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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."
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.
How about the former CIO where I worked? You could swear his primary motivation was to get himself more money, however he did it, by making his performance look good, the long-term problem is determining if that appearance of 'good performance' really was as good as it looked on paper and how it enabled the business the grow or trim costs effectively.
"If I make all those guys putting in 16 hour days wear suits and ties, we'll look more professional and I'll get compliments on what a tight ship I run! That should get me $100,000 more per year."
A feeling of having made the same mistake before: Deja Foobar
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
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
"Companies benchmark their executive compensation figures on peers instead of looking at factors related to performance."
Isn't that how most pay is determined? By what others are paid in your profession/industry?
I remember a business book from the 90s, "Built to Last", that also noted that companies with higher paid executives performed worse.
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.
My Tech company isn't making anything. $0 returns. I think that means I should be getting paid WAAAAY more than all these guys. I wonder who I talk to about that..
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.
If correlation==cause, does that mean Steve Jobs (current salary: $1) would head a list of the world's best CEOs?
This applies to CEOs, CIOs, etc. An impressive resume, huge compensation package and celebrity status does not mean you will be a great executive. Sunbeam, Tyco, Enron, WorldCom, etc have all fallen victim to this. Many companies these days are falling into the rock star CEO trap, or CIO in this case, and that's doesn't guarantee success. Read the book Good to Great - Jim Collins analyzes this myth about celebrity CEOs, compensation and returns.
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.
Hell yeah.
Where can I sign up to be a CEO?
I'll be the worst CEO you can imagine.
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/
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! --
Yeah, it was nice. Anyways I jumped ship a year later; I got a new offer with even better pay. I love money.
The CEO of my old company gambled (and lost) our salaries at Vegas and on stocks and when he decided his salary wasn't enough he created a money funnel^H^H^H^H^Hconsulting company of which he was one of two employees and charged our company for consulting alongside his salary. When all this was uncovered he simply skipped town. He seems to have done this all his life. When he was caught running a mutual fund scam a few years back he got a little slap on the wrist and was banned from trading on certain markets. And he was the nice guy compared to the sleazebag who took over from him (especially when he was buying the drinks). These people just jump from job to job wearing teflon coated suits to which nothing sticks.
Doesn't it make you feel good to know that our freedoms are protected by politicans, lawyers and journalists.
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.
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
Now where have I heard that one before...
I think this is a good illustration of the free market operating to transfer money and power from the many to the few. I believe in renumeration comensurate with performance, 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. The management skills required to run companies are not as rare as the salaries of these people would indicate - especially when one considers the pathetic (and oftentimes illegal) way in which these companies are commonly run.
Thus we have an example of the wealth of the many being transfered to the few (in a manner not based on merit, but rather, groupthink), and why a _totally_ free market is a terrible thing, and not in the interests of the majority.
Sort of true, but not the complete picture. dBase IV was indeed the quality showpiece you describe (funny how yesterday's gods become today's devils) but more to the point the code was acquired by -- you guessed it -- Microsoft, who turned it into everyone's favorite mockery of a database, MS Access. When you can't compete, sue to cover your failures -- SCO didn't invent the technique.
Look up the story of Tom Rettig some time, one of the main developers, for a tid-bit of insight into the origin of the term "eating your own dog food". He used to co-star with a dog in the iconic TV series Lassie.
Do not mock my vision of impractical footwear
er um, Borland acquired Ashton-Tate
Microsoft acquired Fox,
and Access was out well before MS bought Fox.
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
"...did you just say that the company isn't loosing money fast enough?" ...
"Dilbert, will you stop embarrassing yourself, if you read Dogbert's book you would know that a fast growing company always looses money while it's expanding"
"were not a fast growing company!"
"and we never will be if we don't loose more money!"
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.
You're absolutely correct that the article summary is somewhat statistically (and economically) illiterate. Instead of "Worst Tech CEOs Earn the Most Money," why not "Struggling Companies Pay CEOs Top Dollar to Turn Things Around"?
... like people who complain that "The Man" is keeping them down.
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.
Unfortunately, I don't think this is a coincidence. There's no way Slashdotters would have so grossly misinterpreted a study correlating, say, video games and violence -- because the party line around here is that video games are a Good Thing. A lot of geeks, however, have complete disdain for the "suits" and "pointy haired bosses" in management. "Why do the 'clueless' managers make so much money, when I'm obviously so much smarter? Why do I have less job security when I'm the one working 100 hour weeks, fueled by Mountain Dew and fear of downsizing?" It's true that there are bad managers out there, but much of this attitude is just scapegoating for one's own job dissatisfaction
It also shows a profound misunderstanding of business. To the disgruntled coder, it may seem like the business world is stupid and arbitrary -- where people make more money the "dumber" they are -- because they don't understand it. But really, it's little different than if the CEO said: "I don't understand your C++ code; it just looks like a bunch of random characters you threw together. Therefore, it's stupid." Like it or not, there is such a thing as skill in business -- and oftentimes, it's rarer and less replaceable than technical skill. Just take a look at the career of Steve Wozniak, with and without Steve Jobs. Now look at the career of Steve Jobs, with and without Steve Wozniak.
Cheers,
IT
Power corrupts. PowerPoint corrupts absolutely.
The total compensation (including fringe benefits) for each of the top five employees of a publicly held company has to be reported to the SEC.
The shareholders should set that amount. You put a number on the proxy, and the share-weighted median of those values is the limit on total compensation for the top five. Management should be allowed to suggest an amount on the proxy, but that shouldn't be the default for unreturned votes.
Now that would make management more responsive.
For mutual funds and retirement plans, the right to set that value has to pass through to the beneficial owners. For a mutual fund, you'd specify a number on the fund's proxy, and the fund's managers would be allowed to specify the compensation limit for each company, but those choices would have to add up in some weighted way to the median of the value set by the real owners, the fundholders.
Figuring that leaves me with $3 million to work with...that should get me two university professors, two hot-shot MBA grads, two accountants, two lawyers, two scientists/engineers in the relevant business, a doctor just for balance, four secretaries - and a cool half million for me.
I am sure that together we can make just as good of decisions as your precious CEO.
Actually, I think the problem here is the Lake Wobegon Effect - no company is will to admit that it would dare hire a below average CEO. Therefore, of course theirs deserves pay greater than the average...
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.
Probably right here.
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."
just may be some of these CEO are mentally ill. Narcissist and psycopath as CEO's. http://www.fastcompany.com/magazine/96/open_boss.h tml
The purpose of writing is to inflate weak ideas, obscure poor reasoning, and inhibit clarity....Calvin
It makes perfect sense that the best paid executives are the worst performers. The whole process of selecting people to be on the board that sets your salary is filled with conflicts of interest. Your salary as a CEO negatively correlates with your integrity. Your integrity positively correlates with your skill, and with how well those under you work for the good of the company with you as their example.
Those of you who discount this study, look around at the real world a bit before you do it. This study makes a lot of sense. Now how to fix it, that is the problem for us as a society....
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.
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.