7 ms·

It's really sad how wildly distorted executive compensation has gotten. The best phrase I heard was "entrepreneurial reward for managerial duty", and I fear it'

by bedhead 13y ago

It's really sad how wildly distorted executive compensation has gotten. The best phrase I heard was "entrepreneurial reward for managerial duty", and I fear it's become all-too-common. My eyes popped out of my head recently when I saw that Coca-Cola (yes, that same drink company that's done just fine for over a hundred years and whose organic growth rate might be 1% if they're lucky) was trying to give management $13 BILLION over the next four years. It's insanity. And when it's not simple pay, it's severance packages that give Fuck-You money to people whose performance provably dreadful. Leo Apotheker made $25 million on his way out the door from HP, after vaporizing over $6 billion in buying a fraudulent company and doing virtually no due diligence. It's madness, pure madness. Executive comp is a bubble, these people aren't worth anything near this much, but I have no idea when it will pop.

chrisgd 13y ago
God that is the truth. And the push for stock buybacks just continues to gloss over the issue. Stock outstanding continues to decline, but the amount of money spent on buybacks should be pushing shares out down twice as fast. Instead ridiculous stock options (executives need to be invested in the Company!) continue to dilute the impact of buybacks.
deleted 13y ago
[deleted]
kolbe 13y ago
Side note: asset bubbles pop. Executive pay is not an asset. I don't know where you work or what you do for a living, but I've heard a similar rant about executive pay from hundreds of people, whereas I've only ever seen a handfull of people trying to do something about it. So, I propose to you, if this hurts your sensibilities so much, what are you doing about it? Are you continuing to feed the machine by working as one of their employees? Are you participating by trying to create an aqui-hirable startup? Or are you pushing to enact change?
- thenewbtg 13y ago
  There is nothing we can do, really. Money is very close to power, and obviously the relatively poor (those who rely on a salary) have far less say and control than the extravagantly paid (those who do not require a salary). It is a fundamental trait of our free and capitalist society. We're merely mourning obvious inefficiencies, "bugs" in the convoluted system of laws and philosophies and culture that govern our society. This is a suboptimum outcome, in our opinion. Watching inequality rise dramatically over a few short decades only bolsters the belief that these are suboptimal outcomes. And watching these unmeritorious fools perform poorly while being paid thousands of times the average pay of their own staff is disheartening. It's obviously not a meritocracy. It's obvious that the extravagant, suboptimal pay scheme isn't buying quality leadership, nor is it rewarding any kind of out-sized risk on the part of management. Tiny risk compared to venture or entrepreneur, small or negative benefit, massive reward.
  - frandroid 13y ago
    Sure, we can do something. It's called popular political action.
    - chillingeffect 13y ago
      Also, we can encourage one another to shift our consumption habits- If Coke is earning so much money and misbehaving, let's patronize other soda companies! If Yahoo is doing the same, let's spread out to other mail and search providers!
    - thenewbtg 13y ago
      I would point out the recent fun little study showing that the class we are (those who work for a salary) have less say in policy outcomes than the rich (those who do not require a salary). They bill it as "The US is more of an oligarchy than democracy" because those very few >0.1% of Americans have a greater political say than the rest of us.
  - kolbe 13y ago
    I don't think engineers earning six figures are relatively poor. You should learn what poor is before you say something like that. They are solidly middle class in one of the most prosperous times to be middle class. And the middle class is designed to sit between the upper (capital owners) and the lower. You're paid to augment their capital. So if they get filthy rich off of your work, despite their bad decisions, it shouldn't matter to you. You're every bit a part of the problem, and you choose to be a part of it. You don't need to live in the Bay Area. You don't need the best schools. You don't need fancy new tech toys. You don't even need US. You choose to be a part of the middle class in order to receive those luxuries.
nrao123 13y ago
Here is Marc Andreeseen's interesting take on why exec compensation maybe high: Conventional theories of exec compensation being so high either (1) what market can bear or (2) board/mgmt agency problem out of control. Alternate theory is exec comp so high as insurance policy against catastrophic visible public failure; exec firings can be career ending. From this standpoint, top exec especially at highly visible and controversial public co should demand a lot due to career risk of failure. Particularly since exec blowups at this level not always based on performance; can be lots of political juju, need for fall guy, etc. Fourth theory, however, my personal favorite—exec comp so high as motivation/prize for best lower-level people to stay at big company. Versus leaving to go to increasingly attractive (1) venture-backed startups or (2) private-equity-backed buyouts. I.e. paying a few people at the top a huge amount of money keeps lots of lower level people on the hook due to enticing future payoff. My guess: exec comp levels go up from here, as end markets get larger, tech & market change happens faster, and jobs get more dangerous. http://pmarcatweetsasblogposts.tumblr.com/post/73998948125/why-is-executive-compensation-so-high http://pmarcatweetsasblogposts.tumblr.com/post/73998948125/w...
- _delirium 13y ago
  Wouldn't the fourth theory only make sense if companies routinely hired executives internally? In the old model of "assembly-line worker eventually works his way up to Ford CEO" I could see high compensation at the top being used as a kind of carrot to keep people motivated about climbing the internal career ladder, instead of jumping elsewhere. But afaict most companies nowadays don't hire execs from internal candidates. The COO in question here, for example, was not a Yahoo employee prior to being brought in as COO (he was hired away from Google, not promoted from within Yahoo).
- yesiamyourdad 13y ago
  I was just reading "Predictably Irrational" where he speculates that it's because in the early 90's, public companies were forced to make executive compensation public, so executives suddenly knew what others were making and that gave them a huge lever in negotiations. He draws a correlation between the creation of the rule and the sudden rise in executive compensation in the early 90's. Is correlation causation in this case? Seems like it's worth exploring. I don't know how boards get away with the gigantic exit packages though, except that it's probably because all these C-level execs sit on each others' boards. As for career-ending, how does this explain things like Robert Nardelli? Personally, the only thing I see ending an exec's career is prison.
ChuckMcM 13y ago
Let me play devil's advocate for a minute. The guy's cash compensation, $500k. That is a about 2x what Google pays their top engineers (about $250k) The rest of his package was stock. [1] The compensation theory goes that if you do well the stock will do well, if you do poorly the stock will do poorly. So most of your compensation is a chunk of stock, in this case about 2.5M shares as "RSUs" (a restricted stock grant with performance tuners tweaked to company performance) de Castro's stock did well because of the Alibaba thing not because of what he did. So that left him with a chunk of stock. Had the company done poorly that would have been worthless. It could still become worthless. The filing indicates he got 1.5M shares in restricted stock, he no doubt will have to sell a chunk of that to pay the taxes on those shares (it will be treated as ordinary income by the IRS) and California. When these stories are reported they pick the biggest cash number they can, but the actual value may be significantly less. Large stock grants are a tool to keep executives interests aligned with the company interests, they are given a lot of stock and huge restrictions are placed on their ability to sell that stock. Had he stayed at the company, the restrictions on selling would have prevented him from realizing that stock value immediately. [1] http://www.sec.gov/Archives/edgar/data/1011006/000119312514146035/d710905dpre14a.htm#toc710905_32 http://www.sec.gov/Archives/edgar/data/1011006/0001193125141...
- finkin1 13y ago
  It's possible he filed an 83b election and paid taxes at the value of the stock when he received it (even though it hadn't fully vested). If so, his tax liability would be significantly less.
  - ChuckMcM 13y ago
    In this case that is impossible. If you pick through Yahoo's filing you will see that what he was granted were "RSU"s not actual stock. This is something that Google uses too. Basically the value of an RSU is nominally one share, except that it is moderated by a performance evaluation. So if your moderator is 0 then your RSUs are 0 * n or 0 shares, if your moderator is 1.0 your RSUs are worth an equivalent number of shares, and if your moderator is higher than 1.0 your RSUs become a larger number of shares. The transform happens at the actual vest time. And fortunately there is a loop hole in the stock sales of insiders that allows for them to sell as many shares as they need to for tax liability purposes. The reason the 83b is impossible then is that he doesn't know how many actual shares this will be. But that is ok since the company sells some of the granted shares to withhold for taxes. This scheme of 'introducing a moderator variable' gives the company exceptional leverage over the employee as they can 'take back' all of their stock grant by setting the moderator to zero. I don't know what his contract looked like but I'm guessing it has a minimum value exit (that was used to get him to change jobs) so it would have been hard for them to not pay him any of the equity.

by bedhead 13y ago

chrisgd 13y ago

God that is the truth. And the push for stock buybacks just continues to gloss over the issue. Stock outstanding continues to decline, but the amount of money spent on buybacks should be pushing shares out down twice as fast. Instead ridiculous stock options (executives need to be invested in the Company!) continue to dilute the impact of buybacks.

deleted 13y ago

[deleted]

kolbe 13y ago

Side note: asset bubbles pop. Executive pay is not an asset. I don't know where you work or what you do for a living, but I've heard a similar rant about executive pay from hundreds of people, whereas I've only ever seen a handfull of people trying to do something about it. So, I propose to you, if this hurts your sensibilities so much, what are you doing about it? Are you continuing to feed the machine by working as one of their employees? Are you participating by trying to create an aqui-hirable startup? Or are you pushing to enact change?

thenewbtg 13y ago
There is nothing we can do, really. Money is very close to power, and obviously the relatively poor (those who rely on a salary) have far less say and control than the extravagantly paid (those who do not require a salary). It is a fundamental trait of our free and capitalist society. We're merely mourning obvious inefficiencies, "bugs" in the convoluted system of laws and philosophies and culture that govern our society. This is a suboptimum outcome, in our opinion. Watching inequality rise dramatically over a few short decades only bolsters the belief that these are suboptimal outcomes. And watching these unmeritorious fools perform poorly while being paid thousands of times the average pay of their own staff is disheartening. It's obviously not a meritocracy. It's obvious that the extravagant, suboptimal pay scheme isn't buying quality leadership, nor is it rewarding any kind of out-sized risk on the part of management. Tiny risk compared to venture or entrepreneur, small or negative benefit, massive reward.
- frandroid 13y ago
  Sure, we can do something. It's called popular political action.
  - chillingeffect 13y ago
    Also, we can encourage one another to shift our consumption habits- If Coke is earning so much money and misbehaving, let's patronize other soda companies! If Yahoo is doing the same, let's spread out to other mail and search providers!
  - thenewbtg 13y ago
    I would point out the recent fun little study showing that the class we are (those who work for a salary) have less say in policy outcomes than the rich (those who do not require a salary). They bill it as "The US is more of an oligarchy than democracy" because those very few >0.1% of Americans have a greater political say than the rest of us.
- kolbe 13y ago
  I don't think engineers earning six figures are relatively poor. You should learn what poor is before you say something like that. They are solidly middle class in one of the most prosperous times to be middle class. And the middle class is designed to sit between the upper (capital owners) and the lower. You're paid to augment their capital. So if they get filthy rich off of your work, despite their bad decisions, it shouldn't matter to you. You're every bit a part of the problem, and you choose to be a part of it. You don't need to live in the Bay Area. You don't need the best schools. You don't need fancy new tech toys. You don't even need US. You choose to be a part of the middle class in order to receive those luxuries.

nrao123 13y ago

Here is Marc Andreeseen's interesting take on why exec compensation maybe high: Conventional theories of exec compensation being so high either (1) what market can bear or (2) board/mgmt agency problem out of control. Alternate theory is exec comp so high as insurance policy against catastrophic visible public failure; exec firings can be career ending. From this standpoint, top exec especially at highly visible and controversial public co should demand a lot due to career risk of failure. Particularly since exec blowups at this level not always based on performance; can be lots of political juju, need for fall guy, etc. Fourth theory, however, my personal favorite—exec comp so high as motivation/prize for best lower-level people to stay at big company. Versus leaving to go to increasingly attractive (1) venture-backed startups or (2) private-equity-backed buyouts. I.e. paying a few people at the top a huge amount of money keeps lots of lower level people on the hook due to enticing future payoff. My guess: exec comp levels go up from here, as end markets get larger, tech & market change happens faster, and jobs get more dangerous. http://pmarcatweetsasblogposts.tumblr.com/post/73998948125/why-is-executive-compensation-so-high http://pmarcatweetsasblogposts.tumblr.com/post/73998948125/w...

_delirium 13y ago
Wouldn't the fourth theory only make sense if companies routinely hired executives internally? In the old model of "assembly-line worker eventually works his way up to Ford CEO" I could see high compensation at the top being used as a kind of carrot to keep people motivated about climbing the internal career ladder, instead of jumping elsewhere. But afaict most companies nowadays don't hire execs from internal candidates. The COO in question here, for example, was not a Yahoo employee prior to being brought in as COO (he was hired away from Google, not promoted from within Yahoo).
yesiamyourdad 13y ago
I was just reading "Predictably Irrational" where he speculates that it's because in the early 90's, public companies were forced to make executive compensation public, so executives suddenly knew what others were making and that gave them a huge lever in negotiations. He draws a correlation between the creation of the rule and the sudden rise in executive compensation in the early 90's. Is correlation causation in this case? Seems like it's worth exploring. I don't know how boards get away with the gigantic exit packages though, except that it's probably because all these C-level execs sit on each others' boards. As for career-ending, how does this explain things like Robert Nardelli? Personally, the only thing I see ending an exec's career is prison.

ChuckMcM 13y ago

Let me play devil's advocate for a minute. The guy's cash compensation, $500k. That is a about 2x what Google pays their top engineers (about $250k) The rest of his package was stock. [1] The compensation theory goes that if you do well the stock will do well, if you do poorly the stock will do poorly. So most of your compensation is a chunk of stock, in this case about 2.5M shares as "RSUs" (a restricted stock grant with performance tuners tweaked to company performance) de Castro's stock did well because of the Alibaba thing not because of what he did. So that left him with a chunk of stock. Had the company done poorly that would have been worthless. It could still become worthless. The filing indicates he got 1.5M shares in restricted stock, he no doubt will have to sell a chunk of that to pay the taxes on those shares (it will be treated as ordinary income by the IRS) and California. When these stories are reported they pick the biggest cash number they can, but the actual value may be significantly less. Large stock grants are a tool to keep executives interests aligned with the company interests, they are given a lot of stock and huge restrictions are placed on their ability to sell that stock. Had he stayed at the company, the restrictions on selling would have prevented him from realizing that stock value immediately. [1] http://www.sec.gov/Archives/edgar/data/1011006/000119312514146035/d710905dpre14a.htm#toc710905_32 http://www.sec.gov/Archives/edgar/data/1011006/0001193125141...

finkin1 13y ago
It's possible he filed an 83b election and paid taxes at the value of the stock when he received it (even though it hadn't fully vested). If so, his tax liability would be significantly less.
- ChuckMcM 13y ago
  In this case that is impossible. If you pick through Yahoo's filing you will see that what he was granted were "RSU"s not actual stock. This is something that Google uses too. Basically the value of an RSU is nominally one share, except that it is moderated by a performance evaluation. So if your moderator is 0 then your RSUs are 0 * n or 0 shares, if your moderator is 1.0 your RSUs are worth an equivalent number of shares, and if your moderator is higher than 1.0 your RSUs become a larger number of shares. The transform happens at the actual vest time. And fortunately there is a loop hole in the stock sales of insiders that allows for them to sell as many shares as they need to for tax liability purposes. The reason the 83b is impossible then is that he doesn't know how many actual shares this will be. But that is ok since the company sells some of the granted shares to withhold for taxes. This scheme of 'introducing a moderator variable' gives the company exceptional leverage over the employee as they can 'take back' all of their stock grant by setting the moderator to zero. I don't know what his contract looked like but I'm guessing it has a minimum value exit (that was used to get him to change jobs) so it would have been hard for them to not pay him any of the equity.