My understanding is that this is seen as a cost of acquiring the right expertise. “Pay peanuts, get monkeys” kinda thing. They want the best of the best, and according to their perception these people can do a number of things with their time. Why would they work on this thing instead of their own thing, or a number of other people’s things? By choosing to work with you they close other doors in their life, so you need to both sweeten the deal and make the risk of things not working out between you reasonably low. Not so low that the expert is not incentivised to work hard for you, but low enough that you can convince someone to risk it getting in business with you.
In short they agree to it because if they don’t they can’t get the right caliber of person through the door.
The shareholders would be better off if they promised a $800m incentives-based / performance-based package (e.g. stock options etc.) than promising $80m if the CEO performance sucks.
And any CEO rejecting this offer, is a huge red flag.
A bad CEO can destroy a company in a few years. A good one can set up years of profits. But the "can" there does some heavy lifting - sometimes a CEO will walk in to a company and there just won't be any opportunities. Eg, you take over a restaurant chain then the COVID overreaction happens. Not much the CEO can do.
Long and short, I can see why a good CEO might go for guaranteed compensation rather than big payoffs for good results. They can't guarantee good results. Nobody can make that sort of promise.
This would reach crypto-scales pumping.
I don’t know about the relative ratios between the two but i believe you need both.
From a perspective of a succesfull CEO candidate with a proven track record joining your company is risky. There might be something structurally wrong with your industry, or there might be some “ticking bomb” with your business (like some hidden technological flaw, or personality conflict, or regulatory/compliance risk, or the risk of some catastrophy hitting your factories/offices) Many of these are already present before the CEO candidate joins and there is nothing they can do about them.
Basically your business might stink and “explode” in the face of the new CEO. On the other hand the CEO candidate presumably have some other options. You are usually not recruiting CEOs from the literal bread line.
Let’s think through a concrete example. You tomp is a succesfull business person and you estimate you will conservatively earn $200m in the next 5 years. You have unique skills and they offer you a chance to become the CEO of Boeing today. You have what you belive is a good plan to restore Boeing to its former glory and the pay package will net you if everything goes well $800m in the same time frame. Sounds good, isn’t it? But you are worried that some gizmo in the airplanes already out of the factory might have some flaw. Maybe costs were cut and maybe some part you have never even heard about fails, kills a few thousand people a year after you joined and tanks the whole company. You don’t know what is the chance of that happening, nobody knows. What you know is that if that happens you will earn in your estimate $0. If that happens you might need to sell off your yacth, and tell your daughter she has to drop out of that lovely swiss private school she loves so much.
Will you join?
But instead of a $80m golden parachute (failure reward), I'd offer $800m options (success reward).
Same as when normal people quit a job they don't like it's better to go quietly and be glad you are out rather than burn bridges.
The world is not overflowing with people who can even theoretically lead a $77bn company and will be acceptable candidates in the eyes of the board/shareholders. So you will need to pay accordingly if you want one.
It's like wondering why pro sports teams give megabucks guaranteed contracts to superstars. There aren't a lot of them and there is a lot of money at stake when it comes to running a successful pro sports team. So they cost a lot of money to acquire.
I am by no means defending this. Whether or not one thinks there are better alternatives to capitalism, it's hard to deny that capitalism produces some pretty crap outcomes.
Plus everything op said about capitalism and market.
I strongly disagree. It's a matter of surrounding yourself with capable people and there's a huge factor of financial inertia. I guarantee you most HN-ers could run Google or Apple for 5 years without causing their value to plummet.
I still don't necessarily disagree, but you left out the second part of my sentence which is rather significant:
"and will be acceptable candidates in the eyes of the board/shareholders."
That doesn't mean they are going to be remotely acceptable as a candidate in the eyes of the board + shareholders. Nobody is going to stick their neck out for Random HN User #587942. They are going to pick somebody with a positive track record of leading big companies.
This isn't ideal! I'm not defending it. I'm just saying why it happens. It's the C-suite equivalent of "nobody ever got fired for buying IBM."
So they have golden parachutes which say "for any reason, except fraud or other criminal actions, we guarantee you'll get $X millions when you leave".