Worst Tech CEOs Earn the Most Money 313
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."
Modify the numbers (Score:3, Insightful)
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.
Or... (Score:5, Insightful)
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.
Re:Or... (Score:5, Insightful)
This would be my first guess. Companies dumping money on CEOs may work in businesses where CEOs are rock stars, but in the tech industry it makes sense that a CEO would not be of much help if they don't have a solid technological base. It's not like other industries where good CEO-sense can take you a long way. If a tech CEO doesn't have people underneath that can tell him what the problem is, he isn't likely going to be able to figure it out intuitively.
Man (Score:2, Insightful)
correlation vs. causality (Score:4, Insightful)
not a conclusive study (Score:3, Insightful)
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.
Comment removed (Score:5, Insightful)
Two letters.... (Score:2, Insightful)
I wonder where Carly was on that list.
There's a Problem Here (Score:5, Insightful)
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.
um, what risk? (Score:3, Insightful)
Problem with pay-for-performance (Score:5, Insightful)
A big misunderstanding of why CEOs get paid (Score:5, Insightful)
Performance has little to do with it.
Re:Problem with pay-for-performance (Score:5, Insightful)
Easy money (Score:3, Insightful)
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.
Re:um, what risk? (Score:4, Insightful)
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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Re:There's a Problem Here (Score:3, Insightful)
Although the absolute return of option 1 looks superior I think you'd still choose option 2.
Actually, option 2 looks nice - $5000 is pretty good. The problem is that 90 of those accounts will disappear at the end of the year, but one will grow to $20,000 (if you pick wisely).
Re:There's a Problem Here (Score:1, Insightful)
False. If the 10% CEO ran the $10B company, he would generate $1B for the shareholders of that company, so he's still 10 times better than the 1% CEO no matter where he works. Basically, the market will simply tend for the 10% CEO to work at larger companies because they can afford to pay more. Unfortunately, CEOs are not plug and play. They have to know the industry and have contacts to be effective, so it may be that a 10% CEO is still better off at a $100M company.
Re:um, what risk? (Score:5, Insightful)
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.
Re:Or... (Score:3, Insightful)
True. Remember Carly?
Entitlement society (Score:4, Insightful)
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.
Re:um, what risk? (Score:3, Insightful)
If he is on a beach somewhere enjoying his money, I do hope his conscience won't let him. Unfortunately, I doubt he has one. Jails are for people like that. Or public floggings when he is found.
Re:um, what risk? (Score:2, Insightful)
The regular guy becomes homeless, pulling food and shelter from.. not friends or family as you can't always count on that, and not the government because they don't really help, but from homeless shelters.
As opposed to working a single year as a CEO and living better for the rest of your life than most working-class folks.
Seriously. 7mil over 70 years = 100k a year. Compare that to the guy making 30-50k a year losing his job. WORLD of difference. That's why, succeed or fail, they'll always be OK. They'll always be more comfortable, even if they only work 1 year, than their workers.
Re:um, what risk? (Score:3, Insightful)
If you want to compare someone with 7 million dollars to someone who makes 40k a year, then why not compare the 40k/yr joe sixpack with an average Somolian.
The GNP per capita of Somolia is about $600 (compared to $41800 in the US). This means that this 40k/yr American probably makes more in one year than a Somolian does his entire life. Very similar to the difference between a CEO and lower middle class American. Does that mean "who fucking cares" if this American with a family loses his job, because at least he makes more than a Somolian by just working part time at KFC?
While I agree that a CEO does not risk as much as the average person, it does not mean that their risks do not matter. They worked hard (or at least their family did), to get to the position they are in. They deserve to live their dream, with their mansion and two vacation homes, just as much as joe sixpack has the right to make 50x the income of an average Somolian.
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Re:A big misunderstanding of why CEOs get paid (Score:2, Insightful)
Carly Fiorina.
Re:Or... (Score:5, Insightful)
Of course, I'll go to my grave not understanding why someone who makes more in a year than my whole family will see in my lifetime gives a shit about his resume. Isn't there such thing as "enough"? Give me a $7M golden parachute and I'll spend the rest of my days snorting coke out of supermodels' cleavage on my private island, wiping my ass with however many copies of my resume I still have around.
Seriously, it's disgusting that someone who's basically holding the wheel of a sinking ship gets paid that much. I'm pretty sure I could drive the final nails into a dying company's coffin with the skills and training I have now. I could also plow a stock car into Turn 1 at Daytona. Where's my seven mil?
Re:There's a Problem Here (Score:4, Insightful)
All you are saying is that it is better to get a 10% return than a 1% return on your money, and I certainly don't disagree with that. But you will notice that your example has absolutely nothing to do with the CEO pay. You would want the invesment that returns 10% no matter what the CEO was paid, wouldn't you?
So let's introduce CEO pay into the equation. If you invest $10K an earn $100, a 1% return, you probably wouldn't be too happy, but you would accept that the person managing that money deserved something for his trouble, so perhaps you're willing to pay him $5. If you invest $10K and earn $1K, a 10% return, you're probably much happier; let's say you're willing to pay the person managing that investiment $50. If guy that returns 1% manages a $10B pool of $10K investments and each one pays him the same $5 fee, he earns $5M. If the guy that returned 10% was managing a $100M pool of $10K investiments and each one payed him $50, he only earns $500K. Notice that everyone here pays and gets payed in proportion to what he produces, but the guy who earned a lower percentage returns still earned more, because he managed more money. See how that works?
Re:A big misunderstanding of why CEOs get paid (Score:3, Insightful)
So which CEOs aren't overpaid? None of them, of course :) I think CEO pay is just a cultural thing. There's only 1 CEO, so their pay isn't much of a competitive disadvantage on a company, almost no matter how inflated.
Re:Or... (Score:3, Insightful)
A poorly performing company with little future will only be able to hire and retain top management by throwing money at them. No savvy CxO wants a sunk ship on his resume.
So why not go into the trenches and grab someone normal who has company spirit, a good track record in business results and not gamble on a professional self centered CEO that is so full of BS. People near the bottom are used to getting results and not having to BS it up. If you grabbed a senior underpaid tech that invests in the stock market he probably knows more about how to read financials than the CxO. People at the bottom know who at the top are lard asses.
Lets look at a case in point, NorTel. They get Paul Stern, the turning point of a good company. This PhD butt kissing puke ran down other companies before starting NorTel but nonetheless the board hired him all the same. His hype was known to all and in the technical ranks and we all knew he was an ass hole and quite "out to lunch". He walked away after 4 years of disastrous service with just under a million a year from the company pension plan. Which by the way is being reduced today for grunt workers as it was under funded by the board's stupid expensive CEO choices. And if you quadrupled the grunts wages, he would do it for much less than a million and be so happy about it.
Where the real problem is in the board of directors. Hand picked "good boy" professional butt kissers picking the "good-boy"s. They deal in favors and dysfunctional politics and little to do with the company's development. They spend so very little time on profitability, integrity and tangible results they waste shareholders money and often bankrupt companies by giving too little constructive direction.
This is why new startups, those not built on hype and "quick" bucks tend to succeed. Looking back, Ray Noorda (Novell), Bill Gates (Microsoft), Stanford students (Sun) and Steve Jobs (Apple). None of which had a million dollar salary in their prime. It is when MBA's and controlling direction each company hit their zenith. Or when the founders decided it was work, no longer the lust of life or left then the companies went south.
The big problems are in the board room.
Agents, Lawyers and Contracts (Score:3, Insightful)
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).
Re:Or... (Score:4, Insightful)
Hell, some of them repeatedly run ventures into bankruptcy and are still able to secure financing for their next abomination. Donald Trump comes to mind in this regard.
Re:Or... (Score:3, Insightful)
Destroying his local economy...
Another problem with the study... (Score:1, Insightful)
This uses the "value of stock grants", which I assume to be a Black-Scholes calculation on the estimated value of stock grants. This calculation is based on number of options, stock volatility, terms, and some other factors. Bottom-line: Black-Scholes gives higher values to stocks with higher volatility. Poor-performing companies generally have a higher volatility and thus the option grants have a higher value per option.
Re:libertarianists (Score:3, Insightful)
Is it really? How do you quantify value? How do you choose it? Is it equally ludicrous that we have "argued" (which is a strange verb to use for a free market) that a set amount of protons, neutrons, and electrons, conviently in the form of an ounce of gold is equal to about 650$, whereas roughly the same number of protons, neutrons, and electrons in the form of an ounce of oil is worth about two cents.
If I may argue against both you and the entire slashdot groupthink for a moment... does it occur to anyone that the reason shitty CEOs fail and their companies crash and burn is because they suck at their job... and therefore it's just the free market doing what the free market does (please spare me the "THINK OF THE WORKERS THEY SCREWED!"). Somewhere, some other CEO who is running his company smarter, is making alot more money for his company and himself, and making alot more jobs then that CEO just lost. Maybe that CEO pays himself less because he is smart. Maybe he doesn't. Maybe it doesn't matter (ie 5 million in a billion dollar company). Maybe this is all a bunch of envious garbage based on bad economics and a feeling of self-righteousness. Everyone likes to think of CEOs being greedy douchebags who screw everyone and get rich.. why.. because we all need our boogeymen. That's just simple people groping for answers. The real reason CEOs make alot of money is because someone is willing to pay them to do it. If they were completely useless, companies could save X million a year by not paying them, and someone would have figured it out by now.
Did it ever occur to anyone that, on average, CEOs create jobs, grow companies, and increase wealth of themselves and others? Evil sons of bitches.
Re:um, what risk? (Score:4, Insightful)
But then, you know all about hanging around under a bridge, don't you...
Re:Or... (Score:2, Insightful)
So... murder them, say, with a long range rifle. Start a revolution.
Re:libertarianists (Score:2, Insightful)
Additionally, one argument about the growing discrepancy that's amusing is comparing incomes of the highest and the lowest % of people. In fact it could even be argued that having a large percentage of people earning very little is a good thing!!! How? Well consider a middle class worker 50 60 years ago. They generally worked till close to the end of their life. Many middle class workers today don't! There are more important things to them then money, and so they chose to live off their savings instead.
The rich are getting richer and the poor are getting poorer arguments also fail when you go beyond raw statistics and look at the people. First of all the upper 1% are getting richer faster than the poorest 1% etc. This is true, but is it bad? If the rich gain 20% and the poor gain 5% is it bad? What if the alternative is the rich gaining 5% and the poor gaining 2%? Or, if we want to be communistic we could have the rich lose 10% and the poor stagnate (although in reality many communist countries ended up slaughtering too many people for those statistics to be meaningful). Examining the people involved in these studys, it's interesting to see what percentage of the people in the bottom 10% 10 years ago are still in the bottom 10%? Same with the upper 1% or 10% or whatever. I know from observation most people tend to make more money as they get older, hence they tend to climb up to the higher income brackets.
All these statistics add up and show that maybe there really isn't a problem. The problem is the people in the bottom 10% that are still there 10 years later. Most of those people tend to be a result of government programs. It's fair to say that far more people have been kept in poverty by the governments policies (drug war, affirmative action, etc) than have been helped by government programs (the only exception to the rule that I can think of is the military, as it generally offers the disadvantaged an oppurtunity to earn skills and discipline if they don't get blown up in the process).
Phil
Comment removed (Score:4, Insightful)
Well, Duh ... (Score:3, Insightful)
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.
Re:Modify the numbers (Score:5, Insightful)
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.
Re:Problem with pay-for-performance (Score:3, Insightful)
I'd call it "Money is the solution to everything -- including cluelessness."
We all know politicians do this, but it's common enough in business too.
Supposing you're on the board of a company. You don't really understand what the company does or needs to do. You don't understand the business well enough to know whether that bright, affordable, but rather dull candidate knows what he's talking about. But Mr. Slick -- ah, he's slick. He wants a ton of dough, but of course, money is a solution to anything. Specifically, it is an article of faith with you that holding money over people's heads will get them to do whatever you want. So, you hire Mr. Slick, planning to fire him if he's fooling you, except that since you are an idiot, you don't figure out in advance that letting the world know you've been an idiot is something your future self is going to be reluctant to do. Just to be sure, you make most of Slick's compensation dependent on meeting certain performance criteria. Unfortunately, you have no idea of how to tell if the business is on track for future success, which means the performance criteria you use are short term.
A well run company shouldn't pay more than most other companies for anything -- including CEO salaries. Unless the CEO establishes a long term track record of unusual success, if he's paid a lot more than his peers, that prima facie evidence the board doesn't know what it's doing. Performance based compensation isn't necessarily bad, but it's not a solution to creating shareholder value either.
Re:What this study really shows... (Score:3, Insightful)
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.
Re:libertarianists (Score:3, Insightful)
And?... cause I do all these items as well. The difference between a good manager and a crappy manager is a big one, and it applies all the way up the chain of command in a company, but CEO's dont magically create jobs or grow companies. There is no excuse to pay someone over a million dollars in SALARY. In fact, I would think anything more than a half mil would be excessive. -I- create jobs and grow the company. The ideas and descions that come down from the CEO's I've worked with/for have yet to ever strike me as anything other than common sense.
Now, I'm not saying I could be an effective CEO, because I simply dont have the management skills. In my opinion, 98% of what makes a CEO good is their management skill. But! Management skill doth not a multimillion dollar salary entitle.
That CEO does an extrodinary job, give em a bonus. Say, 20% of their salary and a nice 10% raise. That would be the best anyone else could ever hope for. I'd be happier than a pig in shit if someone gave me a $100,000 bonus on top of my half million dollar salary.
Paying seven million dollars PER YEAR for a CEO is downright stupid. At that point, as another poster said, you are really just supporting the "ruling class" mentality. Here comes the marxist in me, but nobody has any realistic use for accumulating that much wealth.
Re:Modify the numbers (Score:3, Insightful)
Re:Modify the numbers (Score:3, Insightful)