4 ms·

Some discussion http://www.economist.com/blogs/buttonwood/2014/12/investing-ceo-pay-and-economy http://www.economist.com/blogs/buttonwood/2014/12/investing-...

Some discussion http://www.economist.com/blogs/buttonwood/2014/12/investing-ceo-pay-and-economy http://www.economist.com/blogs/buttonwood/2014/12/investing-... http://www.businessinsider.com/gmos-montier-maximizing-shareholder-value-is-the-worlds-worst-idea-2014-12 http://www.businessinsider.com/gmos-montier-maximizing-share... http://www.bloomberg.com/news/2014-12-03/shareholder-value-focus-seen-as-dumbest-idea-chart-of-the-day.html http://www.bloomberg.com/news/2014-12-03/shareholder-value-f... like a lot of things in economics, a lot of things could have been going on during the switch from 'managerialism' to 'shareholder value' paradigm, so it's not necessarily true that it caused returns to go down. in context the effect Montier talks about is quite small. but it does seem clear that it didn't cause returns to go up meaningfully across the board. in fact, the effect Montier cites seems to go away if you do a slightly more sophisticated calculation http://3rdmoment.blogspot.com/2014/12/stock-performance-in-era-of-shareholder.html http://3rdmoment.blogspot.com/2014/12/stock-performance-in-e... there are a lot of studies that show companies where management has skin in the game do measurably better than companies where they don't. that being said, there aren't data that would tell you, companies where the CEO will earn $1m or $10m depending on how well the company performs don't do as well as companies where the CEO will earn $20m or $200m. edit: the question of impact of CEO incentives on stock performance is probably more complicated than what I said. I've seen a lot of studies that show that incentives impact management behavior. but probably most of those behaviors relate to short-term stock outperformance. whether those changes result in long-term outperformance is another question, and whether the incentives even reward long-term outperformance is complicated. https://hbr.org/1990/05/ceo-incentives-its-not-how-much-you-pay-but-how https://hbr.org/1990/05/ceo-incentives-its-not-how-much-you-...

zanny 12y ago
> management has skin in the game do measurably better than companies where they don't. Same applies to all non-managerial staff. That is why I love the concept of coops, and I'm sad nobody does them much because they mean empowering your employees to be maximally productive at the expense of "potential profits" for founders and shareholders. All the incentive systems in companies are all bandaids trying to make up for doing things wrong from the start. If you want to incentivize them to perform to profit, then let them profit as well from the companies success, and they will perform.
- nickff 12y ago
  If co-ops are an effective corporate structure, why are they not more prolific? I am sure that many people would like to work in co-ops, so the question is why there are not more of them. I would suggest that co-ops don't work very well, and that if they did, employees at shareholder and closely-held corporations would found more of them. From the examples of co-ops that I have examined, it seems that they often fail from internal politics; this is true for both companies which are bought-out by employees, and those founded as co-ops. The examples that I've looked at are only anecdotes, and I do not have a list of citations, but I'd be very interested to hear from anyone who has found differently (as I have no prejudice against them).
crdoconnor 12y ago
>there are a lot of studies that show companies where management has skin in the game do measurably better than companies where they don't. There are studies that show that management 'skin in the game' compensation policies have cause an epidemic of control fraud: http://neweconomicperspectives.org/2014/11/ceo-compensation-cheaters-prosper.html http://neweconomicperspectives.org/2014/11/ceo-compensation-... >that being said, there aren't data that would tell you, companies where the CEO will earn $1m or $10m depending on how well the company performs don't do as well as companies where the CEO will earn $20m or $200m. Actually there is data, but it demonstrates the exact opposite: http://online.wsj.com/public/resources/documents/CEOperformance122509.pdf http://online.wsj.com/public/resources/documents/CEOperforma... Lower paid CEOs perform better.
- nickff 12y ago
  There is an alternative explanation for the data, which is that desperate companies that know they're in trouble have to pay more to hire a 'good' CEO who might be able to get them out (because the CEO does not want to be saddled with a bad track record). This explanation also jives with the fact that equity compensation is negatively correlated with stock performance, as the companies in trouble often give the executives less salary and more stock options, to incentivize sustainable growth.
  - crdoconnor 12y ago
    There are plenty of no-evidence explanations exculpating the poor CEOs. This is true.

zanny 12y ago

> management has skin in the game do measurably better than companies where they don't. Same applies to all non-managerial staff. That is why I love the concept of coops, and I'm sad nobody does them much because they mean empowering your employees to be maximally productive at the expense of "potential profits" for founders and shareholders. All the incentive systems in companies are all bandaids trying to make up for doing things wrong from the start. If you want to incentivize them to perform to profit, then let them profit as well from the companies success, and they will perform.

nickff 12y ago
If co-ops are an effective corporate structure, why are they not more prolific? I am sure that many people would like to work in co-ops, so the question is why there are not more of them. I would suggest that co-ops don't work very well, and that if they did, employees at shareholder and closely-held corporations would found more of them. From the examples of co-ops that I have examined, it seems that they often fail from internal politics; this is true for both companies which are bought-out by employees, and those founded as co-ops. The examples that I've looked at are only anecdotes, and I do not have a list of citations, but I'd be very interested to hear from anyone who has found differently (as I have no prejudice against them).

crdoconnor 12y ago

>there are a lot of studies that show companies where management has skin in the game do measurably better than companies where they don't. There are studies that show that management 'skin in the game' compensation policies have cause an epidemic of control fraud: http://neweconomicperspectives.org/2014/11/ceo-compensation-cheaters-prosper.html http://neweconomicperspectives.org/2014/11/ceo-compensation-... >that being said, there aren't data that would tell you, companies where the CEO will earn $1m or $10m depending on how well the company performs don't do as well as companies where the CEO will earn $20m or $200m. Actually there is data, but it demonstrates the exact opposite: http://online.wsj.com/public/resources/documents/CEOperformance122509.pdf http://online.wsj.com/public/resources/documents/CEOperforma... Lower paid CEOs perform better.

nickff 12y ago
There is an alternative explanation for the data, which is that desperate companies that know they're in trouble have to pay more to hire a 'good' CEO who might be able to get them out (because the CEO does not want to be saddled with a bad track record). This explanation also jives with the fact that equity compensation is negatively correlated with stock performance, as the companies in trouble often give the executives less salary and more stock options, to incentivize sustainable growth.
- crdoconnor 12y ago
  There are plenty of no-evidence explanations exculpating the poor CEOs. This is true.