I wonder why boards don’t give CEO’s a contract in which their compensation can be retroactively clawed back if it is later decided that decisions the CEO made cost the company a great deal of money. Of course lawyers would likely be involved to determine this precisely.

In some ways, this would justify the outrageous compensation packages due to the risk implicitly involved. And, it seems to me it would align incentives a little bit better between CEOs and shareholders.

Because they're all on each other's boards. There's no incentive to do otherwise. And all they need to do is cater to wall street to maintain their positions because the vast majority of their shares are tied up in 401k funds insulating them from any oversight.

Put differently, you wonder why being able to claw back compensation isn't a business advantage. Why it isn't something that a few companies have tried and then others emulated because of the visible success.

Shrug.

Personally, I suspect that boards are focusing on business outcome, think that hiring great negotiators as executives helps with business outcome, and accept that great negotiators will negotiate great terms for themselves against the company.

No you’re absolutely right this is a huge problem. Why are C suites immune to performance reviews? It’s infuriating.

Typically the board is supposed to do that in a startup setting, not sure how that would go down at a large company

I think part of the problem, is if the board fires the CEO for doing a bad job, that suggests the board did a bad job in hiring them in the first place. So it is in the personal self-interest of board members to try to play down the CEO's mistakes, to save their own face.

Whereas, a lower-level manager – if you hire 10 people to work for you, and one of them turns out to be a bad hire, people may think you still made a good decision with the other 9. Whereas, the board only really has one hiring decision to make – the CEO – so if they make a bad decision there, they don't have anyone else to point to.

For smaller firms and startups this is less of an issue, because even if the CEO turns out to be a disaster, likely few will ever hear of it–so it has less potential negative impact on board member's individual reputations. Whereas, for megacorps, if a CEO makes a mess, everybody hears about it, and board members are more likely to be asked about it when being considered for future board positions.

Would delaying executive compensation/bonuses multiple years help mitigate these bone-headed decisions that seemingly only happen when everyone has a short time preference, leaving someone else holding the bag? (I'm genuinely curious.)

That's kind of the idea behind deferred compensation, usually in the form of stock grants (or stock options). But people are often critical of that as well, because it prioritizes boosting the stock price above all else, and of course when all the deferred comp does eventually get paid out, people get quite upset hearing about a 9-digit payday, even if it was the sum of a decade's withheld earnings.