4 ms·

This isn't assigning blame but: James McNerny - CEO of Boeing from 2005-2015: - As Boeing's first CEO without a background in aviation, he made the decision t

This isn't assigning blame but: James McNerny - CEO of Boeing from 2005-2015: - As Boeing's first CEO without a background in aviation, he made the decision to upgrade the 737 series to 737 MAX instead of developing a new model - Compensation in 2007: $12,904,478 - Compensation in 2009: $13,705,435 - Compensation in 2014: $29,000,000 Dennis Muilenburg - CEO of Boeing from 2015-2019: - Compensation in 2018: $23,400,000 - Compensation for being fired in 2020: $62,000,000 - Average employee salary in 2018 was $126,991. This might be very skewed by executive salaries but the CEO made ~184x more than the average employee. Something is wrong here.

distortionfield 3y ago
No you’re absolutely right this is a huge problem. Why are C suites immune to performance reviews? It’s infuriating.
- mslip1 3y ago
  Typically the board is supposed to do that in a startup setting, not sure how that would go down at a large company
  - skissane 3y ago
    I think part of the problem, is if the board fires the CEO for doing a bad job, that suggests the board did a bad job in hiring them in the first place. So it is in the personal self-interest of board members to try to play down the CEO's mistakes, to save their own face. Whereas, a lower-level manager – if you hire 10 people to work for you, and one of them turns out to be a bad hire, people may think you still made a good decision with the other 9. Whereas, the board only really has one hiring decision to make – the CEO – so if they make a bad decision there, they don't have anyone else to point to. For smaller firms and startups this is less of an issue, because even if the CEO turns out to be a disaster, likely few will ever hear of it–so it has less potential negative impact on board member's individual reputations. Whereas, for megacorps, if a CEO makes a mess, everybody hears about it, and board members are more likely to be asked about it when being considered for future board positions.
infamouscow 3y ago
Would delaying executive compensation/bonuses multiple years help mitigate these bone-headed decisions that seemingly only happen when everyone has a short time preference, leaving someone else holding the bag? (I'm genuinely curious.)
- listenallyall 3y ago
  That's kind of the idea behind deferred compensation, usually in the form of stock grants (or stock options). But people are often critical of that as well, because it prioritizes boosting the stock price above all else, and of course when all the deferred comp does eventually get paid out, people get quite upset hearing about a 9-digit payday, even if it was the sum of a decade's withheld earnings.
kevinventullo 3y ago
I wonder why boards don’t give CEO’s a contract in which their compensation can be retroactively clawed back if it is later decided that decisions the CEO made cost the company a great deal of money. Of course lawyers would likely be involved to determine this precisely. In some ways, this would justify the outrageous compensation packages due to the risk implicitly involved. And, it seems to me it would align incentives a little bit better between CEOs and shareholders.
- Arnt 3y ago
  Put differently, you wonder why being able to claw back compensation isn't a business advantage. Why it isn't something that a few companies have tried and then others emulated because of the visible success. Shrug. Personally, I suspect that boards are focusing on business outcome, think that hiring great negotiators as executives helps with business outcome, and accept that great negotiators will negotiate great terms for themselves against the company.
- tw04 3y ago
  Because they're all on each other's boards. There's no incentive to do otherwise. And all they need to do is cater to wall street to maintain their positions because the vast majority of their shares are tied up in 401k funds insulating them from any oversight.

distortionfield 3y ago

No you’re absolutely right this is a huge problem. Why are C suites immune to performance reviews? It’s infuriating.

mslip1 3y ago
Typically the board is supposed to do that in a startup setting, not sure how that would go down at a large company
- skissane 3y ago
  I think part of the problem, is if the board fires the CEO for doing a bad job, that suggests the board did a bad job in hiring them in the first place. So it is in the personal self-interest of board members to try to play down the CEO's mistakes, to save their own face. Whereas, a lower-level manager – if you hire 10 people to work for you, and one of them turns out to be a bad hire, people may think you still made a good decision with the other 9. Whereas, the board only really has one hiring decision to make – the CEO – so if they make a bad decision there, they don't have anyone else to point to. For smaller firms and startups this is less of an issue, because even if the CEO turns out to be a disaster, likely few will ever hear of it–so it has less potential negative impact on board member's individual reputations. Whereas, for megacorps, if a CEO makes a mess, everybody hears about it, and board members are more likely to be asked about it when being considered for future board positions.

infamouscow 3y ago

Would delaying executive compensation/bonuses multiple years help mitigate these bone-headed decisions that seemingly only happen when everyone has a short time preference, leaving someone else holding the bag? (I'm genuinely curious.)

listenallyall 3y ago
That's kind of the idea behind deferred compensation, usually in the form of stock grants (or stock options). But people are often critical of that as well, because it prioritizes boosting the stock price above all else, and of course when all the deferred comp does eventually get paid out, people get quite upset hearing about a 9-digit payday, even if it was the sum of a decade's withheld earnings.

kevinventullo 3y ago

I wonder why boards don’t give CEO’s a contract in which their compensation can be retroactively clawed back if it is later decided that decisions the CEO made cost the company a great deal of money. Of course lawyers would likely be involved to determine this precisely. In some ways, this would justify the outrageous compensation packages due to the risk implicitly involved. And, it seems to me it would align incentives a little bit better between CEOs and shareholders.

Arnt 3y ago
Put differently, you wonder why being able to claw back compensation isn't a business advantage. Why it isn't something that a few companies have tried and then others emulated because of the visible success. Shrug. Personally, I suspect that boards are focusing on business outcome, think that hiring great negotiators as executives helps with business outcome, and accept that great negotiators will negotiate great terms for themselves against the company.
tw04 3y ago
Because they're all on each other's boards. There's no incentive to do otherwise. And all they need to do is cater to wall street to maintain their positions because the vast majority of their shares are tied up in 401k funds insulating them from any oversight.