[davesque]

Part of OP's point though is that CEO pay is apparently not tied to performance because CEOs still get astronomical pay really regardless of whether or not their company/division performs well.

So CEOs just get paid more period. And there's this funny set of myths as to why that is the case. In reality, I think it just boils down to the fact that humans sort of instinctively (or maybe culturally?) like the idea of royalty. And so we're okay with some people just getting more for no good reason other than the fact that they're somehow anointed or divine.

[ryandrake]

You’re exactly right. Senior leadership (including CEOs) have the best of both worlds: they get the upside when the company succeeds, but none of the downside when the company fails. The worst that happens is they get fired and go make more millions as CEO of some other company. In fact, they often get upside when the company fails (what was Marissa Mayer’s exit package?)

It’s a helluva deal they got going.

[CountSessine]

In fact, they often get upside when the company fails (what was Marissa Mayer’s exit package?)

Marissa Mayer got a nice compensation package because she did well by Yahoo investors: she managed to trick Verizon into paying real money to buy the hulking wreck of Yahoo.

If you start out thinking that Yahoo could ever possibly have been saved in any alternate universe, you can get all-kinds of angry or disappointed in Mayer's performance. But if you see Yahoo for what it was, you realize she really did arrange the best possible deal that Yahoo shareholders could have hoped for.

[munk-a]

I'm not saying that's illogical or irrelevant given how the market works, but... how is this sane when considered from the benefit of society. A failing company managed to recoup some funds investors were expecting to lose by ripping off a healthy sustainable company. Why should we care about reimbursing investors like this when the whole value they add to the free market is an ability to accurately predict (and assist) in a company's growth. If that company tanks they failed at their job and shouldn't get a subsidy to continue doing their job by handicapping a healthy company.

[blattimwind]

A better example might be Carly Fiorina.

[mgleason_3]

I was at HP during the Platt, Fiorina and part of Hurd years. Prior to that experience I was as skeptical as anyone about CEO compensation, impact and contribution. How much difference can one person make?

Well, clearly a huge difference. Under Platt HP had good consistent growth, and we enjoyed record profit sharing and bonuses. Fiorina joined and managed to cut the company's value by 50% in three years. Hurd joined and the company's value went right back up. The difference in execution and competence was startling.

IDK, but the real story must surely be the board of directors (which hires, fires and sets the salary for the CEO). How can a board be so incompetent that it negotiates a severance package whereby Fiorina receives $42 Million to leave after loosing half of the company's value.

When you look at the following graph, keep in mind the Great Recession in 2008.

https://commons.wikimedia.org/wiki/File:HPQ_Stock_Price_Sinc...

[CountSessine]

Fiorina's compensation was arranged by a board that everyone acknowledged was hopelessly dysfunctional (see Mark Hurd and the spy scandal).

There's this claim that CEO compensation doesn't correlate well performance. I could see your Carly Fiorina and raise you Steve Jobs or Jack Welch or any other number of anecdotes. What's the real statistical correlation in the S&P 500?

[BookmarkSaver]

I think any connection to "royalty" or anointed status is secondary and completely tied to individual executives and their performance (or at least reputation).

What is true is the myth of individual efficacy. That a good CEO will have a successful company, and that a successful company is a sign of a great CEO. The reality is obviously that there are countless factors that affect company performance.

It's not that people think they are special, it's that we are very bad at correctly apportioning responsibility, especially when there is also a power imbalance that extends to determining that apportionment itself. We don't instinctively seek royalty (as in we assume leaders are special as a rule, though obviously in some contexts/positions we do), we seek simplicity (and pinning everything on a single leader is about as simple as it gets).

[skookumchuck]

Yet the historical fortunes of many companies are clearly dependent on their CEOs. See Apple and Microsoft, for example.

It's much like how military battle outcomes are clearly dependent on the decision the general makes, for better or worse.

[BookmarkSaver]

Well, yeah. Obviously they are important.

[dade_]

Correct. They get paid what they do because they set their own compensation. Performance has nothing to do with it, unless things get so bad they are removed.

[manigandham]

CEO's dont set their own comp unless it's a small private company, and those are unlikely to be paying millions.

[jonathankoren]

True, but also a myopic understanding of what actually goes on. Who do you think actually serve on the boards? The answer is other executives. And so there's the all too common situation where pay raises and golden parachutes are essentially quid pro quos.

[manigandham]

That situation would require 2 people to have alternate roles at the same companies which is incredibly rare, if not already prevented in the corporate bylaws.

Many board members are in entirely different industries and sectors and some only serve exclusively on boards. Many others are investors whose money is being used to pay those executives. There's also a layer of shareholders above the board and voting is required for all major decisions.

It's not as simple as you make it out to be.

[briandear]

CEOs of publicly traded companies don’t set their comp, the board does.

[lordnacho]

Board members have a portfolio of firms they are on, so they are less exposed to any single firm than staff. They are also part of the group that might be named CEO if a new one is needed, so it's in their interest to keep compensation high.

[pishpash]

The board and the CEO are people who have known each other for years.

On the other hand, I don't think that is the only source of problem. Companies have gotten way too big and the experience of running global conglomerates is simply not common. Add risk aversion to it and the same people, whether succeeding or failing, end up getting hired over and over. It's a lack of supply and lack of competition.

[dade_]

The board approves the plan and I usually let my friends have what they want.

[deogeo]

> I think it just boils down to the fact that humans sort of instinctively (or maybe culturally?) like the idea of royalty.

Until they don't: https://en.wikipedia.org/wiki/French_Revolution

[wsgeorge]

The history of France right after the revolution invalidates this. Napoleon happened. And there was a restoration of the monarchy for a while.

[baud147258]

And after the restoration of the monarchy, there was a short republic, then another autocrat, Napoleon III with the second empire.