90 Cents of Every 'Pay-For-Performance' Dollar for CEOs Are Paid for Luck
corpgov.law.harvard.edu
corpgov.law.harvard.edu
In other words, the point of executive compensation may not be to produce better results on average, but rather to increase the variance of the results.
I strongly disagree. A CEO is probably highly personally invested in the company, but that investment almost always has an unusual structure: it resembles a call option, not equity. If a CEO generates a large gain over the course of a few years, the CEO makes a lot of money. In contrast, if the CEO generates a large loss over the course of a few years, the CEO loses very little. This can give a CEO an incentive to make extremely risky decisions because the CEO doesn't personally suffer much more from a huge loss to the company than from a small loss to the company.
This problem exists for investment managers. In a hedge fund that charges a performance fee on investment gains, managers have a perverse incentive to take large risks. It gets more pronounced if the fund is already down for the year: if, say, the fund has taken a 40% loss, it can look very attractive to the manager to bet all of the remaining assets on a coin flip. Heads, they get their bonus. Tails, they now have a 90% loss, but they weren't getting their bonus either way and they lose nothing.
Edit: At least the coin flip is neutral on expectation. But the same issue exists for a bet with negative expected value: the manager gets some benefit if they get very lucky, so the manager has positive expected value even if the fund has very negative expected value from their decision.
Worst case: Pacific Gas and Electric before and after deregulation. Before deregulation as a public utility, a century of modest profits and modest CEO pay. After deregulation, wildly volatile profits ending in bankruptcy three years after deregulation, and much higher CEO pay.
I'll try and remember the name of UK CEO that successfully extracted £200m in incentive based remuneration over a ten year service. A service that saw the share price boom in early years, then by the end of the 10 years crash to below the starting price.
If you get 10% returns, that's $1.25M for you (at a possibly low tax rate, too) plus $40k on your own investment. If you lose 20%, you're out $80k. What's your incentive here?
That's the intended effect. You missed the point. Read woopwoop's comment again.
woopwoop is saying that the equity compensation given to CEOs is a disincentive for taking risks and that it needs to be offset by a promised severance package in order to increase the variance of outcomes.
amluto is saying that this is a mischaracterization of the equity compensation for CEOs, which only exposes them to gains and not losses and thus they are already incentivized to pursue a risky strategy (e.g. golden parachutes are not required to create this incentive).
amluto is saying CEOs are exposed only to gains and not losses, which is agreeing with woopwoop without realizing it.
The reason a BoD/shareholders would want to set up a CEO with such an arrangement is because the much wealthier shareholders are well-diversified and risk-seeking (they don't depend on their income from this one company to feed their family)- while the CEO is not as diversified, he DOES depend on his compensation from this one company to feed his family- so if the BoD/shareholders expect him to take risks, then he needs to be protected from the consequences of those risks.
Except that their investors will flee (cash out) and they'll not be getting any management fees next quarter.
Also, apparently having a famously bad investment track record doesn't make it much harder to raise money for a new fund in the future. If I remember right, the LTCM managers kept right on going after LTCM blew up.
(2) Therefore, a CEO will be incentivized to pursue a highly conservative strategy, while the shareholders may wish that he takes more risk.
1 is true (assuming heavy equity-based compensation), but 2 does not follow from 1.
What does follow is that the CEO will do whatever he can to make short term gains for the company before he exits, even if it means kicking the can down the road for future managers and long-term shareholders to take a hit on at a later date. When the whole management team is on in this short-term focus, it is colloquially referred to IBGYBG (I'll be gone, you'll be gone).
Shareholders are not a homogeneous group of investors. Some pension/mutual funds invest with the goal of exiting in 10 years. Some activist shareholders invest with the goal of pumping up the price, then cashing out within 3 months (see Carl Icahn and Apple). A sizeable (and growing) portion will be owned by index funds while some will be owned by hedge funds, etc. Then you also need to factor in employees, executives, etc.
One (newer) way to make this group happy as a whole and solve the IBGYBG problem is through clawbacks - punishing ex-executives for the things that happened on their watch. Check out Wells Fargo to see how this is playing out in Congress and in court.
The question the paper is trying to answer - what motivates CEOs to "exert effort" in able to return industry-beating results - seems like it has a simple answer to me: no CEO wants to fail at his/her job and be known as the one who presided over company X's slow decline into bankruptcy/irrelevance. Doesn't look so good on the resume when shopping around for your next C-suite role.
And, if a lot of the CEO performance results is just luck, then bad luck can ruin them. If a company is on the brink of failure, nobody is going to take the job without a parachute. It could be their last job if they take the blame.
There is also another form of golden parachute, which the person is getting paid for getting on a sinking ship. Otherwise nobody is going to become the CEO of a failing company. They are basically getting paid for the hit to their reputation.
So a pay gap of up to (and sometimes over) 1000x between CEOs and rank-and-filers, given all the saving and investing that the CEO could do just like any Average Joe, would not be enough to "soften" any "blows"? Huh.
If you look at walmart for example, and entirely eliminated the compensation of the CEO (19.4 million), and all executive vice presidents and CFOs (2.8, 10.8, 8.4, 10.1, 11.5, and 8.5 million respectively) and total them all up you get ~$71.5 million.
71,500,000 / 2,000,000 million employees = $34 dollars per employee per year of a raise. That's almost negligible, and if you assume minimum wage (7.25) 50 weeks a year, for 40 hours a week gives $14,500 / year, you get $35 / $14,500 = a .24% raise. That's less than a 2 cent per hour raise per employee if you completely slashed the salaries and compensations of the top executives.
But I think it's a negative thing because it's a sign of a shift in behavior. Look at the graph here: https://en.wikipedia.org/wiki/Executive_compensation_in_the_...
CEOs have gone from making 20x the average worker to 200x. Are CEOs ten times more amazing? If anything, I think they're worse. I think that, broadly, they've shifted their focus from economic value creation to generating the numerical appearance of success in ways that let them extract lots of money.
There's also the problem of worker motivation. Companies are human enterprises. The greater the wealth differential, the less the people doing most of the work will feel part of something bigger than themselves. As with Walmart, they may show up and do what they're told, but they are less likely to actually give a shit.
It seems at least from what I've noticed that the companies with the highest differential in terms of rank and file -> CEOs, tend to be the ones with some of the lowest barriers to entry and the lowest skill levels. This is a subject that I would love to see a detailed study on because what "it seems like" is not always the reality of the situation.
I used Walmart precisely because besides being an extreme example, it is one of the largest employers in North America by a good margin.
Edit: forgot a word.
According to Google search: "Google CEO Sundar Pichai made $100.5 million in 2015, according to a regulatory filing released Tuesday. The filing revealed that Pichai was paid a salary of $652,500, awarded restricted stock worth $99.8 million"
and according to Business Insider, Google has roughly 57k employees.
If we just take Pichai's $652k salary, it is +$11/employee/year which is a couple cups of coffee.
Alternatively, if take his entire compensation of $100M, it becomes +$1754/employee/year which is more tangible but still nowhere near the $6k/year cited in parent.
If we just consider salary, I think the multiplier between the lowest to highest paid is going to be lower than you expect in tech. It's really only visible in more low skilled industries.
And what would compensation per employee be indicative of? Nobody is criticizing that. There can be tension in public companies between the board's interests and the shareholders'. Questions of compensation is a common source.
Then assume the CEO will be replaced if profits drop. In the absence of a "golden parachute", a CEO might reason that a 25% chance of being fired and loosing their cushy job makes the plan not worth pursuing. The theory (OP wasn't necessarily endorsing it) is that a rich severance package can better align the interests of the parties. While I personally think "cronyism" is a better explanation for the current situation, the theory is better than others I have seen.
There's nothing "subtle" about a plain racket. And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down.
At 1000x pay gap, the CEO needs only work a few months to have nothing to worry about for the rest of his life. Anything on top of that, anything, is a luxury item.
"Risk" of what? Having to manage with only 2 yachts instead of the customary 3? Right, that's a serious existential threat, gotta mitigate it.
Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
I may be the one missing the subtlety now, but if you are referring to my phrasing, I didn't intend any insult. From your comment (voted below zero before I upvoted and replied) I felt you were being unreasonably dismissive of a potential explanation that I found interesting and had not heard before.
There's nothing "subtle" about a plain racket.
The theory offers an explanation of why stockholders might rationally offer a generous severance package to a CEO. I agree that the "racket" theory has greater explanatory power, but I found it worth contemplating alternative explanations. Maybe "subtle" is the wrong word? "Counterintuitive"?
the CEO needs only work a few months to have nothing to worry about for the rest of his life
In practice, though, CEO's worry tremendously about their ability to accumulate further wealth. I wouldn't be surprised if this worry increases the greater their current salary. And from the shareholders' point of view, it's the CEO's perceived risk that affects their decision making, not the actual risk.
Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
Well, no. As a theory to explain current behavior, I think this theory is actually more applicable the greater the discrepancy in pay between the CEO's current job and the other jobs available if they are fired. You are right that the situation would be different the if the gap was less, but that doesn't mean the theory is not relevant when the gap is large.
Maybe you'd prefer looking at it from a "Prisoner's Dilemma" perspective. Assume you have a extremely-well-paid self-interested psychopath making the executive decisions for your company. Ideally, this would not be the situation you find yourself in, but let's assume it's the case.
Assume that as a rational (read, "amoral") shareholder you wish to maximize your gains, which is positively but nonlinearly correlated to the company's profitability. How do you best achieve this? Perversely (and to me counterintuitively) reducing the downside to the CEO for risky decisions may be a strategy with a positive return.
A citizen, which is to say, part of a group that collectively decides the "rules of engagement" for corporations. Society has chosen to grant certain rights to corporations because society feels that properly regulated corporations are a net benefit. At the point where enough individuals decide that the benefits are no longer sufficient, new rules can and will be made.
There is (to me) nothing inherently sacred about allowing amoral corporations to operate in the manner that they decide is most effective for their interests. We've decided that minimum wages are acceptable, that maximum work weeks are a good thing, that certain styles of contracts are unenforceable, and if we wanted to, we could decide that excessive differences in pay are legally unconscionable.
There's always a danger that societally we'll make the wrong choices, and that new rules will do more harm than good, but I don't think there is any question that society has a "right" to make such rules? At least no more than there is question that society has the right to make and enforce any other law? Turning it around, who are you to tell us that we can't regulate these companies how we choose?
Shareholders, in theory, should have the right to make any decision that is legal and is advantageous to them. That's what I think should happen, in an ideal world.
The practice, however, is different. The entity that decides CEO compensation is not "we the people". It's more like the smoke-filled room at the Republican Party's HQ in The Simpsons.
You are struggling hard to make a victim where everyone involved is happy.
There is a tremendous amount of back scratching that goes on when setting executive pay.
The board hires pay consultants, the consultants are not going to rock the boat and suggest pay cuts, so they approve a nice increase over the current going rate. Rinse and repeat and you have out of control executive compensation.
Majority shareholders are often in the same position - very well paid, and well connected with other CxOs.
That leaves the rest of the shareholders along for the ride.
Whenever I argue with a staunch defender of social inequality, the put-down tactics are par for the course. "You struggle", "you fail to comprehend the subtlety of the argument".
If doesn't take a PhD in psychology to understand why that is. For someone to be pro social inequality, they must believe they are already topkek - or are standing a very good chance to make it. If that is the case, then it's a simple matter of statistics that any random stranger is likely placed lower in the pecking order. Therefore they must be "struggling" to comprehend, etc.
There is no "struggle" when you're telling the truth. The higher cognitive load happens when you make stuff up from whole cloth - there are studies showing it, look it up.
> everyone involved is happy
In this reality, the trends in political news in the last several years show otherwise. Not sure about other realities.
You probably earn enough in a single year to live the rest of your life in a different part of the world, yet you continue to work, in part because you want your current standard of living.
Likewise, a CEO will want to continue to live at his current standard of living, or even better.
The CEO of Kroger earned $13 million in his last year there, and called his own compensation "ludicrously high". I doubt he's spending a million a year, but even if he is, the ratio is indeed ludicrous. And he's nowhere near the high end for executive compensation.
Are you suggesting that the average top-tier executive lives a lifestyle in the same proportion of their income as the average software developer, or blue collar worker, or...? Really?
Al Capone and the robber barons had the same goals.
https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
Stock options give CEOs a large financial incentive to place the interests of stockholders above those of employees whenever those come into conflict (for instance, in decided whether to use profits to increase compensation or increase dividends).
Anyways, that's my theory of why large executive stock bonuses might be a good for shareholders despite unintended consequences like decreased risk taking.
This concept strikes me as grossly unfair towards the employees. Like the CEO, they are also not diversified. Their risks may be even bigger than that of the CEO: if the strategy fails, they may loose their job/income, and they make less to begin with. How are they rewarded for pursuing the more risky strategy?
On the downside most tech employees can easily find a job elsewhere, whereas the CEO may take a reputation hit that makes it hard to get another position at a similar level. So it probably comes down to the regular employee not valuing downside protection enough to give up some base compensation or upside reward.
For example it's common knowledge a real estate agent won't go for the most money per deal. They'll go for the quickest money per deal. No real incentive to spend extra time pursuing the most money.
I get that's not a direct analogue for the CEO case but how do we know the getting 80 million for hard work and success is more motivation than 15 million for easy work and failure.
It seems like if you want to motivate success you'd also need to disinsentivise failure . Not by making it so the CEO gains less if they fail but so they actually lose.if they fail. In otherwords their net worth has to go down for failure.
The hypothesis you relate isn't implausible, but I think you either got this part backwards, or, more likely, the way you state it is misleading. The strategy would be nuts if it were intended to produce worse expected outcome in terms of monetary return at the (additional) cost of increased variance.
Executive comp is a major racket, enforced by the standard that this is "what the market average is". Which is set by executives overpaying themselves.
Ask yourself if your CEO is really working 100x as hard as you, or 100x smarter than you. The answer is usually a definite no. I'd really like to see more fair pay in this area and a culture that treats contributions of all employees more equally.
That's distorting what shareholders look for in a CEO.
Let's say you have two CEO candidates, one you can hire for $100,000 (A) and another for $10 million (B).
Share holders would be stupid to ask themselves if B can make 100x the profits of A. They would be asking themselves if B can make at least $9,900,000 more revenue than A. If it's a billion dollar company doing ~$100 million in sales per quarter, that's not that unreasonable to expect from a CEO. It's expecting the CEO to raise revenue by ~2.5%, not 10,000%.
The beatings will continue until dividends are deductible to the company and are taxed the same way capital gains are for the individual.
Dividends should be deductible against corporate income, which would eliminate this issue.
Dividends to me are an outcome of already earned income.
Making distributions (dividends) deductible against the corporate tax burden allows companies to closely approximate this. It would encourage them to return cashflow to investors, which is the point:
Investors (in theory, owners) should participate in the cash flow of the companies they own, rather than bank on the capital gains/share prices leverage casino.
Focusing companies on paying dividends via policy choices would alleviate much of the problem.
Your comment follows essentially the same logic as saying to somebody complaining of Government corruption, "citizens can just start a revolution and remove the Government at will - so if they haven't, they must all be perfectly happy with the Government."
If developer A can increase the value of your product by 1 million dollars, but developer B can only increase the value of your product by 100k.. why isn't developer A worth 900k (or at least 500k) more than developer B?
The big challenge is measurability. Stock price going up is easy. Profits going up is easy. An app being 1 million dollars better? No idea what that even means.
I've long felt that the best devs should be building tools for other devs. The lower in the product pipeline the better, because that's where they can affect the most people, but it seems impossible to measure when you're talking about hard numbers.
E.g. in a large enough organization, if a good dev can make all your other devs even 1% more efficient, the value they just created will blow that $1 million figure out of the water. That dev producing "$1 million dollars in value" for your product owes much of that value to the devs that are creating tools for them to use, among other things.
Yes, you have a point, but getting on a failing company and failing does not reflect as bad as succeeding on such a company would look good. The only negative contribution Yahoo gave to Marissa Meyer CV was that badly managed data leak that is making every news.
The problem really is at the level of a programmer politics is at play, given a whole lot of more number of people fight for fewer resources.
Yes, a bad CEO can wreck a company really fast. I would claim there are no superhuman CEO:s who can outperform a market (there are CEO:s who have disrupted markets, sure but that is an exception and not a rule) by themselves - but, there are CEO:s who can wreck companies with a single misplaced stroke.
Are they paid not to screw up? The main problem of high-comp CEO:s IMO is that this view of a lord over his domain diminishes the value of the other personnel in the company. Teamwork and all that.
If there are really good statistics then yes, a single person can make a huge difference ala moneyball. But does an average Fortune 500 have such statistics?
Thats an interesting insight; there isn't anything inherently wrong with this. DevOps and security are two critical technical roles that work similarly: if they're doing their job right, the machine continues to run perfectly.
A CEO is an asset/resource just like anything else in the company. It has a cost and a ROI.
Technically, any employee is like that too, except that when the position holds so much scrutiny, the ROI is analysed in greater depth. It may be unfair at a human level but is completely rational from an accounting perspective.
This is part of a larger pattern in capitalist systems: you want to position yourself within the major flows of money. CEOs may be the more obvious positions but other occupations such as software engineers or salespeople are in a similar position of enabling that flow of money.
The problem is that the position has an amount of "scrutiny" that is improper from an accounting perspective (...the point of the article...), but comes from the social status of the people holding the role. Of course, it's not actually accounting scrutiny at all that's the difference here (because if it were, even minimal scrutiny would reveal the error), but rather the social position of the people, and thus their access to influence of decisions.
Your argument is nothing but trying to guise an unsupported position about the relative importance of social classes in the terminology of economics, even though your economic arguments are baseless and wrong (in terms of their economic merit). This is part of a wider trend in the US to eliminate class consciousness and the social duty of the upper classes to the lower, and perhaps you're merely repeating those arguments without having really analyzed what they're saying.
Your point about the larger pattern in capitalist systems is correct: capture of market execution is sufficient for market corruption, but can be difficult to prove after the fact. This is the general strategy of the ruling class to control the lower classes in the US.
The point of the article is this flatly false. Almost all of the "ROI" attributed to executive skill is actually due to luck.
This business had a CEO who was just plainly incompetent. The sort of person who was first to take credit and last to take blame.
We were operating with IT equipment that was a decade old (yet gifted after the equipment was written off in tax terms). As equipment failed, slightly newer IT equipment was put in place of it, also written off, and the reports went up to the parent business that the old gear had failed because production staff ("So how do I send an email again?") had not reported that it was failing because of bad fans and screaming hard drives. Last I heard, they were still operating with Windows 98 and NT 4 workstations in a couple of key roles, and XP on almost all of their other production systems.
The manager in charge of actually getting things done didn't get a pay increase in the decade I was there, and worked up to 70 hours a week (30 for free). All staff had to make up for the lack of investment by working extra hours for free, and refusing to do so was demonstrating a "lack of team spirit." Hours weren't recorded, legally required holiday pay wasn't paid. Reporting any of this to the authorities resulted in extrajudicial punishment (a visit from some friends of the owner).
The only time staff pay went up was when minimum wage went up. Training was non-existent; you were put in a job, they showed you which buttons to push, and if you didn't get it right you were reprimanded. I saw staff work double shifts for months and then get fired because of an inconsequential spelling mistake, and then the next person in the job (but with half the hours) get away with the worse mistakes for years.
Naturally, there was a high staff turnover. The more skilled the staff, the faster they were gone, but that meant the people who couldn't leave (for one reason or another) had to work much harder.
Ultimately, the business still exists because of the unrecognized and unpaid hard work of the staff, and absolutely in spite of the efforts of the incompetent and criminal CEO.
But what is the point of my story? ROI is seldom "analysed in greater depth" because few rich people want to be liable for the actions of their staff. Last I heard, the CEO was promoted, with the appropriate salary increase, to a second tier position in the parent organization because of his managerial skills.
To slowly change this over time, we have to work at it, by ensuring fair compensation at companies we start and for our employees.
This can change - it's not a statement of the present - the status quo is pretty bad - but a desire for the future.
To get there, we have to start expressing value for where creation comes from.
I certainly know that a lot of people who know nothing about computers think that I'm overpaid as a software developer. Why should I earn several times their salary when I just sit at a computer all day, whilst they do hard work?
However, they can't do your job. Assuming you are a developer, they are making a living based on your work. Your work has equal value. Well, if you ARE doing hard work. If you are just sitting at a terminal, more ambition might be a good thing :) Cultivate it and you can get there. If you want.
We need not assume all leadership at the top is steering the entire ship, more so than steering parts of things, decisions trickling up as well as down, alongside information.
Your overall point is diminished when you say things like this, because it comes across as arrogant. Without substantiating that, you're just pandering to everyone who holds the same ideology on CEO pay.
The way you describe it, technical jobs are the hardest in the world, and everything else is comparatively easy. You make it sound as though there is only one truly difficult discipline, which happens to be yours.
Furthermore, you're lumping the job duties of all CEOs together as though they all share a homogenous skill set you could pick up.
I'm unconvinced by an ethos that boils down to, "My work is hard because it's programming, their work is not because it's soft skills."
(A) See profile. These are a lot of skills I HAVE picked up (B) I'm pretty non-technical these days. (C) when I'm suggesting hard work is hard work, I include everyone putting in hard effort - not just developers, but I do lean heavily in endorsing those who build the product.
I'm not saying I can run Goldman Sachs. I can run a few software companies a lot better than they are being run.
What I'm saying here is that CEOs are mortal. The more you know the more you know this. If you're just starting out you may not realize this, but as you start to experience various executives and know the decisions they make, and what the people under them do, with the experience over time - you just see the value that people should be valued more equally and the system should be fixed. To do this, we need the support of everyone in at least knowing the system is broken, not the defense of the broken system.
I am not a programmer these days. Hard work is hard work, and is mostly measured by the stress it inflicts on you. With practice, things get easier. But all people have value.
Getting a MBA, getting experience leading companies from the director level, then VP level, then CEO - that is valuable experience.
It's not wrong to tell everyone they may have the skills to match their current mediocre CEO that is pulling down the megabucks today. And believe me, a lot of mediocre CEOs are pulling down megabucks.
Being you are in the VC game, you are dealing with people in startups, where the compensation hasn't gone crazy away from things yet.
Finally, some of these views may be seen as socialistic. It matters what you value. In general, I have seen a lot of VC decisions that value capital ahead of ethics, and this is unfortunate.
Yeah, why should you? I mean, you are essentially being paid to surf Hacker News and plunk out a few lines of code every once in a while, while the janitor is working hard all day.
If you're doing the same thing in IT for more than a few years chances are you're digging a hole for yourself. Just ask any Silverlight developer.
All production is a mix of land, labor and capital. So it depends on cases, but when we are in the right place at the right time, we deliver stupendous amounts of value.
I've been involved in cases where two, three, four, twenty people could address tens of millions of cost $US per year. The interesting thing is that sometimes, even though you have the numbers on your side, the management team demurs.
It's all but impossible to actually evaluate what we're worth.
Appealing to supply and demand may involve what's called "The Lump of Labor Fallacy". We're not stevedores, and we're not surgeons. We're somewhere in between.
One response: https://archive.org/details/lectureonnotiono00lloy
In the UK the average GP is on around £120k I bet very very few chartered (Peng) engineers make as much.
As an executive in a general case (sure, we can all find outliers) company, there are comparatively far fewer jobs for you to go to. If you fail, you fail spectacularly/publicly and may not be employable for years. The high compensation is in exchange for the risk of the job and the low probability of finding a new one.
Semi-related (not what you said - of course): "I deliver $1M in value to the company so I should be paid $1m" is a thing I see every now and again. That's not even remotely how any of this works.
There are also the golden parachutes.
CEOs fail all the time, and they aren't shunned but rewarded with golden parachutes and positions on boards of other companies, biding their time until they can "come off the bench".
The management club is something to be admired and I wish engineers would try to adopt some of its behaviors instead of viewing ourselves as mercenaries.
Yes, the board provides a starting point, but it's much more collaborative negotiation - and you (as the incoming exec) are gonna negotiate based on the criteria I mentioned. It's not at all like an IC where you basically get a "take it or leave it, plus a few % more on salary if you push back" offer. It's a different universe.
Is it fair? I dunno. The "intrinsic value" argument doesn't really apply - the CEO is worth $10M/yr if the board thinks they are.
Engineers are too impressed by their own intelligence.
The great irony, of course, is that the messy and immoral world intrudes even there because rational idealists can't find consensus and are subject to the biases that require conventions, institutions, politics and regulation just like the legal and business worlds.
If we were rational you might say we chose "playing with fun toys" over "controlling thousands of people and millions of dollars, and influencing millions of people and billions of dollars". Perhaps, for some people, that is indeed the rational choice if you don't really trust yourself.
The hiring of a CEO isn't as technical or data-driven as one would think such an important decision would be. It often comes down to who the board feels most comfortable with/trust, often times based on personal relationships. As you ascend beyond the 1% to the .1% or .01%, you're playing with a vastly different set of rules.
People on corporate boards generally are on multiple corporate boards. I'd wager that if you looked at the social network graphs of board members, the CEO's they choose are almost never more than one hop away. CEO's that have faced massive scandals or have torpedoed companies seem to always find new jobs because once you're in that CEO/board member social network, you're never really out unless you do something unforgivable like Bernie Madoff. Most important, they have the luxury of time and options since working at this point is purely optional and not needed to pay for expenses. They can work on a vanity project, start their own foundation, join other corporate boards, focus on investing in companies instead of running them, make inroads into the public sector, or they can wait until any heat dies down or is forgotten before re-entering. This is one list of what execs did after a scandal: http://money.cnn.com/gallery/investing/2013/09/13/financial-...
It's a different dynamic since most people work for money while CEO's accumulate wealth. Their money works for them, not the other way around.
I've seen some spectacular SVP+ flameouts, and they all land on their feet. The only exceptions are substance abuse and other problems like that.
This is not how things work, either.
Executive compensation has a nasty ratchet effect built in that I'm really surprised more shareholders aren't fighting.
:P
Perhaps you would like to step in Satya Nadella's shoes for a couple of weeks?
I would not look as askew at executive comp if I didn't have a nagging doubt that large portions of it are smoke and mirrors, obscured by extremely high and socio/political barriers to entry by which if you're the sort to pass, you're the sort to not "rock the boat"/"call the bluff" so to say.
Do not take my earlier comment to mean I simply complain and languish; merely why there might be a natural frustration to some of the judgments/environment/deifying surrounding leadership positions (notably for my argument, bigCo leadership)
(To add another point I was nervous to say since it sounds arrogant; but I've ostensibly managed at a comparable scale to what some of the positions I'm aiming for would require, but in situations that don't hold the same level of credential-ism/tenure focus. This just adds to the open question in my mind of why those teams were able to find success with less rigid progression while others offer so much resistance. I mention this not to humble-brag but again, to point out mental dissonance.)
MS should have gone with Alan Mulally.
The point is, executive pay is entirely out of whack with the value (most) provide. Orders of magnitude out of whack. Sure I might not fill a good CEO's shoes but you or I can likely do the same job as a lot of lackluster CEOs that get paid insane multiples of our salaries.
And while we're talking about shoes, a good shoe-seller could do the job of about any CEO in those huge companies. Would be harder in a small one, though.
I could probably do a better job - many people here could. However one of the perks of getting out of the corporate game is getting out of the corporate game.
In contrast to all of Microsoft's rivals: IBM left the PC Business. Sun literally died and got bought out. Oracle's products were eaten alive by Open Source.
Under Balmer, Windows 7, XBox and XBox 360, Kinect. Do remember that Windows Mobile 6 was a major competitor vs Blackberry through the early 2000s.
Ballmer tripped up in his final years with Windows8 and failing to bring the success of Windows Mobile 6 to post-iPhone markets. But I think he did good from 2001 through 2011 overall.
Ask microsoft right now, they would probably trade 50% of their windows and office business to have a strong 25% share in the mobile market. They would also probably trade the other 50% of their windows an office business for 50% of the worlds cloud computing business.
He had no CEO vision, he was an excellent COO who streamlined and improved margins, but absolutely failed to make any of the moves necessary for Microsoft to continue to be at the top of the software industry over the long term.
CEOs need the vision to recognize, and the cajones to go after the big 'bet the company' moments...
Tell me who you'd rather be among the major forces of the 90s. My bet? I'd rather be Microsoft.
The responsibilities of an enterprise-level deployment mean that Microsoft was ill-suited for the changes that occurred in the mid-2000s, just like its other enterprise competitors.
Still, despite being handicapped by Enterprise customers, Microsoft performed okay in the transition to cloud. I mean, Azure actually exists and arguably is a bigger platform than Google's Compute Engine.
Microsoft's track record is that it's 2nd best at a lot of things. Microsoft is 2nd best at cloud (Azure), 2nd best at Bing (remember: Yahoo uses Bing as a backend), 3rd best at web browsers (Edge / IE). 2nd best at gaming (PS4 > Xbox > Wii U in terms of this generation's sales).
They're not really in a bad position at all. They're just not a dominant giant.
The CEO doesn't control the stock price. He controls employees, revenues and profits. Lets not blame Ballmer for having the unfortunate luck to become CEO at the height of the 2001 stock bubble, and instead look at the things he actually could control.
Maybe you shouldn't have such strong opinions about things you perhaps don't understand? And not even attempting to understand according to your own admission.
Superstars have a far bigger impact on their team's performance than an average player in the league. Many commenters have argued that good CEOs have large impacts on company performance.
The average NFL career is 3.5 years; the average NBA career is 4.8 years. Several commenters have pointed out that CEOs of failing companies risk this being their last CEO job.
Athletes are derided if they cannot save enough to ensure their retirement when they are making millions of dollars a year. Why can't we expect CEOs to manage their own finances responsibly and plan for a future where they aren't earning millions?
After their playing careers, many athletes choose to work lower paying jobs as assistants, coaches, commentators, consultants, etc. Why can't a CEO take a step back after a failure and be a COO, CMO, VP of Sales, etc.?
During their careers, NFL and NBA players' earnings are limited by a salary cap. LeBron James can't earn more than ~$30MM from his playing contract, even though he generates far more revenue in TV contracts, jersey sales, gate receipts, etc. Why can't we impose salary caps on CEOs?
Now instead of "league" and "LeBron," substitute in "country" and "the world's best corporate executives" and you'll see why it's a bad idea. We want the world's best here.
Do you have any countries in mind that are going to pay executives more per year than the US, even with a salary cap? My understanding is that the US is already so far above the rest of the world that it would have to come way down to lose out on a raw compensation basis.
IMO, a cap would mostly serve to rein in the well-networked, measurable-performance-leveraging aspects of CEO compensation. Compared to every other employee, CEOs have a far greater ability to extract money from a company, mostly independent of their contributions to that company. Is it any surprise, then, that they leverage that ability to earn far more than their coworkers?
> Ask yourself if your CEO is really working 100x as hard as you, or 100x smarter than you. The answer is usually a definite no.
Ask yourself, does a software developer in SF work 1000x harder than a laborer in the Congo? Is a PhD Physicist really as smart as a NYC sanitation worker?
Apart from the emotionally manipulative language, I'm not sure what your point is. CEO compensation is a price. What does hard work or intelligence have to do with the price of something?
For another, the "market forces" aren't really market forces because there are too many other things involved because we don't live in a vacuum of perfect capitalism. There are things like collusion, there are things like threat of loss of shelter and health, etc., that corrupt it. Proper market forces would require extremely powerful and knowledgeable agents that can freely accept and reject products. We're nowhere near close such a reality.
For an obvious example of immoral effects of "market forces", see googamooga's post over here: https://news.ycombinator.com/item?id=12553936
If you don't see anything wrong there and your reaction is just "well, market forces..." I think you need to take a step back and think about what we humans are doing on this planet.
I've just brought up collusion, it's a concern for software engineering jobs, look it up. Not pure market forces? Exactly! So why are you assuming the CEO's job and pay are pure market forces?
... and often the same person.
Uggg: When I look up at the sky, I more or less see the same thing day after day. However, the events that happen infrequently, the eclipses, blood moons, shooting stars, gamma Ray bursts, etc. shows a level of variance and complexity beyond measure and comprehension.
Krug: Even though it looks random and chaotic, there's gotta be some big guy up there behind the curtain. Otherwise, what's the point?
Uggg:Yeah, that's too depressing. Life is brutish enough as it is. We're still part of the frakkin food chain! Let's not consider existentialism for another 20,000 years. Big wizard guy in the sky it is!
That type of thinking permeates in all facets, so we think it's only natural the guy on top is the essential person in a company.
I've had the fortune of working at startups that were comprised of intelligent and talented people from bottom to top. In fact, at a couple of gigs, the ceo doggedly tried to keep their original vision as their fortunes sank. It was the non c-level employees that recommended and executed plans to pivot.
There are those rare unicorns like Elon and Jobs. Although they consistently work with some of the most talented people in the world across multiple disciplines, they set forth a vision that would be considered ludicrous by almost any standard. Yet, whether it's by cult of personality or some other rare trait they consistently have success across different fields. Also, it is important to distinguish founder/CEO's who generally risk all they have on something that is likely to fail.
Just throwing numbers out there, but I'd wager that 95% of current CEO don't come up with anything groundbreaking and are executing pretty standardized plans for the duration of their tenure. Personal relationships do matter, but their importance generally has an inverse relationship to the size of your company
It's also the way that the world has always worked and probably always will work so long as we have a capitalist system. Thomas Edison didn't invent the lightbulb and Elon Musk is not "the founder" of Tesla.
Think about how much better, say, Cisco could be, than what Cisco is. And then what their execs get paid. There's a club at the top and they value weird things.
One employee's work can also make a company millions - I know in many cases many of my fellow developers have built things, often single-handed, that have made companies millions, and received less than $100k/year. The sales guy probably got a huge commission.
This is the system we should - as best we can - press against.
The CEO's compensation isn't tied to how much work they do, but how little time they get to spend on anything else - mind, body, and soul.
Even if it were true, there would be no valid argument for $1M/year vs $60M/year differentials.
In startups, folks are doing this for programmer-level salaries.
CEOs are still finding time for some family time - maybe not a lot, but there are a lot of people under the grindstone feeling the exact same problems making low software developer and manager wages.
They should be paid accordingly. (Although I won't disagree with the fact that some CEOs are indeed overpaid.)
They were threatened with dismissal for not doing so. I was threatened with dismissal for not doing so.
I worked from early morning until early the next morning. I saved the core business on multiple occasions, my manager was working 14 hours a day 7 days a week at a minimum.
The CEO went home at 5pm every night, when I still had a full shift ahead of me, and had weekends off with his kids, when I was working at home. He was paid three times what I was paid, and 50% more than my boss.
You speak of ideology, not reality.
But I would like to believe that for every terrible CEO, there's one that actually gives his all in growing the business.
I speak of idealism and not reality, yeah. This doesn't invalidate what happened to you, which I agree is awful. But if someone is legitimately putting work into their company, as many CEOs do, they deserve to be paid.
Seriously? Look at all the big co's CEO, They make it look like , that is it.
I'd like to see a culture that understands economics more clearly such that this doesn't have to be constantly explained. I think it would help if less people worked for large corporate institutions and ran their own small businesses instead. It would also help if mass media didn't play along with the ignorance.
You price on value, not on effort. I may think CEO's are overpaid, but let's not confuse how salaries are negotiated at jobs. They are negotiated by perceived value you bring to a company as well as the supply/demand for your particular position.
Much strangeness happens just because of mutual funds and the general distorting effect of the public stock markets. We've decoupled the owners from the "runners".
Prior to roughly the period of time in which Micheal Eisner became CEO of Disney, compensation was mainly salary. People complained that it was too much. So more complicated arrangements emerged - options, that sort of thing.
For a modest firm of say, 1000 employees, every 100k to the CEO costs each employee $100 ( assuming all is otherwise zero-sum and perfectly linear). So it's not like there's really much that can be done to improve things for the rank and file.
I was watching the beating given to John G. Stumpf by Congress on CSPAN yesterday. It seems that incentive pay/pay for performance might be on the way out if that is any sort of bellwether.
Let's use software engineers as an example. You make a mistake.. it's unlikely you get fired, and even more unlikely that it ruins your career. Most likely, it results in better practices and a post mortem. And even if you do leave, there will be hundreds of job openings for a competent engineer.
It's different for CEOs, even competent ones. One moderately bad decision (or to your point, a little bad luck) can result in a "change of management." And it's non-trivial to just jump into another CEO role.
And that's not even taking into account other aspects such as supply & demand, accountability, stress levels, etc.
Is the comp "fair"? I have no idea. I don't even know how you would evaluate fairness in that regard.
You don't need to "jump to another CEO role" to continue to be fabulously wealthy.
Failing spectacularly as a CEO often does nothing to impact your employability for future roles.
https://en.wikipedia.org/wiki/Tony_Hayward
Or Carly Fiorina or loads of others we could sit here and review if we were so inclined.
There is, ultimately, no justification for the compensation CEOs receive. They don't deserve it. They haven't earned it. And often their actions are degrading to the company they are hired for, yet they still get paid exorbitant amounts and go on to other positions of responsibility and high compensation.
As to pay, generally CEO's can find a high paying job easily. They simply don't need to.
Additionally the compensation is so great that I think a lot of people would gladly take that risk given the opportunity. If in a few months you can earn a x years engineer's salary why not take the risk and then worst case is a nice holiday whilst looking for the next company to ruin.
I think your point holds better at middle management level.
Again, the obscene compensation exceeds the risk. Even going back to a VP position somewhere is still lucrative.
Imagine a company with $100M in annual revenue and an annual growth rate between 10 and 20 percent. On average, the growth rate would be 15% (say), and skill of the CEO could have some impact that pushes it up or down 10% (that is, ±1.5%). The difference between 13.5% an 16.5% represents a $3,000,000 revenue differential. The impact on profits is likely much higher (due to fixed costs of production, which exist in nearly all industries).
So even if you take the research findings as true, it still makes sense to prefer an executive with more skill, experience, and dedication. Even if 90% of outcomes are driven by luck, the 10% that he or she contributes is still meaningful.
Women get lower pay because they say that's what other women get.
Ahh, the spinning of facts that keeps giving and giving, to the rich and powerful.
At least in the U.S., sex-based wage discrimination is prohibited under the Equal Pay Act of 1964. If you find an employer paying women less because "that's what other women get", be sure to let us know.
GE (another fairly large company) is in approximately the same situation. Immelt gets about 4x as much, but GE has about 3x as many employees.
This may be an extra $50k in some places.
I have not met a 100x programmer, but there are many people who lead important projects (say Linus, Guido, etc). They also do not deserve 100x a standard programmer salary if they were employed at a corporation either :)
You don't have to work smarter or harder than everyone else - you're in the driver seat and make the call about strategy which will make or lose the company big %'s of its revenue which has huge value.
I've seen quite a few CEOs of companies I've worked at where most of the employees could make a lot better decisions. You probably have as well.
These "people in the drivers seat" are often not very good drivers. Some are. Most are terrible, and while the company (the collective of all the people working there) may be making "huge value", it is by no means certain that it could not be making 100x more - and sharing it better with the people underneath.
CEOs are just humans, like you, who happen to be leading something. They do not have magic brainpower skills.
So fire the bad CEOs. I did not imply that all CEOs are all good drivers, and it doesn't matter if some are. They are in the position to make decisions that change the course of the company, whereas an individual engineer or sales person isn't doing that, and doesn't have that responsibility. Magic brain power skills are not required so I am not sure why you are bringing that up.
I smile when I hear people actually think they can control their own luck. That is how religion started. Whatever makes you happy.
"I am going to pick my OWN boss, I am going to join the start up I want to join with MY purpose." No, you will pick the boss from a super small subset that has a position open and you are going to find a company that needs you 'currently'.
Who gets promoted? Generally, lucky loud people. Who makes sales quota? People given the best accounts (luck). Who goes IPO? People that bumped into an untapped market.
Do what you want. People's evaluation of you is just based on luck.
Life is just like that. Sure there are extreme cases of luck and misfortune (IPO billionairs and people who die in a car accident). But for most people the dice is rolled so many times, every day, every hour, in so many areas, that at some point it's about strategy and your past choices, and not about dice anymore.
I did not choose to be born into a family of upper-middle class American academics. I did not choose to be born on time with excellent health any more than my uncle's fetus chose to be exposed to lead paint, get born 3 months early, and become severely developmentally disabled for the rest of his life.
Even if spmeone came from literal rags and made literal riches, they still benefited from a civil society, rule of law, access to education, and so on.
I am fully convinced that the only healthy and ethical approach to live is to be grateful for everything you have, and empathetic for others whose needs are unmet.
ITYM chance, not luck. Luck describes a supernatural force. Chance describes simple randomness.
However "luck favors the prepared"
How your interview goes, sure there is luck of whats a good question for you. But being prepared increases your chance of a question you know. There is a finite number of questions you could likely get asked.
Being more prepared for an interview and having practiced those skills, you might have a better chance at a 'bad day interviewer'.
I do agree luck or chance is a huge portion of it. But I wouldn't quite say 99% as some would say, all of the time.
Maybe this way of looking things is more useful as a software engineer. I've also mostly given up on the whole idea of VC and see bootstrapping as the best way once you have the experience you want/need, the plan and the cash to bankroll it.
The reality of startups is if you're purely going into it with the roll of the dice for money, you're totally screwed. You're much better off getting experience and then jumping ship to megacorp, assuming you're good enough, to maximize real income. Or if you want to gamble or want to just do it, trying to do your own startup. Or going for experience and living cheap, then bootstrapping.
You should always be getting something more than just money out of working at a startup. If you're not, you're wasting your time.
[1] So far, worst thing is working for a startup where middle management comes from gaming industry. After 2 for 2 bad experiences, that is a deal breaker for me. In both cases, it didn't seem to work out well for the startups either.
The executive compensation system right now is built on social proof and positioning, not on auditable causal decision chains. Too many dependencies to make causal connections.
They are to be considered as a part of pay that can be withdrawn if either the company does badly and can't afford it, or if the employee does visibly badly.
They are a good thing for the company because they can decide not to pay it, except in as much as they allow the company to pay more because they can withdraw it if necessary
[0] - don't know the right English vocabulary for that; in Poland, if your employer pays you X directly, then he actually costs you Y, where Y > X, and the difference is what he pays as a contribution to your social security and health insurance.
EDIT I was misremembering things, so I doublechecked my payslip and fixed the comment to reflect "real reality".
AFAIK we didn't have the (income) tax rate changes since at least 2009, so I don't know for sure.
You think he should really have a $800K salary with $650K of that as a bonus "not to be considered to be pay for performance?"
Plus, the more leveraged the trader is, then depending on the mechanism it could be far less expensive if he fails but a far more spectacular win if he is motivated to put in the time. Further requiring pay for performance.
A last example is in the startup scene, where equity is seen to be a motivating factor that makes people billions, who (as an actual fact, this is actual reality we're talking about) would not have done the same work for ANY salary "to be withdrawn"?
When you take a founder who makes a $1B company in 7 years as CEO there is, quite literally no salary "including a non-performance pay bonus" that results in the exact same CEO creating the exact same $1B of value in the same time period. I'm not talking about where the financing comes from. I mean that the CEO just wouldn't achieve the same result.
there are some performance outcomes you just can't buy (even if they are the exception rather than the rule.)
While startup performance is less correlated to market performance than an established firm, the concept of setting the bar as outperforming the industry/market is brilliant, and I wonder if there's a good analog in the startup space, particularly for employees.
Bonuses and stock options are all well and good, but they incentivize the firm's survival and success. A single employee may be unable to change that, even if they perform exceptionally. Those incentives are great for "share the wealth" and "all for one, one for all" camaraderie, but they don't incentivize individual performance.
It's an uncomfortable truth because it mucks with our sense of free will and control, but it is a well known phenomenon (attribution bias) with countless examples. This CEO incentive pay version is simply the most extreme.
More specifically, it's this assumption:
> We model the impact of a manager on her firm’s performance by assuming that a manager who exerts effort and manifests her talent increase the firm’s expected return by the magnitude of her talent.
that is simply not true. The performance of every CEO is amplified by the amount of people he's affecting. And that is made even worse by the fact that companies are competing against each other, meaning that usually it's not their total performance that matters, but the difference to the next best company. You end up with so much noise in your data that yes, the result looks random. But is it? We don't know.
The only accurate measure of performance (that we know of) is performance itself.
Pay-per-performance is well established in sales and marketing. Even when the sales/marketing strategy requires a large team to implement, the spoils go to the top.
It seems the only time engineers get properly compensated for the value they create is when it is so obvious and the owners can't get away with stiffing them.
Startups are well known for stiffing engineers because the teams are small, there are no repercussions and the founders don't have much of reputation to begin with. It's harder in bigger companies since it sends the wrong message to others in the company and destroys your reputation.
Maybe there is no such thing as fair compensation. Just get leverage and negotiate or obtain a position of power (authority) within the company.
Is that what you are referring to by pay-per-performance for engineers?
"I've met very few good truck drivers, it takes a special person of talent to be a great truck drivers."
...
There is a whole premise in many post about this story that it's somehow a very rare thing to be able to run a company well and that the person filling the role of the CEO is the main driving factor of success. (Instead of economic factors, outside forces, performance of other employees... oh! I know! The other employees performs solely because the great CEO makes them do so.) I think there's a lot of egotism being expressed in this thread...
(Especially by VCs who basically say they're impervious to misjudging someone's abilities and its true influence on success.)
Therefore, it's often in the equity-holder's interest to do two things:
1. increase the volatility of the underlier (by making riskier investments, etc.)
2. Re-strike the option to be closer to at-the-money, by loading up with more debt or paying out cash as dividends
Both actions increase the odds that the firm goes bankrupt, but also increases the expected payout to equity holders.
When you increase equity compensation to executives, you basically encourage them to do riskier things.
https://www.youtube.com/watch?v=-q6hpsGjcIo
I don't think you can ever accurately account for what is "luck" and that it is actually harmful to our own abilities to call something luck and write off whatever was actually done by the CEO. I think this is a good watch and I look forward to hearing what others think about the video.
I believe founders that step away from the role of CEO seek to put in place someone who prioritizes the business as (close to) as much as they do (ie before family, friends, life etc). The problem is how do you find someone to love (yes love or at least pretend to) the business without them owning a meaningful piece of it (the equity that is)? When granting sixeable equity is not an option (most founders I know who built successful companies are highly protective of it) the solution is you buy it. Mark Zuckerberg owns 30% of Facebook. The professional CEO that one day replaces him will own 0.0000001% of it. That's not very motivating for entrepreneurial CEO types who are ideal for these roles. Mark isn't going to go to sleep easy at night unless he knows the person running the show eats sleeps and breathes Facebook the way he has for the last 30 years. That person is buying his dream, he's buying their loyalty and commitment (and great judgment, etc etc).
My understanding is that CEOs tend toward hubris and that this assumption is false in most cases. If so, then it might be more efficient to up the strike price, but the current situation isn't as inefficient as it seems (thanks to hubris).
Relatedly, if CEOs were granted deeply-underwater options, wouldn't they demand much more in base pay, to compensate? I'm not saying they "deserve" higher base pay—just that if a board wanted to institute this change, they'd get push back from the individual. Otherwise it would look like a disguised pay cut (imagine if your boss came to you and said that to incentivize employees to work harder, all options were going to be issued underwater).
C*O compensation is set by the board of directors. The board is determined by the executives' recommendations. The only shareholder who matters is Carl Icahn; the only power most shareholders have is to sell shares. And I'd be willing to bet something that their willingness to do that is only related to short term performance.
I wish academics would have the sense to avoid the word "luck" when "chance" is the principle at work. These people should know better.
His conclusions were that CEOs don't really matter all that much. Exceptional ones like Elon Musk or Steve Jobs are quite rare.
(1) CEOs are intentionally aligned with shareholders, for good reason. Shareholders often make money due to luck, so eliminating luck from CEO compensation without breaking alignment is a very hard problem.
(2) Going in, a CEO (or a shareholder) needs to lock down a big future payday in the upside case, in order to compensate them for the risk of the downside case. Yes, the upside case usually involves some luck, but the "optionality" to get paid in a lucky outcome is a valuable part of the deal.
(3) CEOs are also paid to be trustworthy agents for shareholders/boards. Like... if I am a billionaire looking for you to oversee a big part of my capital, I may pay a lot just because I know you are a good/smart/reasonable person who will be autonomous but raise the right issues to me if needed, reliably. I might know all that just because we have been buddies for years, and even though there are lots of objectively more talented people out there who would do the job for less, paying you more would not be irrational for me.
(2) You could reduce the financial risk of executive officers by paying them a fixed salary. In fact, different companies offer very different compensation plans. This was a review of those plans to see what did and did not work. Generous performance pay does not work.
(3) This is an issue of whether executive officers should be paid well in general, not the value of performance pay. And at any rate seems to be a justification for nepotism in an area of business that is already dysfunctionally nepotistic.
I mean did they try to measure luck and found that it accounted for 90% of returns?(lower bound because their measure of luck was probably imperfect)
Or did they measure talent and were able to account for 10% of the returns(upper bound).
CxOs clearly require some competence- I don't think that is in dispute. It is the 200x + salary differential that is in question and the subject of the article.
Can you cite some other studies that contradict this?
Would you be a bank CEO if it meant jail if one of your 100,000 employees was caught laundering cash or passing on insider information?
IF that was actually a risk, I might consider it, but thanks to the Holder Memo, we have "Too big to jail".
"Kareem Serageldin was an executive at Credit Suisse who was described by friends as an “investment-banking monk.”[1] As of April 30, 2014, Serageldin was also the “only Wall Street executive prosecuted as a result of the financial crisis” that triggered the Great Recession.[2] On Friday, November 22, 2013, Serageldin—the former Managing Director/Global Head of Structured Credit in the Investment Banking Division of Credit Suisse Group—was sentenced to 30 months in prison in connection with a scheme to hide more than $100 million in losses in a mortgage-backed securities trading book at Credit Suisse.[3] Serageldin also agreed to give back $25.6 million in compensation to Credit Suisse, and was later ordered to pay more than $1 million to settle an SEC lawsuit." [1]
The only tangible risk CEOs take, many a times with not much to worry about, is the risk of being fired but still exiting with a one time super nice golden parachute instead of continuing to extract a lot more money from the company.