It's not that. Good executives are worth far more than the compensation that they get; but as a class, their net impact is neutral at best and probably negative. As with stock traders (where a lot of them just lose money) most of them aren't very competent. That doesn't invalidate every single one of them or what they're trying to do.
It's the CEO-pay debate all over again. No one who actually understands large companies would argue against the notion that it's worth $10 million per year (several times that, actually) for a company to have a good CEO over a bad one. On the other hand, shitty CEOs are paid highly just for belonging to the class of people considered eligible to be CEOs, and increasing executive compensation has paradoxically reduced quality of service: http://michaelochurch.wordpress.com/2010/11/22/pay-more-get-...
Also, I think lightweight management is generally better and I don't see why people find my insinuation that most executives should be working 2 hours per day to be an insult to what they do. If I were at a point in my career where I could legitimately justify the kind of compensation that I make now with a 2-hour workday, that would be awesome. I could go back to school, or volunteer, or take another job. I don't know why people in our culture equate working long hours with being productive. I equate it with being so unproductive that people have to make monstrous sacrifices just to reach par (although the reality is that most people are plenty capable of being productive, and the long hours come from social expectations).
1/ I don't think anyone is worth 10 million/year no matter how "good" they are.
I sure believe a good CEO should be paid adequately but those are just ridiculous amounts, and the CEO is only one part of the puzzle, even if important. As a CEO its hard to screw up (even thus many do), its hard to be very good, but its easy to be in the middle. Like most jobs in fact.
2/Working 2H a day certainly is an issue. Simply because it doesnt mean you're ultra efficient, obviously. You need more than 2H a day just to be able to talk to people in the company. One shouldn't put extremes like that as they can be misunderstood.
It's ok to work 5h-7h a day, or even less some days if you're efficient. But 2H, is just not realistic, you can't even speak that fast.
Imagine a choice among 5 or so options to be made. Choose the "wrong" one and you get nothing. Any of the other 4 and you get at least a few million. But, choose the "right" one and you get $1Bn. There's a guy who already knows which is the "right" one. How much are you willing to pay him for the 10 seconds of work it would take him to tell you which it is?
That's the idea behind high executive compensation. I agree, it very rarely works out quite that way IRL, but lots of people are quite attached to this fantasy.
It's not hard to find an athlete that's 'worth' 10 million / year. It's not hard to find an actor that 'adds' 10 million in value to a film. It's not hard to find people that have destroyed 100 million in value in a single year. Suggesting, that you can't find people that add 10 million in value when then can leverage 10,000+ people under them is suspect. At that scale just not fucking up is worth a lot.
PS: Plenty of stocks have dipped when well known CEO's died or left.
I don't think anyone is worth 10 million/year no matter how "good" they are.
Viscerally, I agree. On the other hand, if we go back to 1995 or any time before it, no 25-year-old programmer was "worth" $100,000 per year. Now that's a typical salary for a strong engineer. I'm cautious about saying people "make too much" money because, ultimately, no one really knows what work is worth. That's why we have markets, and they aren't perfect but they do better for a lot of things (not all, and I'm actually pretty far left by US standards) than any kind of central command and analysis humans have ever devised for that sort of thing. Societies need infrastructure (environmental controls, welfare state) to correct imbalance but markets work. Usually. Executive pay in large companies is set by a parasitic social elite rather than a real market, so that's somewhat of a different story, but I'm not sure where I draw the line.
The difference between how a company operates when there's a good CEO vs. a bad one is easily $10 million, because CEOs have multiplier (or divider, when r < 1) effects and a billion-dollar company is in play. I don't like the message that is sent by having CEOs make 500 times what average workers do, but I wouldn't doubt for a second that the difference between a good CEO vs. a bad one, in a large company, is more than 500 times as impactful as hiring or firing an average worker. My issue with the high pay is that CEOs get it even if they turn out to be total wankbaskets.
It's ok to work 5h-7h a day, or even less some days if you're efficient. But 2H, is just not realistic, you can't even speak that fast.
Why not? Perhaps I'm being starry-eyed and idealistic, but I think there's easily a factor of 10 in variation in a person's productivity in an hour of work, and that properly motivated people can get a lot done in a short time period. Looking back over my career, I'd guess that 90% of the value that I've added occurred in 20% of the time. I think a lot can be accomplished with little time, and why not? If I were offered a $2-million job, the first thing I'd ask is if I could work 20 hours per week for half of that salary. It'd be a win-win bargain, because I'd be getting the time off, and they'd be getting 70-80% of my full-time productivity.
The purpose of the 8-hour day is to enhance the likelihood of capturing the 2 to 4 hours in which the person is actually highly productive. Companies fear (and justifiably so) that if the work expectation were a 3-hour day, people would give their best 3 hours to their personal side projects or interests and let the company have the leftovers. So they mandate a day that stretched from after breakfast to before dinner to maximize the chances of getting peoples' productive hours.
I don't think the solution of keeping people corralled in an office for what is, in winter, a full day is going to hold up much longer. I think the post-managerial vision of Valve is the future, and that once this is established, companies will be more comfortable trusting people to work 4 hours in an average day but get shit done. (Of course, there are times when it's appropriate to work 14 hours per day, but those conditions don't, or at least shouldn't, last for long.)
To make it clear, I'm not advocating laziness here. Working an effective 4-hour day is a lot harder and less lazy than working the sloppy 10-hour day that is typical in the professions.
You're making a simple mistake: valuing the worth of something by its impact. But that's not how worth is determined; you need both supply and demand. If providing something has high impact, but that something is very common, then it has low worth, irrespective of how high impact it is. People would die without oxygen and water, but neither of these things are expensive.
The market for CEO compensation is clearly not very efficient. It's a big risk to put someone into the job to see how they do, so there isn't a lot of experimentation; few people get to build up experience. So the supply is very restricted, and this will inflate the price of labour quite a bit. There's not a lot of hard science between how applicable experience in one company or type of company is transferable to another, so even CVs can't be relied upon. And performance and actual value created may take some time to show up; there's a lot of things that a CEO could do that seem to create short-term value at long-term expense.
The biggest reason CEO compensation is so high is because they are in a pyramid peak position where they can skim off a small percentage of a lot of people's productivity and claim it as their own. In effect, it doesn't "cost" a lot for a large corporation to pay its executives a lot of money, compared to all the other costs.
I wonder if we'll ever have virtual economies / simulators developed enough to be able to learn / train / evaluate prospective company leaders in the future.
> If providing something has high impact, but that something is very common, then it has low worth, irrespective of how high impact it is. People would die without oxygen and water, but neither of these things are expensive.
With employees the heuristic is (very roughly) market price + VORP (value over replacement player). If an average programmer typically adds $300k of value to your company, and market price for an average programmer is $70k, and you find one who is twice as effective-you can pay them a lot more than $140k.
> The biggest reason CEO compensation is so high is because they are in a pyramid peak position where they can skim off a small percentage of a lot of people's productivity and claim it as their own.
This isn't a bad thing. If the CEO can boost the average employee's productivity by 1%, that can be enormously impactful. The difference between a CEO who makes a 1% impact and a CEO who makes a .5% impact translates to huge sums in large corporations.
So assuming that we had the ability to distinguish between good and bad CEOs, and that good CEOs were rare, it would certainly make sense to pay good CEOs huge sums and average CEOs much less. Unfortunately as you said, no one has gotten good at evaluating CEOs yet.
theres an order of magnitudes between 100k and 10M. Plus; 17 years ago 100K was a lot yes. 17 YEARS ago :p
Maybe in 50 years 10M will be okay but the point is moot.
As for time, I know in many companies people "work" many hours which consist of non-work chatter, coffee, etc. I'm talking of actual real work time. You can work 2H and sit 8H, then I'd say 2H work is not enough as the actual work discussions take more than that. Of course some barely even work 1H per week. But they don't get anything done, so its not that they're efficient. It's that they don't work.
It's the CEO-pay debate all over again. No one who actually understands large companies would argue against the notion that it's worth $10 million per year (several times that, actually) for a company to have a good CEO over a bad one. On the other hand, shitty CEOs are paid highly just for belonging to the class of people considered eligible to be CEOs, and increasing executive compensation has paradoxically reduced quality of service: http://michaelochurch.wordpress.com/2010/11/22/pay-more-get-...
Also, I think lightweight management is generally better and I don't see why people find my insinuation that most executives should be working 2 hours per day to be an insult to what they do. If I were at a point in my career where I could legitimately justify the kind of compensation that I make now with a 2-hour workday, that would be awesome. I could go back to school, or volunteer, or take another job. I don't know why people in our culture equate working long hours with being productive. I equate it with being so unproductive that people have to make monstrous sacrifices just to reach par (although the reality is that most people are plenty capable of being productive, and the long hours come from social expectations).