Evidently, peddling Amway eats into your internet time.
Big deal. Many workers have 4 years of college education. And stress, and ambition. close to 70 million americans are sleep deprived today, that doesn’t make them all CEOs.
So workers don’t work hard? People who have 2-8 years of college don’t work hard? And losing your only means of obtaining an income int he worst economy in 20 years is a ‘no risk’ venture?
Your arguments are based on the faulty premise that there are 2 groups on earth, burger flippers and CEO/founders. That is not true.
Also, how do you explain all the CEOs who inherited their company? Ford, Vanderbilt, Gould, etc. I’m sure many many CEOs are only CEOs because they are the founder’s son.
Doctors are paid well whether you get better or not.
Eh, Answer: Equal division of the wealth and government ownership of large corporations while leaving smaller companies privatized.
Socialism.
So which is it, Sinful: Herbalife or Amway?
Why is this a debatable issue? They are paid to be the front man (or front woman in a few cases) for their company. It’s a PR position. They’re paid a lot because that’s the way it freaking works, like it or not. It’s deplorable, but it is what it is. I’d love to see a solution, but the most I’ve seen to date relates to stock option accounting treatment (not going to bore y’all with the details!)
Posted by Sinful:
Posted by Blonde:
The solution, Blonde, is socialism, in roughly the form described by Sinful. It makes no difference if he was being sarcastic.
Wow, that’s a really logical, well-argued, convincing refutation of all the arguments presented on this thread.
Alternatively, the solution is to find some other corrective to the current problems without resorting to a major, unnecessary, and ultimately self-defeating overturning of the current system that has managed to produce the most good for the most people. Unfettered capitalism can easily become as evil as rigid socialism, but overall, capitalism has continued to produce more benefit for more people than the alternatives. The current policy in the U.S. of capitalism, checked by some social controls and some oversight, is still outperforming its competition on the world stage.
Certainly, there are problems when CEOs of poorly performing companies are paid hundreds of millions of dollars, each, to run their companies into the ground. However, the notion that we should nationalize the largest industries seems to be a “throw the baby out with the bathwater” approach. The CEOs of the largest corporations are not making hundreds of millions of dollars. (One may still think their earnings are too high, but then we get into a separate discussion of How Much is Too Much?) The people who were bringing in the truly obscene earnings were not running General Motors or General Electric, they were running WorldCom and Apple. Important companies, to be sure, but not the companies that would leave nearly irreplaceable holes if they fell. Should GE’s Jack Welch “deserve” $80M in compensation (as opposed to Steve Jobs’s $387M)? Well, Welch turned his $13 billion company into a $480 billion company. He certainly screwed over a lot of people to do it, but the people who remain–both workers and investors–have a more secure and more profitable company to ensure their ability to survive. Would turning GE over to the government actually accomplish anything? Does anyone want to work for or invest in Ilyushin these days?
This is ridiculous. They are not ‘PR Men’. They work damned hard. It is not easy being a CEO. And they get there usually by proving themselves, moving up the ladder through the company or another one.
I know someone who is on his way up that ladder right now. He was the brightest programmer in our company. Worked his way through team lead, to project lead, to head of the local office. Then he became Chief Technical Officer of the software division. From there, he moved up to CEO of the division. This is the point at which executives for the entire company are chosen.
So far, he has deserved every promotion he’s gotten. And I’ve seen lots of people move up the ladder in similar ways, and then stall out because of lack of ability. They are good technical people, but don’t have the people skills. Or they aren’t dedicated enough when it comes to the long hours and heavy travel. Or they are good with people skills, but lack good technical judgement.
As people move up the ladder, they are selected from pools of increasingly skillful and talented people. They are generally the best of the best. And sometimes they get to the point where they just can’t improve things. They make a few questionable decisions, appoint subordinates who aren’t up to the task, drop the ball on a major contract or two, and suddenly they’re moved laterally to another business, or they leave the company ‘to seek other opportunities’, or whatever.
CEOs are paid what they are because there is great demand for CEOs, because the difference between good and bad CEOs can mean hundreds of millions of dollars to a company’s bottom line, and because there is a very limited supply of people with the skills needed.
Look at Bob Lutz. He went to Chrysler, and revitalized the brand. He restored the performance image of Chrysler, personally spearheaded the development of the Viper and Prowler, and increased profitability. He then moved on to GM, and he’s in the process of doing the same thing there. He’s a mover and a shaker - a man with a reputation for kicking ass, providing vision, spotting good design, and setting up teams of people who get things done. He’s worth every penny he gets.
Why is it that people have no trouble seeing the skill of a Wayne Gretzky or Michael Jordan, and understanding how that skill translates into big salaries, while at the same time assuming that CEO salaries are the result of a giant con game played on the public?
If CEOs didn’t have scarce skills that added real value, why would shareholders keep authorizing their giant salaries?
Because the shareholders don’t control CEO costs.
(Go read the Fortune articles linked, above.)
There are, indeed, examples of executives who are truly earning their pay. However, do you really believe that Lutz (below $100M at GM) is really worth less than a quarter of what Steve Jobs extracted from Apple a couple of years ago?
I agree that CEOs are more than simply figureheads. (I actually made that point when composing my earlier post, but the hamsters seem to have eaten that part of my reply.)
However, while I will resist the notion that no CEO is worth “that much money” (however much that is), the claim that they are all worth whatever they are pulling down is equally absurd.
No, they are worth exactly what the market for CEOs is willing to pay them. The market is largely rational, but I wouldn’t doubt that bad decisions and psychology have occasionally produced ridiculous distortions. But still, every time a CEO is hired, there is someone who has to put their money on the table and say, “I’m willing to trust that this guy can handle it.” Sometimes, they’re wrong.
False dichotomy: PR Man doesn’t mean useless shifter now does it Sam?
In re Star CEO’s there is indeed a large PR component, which may or may not detract from other roles and may or may not justify salary.
Usually.
Yes, and no. That does not in and of itself address the issue raised above in re whether the market for upper executive and esp. CEO salaries in certain segments is in fact working well, instead Sam goes off on one of the patented just so stories, which while heart-warming and all that, is just a just-so anectdotal story that rather misses the point in its charming knee jerk.
…
Perhaps, perhaps not. Depends on the organization and the mechanisms for identifying and promoting leadership, if any.
There are lots of reasons why people are promoted, some of which may or may not be connected with their actual mangerial, versus other skills, be they core or not.
You khayali little vision here, while again heart warming and all that, rather goes against what emperical research on organizational behaviour tells us. Of course you prefer to pretend to live in a world of perfect markets and all that, so perhaps this is explainable.
Sam, try reading something critical for a change, it would have a great deal of novelty value, for your sacharine regurgitation of pop-biz ideas really leaves a lot to be desired.
Skipping yet another charming anectdote:
Well Sam, if you would kick into gear some semblance of critial thinking, I am sure you are capable of identifying the rather clear differences between a sports team and a company of any size, but as I know this may take a while let me aide you:
(a) Metrics easier to measure. Limited number of actors, clear set of results with clearer factors relative to corporate results.
(b) Time frames: sport events occur as discrete units of time, a strategy generally occurs in a game and has clear results, in the corporate world strategies occur over years, exogenous events may have overwhelming influences on corporate results (e.g. boom years) relative to management strategy. Generally clarity of connection btw strategy and results is often muddled, at best.
© Sports results are discrete and more easily observed from the outside. With discrete events and a highly bounded number of participants, it is far harder (although not impossible) to massage the results. “Smoothing earnings” in the form of averaging say goals for Gretzky is simply while nigh impossible, while highly possible in the corporate world.
(d) Greater market clarity in re identifying real stars. The market of sports information is while nigh perfect. Thousands of fans, writer etc. track every participant to the minute detial, millions more follow with relatively high intensity and market ‘voting’ in terms of interest etc. help validate expert opinion. The market for CEO / Managerial talent is obscure, partially hidden for good and bad reasons, rarely fully publicized and often hard to track and verify on the margins. While both markets have their rigidities and barriers, some regulatory, many more from market structures, very clearly the key factor in efficient market oversight, information that is well-desiminated and well-examined and understood is very, very much more the case than in a market for upper executive talent where contrary to your khayali just so stories, there are many many routes to the ‘selective circle’ that may or may not have a great deal to do with mangerial talent ( a hard thing to judge regardless).
I could go on, but I think someone with an ordinary level of understanding and analytical ability should be able to easily see that the market for upper level management, especially for the largest companies is clearly not an efficient market and clealry not characterized by a free flow of information.
Because: (a) Boards are not independent (b) Because suckers with khayali visions tend to believe the PR © because proper information is not available.
Now, Sam, why not pick up a copy of the 160th anniversary edition of the Economist and read up?
The point of all this, by the way, lest you have missed it, is not to claim all CEOs are lazy exploitive scum or any such thing. It’s rather recognizing that in this market there are segments that are clearly not as efficient as perhaps the ideal. Instead of bleating on, you might care to analytically engage the issue. You’ll find there is plenty of emperical evidence of short comings, and if you’re a real observer and defender of capitalism, in contrast to an idealogue, I am sure you will see nothing wrong in criticizing, in an informed manner, some of the remaining wrinkles.
As for our OP’s response, please. You apparently have not even earned your Business BA or whatever, and you patronize me? Listen mate, you show all the signs of uncritical hubris and an utterly distorted sense of the worth of a business school education. It’s all fine and that, I have one myself, but the real world involves luck and teamwork, and if you followed in economics, you’d find there are lots of reasons to think about incentives for the “burger flippers” you so charmingly scorn as a means of addressing inevitable agency problems. In short, show you actually learned something instead of posturing like … well I don’t know how to describe it.
Charming Sam, a tautology.
Of course the real problem is that this discussion has focused on market failures or inefficiencies.
A market can be perfectly rational and still have perfectly rational distortions Sam, so again, sorry, try again.
Again, Sam, fine little assertion, but I believe the discussion until now has been focused on macro-level issues, not charming little asserted anectdotes.
More interesting questions:
One should think so, however the Economist advances the analysis that excepting public institionals, there are substantial conflicts of interest that get into the way of effective oversight. Further to that, during the boom years oversight seemed to be an expense that was not compensated by added return. Sort of thinking that leads people to drop insurance, well, because no accident has happened yet.
As I noted in another reply, it is often hard to appropriately assign blame and praise to a set of actions. Certainly, however, at upper ends of the CEO market, and with closely connected and indeed tied Boards, it appears to be far to easy for the CEO (like a good politician) to blame the outside for failings, but always take credit for the gains.
Very human I may add, so really the question is not what is wrong with CEOs, but how can Board oversight, etc. be improved?
Well, no government regulation requires quarter by quarter result fixation, so on its face something about the culture and structure of American markets, at least publicly traded ones seems to engender this.
On the other hand, in combination with culture, it could be that requirements for at least quarterly disclosure and the like may enable this tendency to quarterly fixation, so perhaps there is an unintended side effect of disclosure mandated on a quarterly basis.
For all that, I would not want to see less disclosure or less transparency. I operate in the Middle East and I can tell you less disclosure is not healthy. I am not sure what would be required to break the quarter by quarter fixation – which I suspect w/o any research or reading any good emperical investigation, is probably driven by “punters”, relatively short term speculation combined with other forces.
I can understand why the Board of Directors might agree to pay a CEO an insane amount of money.
You say their information is flawed. You say they aren’t independent judges. Why, they could simply be taking a gamble. I can understand this rational distortion of salaries upward.
But, how do you explain why a failed CEO is also paid obscene amounts of money? When the bottomline takes a hit and the company goes deeper into the quagmire, shouldn’t the rational behavior of the Board dictate that the CEO shoulder the blame?
<sigh>Would someone please make sure that Collounsbury gets his ritalin at the proper time?
Why that comment, Sam? You may disagree with his comments, but he has put forth coherent statements, referred to cited works, and failed to utter a single obscenity. Why get personal when he is behaving the way some people claim he is supposed to?
Agency issues. The question is, does a Board act as it should, or is it tied, by a variety of mechanisms, to the very management that it is supposed to be overseeing.
The Board (any Board) is not acting as an idealized rational actor, it’s an entity with a history and individual interests, as well as potentially less-than-independent access to information.
In the context of a Board that is not independent, that may in many ways be beholden to senior management, it is not at all hard to see how very standard and well known agency issues can skew decision making.
BTW the Economist review that I have been pimping is SURVEY: CAPITALISM AND DEMOCRACY and the article in question, or one of most relevance is “Pigs, pay and power” 26 Jun 2003
an exemplary quote:
Ignoring the political angle, the heart of the matter remains as discussed.
The follow on article “Beyond shareholder value”, sub-titled “Shareholder capitalism suffers from a vacuum of ownership” goes into further depth and survey major industrialized nations’ mechanisms for oversight.
Tomndebb said:
Well…
You’re right, that was just the model of polite discourse, refreshingly free of personal attacks.
At least, by Collounsbury standards. For anyone else, it would be rude and obnoxious.