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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."
We had a guy who took a job, changed the numbers on a report to show his predecessor sucked, and then faked his numbers to look good.
Since none of the management ever checked the chart, they didn't realize the real numbers were lower than the last guy. Since they didn't check the numbers, they gave him a huge raise.
Nice.
My mom says I'm cool.
It could be that those companies that are run by those who undervalue their workers and and mismanage the companies towards the top are doomed to failure.
Or those companies whose management is there for love of the business tend to do better.
Or a company desperately in need of help is likely to dump huge sums of money on acquiring the most expensive CEO they can, in the hope of a turnaround.
The ______ Agenda
Does anybody else ever find it weird how many people seem to persistently believe that the free market will function best if we all just look the other way and don't talk about it?
Maybe the companies that are in a bad position are willing to pay more to get a good CEO. But just hiring a 'good' CEO won't put the company in a good position.
Or perhaps the companies doing poorly have only recently hired the "better" CEOs who command higher salaries to help dig them out of the hole.
I'd like to see executive compensation tracked across executives (not companies!) over time in a fixed-effects regression. Then we would know conclusively whether CEOs were being rewarded for poor performance or not, and it would be as easy to do as the cited study.
I generally agree that top level execs are paid too much.
However, regardless of that opinion, there's an easy explanation for the results the article found: given a top-notch CEO who gets a job offer from a well-performing company as well as an underperforming company, which company do you think would have to pay more to get his services?
Clearly, companies that are in need of a turnaround and repair are going to have to pay more to get equivelent talent. Not only is the work harder, but the prospect of failure and termination are much higher. It's a greater risk, and therefore the market will make it more expensive.
So there are a couple of valid interpretations of this data, and the article (wisely, probably) makes no attempt to jump from correltation to causation. Too bad so many people -- even slashdotters -- have such a hard time resisting the instinct to see the two as being the same.
-b
If I wanted a sig I would have filled in that stupid box.
HP.
I wonder where Carly was on that list.
Fascism starts when the efficiency of the government becomes more important than the rights of the people.
There is a problem with this study: it measures shareholder return as a percentage, but compensation as a dollar value. If a CEO grows a $10B company by 1%, he generates $100M for shareholders. If a CEO grows a $100M company by 10%, he generates only $10M for shareholders. The study implies that the second CEO deserves to be paid more, because his company had a larger percentage return. But one could certainly make a good argument that the first CEO deserves to be paid more, because he generated a larger absolute return to shareholders.
In fact, given the general trend that smaller companies tend to grow faster than large onces, you would expect the data to look like this even if there is no intrinsic correlation between CEO pay and corporate performance.
I don't write this because I believe that the market for CEO pay works. I write this only because this particular study doesn't prove that the market for CEO pay doesn't work.
these guys saleries and buyout packages mean they'll never have to work again. They're not taking any real risks. When it comes right down to it, they're the ruling class. Succeed or fail, it doesn't matter to them, they'll aways be ok.
Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
That's the problem with pay-for-performance - it invites abuse. Whatever arbitrary benchmarks you set for the CEO/CIO/everyday employee, there will be the temptation to work to the benchmarks and ignore the longterm best interests of the company. Taken to it's extreme, you get an Enron or WorldCom, where executives spent most of their time making the books reflect performance that would enhance their stock options.
Don't forget that Friday is Hawaiian shirt day.
Performance has little to do with it.
Engineering is the art of compromise.
One of the worst aspects of the governance of publicly held American companies is excessive, non-competative compansation of corporate officers. It grew to an extreme in the dot com bust of 2000. Many elements of corporate governance since been improved. For example with Sarbanes-Oxley it is more difficult to manipulate earnings. But the process by which corporate directors are elected and CXO's are paid lacks transparency. Conflicts of interest and cronyism abound. Small shareholders have little real recourse. For corporations that seek efficiency for maximum rate of return for shareholders, curbing excessive compensation is easy money.
an ill wind that blows no good
Well, I should RTFA -- this is a snap comment based on the summary.
It reminds me of my occasional impression that at least portions of (U.S., at least) society are becoming an "entitlement" society. If you have the right background, you're effectively entitled to certain compensation. Fancy degree, prior "experience" in the right kinds of roles.
Back in olden days, it might have been a formal family title. But with the increasingly disparate prices of various "classes" of education, the elimination of the so-called "death tax", and the like, family assets are certainly an element of the equation.
Ivy League degree. Connections to secure "fast track" positions. Moving on before the damage catches up.
Actually, many who might fit this description may well be competent. But I also see signs of the scenario I describe. Reminds me of a previous job, and the rotating executives at the company who seemed to be staying in position just long enough to gain a step onto the next rung of whatever ladder.
Here's how to get paid like a CEO: 1) Get yourself an agent. 2) Put yourself in the public by getting a few articles in a trade magazine. Better yet, get on CNBC or Marketwatch. 3) Have a lawyer and your agent negotiate your... 4) Contract. If you have professionals negotiate your salary for you, you will get more money.
Think about your current job. If you are like most of us in the USA, you were offered a position, then they told you how much it paid, and after a few days on the job, you found out what you'd be doing. All of this was decided by a professional human resources person. Hopefully they had some idea what you are worth (doubtful), and if your skills matched up with the position (unlikely, but you're flexable). Most people really don't know how to barter in the US. Part of HR's job is to make you feel like they are doing you a favor by "giving" you a job, so you'll be happy right off the bat. And since most HR folks are shielded from the work, they have to fall back to personalities (which weigh huge), training (which is useless in most positions, white or blue), and how soon you can be available (so they can stop dealing with filling this opening).
"Well, good luck finding a judge that doesn't run a bestiality site."
In addition to the whole poor-performing companies pay more to retain/hire CEOs...
This uses the "value of stock grants", which I assume to be a Black-Scholes calculation on the estimated value of stock grants. This calculation is based on number of options, stock volatility, terms, and some other factors. Bottom-line: Black-Scholes gives higher values to stocks with higher volatility. Poor-performing companies generally have a higher volatility and thus the option grants have a higher value per option.
...but to argue that a CEO is 1000x (number pulled from ass) more valuable to a company than it's employees on the ground is just ludicrous.
Is it really? How do you quantify value? How do you choose it? Is it equally ludicrous that we have "argued" (which is a strange verb to use for a free market) that a set amount of protons, neutrons, and electrons, conviently in the form of an ounce of gold is equal to about 650$, whereas roughly the same number of protons, neutrons, and electrons in the form of an ounce of oil is worth about two cents.
If I may argue against both you and the entire slashdot groupthink for a moment... does it occur to anyone that the reason shitty CEOs fail and their companies crash and burn is because they suck at their job... and therefore it's just the free market doing what the free market does (please spare me the "THINK OF THE WORKERS THEY SCREWED!"). Somewhere, some other CEO who is running his company smarter, is making alot more money for his company and himself, and making alot more jobs then that CEO just lost. Maybe that CEO pays himself less because he is smart. Maybe he doesn't. Maybe it doesn't matter (ie 5 million in a billion dollar company). Maybe this is all a bunch of envious garbage based on bad economics and a feeling of self-righteousness. Everyone likes to think of CEOs being greedy douchebags who screw everyone and get rich.. why.. because we all need our boogeymen. That's just simple people groping for answers. The real reason CEOs make alot of money is because someone is willing to pay them to do it. If they were completely useless, companies could save X million a year by not paying them, and someone would have figured it out by now.
Did it ever occur to anyone that, on average, CEOs create jobs, grow companies, and increase wealth of themselves and others? Evil sons of bitches.
First, the study showing the discrepancy in wages has one major flaw in it. In 2000 the percent of people working in manufacturing jobs was a fairly small proportion of the US workforce. A much smaller percentage of the workforce than it was in 1990, smaller than 1980 etc. If you looked at that statistic in 1960 it may have been a fair measurement, but today? How many people do you know who still work in manufacturing? The few left are getting laid off. Fact of the matter is we're producing far more goods than we were even ten years ago, and we require far fewer people to make those goods. The modern economy has shifted and the average american works in higher paying service industry jobs.
Additionally, one argument about the growing discrepancy that's amusing is comparing incomes of the highest and the lowest % of people. In fact it could even be argued that having a large percentage of people earning very little is a good thing!!! How? Well consider a middle class worker 50 60 years ago. They generally worked till close to the end of their life. Many middle class workers today don't! There are more important things to them then money, and so they chose to live off their savings instead.
The rich are getting richer and the poor are getting poorer arguments also fail when you go beyond raw statistics and look at the people. First of all the upper 1% are getting richer faster than the poorest 1% etc. This is true, but is it bad? If the rich gain 20% and the poor gain 5% is it bad? What if the alternative is the rich gaining 5% and the poor gaining 2%? Or, if we want to be communistic we could have the rich lose 10% and the poor stagnate (although in reality many communist countries ended up slaughtering too many people for those statistics to be meaningful). Examining the people involved in these studys, it's interesting to see what percentage of the people in the bottom 10% 10 years ago are still in the bottom 10%? Same with the upper 1% or 10% or whatever. I know from observation most people tend to make more money as they get older, hence they tend to climb up to the higher income brackets.
All these statistics add up and show that maybe there really isn't a problem. The problem is the people in the bottom 10% that are still there 10 years later. Most of those people tend to be a result of government programs. It's fair to say that far more people have been kept in poverty by the governments policies (drug war, affirmative action, etc) than have been helped by government programs (the only exception to the rule that I can think of is the military, as it generally offers the disadvantaged an oppurtunity to earn skills and discipline if they don't get blown up in the process).
Phil
It's elementary. Every extra $million added to the CEO's salary takes a $million from the bottom line.
There was a nice example 2 years ago. Grasso, the chairman of the New York Stock Exchange, paid himself a salary which (including bonuses) entirely wiped out the total profits of the preceding 3 years.
In my opinion a CEO who pays himself more than, say, 40 times the median full-time salary in the company he/she heads should be jailed for theft. And don't give me any BS about "salaries are set by the Board". The people sitting on the boards of directors are almost entirely CEOs, recent ex-CEOs, or cronies of CEOs. They'll agree to the salary of the CEO of company X, because the CEO of company X sits on (or will soon sit on) the boards which have to agree their salaries.
I hate these types of 'studies'. What do they mean by returns (%, cents per share, $s)? You can always play with the numbers. One company can have a smaller % return but it represents much more money. A CEO can get a smaller percent bonus but be much more money. So these correlations are very dubios.
Also, does the article think that the CEO of some small company should make more then the CEO of IBM just because it had a higher percent return. How about complexity and degree of difficulty of the job as a measure of pay versus just returns. How about the CEO who makes some tough decisions that will help the company long term but will have a negative effect short term. I hate articles that completely over simplify things to make some shocking point.
Did it ever occur to anyone that, on average, CEOs create jobs, grow companies, and increase wealth of themselves and others? Evil sons of bitches.
And?... cause I do all these items as well. The difference between a good manager and a crappy manager is a big one, and it applies all the way up the chain of command in a company, but CEO's dont magically create jobs or grow companies. There is no excuse to pay someone over a million dollars in SALARY. In fact, I would think anything more than a half mil would be excessive. -I- create jobs and grow the company. The ideas and descions that come down from the CEO's I've worked with/for have yet to ever strike me as anything other than common sense.
Now, I'm not saying I could be an effective CEO, because I simply dont have the management skills. In my opinion, 98% of what makes a CEO good is their management skill. But! Management skill doth not a multimillion dollar salary entitle.
That CEO does an extrodinary job, give em a bonus. Say, 20% of their salary and a nice 10% raise. That would be the best anyone else could ever hope for. I'd be happier than a pig in shit if someone gave me a $100,000 bonus on top of my half million dollar salary.
Paying seven million dollars PER YEAR for a CEO is downright stupid. At that point, as another poster said, you are really just supporting the "ruling class" mentality. Here comes the marxist in me, but nobody has any realistic use for accumulating that much wealth.
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