CEOs are hugely expensive – why not automate them?
newstatesman.com
newstatesman.com
So it seems that the idea that a CEO could be automated misses the point of what CEOs do and how they get hired.
"You want to be insanely rich? Here's a huge company that's not yours as a resource, now make it so it is the best one in 10 years!"
You want a CEO who is going to stick around and make the best possible decisions to improve the company's trajectory, even if that mostly means keeping the company flat as opposed to faceplanting.
You could develop a financial services company selling hedges for that risk to CEOs/executives?
> alters the long term upside of your company
I don't see how this is worse than short-term stock compensation
The CEO has an incentive not to destroy the existing value in pursuit of large gains. With compensation based on the industry spread, they may as well risk any existing value as it is worthless to them.
Currently: A CEO who does nothing but keep the stock price where it is would get 2 million. If he performs as well as average, he might get 4 million. If he beats the industry, he gets 6 million.
With leveraged spread system: A CEO who does nothing but keeps the stock price stable gets 0. A CEO who performs as well as industry gets 0. If he beats industry, he gets 6.
We created that system, we can change it. CEO entitlement is part of the problem because it has become burned into our culture that they are demigods. They are not.
If I don't need the money, I can just let it continue to grow tax free.
[1] unless the holder has elected for trader tax treatment, in which case shares are marked to market at the end of the tax year
You merely need capital. Lots of buybacks are funded by debt
BTW, this is exactly what private equity companies do when they take a company private. They borrow a lot of money to buy the outstanding stock. Often the company they are buying with debt (held by the company) is not profitable. And sometimes the company goes bankrupt.
So yes this happens.
https://fortune.com/2019/08/20/stock-buybacks-debt-financed/
https://www.cnbc.com/2019/07/29/buybacks-companies-increasin...
https://crsreports.congress.gov/product/pdf/IF/IF11393
From the last one: "Data on the percentage of buybacks that are leveraged are inconsistent. For example, the bank J.P. Morgan Chase reported that leveraged buybacks accounted for 14% of overall buybacks during 2018, which it said was the lowest percentage since 2009. But Yardeni Research, a respected securities market research firm, reported that they were 56% of the total."
Or recently, government support packages.
This is the shitty side of many modern CEOs. But the legal and tax incentives combined with Wall Street demands create the environment for it.
Dividends are boring, we need more boring companies doing boring productive work.
Just make a contract to pay them a decent amount of the company doesnt go tits up
That just encourages extreme risk.
I might join a business as CEO and it does really well for 5 years because of the previous CEO, I could claim that it is my leadership and ask for my bonus.
On the other hand, maybe I do well but my successor is an idiot and makes the company tank so now I won't get my 10 year bonus because they screwed it all up.
Unless your idea only works for CEOs who are prepared to stay for 10 years? That then brings in the complication of when you need them to leave quietly because they are rubbish but you don't want your shareholders to know!
I think the best way to address this is to provide standardize kpi monitoring.
Especially for a CEO, who has quite a bit of power to optimize for any measure, it's going to be very hard to craft a measure that gives the results you want and can't be gamed. The most likely outcome is something that's just a worse version of the stock price, because the stock price is just a forward-looking approximation of net income, which is what you'd mostly want to optimize for anyway (ignoring things like B corps).
Being a CEO is all consuming.
You don’t want to be a parent and a CEO, cause the company comes first.
You don’t want to be married and a CEO, because the company comes first.
If you could “automate” this job, the developers behind the scripts become de facto CEO. Their scripts cannot fail. They will have to make the same sacrifices as the meatspace CEO.
I dunno if it’s an Icarus thing or what, but the closer I am in interactions with ceos, the more I pity them.
Asking these people to trade their lives for the possibility of no payout seems doomed to fail. The only reason people trade their lives for this role is because it is worth the personal damage and risk.
They’re willing to endure bad work for limited pay. You don’t want this type of person leading a company.
I’ve also worked (and left) the field of gaming QA. FWIW, I’m not trying to being controversial- this is my sincerely held belief. I think gaming QA is a good foot in the door to a career in tech, but something that should be abandoned as soon as you get a feel for what it takes to work in an agile environment and make your deliverables. The gaming industry seems like the place where you go to kill your health and happiness to me. As long as people keep signing up for the work, conditions will be awful.
I do agree that the difference between a good CEO and a terrible CEO can be pretty stark - but I also think that the best CEO can't turn around a company rife with nepotism and other organizational diseases - the plebs contribute a lot more to company health than they're given credit for... That's my primary source of disagreement on CEO compensation - everyone else is being undervalued and so the creation of value is being misattributed to a CEO. The CEO should probably be the highest earner at nearly every company - but only rarely should the CEO earn five or six times that of someone in the mail room and we shouldn't see the 200:1 ratios that are relative common today[2].
1. It does have a unique exacerbating factor, every year a bunch of new grads think "Oh man, video games - I want to work on those" and thus there's a large pool of people willing to be paid peanuts to work in the field. This causes the experienced QA folks to have their labour devalued to compete with the large pool of free labour. I very much agree with your last few sentences - that's what seems to be the take-away for the gaming industry for me as well.
2. A random study - I know the numbers are in this ballpark but I'm not familiar with the specifics https://www.epi.org/publication/ceo-compensation-2018/
I could say that all German people should wear purple shirts. It doesn't much matter unless I have a proposed method to enforce it.
Maybe in the future the stock price of robo-CEO companies can be used as a baseline. If you can't beat the robot index, then you're fired. (Obviously this will never happen because the board members are other CEOs, but you get the idea).
At one company, I didn't even know who the CEO was. We had some company party because we won an award and I had to ask my colleague who the guy was who was speaking. Awkward (but at least I didn't have to ask the CEO who he was).
Apple has Tim Cook. In terms of investors evaluation of his ability to generate profits - let's say apple is going to do $400B in sales, and you think Tim's approach over time will yield a 3% improved margin. Is he then worth $12B/year? CEO's have enormous influence on a companies direction.
Investors will automate MANY MANY things before they automotive the CEO's job.
Let's be a bit serious. What would make Walmart investors more nervous:
1) Being asked to pay all workers $35/hr, or
2) paying the CEO an extra $1M/year?
1.6M employees * 40K+ pay increase = $64 Billion per YEAR. Let's get a grip on what
Walmart's profit margin is generally 2-3% and is generally $10 - $20B per year. [1]
And if Walmart were making $100B, the comp for their CEO be far from a major expense to the corp.
EDIT: To be clear, Walmart's revenue in 2020 was 559 Billion with a B[0].
We can see on that table[1] that if we take the values listed in the "Total Revenue" row (559 Million with an M, 523 Million with an M, etc) and multiply them by 1,000 according to the directions ("All numbers in thousands") on the chart that we get a result which aligns with reality.
To be even more clear, we can take the values listed in the "Gross Profit" row, multiply by 1,000 as instructed by the directions, and see that yes Walmart's annual *gross profit* is ~130B
138,836,000 * 1,000 = 138,836,000,000
[0]https://www.forbes.com/sites/shelleykohan/2021/02/18/walmart...
Edit: yes, Walmart's revenue is 500+ billion. What does that have to do with anything discussed here? temp667's comment is correct.
Edit 2: first you didn't understand what "revenue" is, now you don't understand what "gross profit" is.
Companies like Wal-Mart generally have low profit margins, because there's not much of a barrier of entry and no valuable brand or intellectual property.
It's not so much about a little extra yield, it's about not running the company into the ground, which is far harder than it may appear.
If a CEO manages to leave the company in as good a condition as they found it, that's already worth a fortune.
Obviously the board has input on the rest of the C-suite, but it's still most fundamentally the CEO who is responsible for the team.
It's almost certain that Steve jobs or Elon musk were much more than 3-5x more productive than the next best options facing their companies, for example.
I suspect that if an AI can replace the job of a CEO then all other jobs will be gone as well.
Such a thing would be a utopian outcome. If this kind work can be automated in a humane way, then the vast majority of work can be automated. That means people can be freed to spend every waking moment on art and play.
In a hypothetical future where almost nobody can compete with an AGI and 90% of voters find themselves completely useless in the economy, the proportion of voters who are against redistribution will drop precipitously.
Everyone is allocated the same by the state? A society where no-one has any function to society and where the state allocates resources to individuals sounds more dystopian than utopian to me...
It sounds pretty bad to me as well. Not worse than poverty, but meaningless and boring otherwise. Some people will make their own meaning, but many won't.
It could be argued that the truth is actually the reverse: it would enable most people to find a much deeper meaning, while only an exclusive few (probably mostly pathological people, like sociopaths and narcissists) won't.
Admittedly, I only have anecdotal data on that.
This means that they don't know what to do with that massive windfall, they manage it poorly or are taken advantage of, and end up unhappy. And the ones who do know what to do with it tend to do very boring things (set up iron-clad structured annuities or something, I imagine—I don't claim to have enough financial education to do it well myself!), and we don't hear about them because "guy won $500m 20 years ago, is living a comfortable but unremarkable life now" doesn't sell papers.
Note that this is also very different from how a UBI would affect people, because that would be moderate amounts of money regularly for life (y'know...rather like an iron-clad structured annuity); there's no way to "blow it" and end up with nothing.
People who inherit very large sums of money, but are not themselves born into wealth, are so rare as to be essentially a myth. There certainly aren't enough of them to make a reasonably rigorous sample size for a scientific study.
A more useful/practical question would be: what tools can we build to assist CEOs in their decision making and make them more productive? I think the answer will come out as "not much", since the job is so high level and abstract. You'd have a better time targeting lower-skilled jobs or technical jobs like software engineering.
They are called data scientists. An AI would be able to crunch numbers, but someone needs to read and interpret the results. You can't automate that part yet, humans are still the best in interpreting data into social and business context.
Hire people, fire people, pitch investors, manage direct reports across multiple business lines, understand what's going on in the world and market, set a product vision/direction, shape the culture of the org, etc etc. That's AGI territory.
We may be able to formulate our current understanding of what it takes to be a CEO in every feasible future context that we can imagine, and create an agent (not an AGI) that does that.
But then what would happen when the distributions change out of sample in an unforseeable way? Suppose two countries go to war and this drastically changes the operating environment of the business. The agent would need to learn how to operate with human-level capability in this novel environment which it wasn't trained specifically to do. That's why I'm thinking it requires an AGI.
Very creative jobs involving leading people will be the last jobs to fall to automation - assuming that's even possible.
1. What data do you use? Past data of the same company? Data of other companies? Which ones? Past best performers?
2. Actually identifying all pieces of information that are relevant for decision making is a challenge in itself, as we're not talking about internal metrics but also external events and trends. Choosing and collecting all these is a challenge in itself. Moreover, it is not a one-off action, it needs to be reevaluated regularly, i.e. you need to be actively looking for factors influencing the performance of the company. Mind you, not all of them are readily measurable.
3. Part of the work of CEO is creative, i.e. not extrapolating based on past events but looking for completely new avenues and opportunities. Building such a complex system would be extremely expensive, although I agree this challenge is very interesting.
Not to mention the fact that an extremely important job of the CEO is to deal with people, not just the data. This point alone can make a difference between a well- and badly-managed company.
It is naive to think that every other position within a company could be eliminated except the CEO. Of course it could be, and eventually you can expect that it will be. It's when humans are no longer the shareholders that we all need to be concerned. If we're still alive.
'Jesus Christ himself isnt worth 500x the worker's wages'
CEOs provide no real value, period. They also get golden parachutes even if they sink the ship.
It's inexcusable and I'll bet dollars to donuts 99% of companies don't even need one.
Mostly I think they are paid according to a compensation committee made up of board members and other executives. It's not a surprise that these people have voted for huge wage rises for each other.
This probably applies to many other professions. Doctors come to mind. Teachers and police don’t, though.
That said, you'll come to appreciate those "decent" CEOs after you've had an experience with a truly bad CEO. One such experience was enough for me to decide that who runs the company at the top is critical to the success of most companies.
Armchair evaluation of CEOs suffers from survivorship bias.
Decent/good CEO keeps the business moving. A bad CEO can sink a company.
Boards/owners (dependant on corporate structure) can mitigate results.
Which interestingly is the same effect as swapping out somebody who does nothing for someone else who does nothing.
>> Which interestingly is the same effect as swapping out somebody who does nothing for someone else who does nothing.
I disagree. Swapping out a decent senior dev for a decent senior dev doesn't have a net negative effect like swapping out a senior dev who does nothing for another senior dev who does nothing. In scenario one, you have a senior dev who ramps up in a decent amount of time, does the work they're paid for, and isn't a waste of time and money like a bad hire. In the second scenario, you have a senior dev who's just as damaging as their predecessor, but you've lost the time and money you've invested in onboarding them while also paying the ongoing opportunity cost you could have avoided with a decent hire and any technical debt they accrue gets tossed on the pile with the rest of the debt their predecessor accrued. It would have been better to have just kept the first guy instead of wasting time, money, and morale on someone new.
Actually though, setting up and maintaining the organization so it can self manage is harder than it looks. Of course, some CEOs have good results with meddling too. It's hard to have two CEOs and A/B test them, although RIM/Blackberry had two CEOs for a while, and there's some other companies that tried it too.
I'd be curious if it's merely an expression or a true thing about fish.
In reality, it is the guts of fish that rot and stink before the head. The guts of fish will start to rot quickly and spread terrible bacteria and disease throughout the entire fish.Hope this helps. I'm not sure why you were downvoted for expressing curiosity about fish biology.
Well, those or the guts, of course: Assuming fish have an intestinal microflora like land animals, their guts would have a head start on rotting (Heh!) over even the gills. But I guess that's where skin-and-scales-as-container comes in again, only the other way around: the possibly rotting guts are hidden away inside the critter, so not as immediately noticeable as any rot starting from the gills up at the head.
This is all my private speculation, though, and most probably influenced by (i.e, my self-rationalisation of) precisely the saying you're enquiring about.
I think it's culture and power/organizational structure that determines this. Culture is disseminated from the top down, due to the power structure. If you remove the power from the CEO, their value goes away. If you change the culture without the CEO, their value goes away. So you don't need a CEO if you can force the company to change its culture and power structure a different way.
I get the point that golden parachutes are annoying, but yeah. It's all part of the compensation package, and the reason for it is in the above paragraph.
But when you come across a bad manager, you will surely notice!
Sad for them that they only get noticed when they are bad at their job, not really when they are good or great.
You need someone that can give the time and attention - except you would be better off with a human that can do the right thing poorly, instead of a robot that can do the wrong thing well.
A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.
From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Our results provide strong empirical support for the idea that CEOs are extremely important to firm performance.”
So I’d say they add significant value.
https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfile...
Something tells me AI isn't quite there yet to run multi-billion dollar firms and won't be for a while.
You don't know any companies without CEO's? Exactly!
They have 3 people (the co-founders) sharing the role/responsibilities of CEO.
So 3 founders are running the company, nothing special about that.
Please show me a company without a CEO.
The strange reasoning is taking the the statement that said "just one driver could be a liability" and asking for vehicles with no drivers.
The only thing that you didn't consider is in CEO or management world, most keyboards are broken, and only a few work decent enough to do proper programming. That's why they are so valuable.
This probably shows some perverse incentives. A CEO can clearly prove their worth by otherwise sabotaging the firm when they're out.
It's an interesting data point but the conclusion seems overbroad. One might equally draw on this conclusion to say that families of regular people probably need proportional levels of economic support following the death of a family member.
I feel there are ways to be more targeted in calculating contributions. I also feel the hiring process for CEO and executives are inefficient.
Here's how it works:
1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified and the decisions are made by people responsible for managing money.
2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management led by the CEO.
3) What actually happens is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that.
Everyone involved will concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations campaigns and fund business schools and business publications to rationalize and create a sheen of reasonableness about why this is all the natural order of things.
But, at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it.
Because they want to, and because the system lets them.
I bet you think business is a zero sum game.
I bet you think the economy is the same as "a business".
It's almost impossible to know if you've found the next Bob Iger, Nadella or a John Sculley when you hire them. Of course with hindsight you can point to certain things but it's hard in the moment.
And for the most part boards pay people based on their belief that they've found the next Iger, not pay them like s/he could nearly destroy the company like Sculley almost did with Apple.
Or, to reframe the question: why don't people hire cheaper CEOs?
Ahh yes, when the "market" is primarily made up of other CEOs (i.e. who sit on corporate boards), whose primary vested interested is to ensure CEO salaries stay astronomically high.
This is one of the better reasons to bet on startups in a world where power accumulates advantage. During the growth stage of a startup, the incentives of owners, managers and team members are much more aligned than they will be later in the trajectory.
Data from https://www.briefinggovernance.com/2016/12/board-composition...
Let's take Intel as an example - Retired CEO of medtronic, CEO of Intel, Sequoia, Senior position at Square, former CEO of a foundation, Professor, EVP and CFO Boeing, former CEO of HP, CEO of EA, Darwin Capital.
So in total, of a board of 10, 6 of them are current or former CXOs, 1 is a professor, 2 are VCs and 1 is a senior CXO style position. Yet most of those wouldn't be counted as "CEOs" because they're "retired".
Maybe sometimes you get lucky and get a great CEO for cheap, but that’s not sustainable. You’re fighting the trend.
Of course, there are people who could do really well on less but then how many of the cheaper CEOs would then ask why they can't be paid more if their companies are making multi-millions and it is a lot to do with the CEOs strategic decisions?
To be fair, a lot of leadership is about confidence in yourself and people who are confident will often ask for a high salary.
To be fair, I don't know what the distribution of salaries in the UK is but there are plenty of company directors and CEOs who are definitely earning below £100K-£200K, even at financial companies. (about $140K-$240K) whereas in the US, I think it is much higher.
I don't understand - do you think companies are voluntarily paying them money that they don't have to?
If you won't pay them what they want they'll go elsewhere to someone that will.
Just like you would, I presume.
Imagine a charity or pension fund that invests in a company. What incentive do you think they have to spend money unnecessarily on CEO compensation?
What's so absurd to think that people from one class (CEOs/VC/etc) want to help people from that same class even if it's against the laws of the free market?
If I help someone who kinda identfies with me, it raises the chance that they will help me/my friends/my family in the future.
Because it goes against Occam's razor.
People pay CEOs a lot. Why do they do that?
Likely: because they have to.
Unlikely: global conspiratorial private welfare programme.
I don't think there is any problem. Everyone's entitled to as much money as they're able to honestly negotiate.
The fully loaded cost of a qualified developer begins in the six figures. A CEO earning 10x that would be earning 7 figures.
I've never seen an actual startup with a CEO earning 7 figure cash compensation. I don't think any reasonable investors or even board members would allow that.
Startup CEOs are largely compensated in equity, with their cash compensation being significant ($100-200K if company has revenue) but not overwhelming. They're often not the highest paid person in the company in terms of cash + bonus.
I get that it's hard. I get that there are long hours. I get that it requires long-term strategic thinking. None of that helps me understand O(100M) "compensation."
I'm pretty sure that executives get paid so much because of (a) their rolodex (ie. their ability to get certain people on the phone) and (b) because the world has -- not accidentally -- become convinced that it must be so and now it is that way. And everyone believes that were it not for O(100M) CEOs companies would fail.
Lots of jobs are hard and require extremely smart, gifted people. And yet somehow only executives get huge "compensation." Someone please break it down for me Barney-style because it seems like bullshit to me.
I say perception because even though a “random person off the street” might be able to successfully run a Fortune 500 company, most of them wouldn’t and the boards/shareholders won’t tolerate the risk of allowing untested leaders to run massive companies. On the flip side, just because someone has experience and a good track record of results doesn’t mean they will succeed in future endeavors—a good example of this is that Pepsi guy (John Sculley) who took the helm at Apple and drove its business to the brink of death, this despite being paid in 1987 the highest salary of any company in the valley.
The higher your position in leadership, the higher responsibility of your decisions. Higher responsibilities are associated with higher financial risk. Higher financial risk yields higher financial returns.
It's the same reason consultants get paid so much for delivering mediocre projects. They are paid well not because they're great, but because they de-risk whoever is above.
A board of directors want a CEO that de-risk their fiduciary obligations and they will pay for it in excess.
I know a few companies that are not paying CEOs that much, because they're stable businesses. Little risk, less need for top-notch smooth-talking and cold blooded decisions.
Most big companies are facing more risk than you imagine, though, because those risks are measured possibly in decades of strategic decisions and impact in future shareholder value.
However, while I understand the idea of de-risking to minimize financial and legal risk by hiring certain executives and consultants, it still doesn't help me understand why that translates to paying certain individuals so much money.
No matter how this is presented, it seems to always boil down to 2 possibilities. One, these people are really so talented (in the sense of rare athletes) that they are worth O(100M). I think this theory is patent nonsense, because I simply don't agree that what they do is difficult in the same way that, say, theoretical particle physics is hard.
Or two, various synthetic legal and historical forces have gradually driven the compensations of these people astronomically high in such a way that the economy depends on it, and people believe that it makes sense, like some kind of religion. This is hand-waving and conspiracy-sounding, I know. But it is the only way I can make sense of it.
If we think of executives as machines or devices, then it makes some kind of sense, from the standpoint of a balance sheet. If there's a $5M risk, you might buy a $3M device to mitigate it and still clear $2M.
To this I would observe that executives are unlike machines in several important ways. There is no guarantee that they will perform the way they are advertised, or as well. They are generally guaranteed to be lavishly paid, whether they succeed or not.
Most importantly, if, as I believe, the compensations are synthetically high and there is no genuine supply and demand basis for these compensations, then there is no economic need to pay them so much. Those same jobs could be done by those same people for less. There is nothing particularly special about these people other than their ability to be identified as a magic, oh-so-wise business executive.
My central premise (that I assert without evidence) is that the astronomically high compensations of these people is a social construct. It is shored up by years of legal and corporate machinations that have worked a bit too well. Not any sort of basic economic force. And now it is fait accompli.
CEOs are basically dictators with mercenary/conscript armies (depending on market and market conditions) which engage in economic rather than military competition. There are two parts to the job: expanding the size of the profit pie, and slicing it up in such a way as to keep stakeholders happy.
founder-CEOs are in a special position, eg Mark Zuckerberg structured FB so that a large chunk of the stock has no voting rights; if shareholders want to remove him they have to resort to the courts (obviously, the reality is more complex than this thumbnail sketch).
Most professions require an average performer. Building my house didn't require the best of the best. Programming software doesn't require the best of the best.
But there are other professions where you need (to be) the best of the best: athletes, musicians, authors, ... . Coincidentally also the professions where the top performers make a crazy amount of money, and the average ones starve.
If you invest your money into a company, and hire an average CEO, you company will be crushed by a competitor that hired the top of the top CEO.
That is why shareholders are willing to pay so much money, because they are fishing in the same pond as their competitors, and will be crushed when picking the average performer.
The supply/demand theory only explains the high cost of CEOs if there is an extremely limited pool of them. Because I reject the premise that they are just so incredibly talented, there shouldn't be a limited pool of them.
I suspect the pool is limited, but not because CEOs are just so incredibly talented. I don't know exactly why, but I doubt it's raw talent. I suspect it has more to do with access, background, friends, networks, gumption, dedication, and luck.
Anyway, my objection is to the grotesque size of their compensation. Since I don't believe the "talent pool" theory, no matter how talented they may be, it cannot possibly be worth that much. Thus, the numbers are so high for some other reason, and now everyone is post-hoc convincing themselves that it makes sense. It does not. It makes no sense at all. The emperor has no clothes on. It is self-evidently absurd to imagine that this limited pool of executives has so much talent and is so small that they deserve to be paid 1000s of times more than the best physicists, physicians, artists, etc. the world has. It's bullshit. /rant
I go the traditional route and hire a top CEO with a big chunk of money. The rest of the workforce gets what they get elsewhere.
You hire a CEO that is "fairly" compensated. You will basically need to make a bet on someone non-established, and hope they can perform. With the extra money, you can either hire better talent or hire more people.
The success of a company is so reliant on where the leader takes it, that 9 times out of 10 you will lose.
And that is why my company will survive and have a CEO that is grotesquely compensated.
Funny part is that when you win, either your CEO will be snatched away for a grotesque amount of money, or you will have to pay that amount to keep them.
I'm saying I doubt that that's actually true. I think higher-paid CEOs bring something to the table, but it isn't talent. It's something more connected to an entrenched, corrupt system that has--incredibly--achieved buy-in from global capital markets. I suspect it has more to do with access, background, friends, networks, gumption, dedication, and luck. But not talent.
My point is that anyone could have those things. To the extent there is a true supply and demand aspect to this, it is mostly just simple luck.
Plus, being able to perform under high stress, being a great communicator, organiser, putting processes into place, dealing with all kinds of personalities, convincing customers, providing certainty in an uncertain environmemt to customers, employees and investors, etc.
Your claim that anyone can do that is simply not true.
I don't think this is the case at all. The prime criteria are: 1) Have you been a CEO before of at least a medium sized-company? If so you'll probably be able to handle lots of CEO-type situations. 2) (Not crucial.) Have you done it in this sector already? If so we can talk to others in the sector and figure out a bit about you and your relationships.
The supply of great CEOs is very limited, but the demand is very high.
Therefore the price of CEOs are very high.
Do you remember last year, when Mike's dad was the coach? He yelled a lot, you hated going to practice, he made you cry? And you never seemed to win?
Because Kyle's dad is a better coach, you win more. He's worth more to the team. Even though Kyle's dad isn't actually playing on the field, he makes you guys win. That's what a CEO does -- he makes a team win.
Let me guess: because being a coach is so hard, and requires so incredibly much smarts and talent that only a precious few people have?
People tend to want to be paid market value
Also, there are many ways to make $1M without the risk and responsibility of being a CEO (among other things, just making low-risk investments with a $20M portfolio).
So between the comparative ease of making $1M elsewhere, and the low impact of $1M (to someone with tens of millions in the bank), it's not surprising why such people cannot be had for that price.
Only difference: instead of coach Kyle making just _you_ feel great, he's actually running the US Olympic Junior Team and has to hire five or more coaches under him that make _you and your teammates_ feel great and perform well.
That's why CEOs get paid well: their impact has a much wider scope.
5-year-olds from most cultures would have a hard time understanding this because it breaks their understanding from adult-child stewardship.
I really don't see the logic in this statement.
I've seen that and it's apparently a viable business decision. I don't know why - I'm not an MBA
You can see it even more clearly with "consultancy." The reason consultancies can get away with using so many newly minted MBAs, is that what most of them do is just reflect back the to the company what their employees already knew, but in a form that is consumable and justifies the business case for that action.
There is some internal reason why the organization can't just make the decision, even though plenty of employees know what needs to get done. It could be weak leadership, inability to take risks, analysis paralysis, fear of unfamiliar territory, unwillingness to own the risk (CYA) and even more dysfunctional characteristics (like different teams unwilling to talk to each other). Brining in someone external can cut through much of that mess.
And a trap many companies large enough to afford full time janitors don't realize: with outsourcing janitors they're relinquishing a lot of control towards the service provider and the work quality. The result more often than not is disgruntled employees waiting for days for stuff such as replacing a cracked toilet seat to be done.
A great example of this is legal. If you rewrote the title as "Lawyers are hugely expensive -- why not automate them?" it would sound patently absurd.
There may be more validity in this whole approach than it would appear at first glance.
Decision automation is not easy at all -- whether for executives or for legal. There's a lot of root cause analysis, presumption unpacking, and other complex problem definition that's intrinsic to the nature of the role.
But that's a crucial distinction -- if you can't automate the decisioning, you're not necessarily going to make CEOs (or lawyers) less expensive; on the contrary, you may rather just increase the scope of what they're capable of doing (because there were all these other things they would've done had they had the resources and tools to do).
I think of that the same way I think of the "Software engineers are expensive -- why not automate them?" question. Maybe some of it can be automated, but some of it is just plain human problem solving. Not all human problems can be solved with automation. Especially if/when faulty automation is what created those problems in the first place!
There are different reasons for outsourcing - lack of talent in-house, lack of time etc. Cost reduction may not be the only issue, and not every "cheap" task can be automated, either.
It is not necessarily always true right now (you can't get robot building contractors just yet) but that is not to say the logic is true that the outsourced work could be automated.
There's no logic, it's just catchy sound bite that when said makes some people feel smart and forward looking.
Remember, corporate structure is about minimizing your own work and maximizing your leverage against your co-workers. None of these shareholders want to live in a world where something can't be fixed by shouting at someone over the phone.
Seems like we could figure out a way to find accountability in that model by assigning it to whoever is best aligned with the decision - and could provide an interesting balance for the board to debate: Why did you decide to go against the machines recommendation?
For a few million dollars you can hire me, put all the blame on me, I say "I take full responsibility" and resign my position.
They also offer the lead-in service of making your idea into pretty slides with their logo, so it's clear later that they endorsed the idea from the get-go.
This is exactly 'Scapegoat as a Service'.
[1] (partially NSFW) https://www.youtube.com/watch?v=7EJ3VyM12qM
Mystified by this apparent gross incompetence (my spouse had been an early hire and knew the firm's operations inside out; they still had a healthy client base in addition to the software portfolio), we looked into the background of the CEO and discovered the person had done the same thing at several other firms.
The author seems to think that just because there's AI that is relatively good at taking decisions then that's enough to argue that CEOs should be superseded by said AIs. "If an AI can make it, why pay millions of dollars to human CEOs?"... As it was that simple.
The author also ignores completely the basic laws of economics. Does he think that this is some sort of AI that you will be able to buy from a shelf? Provided by a SaaS Vendor at 100 USD a month? Because that's the only way you can make a meaningful economic argument around this. But the reality is that if this is even remotely possible, it would have a huge R&D price tag and it won't be a product that can be sold at scale by a vendor.
That would defeat the economic incentives behind having a good decision maker taking the crucial decisions of your company. All decisions would look the same across several competitors if those decisions are taken by the same type of AI. This effectively makes such AI obsolete and operationally disadvantageous. So, you must build a proprietary replacement for your CEO and building such AI could be several orders of magnitude more expensive than hiring and paying a CEO.
CEOs can't be automated. At least not soon. People who believe abstract decision-making jobs can be automated don't understand what automation is about or what's capable of. AI as it exists today can't automate CEO jobs or any kind of job where the output of a worker is to take extraordinarily complex and multi-variable decisions.
Think about that statement, just for 5 seconds. Please.
You do realize very, very few people meet this criteria. And their opinions still matter because they are impacted.
Cool!
I much rather read insightful knowledge from people that know what they are talking about.
And that is my opinion.
Uninformed opinions teaches me nothing.
Your statement is absurd because being impacted has nothing to do with having the knowledge to talk about a subject.
It really does not matter at all what those people think about this topic and it doesn't matter what percentage of people this excludes. The topic is hiring decisions for CEOs. If you aren't hiring CEOs, then you don't get a say.
You may think this isn't nice or isn't fair or whatever but it does not change the fact that those people get absolutely zero say on this topic.
Hacker news is full of bright ambitious folks who think they are very smart, or they can change the world, or they can make a lot of money. It's all about their personal impact.
HN celebrates individual contribution. Which is fine and good.
That said, I'd argue that many folks here would benefit from spending time on how to be better leaders, or gasp, managers and executives.
Most people, by definition, aren't going to be 10x or 100x engineers. But a good manager, supervisor, executive will make everyone around them better.
https://www.reddit.com/r/explainlikeimfive/comments/210to8/e...
I doubt there’s much evidence this is true.
Boards select “the best person they can justify to shareholders.” Being expensive is a feature. A board member invents reasonable criteria for choosing a candidate: years of relevant industry experience at the VP level, advanced business degrees, charisma and “It” factor, recommendations from influencers, etc.
As a result, the candidate pool shrinks from “honestly, lots of people could do this job” to “we have to choose one of three candidates.”
From there, it’s all supply and demand curves, where the company has artificially crunched the supply and the price skyrockets.
The solution isn’t to automate the leader. The solution is to admit to ourselves that a highly-relational project manager with a decade at the company could lead it as well as the CEO, if not better.
If selecting a highly-relational project manager with a decade at the company would allow them to save a lot of money, they can try that out and potentially outcompete other companies due to slightly lower costs; and if selecting a very expensive outside CEO saves them some worry, that's a "service" they can choose to buy. If in the end the performance is the same and it's a waste of money, in the end it's their money (not, for example, the workers) to waste as they wish.
Upper management is payed a lot in stock to assure loyalty to ownership. This is a crucial component to enforcing the shareholder theory of value: a legal prerogative that was being eroded in the mid 20th century as industry became more complex, workers became more empowered, and absentee ownership had a harder time holding onto the reigns.
The modern corperation is internally a very large feudal society ("manors within manors"), shareholders are completely absentee, and the secondary markets do not directly effect the balance sheet.
I should cite the posts in https://jwmason.org/slackwire/tag/corporate-governance/, some of which I were paraphrasing, and others which I haven't read before but are also interesting in a forum ostensibly run for "founders" by "friendly VCs"!
Persoanlly, I don’t see automated CEOs as a viable option for the foreseeable future.
Automation usually works best with consistent and repeatable functions right?
And automation usually works worst with diverse, infrequent, and unusually functions right?
Could a CEO’s roles and responsibilities be somewhat split(with some grey area delineation) between hard and soft skills?
Automation support for senior leadership hard skills seems like a logical extension of recent automation capabilities.
In fact, I could imagine a well branded AI/human teaming decision support service becoming the new high-end executive health service status symbol.
If companies are willing to expand and experiment with very high end health care support to senior leadership as a means to ensure high cognitive functioning then it would be a natural extension to include bespoke AI/ML decision support for senior leadership.
Where else would bespoke AI/ML decision support for individuals originate and gain traction?
It seems inevitable that it would originate where the opportunity cost is greatest.
So CEO/AI teaming seems ripe for exploitation today, but a fully automated CEO still seems completely unreachable.
However, if it emerges I would imagine it will do so first in business units with extremely high simplicity, repeatability, and predictability.
Predictive maintenance != “automating a CEO”
So basically it doesn't matter how many people believe this because the people who hold the opinion have zero overlap with the group of people who practically make decisions about CEO roles.
I guess maybe, although unlikely, temporarily there could be an overlap between the two groups but that situation would quickly resolve itself.
This line alone makes the article ludicrous.
Lots of smart-y talk, ~zero useful content.
This is what this article is.
HN community provided way more substance in a single (of several) threads on "is ceo pay fair" topic.
1. Specifying the problem to be solved can be very subtle. The article throws in an example of scheduling maintenance in a transit system. That's a case where someone can specify some utility function around service disruptions, cost, etc. Companies are complex.
2. The space of actions available to a company at any point is extremely broad, and also hard to specify.
3a. An agent needs to learn from something. This can take a couple directions. Roughly, "off-policy learning" learns from the actions and outcomes of _another_ agent with different internal rules etc. Perhaps we have incomplete data of this sort (business school case studies etc leave much information out). But you need a _lot_ of data, and it needs to cover the same sorts of situations that your agent would get around to. And some actions probably the software agent _cannot_ copy (e.g. doing an interview on Sunday news program).
3b. "On-policy" learning is improving your agent from the past actions/outcomes of its own decision-making. Normally this means we need some simulation environment in which to let the agent learn. How do you simulate the whole economy, and market forces with which a company interacts? After learning in a simulated environment, you likely need to further improve (and test) in the real world. In this domain, I think that means you have to be prepared to let a computer program run many companies into the ground.
4. Without a decent model of the world around them, RL agents have a harder time attributing outcomes to specific past actions. You beat your earnings estimate, but which of the bajillions of decisions made over the past several quarters is most responsible for that? I think human CEOs actually do a questionable job of this, but an automated one would be worse.
It's casually flippant to say that all CEOs must be automated out of their jobs without looking at the details and nuance of what the data bear.
Their response was that the computer did it. (This was a common explanation you got from bureaucracies in the 70s)
This did not satisfy my mother so she wrote a letter to the bank president, explaining to him that she didn't but that explanation. "Computers are not stupid and arrogant."
If what my mother says is true, you will never be able to replace a CEO with a computer.
Most of us here on HN are hunting for disruptable opportunities so that we can either build startups or at least inform other people who will hopefully go after them. Of course, many of the seemingly disruptable opportunities are not really disruptable, but their apparent inefficiency is due to some aspect of the problem that we're not aware of. So in order to disrupt something, you either have to have deep knowledge (or have done a ton of research) in a certain industry or you have to be ridiculously lucky.
So that brings us back to the topic of disrupting the CEO salaries. At a surface level, the price is high and the performance is low - boom, the market must be nuts so let's disrupt this / solve this problem. But the issue with beating the market with your idea is that you have to have detailed insights into the price and performance of CEOs, and the reality is most of us have neither (special shout out again to the 7 figures dude). Simply saying "I can see that many startups fail, hence all CEOs must be idiots" is not exactly the level of deep knowledge you need to beat the market. Having worked directly with a CEO, including recruiting, firing, and replacing them, would be a good starting point to think about how to approach pricing differently.
I apologize if this comment comes off as elitist - I am just simply stating the needed mechanics to be good at disrupting any problem out there, and it's really no different in this case. It took me many years and many failed startups to analyze my own issues with spotting disruptable opportunities, and I wish someone had told me earlier in my life how much effort and diligence I should be putting into validating my ideas versus just blindly trusting my gut.
Maybe that was the case several years ago, but I believe most people on HN are regular salaried employees without any particular startup ambitions.
If you consider an outlier like Elon Musk, the reason many CEOs can't be automated is even clearer: his cult of personality has added at least $100B to TSLA's market cap alone, and I say that while thinking that he's generally a pretty bad leader.
There is a need for the employees to believe the CEO is important. Pay is one dimension in which this can be accomplished.
CEO pay functions as an aspirational goal for all career paths in the company.
I think the actual role of CEOs is symbolic, in these and many other ways.
Realistically though, they are supposed to be here for liability purposes. I've read of some companies decreasing CEO salaries and employing people just out of university, only to fire them a few months later to satisfy the board.
So far "automation" means a bunch of if/else statement or at most a biased deep learning algorithm, this is why they're used on entry jobs, because they're fundamentally not very useful for anything other than pre defined repeatable and easy tasks
It's always obvious and easy when you look back at history ...
I'm entirely sure a lot of the early people at Amazon were in fact quite bright and hard working, and many good decisions were made, but plenty of other people knew selling stuff online was going to happen but couldn't get the stars to align on funding, or had a key member suffer a personal setback early on, etc.
Then in late 90's somebody said internet will be in each house - again I could not believe :)
Later somebody said people will do shopping through internet - guess what my opinion was ;)
Later somebody said everyone will have a smartphone - at this point I thought my gut feeling is probably wrong - even if I was happy with my mobile I thought my spending habits are different than those of majority.
Later somebody said everyone will be connected to the internet 24/7 on their smartphones.
So I missed most of the wave purely because I had no imagination and no business acumen.. I can image value of people who do see those trends early.
I'm pretty sure there's a lot of morally dubious things he was willing to do in the pursuit of being the richest motherfucker on the planet that I'm not willing to do, either.
I was smart enough to hire for technical work, from development to training and documentation, but lacked the social skills to negotiate or build so I spent a lot of my 20s doing Very Clever Things for which other people reaped all the economic and strategic rewards. So you can be very competent and have a lot of imagination, but if you're not in the right place at the right time or work in an environment with a lot of gatekeepers, you may not be able to capitalize successfully. You can also find that you're so good in a particular role that people who pay you for it have an incentive to not help you with career development.
No stock options. If he wants stocks, he/she needs to buy.
Many however provide some serious value that won't be automated any time soon if ever.
If anyone is exploiting CEOs for personal benefit, miniskirts are not that.
And you can be pretty incompetent and still be failing upward if CEO likes you. There is no stress from responsibility if such thing does not stress you out.
Smart mini skirt would took higher paid position and all those advantages of that was available. But, it is not. CEOs are I fact exploited differently and ultimately by dudes.
If I get away with paying all my devs $30K, I can hardly justify my own $100K salary!