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CEO pay is frequently structured like this already. CEOs will often get half or more of their pay in restricted stock and options, and it's not unheard of for t

CEO pay is frequently structured like this already. CEOs will often get half or more of their pay in restricted stock and options, and it's not unheard of for their salary to be a token value like $100 or $1. They also have the incentive of not being fired, and being re-signed if they're on contract. The alleged problem is that the vesting/restriction periods for these stock and options is too short, like a few years. I have a pet idea that CEO pay should be mostly in stock that vests quickly but is restricted for a very long mean time, like 20 years. But that's just a pet idea and I bet it would be a very hard sell to potential CEOs. I also think pay for performance is overrated. It won't help if you have the wrong guy in the first place.

jandrewrogers 15y ago
You are forgetting that this compensation is then discounted for time. And 20 years would incur a very substantial discount. Every CEO knows how to do that math. Radically increasing the vesting time means that you would need to grant several times the number of options that you would need to grant for shorter vesting terms, just to maintain parity. The potential dilutive effect for other shareholders (including employees) would be rather large.
JumpCrisscross 15y ago
I also think pay for performance is overrated. It won't help if you have the wrong guy in the first place. True, but with pay-for-performance hiring the wrong guy means you paid less (since he didn't perform). Further, I don't know of a viable alternative. Don't pay for performance? Now you're dealing with a problem of adverse selection - you're more likely to land with a lemon. The chief problem with CEO pay is that it exhibits much optionality without compensation to the shareholders for that - if the CEO does well he experiences a gain, if he doesn't, he just gets fired (unless the failure is fraudulent or very public).
yuhong 15y ago
And also that the wrong incentives can do more harm than good.

jandrewrogers 15y ago

You are forgetting that this compensation is then discounted for time. And 20 years would incur a very substantial discount. Every CEO knows how to do that math. Radically increasing the vesting time means that you would need to grant several times the number of options that you would need to grant for shorter vesting terms, just to maintain parity. The potential dilutive effect for other shareholders (including employees) would be rather large.

JumpCrisscross 15y ago

I also think pay for performance is overrated. It won't help if you have the wrong guy in the first place. True, but with pay-for-performance hiring the wrong guy means you paid less (since he didn't perform). Further, I don't know of a viable alternative. Don't pay for performance? Now you're dealing with a problem of adverse selection - you're more likely to land with a lemon. The chief problem with CEO pay is that it exhibits much optionality without compensation to the shareholders for that - if the CEO does well he experiences a gain, if he doesn't, he just gets fired (unless the failure is fraudulent or very public).

yuhong 15y ago

And also that the wrong incentives can do more harm than good.