The fact the salaries are tied to profit and loss does not establish that those who are paid the salaries actually caused said profit and loss.
You’re making a few assumptions of your own.
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So you are saying I can get a 30% chance of a statistically significant positive effect on the company by hiring the right CEO? That’s a pretty good investment.
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I would imagine whether or not it’s actually a good investment would depend on the effect size, the size of your company, and the amount you’re paying for a CEO, wouldn’t it?
of course the real question in connection with P&L and thus CEO salary is:
What is measured and how?
e.g. BP CEO pay pre / post Deepwater Horizon: Presumably CEO pay pre disaster was linked to P&L post disaster hardly. The CEO & his descendants would be liable for a pretty huge chunk of money for a considerable time to even remotely cover the loss. BP of course had numerous other Safety disasters (I say Texaco City and the CEO in charge at the time has given us reports on UK Higher Education and various other highly paid opinions and the costs (human and otherwise) of his short sighted leadership have been miraculously written out of his CV.
Should I also mention RBS and Fred Goodwin, who last time I looked is still not covering the cost of the losses incurred under his leadership and is also not living in poverty.
It wIll also be interesting to see who among the VW CEOs (Germany / US) will pay for the cost incurred by the damage their brand suffered under their leadership…and I could go on and on and on.
Point is P&L is measured along the lines of short term (annual) easy to measure financial outcomes but CEO disasters often have slow build up and can have financial repercussions for generations to follow which are hard to assess and even harder to measure–and conveniently for CEOs can so easily be ascribed to force majeure.
And somehow CEOs are not covering the cost.
As to having to be in the “business factory” to comment on “business factory” (will adopt this brilliantly enlightened terminology). Distance can be a very good thing, when it comes to critical re-evaluation of systems.
On the other hand having a vested interest in the game e.g. making a living from training highly paid CEOs could possibly lead to certain confirmation biases.
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Most CEOs, particularly the ones who have had nothing to do with the genesis of the company or even the industry involved, are hired specifically to make executive decisions based on what will make the stock price look better each quarter. This means making decisions that weaken the company over the long term.
Meanwhile, other than IPOs (and occasional follow-up offerings), the value of a company’s stock is not actually tied to the company. There are secondary effects (more favorable rates from commercial banks, as an example), but it’s not like changes in the stock price are added to either the expense or profit side of the company’s financials. It’s basically just a marker for what people THINK about the value of the company.
So even when CEOs are doing their job “right”, it’s the wrong job to do. It’s about making money for stockholders, instead of concentrating on making the company strong for the long run.
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Quite possibly.
I compare the CEO to the top striker in Football.
Could be due to chance.
Can’t be shown to add value
[quote=“doctorow, post:1, topic:68027”]
Fitza’s findings reveal how previous studies tend to “wrongfully attribute the effect of random fluctuations to CEOs” suggesting it is difficult to differentiate between the effect of chance and real leadership skills. [/quote]
It’s difficult to differentiate.
See a pattern here? I know I should expect it from Mr. Doctorow, but the headline (sigh, once again…) doesn’t reflect what the study says. Unless I’m reading it wrong (I’m always open to that), it’s not that 70% is attributable to random chance, but rather that a certain amount might be random chance, or might not be, but that previous studies haven’t accurately separated the two. It’s saying that the number might be somewhere between .01 and (over) 70, but it’s difficult to accurately measure, and he’s not claiming to have measured it; he’s only stating that past measurements had this weakness. Yes, this has implications for CEO pay (to the extent that the people who make those decisions would pay any attention to this stuff), but the headline is not what the abstract says.
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It’s puzzled me why the average investor rarely takes takes an active interest in the management of companies whose stock the investor owns. The investor will likely take an interest in who is elected to political office and the performance of various sports teams however. Is it because the investors are all too often isolated from the companies in which they invest through mutual finds and pension plans?
The appropriate way to question it, of you’re going to do so, it to check their math. If their math holds up, maybe you should be questioning your interpretation of your experience instead.
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My experience working under a CEO in a Fortune 500 company with a household name: CEO sends weekly emails calling for “revolution” and “grassroots movements” for positive service to customers all the while saying that we are all “one big team” even though huge chunks of the company are outsourced to various sweat shops around the world, and half of the employees are so-called “permatemps,” or “temporary” contractors employed on an indefinite basis at lower pay, without benefits. Every few months the CEO sacks or moves some VP, and the replacement institutes arbitrary, sweeping changes, leaving the real workers to clean up the mess. I couldn’t really care less if such CEO’s have a positive or negative impact on the companies that they helm; the fact is that they personify everything that is immoral and oppressive about contemporary capitalism.
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Lol, p-hacking! I guess it’s been around since before impact factors were a thing.
Your average feudal castle was probably much better at playing the long game and making sure everything worked…
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So you’re saying the American dream is a lie to my generation? Cuz, I can roll with that. I’m pretty sure my parents never understood what they attempted to teach me from day one.
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Based on my understanding of statistics and interpretation of the headline, I propose hiring CEO Coin F. Washington (the F. is for Flip) for a guaranteed improvement to 50% success rate in each decision. And a total cost of only $0.25.
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A top striker does not make a successful football team on their own, you need to be able to create and score goals from anywhere on the pitch. Being reliant on one star player is also a liability if you lose them for whatever reason.
Besides, it looks like a good few CEOs are closer to the level of Ali Dia than Lionel Messi.
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If I ever own a huge company (snowball’s chance of that) you can bet that I’m going to milk as much cash out of it until the walls bleed, while simultaneously putting back in as much as needed to improve it and keep it running smoothly. But that’s because I’ll be the owner and it will be my creation. These odd people who have never owned anything are figureheads, largely, who might have good acumen for running things. The problem is that they aren’t creators, so they don’t understand all the first stuff which is really the hardest part.
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The cry of many a flim-flam artist and huckster.
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You forgot about Haji diouf.
And yes, strikers, like CEOs are part of a team.
