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Pay off now, or pay off later? The incentive structure for a CEO or other executive at a large multi-national oil firm is likely such that he/she would much ra
by furyg3 17y ago
Pay off now, or pay off later?
The incentive structure for a CEO or other executive at a large multi-national oil firm is likely such that he/she would much rather have a lot of oil drilled in the short-term, rather than a smaller ammount of oil in the short-term and a larger total ammount over the long-term. The same goes for the board members and investors.
"Long-term" here is decades, possibly generations, not next quarter. That means that a large chunk of the profits may be realized well after you're retired (or dead), which is not so great for your bonus structure, promotion schedule, or the ROI timeframes that most investors are concerned with (but fantastic for a nation-state). Furthermore contract structures over that kind of timeframe become a bit unpredictable, especially contracts with a sovreign nation, so better to get what you can now and get out.
This kind of long-term thinking is where corporations fall short. Even if it's the best interests of the 'corporation' to invest in the long term (which clearly ended up being the case here), it's not in the best interests of the individuals working there. Very few institutions are capable of that mode of operation (nations, monarchies/family dynasties).
- miked 17y agoWhile I largely agree on most of your points, I think there's a porblem with this: The incentive structure for a CEO or other executive at a large multi-national oil firm is likely such that he/she would much rather have a lot of oil drilled in the short-term, rather than a smaller ammount of oil in the short-term and a larger total ammount over the long-term. That seems to me a bit of a strawman, though I confess I know little about how the oil business works. The issue here comes down to a present value calculation for proposed investments. You seem to be implying that the Iraqi engineer pushed for short-term maximization thru the use of new technologies. But those technologies cost money, now. That would reduce the company's profit and (if he's a shareholder) his (short-term) return.
- Estragon 17y agoI confess I know little about how the oil business works So basically you're arguing from the axioms of free-market fundamentalism. \yawn\
- anamax 17y ago> So basically you're arguing from the axioms of free-market fundamentalism. Since he was responding to an argument with even less basis, it's curious that only the response rated the above comment.
- miked 17y agoI'm curious, are you saying that you know a lot about the oil business. And do you think that calling someone's position names (free-market fundamentalism) is a strong argument?
- vitaminj 17y agoThe risks associated with introducing new technology need to be taken into account. An oil company may not think it's worth the risk to try untested technology (or rather, try standard techniques on untested reservoir conditions). But the Iraqi engineer / regulator, who isn't bearing the costs of failed forays into new technology, may think its a good idea. So their incentives are different.