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I don't buy the "rewards accumulate upwards, so surely blame should too" argument. This argument hinges on the idea that the executive is earning rewards that

by jfasi 13y ago

I don't buy the "rewards accumulate upwards, so surely blame should too" argument. This argument hinges on the idea that the executive is earning rewards that are vastly disproportionate to the risks he faces for making mistakes. Since the executive is compensated orders of magnitude more than any individual rank and file employee, it's easy to think that his reward is too large. However, on deeper examination you find that this isn't as clear as one might think it is. Doesn't every employee enjoy the benefits of the company's success? Individually their pay is small compared to the executive's, but taken together their collective reward dwarfs what the executive takes home. When taken in the context of the entire company, the pay of the executive seems more reasonable. As for risk, remember that however all-powerful the executive's role is portrayed to be in popular culture, he is ultimately a servant of the shareholders and the employees. He acts according to pressure from the owners of the company to transform an existing business into a more profitable business. Morality can and certainly does enter into it, but only in such a capacity where it doesn't interfere too severely with this mission. When viewed from this angle, it's clear that putting in place laws that would allow you to prosecute CEOs that execute this mission in good faith is foolish. It would be incompatible with our legal principles because it would assume that all leaders of faltering companies are criminals unless proven otherwise, simply by virtue of being at the helm during bad times. Worse, it would transform the role of the CEO from that of the responsibly careful and reasonably bold leader to a timid sheep who lives in fear of mob justice for impossible-to-foresee consequences of his innumerable, seemingly innocent, decisions.

king_jester 13y ago
> This argument hinges on the idea that the executive is earning rewards that are vastly disproportionate to the risks he faces for making mistakes. C-level execs of large banks (the kind of execs in question) DO early disproportionate amounts of money and face no real risks even when they fail miserably. C-level execs typically get golden parachutes and usually face no criminal charges even if their actions or direction lead to criminal behavior. > Doesn't every employee enjoy the benefits of the company's success? No, absolutely not. Is it better that someone be employed rather than have no job and go hungry? Yes. But you are wrong if you think the janitors that clean the offices and other low level employees share in the success of the company, these people are paid low, flat wages and are highly expendable even in successful times for a business. > Individually their pay is small compared to the executive's, but taken together their collective reward dwarfs what the executive takes home. The average worker does not share their income in some kind of collective way and does not have a way to collectively bargain for extra wages or benefits. C-level executives, on the other hand, have tremendous salaries compared to the average worker working under them and are rarely in danger of any penalty for bad or illegal decisions. > As for risk, remember that however all-powerful the executive's role is portrayed to be in popular culture, he is ultimately a servant of the shareholders and the employees. He acts according to pressure from the owners of the company to transform an existing business into a more profitable business. Morality can and certainly does enter into it, but only in such a capacity where it doesn't interfere too severely with this mission. If high level executives get a license to act against moral interests of people at large without the risk of punishment, we should expect sociopathic-like behavior from those person and they will do damage in some capacity or another. > When viewed from this angle, it's clear that putting in place laws that would allow you to prosecute CEOs that execute this mission in good faith is foolish. Nonsense. No person or business entity is entitled to profit without rules or regulation. We aren't Ferengi. > It would be incompatible with our legal principles because it would assume that all leaders of faltering companies are criminals unless proven otherwise, simply by virtue of being at the helm during bad times. Running a business poorly is not a crime. Running a business with the intent to lie, defraud, and otherwise cheat the law is. Expanding or strengthening laws to ban behavior that is destructive to society is not wrong but is moral and necessary. > Worse, it would transform the role of the CEO from that of the responsibly careful and reasonably bold leader to a timid sheep who lives in fear of mob justice for impossible-to-foresee consequences of his innumerable, seemingly innocent, decisions. If this were to happen, society would be a better place. Instead now we have not sheep but wolves that seek their own profit regardless of how many lives are destroyed.
talmand 13y ago
I totally agree with the thought that rewards go up and so should blame. The reason they get those rewards in the first place is due to some theory that their decisions and actions carry so much weight and responsibility. Why is that this weight and responsibility is factored only in rewards and not blame? But your argument about executive compensation is rather odd to me. Not every employee enjoy the benefits of the company's success unless you just consider having a job the only benefit to worry over. Since the employees take home pay is collectively larger then the executive pay seems reasonable? I strongly disagree. That's implying that the executive can pay himself a million a year and there's no problem with paying 100,000 employees $100 a year because collectively they get paid more. I think the executive would likely feel that's a great deal for him but I would think the employees would disagree. Granted, extreme example. The simple fact is that in most companies I would expect the collective pay of employees to be larger than the pay of its executives, that shouldn't be a factor at all. I'm not aware of examples shareholders being involved in the day-to-day decisions that the executive makes. Sure, there's pressure to do this or that, but shareholders tend to just say "make us money". They don't necessarily so how it should be done. That doesn't excuse the executive's decision if it goes bad. As for "foolish" laws that could imprison CEOs for bad decisions. We actually already have such laws on the books, they just aren't enforced on that level. If you as a person make a bad decision that results in harm to someone else, those laws may hold you accountable. In terms of CEOs making the same exact decision that results in the exact same harm to someone else tends to result in the company being held responsible. Which usually results in a fine of some sort, if anything at all. In most cases where the company causes harm, it was a person's decision that led to that harm. If it can determined that it was the person's decision that led to that harm, you're damn right they should face the consequences of that decision. Big example. Deepwater Horizon oil spill, several individuals faced criminal charges for decisions made before and after the accident and rightfully so. Why is it a CEO shouldn't face consequences for decisions that they make if it can be shown they were in fact the ones that made them?
kyllo 13y ago
This is a principal-agent problem. http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem As for risk, remember that however all-powerful the executive's role is portrayed to be in popular culture, he is ultimately a servant of the shareholders and the employees. He acts according to pressure from the owners of the company to transform an existing business into a more profitable business. That is the principal (shareholders/board)'s intended role for the CEO. But as an agent of the principal, the CEO's incentive is different, it is actually to use his power and influence to manipulate the company into offering him maximum compensation and minimum risk in the short term, and to rig the company's business into taking risks that are degenerate in the long term but boost profits in the short term. And members of the board, who are also CEOs of other companies, are complicit in this because they are helping each other do the same thing--colluding to basically rob each others' companies together.

by jfasi 13y ago

king_jester 13y ago

> This argument hinges on the idea that the executive is earning rewards that are vastly disproportionate to the risks he faces for making mistakes. C-level execs of large banks (the kind of execs in question) DO early disproportionate amounts of money and face no real risks even when they fail miserably. C-level execs typically get golden parachutes and usually face no criminal charges even if their actions or direction lead to criminal behavior. > Doesn't every employee enjoy the benefits of the company's success? No, absolutely not. Is it better that someone be employed rather than have no job and go hungry? Yes. But you are wrong if you think the janitors that clean the offices and other low level employees share in the success of the company, these people are paid low, flat wages and are highly expendable even in successful times for a business. > Individually their pay is small compared to the executive's, but taken together their collective reward dwarfs what the executive takes home. The average worker does not share their income in some kind of collective way and does not have a way to collectively bargain for extra wages or benefits. C-level executives, on the other hand, have tremendous salaries compared to the average worker working under them and are rarely in danger of any penalty for bad or illegal decisions. > As for risk, remember that however all-powerful the executive's role is portrayed to be in popular culture, he is ultimately a servant of the shareholders and the employees. He acts according to pressure from the owners of the company to transform an existing business into a more profitable business. Morality can and certainly does enter into it, but only in such a capacity where it doesn't interfere too severely with this mission. If high level executives get a license to act against moral interests of people at large without the risk of punishment, we should expect sociopathic-like behavior from those person and they will do damage in some capacity or another. > When viewed from this angle, it's clear that putting in place laws that would allow you to prosecute CEOs that execute this mission in good faith is foolish. Nonsense. No person or business entity is entitled to profit without rules or regulation. We aren't Ferengi. > It would be incompatible with our legal principles because it would assume that all leaders of faltering companies are criminals unless proven otherwise, simply by virtue of being at the helm during bad times. Running a business poorly is not a crime. Running a business with the intent to lie, defraud, and otherwise cheat the law is. Expanding or strengthening laws to ban behavior that is destructive to society is not wrong but is moral and necessary. > Worse, it would transform the role of the CEO from that of the responsibly careful and reasonably bold leader to a timid sheep who lives in fear of mob justice for impossible-to-foresee consequences of his innumerable, seemingly innocent, decisions. If this were to happen, society would be a better place. Instead now we have not sheep but wolves that seek their own profit regardless of how many lives are destroyed.

talmand 13y ago

I totally agree with the thought that rewards go up and so should blame. The reason they get those rewards in the first place is due to some theory that their decisions and actions carry so much weight and responsibility. Why is that this weight and responsibility is factored only in rewards and not blame? But your argument about executive compensation is rather odd to me. Not every employee enjoy the benefits of the company's success unless you just consider having a job the only benefit to worry over. Since the employees take home pay is collectively larger then the executive pay seems reasonable? I strongly disagree. That's implying that the executive can pay himself a million a year and there's no problem with paying 100,000 employees $100 a year because collectively they get paid more. I think the executive would likely feel that's a great deal for him but I would think the employees would disagree. Granted, extreme example. The simple fact is that in most companies I would expect the collective pay of employees to be larger than the pay of its executives, that shouldn't be a factor at all. I'm not aware of examples shareholders being involved in the day-to-day decisions that the executive makes. Sure, there's pressure to do this or that, but shareholders tend to just say "make us money". They don't necessarily so how it should be done. That doesn't excuse the executive's decision if it goes bad. As for "foolish" laws that could imprison CEOs for bad decisions. We actually already have such laws on the books, they just aren't enforced on that level. If you as a person make a bad decision that results in harm to someone else, those laws may hold you accountable. In terms of CEOs making the same exact decision that results in the exact same harm to someone else tends to result in the company being held responsible. Which usually results in a fine of some sort, if anything at all. In most cases where the company causes harm, it was a person's decision that led to that harm. If it can determined that it was the person's decision that led to that harm, you're damn right they should face the consequences of that decision. Big example. Deepwater Horizon oil spill, several individuals faced criminal charges for decisions made before and after the accident and rightfully so. Why is it a CEO shouldn't face consequences for decisions that they make if it can be shown they were in fact the ones that made them?

kyllo 13y ago

This is a principal-agent problem. http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem As for risk, remember that however all-powerful the executive's role is portrayed to be in popular culture, he is ultimately a servant of the shareholders and the employees. He acts according to pressure from the owners of the company to transform an existing business into a more profitable business. That is the principal (shareholders/board)'s intended role for the CEO. But as an agent of the principal, the CEO's incentive is different, it is actually to use his power and influence to manipulate the company into offering him maximum compensation and minimum risk in the short term, and to rig the company's business into taking risks that are degenerate in the long term but boost profits in the short term. And members of the board, who are also CEOs of other companies, are complicit in this because they are helping each other do the same thing--colluding to basically rob each others' companies together.