Best-paid CEOs perform the worst


#1

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#2

Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.

~ John Emerich Edward Dalberg-Acton


#3

regression to mean.


#4

How else are stunted, inbred, privileged, sheltered, silver-spooned corporatists going to think they hit a triple after being born on third base?


#5

Is it that there has been a tremendous loss of rationality in our society and if so what can we do about it?


#6

Completely true. Sad - but true.


#7

Do something about all the brainwashing.


#8

The authors propose that sky-high pay leads CEOs to be overconfident

I can’t help wondering if it isn’t it also an indicator of the general health and well-being of what are essentially wrong thinking companies. They place far too much faith in these figureheads and at the same time not enough emphasis on their products, services and workers. So while these overpaid whales are less competent and their ongoing performance serves to negatively impact the companies they work for, they may be a symptom rather than a cause.


#9

Well, yes and no.

In most large companies there are huge numbers of business units that are well established and it doesn’t matter so much what the crazy CEO does. . . as long as they don’t try too hard to influence the rest of the company too much they just end up being a big drain on cash.

When they do (I was at HP when we had Mark Hurd) they do make the rest of the company suffer admittedly, and a bad CEO can certainly make a good company less competitive . . . but often it’s just one or two business lines that suffer the most.

It’s still an awful thing and there are very few CEOs that are more valuable to society than your average nurse or more valuable to their own company than a large number of individual DBAs, troubleshooters, analysts, and such that nobody ever hears about. . . but there’s certainly no ‘survival of the fittest’ going on. They’re not playing the same game and they’re too sheltered from actual corporate operations.

There are exceptions, of course . . . but that’s the general rule. . . the more you care about money and power once you have a good standard of living the more useless you tend to become over time.


#10

where is @gvfarns?


#11

So basically, too much money brings on the Dunning-Kruger effect?


#12

That and a whole lot more.

You’ve got a few different dynamics going on

Firstly, we’ve got a nice little cognitive bias that causes people to perceive individuals who make firm, confident statements as more competent than they are (i.e. most pundits and politicians). Meanwhile being reasonable, thoughtful, changing your opinions, and saying ‘I don’t know’ tend to come across as less so. Corporate leadership is generally political and individuals with pathologies that lean heavily in that direction can tragically ‘bubble to the top’, and since people in upper stratas choose who gets elevated to higher levels it tends to feed itself.

And there’s plenty behind the 'Power Corrupts’ maxim. A lot of those individuals would be more bearable in positions without power, the power just causes them to relax the ethical boundaries that were holding them in check.

But there’s something more tragic going on, because there also are a large number of CEOs and other individuals in power who were once extremely competent but lose touch with those skills as they advance in power. I’d have to dig up the research, I remember it being called the ‘Paradox of Power’ by some but that’s probably not great from the standpoint of keywords.

And then on top of all of that there’s the addiction aspect. There are individuals who are more prone to becoming addicted to the feeling of power and they’re both the most likely to strive for it AND the least qualified to wield it when you have it. It’s a dopamine addiction.

Basically people are complicated and it’s a big ol’ messy LARP where those annoying drama-queen power gamers have all of the advantages, the board never resets, and there’s no other game in town so everybody’s forced to play this crappy one over and over again.

There are still some really good people who end up on top of large corporations, don’t get me wrong. . . in fact they’re generally downright awesome in other ways because they don’t have the flaws that provide them with all the inherent advantages. . .but they’re tragically not the majority.

You can still hate the players who win by being awful people . . . but the real problem is the game.


#13

What compounds this is a reasoning I encountered most often from US americans:
Someone earns/has a lot of money = he is doing something right = he is right
(and everyone else should stop being envious and just work harder).


#14

Makes sense to me. After a certain point, excessively high pay ceases to be an incentive. There difference in lifestyle between somebody earning 20mil and 25mil is effectively nonexistent.

Oddly enough, companies may have a stronger incentive to pay their CEOs more than CEOs have to get higher wages. All else being equal, a company that’s paying it’s CEO 25mil is going to look stronger to investors than one that pays it’s CEO20mil. After all, a CEO making that much more must be that much better, right? And the fact that the company is making enough pay the CEO that much more also suggests it’s doing better off.

Using the wages of high-profile positions as a marketing ploy might seem a bit odd, but I’d be amazed if it wasn’t a standard practice, given how much money corps spend on branding and the like.


#15

what can we do about it?

Here’s a start…


#16

Ceases to be an incentive for any sensible person, you mean. It is more like getting a high score.

And an excellent addition from Frank Herbert: “Power attracts the corruptible. Suspect any who seek it.”


#17

Funnily enough, the incentive just changes. They move from improving lifestyle to competing against other high paid people. Then they move, once super-wealthy, to envy over competing investors on IRR - hammering staff numbers based on a conversation at Davos, where they realise they can get their figure 0.1% higher than the other chap.

It’s real, it happens, it’s true.


#18

I think a big part of that might come from the fact that the highest paid CEOs don’t need the money that they would get for cashing in their profitable options right away, and are able (and willing) to take more risk by holding onto them until they will (maybe) be more profitable.


#19

The Peter Principle? http://en.wikipedia.org/wiki/Peter_Principle

The most important men in town would come to fawn on me!
They would ask me to advise them,
Like a Solomon the Wise.
“If you please, Reb Tevye…”
“Pardon me, Reb Tevye…”
Posing problems that would cross a rabbi’s eyes!

And it won’t make one bit of difference if I answer right or wrong.
When you’re rich, they think you really know!

“If I were a Rich Man” - Fiddler on the Roof


#20

I doubt highly paid CEOs perform any worse (or better) than other CEOs. I think highly paid CEOs with a rockstar reputation appear to perform worse because they’re disproportionately sought out by companies who know they’re in trouble.