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by nickff 2231 days ago
You're assuming that the returns to talent are linear, when they are not.

Let's say you're hiring a new CEO for Apple; how much is a 0.1% more talented CEO worth? My math says that 0.1% is worth 260 million per year.

Even though the 'best' CEO might only be a tiny bit better than the runner-up, the 'best' runs a much larger company, and makes far more money.

From this, you can see that the returns to the most talented CEOs and executives are more proportional to the scale of the largest enterprises than to the individual's talent.
1 comments
rmrfstar 2231 days ago
The cult of CEO is deeply troubling to me.

People thought Apple was going to crater after Jobs, and it was fine. It wasn't fine because it has a hyper-capable supreme leader, it was fine because it employs an army of extremely talented hard working people with a reasonably competent leader.

I assure you that Apple has several Tim Cook quality employees earning orders of magnitude less.

It's just so weird to me that we have one group of people priced at replacement cost, and another priced at who knows what? I think you would say they are priced as a multiple on surplus, but I would disagree.

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nickff 2231 days ago
The problem is loss-aversion. Are you willing to risk losing some small percentage of revenue equivalent to many billions of dollars on the bet that Cook's replacement is as good or better? Tim Cook's salary is almost irrelevant; the important question is whether he is the absolute best person for the job.

As an example: how much value did Steve Jobs add during his second tenure at Apple? Did his compensation package make a significant dent in that?

The market for CEOs is a winner-takes-most deal. Similar to what happens with music artists, the top few albums of the year sell more volume than all the rest.

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rmrfstar 2231 days ago
> The problem is loss-aversion.

Great point.

Increased risk aversion explains both the explosive growth of CEO compensation since 1960 and America's unwillingness to do bold and risky but nevertheless profitable things.

Gone are the days of [1].

[1] https://er.jsc.nasa.gov/seh/ricetalk.htm

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solveit 2231 days ago
> I assure you that Apple has several Tim Cook quality employees earning orders of magnitude less.

Sure, but do you know exactly who they are? Or are we going to take a multibillion dollar bet on someone who's only probably as good as Tim Cook?

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