular company failing when they decide to hand out a leadership position to an incompetent buddy
- cornel_io 4y ago
  C suite comp is largely stock, so they are held accountable financially, their compensation literally rises or falls directly with the company's value.
  - doctor_eval 4y ago
    Well, that's the theory. There is normally a cash component, and I guess that's how they make their living.
lordnacho 4y ago
It's a game theoretical ratchet: - My friends will tell me who they know - People are responsible for their own hiring - If I recommend this guy and he's at least acceptable, my network grows - If the guy I recommend is not that good, all three will make excuses: my mate who hired him (will blame chemistry/randomness or me), the dude himself (will blame chemistry/randomness or me), and me (will blame chemistry/randomness). Since we're all adults, you can't blame someone else for your lack of due diligence, so it's a shame their styles were so different and the market turned against their brilliant plan. - Nobody ever gets blacklisted for bad recommendations - Everyone is complacent about who they will recommend - My network grows, and I don't need to grill everyone. So my network grows. Of course what this also means is if you don't happen to be in one of these networks of mediocre people, you are totally out of luck because those networks are big enough that someone will be found, just not you.
wbsss4412 4y ago
Your compensation is determined by your power within an organization, not your contribution to it. What blows my mind is the degree to which people believe that perfect competition exists everywhere and “the market” will fix all inefficiencies. Edit: I want to make clear that I am not denigrating the value of markets, I’m only looking to point out the idealization that exists in many people’s minds, especially as I have encountered on this exact forum.
- q-big 4y ago
  > “the market” will fix all inefficiencies. The market does fix many such inefficiences - just not in the way which most people imagine. It is rather that the market fix is that in the long term [!] such companies will go bust or at least become shadows of their former selves.
  - leaflets2 4y ago
    Unless all companies do things in such ways, equally inefficient (I mean, if powerful execs get lots of money everywhere? almost)
    - q-big 4y ago
      > Unless all companies do things in such ways, equally inefficient Keep in mind that there also exists competition from companies from other countries, such as China.
      - sudosysgen 4y ago
        Not really. If a company from a fundamentally different economic framework were to become dominant in core industries it would be banned.
    - twblalock 4y ago
      That is not the end game because small companies, startups, etc. are more efficient than big ones and have no ingrained culture that prevents innovation. Eventually some of those small companies become inefficient big companies. We see this struggle recently in the news, with the CEOs of Facebook and Google talking about how they need to become more efficient, maybe certain people shouldn't be there, etc. -- they got big when times were good and now they struggle with the inevitable consequences of bigness. This has happened many times. Nobody saw Microsoft coming in the 1970s to dethrone IBM. Microsoft didn't see Google coming and still can't beat them on search, they didn't see AWS coming and is catching up on cloud years later, etc. Most of the automotive industry thought Tesla could not scale and would go out of business years ago.
civilized 4y ago
My theory about the giant comp packages: 1. The board is constantly dealing with the CEO, and CEOs are very good at taking credit for things regardless of their actual impact. So they create a subjective impression of being very important. 2. The CEO is only one person, so throwing (say) 1% of the company's profits at them seems like a great investment for all that stuff they're "doing". If enough boards play this game, CEO pay is driven through the roof.
- leaflets2 4y ago
  Almost like a kind of cartel? But about CXO salaries instead of prices of goods
  - civilized 4y ago
    I think it's about risk aversion and social proof. The CEO can usually persuade the board that they're important, and the board can easily pay them a lot, so why not do so, rather than risk them leaving? Once enough boards do that, it becomes the "going rate for CEOs" i.e. social proof / herding takes over. Also, the aforementioned difficulty of measuring CEO performance perversely becomes an asset. When people don't know the quality of what they're buying, but they feel that quality is very important, they'll turn to any proxy (Harvard on resume, butt was in chair while previous company was doing well) and pay top dollar for that. You can't pay for quality, but it's extremely easy to pay for scarcity if you really want to. It just comes back to... if you have a lot of money to spend, and the purchase might matter, you'll often be willing to spend a lot for the "best", even if there's no evidence or reason to believe the "best" is really of great value. I've seen this in my own behavior and that of my spouse (what if the most expensive preschool actually is the best one?)
- RajT88 4y ago
  I had an interview with an exec once that went like this: "You will take the blame for all my failures. I will take credit for all your success." Needless to say, I didn't get the job.
  - 4y ago
twblalock 4y ago
It's also pretty hard to measure the performance of software engineers at the senior level. When hiring, I don't feel like it's wrong to encourage good software engineers to refer former colleagues they think are good. I don't see why that would be wrong for C-level executive jobs either. It's really the same thing -- trusting the opinion of people you know and think are good is a better bet than drinking from a fire hose of job applicants of widely varying quality. At any job where your purpose is "leadership" and "impact" it is difficult to quantify success. People have tried to measure with things like OKRs, but ultimately a lot of what successful senior people bring to the table is hard to measure.
deleted 4y ago
[deleted]
refurb 4y ago
Most CEO compensation is equity which is directly tied to company performance. If you look at Pfizer’s CEO who had a total comp of $24.3M of which his salary was $1.6M.

by rurp 4y ago

deleted 4y ago

[deleted]

jonbischke 4y ago

One measure of a high-quality C-level performer is the quality of their teams. The best C-level people can bring in very high-quality managers and individual contributors underneath them. Below average C-level people really struggle on this front. Also, for some C-level roles there are good and objective ways to measure performance. For example, for a Chief Revenue Officer you have (obviously) revenue. There are a ton of confounding variables of course but in general CROs who consistently out-perform plan are better than those who consistently under-perform plan.

rxhernandez 4y ago
I've definitely seen CEOs with enormous amounts of success (in the companies they led previously) bring in dogshit teams to their current company. I've also seen dogshit CEOs bring in amazing people.

koolba 4y ago

It’s game theory and asymmetric information at its finest. Throw in a healthy dose of survivorship bias, a pinch of appeal to authority, and you get a perfect recipe for astronomical out of whack compensation packages.

LukeShu 4y ago

> 2. There's no good objective way to measure C-level performance. > On top of that, the best person for a given CXO job often just so happens to be a golfing buddy and/or have outside business dealings with half the board. > C-level hiring market [isn't] some sort of efficient meritocracy Those 3 things aren't contradictory, they each follow from the other. In absence of an objective way to measure performance, the best thing is "I have experience with this person, and can vouch that they're good." And so it totally makes sense that this sort of network-based hiring is what we see instead of a meritocracy.

lifeisstillgood 4y ago

I am convinced that we need to move companies from effective hierarchical dictatorships to more democratic institutions. A CxO should be like an elected politician - representing some manifesto that is a coherent (!) package of measures and gets appointed maybe by an election amount employees / shareholders. As such they need to persuade a majority of people who will supply the (human / financial) capital that their manifesto is the best option. They essential earn their way into the office. Edit: I am also semi convinced that the hierarchical thing is half the problem. Having a single person make "the hard decisions" is usually a way to have the wrong decision made about 50% of the time. Somehow humanity has found science as good means of improving those odds. But for the sort of decisions we make in business (very little hard science) then I suspect democratic consensus might be a much better way to get a good decision. (no this is not about decision by committee.)

zamfi 4y ago
This is a bit of a weird take IMO -- CEOs already need to persuade most employees (human capital) and most investors (financial capital) that their manifesto is the best option, or the employees will quit and the investors will take their money elsewhere. With some exceptions, no one is really forced to invest / remain employed as they might be in an actual dictatorship. Observe the benevolent-dictator-for-life phenomenon in open source software -- I fully support democracy but it's not obvious to me that its benefits scale down (or perhaps transfer sideways) to corporations; if they did, wouldn't we see a lot more organizations structure this way? Most of government is already not organized around democratic norms, with one extreme being the military. I'm curious -- what convinces you of the need for this shift?
zdragnar 4y ago
I've seen this in a startup that grew to around 500 people, and it wasn't pretty. The office is full enough of politics as is, and it only gets worse when you have to campaign for your job. Hiring externally side steps all of that, and can bring a fresh perspective.
- q7xvh97o2pDhNrh 4y ago

GuB-42 4y ago

Playing devil's advocate here. Maybe being a golfing buddy does qualify for being a good CXO. To be a "golfing buddy", you need money and connections. Connections are important for that job, and wealth correlates with success and good finances, again important. Some of them are just born in wealthy families, but this is a positive, not a negative: wealthy family often give their kids good education, have lots of connections, and are used to being leaders. Golfing buddies also need to make good conversation, including on business topics, otherwise they won't stay buddies for long, again a valuable skill. Being a golfing buddy certainly isn't an objective criteria, but it is not completely worthless, and it is easier to detect fakers when you spend a lot of time with them, or at least, it requires more effort from the faker. Objective criteria typically include past work, and CXOs usually have that too.

ryanbrunner 4y ago
Maybe a good solution for CEOs in that situation is to be pretty clear about that - make the CxO role a purely "public face" role, and leave day to day operations to VP / SVPs. In my experience that rarely happens, the "golfing buddy" types may be good at the golfing buddy stuff but also exert a lot of influence (often quite forcefully) on the overall org where their actions tend to be mostly negative.
- etempleton 4y ago
  In theory a good leader does exactly this. I once heard leadership defined as creating consensus. It is only when two VPs can’t make a decision does the good CxO step in to make a judgement call based on the arguments of all sides. Even Steve Jobs talked about losing arguments at Apple and not getting his way. He hated it, but he recognized he maybe didn’t always know best and trusted people to make the right call if they could defend their rationale. Too many leaders think their job is to be a decider, when it is really their job is to hire people they trust to make most decisions and then they make a few critical ones.
deleted 4y ago
[deleted]
4y ago

doctor_eval 4y ago

If a CEO or other C-level sets some targets, then you’d think they would be held accountable for missing them. But from what I’ve seen, this is very rare. So the board is just as responsible for what happens as the CEO. I have seen cases where the board holds executives accountable, and that results in a better company lead by competent executives. But that kind of accountability is unusual in small companies because the board and executives are often one and the same group. If there’s anything I’ve learned over my career it’s that the theoretical structure of a company has no inherent relationship to reality. If the CEO, chairman and board members are all mates then they will pat each other on the back until well after the iceberg has ripped a hole in the side of the ship.

lovich 4y ago
It expands beyond just one company’s corporate leadership once you have members who are on multiple boards. https://en.m.wikipedia.org/wiki/Interlocking_directorate https://en.m.wikipedia.org/wiki/Interlocking_directorate This also makes it so that they care less about any one particular company failing when they decide to hand out a leadership position to an incompetent buddy
cornel_io 4y ago
C suite comp is largely stock, so they are held accountable financially, their compensation literally rises or falls directly with the company's value.
- doctor_eval 4y ago
  Well, that's the theory. There is normally a cash component, and I guess that's how they make their living.

lordnacho 4y ago

It's a game theoretical ratchet: - My friends will tell me who they know - People are responsible for their own hiring - If I recommend this guy and he's at least acceptable, my network grows - If the guy I recommend is not that good, all three will make excuses: my mate who hired him (will blame chemistry/randomness or me), the dude himself (will blame chemistry/randomness or me), and me (will blame chemistry/randomness). Since we're all adults, you can't blame someone else for your lack of due diligence, so it's a shame their styles were so different and the market turned against their brilliant plan. - Nobody ever gets blacklisted for bad recommendations - Everyone is complacent about who they will recommend - My network grows, and I don't need to grill everyone. So my network grows. Of course what this also means is if you don't happen to be in one of these networks of mediocre people, you are totally out of luck because those networks are big enough that someone will be found, just not you.

wbsss4412 4y ago

Your compensation is determined by your power within an organization, not your contribution to it. What blows my mind is the degree to which people believe that perfect competition exists everywhere and “the market” will fix all inefficiencies. Edit: I want to make clear that I am not denigrating the value of markets, I’m only looking to point out the idealization that exists in many people’s minds, especially as I have encountered on this exact forum.

q-big 4y ago
> “the market” will fix all inefficiencies. The market does fix many such inefficiences - just not in the way which most people imagine. It is rather that the market fix is that in the long term [!] such companies will go bust or at least become shadows of their former selves.
- leaflets2 4y ago
  Unless all companies do things in such ways, equally inefficient (I mean, if powerful execs get lots of money everywhere? almost)
  - q-big 4y ago
    > Unless all companies do things in such ways, equally inefficient Keep in mind that there also exists competition from companies from other countries, such as China.
    - sudosysgen 4y ago
      Not really. If a company from a fundamentally different economic framework were to become dominant in core industries it would be banned.
  - twblalock 4y ago
    That is not the end game because small companies, startups, etc. are more efficient than big ones and have no ingrained culture that prevents innovation. Eventually some of those small companies become inefficient big companies. We see this struggle recently in the news, with the CEOs of Facebook and Google talking about how they need to become more efficient, maybe certain people shouldn't be there, etc. -- they got big when times were good and now they struggle with the inevitable consequences of bigness. This has happened many times. Nobody saw Microsoft coming in the 1970s to dethrone IBM. Microsoft didn't see Google coming and still can't beat them on search, they didn't see AWS coming and is catching up on cloud years later, etc. Most of the automotive industry thought Tesla could not scale and would go out of business years ago.

civilized 4y ago

My theory about the giant comp packages: 1. The board is constantly dealing with the CEO, and CEOs are very good at taking credit for things regardless of their actual impact. So they create a subjective impression of being very important. 2. The CEO is only one person, so throwing (say) 1% of the company's profits at them seems like a great investment for all that stuff they're "doing". If enough boards play this game, CEO pay is driven through the roof.

leaflets2 4y ago
Almost like a kind of cartel? But about CXO salaries instead of prices of goods
- civilized 4y ago
  I think it's about risk aversion and social proof. The CEO can usually persuade the board that they're important, and the board can easily pay them a lot, so why not do so, rather than risk them leaving? Once enough boards do that, it becomes the "going rate for CEOs" i.e. social proof / herding takes over. Also, the aforementioned difficulty of measuring CEO performance perversely becomes an asset. When people don't know the quality of what they're buying, but they feel that quality is very important, they'll turn to any proxy (Harvard on resume, butt was in chair while previous company was doing well) and pay top dollar for that. You can't pay for quality, but it's extremely easy to pay for scarcity if you really want to. It just comes back to... if you have a lot of money to spend, and the purchase might matter, you'll often be willing to spend a lot for the "best", even if there's no evidence or reason to believe the "best" is really of great value. I've seen this in my own behavior and that of my spouse (what if the most expensive preschool actually is the best one?)
RajT88 4y ago
I had an interview with an exec once that went like this: "You will take the blame for all my failures. I will take credit for all your success." Needless to say, I didn't get the job.
- 4y ago

twblalock 4y ago

It's also pretty hard to measure the performance of software engineers at the senior level. When hiring, I don't feel like it's wrong to encourage good software engineers to refer former colleagues they think are good. I don't see why that would be wrong for C-level executive jobs either. It's really the same thing -- trusting the opinion of people you know and think are good is a better bet than drinking from a fire hose of job applicants of widely varying quality. At any job where your purpose is "leadership" and "impact" it is difficult to quantify success. People have tried to measure with things like OKRs, but ultimately a lot of what successful senior people bring to the table is hard to measure.

deleted 4y ago

[deleted]

refurb 4y ago

Most CEO compensation is equity which is directly tied to company performance. If you look at Pfizer’s CEO who had a total comp of $24.3M of which his salary was $1.6M.