Book Me For A Speech

My Writing and Ranting

Press Room

Good Books

« House for Sale | Main | How to Survive in New York On a Lousy $500,000 a Year »

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Oscar James

Bob I agree with your article 100% renumeration committees for executive pay are counter intuitive if they all award each other huge salaries, especially as often the reward is not warranted by a companies performance.

However I think since you wrote this article, in the UK at least, there is a slow change coming about. I noticed the CEO at Aviva stepped down after the shareholders rejected his pay package...

http://www.bloomberg.com/news/2012-05-07/aviva-ceo-pressed-to-step-down-after-meeting-revolt.html

Hopefully we will see more cases like this in future.

IFA

Its still not clear how you would go about changing the situation though, if you don’t pay your compensation experts you will not get good people, if you don’t pay well you wont get a good CEO, if you don’t get a good CEO share holder value falls wiping more value off the firm than the CEO and the compensation experts cost together!!!

tenis oakley

yes,I don't think that it is right that a CEO's salary can be unrelated to the performance of his company. Surely you should only get rewarded for success.

Annuities

CEO salaries have gone out of control and have jumped way above the rest of the population. I think companies are so keen to land THE person of their choice, they lose sight of the money they are spending.

On top of that a lot of them get paid off when they leave a company, even if they did a bad job.

bob jain

i like the picture above :))

Annuity Rates

I don't think that it is right that a CEO's salary can be unrelated to the performance of his company. Surely you should only get rewarded for success.

Compensation Payments

It seems like there must be a fine line between a boss' large salary being an incentive to employees and it creating envy and spite!

Chester Law Firm

It seems like whatever industry, they big dogs are most certainly on top, its a wonder industries like this havent collapsed with greed just like the banking sector!

Industrial Deafness Claim

'Could it be that if you want to motivate subordinates more you pay yourself more'- true, but not sure that would be your main motivation though!

Ganhar Dinheiro

It is a very controversial subject, congratulations for the post!

renda extra

Great post, i've already subscribed to your feed. thanks.

Paul

It seems to me that there was another study that pointed out the people were more motivated by the size of their boss's salary than by their own potential bonus. Could it be that if you want to motivate subordinates more you pay yourself more. This racket is too cool! Almost Ponzi like. (Its good to be the king!!)

Murthy

Great post Professor Sutton! What fascinates me (and perhaps slightly frightens me) about this discussion in the media is how rapidly we seem to be socializing and moralizing issues that we sorta didn't really care about for decades (should we have? I don't know).

Regarding the O'Reilly study, this is a fantastic study, though I don't think the results are surprising. In fact, I would hypothesize that this effect - that of a worker's compensation being correlated to his/her boss's - to be true at all levels of an organization, and not just at the top being the CEO and their board. And the fact that such a correlation exists might actually be somewhat expected - why would you ever expect that high paid managers would hire low paid employees or the reverse?

In that sense, I don't see anything "broken with the system" as some politicians claim. The CEO's job is to sell stuff to customers, give part of the revenue to employees as compensation, and give the rest of the profits to shareholders. The shareholders, represented by the board, can decide to pay the CEO whatever they deem to be fair in exchange for the profits he/she delivers to them.

Likewise, I don't see Obama's declaration to be broken as industry observers say - because the federal govt is now a shareholder, so if they want to pay someone less salary and it causes the CEO to quit or for talent to flee, the federal govt is as accountable for their actions as anyone else on the boards of these companies. Basically it all works itself out.

There are 2 things that concern me:

1) the organizational obfuscation that can occur when the link between profit generation & labor starts to weaken. Professor Sutton knows the companies I've worked for - and many of them were in the economically fortunate position to make money no matter what the employees really sorta did. This breeds a ton of dysfunction because people claim rights to higher and higher levels of compensation without really needed to justify it with results. The classic example of this phenomenon is of course govt itself - because everyone has to pay taxes irrespective of how well the govt is performing.

2) the misguided language of the Obama administration in dealing with what is now their portfolio holdings. When you become an investor, your job is to help and support companies to increase their shareholder value. Bashing them or their leadership to the public does not increase your shareholder value. If anything, it creates essentially the same emotional dynamic that any of us have when we have a jerk for a boss. So maybe a little less "I think wall street sucks" and a little more "I believe in the American financial system" would be useful for the morale of those companies as well as the morale of the country in general.


michael webster

Bob, this is very interesting empirical work as compared the knee jerk: why those masters of the universe won't work for less.

But, what if we as society gain from CEO's pushing the compensation limit because we need to believe in the superstar thesis? A false but useful story, which propels us in society much the same way a placebo attends to our mental/physical health?

Bobsutton

Nicole,

I suspect, as you say, that there is considerable incentive for compensation consultants to work with people who are paid a lot.

nicole

I loved that, in several of the articles on Obama's limits, the main dissenting opinion was from a compensation expert. Hmmm, I wonder if he was more concerned about his own salary than what's good for the companies he works for and the country he lives in. Then I read your postscript, which brought it all into clear focus. What a racket.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name is required. Email address will not be displayed with the comment.)

Asshole Survival

Scaling Up

Good Boss Bad Boss

No Asshole Rule

Hard Facts

Weird Ideas

Knowing -Doing Gap

The No Asshole Rule:Articles and Stories