CEOs Get Paid Too Much, Says Everyone

[TragicMonkey]

I have to take the blame for that mix-up, since it started with me.

He was a sociopath! She was a psychopath! It was A Match Made In Hell! This fall, on FOX! Starring Seth Green and Zoey Deschanel. One star. Out of fifty.

 

[The Shrike]

Damn. And here I thought that colleges were supposed to be citadels of higher learning, not higher salaries for the jocks.

Idealism, meet realism. At a school with 40,000 undergraduates, the tribalism of associating with a school's athletic brand plays an enormous role in the decision of thousands of those students to matriculate there. I don't think that justifies multi-million dollar salaries for football and basketball coaches, but apparently the administrations, regents, and trustees at universities all over the country disagree with me.

 

[The Central Scrutinizer]

Don't CEOs answer to someone ?

Generally, the Board of Directors.

 

[PhantomWolf]

It certainly meant that the CEO could thumb his nose at the shareholders.

However, the vote wasn't totally meaningless. Subsequent to this, the Corporations Act 2001 was amended to give shareholders a greater say in executive salaries:

Your link doesn't say what you claim it does, the CEO had nothing to do with the issue. The Board determined the salary of the CEO, signed a contract for that amount, the shareholders didn't like it, and voted against it, but as the contract was already signed, the Board couldn't do anything to stop it*, and rightly said so. The CEO didn't thumb his nose at anyone, he merely accepted the terms of the contract he had been offered.

The law you then linked to and quote states that the Shareholders can force a spill of the Board, because it's the Board that determines the Salary. However I'd note that even if they did vote out the Board, any contract previously signed would still be valid and would involve penalties and court costs for the new Board to violate.




*Without serious legal ramifications because of breach of contract.

 

[The Central Scrutinizer]

Your link doesn't say what you claim it does, the CEO had nothing to do with the issue. The Board determined the salary of the CEO, signed a contract for that amount, the shareholders didn't like it, and voted against it, but as the contract was already signed, the Board couldn't do anything to stop it*, and rightly said so. The CEO didn't thumb his nose at anyone, he merely accepted the terms of the contract he had been offered.

The law you then linked to and quote states that the Shareholders can force a spill of the Board, because it's the Board that determines the Salary. However I'd not that even if they did vote out the Board, any contract previously signed would still be valid and would involve penalties and court costs for the new Board to violate.




*Without serious legal ramifications because of breach of contract.

Stick to the scenario.

 

[ddt]

First of all, sociopaths and psychopaths are not the same thing.

I have to take the blame for that mix-up, since it started with me.

The terms are pretty much identical, and refer to the same phenomenon.
http://en.wikipedia.org/wiki/Psychopathy#Sociopathy:

There are various contemporary usages of the term. Robert Hare claimed in a 1999 popular science book that sociopathy and psychopathy are often used interchangeably, but in some cases the term sociopathy is preferred because it is less likely than is psychopathy to be confused with psychosis, whereas in other cases which term is used may "reflect the user's views on the origins and determinates of the disorder".

 

[Belz...]

For those not inclined to click the link, it begins by noting that entrepreneurs tend to start businesses, which fail, and then they start a new one. Criminals tend to commit crimes, get caught, and commit more crimes. Therefore entrepreneurs and criminals have something in common.

Unfortunately this is how most people "reason".

Now, it is perhaps true that the obsession that drives an entrepreneur may have some sort of the same psychological underpinnings that result in anti social behavior,

You know how they say that great people in history are insane ? Maybe in order to be truly creative or super-efficient you need to be a bit off your rockers.

 

[Belz...]

Generally, the Board of Directors.

Thanks, captain obvious.

 

[Kestrel]

Aren't sociopaths extremely common in CEO positions?
There was some research, I recall.

As I recall the study involved New York bond traders.

 

[foophil]

For instance, suppose a jerk-headed teenager is constantly running into trouble with the law. His poor impulse control causes problems in school and family life. He decides he wants to change and joins the military. Between training, aging a few years, learning to set and achieve goals, he eventually leaves the military to become a productive member of society. He decides to start a company and devotes great amounts of time to its success. He is very focused. He uses his cunning and charm to improve his business contacts. In this case, if the man were simply given a test about whether or not he has done the things on the psychopath checklist, he may end up with a high score. But that doesn't mean he is a psychopath. An experienced and qualified clinician would be able to put the checklist answers into context and see that this man is not some uncaring, unfeeling would-be murderer.

This is a good point. I can only offer up my experience as an example. My father has started up a number of successful businesses, and has also started up a successful NGO to help out Cambodian's with education, food, water, and shelter. While he makes quite a good deal of money through his businesses, he lives very modestly and gives away most of his wealth and time (much of it through the NGO). It is quite humbling growing up in his shadow.

His past though? He was in prison for years for dealing drugs. I didn't have a father for much of my childhood. It is truly amazing how one can completely turn their life around and give back so much to society.

 

[dudalb]

I am strongly in favor of performance based pay for CEO's...fairly modest salaries but a share of the profits. If the company does well, the CEO does well,the company does not do well, the CEO does not do very well.
I just don't get why the stockholders and Board oF Directros tolerate Millions in salaries for CEO's who do a lousy job of running the company.

 

[ddt]

I am strongly in favor of performance based pay for CEO's...fairly modest salaries but a share of the profits. If the company does well, the CEO does well,the company does not do well, the CEO does not do very well.
I just don't get why the stockholders and Board oF Directros tolerate Millions in salaries for CEO's who do a lousy job of running the company.

The downside to that is that it gives a perverse incentive for CEOs to take measures which yield short-term profit but that in the long term ruin the company. Profit five years down the line, or so, would be a better option, IMHO. Or stock options that can only be exercised after five years or more, or some such.

 

[Corsair 115]

Generally, the Board of Directors.

But then often the Board of Directors and CEO are friends or otherwise have some sort of preexisting relationship.

Another aspect which rankles folks is that CEO pay seems to have at best a weak relationship to performance. There have been numerous cases of a CEO doing a terrible job and yet has to be paid a handsome sum just to get rid of them. If you can get paid regardless of whether you do well or not, it's hard to see where the incentive is to really try one's best.

 

[luchog]

But then often the Board of Directors and CEO are friends or otherwise have some sort of preexisting relationship.

Very often, CEOs and board members are linked through multiple companies. A CEO at Company A will be a board member at Company B; and the CEO of Company B will be a board member at Company A.

Another aspect which rankles folks is that CEO pay seems to have at best a weak relationship to performance. There have been numerous cases of a CEO doing a terrible job and yet has to be paid a handsome sum just to get rid of them. If you can get paid regardless of whether you do well or not, it's hard to see where the incentive is to really try one's best.

Likelihood of getting picked up by another company after being voted out?

Though if one has enough of the right friends, that's not really that big an issue. Especially if the CEO manages to retain plausible deniability, or can use the standard alt.med defense against failure: "I was hired/called too late, the company/patient was already too far gone".

 

[Ladewig]

Very often, CEOs and board members are linked through multiple companies. A CEO at Company A will be a board member at Company B; and the CEO of Company B will be a board member at Company A.
.

I have a vague memory of looking at a chart showing how intertwined the boards of the Fortune 100 were. It appeared quite, for lack of a better term, incestuous.

 

[The Norseman]

The downside to that is that it gives a perverse incentive for CEOs to take measures which yield short-term profit but that in the long term ruin the company.

You say that as if it isn't already happening.

The issue lies (IMHO) in that profits are placed far and away above any other consideration and that the amorality of a corporation shields and engenders the immorality of the leadership.

Personal liability needs to be brought back as the only way to prevent these egregious actions of corporations.

Profit five years down the line, or so, would be a better option, IMHO. Or stock options that can only be exercised after five years or more, or some such.

Bring back personal liability to corporate leadership, with each corporate leader being held to the laws and regulations of each and every country they do business in.

 

[GnaGnaMan]

The surgeon is typically invested in the patient. The CEO is typically not invested in the customer or employees.

It's telling that no one tried to argue that CEOs care about employees.
We all know that the incentive is to cut costs: Lower wages, fewer benefits, even neglecting safety.
That incentive is even stronger for shareholders, who reap the profits, than for CEOs who get lavishly paid even when they fail.
That means there is a powerful elite that's interested in making life worse for the vast majority of people. That seems like a flaw in the system.

 

[GnaGnaMan]

Bring back personal liability to corporate leadership, with each corporate leader being held to the laws and regulations of each and every country they do business in.

When a bridge fails, the structural engineers will be prosecuted for their negligence. When a company fails, no one is prosecuted.
That either is a horrible injustice, or a lesson on the scientific status of economics.

 

[GnaGnaMan]

They should - I'm awesome.

As a college sports fan, I'm totally down with the supply and demand of sports viewership leading to high coaches' salaries. (In contrast, this makes many of my colleagues apoplectic.) The part that bugs me is just how high those salaries have gotten, especially relative to the stagnation of faculty salaries.

Do better coaches really lead to more sports profits? I doubt that...
I believe that a more successful team can gain more fans and so more advertising contracts, more merchandise sales, and higher ticket prizes. But that's a zero sum game. The number of wins is fixed.
You can argue that entertainment is a benefit to society but does that benefit increase when a bigger share of the economy is spent on it? I don't think so. It doesn't become more entertaining. It just means that you draw talent away from productive undertakings into purely distributive ones.

That college sports mostly is massively subsidized is something I'm sure I don't understand.

Anyways, here's a report about a study arguing that new, higher paid coaches don't even help:

"I had always watched these teams fire coaches, pay for a buyout and then hire more expensive coaches and I wondered, 'Are they actually getting anything out of this?'" said Adler, a University of Michigan alumnus and college football fan. "What we find is, as you go out to the fourth year, the difference between teams that did and didn't replace their coaches were just nonexistent. They were performing just about the same."

http://www.dailycamera.com/ci_21998736/cu-led-study-firing-head-football-coach-doesnt

 

[ddt]

When a bridge fails, the structural engineers will be prosecuted for their negligence. When a company fails, no one is prosecuted.
That either is a horrible injustice, or a lesson on the scientific status of economics.

I'm not sure the latter follows. A company may also fail due to a lack of demand, and lack of demand can be a result of changing technologies. When refrigerators became popular, the companies that ran ice houses went out of business. That is no negligence in my book. And you can't simply say that the companies running ice houses should have changed to manufacturing refrigerators, as that's a totally different ball game with another skill set required than for storing and distributing blocks of ice.