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Old 03-07-2014, 10:49 AM  
KC native KC native is offline
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Big Company CEOs Just Aren't Worth What We Pay Them

I have not read the paper yet, but here's the link.
http://d1c25a6gwz7q5e.cloudfront.net...rong-paper.pdf

Forbes summary follows.

http://www.forbes.com/sites/mattsymo...t-we-pay-them/
Big Company CEOs Just Aren't Worth What We Pay Them

It isn’t every day that academic research comes along to tell you something you really wanted to hear and that you suspected was the truth all along? In this case it’s about the long running debate around top executive pay.

A recent paper by J. Scott Armstrong of the Wharton School and Philippe Jacquart of France’s EMLYON, seem to have finally established that paying top dollar simply doesn’t get a better job done. And, in fact, it might actually get a worse one done.

According to Armstrong and Jacquard, while there is plenty of evidence that financial incentives can be effective in motivating people to do mundane and boring tasks, individuals do the more interesting and challenging stuff…well, because it’s interesting and challenging.

Perversely, they say, very large financial incentives may actually hinder top performance. The paper argues there is strong evidence that individuals can become fixated on incentives and either become limited in their thinking, unable to digest and adopt new ideas or alternately become convinced that they will achieve the goal automatically so do not need to try as hard as they might otherwise. Whatever the outcome, every other stakeholder from the more modestly earning employee to the corporate stockholder loses out.

And finally the research also suggests that we might not really be getting the brightest and best talent at the top because the tools and processes used to identify candidates are either limited or downright faulty. There is simply too much emphasis on past performance, personal recommendation, unstructured interviewing, an unwillingness to ask really difficult and searching questions and that more dangerous selection criterion of all – gut instinct. Worryingly, it seems that the headhunters and in-house recruiters charged with hiring occupants of the corner office may be relying too much on perception and too little on good, hard facts. The paper points out that CEOs who win prestigious industry awards constantly out-earn those that don’t. Yet the stocks of the companies the award winners head up consistently underperform in comparison to those of their less publicity hungry peers. Perhaps because the latter spend their time running their businesses well instead.

So far, so good. I’d never quite got the fact that a CEO might be worth several hundred times the average person working for them (around 380 times, according to estimates from the AFL-CIO as recently as 2012.) But what do we do about it?

Unlike many academics, who might shy away from coming up with a solution, EM Lyon’s Jacquart is one willing to give the obvious if uncomfortable answer – namely that current incentive models need to be abandoned and overall executive pay should be reduced. And he’s also ready with a counter to those who will doubtless argue that this will make it impossible to recruit the right people and bring major banks and corporations crashing to the ground. “Yes, of course this may make it more difficult to recruit very senior individuals from outside an organisation, at least in the short term. However it would force businesses to focus more on the development of the talent it already has, the talent that is more likely to be more loyal to and understanding of its aims, goals and methodologies.”

As the old Bob Dylan lyric goes, “Don’t follow leaders.” And if Messrs Armstrong and Jacquart are right, don’t pay them quite so much either.
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Old 03-08-2014, 09:10 AM   #16
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Originally Posted by petegz28 View Post
I've been saying this for years. It's ****ed up but as Amnorix points out, there is really little you can do about it. It's the 1% taking care of the 1% and nothing more. CEO's and executives don't have much incentive in the way of good performance when they know they are going to walk with 7 figures at least for a bad performance.
Well, we could go the German route and place ordinary workers on the Board of Directors to stick up for ordinary workers.

Worker Councils could help.

/great article, thanks for posting it KC
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Old 03-08-2014, 09:49 AM   #17
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In the Star today, it is reported that Sprint CEO Dan Hesse ,made 4 x his salary last year. He was compensated to the tune of $49 million. Sprint? Holy shit!
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Old 03-08-2014, 12:01 PM   #18
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In the Star today, it is reported that Sprint CEO Dan Hesse ,made 4 x his salary last year. He was compensated to the tune of $49 million. Sprint? Holy shit!
Dude, let me tell you how ****ed up it is at Sprint. In 2009 when I and 10,000 others got laid off, 1 month after my layoff they announced the new package for the CFO to keep him around for 1 more year. That package included a MONTHLY cash bonus of $650k plus millions in stock options. So as a bonus in cash alone the guy made over $7 mil. This is an executive of a company that was laying people off by the thousands because they weren't and still aren't making any money.

I have refrained from using Sprint as examples in my posts of late due to an admitted bias. But I think you see the point here with Hesse. He made $49 mil but the company didn't make dime #1.
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Old 03-08-2014, 12:52 PM   #19
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Well, we could go the German route and place ordinary workers on the Board of Directors to stick up for ordinary workers.

Worker Councils could help.

/great article, thanks for posting it KC
Or you could with the free market way instead of the government jackboot way and simply not purchase the companies products or stock, and reject any job offers that company might make to you.

No one is forced to buy a companies products, stock, or be employed by them.
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Old 03-08-2014, 03:46 PM   #20
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Or you could with the free market way instead of the government jackboot way and simply not purchase the companies products or stock, and reject any job offers that company might make to you.

No one is forced to buy a companies products, stock, or be employed by them.


Just flies right over your head.....

As long as you are cool with things like Obamacare, higher participation levels in food stamps, unemployment, etc., then keep on preaching the "free market" scam. The "free market" is screwing the "free market".
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Old 03-08-2014, 04:10 PM   #21
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we don't pay them anything. They pay themselves and everyone else. What a dumb thread from a dumber poster.
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Old 03-08-2014, 04:21 PM   #22
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Originally Posted by petegz28 View Post
I've been saying this for years. It's ****ed up but as Amnorix points out, there is really little you can do about it. It's the 1% taking care of the 1% and nothing more. CEO's and executives don't have much incentive in the way of good performance when they know they are going to walk with 7 figures at least for a bad performance.
Yeah, it's ludicrous to assume that CEO pay is in any significant way related to free market competition. If you envision a CEO's job duties, you could hire consultants for each duty who are going to present a far more capable set of skills for 5% of the price. You've got to have someone at the top who makes the final decision, but that's not worth the extra $40+ million per year.

Either boards of directors are dummies are it's some big game. I'd lean toward concluding that it's a big game. At big companies, board members themselves make 6 figures for a handful of meetings each year.
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Old 03-08-2014, 05:46 PM   #23
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Yeah, it's ludicrous to assume that CEO pay is in any significant way related to free market competition. If you envision a CEO's job duties, you could hire consultants for each duty who are going to present a far more capable set of skills for 5% of the price. You've got to have someone at the top who makes the final decision, but that's not worth the extra $40+ million per year.

Either boards of directors are dummies are it's some big game. I'd lean toward concluding that it's a big game. At big companies, board members themselves make 6 figures for a handful of meetings each year.
It's a big game. Many directors serve on multiple boards as "independent" directors.
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Old 03-08-2014, 06:43 PM   #24
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Old 03-08-2014, 07:59 PM   #25
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Just flies right over your head.....

As long as you are cool with things like Obamacare, higher participation levels in food stamps, unemployment, etc., then keep on preaching the "free market" scam. The "free market" is screwing the "free market".
Government intervention into the market is screwing the market not the market itself. Obamacare is screwing up the health insurance market which was already screwed up by government intervention. Same thing with unemployment, food stamps etc.

Government trying to steer behavior through taxes and regulation is why companies pay executives the way they do now.

There are thousands, perhaps millions of ways that government intervention into the market has made everybody poorer.
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Old 03-08-2014, 08:03 PM   #26
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Government intervention into the market is screwing the market not the market itself. Obamacare is screwing up the health insurance market which was already screwed up by government intervention. Same thing with unemployment, food stamps etc.

Government trying to steer behavior through taxes and regulation is why companies pay executives the way they do now.

There are thousands, perhaps millions of ways that government intervention into the market has made everybody poorer.
Fringe nut job is fringe.
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Old 03-08-2014, 08:07 PM   #27
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Originally Posted by GloucesterChief View Post
Government intervention into the market is screwing the market not the market itself. Obamacare is screwing up the health insurance market which was already screwed up by government intervention. Same thing with unemployment, food stamps etc.

Government trying to steer behavior through taxes and regulation is why companies pay executives the way they do now.

There are thousands, perhaps millions of ways that government intervention into the market has made everybody poorer.
I'll be the first to support you in the argument that the Fed Gov is ****ing things up about as much as they can. That being said, so is the "free market".

The reason executives are paid what they are now is because the board room is now a Boy's Club and they scratch each others' backs. Boards are not concerned with what is best for the company nor the shareholders outside of the large institutional investors. They argue they have to have these lavish pay packages to attract talent which is pure bullshit. The ratio of CEO:Employee pay has gone from roughly 80:1 in 1980 to 300+:1 currently.

The Right and 1% supporters can spin that shit all they wish but that is the fact.
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Old 03-08-2014, 08:09 PM   #28
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Fringe nut job is fringe.
Explain how the application of government force does not distort the natural workings of the market then?
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Old 03-08-2014, 08:12 PM   #29
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Originally Posted by petegz28 View Post
I'll be the first to support you in the argument that the Fed Gov is ****ing things up about as much as they can. That being said, so is the "free market".

The reason executives are paid what they are now is because the board room is now a Boy's Club and they scratch each others' backs. Boards are not concerned with what is best for the company nor the shareholders outside of the large institutional investors. They argue they have to have these lavish pay packages to attract talent which is pure bullshit. The ratio of CEO:Employee pay has gone from roughly 80:1 in 1980 to 300+:1 currently.

The Right and 1% supporters can spin that shit all they wish but that is the fact.
Ratio of CEO to: whatever…..its always 1:X


Jesus Pete.
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Old 03-08-2014, 08:16 PM   #30
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Ratio of CEO to: whatever…..its always 1:X


Jesus Pete.
Once again you seem to want to avoid the argument by making a pretty senseless statement. It's the degree the ratio has reached that is the problem. You can spout off the Limbaugh\Hannity bullshit all day long or buy into it or whatever it is you do. You have very right to do so. Just don't bitch about all these welfare programs you hate paying for, is all I am saying.
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