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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."
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
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.
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.
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.
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.
Just because they are rich doesnt mean that they dont take risks. If they have moved up to a point where they are able to take such a job (whether it is from their own merits or their family/friends), then they probably live a much richer lifestyle than your average American. To them, making $200,000 a year would not be very much money. That may seam strange to most people, but that is the world they live in. If they take a job at a company that could fail, they could be hurting their future earnings by millions of dollars.
Use the USA as an example. We have a GNP of about $12 trillion. If the President and Congress made decisions over 4 years that dropped the GNP to $4 trillion, that would be a disaster for the American public. No one would say that our government does not take risks with our population. But even if this happened, our GNP per capita would still be more than 70% of the other countries in this world.
People on slashdot would be complaining if President Bush screwed up and cut our GNP in half. But by your logic they would have nothing to compain about, because we would still be a very wealthy country.
Just because someone is more rich than you are doesnt mean that they do not take risks.
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-- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
Boo fucking hoo.
Suppose Kenneth Lay faked his death - even with the money they lawyers will squeeze back from his estate, he'll never have to work again and can live rather well anyplace on earth, because he almost assuredly has some packed away somewhere safe.
Meanwhile, the thousands of people he screwed out of jobs and pensions plans while playing funny money games may have to take jobs at Walmart to keep from eating cat food in their "retirement" - or, if Social Security is privatized, becoming homeless due to yet more Ken Lays robbing the private funds set up in its place.
A lawyer I know who has represented white collar criminals confirms that many of them truly think "if I do five years in jail and come out set for life, good for me." Meanwhile, minor pot dealers fill our prisons for a "crime" that hurts no one.
Excuse me for thinking it's time to bring back the guillotine and right the scales of justice.
Expanding a vast wasteland since 1996.
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.
But then, you know all about hanging around under a bridge, don't you...
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.
Stock Holders!!!!! Listen up you should try being a capitalist insted of watching all the silly nonsense. Capitalism means you get paid. Check out those dividend checks. If they are not there you probably bought a pig in a poke. Quit paying attention to annual report con games and start looking at the most basic axiom of capitalist reality. Capital gets paid!
A few convenient signs that capitalists should look for. If a company is outsourcing its product, the management has decided for reasons that may or may not be obvious to investors, that the company is obsolete and is no longer functional. You are going out of business and dividends will not be coming your way any time soon. If your CEO has given himself a raise and fired your employees you know this is a fact.
Another sign is pretty simple. Check the turns of your busines. Walmart for example and it is one of the better US examples, it turns its inventory about 90 to 100 times a year. That is for a retailer very fantastic. They have conned the towns into building their stores under Industrial Development Bonds so they don't even own the stores. Their inventory is largely consignment or on 60 day payment terms. This means they are turning an inventory with at least 5% per turn net income 90 times a year (Net income per year is now 90 Times 5 = 450% per year on gross value) Since they don't even own the gross value the calculation fails to go high enough. It means in plain terms they should be paying dividends well in excess of 500% a year. If you were a capitalist, you would wake up to this and demand your check or fire the CEO. Failure to demand your dividend check is to see the CEO steal your income as his paycheck.
For those idiots in the moderation group who don't see that this is capitalism, I suggest you get a dictionary and forget your mod points. It is time for capitalism to return and Faschism to go away.
Never Politically Correct ~ I prefer the facts If you don't like what I say, get a life, or comment yourself.
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.