Hacker News Reader

Comment by peeters | Hacker News Reader

> Ask yourself if your CEO is really working 100x as hard as you, or 100x smarter than you.

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%.

View on HN

Share holders rarely have any influence. It's the board, and the board is made of elites who are in the same social class as the CEO. Both conspire against the shareholders, in a variation of the public choice special interest problem.

The beatings will continue until dividends are deductible to the company and are taxed the same way capital gains are for the individual.

This is the part the people miss, they all "work" on each others boards. It is a you scratch my back, I'll scratch yours deal.

Most dividends are qualified, which are taxed as long-term capital gains are, at least federally.

But they aren't deductible for most companies, which disincentives them from paying them (they'd rather give that money to the C-suite as bonuses, and this is their excuse: tax efficiency.)

Dividends should be deductible against corporate income, which would eliminate this issue.

"should be" - why? They're not an expense relating to producing income. COGS, cost of sales, overhead, etc are all related to producing income and so are deductible.

Dividends to me are an outcome of already earned income.

Yeah, I can see how would think about it that way if you get hung up on the idea of deductions as expenses. What I would prefer is if companies acted more like LLCs/flow-through entities, where all profits or losses flowed through to the owners, in proportion to their ownership stake.

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.

Rarely any influence? Interesting theory, except, shareholders can, you know, fire and hire the board members at will.

The fact that "activist shareholders" is a term that people have to use suggests that shareholders rarely do that.

Perhaps because, they're largely happy with the terms of there arrangement?

You should probably stop making assumptions as to why people do (or do not) make a choice. Ideological rationalization on your part does not create motivation for someone else.

That's hysterically naive or extremely disingenuous.

Why? Do you consider shareholders to not be smart enough to make their own decisions?

That's no more relevant to the problem at hand than asking if the populace is smart enough to elect good politicians. The public choice problem, costs are diffused, benefits are concentrated, is still there.

Focusing companies on paying dividends via policy choices would alleviate much of the problem.

I think you're severely understating the difficulty of getting a huge group of people to act like that against something seen as the status quo.

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."

And the obvious developer question is:

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.

Assuming you can even measure this. How do you arbitrarily assign value produced by a dev vs produced by marketing vs produced by company synergies (could the dev really create 1 million in value without all those other people?).

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.

The same line of thought can be put to CEOs. How do we know a CEO was responsible for a big bump in stock prices? Maybe the marketing team hit gold this year, the developers/engineers put out something truly game changing, or the entire market is just on an upswing and the company is doing better in spite of itself.

Yep, and then the follow up is just as difficult...is this dev not delivering value because she's not a good dev, or because those above her aren't giving her opportunities in high value projects?

"Am I a bad CEO or does my company just stink"

Who is the one person in charge of making the company not stink?

It's true that they could theoretically fire everyone, but practically speaking? They inherit the employees, culture, customers, vendors, and physical plant. It's (remotely) possible that Marissa Meyer is the world's best CEO, but she chose to play against a stacked deck when she went to Yahoo.

Every new CEO in a big company seems to decimate the employees anyway. Why none fires the right 10%?

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.

In some cases, but in many cases its easy to see who is contributing above whom.

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.

But the problem is from point of view of compensation fairness that was the CEO who got paid 10M 2.5% better than the less paid CEO or was he just lucky (great personnel, good market, etc). A CEO cannot function without a company.

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?

> Are they paid not to screw up?

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.

This exactly.

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.

> 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

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.

"Technically, any employee is like that too, except that when the position holds so much scrutiny, the ROI is analysed in greater depth."

The point of the article is this flatly false. Almost all of the "ROI" attributed to executive skill is actually due to luck.

I guess the point is that it is the ROI calculations that don't differentiate between the skill or the market conditions.

Luck is a bad term here, Luck to me seems to imply something that surrounds the person. A force of nature. This is straight up random chance.

Let me tell you a story about a business I worked at.

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.

Sure, that's what share holders do. It's however not EQUITABLE.

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.

Reply on news.ycombinator.com