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Worst Tech CEOs Earn the Most Money
tappytibbins writes to tell us Baseline is reporting that in a recent look at the 100 largest tech companies they found that there was a striking correlation between the highest paid CEOs and the lowest returns. From the article: "The one-third highest performing companies paid their chief executives an average of $7.12 million--while the bottom third paid their CEOs $9.29 million. The study compared direct compensation, which includes base salary, bonus and value of stock grants. Why the disconnect? Jack Dolmat-Connell, founder and president of the firm, cites the phenomenon of 'chasing the median': Companies benchmark their executive compensation figures on peers instead of looking at factors related to performance."
Their CEOs made a lot of money while their companies went down the drain.
Ashton-Tate when down the toilet because Dbase 4 was a pile of crap and all they put their money into was suing their competition.
A feeling of having made the same mistake before: Deja Foobar
That book was by Jim Collins. His point was not that companies with higher paid executives performed worse, it was that in taking a cross-section of successful companies - those with higher paid CEO's didn't necessarily become more successful.
He has written a follow-up book titled "From Good to Great" which does another analysis concerning what it takes for a company to really elevate itself above its competitors. This book was written as a prequel to "Built to Last". It also highlights the same ideals, in that money is not necessarily THE PRIMARY motivator in a company that can become very successful. Successful being that its stock price displays gains of more than 3.2 points above the market consistantly across 15 years.
1. It's not just tech - the overpayment of CEOs has no correlation (or negative if any) with performance at most US firms.
.a. vote not to overpay senior execs (the only vote is whether or not the amount in cash for strict salary over $1 million is TAX DEDUCTIBLE for the firm, the shareowners don't get to vote down the paypacket, under our form of red capitalism in the USA); .b. vote out board members - most board members need only receive one (1) vote to be reelected - and most have a few thousand shares they were given free or at reduced rate as options and thus there is no check on them; .c. identify the votes of board members on compensation committees so that the shareowners can vote out the actual compensation committee members who rewarded incompetence with even larger pay packets - in most cases the committee decision is reported as if it were unanimous, even if it isn't. additionally, the CEO usually picks the members of the committee and the board in the first place - shareowners don't get to do that.
2. The major problem is that shareowners - that is to say, the capitalists - are even less able to correct excesses of tech firms, as more shares of such firms have been looted - um, pardon me, given as stock options - to the senior execs and CEO/CFO/COO and thus have even fewer checks on such overpaid employees.
3. Many people fail to understand that most US firms do not permit shareowners to:
-- Tigger warning: This post may contain tiggers! --
18 months on average. Gotta grab all you can while you can, I guess.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
er um, Borland acquired Ashton-Tate
Microsoft acquired Fox,
and Access was out well before MS bought Fox.
In the Old Boys Network, sure, a lot is who you know, but you still have to go through the motions and jump through the hoops.
Let's see, that's four cliches in once sentence!
This issue is a bit more complicated than you think.
You greatly overestimate the value of money. $7m, for starters, will not elevate you much beyond your current life style.
If you invest it with a 10% return, and taxes only take a third of that, you'll make less than half a million a year. Certainly enough for comfortable living, definitely enough for a bigger house and a second car and not having to work anymore. Definitely not enough for supermodels, coke, yachts or private islands.
Assorted stuff I do sometimes: Lemuria.org
One potential problem as ichin4 points out (http://slashdot.org/comments.pl?sid=191520&cid=15 740518) is that the dependent variable here is percent return to shareholders. One can arguably make the case that absolute return is more important when determining compensation. Whatever one thinks, if the study were worth anything at all it would at least provide an analysis of both (perhaps arguing that one is better) to allow the readers to make some sort of informed judgements.
Of course, the above issue may not have been an issue at all if the authors had used reasonable statistical techniques. You can read the actual study yourself at http://www.dolmatconnell.com/resources/2006DCPTech 100Study.pdf. The upshot is that this "study" isn't much more than a bunch of charts and graphs. The most sophisticated statistical measure it uses is the arithmetic mean. While I don't expect such a study to use non-linear models, fixed effects or other such techniques (though it would be nice), I would at least expect to see a simple regression (better yet a multiple regression -- the number of potential lurking variables here is enormous) and a p-value. Is there really a statistical relationship between shareholder return (however defined) and executive compensation? You can't tell from this study. The only thing this study accomplishes is getting DolmatConnell & Partners some cheap publicity, perhaps duping some (perhaps overcompensated) CEO to hire their services.