It’s no wonder CEOs are so highly paid. Every decision they make saves the company, apparently. If anything’s wrong, it must have been someone else’s fault.
For the record, it’s not just us little “peons” who think this way. Warren Buffett is in the same camp, and while I make a higher salary than he does, there aren’t a lot of people who are going to challenge his business acumen.
That would be a good plan, but if CEOs in any company I’ve ever worked for (boig ones) had it it is news to me. Certainly the options I’ve been given, back before the tax ruling, were unrelated to market performance.
Compensation strongly depends on the segment you are in. Mathematicians who go to Wall Street make a lot more than mathematicians who are professors, but they aren’t necessarily any smarter or any more driven. People who go onto management tracks may wind up making more than people who stay on technical tracks without being any smarter. Salaries of faculty strongly depend on their areas of expertise, so that a smart business school prof makes more than an equally smart English prof. I’m not complaining about this, it is due to the market, just saying that you can’t correlate intelligence or initiative with salary across fields and professions.
GM’s problems go way back. Too many divisions, too many weak products, too much reliance on GMAC. In addition, it was hamstrung with high retirement liabilities due to overly-generous deals struck with the UAW in the 70’s and 80’s.
Another one of GM’s problems is that it bought into the same argument some of you are making - that executives are interchangeable just need to do a workmanlike job. Increasingly, GM’s upper management was populated with bean counters and by-the-numbers engineering people who relied on focus group data and a set of specifications to design their cars. It was design by committee, and it showed.
Lutz’s big change was to scrap that entire process and make car designers king. They reported directly to him instead of reporting to finance and engineering, so instead of starting with a set of requirements and financial objectives and building a car around them, Lutz started with a compelling vision and design for a car, and then figured out how to make the finances and specifications work while retaining the vision.
Lutz made 1.55 million in his last year. GM got tremendous value for that salary. He was probably worth 100 times as much to the company. He quit in 2009, citing the government oversight from the bankruptcy deal as part of the reason:
- Bob Lutz
He was also the guy who brought the Chevy Volt to market, btw. He retired with no golden parachute - he gets 1.15 million for five years, then $16,000 per year after that, without any health care benefits.
The cheap, obvious counter to this is that choosing to go into the more lucrative sector is itself an indicator of intelligence. 
I agree totally. Now, who is the company? Is it the CEO and board, or is it the owners, in other words the shareholders? If the latter, they don’t have it now.
This describes the implementation of part of Dodd-Frank that now forces companies to hold advisory shareholder votes on compensation. Note advisory - the execs are not required to abide by the results of the votes. My search for this revealed a bill introduced by Barney Frank, never adopted, to allow shareholder approval of compensation. I trust that you would support this bill.
Or so the baboons who melted down the economy would have us believe. 
I’d have to think about that, but I don’t see what’s wrong with the board determining the salary. If the shareholders don’t like it, they can throw the board members out.
One of the problems with corporate governance now is that the shareholders are increasingly disconnected from the company - they’re often large mutual funds or other institutional investors. Their interests are not necessarily the same as the long-term interests of the company. So having a middleman with vested powers like a board of directors seems to me to be a good check on what could be capricious decisions made by people with short-term gains in mind.
Are there people on this board begrudging the salary of Bob Lutz (who wasn’ t the CEO) or people like him? I don’t have a problem with the salaries of Lutz, Jonathan Ive, and other rock stars like them. Of course not being CEOs, their compensation is typically far more driven by market forces. I’m pretty sure Ive doesn’t pick his own compensation committee, for instance.
In those situations the board of directors is comprised of people those institutional investors want on them. When you have enough shares, it’s pretty easy to stack the board. I like the concept of a board of directors, but not the typical implementation thereof.
Bullshit. Not the basic premise of your post, but the way you phrase it. The problems are “GM’s problems”, but the successes have a name attached. Companies don’t make decisions, people do. If there were too many divisions, who created them? If they brought in interchangeable executives, who did that?
If Bob Lutz is so valuable that he saved the company, then let previous CEOs (or the board who hired them, or VPs, etc.) own the failures. Let their names be known and let them compete for these jobs the same way everyone else does.
There’s a thread about whether rich people take risks. If a good executive like Lutz is worth so much, what should happen to the ones that screw up?
Don’t get me wrong - there are a lot of bad executives out there making huge bucks. There are also good executives, like John Scully formerly of Apple, who wind up in the wrong industries and screw the pooch badly.
Likewise, there are employees you hire for $20,000 that wind up bringing in $100,000 in value, and there are other employees you hire for $20,000 that wind up costing you hundreds of thousands or millions of dollars before you finally get rid of them. One bad programmer in a critical position can set a software project back a month or more, and that project could be costing a million dollars a month.
Who pays for the bad apples? The company that hired them, of course. As it should be. Apple certainly paid a very high price for hiring John Scully, didn’t it?
As far as GM goes, it’s had its share of bad execs over the years, as has Ford and Chrysler. Any company that’s been around for a long time has sheen its share of bad top management people. Of course, that’s one of the reasons why the ones with a long track record of success can command such high salaries.
There are certainly examples of executives who steered their companies to huge profits. And there are a lot that haven’t. It just doesn’t seem like the same rules apply to their jobs that apply to the rest of us. We get a salary, they get “compensation”. Our jobs can be shipped off to India, theirs never are. The negotiate deals that pay them a fortune even if they suck. And the directors who negotiate those deals may have their own packages as heads of other companies that keep pace with the market.
Is the whole apparatus any more effective than pulling names out of a hat?
Bullshit. Try this and see what happens, I’d really like you to go to a print shop, make some “free Big Mac” coupons, and then tell us how many Big Macs you get as a result.
When McDonalds prints coupons, they have to account for that cost, it’s on their books, just like writing a bunch of gift certificates.
How do you not get this?
That’s right. And that “some way” was how you created wealth for yourself. You did something that earned you a coupon. Destroying it means you lose what ever time you spent earning it. That time is gone.
Again, here’s the formula
Time = money
Right, in which case those coupons represent a promise (or option) for a service, and they have value, which is why the options market works. Notice that if you gave those out and then died, the coupons (options) wouldn’t have any value. More importantly, each of those coupons will represent a cost you will incur in the future. If you give out 100 x 1hour back rub coupons, you could potentially spend the 4 days rubbing people, which might cut in to your job, or at the very least mean less time to spend on message boards.
Now, how does someone go about getting one of these coupons from you? Do they provide a service to you in exchange? Do they give you cash?
No, they have to be able to make those Big Macs, just as you have to be able to perform a back rub. So in giving those out, McDonalds has to have a store open and ready with Big Macs on hand to make. Otherwise the coupons are valueless, and no body is going to clean your toilet to get a coupon for a restaurant that isn’t available. when you give out your back rub coupons, you are going to have to provide that service when called upon, your options might get exercised, and you sure has hell better have an hour free or else the wife/SEC is going to be pissed.
If that was the case we wouldn’t have an economic mess. Lots of people traded their cash for houses, and the houses suddenly became worthless.
I guess more to the point, if it’s just one elf and just one bean you might be able to argue your case. But when it’s a million elfs and several billion beans the consequences would be more significant.
What’s funny here is that without realizing you are making the case against minimum wage laws. McDonald’s needs the elf to have money (beans) so that the elf can buy Big Macs. You’ll notice now that McDonald’s isn’t selling as many Big Macs because a lot of elfs traded their beans for shitty houses (I don’t know if McD’s is selling more or less, just turning a phrase)
It can’t, that’s the point, and why we used to have the gold standard, which was the governments way of saying, “you can have this dollar bill I printed, which has value because the government has gold.” The government is on the hook for what ever money it prints. If it can’t pay up, the money is worthless and something known as “hyper inflation” occurs. Consult your local library if you’d like to know more.
And yes, I switched from “income” to “wealth” because I find it hard to believe that Michael Bloomberg and Arnold Schwarzenegger are simply living off their governor’s stipend. Hillary Clinton is paid about $180k but she’s likely to have income coming in from other sources like her book.
If you read that article you might pick up on something funny about the difference between wealth and income. Also seems physicians hired by the government can be paid quite high, including those at prisons and Veteran’s hospitals.
Top brass of the military would be pretty close. Chairman of the Joint Chiefs of Staff makes $220,734.36. Postmaster General makes about $245,000. Damn, what would we do without the postmaster general, or Wilford Brimley!
Of course they don’t! And the same rules don’t apply to doctors as to nurses, or to union workers vs non-union workers. In most organizations, if you’re in management the rules change once you get to a certain level, and compensation changes to include ‘pay at risk’. That means you can potentially make more money, but you can also wind up with less money if you don’t perform. Governments do this as well as the private sector.
At the CEO level, pay is negotiated just like any other business deal. Each case is unique, and each CEO offers different strengths which the company must weigh against their needs. Then they write up a contract. Sometimes contracts give the company a raw deal, and sometimes the CEO gets a raw deal. If negotiated well, the contract will represent the value that each party brings to the table.
Really? Who do you think has more job stability - a worker on GM’s assembly line, or the CEO of GM?
Maybe, maybe not. The bottom line though is that ultimately the company will be held responsible by the market for the mistakes of management, and the management will be held responsible by the board, and the board is held responsible by shareholders. If all of them shirk their duty and let the company flounder, other, better managed comapnies will take over their market share.
Obviously, and it’s not even close. Anyone who thinks that running even a small company could be done effectively by a name drawn at random out of a hat has never run a company or worked in management.
No one would ever say that a name drawn randomly from a hat could direct a movie as well well as Steven Spielberg (or direct a movie at all), because what Spielberg does is visible for all to see. But for some reason people have this idea that executives are just suits who sit around and ‘cut deals’ or yell at people or whatever, and there’s no particular skill involved. That’s because most people don’t understand how people operate at those levels, because it’s not something that’s visible to most people. But the fact is, being a CEO is an incredibly difficult thing to do well. You make decisions all the time that have effects on the company many multiples of your salary. You have to draw on a wide range of knowledge. You have to be an excellent judge of people. You have to have intimate knowledge of your industry and of the internal operations of your company.
Did you notice Lutz’s offhand comment about getting up at 4:30 in the morning? I doubt that that’s an exaggeration. And how much do you want to bet he would still be working at 10pm on many days?
My wife is a middle manager with a budget of a couple million dollars. That’s peanuts in the corporate world. She works her ass off. And so do all the other managers at her level. The attrition rate from burnout is high. I could never maintain her pace, which is why my own company was never very successful. The people at the level above hers work even harder. Last week she had to make an appointment with one of them, and her superior suggested 8 AM. Since that’s the start of the typical work day, my wife asked her if she’d like to make it 5 or 10 after 8 to give her a chance to settle in for the day, and her boss said, “Oh no.. I’ll already have been in the office for an hour or two by then.”
The fact that you think you could pick a person at random and plunk them into a CEO position without negative effect suggests that you don’t really understand business or what businesspeople actually do.
People at those levels almost always have other sources of income. If not while they’re in government, then as soon as they get out. They go to work for lobbying firms, or they get speaking fees or appearance fees, or they wind up on the boards of organizations, being paid a salary, just so the organization can trade on the cachet of their names.
Go look at some legislator who entered government relatively poor and who puts in a term or two in Congress, then check out their net worth five years after leaving.
Barack Obama had a net worth of a few hundred thousand bucks when he became President. He’ll probably be worth 50 million dollars within a few years after he leaves office.
Bill Clinton has a net worth of $80 million dollars.
Can you see the word “probably” up there?
You probably can’t, reading doesn’t seem your strong suit since you’ve also been shown the wiki pages showing wealth and income stats in the US.
Wealth and income are not the same thing. But there is certainly overlap between who is in the top income bracket (ie those getting on the spaceship) and those who have a lot of wealth. Once they leave, and take their wealth with them, the remaining top income earners will most likely have more wealth than the bottom income earners.
Is that the way things should be? The people negotiating on behalf of the company don’t have an incentive to keep the costs low. And if they are the heads of other companies (as many board members are) there is incentive to make a very generous offer; they can go to their own board and request that their pay keep pace with comparable pay to others.
I would think a proper capitalist would be appalled at such a distortion of the market.
Of course a name pulled from a hat could direct a movie as well as Spielberg; the name you draw might be “Steven Spielberg”.
But you’re missing the point. You keep citing these extraordinary performers as if they represent the average. There are lots of companies, hiring lots and lots of executives. I’m sure they’d all love to hire the next Bob Lutz or Steven Spielberg. They all want us to believe that they can, and have, identified these rare individuals. But it’s rare that they actually do.
I agree, Root. Sure, there are some good CEOs out there. But I’m not convinced I couldn’t run HP better than Fiorina did or Pfizer better than Kindler did. (Those are two people I wouldn’t trust to clean my cat’s litter box.)
By the way, somewhat early Happy Birthday.