3 ms·

Is it just me, or does the author use a lot of unintentionally funny analogies? Anyway, I'm going to chip in on the issue of CEO pay. Many, including the autho

by jd 18y ago

Is it just me, or does the author use a lot of unintentionally funny analogies? Anyway, I'm going to chip in on the issue of CEO pay. Many, including the author, are outraged that they're paid 500 times the wage of the average worker. But the CEO job is generally given to somebody who a) has proven himself (5mm <= net worth < 15mm) b) is willing to work 80 hours per week c) is willing to pick work over family/friends, no matter the circumstances The CEO must: a) focus on quarterlies at the expense of long term vision (maximize shareholder returns per quarter) b) focus on quarterlies at the expense of employees and the company itself Aside from perhaps the prestige and power that comes with the job, it's not going to be a lot of fun. So why would somebody who's already rich be willing to do this? Money. And lots of it. Does that make them sellouts? I guess. But if working for 2 more years means the CEO can retire and sustain his current lifestyle for the rest of his life it's probably pretty tempting. You shouldn't ask yourself - does the guy deserve 500 times the average worker's salary? Ask instead - why did it take 500 times the average worker's salary to convince him to take the job? I think that the CEO should focus on generating true value, both in the short and long term. And I don't think that's possible when you're only held accountable for short term results. Only CEOs like Steve Jobs can work on their vision, short term results be damned. His annual salary is $1. Why? Probably just to prove his independence. Everything boils down to incentives. Whether it's CEO pay, greed on wall street or credit cards (ab)use. People do what's in their best interest. Fix the incentives, and the rest should fix itself.

blackguardx 18y ago
I hate to go off-topic, but when did mm come to mean million? When I first look at it, my brain says, "millimeters." I know it is one thousand thousand in roman numerals, but being an engineer I find it hard to recognize mm as such. If anything, you should use capital M for million because that is the accepted prefix.
- deleted 18y ago
  [deleted]
  - palish 18y ago
    I'm going to start referring to American soccer players as "Adrenaline Bunnies" since the word "soccer" doesn't refer to the same thing in all languages.
blackguardx 18y ago
I think many people enjoy being CEO for the same reasons people enjoy founding startups or going into politics. You say, "aside from the prestige, power, and money, it's not fun." If someone's job provides all three, I would say that they are doing pretty well! Also, CEOs that focus on quarterly numbers do so only to enrich themselves (via stock options) to the detriment of the company. At my own company (a large test and measurement company), our leadership constantly makes big changes based on the stock price. Since my company pays no dividends, there is no "shareholder return" to maximize. My company will never do an additional offering so steering by the stock price doesn't make sense for the company in the long term. We are constantly delaying capital purchases to make the numbers look good. In reality, these delays cost our project's schedules to suffer. That hurts the company. By focusing on quarterly numbers, who benefits? It may help somebody make a buck that quarter, but why should the company want to help traders? True investors think long term. It is the management team that is benefiting. Shareholder value is a myth. The only shareholders that matter are the management team. I usually don't get too worked up about CEO compensation. The only things that don't make sense are massive golden parachutes like the former CEO of Home Depot had and paying executives in stock if they meet quarterly numbers. A company's vision should be long term. Making executives excessively interested in the stock price is dangerous.
- palish 18y ago
  I wish Hacker News allowed us to upvote or downvote individual paragraphs. I upvoted you because of your first paragraph, but would have downvoted otherwise. (Shareholders besides the management team still matter. :P)
  - blackguardx 18y ago
    "(Shareholders besides the management team still matter. :P)" What is your reasoning behind that statement? It is nice to have a high stock price as a source of future cash, but companies rarely have additional offerings. Most companies take on debt. Having a high stock price also discourages hostile take overs, but the shareholders themselves don't matter. I want to know why you think they do. Many people say that shareholders matter and use them as an excuse for their actions. I think it is just that: an excuse.
gaius 18y ago
500x is a figure I'm deeply suspicious of. Average worker in the entire economy vs CEO of a Fortune 100, maybe. The "average" CEO is just the owner of a small company and probably makes <5x more than even their lowest paid worker.
time_management 18y ago
But the CEO job is generally given to somebody who a) has proven himself (5mm <= net worth < 15mm) b) is willing to work 80 hours per week c) is willing to pick work over family/friends, no matter the circumstances I'm not convinced that B and C are good things. Sometimes, it's necessary to work 80 hours per week, but doing that for years on end is unhealthy and counterproductive. Most of the long hours in upper-tier corporate result not from any benefit to those extra hours worked, but rather from oneupmanship. As for C, consider this. In a corporate environment, where one is working to enrich other people, putting work ahead of family and friends is, generally, a very bad decision. After all, the probability of becoming CEO is very small, and a person who laid up 70 hours per week only plateau at the VP level is just a loser who made bad choices and wasted his life. The only difference between the CEO and that moron is that the CEO won the lottery while the also-ran lost. Following the lottery analogy, you wouldn't take financial advice from a crackhead who bought twenty Powerball tickets every night, and happened to win $200 million. So, do you really think it's a good thing for large companies to be governed by those who wasted their lives in a relatively pointless quest for power? So why would somebody who's already rich be willing to do this? Money. Status. The status, in this case, comes from the money. Ask instead - why did it take 500 times the average worker's salary to convince him to take the job? It doesn't. People would gladly take the job for 10x. If you haven't figured it out, corporate compensation is the result of a fellatio daisy chain. The board is staffed by executives of other companies, who allow the CEO to raise his pay, because he is on their boards and will vote in their favor if they do so for him.
- tortilla 18y ago
  "fellatio daisy chain" If I could up-vote you more I would.
- likpok 18y ago
  People have tried the CEO pay thing. Ben and Jerry's, specifically. They limited to something like 10x. And completely failed to find any qualified candidates who were willing to work for that. Then they raised it slightly (14x?) to get someone, who turned out to be a bad CEO, and had to fire him and raise it more (30x?) to get someone decent. The fact of the matter is that CEO's are paid for the value they bring to the company. The reason they are so well paid is market forces, much the same reason why you are paid the wage you are paid.
callmeed 18y ago
True, though I don't think it "boils down to incentives" only. Frankly, I'm tired of people crying about CEO pay. Yes, there are examples of ridiculous compensation and severance packages (former Home Depot CEO got a $210M severance when leaving, for example). But I think it also boils down to demand and human capital. A good CEO can do things the average person in the labor force cannot. No two ways about it. And, as economies/industries grow over time, the is greater demand for these people. Robots and offshore workers in Ukraine cannot lead publicly-traded US companies.
- Psyonic 18y ago
  Which is why the CEO's of Toyota, Honda, etc make around 1 million USD per year, and are actually able to manage a company successfully? People aren't bitching about 1 million a year. Unfortunately, excessive bullshit like the Home Depot situation is more common than you'd apparently like to believe.
  - callmeed 18y ago
    Ok, first of all, you just listed 2 Japanese companies. Not really germane to the article or my comment. Second, neither Honda or Toyota appear to publish their executive salaries (at least I couldn't find them on financial sites). If you have a source for the $1M salary claim, I'd love to see it. Third, according to the links below, median CEO pay is $8.2M for Fortune 1000 companies and $2M for a larger sampling. http://tinyurl.com/5rmlwx http://tinyurl.com/5rmlwx http://tinyurl.com/556enm http://tinyurl.com/556enm I'm all for companies being responsible in regards to CEO pay–I just think that portion of the original article is misleading and unqualified.
    - tc 18y ago
      I went looking. The article I found is interesting in its own right: "Engineers Rule: At American auto companies, finance guys and marketers rise to the top. Not at Honda." http://news.ycombinator.com/item?id=366709 http://news.ycombinator.com/item?id=366709 From the article: "Honda doesn't disclose executive pay in detail, but the sum of salaries and bonuses that Fukui shares with 36 board members, $13 million, is just about enough for the boss at a big American company." also: "Honda has never had an unprofitable year. It has never had to lay off employees."

by jd 18y ago

blackguardx 18y ago

I hate to go off-topic, but when did mm come to mean million? When I first look at it, my brain says, "millimeters." I know it is one thousand thousand in roman numerals, but being an engineer I find it hard to recognize mm as such. If anything, you should use capital M for million because that is the accepted prefix.

deleted 18y ago
[deleted]
- palish 18y ago
  I'm going to start referring to American soccer players as "Adrenaline Bunnies" since the word "soccer" doesn't refer to the same thing in all languages.

blackguardx 18y ago

I think many people enjoy being CEO for the same reasons people enjoy founding startups or going into politics. You say, "aside from the prestige, power, and money, it's not fun." If someone's job provides all three, I would say that they are doing pretty well! Also, CEOs that focus on quarterly numbers do so only to enrich themselves (via stock options) to the detriment of the company. At my own company (a large test and measurement company), our leadership constantly makes big changes based on the stock price. Since my company pays no dividends, there is no "shareholder return" to maximize. My company will never do an additional offering so steering by the stock price doesn't make sense for the company in the long term. We are constantly delaying capital purchases to make the numbers look good. In reality, these delays cost our project's schedules to suffer. That hurts the company. By focusing on quarterly numbers, who benefits? It may help somebody make a buck that quarter, but why should the company want to help traders? True investors think long term. It is the management team that is benefiting. Shareholder value is a myth. The only shareholders that matter are the management team. I usually don't get too worked up about CEO compensation. The only things that don't make sense are massive golden parachutes like the former CEO of Home Depot had and paying executives in stock if they meet quarterly numbers. A company's vision should be long term. Making executives excessively interested in the stock price is dangerous.

palish 18y ago
I wish Hacker News allowed us to upvote or downvote individual paragraphs. I upvoted you because of your first paragraph, but would have downvoted otherwise. (Shareholders besides the management team still matter. :P)
- blackguardx 18y ago
  "(Shareholders besides the management team still matter. :P)" What is your reasoning behind that statement? It is nice to have a high stock price as a source of future cash, but companies rarely have additional offerings. Most companies take on debt. Having a high stock price also discourages hostile take overs, but the shareholders themselves don't matter. I want to know why you think they do. Many people say that shareholders matter and use them as an excuse for their actions. I think it is just that: an excuse.

gaius 18y ago

500x is a figure I'm deeply suspicious of. Average worker in the entire economy vs CEO of a Fortune 100, maybe. The "average" CEO is just the owner of a small company and probably makes <5x more than even their lowest paid worker.

time_management 18y ago

But the CEO job is generally given to somebody who a) has proven himself (5mm <= net worth < 15mm) b) is willing to work 80 hours per week c) is willing to pick work over family/friends, no matter the circumstances I'm not convinced that B and C are good things. Sometimes, it's necessary to work 80 hours per week, but doing that for years on end is unhealthy and counterproductive. Most of the long hours in upper-tier corporate result not from any benefit to those extra hours worked, but rather from oneupmanship. As for C, consider this. In a corporate environment, where one is working to enrich other people, putting work ahead of family and friends is, generally, a very bad decision. After all, the probability of becoming CEO is very small, and a person who laid up 70 hours per week only plateau at the VP level is just a loser who made bad choices and wasted his life. The only difference between the CEO and that moron is that the CEO won the lottery while the also-ran lost. Following the lottery analogy, you wouldn't take financial advice from a crackhead who bought twenty Powerball tickets every night, and happened to win $200 million. So, do you really think it's a good thing for large companies to be governed by those who wasted their lives in a relatively pointless quest for power? So why would somebody who's already rich be willing to do this? Money. Status. The status, in this case, comes from the money. Ask instead - why did it take 500 times the average worker's salary to convince him to take the job? It doesn't. People would gladly take the job for 10x. If you haven't figured it out, corporate compensation is the result of a fellatio daisy chain. The board is staffed by executives of other companies, who allow the CEO to raise his pay, because he is on their boards and will vote in their favor if they do so for him.

tortilla 18y ago
"fellatio daisy chain" If I could up-vote you more I would.
likpok 18y ago
People have tried the CEO pay thing. Ben and Jerry's, specifically. They limited to something like 10x. And completely failed to find any qualified candidates who were willing to work for that. Then they raised it slightly (14x?) to get someone, who turned out to be a bad CEO, and had to fire him and raise it more (30x?) to get someone decent. The fact of the matter is that CEO's are paid for the value they bring to the company. The reason they are so well paid is market forces, much the same reason why you are paid the wage you are paid.

callmeed 18y ago

True, though I don't think it "boils down to incentives" only. Frankly, I'm tired of people crying about CEO pay. Yes, there are examples of ridiculous compensation and severance packages (former Home Depot CEO got a $210M severance when leaving, for example). But I think it also boils down to demand and human capital. A good CEO can do things the average person in the labor force cannot. No two ways about it. And, as economies/industries grow over time, the is greater demand for these people. Robots and offshore workers in Ukraine cannot lead publicly-traded US companies.

Psyonic 18y ago
Which is why the CEO's of Toyota, Honda, etc make around 1 million USD per year, and are actually able to manage a company successfully? People aren't bitching about 1 million a year. Unfortunately, excessive bullshit like the Home Depot situation is more common than you'd apparently like to believe.
- callmeed 18y ago
  Ok, first of all, you just listed 2 Japanese companies. Not really germane to the article or my comment. Second, neither Honda or Toyota appear to publish their executive salaries (at least I couldn't find them on financial sites). If you have a source for the $1M salary claim, I'd love to see it. Third, according to the links below, median CEO pay is $8.2M for Fortune 1000 companies and $2M for a larger sampling. http://tinyurl.com/5rmlwx http://tinyurl.com/5rmlwx http://tinyurl.com/556enm http://tinyurl.com/556enm I'm all for companies being responsible in regards to CEO pay–I just think that portion of the original article is misleading and unqualified.
  - tc 18y ago
    I went looking. The article I found is interesting in its own right: "Engineers Rule: At American auto companies, finance guys and marketers rise to the top. Not at Honda." http://news.ycombinator.com/item?id=366709 http://news.ycombinator.com/item?id=366709 From the article: "Honda doesn't disclose executive pay in detail, but the sum of salaries and bonuses that Fukui shares with 36 board members, $13 million, is just about enough for the boss at a big American company." also: "Honda has never had an unprofitable year. It has never had to lay off employees."