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Can ELI5 why do investors (owners of the company) accept CEO's pay packages that involve golden parachutes? It doesn't make sense to me (I mean, it might in cas

by tomp 3y ago

Can ELI5 why do investors (owners of the company) accept CEO's pay packages that involve golden parachutes? It doesn't make sense to me (I mean, it might in case of offensive takeovers, but who's gonna take over Boeing?!)

sonicanatidae 3y ago
The small shareholders don't have enough shares to make an impact and the large shareholders view it as a cost of doing business. Remember, they aren't investing in moral outcomes, just profits. With the DoD funding Boeing in perpetuity, there is zero incentive or consequences, so it's still a "good" investment...for now.
rossdavidh 3y ago
I think it's because when they get the contractually guaranteed "golden parachute", the board thinks this CEO is gonna work out great so why argue, and since it's not at all uncommon it doesn't seem like a red flag at all; it's the norm. By the time it actually happens, they have a contract that says it will happen, which is rarely overturned.
_ea1k 3y ago
Because both the CEO and the board recognize that he might need to be the designated scapegoat in a future failure.
- fullspectrumdev 3y ago
  Yep, same deal with CISO’s, but in their case it’s even more obvious.
bluecheese452 3y ago
Small time investors have zero say. Large investors are in the same social class as the ceo and scratch each others backs.
krisoft 3y ago
> why do investors (owners of the company) accept CEO's pay packages that involve golden parachutes My understanding is that this is seen as a cost of acquiring the right expertise. “Pay peanuts, get monkeys” kinda thing. They want the best of the best, and according to their perception these people can do a number of things with their time. Why would they work on this thing instead of their own thing, or a number of other people’s things? By choosing to work with you they close other doors in their life, so you need to both sweeten the deal and make the risk of things not working out between you reasonably low. Not so low that the expert is not incentivised to work hard for you, but low enough that you can convince someone to risk it getting in business with you. In short they agree to it because if they don’t they can’t get the right caliber of person through the door.
- tomp 3y ago
  No I don't buy this. The shareholders would be better off if they promised a $800m incentives-based / performance-based package (e.g. stock options etc.) than promising $80m if the CEO performance sucks. And any CEO rejecting this offer, is a huge red flag.
  - roenxi 3y ago
    I'm not saying it is a bad idea, but CEOs face the same problem as politicians - while they are responsible for whatever happens (good and bad) they are not actually in control of very much. A bad CEO can destroy a company in a few years. A good one can set up years of profits. But the "can" there does some heavy lifting - sometimes a CEO will walk in to a company and there just won't be any opportunities. Eg, you take over a restaurant chain then the COVID overreaction happens. Not much the CEO can do. Long and short, I can see why a good CEO might go for guaranteed compensation rather than big payoffs for good results. They can't guarantee good results. Nobody can make that sort of promise.
  - refurb 3y ago
    $800M? Can you imagine the public howling at that kind of CEO comp?
phatfish 3y ago
You don't screw over your peers. Those that control the big investment funds or have a private fortune probably liked having a golden parachute themselves at some point. Same as when normal people quit a job they don't like it's better to go quietly and be glad you are out rather than burn bridges.
JohnBooty 3y ago
It's fairly fundamental capitalism, right? The world is not overflowing with people who can even theoretically lead a $77bn company and will be acceptable candidates in the eyes of the board/shareholders. So you will need to pay accordingly if you want one. It's like wondering why pro sports teams give megabucks guaranteed contracts to superstars. There aren't a lot of them and there is a lot of money at stake when it comes to running a successful pro sports team. So they cost a lot of money to acquire. I am by no means defending this. Whether or not one thinks there are better alternatives to capitalism, it's hard to deny that capitalism produces some pretty crap outcomes.
- NikolaNovak 3y ago
  In addition to that, companies want CEOs to take some level of risk to grow the company, And to take the fall when needed for bad decisions / press / accidents and incidents. The golden parachute, as is my understanding, is an all but explicit pay to take responsibility and be the fall guy / resign with many a hollow sounding apology letter when and as needed from shareholder perspective (which may not overlap from our own perspective on when that would be needed or appropriate). Plus everything op said about capitalism and market.
  - bitcharmer 3y ago
    I keep seeing "responsibility" brought up but what responsibility do you mean? I have never seen a CEO suffering unpleasant consequences of their own failures. It's always a golden parachute and failing upwards for these people.
- bitcharmer 3y ago
  > The world is not overflowing with people who can even theoretically lead a $77bn company I strongly disagree. It's a matter of surrounding yourself with capable people and there's a huge factor of financial inertia. I guarantee you most HN-ers could run Google or Apple for 5 years without causing their value to plummet.
  - JohnBooty 3y ago
refurb 3y ago
Because the people they want have options. If you want a hotshot CEO who could go and work for Google and make tens of millions per year, you have to sweeten the pot to get them to accept. So they have golden parachutes which say "for any reason, except fraud or other criminal actions, we guarantee you'll get $X millions when you leave".
FerretFred 3y ago
Unintended pun, but would Calhoun use a parachute designed and built by Boeing?

by tomp 3y ago

sonicanatidae 3y ago

The small shareholders don't have enough shares to make an impact and the large shareholders view it as a cost of doing business. Remember, they aren't investing in moral outcomes, just profits. With the DoD funding Boeing in perpetuity, there is zero incentive or consequences, so it's still a "good" investment...for now.

rossdavidh 3y ago

I think it's because when they get the contractually guaranteed "golden parachute", the board thinks this CEO is gonna work out great so why argue, and since it's not at all uncommon it doesn't seem like a red flag at all; it's the norm. By the time it actually happens, they have a contract that says it will happen, which is rarely overturned.

_ea1k 3y ago

Because both the CEO and the board recognize that he might need to be the designated scapegoat in a future failure.

fullspectrumdev 3y ago
Yep, same deal with CISO’s, but in their case it’s even more obvious.

bluecheese452 3y ago

Small time investors have zero say. Large investors are in the same social class as the ceo and scratch each others backs.

krisoft 3y ago

> why do investors (owners of the company) accept CEO's pay packages that involve golden parachutes My understanding is that this is seen as a cost of acquiring the right expertise. “Pay peanuts, get monkeys” kinda thing. They want the best of the best, and according to their perception these people can do a number of things with their time. Why would they work on this thing instead of their own thing, or a number of other people’s things? By choosing to work with you they close other doors in their life, so you need to both sweeten the deal and make the risk of things not working out between you reasonably low. Not so low that the expert is not incentivised to work hard for you, but low enough that you can convince someone to risk it getting in business with you. In short they agree to it because if they don’t they can’t get the right caliber of person through the door.

tomp 3y ago
No I don't buy this. The shareholders would be better off if they promised a $800m incentives-based / performance-based package (e.g. stock options etc.) than promising $80m if the CEO performance sucks. And any CEO rejecting this offer, is a huge red flag.
- roenxi 3y ago
  I'm not saying it is a bad idea, but CEOs face the same problem as politicians - while they are responsible for whatever happens (good and bad) they are not actually in control of very much. A bad CEO can destroy a company in a few years. A good one can set up years of profits. But the "can" there does some heavy lifting - sometimes a CEO will walk in to a company and there just won't be any opportunities. Eg, you take over a restaurant chain then the COVID overreaction happens. Not much the CEO can do. Long and short, I can see why a good CEO might go for guaranteed compensation rather than big payoffs for good results. They can't guarantee good results. Nobody can make that sort of promise.
- refurb 3y ago
  $800M? Can you imagine the public howling at that kind of CEO comp?

phatfish 3y ago

You don't screw over your peers. Those that control the big investment funds or have a private fortune probably liked having a golden parachute themselves at some point. Same as when normal people quit a job they don't like it's better to go quietly and be glad you are out rather than burn bridges.

JohnBooty 3y ago

It's fairly fundamental capitalism, right? The world is not overflowing with people who can even theoretically lead a $77bn company and will be acceptable candidates in the eyes of the board/shareholders. So you will need to pay accordingly if you want one. It's like wondering why pro sports teams give megabucks guaranteed contracts to superstars. There aren't a lot of them and there is a lot of money at stake when it comes to running a successful pro sports team. So they cost a lot of money to acquire. I am by no means defending this. Whether or not one thinks there are better alternatives to capitalism, it's hard to deny that capitalism produces some pretty crap outcomes.

NikolaNovak 3y ago
In addition to that, companies want CEOs to take some level of risk to grow the company, And to take the fall when needed for bad decisions / press / accidents and incidents. The golden parachute, as is my understanding, is an all but explicit pay to take responsibility and be the fall guy / resign with many a hollow sounding apology letter when and as needed from shareholder perspective (which may not overlap from our own perspective on when that would be needed or appropriate). Plus everything op said about capitalism and market.
- bitcharmer 3y ago
  I keep seeing "responsibility" brought up but what responsibility do you mean? I have never seen a CEO suffering unpleasant consequences of their own failures. It's always a golden parachute and failing upwards for these people.
bitcharmer 3y ago
> The world is not overflowing with people who can even theoretically lead a $77bn company I strongly disagree. It's a matter of surrounding yourself with capable people and there's a huge factor of financial inertia. I guarantee you most HN-ers could run Google or Apple for 5 years without causing their value to plummet.
- JohnBooty 3y ago

refurb 3y ago

Because the people they want have options. If you want a hotshot CEO who could go and work for Google and make tens of millions per year, you have to sweeten the pot to get them to accept. So they have golden parachutes which say "for any reason, except fraud or other criminal actions, we guarantee you'll get $X millions when you leave".

FerretFred 3y ago

Unintended pun, but would Calhoun use a parachute designed and built by Boeing?