4 ms·

I like his idea of a 7-year waiting period on executive bonuses. Anything that gets us out of the quarter to quarter short-term mind set would be an improvement

by olefoo 18y ago

I like his idea of a 7-year waiting period on executive bonuses. Anything that gets us out of the quarter to quarter short-term mind set would be an improvement.

Tichy 18y ago
I don't understand that kind of thing. Shouldn't a company be allowed to be whomever they want however much they want? If not, why not? I know about the incentives for risk taking, but what would be the point of creating a law about it? If banks figure out that a particular "bonus construct" is harmful in the long run, they can change it by themselves.
- michael_dorfman 18y ago
  The problem is that it is not necessarily harmful to them, but harmful to others (and encourages behavior to that effect.)
  - Tichy 18y ago
    Because they only care about short term wins? But wouldn't that still damage the companies who employ them? And should it be illegal to seek short term wins?
    - iuguy 18y ago
      The market would find a way around it. Also bear in mind that a corporation's only purpose is to make money for its shareholders. By eliminating short term wins you're interfering with that area.
      - Tichy 18y ago
        I don't think it should be illegal to seek short term wins. Unless perhaps they qualify as gambling, but even then I am not sure that gambling should be illegal (really don't know).
        michael_dorfman 18y ago
        How about gambling with other people's money?
        Tichy 18y ago
        How can you get away with gambling with other people's money? I think fraud should be illegal, that is telling people that their investments are 100% secure, when they are not, should be illegal. Other than that, if people invest into a risky company, it is them who are gambling.
        joshwa 18y ago
        http://en.wikipedia.org/wiki/Information_asymmetry http://en.wikipedia.org/wiki/Information_asymmetry
  - anamax 18y ago
    > The problem is that it is not necessarily harmful to them, but harmful to others (and encourages behavior to that effect.) It's only harmful to others who decide to make the same mistake. It's useful to (different) others who observe and conclude "wow, that's dumb in 3D". Someone else doing something different is a free (to you) learning opportunity. If it works, you can copy. If it doesn't work, you can avoid. There are CEOs who are worth $240M/year in specific circumstances. Laws are unlikely to make the right call but the market will, rewarding folks who get it right and punishing those who get it wrong. What can be better than that?
    - michael_dorfman 18y ago
      But do those who do it wrong get punished, or do they get to keep the $240M? I've seen a lot of incompetent CEOs walk away with substantial golden parachutes, while employees harmed by their actions got nothing but two week's noticw...
- davidw 18y ago
  Well, he says that the government shouldn't be setting these sorts of conditions, but that one way or another (shareholder pressure, hopefully), something like this ought to happen, to provide better incentives for management to take a long-term look at things, rather than just trying to jack up profits in the short term.
- sethg 18y ago
  I have mixed feelings about this issue. On the one hand, I generally feel that if a company's board of directors wants to shoot the company in the foot, then the shareholders, not the government, have the duty to wrestle away the gun. On the other hand, there's a real principal-agent problem here--there are so many layers between the shareholders and the compensation committee, and so many perverse incentives, that it's easy for the directors to make decisions that are not in the shareholders' best interest.
patrickg-zill 18y ago
The underlying issue is the lack of shareholder-oriented corporate governance. The executive bonuses are one of the symptoms of that. Alcoa has 107K employees and is considered well-run, the CEO gets about $8M per year. Verizon, a huge 228K employee company - the CEO gets under $6M per year. Compare this to Nardelli at Home Depot - under his watch they screwed up and allowed Lowe's to come in and take over a big profitable chunk of the market, among other mis-steps. Nardelli walked away with some $240 million in compensation along with a huge severance package.

by olefoo 18y ago

I like his idea of a 7-year waiting period on executive bonuses. Anything that gets us out of the quarter to quarter short-term mind set would be an improvement.

Tichy 18y ago

I don't understand that kind of thing. Shouldn't a company be allowed to be whomever they want however much they want? If not, why not? I know about the incentives for risk taking, but what would be the point of creating a law about it? If banks figure out that a particular "bonus construct" is harmful in the long run, they can change it by themselves.

michael_dorfman 18y ago
The problem is that it is not necessarily harmful to them, but harmful to others (and encourages behavior to that effect.)
- Tichy 18y ago
  Because they only care about short term wins? But wouldn't that still damage the companies who employ them? And should it be illegal to seek short term wins?
  - iuguy 18y ago
    The market would find a way around it. Also bear in mind that a corporation's only purpose is to make money for its shareholders. By eliminating short term wins you're interfering with that area.
    - Tichy 18y ago
      I don't think it should be illegal to seek short term wins. Unless perhaps they qualify as gambling, but even then I am not sure that gambling should be illegal (really don't know).
      - michael_dorfman 18y ago
        How about gambling with other people's money?
        Tichy 18y ago
        How can you get away with gambling with other people's money? I think fraud should be illegal, that is telling people that their investments are 100% secure, when they are not, should be illegal. Other than that, if people invest into a risky company, it is them who are gambling.
        joshwa 18y ago
        http://en.wikipedia.org/wiki/Information_asymmetry http://en.wikipedia.org/wiki/Information_asymmetry
- anamax 18y ago
  > The problem is that it is not necessarily harmful to them, but harmful to others (and encourages behavior to that effect.) It's only harmful to others who decide to make the same mistake. It's useful to (different) others who observe and conclude "wow, that's dumb in 3D". Someone else doing something different is a free (to you) learning opportunity. If it works, you can copy. If it doesn't work, you can avoid. There are CEOs who are worth $240M/year in specific circumstances. Laws are unlikely to make the right call but the market will, rewarding folks who get it right and punishing those who get it wrong. What can be better than that?
  - michael_dorfman 18y ago
    But do those who do it wrong get punished, or do they get to keep the $240M? I've seen a lot of incompetent CEOs walk away with substantial golden parachutes, while employees harmed by their actions got nothing but two week's noticw...
davidw 18y ago
Well, he says that the government shouldn't be setting these sorts of conditions, but that one way or another (shareholder pressure, hopefully), something like this ought to happen, to provide better incentives for management to take a long-term look at things, rather than just trying to jack up profits in the short term.
sethg 18y ago
I have mixed feelings about this issue. On the one hand, I generally feel that if a company's board of directors wants to shoot the company in the foot, then the shareholders, not the government, have the duty to wrestle away the gun. On the other hand, there's a real principal-agent problem here--there are so many layers between the shareholders and the compensation committee, and so many perverse incentives, that it's easy for the directors to make decisions that are not in the shareholders' best interest.

patrickg-zill 18y ago

The underlying issue is the lack of shareholder-oriented corporate governance. The executive bonuses are one of the symptoms of that. Alcoa has 107K employees and is considered well-run, the CEO gets about $8M per year. Verizon, a huge 228K employee company - the CEO gets under $6M per year. Compare this to Nardelli at Home Depot - under his watch they screwed up and allowed Lowe's to come in and take over a big profitable chunk of the market, among other mis-steps. Nardelli walked away with some $240 million in compensation along with a huge severance package.