I remember an interesting theory about golden parachutes in Steven Landsburg's "The Armchair Economist". In a typical publicly traded company, the CEO is actually much more heavily invested in the company than the shareholders. His salary, and probably the major part of his assets, are dependent on the performance of the company. On the other hand, the average share holder is well diversified. Therefore, a CEO will be incentivized to pursue a highly conservative strategy, while the shareholders may wish that he takes more risk. To offset this, the shareholders may make it known that a generous severance package, as well as generous benefits if the company does exceptionally well, are on the table, to simultaneously soften the blow if he takes a bad risk, and sweeten the deal if he takes a good risk.
In other words, the point of executive compensation may not be to produce better results on average, but rather to increase the variance of the results.
> Therefore, a CEO will be incentivized to pursue a highly conservative strategy
I strongly disagree. A CEO is probably highly personally invested in the company, but that investment almost always has an unusual structure: it resembles a call option, not equity. If a CEO generates a large gain over the course of a few years, the CEO makes a lot of money. In contrast, if the CEO generates a large loss over the course of a few years, the CEO loses very little. This can give a CEO an incentive to make extremely risky decisions because the CEO doesn't personally suffer much more from a huge loss to the company than from a small loss to the company.
This problem exists for investment managers. In a hedge fund that charges a performance fee on investment gains, managers have a perverse incentive to take large risks. It gets more pronounced if the fund is already down for the year: if, say, the fund has taken a 40% loss, it can look very attractive to the manager to bet all of the remaining assets on a coin flip. Heads, they get their bonus. Tails, they now have a 90% loss, but they weren't getting their bonus either way and they lose nothing.
Edit: At least the coin flip is neutral on expectation. But the same issue exists for a bet with negative expected value: the manager gets some benefit if they get very lucky, so the manager has positive expected value even if the fund has very negative expected value from their decision.
Worst case: Pacific Gas and Electric before and after deregulation. Before deregulation as a public utility, a century of modest profits and modest CEO pay. After deregulation, wildly volatile profits ending in bankruptcy three years after deregulation, and much higher CEO pay.
I'll try and remember the name of UK CEO that successfully extracted £200m in incentive based remuneration over a ten year service. A service that saw the share price boom in early years, then by the end of the 10 years crash to below the starting price.
Even when this is true, it doesn't necessarily solve the problem. Say you're 28 years old and you're running your first fund. You have a net worth of $500k (because you worked 100-hour weeks as a banker for a few years, paid your student loans, and saved up). You put $400k into your fund and raise $50M. You charge a 25% performance fee.
If you get 10% returns, that's $1.25M for you (at a possibly low tax rate, too) plus $40k on your own investment. If you lose 20%, you're out $80k. What's your incentive here?
I think you need to read both woopwoop and amluto's comments again.
woopwoop is saying that the equity compensation given to CEOs is a disincentive for taking risks and that it needs to be offset by a promised severance package in order to increase the variance of outcomes.
amluto is saying that this is a mischaracterization of the equity compensation for CEOs, which only exposes them to gains and not losses and thus they are already incentivized to pursue a risky strategy (e.g. golden parachutes are not required to create this incentive).
woopwoop is saying that CEO compensation is structured to benefit the risk-taking CEO no matter how well his risks pay off ("generous severage package" if they don't pay off, "generous benefits" if they do).
amluto is saying CEOs are exposed only to gains and not losses, which is agreeing with woopwoop without realizing it.
The reason a BoD/shareholders would want to set up a CEO with such an arrangement is because the much wealthier shareholders are well-diversified and risk-seeking (they don't depend on their income from this one company to feed their family)- while the CEO is not as diversified, he DOES depend on his compensation from this one company to feed his family- so if the BoD/shareholders expect him to take risks, then he needs to be protected from the consequences of those risks.
They'll cash out anyway -- a 40% loss is pretty bad, too.
Also, apparently having a famously bad investment track record doesn't make it much harder to raise money for a new fund in the future. If I remember right, the LTCM managers kept right on going after LTCM blew up.
In hindsite - LTCM should have been the canary in the coal mine. They got bailed out to the tune of about 4 billion. Sounds like chump change after 2009.... And the banks are STILL too big to fail. If they truly are too big to fail then banks should be regulated like utilities used to be. What will it take before a majority of this country realizes that? Another 2009?
(1) The CEO is actually much more heavily invested in the company than the shareholders. His salary, and probably the major part of his assets, are dependent on the performance of the company. On the other hand, the average share holder is well diversified.
(2) Therefore, a CEO will be incentivized to pursue a highly conservative strategy, while the shareholders may wish that he takes more risk.
1 is true (assuming heavy equity-based compensation), but 2 does not follow from 1.
What does follow is that the CEO will do whatever he can to make short term gains for the company before he exits, even if it means kicking the can down the road for future managers and long-term shareholders to take a hit on at a later date. When the whole management team is on in this short-term focus, it is colloquially referred to IBGYBG (I'll be gone, you'll be gone).
Shareholders are not a homogeneous group of investors. Some pension/mutual funds invest with the goal of exiting in 10 years. Some activist shareholders invest with the goal of pumping up the price, then cashing out within 3 months (see Carl Icahn and Apple). A sizeable (and growing) portion will be owned by index funds while some will be owned by hedge funds, etc. Then you also need to factor in employees, executives, etc.
One (newer) way to make this group happy as a whole and solve the IBGYBG problem is through clawbacks - punishing ex-executives for the things that happened on their watch. Check out Wells Fargo to see how this is playing out in Congress and in court.
The question the paper is trying to answer - what motivates CEOs to "exert effort" in able to return industry-beating results - seems like it has a simple answer to me: no CEO wants to fail at his/her job and be known as the one who presided over company X's slow decline into bankruptcy/irrelevance. Doesn't look so good on the resume when shopping around for your next C-suite role.
And the original golden parachutes were created to incentivize a good acquisition. A CEO whose company gets acquired is often firing himself. So the whole idea was to give them a huge score if it happened. Otherwise CEOs might fight takeovers just to keep their jobs.
And, if a lot of the CEO performance results is just luck, then bad luck can ruin them. If a company is on the brink of failure, nobody is going to take the job without a parachute. It could be their last job if they take the blame.
They did originally. I think even now most big CEO's don't have a really huge golden parachute. And at a certain point, it's just differed compensation. Instead of 2 million a year and zero parachute, they get 1.75 million a year and a million dollar chute.
There is also another form of golden parachute, which the person is getting paid for getting on a sinking ship. Otherwise nobody is going to become the CEO of a failing company. They are basically getting paid for the hit to their reputation.
In theory? Not much. In reality? For one, that's a lot of work, especially to screw someone who did a decent job (presumably), who's compensation probably is a drop in the bucket compared to the stock price, and, let's be honest, has a chance to be on your board. The amount of incest in company boards is pretty high. So if you do it to them, there's a chance they'll do it to you.
> a generous severance package, as well as generous benefits if the company does exceptionally well, are on the table, to simultaneously soften the blow if he takes a bad risk
So a pay gap of up to (and sometimes over) 1000x between CEOs and rank-and-filers, given all the saving and investing that the CEO could do just like any Average Joe, would not be enough to "soften" any "blows"? Huh.
I never really understood why people think the pay gap between the CEO's and the rank-and-filers is such a negative thing.
If you look at walmart for example, and entirely eliminated the compensation of the CEO (19.4 million), and all executive vice presidents and CFOs (2.8, 10.8, 8.4, 10.1, 11.5, and 8.5 million respectively) and total them all up you get ~$71.5 million.
71,500,000 / 2,000,000 million employees = $34 dollars per employee per year of a raise. That's almost negligible, and if you assume minimum wage (7.25) 50 weeks a year, for 40 hours a week gives $14,500 / year, you get $35 / $14,500 = a .24% raise. That's less than a 2 cent per hour raise per employee if you completely slashed the salaries and compensations of the top executives.
You picked the an extreme example there. Walmart employs a zillion unskilled people. Similar numbers for Google would yield something like an extra $6,000 per employee per year.
CEOs have gone from making 20x the average worker to 200x. Are CEOs ten times more amazing? If anything, I think they're worse. I think that, broadly, they've shifted their focus from economic value creation to generating the numerical appearance of success in ways that let them extract lots of money.
There's also the problem of worker motivation. Companies are human enterprises. The greater the wealth differential, the less the people doing most of the work will feel part of something bigger than themselves. As with Walmart, they may show up and do what they're told, but they are less likely to actually give a shit.
I definitely agree that they are not 10x more amazing, but I also find that in the case of a company like google any kind of pay differential has far less of an impact. Employees at google get paid enough, and have such great benefits that they are easily in the top few percentages of the economy. The same can be stated about many tech companies and their employees. Engineer salary and benefits are very comfortable at this particular point in time, because it is very in demand, and requires high levels of skill.
It seems at least from what I've noticed that the companies with the highest differential in terms of rank and file -> CEOs, tend to be the ones with some of the lowest barriers to entry and the lowest skill levels. This is a subject that I would love to see a detailed study on because what "it seems like" is not always the reality of the situation.
I used Walmart precisely because besides being an extreme example, it is one of the largest employers in North America by a good margin.
According to Google search:
"Google CEO Sundar Pichai made $100.5 million in 2015, according to a regulatory filing released Tuesday. The filing revealed that Pichai was paid a salary of $652,500, awarded restricted stock worth $99.8 million"
and according to Business Insider, Google has roughly 57k employees.
If we just take Pichai's $652k salary, it is +$11/employee/year which is a couple cups of coffee.
Alternatively, if take his entire compensation of $100M, it becomes +$1754/employee/year which is more tangible but still nowhere near the $6k/year cited in parent.
If we just consider salary, I think the multiplier between the lowest to highest paid is going to be lower than you expect in tech. It's really only visible in more low skilled industries.
Oh, and, discussion on executive compensation always includes total compensation. For historical and legal reasons, much of the compensation growth happened in non-salary categories.
Walmart is an extreme example. If you read "Capital in 21st Century" you'll see a lot of the worries of inequality is caused by the general rise of "super managers." If you don't have time to read that massive book, I think this is a good summary: https://jesiwagle.wordpress.com/2015/01/16/super-managers-do....
I believe the reasoning is that it is negative if it hurts the company's bottom line. It's hard, if not impossible, to causally correlate CEO compensation with company profits so there is no reason to assume for example that "golden parachutes" pay for themselves. They don't. If company profits scaled with C-level compension, why not double their bonuses already? That's silly.
And what would compensation per employee be indicative of? Nobody is criticizing that. There can be tension in public companies between the board's interests and the shareholders'. Questions of compensation is a common source.
When people talk about pay gaps between executives and rank-and-filers, they generally mean pay gaps between individuals, not pay gaps between collectives (in this case, the 7 executives vs the 2 million employees).
There's a popular narrative that CEO compensation is at the expense of workers, that workers could be paid a livable wage if only executives could do without their extravagent bonuses. It's commonly referenced with respect to Walmart. I believe this is the myth the OP was attempting to dispel.
The gigantic pay gap may be an injustice, but I think you are missing the subtlety of the theory. The worry is that the CEO will become too personally dependent on that 1000x salary to take "appropriate" risk. For example, assume that launching a new product line has a 50% chance of doubling the companies profit, a 25% chance of doing nothing, and a 25% chance of cutting the profit in half. For the shareholders, this is probably a good bet to take.
Then assume the CEO will be replaced if profits drop. In the absence of a "golden parachute", a CEO might reason that a 25% chance of being fired and loosing their cushy job makes the plan not worth pursuing. The theory (OP wasn't necessarily endorsing it) is that a rich severance package can better align the interests of the parties. While I personally think "cronyism" is a better explanation for the current situation, the theory is better than others I have seen.
> I think you are missing the subtlety of the theory
There's nothing "subtle" about a plain racket. And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down.
At 1000x pay gap, the CEO needs only work a few months to have nothing to worry about for the rest of his life. Anything on top of that, anything, is a luxury item.
"Risk" of what? Having to manage with only 2 yachts instead of the customary 3? Right, that's a serious existential threat, gotta mitigate it.
Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down.
I may be the one missing the subtlety now, but if you are referring to my phrasing, I didn't intend any insult. From your comment (voted below zero before I upvoted and replied) I felt you were being unreasonably dismissive of a potential explanation that I found interesting and had not heard before.
There's nothing "subtle" about a plain racket.
The theory offers an explanation of why stockholders might rationally offer a generous severance package to a CEO. I agree that the "racket" theory has greater explanatory power, but I found it worth contemplating alternative explanations. Maybe "subtle" is the wrong word? "Counterintuitive"?
the CEO needs only work a few months to have nothing to worry about for the rest of his life
In practice, though, CEO's worry tremendously about their ability to accumulate further wealth. I wouldn't be surprised if this worry increases the greater their current salary. And from the shareholders' point of view, it's the CEO's perceived risk that affects their decision making, not the actual risk.
Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
Well, no. As a theory to explain current behavior, I think this theory is actually more applicable the greater the discrepancy in pay between the CEO's current job and the other jobs available if they are fired. You are right that the situation would be different the if the gap was less, but that doesn't mean the theory is not relevant when the gap is large.
Maybe you'd prefer looking at it from a "Prisoner's Dilemma" perspective. Assume you have a extremely-well-paid self-interested psychopath making the executive decisions for your company. Ideally, this would not be the situation you find yourself in, but let's assume it's the case.
Assume that as a rational (read, "amoral") shareholder you wish to maximize your gains, which is positively but nonlinearly correlated to the company's profitability. How do you best achieve this? Perversely (and to me counterintuitively) reducing the downside to the CEO for risky decisions may be a strategy with a positive return.
Who are you to tell a company how to manage itself and how much they can pay their employees? If the board feel a CEO generates that much value for their company they should definitely pay him/her what they are worth.
Who are you to tell a company how to manage itself and how much they can pay their employees?
A citizen, which is to say, part of a group that collectively decides the "rules of engagement" for corporations. Society has chosen to grant certain rights to corporations because society feels that properly regulated corporations are a net benefit. At the point where enough individuals decide that the benefits are no longer sufficient, new rules can and will be made.
There is (to me) nothing inherently sacred about allowing amoral corporations to operate in the manner that they decide is most effective for their interests. We've decided that minimum wages are acceptable, that maximum work weeks are a good thing, that certain styles of contracts are unenforceable, and if we wanted to, we could decide that excessive differences in pay are legally unconscionable.
There's always a danger that societally we'll make the wrong choices, and that new rules will do more harm than good, but I don't think there is any question that society has a "right" to make such rules? At least no more than there is question that society has the right to make and enforce any other law? Turning it around, who are you to tell us that we can't regulate these companies how we choose?
Shareholders, in theory, should have the right to make any decision that is legal and is advantageous to them. That's what I think should happen, in an ideal world.
The practice, however, is different. The entity that decides CEO compensation is not "we the people". It's more like the smoke-filled room at the Republican Party's HQ in The Simpsons.
Shareholders do decide. You seem to be implying that shareholders are being cheated, however, if they are actually unhappy they can a. sell (or not invest in the first place if they don't like the representation they'll receive), or b. vote in a new board, or c. sue.
You are struggling hard to make a victim where everyone involved is happy.
There is a tremendous amount of back scratching that goes on when setting executive pay.
The board hires pay consultants, the consultants are not going to rock the boat and suggest pay cuts, so they approve a nice increase over the current going rate. Rinse and repeat and you have out of control executive compensation.
Majority shareholders are often in the same position - very well paid, and well connected with other CxOs.
That leaves the rest of the shareholders along for the ride.
Whenever I argue with a staunch defender of social inequality, the put-down tactics are par for the course. "You struggle", "you fail to comprehend the subtlety of the argument".
If doesn't take a PhD in psychology to understand why that is. For someone to be pro social inequality, they must believe they are already topkek - or are standing a very good chance to make it. If that is the case, then it's a simple matter of statistics that any random stranger is likely placed lower in the pecking order. Therefore they must be "struggling" to comprehend, etc.
There is no "struggle" when you're telling the truth. The higher cognitive load happens when you make stuff up from whole cloth - there are studies showing it, look it up.
> everyone involved is happy
In this reality, the trends in political news in the last several years show otherwise. Not sure about other realities.
It's not even that. A high-paid CEO is a prestige thing, like a status symbol, for a corporation. "We are great because our leader is great and as proof look how much he/she gets paid". It's like an individual flashing their gold Rolex (or in Marissa Mayer's case, a Cartier).
The kind of CEOs who get golden parachutes earn enough money in a single year to live a whole life on it without having a job again. There is absolutely NO risk whatsoever taken. There is not even any investment that they could lose either, it's only profit + more profit.
> The kind of CEOs who get golden parachutes earn enough money in a single year to live a whole life on it without having a job again.
You probably earn enough in a single year to live the rest of your life in a different part of the world, yet you continue to work, in part because you want your current standard of living.
Likewise, a CEO will want to continue to live at his current standard of living, or even better.
The only thing that matters is your annual income and your expenditures. If you earn 1x as much as you spend, you're staying afloat. If you earn 30x as much, then a year of work covers 30 years of retirement.
The CEO of Kroger earned $13 million in his last year there, and called his own compensation "ludicrously high". I doubt he's spending a million a year, but even if he is, the ratio is indeed ludicrous. And he's nowhere near the high end for executive compensation.
Are you suggesting that the average top-tier executive lives a lifestyle in the same proportion of their income as the average software developer, or blue collar worker, or...? Really?
The way I look at it, executive stock options aren't to reward behavior, they're to ensure loyalty. It's normal for any human being to feel more empathy for hard-working employees that they work with every day than shareholders who are more distant and who contribute in a passive way.
Stock options give CEOs a large financial incentive to place the interests of stockholders above those of employees whenever those come into conflict (for instance, in decided whether to use profits to increase compensation or increase dividends).
Anyways, that's my theory of why large executive stock bonuses might be a good for shareholders despite unintended consequences like decreased risk taking.
> To offset this, the shareholders may make it known that a generous severance package, as well as generous benefits if the company does exceptionally well, are on the table, to simultaneously soften the blow if he takes a bad risk, and sweeten the deal if he takes a good risk.
This concept strikes me as grossly unfair towards the employees. Like the CEO, they are also not diversified. Their risks may be even bigger than that of the CEO: if the strategy fails, they may loose their job/income, and they make less to begin with. How are they rewarded for pursuing the more risky strategy?
They will likely also have some level of stock based compensation.
On the downside most tech employees can easily find a job elsewhere, whereas the CEO may take a reputation hit that makes it hard to get another position at a similar level. So it probably comes down to the regular employee not valuing downside protection enough to give up some base compensation or upside reward.
I'm curious if these incentives really work at all.
For example it's common knowledge a real estate agent won't go for the most money per deal. They'll go for the quickest money per deal. No real incentive to spend extra time pursuing the most money.
I get that's not a direct analogue for the CEO case but how do we know the getting 80 million for hard work and success is more motivation than 15 million for easy work and failure.
It seems like if you want to motivate success you'd also need to disinsentivise failure . Not by making it so the CEO gains less if they fail but so they actually lose.if they fail. In otherwords their net worth has to go down for failure.
> In other words, the point of executive compensation may not be to produce better results on average, but rather to increase the variance of the results.
The hypothesis you relate isn't implausible, but I think you either got this part backwards, or, more likely, the way you state it is misleading. The strategy would be nuts if it were intended to produce worse expected outcome in terms of monetary return at the (additional) cost of increased variance.
That sounds very academic and theorized in a vacuum. If that were true you might expect contract terms to be explicit about this, and quarter-oriented management to be less commonplace.
But as an investor I don't care much if one particular company takes more or less risk. I just want to know how much it takes so I can adjust my portfolio accordingly.
Excellent points in this article - another factor is they are often paid outrageous base salaries (plus options) for the success of a company, when the success of that company can often be in spite of the CEO, coming from within, and embodied equally by all of the collective employees.
Executive comp is a major racket, enforced by the standard that this is "what the market average is". Which is set by executives overpaying themselves.
Ask yourself if your CEO is really working 100x as hard as you, or 100x smarter than you. The answer is usually a definite no. I'd really like to see more fair pay in this area and a culture that treats contributions of all employees more equally.
> Ask yourself if your CEO is really working 100x as hard as you, or 100x smarter than you.
That's distorting what shareholders look for in a CEO.
Let's say you have two CEO candidates, one you can hire for $100,000 (A) and another for $10 million (B).
Share holders would be stupid to ask themselves if B can make 100x the profits of A. They would be asking themselves if B can make at least $9,900,000 more revenue than A. If it's a billion dollar company doing ~$100 million in sales per quarter, that's not that unreasonable to expect from a CEO. It's expecting the CEO to raise revenue by ~2.5%, not 10,000%.
Share holders rarely have any influence. It's the board, and the board is made of elites who are in the same social class as the CEO. Both conspire against the shareholders, in a variation of the public choice special interest problem.
The beatings will continue until dividends are deductible to the company and are taxed the same way capital gains are for the individual.
But they aren't deductible for most companies, which disincentives them from paying them (they'd rather give that money to the C-suite as bonuses, and this is their excuse: tax efficiency.)
Dividends should be deductible against corporate income, which would eliminate this issue.
"should be" - why? They're not an expense relating to producing income. COGS, cost of sales, overhead, etc are all related to producing income and so are deductible.
Dividends to me are an outcome of already earned income.
Yeah, I can see how would think about it that way if you get hung up on the idea of deductions as expenses. What I would prefer is if companies acted more like LLCs/flow-through entities, where all profits or losses flowed through to the owners, in proportion to their ownership stake.
Making distributions (dividends) deductible against the corporate tax burden allows companies to closely approximate this. It would encourage them to return cashflow to investors, which is the point:
Investors (in theory, owners) should participate in the cash flow of the companies they own, rather than bank on the capital gains/share prices leverage casino.
You should probably stop making assumptions as to why people do (or do not) make a choice. Ideological rationalization on your part does not create motivation for someone else.
That's no more relevant to the problem at hand than asking if the populace is smart enough to elect good politicians. The public choice problem, costs are diffused, benefits are concentrated, is still there.
Focusing companies on paying dividends via policy choices would alleviate much of the problem.
I think you're severely understating the difficulty of getting a huge group of people to act like that against something seen as the status quo.
Your comment follows essentially the same logic as saying to somebody complaining of Government corruption, "citizens can just start a revolution and remove the Government at will - so if they haven't, they must all be perfectly happy with the Government."
If developer A can increase the value of your product by 1 million dollars, but developer B can only increase the value of your product by 100k.. why isn't developer A worth 900k (or at least 500k) more than developer B?
The big challenge is measurability. Stock price going up is easy. Profits going up is easy. An app being 1 million dollars better? No idea what that even means.
Assuming you can even measure this. How do you arbitrarily assign value produced by a dev vs produced by marketing vs produced by company synergies (could the dev really create 1 million in value without all those other people?).
I've long felt that the best devs should be building tools for other devs. The lower in the product pipeline the better, because that's where they can affect the most people, but it seems impossible to measure when you're talking about hard numbers.
E.g. in a large enough organization, if a good dev can make all your other devs even 1% more efficient, the value they just created will blow that $1 million figure out of the water. That dev producing "$1 million dollars in value" for your product owes much of that value to the devs that are creating tools for them to use, among other things.
The same line of thought can be put to CEOs. How do we know a CEO was responsible for a big bump in stock prices? Maybe the marketing team hit gold this year, the developers/engineers put out something truly game changing, or the entire market is just on an upswing and the company is doing better in spite of itself.
Yep, and then the follow up is just as difficult...is this dev not delivering value because she's not a good dev, or because those above her aren't giving her opportunities in high value projects?
It's true that they could theoretically fire everyone, but practically speaking? They inherit the employees, culture, customers, vendors, and physical plant. It's (remotely) possible that Marissa Meyer is the world's best CEO, but she chose to play against a stacked deck when she went to Yahoo.
Every new CEO in a big company seems to decimate the employees anyway. Why none fires the right 10%?
Yes, you have a point, but getting on a failing company and failing does not reflect as bad as succeeding on such a company would look good. The only negative contribution Yahoo gave to Marissa Meyer CV was that badly managed data leak that is making every news.
But the problem is from point of view of compensation fairness that was the CEO who got paid 10M 2.5% better than the less paid CEO or was he just lucky (great personnel, good market, etc). A CEO cannot function without a company.
Yes, a bad CEO can wreck a company really fast. I would claim there are no superhuman CEO:s who can outperform a market (there are CEO:s who have disrupted markets, sure but that is an exception and not a rule) by themselves - but, there are CEO:s who can wreck companies with a single misplaced stroke.
Are they paid not to screw up? The main problem of high-comp CEO:s IMO is that this view of a lord over his domain diminishes the value of the other personnel in the company. Teamwork and all that.
If there are really good statistics then yes, a single person can make a huge difference ala moneyball. But does an average Fortune 500 have such statistics?
Thats an interesting insight; there isn't anything inherently wrong with this.
DevOps and security are two critical technical roles that work similarly: if they're doing their job right, the machine continues to run perfectly.
A CEO is an asset/resource just like anything else in the company. It has a cost and a ROI.
Technically, any employee is like that too, except that when the position holds so much scrutiny, the ROI is analysed in greater depth. It may be unfair at a human level but is completely rational from an accounting perspective.
This is part of a larger pattern in capitalist systems: you want to position yourself within the major flows of money. CEOs may be the more obvious positions but other occupations such as software engineers or salespeople are in a similar position of enabling that flow of money.
> except that when the position holds so much scrutiny, the ROI is analysed in greater depth. It may be unfair at a human level but is completely rational from an accounting perspective
The problem is that the position has an amount of "scrutiny" that is improper from an accounting perspective (...the point of the article...), but comes from the social status of the people holding the role. Of course, it's not actually accounting scrutiny at all that's the difference here (because if it were, even minimal scrutiny would reveal the error), but rather the social position of the people, and thus their access to influence of decisions.
Your argument is nothing but trying to guise an unsupported position about the relative importance of social classes in the terminology of economics, even though your economic arguments are baseless and wrong (in terms of their economic merit). This is part of a wider trend in the US to eliminate class consciousness and the social duty of the upper classes to the lower, and perhaps you're merely repeating those arguments without having really analyzed what they're saying.
Your point about the larger pattern in capitalist systems is correct: capture of market execution is sufficient for market corruption, but can be difficult to prove after the fact. This is the general strategy of the ruling class to control the lower classes in the US.
Let me tell you a story about a business I worked at.
This business had a CEO who was just plainly incompetent. The sort of person who was first to take credit and last to take blame.
We were operating with IT equipment that was a decade old (yet gifted after the equipment was written off in tax terms). As equipment failed, slightly newer IT equipment was put in place of it, also written off, and the reports went up to the parent business that the old gear had failed because production staff ("So how do I send an email again?") had not reported that it was failing because of bad fans and screaming hard drives. Last I heard, they were still operating with Windows 98 and NT 4 workstations in a couple of key roles, and XP on almost all of their other production systems.
The manager in charge of actually getting things done didn't get a pay increase in the decade I was there, and worked up to 70 hours a week (30 for free). All staff had to make up for the lack of investment by working extra hours for free, and refusing to do so was demonstrating a "lack of team spirit." Hours weren't recorded, legally required holiday pay wasn't paid. Reporting any of this to the authorities resulted in extrajudicial punishment (a visit from some friends of the owner).
The only time staff pay went up was when minimum wage went up. Training was non-existent; you were put in a job, they showed you which buttons to push, and if you didn't get it right you were reprimanded. I saw staff work double shifts for months and then get fired because of an inconsequential spelling mistake, and then the next person in the job (but with half the hours) get away with the worse mistakes for years.
Naturally, there was a high staff turnover. The more skilled the staff, the faster they were gone, but that meant the people who couldn't leave (for one reason or another) had to work much harder.
Ultimately, the business still exists because of the unrecognized and unpaid hard work of the staff, and absolutely in spite of the efforts of the incompetent and criminal CEO.
But what is the point of my story? ROI is seldom "analysed in greater depth" because few rich people want to be liable for the actions of their staff. Last I heard, the CEO was promoted, with the appropriate salary increase, to a second tier position in the parent organization because of his managerial skills.
I don't disagree necessarily, but I'm definitely more cautious in criticising someone else's pay when I can't do their job.
I certainly know that a lot of people who know nothing about computers think that I'm overpaid as a software developer. Why should I earn several times their salary when I just sit at a computer all day, whilst they do hard work?
In my case, I CAN do their job. They have a lot of support structures to delegate between. You may think you can't do their job, but you could, if you wanted - though getting there is a game of thrones of sorts, and you may not wish to play.
However, they can't do your job. Assuming you are a developer, they are making a living based on your work. Your work has equal value. Well, if you ARE doing hard work. If you are just sitting at a terminal, more ambition might be a good thing :) Cultivate it and you can get there. If you want.
We need not assume all leadership at the top is steering the entire ship, more so than steering parts of things, decisions trickling up as well as down, alongside information.
Your overall point is diminished when you say things like this, because it comes across as arrogant. Without substantiating that, you're just pandering to everyone who holds the same ideology on CEO pay.
The way you describe it, technical jobs are the hardest in the world, and everything else is comparatively easy. You make it sound as though there is only one truly difficult discipline, which happens to be yours.
Furthermore, you're lumping the job duties of all CEOs together as though they all share a homogenous skill set you could pick up.
I'm unconvinced by an ethos that boils down to, "My work is hard because it's programming, their work is not because it's soft skills."
(A) See profile. These are a lot of skills I HAVE picked up (B) I'm pretty non-technical these days. (C) when I'm suggesting hard work is hard work, I include everyone putting in hard effort - not just developers, but I do lean heavily in endorsing those who build the product.
I'm not saying I can run Goldman Sachs. I can run a few software companies a lot better than they are being run.
What I'm saying here is that CEOs are mortal. The more you know the more you know this. If you're just starting out you may not realize this, but as you start to experience various executives and know the decisions they make, and what the people under them do, with the experience over time - you just see the value that people should be valued more equally and the system should be fixed. To do this, we need the support of everyone in at least knowing the system is broken, not the defense of the broken system.
I am not a programmer these days. Hard work is hard work, and is mostly measured by the stress it inflicts on you. With practice, things get easier. But all people have value.
I think, though, Ycombinator is premised on the idea technical people can learn a CEO's job much easier than vice versa. I'm pretty sure he says something very close to that in one of his essays. (Business being relatively easy to learn for a talented technical person.)
I think this is a bit naive. You seem like the software engineer type that thinks the company revolves around you, that both middle-managers and upper management are clueless, and you could do anybody elses job if you just put a weekend into studying it.
Getting a MBA, getting experience leading companies from the director level, then VP level, then CEO - that is valuable experience.
This is a really, really naive thing to say - bordering on completely delusional. The CEO job is so much harder than you think it is. As a VC I see a huge number of amazing engineers and very few amazing CEOs. They are incredibly hard to find and can change the outcome of a company from a complete failure to a wild success. You MAY be able to do their job but in my experience very few can do it competently.
Don't appreciate being called delusional. That being said, you underscore the point that many CEOs are not great -- which is exactly the point about overcompensation. Also, see my profile.
It's not wrong to tell everyone they may have the skills to match their current mediocre CEO that is pulling down the megabucks today. And believe me, a lot of mediocre CEOs are pulling down megabucks.
Being you are in the VC game, you are dealing with people in startups, where the compensation hasn't gone crazy away from things yet.
Finally, some of these views may be seen as socialistic. It matters what you value. In general, I have seen a lot of VC decisions that value capital ahead of ethics, and this is unfortunate.
I think caution is indeed warranted, but to say one shouldn't "criticize someone's pay when I can't do their job" is - IMHO - misguided. The problem I see is that the CEO is rewarded with the high salary (and exit options) regardless if the CEO does their job well! I can certainly criticize that.
> Why should I earn several times their salary when I just sit at a computer all day, whilst they do hard work?
Yeah, why should you? I mean, you are essentially being paid to surf Hacker News and plunk out a few lines of code every once in a while, while the janitor is working hard all day.
Actually IT as a category of jobs requires constant knowledge and skill improvements. If you aren't reading HN and/or other tech news sites very regularly you're going to become obsolete very quickly.
If you're doing the same thing in IT for more than a few years chances are you're digging a hole for yourself. Just ask any Silverlight developer.
I've been a software engineer for close to 10 years now, and we are definitely overpaid for what most of us are doing, and that is mostly because of supply and demand.
I'd suggest rather than look at it as you being overpaid, look at it as everyone else being underpaid - in other words, corporate profit sharing is not what it should be.
We automate things. As Jaron Lanier says, "code is people who aren't there". We create substitutions for labor. The lot of mankind only began to improve rapidly after human and animal muscle power was substituted-for by engines.
All production is a mix of land, labor and capital. So it depends on cases, but when we are in the right place at the right time, we deliver stupendous amounts of value.
I've been involved in cases where two, three, four, twenty people could address tens of millions of cost $US per year. The interesting thing is that sometimes, even though you have the numbers on your side, the management team demurs.
It's all but impossible to actually evaluate what we're worth.
Appealing to supply and demand may involve what's called "The Lump of Labor Fallacy". We're not stevedores, and we're not surgeons. We're somewhere in between.
If we were overpaid, companies with a large portion of developers would all go out of business. But they're not. Where is the money above the value we create coming from?
A general case CEO/exec job is far, far riskier than a IC software developer. If you're a fantastic (heck, halfway decent) developer, you can be fired, laid-off, or simply quit and find a new job relatively quickly. And yes, you're generally paid a lot of money (compared to the rest of America).
As an executive in a general case (sure, we can all find outliers) company, there are comparatively far fewer jobs for you to go to. If you fail, you fail spectacularly/publicly and may not be employable for years. The high compensation is in exchange for the risk of the job and the low probability of finding a new one.
Semi-related (not what you said - of course): "I deliver $1M in value to the company so I should be paid $1m" is a thing I see every now and again. That's not even remotely how any of this works.
I'll disagree with this. If you are in a position where you make $10M a year, you could effectively not work for 20 years and be completely fine. By the time they've done this for a few years, they have obscene levels of wealth and no risk.
The general case is CEOs are part of the management club, a club that protects itself much like a trade union.
CEOs fail all the time, and they aren't shunned but rewarded with golden parachutes and positions on boards of other companies, biding their time until they can "come off the bench".
The management club is something to be admired and I wish engineers would try to adopt some of its behaviors instead of viewing ourselves as mercenaries.
This is exactly it. When you're recruited (and you're always recruited - it's super rare to have a C-level position open on the website and submit a resume to) to a firm as an exec you have (generally) tremendous leeway to negotiate your own contract, exit criteria, etc.
Yes, the board provides a starting point, but it's much more collaborative negotiation - and you (as the incoming exec) are gonna negotiate based on the criteria I mentioned. It's not at all like an IC where you basically get a "take it or leave it, plus a few % more on salary if you push back" offer. It's a different universe.
Is it fair? I dunno. The "intrinsic value" argument doesn't really apply - the CEO is worth $10M/yr if the board thinks they are.
No, it's that we are too idealistic and are turned off by the messy, immoral greater world in which the management club makes their money. We want things to be beautiful and fair and so we spend our time constructing abstract fantasy lands in miniature.
The great irony, of course, is that the messy and immoral world intrudes even there because rational idealists can't find consensus and are subject to the biases that require conventions, institutions, politics and regulation just like the legal and business worlds.
If we were rational you might say we chose "playing with fun toys" over "controlling thousands of people and millions of dollars, and influencing millions of people and billions of dollars". Perhaps, for some people, that is indeed the rational choice if you don't really trust yourself.
I disagree on this point. It makes sense when you examine it naively. However, dismal past performances of a CEO's former company is not an impediment to hiring.
The hiring of a CEO isn't as technical or data-driven as one would think such an important decision would be. It often comes down to who the board feels most comfortable with/trust, often times based on personal relationships. As you ascend beyond the 1% to the .1% or .01%, you're playing with a vastly different set of rules.
People on corporate boards generally are on multiple corporate boards. I'd wager that if you looked at the social network graphs of board members, the CEO's they choose are almost never more than one hop away. CEO's that have faced massive scandals or have torpedoed companies seem to always find new jobs because once you're in that CEO/board member social network, you're never really out unless you do something unforgivable like Bernie Madoff. Most important, they have the luxury of time and options since working at this point is purely optional and not needed to pay for expenses. They can work on a vanity project, start their own foundation, join other corporate boards, focus on investing in companies instead of running them, make inroads into the public sector, or they can wait until any heat dies down or is forgotten before re-entering. This is one list of what execs did after a scandal: http://money.cnn.com/gallery/investing/2013/09/13/financial-...
It's a different dynamic since most people work for money while CEO's accumulate wealth. Their money works for them, not the other way around.
This is ridiculous. By this logic, the working poor in areas of the country where jobs are scarce would be paid much, much more, to offset the extremely damaging effects of getting laid off.
That theory is not holding up, CEOs are much more willing to overlook failures and flaws of other CEOs - usually some external force or group is found to take the blame, and the game goes on.
A common complaint (At least from my mouth as well) is that I would _love to_ but even achieving the chance to prove yourself is as much luck as it is personal direction. You might not believe the number of times I've asked to be given greater purview, more leadership opportunities, even asking for no "promotion" and offering to put my money where my mouth is re: being punished if I fail, but being told "do your time" or "you're not a high enough rank" to even try. (The insult to the injury is that I've been in industry longer than some of those with "sufficient" rank who have been 1 company tenants.)
I would not look as askew at executive comp if I didn't have a nagging doubt that large portions of it are smoke and mirrors, obscured by extremely high and socio/political barriers to entry by which if you're the sort to pass, you're the sort to not "rock the boat"/"call the bluff" so to say.
You might be facing very byzantine leaderships. But you might also be severely overestimating your skills. Not only your technical ones but your political ones. A key requirement for a leadership position is being convincing. Social intelligence is of paramount importance. Leadership is not about technical acumen. It's about managing people. Getting them to trust you. You can't get people above to trust you and you think you will be able to make people bellow do?
I intend to, and do as much to that end as my current situation allows. The barriers currently are largely wanting to be sure I have enough saved up that my family won't suffer if I end up failing. I market side projects during my personal time, and am constantly looking for opportunities on my own outside of a formal work career progression.
Do not take my earlier comment to mean I simply complain and languish; merely why there might be a natural frustration to some of the judgments/environment/deifying surrounding leadership positions (notably for my argument, bigCo leadership)
(To add another point I was nervous to say since it sounds arrogant; but I've ostensibly managed at a comparable scale to what some of the positions I'm aiming for would require, but in situations that don't hold the same level of credential-ism/tenure focus. This just adds to the open question in my mind of why those teams were able to find success with less rigid progression while others offer so much resistance. I mention this not to humble-brag but again, to point out mental dissonance.)
The point is, executive pay is entirely out of whack with the value (most) provide. Orders of magnitude out of whack. Sure I might not fill a good CEO's shoes but you or I can likely do the same job as a lot of lackluster CEOs that get paid insane multiples of our salaries.
Yes, please. In 3 weeks, I can do whatever and still earn enough money to retire before the end of October 2016.
And while we're talking about shoes, a good shoe-seller could do the job of about any CEO in those huge companies. Would be harder in a small one, though.
How would you feel if somebody who saw what programmers do only on TV tells you "A very highly trained monkey can do what you do - type on a keyboard." Because that's what programmers do, isn't it?
One might offer to sit them down at the computer for a while and see what they accomplish. The skeptic can probably even provide his own computer. Most people don't have a large corporation they can just casually make themselves CEO of in order to prove a point.
I could probably do a better job - many people here could. However one of the perks of getting out of the corporate game is getting out of the corporate game.
I disagree. Under Ballmer, Microsoft more than doubled its revenue, profits, and employee base. By standard measurements of CEOs, he did great. (Although the stock price didn't grow, but that may have had to do with the 2001 crash and timing more than anything)
In contrast to all of Microsoft's rivals: IBM left the PC Business. Sun literally died and got bought out. Oracle's products were eaten alive by Open Source.
Under Balmer, Windows 7, XBox and XBox 360, Kinect. Do remember that Windows Mobile 6 was a major competitor vs Blackberry through the early 2000s.
Ballmer tripped up in his final years with Windows8 and failing to bring the success of Windows Mobile 6 to post-iPhone markets. But I think he did good from 2001 through 2011 overall.
The problem is Ballmer point blank completely utterly failed to successfully transition Microsoft in the single biggest revolution in the Computing Industry in the last twenty years. He also utterly failed to successfully transition Microsoft in the second biggest revolution in the Computing Industry in the last twenty years.
Ask microsoft right now, they would probably trade 50% of their windows and office business to have a strong 25% share in the mobile market. They would also probably trade the other 50% of their windows an office business for 50% of the worlds cloud computing business.
He had no CEO vision, he was an excellent COO who streamlined and improved margins, but absolutely failed to make any of the moves necessary for Microsoft to continue to be at the top of the software industry over the long term.
CEOs need the vision to recognize, and the cajones to go after the big 'bet the company' moments...
Compare Microsoft with their 90s peers: IBM, Sun, and Oracle.
Tell me who you'd rather be among the major forces of the 90s. My bet? I'd rather be Microsoft.
The responsibilities of an enterprise-level deployment mean that Microsoft was ill-suited for the changes that occurred in the mid-2000s, just like its other enterprise competitors.
Still, despite being handicapped by Enterprise customers, Microsoft performed okay in the transition to cloud. I mean, Azure actually exists and arguably is a bigger platform than Google's Compute Engine.
Microsoft's track record is that it's 2nd best at a lot of things. Microsoft is 2nd best at cloud (Azure), 2nd best at Bing (remember: Yahoo uses Bing as a backend), 3rd best at web browsers (Edge / IE). 2nd best at gaming (PS4 > Xbox > Wii U in terms of this generation's sales).
They're not really in a bad position at all. They're just not a dominant giant.
Ballmer did a terrible job. Basically stalled the company for 15 years and put them far behind Google and Apple. "he did great" and "the stock price didn't grow" are the opposite of one another.
Ballmer ran the company after the fat part of the Windows rollouts was done. Microsoft was then an incumbent firm, not a growth company. He could have done great and the stock was flat at the same time.
Microsoft stock was essentially flat across his entire 14 year tenure, despite being the dominate OS and Office suite that entire time. By standard measurements he was not a success.
Double the revenue, double the profits, double the employees.
The CEO doesn't control the stock price. He controls employees, revenues and profits. Lets not blame Ballmer for having the unfortunate luck to become CEO at the height of the 2001 stock bubble, and instead look at the things he actually could control.
sounds like a true comment from someone who's only seen some memes about "developers" and assumed he was smarter than Balmer. There's a reason Microsoft was used by every IT department in the world when he left. He may have had some weaknesses on the consumer front but he made MS into a juggernaut on the business side. I still don't see any other company come even close.
Not at all. I believe the largest thing Nadella did was get out of the way of the individual organizational units and let them do their job; that's why he had so much success in his first few months as he simply unstoppered a blocked up product flow.
It is known he didnt successfully lead microsoft into the mobile computing industry, and its known he didnt successfully lead microsoft into the cloud computing industry... so whatever his initiatives, goals and objectives were, they were wrong.
The growth during those 14 years was factored in the stock... This exact thing was actually discussed on Martin Shkreli's stream a couple of weeks ago.
Maybe you shouldn't have such strong opinions about things you perhaps don't understand? And not even attempting to understand according to your own admission.
I think professional athletes make an interesting parallel with CEOs. The majority of athletes are unarguably the absolute best in the world at what they do.
Superstars have a far bigger impact on their team's performance than an average player in the league. Many commenters have argued that good CEOs have large impacts on company performance.
The average NFL career is 3.5 years; the average NBA career is 4.8 years. Several commenters have pointed out that CEOs of failing companies risk this being their last CEO job.
Athletes are derided if they cannot save enough to ensure their retirement when they are making millions of dollars a year. Why can't we expect CEOs to manage their own finances responsibly and plan for a future where they aren't earning millions?
After their playing careers, many athletes choose to work lower paying jobs as assistants, coaches, commentators, consultants, etc. Why can't a CEO take a step back after a failure and be a COO, CMO, VP of Sales, etc.?
During their careers, NFL and NBA players' earnings are limited by a salary cap. LeBron James can't earn more than ~$30MM from his playing contract, even though he generates far more revenue in TV contracts, jersey sales, gate receipts, etc. Why can't we impose salary caps on CEOs?
We can impose salary caps--it just means that the people who are really good at this stuff will play in a different league. If there were another NBA where LeBron would make 10x his salary, he'd play in it. All the best players would. And then that league would be more successful.
Now instead of "league" and "LeBron," substitute in "country" and "the world's best corporate executives" and you'll see why it's a bad idea. We want the world's best here.
There are other professional basketball leagues that don't have salary caps, and LeBron doesn't play for them. The NBA salary cap is close to or exceeds what he could make in other leagues. Additionally, playing for the NBA gives him greater exposure to the American market.
Do you have any countries in mind that are going to pay executives more per year than the US, even with a salary cap? My understanding is that the US is already so far above the rest of the world that it would have to come way down to lose out on a raw compensation basis.
IMO, a cap would mostly serve to rein in the well-networked, measurable-performance-leveraging aspects of CEO compensation. Compared to every other employee, CEOs have a far greater ability to extract money from a company, mostly independent of their contributions to that company. Is it any surprise, then, that they leverage that ability to earn far more than their coworkers?
> Executive comp is a major racket, enforced by the standard that this is "what the market average is". Which is set by executives overpaying themselves.
> Ask yourself if your CEO is really working 100x as hard as you, or 100x smarter than you. The answer is usually a definite no.
Ask yourself, does a software developer in SF work 1000x harder than a laborer in the Congo? Is a PhD Physicist really as smart as a NYC sanitation worker?
Apart from the emotionally manipulative language, I'm not sure what your point is. CEO compensation is a price. What does hard work or intelligence have to do with the price of something?
Reapplying it doesn't actually change the argument. Janitors can be underpaid compared to CS people and CS people could be underpaid compared to CEO's at the same time.
Underpaid according to who? The point I was making was that salaries, like all prices, are dictated by market forces. They aren't dictated by some arbitrary metric (e.g. hard work or intelligence) that you, as some uninterested third-party, decide.
Underpaid according to people with sense. For one, market forces do not dictate reality. They are an artificial construction WE created and WE are responsible for. If they result in someone's mistreatment we should see it as it is and not wave our hands and say "well, market forces". Perhaps the mistreatment is not obvious to you but it is obvious to plenty.
For another, the "market forces" aren't really market forces because there are too many other things involved because we don't live in a vacuum of perfect capitalism. There are things like collusion, there are things like threat of loss of shelter and health, etc., that corrupt it. Proper market forces would require extremely powerful and knowledgeable agents that can freely accept and reject products. We're nowhere near close such a reality.
If you don't see anything wrong there and your reaction is just "well, market forces..." I think you need to take a step back and think about what we humans are doing on this planet.
I'm not seeing the "market forces" in googamooga's post. Rather I see men with guns (the Russian government) prohibiting hospitals and clinics from purchasing stents. The initiation of force here is quite obviously immoral. I'd like to see less of it on this planet, not more.
The same thing is present in the other situations. People don't get to pick and choose where and how they work, they have families to feed. The pure ideal market forces you're talking about don't exist, most of this is ran by much more depressing forces, such as the prisoner's dilemma.
I've just brought up collusion, it's a concern for software engineering jobs, look it up. Not pure market forces? Exactly! So why are you assuming the CEO's job and pay are pure market forces?
I was going to post something similar. Us humans sure do love our social hierarchies. Most people find it untenable that random chance and/or the independent actions of a multitude of phenomena make up a great deal of what we perceive as reality. We are heavily biased towards order both as a means to explain the world around us and operate within it. It's why so many people fall prey to conspiracy theories. There's a comfort in knowing everything is under control. I have a pet hypothesis that the invention of Gods went like this:
Uggg: When I look up at the sky, I more or less see the same thing day after day. However, the events that happen infrequently, the eclipses, blood moons, shooting stars, gamma Ray bursts, etc. shows a level of variance and complexity beyond measure and comprehension.
Krug: Even though it looks random and chaotic, there's gotta be some big guy up there behind the curtain. Otherwise, what's the point?
Uggg:Yeah, that's too depressing. Life is brutish enough as it is. We're still part of the frakkin food chain! Let's not consider existentialism for another 20,000 years. Big wizard guy in the sky it is!
That type of thinking permeates in all facets, so we think it's only natural the guy on top is the essential person in a company.
I've had the fortune of working at startups that were comprised of intelligent and talented people from bottom to top. In fact, at a couple of gigs, the ceo doggedly tried to keep their original vision as their fortunes sank. It was the non c-level employees that recommended and executed plans to pivot.
There are those rare unicorns like Elon and Jobs. Although they consistently work with some of the most talented people in the world across multiple disciplines, they set forth a vision that would be considered ludicrous by almost any standard. Yet, whether it's by cult of personality or some other rare trait they consistently have success across different fields. Also, it is important to distinguish founder/CEO's who generally risk all they have on something that is likely to fail.
Just throwing numbers out there, but I'd wager that 95% of current CEO don't come up with anything groundbreaking and are executing pretty standardized plans for the duration of their tenure. Personal relationships do matter, but their importance generally has an inverse relationship to the size of your company
This is how the real world works. Its far less meritocratic than we're brought up to believe and based much more on perception than reality.
It's also the way that the world has always worked and probably always will work so long as we have a capitalist system. Thomas Edison didn't invent the lightbulb and Elon Musk is not "the founder" of Tesla.
The big difference is decisions that CEO take are 100x more important than the one we take. Pretty much every one on HN is tech based employee, technical problems are 'easy' compared to where a company of 10k employees should go in the next 5 years.
You should see my earlier post about the company I worked for. It stands as evidence that this is plainly irrelevant. A terrible CEO can be rewarded far in excess of his value and competence while the true heroes are the people who keep the business afloat with massive cash injections (their uncompensated spare time).
To elaborate on the sibling, comparing multiples of your salary is irrelevant. The question is, how much does the company stand to gain by putting this CEO in place? Imagine this CEO is just 1% better than you; they've just made the company millions.
While that is true, they often suck too. Goes both ways.
Think about how much better, say, Cisco could be, than what Cisco is. And then what their execs get paid. There's a club at the top and they value weird things.
One employee's work can also make a company millions - I know in many cases many of my fellow developers have built things, often single-handed, that have made companies millions, and received less than $100k/year. The sales guy probably got a huge commission.
This is the system we should - as best we can - press against.
A lot of people forget that, at least for large companies, the CEO's life is the company 24/7. They don't have to worry about work/life balance, because there is none - it's all work, all the time. Got some time off? Work is still on the mind. Got a family? Good luck getting an hour or two a week of quality time with them.
The CEO's compensation isn't tied to how much work they do, but how little time they get to spend on anything else - mind, body, and soul.
I'm afraid I can't agree with this either. There are tons of jobs, including software development, that put this sort of strain on a person but don't compensate like a CEO. My wife is a registered nurse, and that's another job in the same class. I agree that CEO pay is tied to risk, but I think it's the other way around: boards and exec. search committees are willing to pay perceived superstars huge amounts to mitigate the risk of having picked the wrong person. If the stock price goes up or down a little bit as a result of the choice billions can be on the line.
I wish this were true. A lot of software developers put in this much time due to abusive working conditions and still net poorly.
Even if it were true, there would be no valid argument for $1M/year vs $60M/year differentials.
In startups, folks are doing this for programmer-level salaries.
CEOs are still finding time for some family time - maybe not a lot, but there are a lot of people under the grindstone feeling the exact same problems making low software developer and manager wages.
The business I previously posted about robs their staff of at least 50% extra working hours every year. The staff literally give up their social and personal lives to work for free so the CEO can wander off and show the business how brilliant he is.
They were threatened with dismissal for not doing so. I was threatened with dismissal for not doing so.
I worked from early morning until early the next morning. I saved the core business on multiple occasions, my manager was working 14 hours a day 7 days a week at a minimum.
The CEO went home at 5pm every night, when I still had a full shift ahead of me, and had weekends off with his kids, when I was working at home. He was paid three times what I was paid, and 50% more than my boss.
In that case, I agree with you. I'm not a fan of paying morons to waltz around and do nothing.
But I would like to believe that for every terrible CEO, there's one that actually gives his all in growing the business.
I speak of idealism and not reality, yeah. This doesn't invalidate what happened to you, which I agree is awful. But if someone is legitimately putting work into their company, as many CEOs do, they deserve to be paid.
The question is not whether the CEO is working harder or smarter than me. It's whether or not the CEO is returning more value or taking more risk than me.
I'd like to see a culture that understands economics more clearly such that this doesn't have to be constantly explained. I think it would help if less people worked for large corporate institutions and ran their own small businesses instead. It would also help if mass media didn't play along with the ignorance.
> * Ask yourself if your CEO is really working 100x as hard as you, or 100x smarter than you*
You price on value, not on effort. I may think CEO's are overpaid, but let's not confuse how salaries are negotiated at jobs. They are negotiated by perceived value you bring to a company as well as the supply/demand for your particular position.
Most people with the title "CEO" don't make all that much money.
Much strangeness happens just because of mutual funds and the general distorting effect of the public stock markets. We've decoupled the owners from the "runners".
Prior to roughly the period of time in which Micheal Eisner became CEO of Disney, compensation was mainly salary. People complained that it was too much. So more complicated arrangements emerged - options, that sort of thing.
For a modest firm of say, 1000 employees, every 100k to the CEO costs each employee $100 ( assuming all is otherwise zero-sum and perfectly linear). So it's not like there's really much that can be done to improve things for the rank and file.
I was watching the beating given to John G. Stumpf by Congress on CSPAN yesterday. It seems that incentive pay/pay for performance might be on the way out if that is any sort of bellwether.
It's fine to talk about hard work and smarts, but you also need to consider risk.
Let's use software engineers as an example. You make a mistake.. it's unlikely you get fired, and even more unlikely that it ruins your career. Most likely, it results in better practices and a post mortem. And even if you do leave, there will be hundreds of job openings for a competent engineer.
It's different for CEOs, even competent ones. One moderately bad decision (or to your point, a little bad luck) can result in a "change of management." And it's non-trivial to just jump into another CEO role.
And that's not even taking into account other aspects such as supply & demand, accountability, stress levels, etc.
Is the comp "fair"? I have no idea. I don't even know how you would evaluate fairness in that regard.
Or Carly Fiorina or loads of others we could sit here and review if we were so inclined.
There is, ultimately, no justification for the compensation CEOs receive. They don't deserve it. They haven't earned it. And often their actions are degrading to the company they are hired for, yet they still get paid exorbitant amounts and go on to other positions of responsibility and high compensation.
I suspect a higher percentage of developers are fired from one bad mistake than CEO's. Remember, it's often debatable if a CEO makes a bad decision and simply replacing the CEO often has significant downsides. Further, a CEO making a mid sized mistake is often seen as simply taking or not taking risks.
As to pay, generally CEO's can find a high paying job easily. They simply don't need to.
I'd question the non-trivial part. True in some cases but also I can think of plenty of Cxx level people that have just walked off into the sunset of a new role after crashing and burning a company.
Additionally the compensation is so great that I think a lot of people would gladly take that risk given the opportunity. If in a few months you can earn a x years engineer's salary why not take the risk and then worst case is a nice holiday whilst looking for the next company to ruin.
I think your point holds better at middle management level.
There can be a lot of spin in CEO exits. Connections made in even a failed position can be used to gain ability to acquire investment or useful position in other companies. Extreme networking value.
Again, the obscene compensation exceeds the risk. Even going back to a VP position somewhere is still lucrative.
The question isn't if the CEO is working 100x as hard or is 100x as smart. Their decisions have an impact across the organization, so even if they were just a little smarter, they would make a big difference.
As the cited research reveals, while their decisions may have an impact across the organization, the results can be mostly be attributed to luck. They are being paid astronomical amounts not for being smart, not for ability to read the markets, nor for hard work, but simply for being able to convince someone else that they are responsible for being lucky.
The fact that some outcomes are driven by luck does not mean that there isn't still a very large difference from small differentials in skill/experience/dedication.
Imagine a company with $100M in annual revenue and an annual growth rate between 10 and 20 percent. On average, the growth rate would be 15% (say), and skill of the CEO could have some impact that pushes it up or down 10% (that is, ±1.5%). The difference between 13.5% an 16.5% represents a $3,000,000 revenue differential. The impact on profits is likely much higher (due to fixed costs of production, which exist in nearly all industries).
So even if you take the research findings as true, it still makes sense to prefer an executive with more skill, experience, and dedication. Even if 90% of outcomes are driven by luck, the 10% that he or she contributes is still meaningful.
> Women get lower pay because they say that's what other women get.
At least in the U.S., sex-based wage discrimination is prohibited under the Equal Pay Act of 1964. If you find an employer paying women less because "that's what other women get", be sure to let us know.
The cost of options is borne by shareholders more than by the company's compensation budget. I picked a random large company from Yahoo finance (Proctor and Gamble). The CEO's pay is $4M/year. If you paid him nothing, the rest of the employees would get an additional ~ $.75/week.
GE (another fairly large company) is in approximately the same situation. Immelt gets about 4x as much, but GE has about 3x as many employees.
One explanation I was given by an economist for excessive CEO glut is that it incentivizes the C-level execs directly below (which arguably are the ones responsible for the company's execution) to work their hardest, such that they could one day be considered a candidate for the next CEO.
Sounds plausible. But if it is true it is a terrible thing because it means that the C-level are competing against each other for a very scarce resource instead of spending their efforts doing the best for the company.
With a few exceptions, a "10x" programmer is in most companies making maybe 1.5x than other people his age, possibly quite less.
This may be an extra $50k in some places.
I have not met a 100x programmer, but there are many people who lead important projects (say Linus, Guido, etc). They also do not deserve 100x a standard programmer salary if they were employed at a corporation either :)
No, particularly because salaries and wages in my area are amongst the lowest in the nation, while CEO salaries are amongst the highest in the nation. (Which is remarkable given the region's sheer excess of corruption and incompetence at that level.)
Oh come on, a level 1 argument about CEO salary? They don't work 100x as hard? Aren't we collectively past that gut feeling argument on HN?
You don't have to work smarter or harder than everyone else - you're in the driver seat and make the call about strategy which will make or lose the company big %'s of its revenue which has huge value.
Why should we be past it? Because new employees are generally ok with this perception, we do not IMPROVE the perception, and we allow things to continue.
I've seen quite a few CEOs of companies I've worked at where most of the employees could make a lot better decisions. You probably have as well.
These "people in the drivers seat" are often not very good drivers. Some are. Most are terrible, and while the company (the collective of all the people working there) may be making "huge value", it is by no means certain that it could not be making 100x more - and sharing it better with the people underneath.
CEOs are just humans, like you, who happen to be leading something. They do not have magic brainpower skills.
We should be past it because it's incomplete and wrong.
So fire the bad CEOs. I did not imply that all CEOs are all good drivers, and it doesn't matter if some are. They are in the position to make decisions that change the course of the company, whereas an individual engineer or sales person isn't doing that, and doesn't have that responsibility. Magic brain power skills are not required so I am not sure why you are bringing that up.
From my years of startup experience: luck determines basically everything. What company you end up picking, what team you get placed on, how your interviews goes (remember merge sort)?, what problems you need to work on, who your boss is... even if your company survives. Your entire company can lose funding because of an argument on a golf course or Apple TOS change (sigh). At larger companies what team you are on is well.. everything. How were you picked for that team? Because the boss of the other department was on holiday that day.
I smile when I hear people actually think they can control their own luck. That is how religion started. Whatever makes you happy.
"I am going to pick my OWN boss, I am going to join the start up I want to join with MY purpose." No, you will pick the boss from a super small subset that has a position open and you are going to find a company that needs you 'currently'.
Who gets promoted? Generally, lucky loud people. Who makes sales quota? People given the best accounts (luck). Who goes IPO? People that bumped into an untapped market.
Do what you want. People's evaluation of you is just based on luck.
Have you ever played Settlers of Catan? Every turn start with a roll of dice. One could say - the game is all about luck. Yet it's how you position yourself to gain best results from random blows of fortune, that make a difference.
Life is just like that. Sure there are extreme cases of luck and misfortune (IPO billionairs and people who die in a car accident). But for most people the dice is rolled so many times, every day, every hour, in so many areas, that at some point it's about strategy and your past choices, and not about dice anymore.
Everything is based on luck. 99.9% of humans in history were born into what the average American today would consider extreme, abject poverty.
I did not choose to be born into a family of upper-middle class American academics. I did not choose to be born on time with excellent health any more than my uncle's fetus chose to be exposed to lead paint, get born 3 months early, and become severely developmentally disabled for the rest of his life.
Even if spmeone came from literal rags and made literal riches, they still benefited from a civil society, rule of law, access to education, and so on.
I am fully convinced that the only healthy and ethical approach to live is to be grateful for everything you have, and empathetic for others whose needs are unmet.
How your interview goes, sure there is luck of whats a good question for you. But being prepared increases your chance of a question you know. There is a finite number of questions you could likely get asked.
Being more prepared for an interview and having practiced those skills, you might have a better chance at a 'bad day interviewer'.
I do agree luck or chance is a huge portion of it. But I wouldn't quite say 99% as some would say, all of the time.
Or, you know, you could pick positions that require growth in skills you need to grow for your own side projects you're bootstrapping or plan on to bootstrap. I've used that strategy since college and it's worked well for me. I've had some really bad overall experiences [1] at startups here and some great ones but no matter what, I came out the other end with what I went in to get.
Maybe this way of looking things is more useful as a software engineer. I've also mostly given up on the whole idea of VC and see bootstrapping as the best way once you have the experience you want/need, the plan and the cash to bankroll it.
The reality of startups is if you're purely going into it with the roll of the dice for money, you're totally screwed. You're much better off getting experience and then jumping ship to megacorp, assuming you're good enough, to maximize real income. Or if you want to gamble or want to just do it, trying to do your own startup. Or going for experience and living cheap, then bootstrapping.
You should always be getting something more than just money out of working at a startup. If you're not, you're wasting your time.
[1] So far, worst thing is working for a startup where middle management comes from gaming industry. After 2 for 2 bad experiences, that is a deal breaker for me. In both cases, it didn't seem to work out well for the startups either.
the quote is still true that "luck is preparation meets opportunity" but what they dont say is that you can be the most prepared person in the world and still never get the opportunity
I don't think it's possible to reliably link pay to performance for anything other than measurable immediate production - like manual labor. Forget reliably doing it for executives. The reason is, because long term price impacts of individual performance are not knowable, so they cannot be priced effectively.
The executive compensation system right now is built on social proof and positioning, not on auditable causal decision chains. Too many dependencies to make causal connections.
Bonuses are not to be considered to be pay for performance.
They are to be considered as a part of pay that can be withdrawn if either the company does badly and can't afford it, or if the employee does visibly badly.
They are a good thing for the company because they can decide not to pay it, except in as much as they allow the company to pay more because they can withdraw it if necessary
Bonuses for executives or bonuses for regular employees? Every bonus item in any employment package I've had has always been tied to the company's performance and my individual performance. I have never once worked anywhere with an automatic, performance-independent bonus, from tiny shops working as government contractors to large and well-known corporations. This is anecdotal, obviously, but I'm talking about myself and literally hundreds of thousands of other employees across all the organizations I've worked for. I am not denying such bonus structures exist in some places, but I'm skeptical that it's common or not considered an extreme aberration.
I don't know if it's common, but I'm currently employed in such a company. Basically, at the interview I asked for $X / month after benefits[0] and taxes, and what I'm being paid is ($X - benefits - taxes) / month base, + performance bonus equal to the amount that went to the government in my name. I get the bonus by default, but they can suspend it if I perform visibly badly.
[0] - don't know the right English vocabulary for that; in Poland, if your employer pays you X directly, then he actually costs you Y, where Y > X, and the difference is what he pays as a contribution to your social security and health insurance.
EDIT I was misremembering things, so I doublechecked my payslip and fixed the comment to reflect "real reality".
It probably will, though most likely only after renegotiation of contract. The bonus amount was calculated off the $X I asked for and is "hardcoded", not computed dynamically from the taxes and social/health payments.
AFAIK we didn't have the (income) tax rate changes since at least 2009, so I don't know for sure.
This seems an odd view to take. What about cases such as traders who are able to make a loss of $200K for the company in one year (so that the company is really out their full $200K trading balance as a loss, plus their entire fully loaded HR cost) and a gain of $14M in another (exceptional) year? While you might call their positions only "luck", this is not how it's viewed in the financial industry, and IMO correctly. So what motivates the trader to go all out (if movies are any guide they even do drugs), 100 hour weeks, and making their staff and assistants work all weekend and nights, with super important and last-minute requests disrupting everyone's lives, in order to help close the position with the right timing, that will net the company $14M?
You think he should really have a $800K salary with $650K of that as a bonus "not to be considered to be pay for performance?"
Plus, the more leveraged the trader is, then depending on the mechanism it could be far less expensive if he fails but a far more spectacular win if he is motivated to put in the time. Further requiring pay for performance.
A last example is in the startup scene, where equity is seen to be a motivating factor that makes people billions, who (as an actual fact, this is actual reality we're talking about) would not have done the same work for ANY salary "to be withdrawn"?
When you take a founder who makes a $1B company in 7 years as CEO there is, quite literally no salary "including a non-performance pay bonus" that results in the exact same CEO creating the exact same $1B of value in the same time period. I'm not talking about where the financing comes from. I mean that the CEO just wouldn't achieve the same result.
there are some performance outcomes you just can't buy (even if they are the exception rather than the rule.)
I love this very honest appraisal of how pay-for-performance incentives ought to work, and I wish more companies would step back and ask themselves if their "traditional" incentive structures have the motivational factor they're "traditionally" assumed to have.
While startup performance is less correlated to market performance than an established firm, the concept of setting the bar as outperforming the industry/market is brilliant, and I wonder if there's a good analog in the startup space, particularly for employees.
Bonuses and stock options are all well and good, but they incentivize the firm's survival and success. A single employee may be unable to change that, even if they perform exceptionally. Those incentives are great for "share the wealth" and "all for one, one for all" camaraderie, but they don't incentivize individual performance.
True at all levels; statistics are rarely taken into account in _any_ performance review or measurement process. It is always assumed that the individual is responsible for his or her own performance. However, the opposite is largely true: the system and environment the person is in accounts for a disproportionate level of the end result.
It's an uncomfortable truth because it mucks with our sense of free will and control, but it is a well known phenomenon (attribution bias) with countless examples. This CEO incentive pay version is simply the most extreme.
A while back I came to the following conclusion : "We often attribute our success to our skills and talent and failure to luck - while quite often it is the other way around." :)
As much as I'd like to believe that CEOs are basically payed for chance, this research is deeply flawed. As in, it's literally trying to measure the (practically) immeasurable.
More specifically, it's this assumption:
> We model the impact of a manager on her firm’s performance by assuming that a manager who exerts effort and manifests her talent increase the firm’s expected return by the magnitude of her talent.
that is simply not true. The performance of every CEO is amplified by the amount of people he's affecting. And that is made even worse by the fact that companies are competing against each other, meaning that usually it's not their total performance that matters, but the difference to the next best company. You end up with so much noise in your data that yes, the result looks random. But is it? We don't know.
The only accurate measure of performance (that we know of) is performance itself.
On a related note, is there any successful pay for performance scheme for engineers?
Pay-per-performance is well established in sales and marketing. Even when the sales/marketing strategy requires a large team to implement, the spoils go to the top.
It seems the only time engineers get properly compensated for the value they create is when it is so obvious and the owners can't get away with stiffing them.
Startups are well known for stiffing engineers because the teams are small, there are no repercussions and the founders don't have much of reputation to begin with.
It's harder in bigger companies since it sends the wrong message to others in the company and destroys your reputation.
Maybe there is no such thing as fair compensation. Just get leverage and negotiate or obtain a position of power (authority) within the company.
"I've met very few good plumbers, it takes a special person of talent to be a great plumber."
"I've met very few good truck drivers, it takes a special person of talent to be a great truck drivers."
...
There is a whole premise in many post about this story that it's somehow a very rare thing to be able to run a company well and that the person filling the role of the CEO is the main driving factor of success. (Instead of economic factors, outside forces, performance of other employees... oh! I know! The other employees performs solely because the great CEO makes them do so.) I think there's a lot of egotism being expressed in this thread...
(Especially by VCs who basically say they're impervious to misjudging someone's abilities and its true influence on success.)
They found a way of structuring bonuses that works nearly twice as well — too bad it was a bit buried in the summary: "Indexing the option, and setting the strike price much higher than the granting-day price almost doubles the option’s motivational power"
I don't think you can ever accurately account for what is "luck" and that it is actually harmful to our own abilities to call something luck and write off whatever was actually done by the CEO. I think this is a good watch and I look forward to hearing what others think about the video.
I think there is a simple and rationale explanation for this...
I believe founders that step away from the role of CEO seek to put in place someone who prioritizes the business as (close to) as much as they do (ie before family, friends, life etc). The problem is how do you find someone to love (yes love or at least pretend to) the business without them owning a meaningful piece of it (the equity that is)? When granting sixeable equity is not an option (most founders I know who built successful companies are highly protective of it) the solution is you buy it. Mark Zuckerberg owns 30% of Facebook. The professional CEO that one day replaces him will own 0.0000001% of it. That's not very motivating for entrepreneurial CEO types who are ideal for these roles. Mark isn't going to go to sleep easy at night unless he knows the person running the show eats sleeps and breathes Facebook the way he has for the last 30 years. That person is buying his dream, he's buying their loyalty and commitment (and great judgment, etc etc).
The article seems to assume that CEOs are believe that they have very little impact on a company's success, and that they calculate how much effort to exert accordingly.
My understanding is that CEOs tend toward hubris and that this assumption is false in most cases. If so, then it might be more efficient to up the strike price, but the current situation isn't as inefficient as it seems (thanks to hubris).
Relatedly, if CEOs were granted deeply-underwater options, wouldn't they demand much more in base pay, to compensate? I'm not saying they "deserve" higher base pay—just that if a board wanted to institute this change, they'd get push back from the individual. Otherwise it would look like a disguised pay cut (imagine if your boss came to you and said that to incentivize employees to work harder, all options were going to be issued underwater).
People keep talking about "shareholders" in the comments here. Where, exactly, do shareholders come into the picture?
C*O compensation is set by the board of directors. The board is determined by the executives' recommendations. The only shareholder who matters is Carl Icahn; the only power most shareholders have is to sell shares. And I'd be willing to bet something that their willingness to do that is only related to short term performance.
Does overpaying the top executives of a company, regardless of performance, increase motivation of all the other employees of the company? After all, the underlines want to become the CEO one day. The higher the reward for the CEO, the more tantalizing the carrot dangled in front of his underlings.
Analyses on this topic are always so bad. Some counterpoints:
(1) CEOs are intentionally aligned with shareholders, for good reason. Shareholders often make money due to luck, so eliminating luck from CEO compensation without breaking alignment is a very hard problem.
(2) Going in, a CEO (or a shareholder) needs to lock down a big future payday in the upside case, in order to compensate them for the risk of the downside case. Yes, the upside case usually involves some luck, but the "optionality" to get paid in a lucky outcome is a valuable part of the deal.
(3) CEOs are also paid to be trustworthy agents for shareholders/boards. Like... if I am a billionaire looking for you to oversee a big part of my capital, I may pay a lot just because I know you are a good/smart/reasonable person who will be autonomous but raise the right issues to me if needed, reliably. I might know all that just because we have been buddies for years, and even though there are lots of objectively more talented people out there who would do the job for less, paying you more would not be irrational for me.
(1) The study specifically talks about the motivational effect of performance pay and finds that the component of luck means that performance pay must be more difficult to achieve in order to motivate the executive officers to align their interests with the company.
(2) You could reduce the financial risk of executive officers by paying them a fixed salary. In fact, different companies offer very different compensation plans. This was a review of those plans to see what did and did not work. Generous performance pay does not work.
(3) This is an issue of whether executive officers should be paid well in general, not the value of performance pay. And at any rate seems to be a justification for nepotism in an area of business that is already dysfunctionally nepotistic.
Replace the definition of T with "the number of unicorns helping" and nothing changes. The author's T does not represent anything tangible or measurable. These conclusions are meaningless in any practical sense.
Now consider that whether you end up born in an industrialized country into circumstances that will let you become a CEO in the first place requires a lot of luck...
This is a profound misunderstanding of corporate governance, and the fact that so many people here somehow agree with the assertion that CEOs are paid for luck is astounding.
It would help if you could add some more substance to that assertion.
CxOs clearly require some competence- I don't think that is in dispute. It is the 200x + salary differential that is in question and the subject of the article.
Can you cite some other studies that contradict this?
Please update the headline to reflect the fact that this study is focused purely on CEOs, and stock-price-based-performance. The vast majority of people who are paid-for-performance are not CEOs, and are not graded based on stock-price movements.
What risk are they bearing in comparison to the company itself, or separately even its shareholders? Or heck, even its bond holders? About the last person whose shouldering risk is an officer of the company, that's the whole point of officers vs boards vs shareholders.
>Would you be a bank CEO if it meant jail if one of your 100,000 employees was caught laundering cash or passing on insider information?
IF that was actually a risk, I might consider it, but thanks to the Holder Memo, we have "Too big to jail".
"Kareem Serageldin was an executive at Credit Suisse who was described by friends as an “investment-banking monk.”[1] As of April 30, 2014, Serageldin was also the “only Wall Street executive prosecuted as a result of the financial crisis” that triggered the Great Recession.[2] On Friday, November 22, 2013, Serageldin—the former Managing Director/Global Head of Structured Credit in the Investment Banking Division of Credit Suisse Group—was sentenced to 30 months in prison in connection with a scheme to hide more than $100 million in losses in a mortgage-backed securities trading book at Credit Suisse.[3] Serageldin also agreed to give back $25.6 million in compensation to Credit Suisse, and was later ordered to pay more than $1 million to settle an SEC lawsuit." [1]
I think that's making a mountain out of a molehill. How many CEOs have even been charged for anything close to that, how many CEOs have been charged at all even when they have been involved. Current case: Wells Fargo CEO.
Can you provide an example of a bank CEO going to jail for an employee doing anything illegal, when the bank CEO did not know or participate in it the crime whatsoever? Or alternatively, what crime were they charged with?
In my observation (in larger tech companies), CEO compensation is like how some options trading courses market themselves - "markets go up, you make money, markets go down, you make money; it doesn't matter which way the markets go, you always making money." I have not seen a CEO ever take a huge financial loss or a huge cut regardless of whether the company did well or not. The CEOs somehow make a lot of money for themselves. Even when instituting pay/compensation cuts for the rest of the workforce, they make sure their part is on the paltry base salary component that's been negotiated in a way that bonuses and stocks always exceed this by several tens of times (if not larger). Guess what? They always get large bonuses and generous stock grants.
The only tangible risk CEOs take, many a times with not much to worry about, is the risk of being fired but still exiting with a one time super nice golden parachute instead of continuing to extract a lot more money from the company.
More like they're (pre)paid to be the scapegoat. If something really bad happens, C levels take the blame, their golden parachute and go get job somewhere else. The company and major investors get to keep on truckin!
In other words, the point of executive compensation may not be to produce better results on average, but rather to increase the variance of the results.