5 ms·

For every example this article gives, there are so many counter examples that it feels like his entire theory is bunk. Yes, having skin in the game is good, tha

For every example this article gives, there are so many counter examples that it feels like his entire theory is bunk. Yes, having skin in the game is good, that almost is a tautology but do CEO’s truly not have a skin in the game? There are far more successful CEO run corporations compared to family run corporations. Satya Nadella has been instrumental in Microsoft’s resurgence, but it’s very possible that Satya could have done a bad job, got a fat severance, write books and joined other company boards instead. Would you have gotten better work from Satya, if you could threaten to publicly humiliate him if he failed? I predict not. In fact this article tries to create a simple rule for a problem that has plagued humanity since its existence and will continue plaguing humanity. This is of course the problem of choosing a good leader for a company. A good leader will lead the company well, a bad leader will drive it to the ground and then save his skin when he has to. Of course you can try encouraging bad leaders to be good by forcing them to have skin in the game, but you’re better off just finding a good CEO instead. Determining whether a candidate will be a good CEO is a matter of judgement and cannot be algorithmically solved unfortunately. This is where the quality of a company’s board is important, a low quality board will be unable to even find the person that can right a sinking ship

dclowd9901 3y ago
I think you would struggle to find examples of CEOs seeing negative consequences from poor performance that wasn’t outright fraud.
- fallingknife 3y ago
  What negative consequences would you propose? Isn't firing enough just like for every other job?
  - johnnyanmac 3y ago
    The article highlights some at the end for exploration (I also left a summary on another reply if you want a TLDR). But to tread new ground: not really. Firing is scary for a regular employee because they need to work to live, pay off debts, potentially care for family, and more. Many can't just take off a year without these finances without losing some of these factors. For many still, even a few months of no income can have heavy impacts, especially if we step outside our HN tech bubble. A quick google tells me that the median CEO makes 20 million a year. they really don't need to work a day in their lives after a mere year or 2 of work. All the above financial factors simply aren't a thing unless their quality of life is insanely lavish (like, a full time crew managing a yatch lavish). What's more, their severance is again, usually in the millions. they get rewarded for failing more money than your average worker will make in their career. I don't have an answer (none of the answers in the article are particularly good), but we can start by snipping those parachutes out of contracts. Severance's goal is to minimize financial impact to employees when a company downsizes. your average CEO does not have financial impact that a middle class worker would take any sympathies toward.
    - boeingUH60 3y ago
      > A quick google tells me that the median CEO makes 20 million a year. What a damn lie. The median CEO pay in the USA is $189,520, according to the Bureau of Labor Statistics [1]. $20 million is median pay for CEOs of S&P 500 companies, the biggest companies in the country…I wonder why people let themselves get suckered by clickbait. 1- https://www.bls.gov/ooh/management/top-executives.htm#:~:text=%2498%2C100-,The%20median%20annual%20wage%20for%20chief%20executives%20was%20%24189%2C520%20in,percent%20earned%20more%20than%20%24239%2C200 https://www.bls.gov/ooh/management/top-executives.htm#:~:tex....
      - johnnyanmac 3y ago
        Point taken, but I think your link takes the "top executive" too much in the other direction. Mentioning that the median top executive in the government sector (which would be what, the president? Senate?) being $120k in 2022 makes me think that that title isn't quite what people think of, similar to being a "vice president" of a bank. to come at a comprimise instead of calling everyone liars over statistics with differing definitions: Salary.com lists a median of $830k. Not quite "retire in 2 years" money, but well past middle class and more than enough to establish your own safety net. My main point doesn't change here. https://www.salary.com/research/salary/benchmark/chief-executive-officer-salary https://www.salary.com/research/salary/benchmark/chief-execu...
    - vladms 3y ago
      Yet, many CEO-s seem to be appearing again and again (even bad ones as others pointed out). I do not know many, but the few CEO-s I have personally interacted with seem completely driven by the wish to succeed, having some form of lacking empathy, being very optimistic and being a bit charismatic. With such traits potential punishments will not work great (they will just think "it will never happen to me"), hence it is why I think rewards are used more, but mostly as a form of measuring "success". After couple of millions it is not really about the money but about being more "successful" than the others.
      - johnnyanmac 3y ago
rawgabbit 3y ago
I understand the stock market is rewarding Nadella's Microsoft. My question is what exactly has he done to deserve the praise?
- sashank_1509 3y ago
  I think he’s done a far better job than Steve Ballmer. When he took over Microsoft had completely missed the smartphone revolution, desktop sales were reducing and it did not in general look like a great outlook for the company. It seems like Satyas focus on Azure and more recently AI helped bouy Microsoft’s stock growth
AlbertCory 3y ago
> There are far more successful CEO run corporations compared to family run corporations. No, there are not, if we look at survival (the entire point of Skin in the Game). Find us some examples of non-family-run corporations more than 200 years old.
- ElevenLathe 3y ago
  The whole concept of non-family-run corporations is barely 200 years old. At that point in time, it literally took an act of the legislature to form a corporation, and this right was typically only granted for a limited time for a very specific purpose (i.e. specifically and only to build a railroad between two specific cities, and set to come up for renewal in a few years).
  - AlbertCory 3y ago
    On the contrary, the NYSE was founded in 1792. State Street Bank and Chubb Insurance Group were both founded before 1800, and are not family-owned AFAICT. So the question still stands.

dclowd9901 3y ago

I think you would struggle to find examples of CEOs seeing negative consequences from poor performance that wasn’t outright fraud.

fallingknife 3y ago
What negative consequences would you propose? Isn't firing enough just like for every other job?
- johnnyanmac 3y ago
  The article highlights some at the end for exploration (I also left a summary on another reply if you want a TLDR). But to tread new ground: not really. Firing is scary for a regular employee because they need to work to live, pay off debts, potentially care for family, and more. Many can't just take off a year without these finances without losing some of these factors. For many still, even a few months of no income can have heavy impacts, especially if we step outside our HN tech bubble. A quick google tells me that the median CEO makes 20 million a year. they really don't need to work a day in their lives after a mere year or 2 of work. All the above financial factors simply aren't a thing unless their quality of life is insanely lavish (like, a full time crew managing a yatch lavish). What's more, their severance is again, usually in the millions. they get rewarded for failing more money than your average worker will make in their career. I don't have an answer (none of the answers in the article are particularly good), but we can start by snipping those parachutes out of contracts. Severance's goal is to minimize financial impact to employees when a company downsizes. your average CEO does not have financial impact that a middle class worker would take any sympathies toward.
  - boeingUH60 3y ago
    > A quick google tells me that the median CEO makes 20 million a year. What a damn lie. The median CEO pay in the USA is $189,520, according to the Bureau of Labor Statistics [1]. $20 million is median pay for CEOs of S&P 500 companies, the biggest companies in the country…I wonder why people let themselves get suckered by clickbait. 1- https://www.bls.gov/ooh/management/top-executives.htm#:~:text=%2498%2C100-,The%20median%20annual%20wage%20for%20chief%20executives%20was%20%24189%2C520%20in,percent%20earned%20more%20than%20%24239%2C200 https://www.bls.gov/ooh/management/top-executives.htm#:~:tex....
    - johnnyanmac 3y ago
      Point taken, but I think your link takes the "top executive" too much in the other direction. Mentioning that the median top executive in the government sector (which would be what, the president? Senate?) being $120k in 2022 makes me think that that title isn't quite what people think of, similar to being a "vice president" of a bank. to come at a comprimise instead of calling everyone liars over statistics with differing definitions: Salary.com lists a median of $830k. Not quite "retire in 2 years" money, but well past middle class and more than enough to establish your own safety net. My main point doesn't change here. https://www.salary.com/research/salary/benchmark/chief-executive-officer-salary https://www.salary.com/research/salary/benchmark/chief-execu...
  - vladms 3y ago
    Yet, many CEO-s seem to be appearing again and again (even bad ones as others pointed out). I do not know many, but the few CEO-s I have personally interacted with seem completely driven by the wish to succeed, having some form of lacking empathy, being very optimistic and being a bit charismatic. With such traits potential punishments will not work great (they will just think "it will never happen to me"), hence it is why I think rewards are used more, but mostly as a form of measuring "success". After couple of millions it is not really about the money but about being more "successful" than the others.
    - johnnyanmac 3y ago

rawgabbit 3y ago

I understand the stock market is rewarding Nadella's Microsoft. My question is what exactly has he done to deserve the praise?

sashank_1509 3y ago
I think he’s done a far better job than Steve Ballmer. When he took over Microsoft had completely missed the smartphone revolution, desktop sales were reducing and it did not in general look like a great outlook for the company. It seems like Satyas focus on Azure and more recently AI helped bouy Microsoft’s stock growth

AlbertCory 3y ago

> There are far more successful CEO run corporations compared to family run corporations. No, there are not, if we look at survival (the entire point of Skin in the Game). Find us some examples of non-family-run corporations more than 200 years old.

ElevenLathe 3y ago
The whole concept of non-family-run corporations is barely 200 years old. At that point in time, it literally took an act of the legislature to form a corporation, and this right was typically only granted for a limited time for a very specific purpose (i.e. specifically and only to build a railroad between two specific cities, and set to come up for renewal in a few years).
- AlbertCory 3y ago
  On the contrary, the NYSE was founded in 1792. State Street Bank and Chubb Insurance Group were both founded before 1800, and are not family-owned AFAICT. So the question still stands.