Ridiculously Paid CEOs: Part of Capitalism or Aberration?

[warpus]

My 2 cents is that CEOs getting paid millions upon millions of $ a year is NOT good for capitalism.

You can do a horrible job as a CEO - and still end up filthy rich.. In fact, most of the times, if you get fired - you get even MORE money..

So.. where is the motivation to actually do a good job once you become one of these people?

Sure, if you do an awesome job, you're likely to stick around, get better jobs down the line, etc. But if you utterly fail, you still end up with millions.

Money is supposed to be an incentive to do a good job. In this case it doesn't really work that way. I mean, most of the times it's all about politics, knowing the right people, being in the right class/family.

I'm not advocating any sort of maximum salary, but if these people would get paid a lot less, there would be far more creativity and competition in company leadership positions.

 

[amadeus]

I think we fall into the trap of characterizing all of these people as being failures... what about the CEOs that are doing great things for their company and keeping them dynamic and growing? For every bad CEO, there's probably 100 better ones.

 

[El_Machinae]

I think that we set the compensation of a CEO too early to his success.

 

[warpus]

I think we fall into the trap of characterizing all of these people as being failures... what about the CEOs that are doing great things for their company and keeping them dynamic and growing? For every bad CEO, there's probably 100 better ones.

Well, my point was that you can succeed or fail as a CEO - and you get millions either way.

 

[Harbringer]

But the problem though is that they've come to expect ridiculous sums, and if they don't get them often and early then they'll find somebody who will pay that wage, thus were stuck in a trap of having to throw money at all CEO's, even the bad ones.

 

[MagisterCultuum]

Corporations in general aren't really good for Capitalism.

 

[Lockesdonkey]

Minimum wage is minimum.
Is someone advocating that there should be a maximum?
I think that is silly.

No.

But overall, it is a bad idea to have the corporation's leaders interests aligned with the short-term profits of the company. Unless executives are made to pay when the corporation loses money (as they are in unlimited liability companies), the only effect of linking executive pay is to make them more greedy without making them commensurately aware of risk (since they get paid no matter what). Besides, it's the job of the shareholders to worry about profits; the major concern of executives should be the long-term interests of the corporation as an institution. It's a truism that the only way to ensure a job well-done is to ensure that the person doing the job is more interested in the job than the money he/she gets for it; Plato went so far as to say that ensuring that this was true of everyone is the defining characteristic of the just society.

Beyond that, I would put forward that an antagonistic relationship between the corporation and its shareholders is preferable to a cooperative one. Having each side be incurably suspicious of the other will lead each to insist on its interests, and the leaders of each side will not collude with one another to their benefit and everyone else's gain.

 

[amadeus]

Corporations in general aren't really good for Capitalism.

So you'd rather have all major companies individually privately owned?

 

[Lockesdonkey]

So you'd rather have all major companies individually privately owned?

They'd certainly be more aware of risk. On the other hand, it does bring its fair share of problems.

 

[Yeekim]

Ridiculously paid CEO-s are certainly an aberration.
However, I believe there is very few of those actually around.

 

[Cutlass]

Ridiculously paid CEO-s are certainly an aberration.
However, I believe there is very few of those actually around.

A few 100 is all it takes to dominate the Fortune 500 companies. Which is a very large share of the economy as a whole.

A handful of them are likely worth it. But for a lot of it it is more a case of the owners not really having a say in what the CEOs make. A mutual back scratching between board members and executives combined with too dispersed an ownership lets them get contracts that simply make no sense. Where you are repeatedly seeing people given many millions of dollars for being fired for poor performance, you know the system has to be broken.

 

[GoodGame]

It's part of capitalism. Ridiculous government buyouts to pay ridiculous CEO salaries sounds like something nefarious----blackmail, graft, or something.

 

[Shadylookin]

In principle I think shareholders should set the salary and they do so indirectly by hiring a board of directors to handle it. If a CEO does a crappy job and they pay him tons of cash then the shareholders are punished for making bad decisions.

However if the government has to bail you out I think they should be forced to live on bread and water because I have no interest in blowing tax dollars on their foolishness.

If you're willing to reap the rewards then you should also accept the risks

 

[Stormbringer]

Wages are determined by the intersection of the demand curve and the supply curve for labor. If one firm chose to pay less money to a good CEO, another firm would offer to pay more. It is about the simplest economic principle there is.

 

[Cutlass]

Wages are determined by the intersection of the demand curve and the supply curve for labor. If one firm chose to pay less money to a good CEO, another firm would offer to pay more. It is about the simplest economic principle there is.

That only works in a true free market. When the boards of directors and the executives are in collusion, a free market does not exist.

 

[Stormbringer]

Any evidence for the collusion between them? Considering members of the Board usually hold huge amounts of company stock I see no incentive what so ever for them to hire a bad CEO and see the stock price plummet

 

[Cutlass]

If CEOs have a lot of power to determine who sits on the board, and how much board members get paid, and the board determines who is CEO, and how much the CEO is paid, then it would be irresponsible to assume that collusion is not taking place.

 

[Leonel]

I like the idea that there should be a ratio of pay that a CEO cannot go beyond. i.e, a 20:1 pay ratio would mean that a CEO could not get paid more than $400,000/yr if the lowest paid employee earns $20,000/yr.

Besides, what do you need all that money for anyway? You only need one house and one nice car. Maybe even two.

 

[Cheezy the Wiz]

I understand. It's just that some people, when they hear shareholders, hear "democracy".

Which is quite silly, because we all know what a democratic company is, and what a company with some participating shareholders is not.

 

[Stormbringer]

If CEOs have a lot of power to determine who sits on the board, and how much board members get paid, and the board determines who is CEO, and how much the CEO is paid, then it would be irresponsible to assume that collusion is not taking place.

Board members in general do not get paid at all by the company. They are people who own a lot of shares, or simply people taken on as advisers, and if any compensation at all exists only the Board itself determines how much its members get paid. Similarly it is pretty rare for CEOs to determine who sits on the Board, unless the CEO happens to own a lot of shares of the company. In which case it is pretty much their company and well... they can do what they want with it.