"You want to be insanely rich? Here's a huge company that's not yours as a resource, now make it so it is the best one in 10 years!"
You merely need capital. Lots of buybacks are funded by debt
https://fortune.com/2019/08/20/stock-buybacks-debt-financed/
https://www.cnbc.com/2019/07/29/buybacks-companies-increasin...
https://crsreports.congress.gov/product/pdf/IF/IF11393
From the last one: "Data on the percentage of buybacks that are leveraged are inconsistent. For example, the bank J.P. Morgan Chase reported that leveraged buybacks accounted for 14% of overall buybacks during 2018, which it said was the lowest percentage since 2009. But Yardeni Research, a respected securities market research firm, reported that they were 56% of the total."
BTW, this is exactly what private equity companies do when they take a company private. They borrow a lot of money to buy the outstanding stock. Often the company they are buying with debt (held by the company) is not profitable. And sometimes the company goes bankrupt.
So yes this happens.
Or recently, government support packages.
[1] unless the holder has elected for trader tax treatment, in which case shares are marked to market at the end of the tax year
If I don't need the money, I can just let it continue to grow tax free.
This is the shitty side of many modern CEOs. But the legal and tax incentives combined with Wall Street demands create the environment for it.
Dividends are boring, we need more boring companies doing boring productive work.
Just make a contract to pay them a decent amount of the company doesnt go tits up
You want a CEO who is going to stick around and make the best possible decisions to improve the company's trajectory, even if that mostly means keeping the company flat as opposed to faceplanting.
We created that system, we can change it. CEO entitlement is part of the problem because it has become burned into our culture that they are demigods. They are not.
You could develop a financial services company selling hedges for that risk to CEOs/executives?
> alters the long term upside of your company
I don't see how this is worse than short-term stock compensation
The CEO has an incentive not to destroy the existing value in pursuit of large gains. With compensation based on the industry spread, they may as well risk any existing value as it is worthless to them.
Currently: A CEO who does nothing but keep the stock price where it is would get 2 million. If he performs as well as average, he might get 4 million. If he beats the industry, he gets 6 million.
With leveraged spread system: A CEO who does nothing but keeps the stock price stable gets 0. A CEO who performs as well as industry gets 0. If he beats industry, he gets 6.
I might join a business as CEO and it does really well for 5 years because of the previous CEO, I could claim that it is my leadership and ask for my bonus.
On the other hand, maybe I do well but my successor is an idiot and makes the company tank so now I won't get my 10 year bonus because they screwed it all up.
Unless your idea only works for CEOs who are prepared to stay for 10 years? That then brings in the complication of when you need them to leave quietly because they are rubbish but you don't want your shareholders to know!
I think the best way to address this is to provide standardize kpi monitoring.
Especially for a CEO, who has quite a bit of power to optimize for any measure, it's going to be very hard to craft a measure that gives the results you want and can't be gamed. The most likely outcome is something that's just a worse version of the stock price, because the stock price is just a forward-looking approximation of net income, which is what you'd mostly want to optimize for anyway (ignoring things like B corps).
That just encourages extreme risk.
Being a CEO is all consuming.
You don’t want to be a parent and a CEO, cause the company comes first.
You don’t want to be married and a CEO, because the company comes first.
If you could “automate” this job, the developers behind the scripts become de facto CEO. Their scripts cannot fail. They will have to make the same sacrifices as the meatspace CEO.
I dunno if it’s an Icarus thing or what, but the closer I am in interactions with ceos, the more I pity them.
Asking these people to trade their lives for the possibility of no payout seems doomed to fail. The only reason people trade their lives for this role is because it is worth the personal damage and risk.
They’re willing to endure bad work for limited pay. You don’t want this type of person leading a company.
I’ve also worked (and left) the field of gaming QA. FWIW, I’m not trying to being controversial- this is my sincerely held belief. I think gaming QA is a good foot in the door to a career in tech, but something that should be abandoned as soon as you get a feel for what it takes to work in an agile environment and make your deliverables. The gaming industry seems like the place where you go to kill your health and happiness to me. As long as people keep signing up for the work, conditions will be awful.
I do agree that the difference between a good CEO and a terrible CEO can be pretty stark - but I also think that the best CEO can't turn around a company rife with nepotism and other organizational diseases - the plebs contribute a lot more to company health than they're given credit for... That's my primary source of disagreement on CEO compensation - everyone else is being undervalued and so the creation of value is being misattributed to a CEO. The CEO should probably be the highest earner at nearly every company - but only rarely should the CEO earn five or six times that of someone in the mail room and we shouldn't see the 200:1 ratios that are relative common today[2].
1. It does have a unique exacerbating factor, every year a bunch of new grads think "Oh man, video games - I want to work on those" and thus there's a large pool of people willing to be paid peanuts to work in the field. This causes the experienced QA folks to have their labour devalued to compete with the large pool of free labour. I very much agree with your last few sentences - that's what seems to be the take-away for the gaming industry for me as well.
2. A random study - I know the numbers are in this ballpark but I'm not familiar with the specifics https://www.epi.org/publication/ceo-compensation-2018/
I could say that all German people should wear purple shirts. It doesn't much matter unless I have a proposed method to enforce it.
A more useful/practical question would be: what tools can we build to assist CEOs in their decision making and make them more productive? I think the answer will come out as "not much", since the job is so high level and abstract. You'd have a better time targeting lower-skilled jobs or technical jobs like software engineering.
They are called data scientists. An AI would be able to crunch numbers, but someone needs to read and interpret the results. You can't automate that part yet, humans are still the best in interpreting data into social and business context.
Hire people, fire people, pitch investors, manage direct reports across multiple business lines, understand what's going on in the world and market, set a product vision/direction, shape the culture of the org, etc etc. That's AGI territory.
We may be able to formulate our current understanding of what it takes to be a CEO in every feasible future context that we can imagine, and create an agent (not an AGI) that does that.
But then what would happen when the distributions change out of sample in an unforseeable way? Suppose two countries go to war and this drastically changes the operating environment of the business. The agent would need to learn how to operate with human-level capability in this novel environment which it wasn't trained specifically to do. That's why I'm thinking it requires an AGI.
1. What data do you use? Past data of the same company? Data of other companies? Which ones? Past best performers?
2. Actually identifying all pieces of information that are relevant for decision making is a challenge in itself, as we're not talking about internal metrics but also external events and trends. Choosing and collecting all these is a challenge in itself. Moreover, it is not a one-off action, it needs to be reevaluated regularly, i.e. you need to be actively looking for factors influencing the performance of the company. Mind you, not all of them are readily measurable.
3. Part of the work of CEO is creative, i.e. not extrapolating based on past events but looking for completely new avenues and opportunities. Building such a complex system would be extremely expensive, although I agree this challenge is very interesting.
Not to mention the fact that an extremely important job of the CEO is to deal with people, not just the data. This point alone can make a difference between a well- and badly-managed company.
Very creative jobs involving leading people will be the last jobs to fall to automation - assuming that's even possible.
I suspect that if an AI can replace the job of a CEO then all other jobs will be gone as well.
Such a thing would be a utopian outcome. If this kind work can be automated in a humane way, then the vast majority of work can be automated. That means people can be freed to spend every waking moment on art and play.
In a hypothetical future where almost nobody can compete with an AGI and 90% of voters find themselves completely useless in the economy, the proportion of voters who are against redistribution will drop precipitously.
Everyone is allocated the same by the state? A society where no-one has any function to society and where the state allocates resources to individuals sounds more dystopian than utopian to me...
It sounds pretty bad to me as well. Not worse than poverty, but meaningless and boring otherwise. Some people will make their own meaning, but many won't.
It could be argued that the truth is actually the reverse: it would enable most people to find a much deeper meaning, while only an exclusive few (probably mostly pathological people, like sociopaths and narcissists) won't.
Admittedly, I only have anecdotal data on that.
This means that they don't know what to do with that massive windfall, they manage it poorly or are taken advantage of, and end up unhappy. And the ones who do know what to do with it tend to do very boring things (set up iron-clad structured annuities or something, I imagine—I don't claim to have enough financial education to do it well myself!), and we don't hear about them because "guy won $500m 20 years ago, is living a comfortable but unremarkable life now" doesn't sell papers.
Note that this is also very different from how a UBI would affect people, because that would be moderate amounts of money regularly for life (y'know...rather like an iron-clad structured annuity); there's no way to "blow it" and end up with nothing.
People who inherit very large sums of money, but are not themselves born into wealth, are so rare as to be essentially a myth. There certainly aren't enough of them to make a reasonably rigorous sample size for a scientific study.
Maybe in the future the stock price of robo-CEO companies can be used as a baseline. If you can't beat the robot index, then you're fired. (Obviously this will never happen because the board members are other CEOs, but you get the idea).
Obviously the board has input on the rest of the C-suite, but it's still most fundamentally the CEO who is responsible for the team.
It's almost certain that Steve jobs or Elon musk were much more than 3-5x more productive than the next best options facing their companies, for example.
At one company, I didn't even know who the CEO was. We had some company party because we won an award and I had to ask my colleague who the guy was who was speaking. Awkward (but at least I didn't have to ask the CEO who he was).
This probably applies to many other professions. Doctors come to mind. Teachers and police don’t, though.
Mostly I think they are paid according to a compensation committee made up of board members and other executives. It's not a surprise that these people have voted for huge wage rises for each other.
It is naive to think that every other position within a company could be eliminated except the CEO. Of course it could be, and eventually you can expect that it will be. It's when humans are no longer the shareholders that we all need to be concerned. If we're still alive.
Apple has Tim Cook. In terms of investors evaluation of his ability to generate profits - let's say apple is going to do $400B in sales, and you think Tim's approach over time will yield a 3% improved margin. Is he then worth $12B/year? CEO's have enormous influence on a companies direction.
Investors will automate MANY MANY things before they automotive the CEO's job.
Let's be a bit serious. What would make Walmart investors more nervous:
1) Being asked to pay all workers $35/hr, or
2) paying the CEO an extra $1M/year?
1.6M employees * 40K+ pay increase = $64 Billion per YEAR. Let's get a grip on what
It's not so much about a little extra yield, it's about not running the company into the ground, which is far harder than it may appear.
If a CEO manages to leave the company in as good a condition as they found it, that's already worth a fortune.
Companies like Wal-Mart generally have low profit margins, because there's not much of a barrier of entry and no valuable brand or intellectual property.
Walmart's profit margin is generally 2-3% and is generally $10 - $20B per year. [1]
And if Walmart were making $100B, the comp for their CEO be far from a major expense to the corp.
EDIT: To be clear, Walmart's revenue in 2020 was 559 Billion with a B[0].
We can see on that table[1] that if we take the values listed in the "Total Revenue" row (559 Million with an M, 523 Million with an M, etc) and multiply them by 1,000 according to the directions ("All numbers in thousands") on the chart that we get a result which aligns with reality.
To be even more clear, we can take the values listed in the "Gross Profit" row, multiply by 1,000 as instructed by the directions, and see that yes Walmart's annual *gross profit* is ~130B
138,836,000 * 1,000 = 138,836,000,000
[0]https://www.forbes.com/sites/shelleykohan/2021/02/18/walmart...
Edit: yes, Walmart's revenue is 500+ billion. What does that have to do with anything discussed here? temp667's comment is correct.
Edit 2: first you didn't understand what "revenue" is, now you don't understand what "gross profit" is.
'Jesus Christ himself isnt worth 500x the worker's wages'
CEOs provide no real value, period. They also get golden parachutes even if they sink the ship.
It's inexcusable and I'll bet dollars to donuts 99% of companies don't even need one.
So it seems that the idea that a CEO could be automated misses the point of what CEOs do and how they get hired.