Will the Credit Crisis Foster Convergence in Executive Compensation? (And Do We Really Want It To?)

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3 Responses

  1. Brian Greer says:

    I think you are wrong. I do not have a problem with a CEO involved in the founding and initial development of a company getting their big payday when they have built up a company from nothing into a major player. I get frustrated with these mercenary CEOs who appear to largely create nothing, beyond excessive compensation packages and employment contracts that only a lawyer could be proud of. These are manager CEOs, not entrepreneurs. Many of these have never created anything. They just know how to climb the management ladder and squeeze a few more pennies from here and there by riding the most recent management fad (downsizing, outsourcing, offshoring, etc).

  2. Anon says:

    Of course, Shruti is correct. The problem is not that executives are paid too much, it’s that the shareholders—the company’s owners—fail sufficiently to oversee what their managers—employees—are doing. One would be unlikely to see such owner-negligence in a small business. So, if you fail to watch what your employees are doing, and you fail to notice their bad deals, and your company goes under, the shareholders rightfully lose their equity and the managers rightfully lose their jobs. The line workers should just go work somewhere else.

  3. A.J. Sutter says:

    I agree with Brian. Some other points that Shruti seems to overlook:

    @ the disparity between CXO pay and average worker pay is much higher in the US than in other countries (esp. Japan).

    @ Also as for Japan, the people most in need of rehabilitation are entrepreneurs, especially of SMEs, who otherwise would have ruined lives after bankruptcy.

    @ Public companies face special moral hazards because of the stock option-compensated executive team. Start-up or SME bankruptcy and self-interested mismanagement of public companies are not the same thing.

    @ Most of the public ire at this moment is with financial services execs, whose behavior was particularly arrogant, as well as being fantastically stupid. (See, e.g., Janet Tavakoli’s Structured Finance and Collateralized Debt Obligations, 2nd ed.(2008).) As for the auto execs, it’s true that they too have behaved stupidly and insensitively; though I think peoples’ eagerness to see those companies collapse takes too lightly the impact on huge numbers of workers and others. Still, I don’t think forgiveness of the stupid is as important in the auto company case as is compassion for the relatively innocent.

    As for “Enormous pay packages [being] cited as the fruits of a system where any dream could come true,” this was a false impression, fostered more often than not by the beneficiaries of those enormous pay packages. What about the dreams of the line employees, for example — were they more likely to come true because the CEO was taking huge tranches of cash on joining, running, and leaving the company?

    In sum, I think one should be more careful to distinguish between small company and big public company issues, and also not to wax unduly sentimental about the loss of a false narrative.