I suspect that a CEO has a lot more impact on the board than she has on the company as a whole, and it's this impact that boards are really reacting to when they judge a CEO's performance. Unless someone has been in the position for a very long time, it's difficult to attribute a company's long term success with the actions of its CEO. There are just too many variables. Boards want to hire someone with a resume similar to their own (ie, experienced and wealthy), and by definition that is going to be an expensive pool of prospects regardless of their individual management qualities. In reality there are probably a lot more people with the inherent skills to be successful CEOs than exist in that exclusive pool, but since the boards don't really know what makes a great CEO (or even whether there is any such thing) they fall back on the basic instinct to stick with their own kind. This is one of the contributing factors in the increasing concentration of wealth that we observe in our economy.
Re:No CEO is Worth Their Multi Million Dollar Paycheck. Exce...
by vannevar on Monday August 29, 2011 @01:42PM
(#2938044)
If you have ever served on a board of directors you will get a much better appreciation for exactly what the CEO adds or doesn't add to the company's value.
Re:No CEO is Worth Their Multi Million Dollar Paycheck. Exce...
by alain94040 on Monday August 29, 2011 @01:05PM
(#2937882)
Trust me, I understand why they are compensated so highly, because it's a free market. I also understand that really, the boards are to blame. But there are structural issues that protect the CEOs from a more efficient market. Shareholder voting and board lock-in are real governance issues that make it harder to fire underperforming CEOs.
There is a fairly aggressive "CEOs are paid too much" meme about and while it sounds great to someone who can't get a job, if you look at it objectively there are few contraints on the board with respect to CEO hiring. And contrary to what folks might say, CEO compensation is a mix of salary and stock generally so if they suck at the job part of their pay auto-magically evaporates.
alain94040 uses the disparaging "so many public companies that are run by MBA-type consultants" which is false. There may be such types running the company but if they are it is the desire of the board that they be run that way. People who take the job generally try to do it to the best of their ability I've found, but my experience is limited to a few dozen CEOs I've actually gotten to know over my career.
Getting an MBA costs maybe $150K at a top executive-MBA type program, if you could pop one of those off and get a million dollar salary do you really think folks wouldn't be lining up? If all it took was the MBA then the MBA market would show huge inflation as the demand would far outstrip the capacity of the system to provide diplomas.
If you don't understand why someone is compensated the way they are that is one thing, to assert they are not worth their compensation when you don't understand why they are compensated in that way, that's just a lack of understanding showing through.