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Comment by fallingknife | Hacker News Reader

Comp doesn't have to be high to be aligned. The reason it is so high is because of the massive risk and uncertainty of replacing a CEO. There are thousands of people at Google who would be perfectly fine CEOs and be willing to do it for small fraction of what Sundar Pichai costs, but how do you find them? Hiring is such an inexact process that there's a large chance that the guy you chose won't be one of those competent people. And a bad CEO at a company the size of Google can cost hundreds of billions of dollars. So this gives a competent CEO leverage to raise his comp to very high levels. When Pichai asks for $200 million, he knows that the board will give it to him because it just makes financial sense. They're not going to risk hundreds of billions of dollars on a potential bad CEO when they can pay their current CEO 0.1% of that to stay. Essentially CEOs are able to hold the board hostage.

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This explanation you’ve cooked up is basically just a fan fiction. Any CEO who tried to “hold their board hostage” would be saying goodbye to their job, and likely their career, in short order. Pichai’s salary is $2 million. The rest of his compensation is incentives. Almost all of his compensation comes from incentive packages designed to align his interests with the interests of shareholders.

So he could perform so poorly he gets $0 in incentives, collects his $2,000,000 salary, gets fired, and still make in one year more than the average US household will in the next ~25 years.

Does it bother you at all this this statement is just factually incorrect? The stock is down about 50% give or take over the past year and a half.

Everything I’ve said is 100% factually correct. The bulk of his pay comes from performance incentives (defined by internal, non-share-price-related performance metrics). In the past he’s had a seperate incentive package based on how google stock did benchmarked against the S&P100 index. I don’t know if he still has that, but he’d still be performing well against that metric if he did. Google stock is up about 100% from early 2020. Hope this helps you understand how these incentive packages work a bit better.

No it’s not. It was in the 70 something range in early 2020 and lately it’s been 90 something. And regardless you still have to demonstrate support for your conclusion, which is that his compensation is aligned with shareholders. It’s not.

What we actually have here and with CEO pay in general at large organizations is what’s pretty well known as a principal/agent problem, where the manager class sets the rules for themselves in a way that results in the transfer of assets from shareholders to themselves.

It was ~$55 in March 2020, and most recently closed at $105. But the two key points you seem to be missing are:

1. Not all incentive packages are tied to share price. Many of them are tied to other metrics that the (shareholder elected) board decide are appropriate. This is where the bulk of Pichai’s comp comes from.

2. When they are tied to share price, they tend to be benchmarked. In this case Pichai’s share price incentives have been benchmarked against the S&P100, against which Google has been doing perfectly well. The reason for this is because directors generally don’t task CEOs with preventing economic downturns, and they typically want any incentives they create to be as effective under those conditions as they would be at any other time.

The shareholders are absolutely setting the rules for the executives here.

When you picked the moment of the worldwide Covid crash as your reference point, you are telling everyone that you are not trustworthy.

Riding the wave of market alpha is not an accomplishment.

It’s no worse than picking a market high preceding an ongoing recession as a reference, as the parent commenter did. The point is that his stock performance incentives are not tied to the absolute value of the stock, as the parent commenter is mistakenly claiming. Most of his performance based incentives don’t even relate to stock price, as the parent commenter is also mistakenly claiming. But the ones that do are tied to the stock’s performance against a benchmark. That benchmark has had the same ups and downs as the rest of the market, and Google’s stock has been tracking against it very well. Something that is an achievement, and that’s what google’s shareholder elected directors decided to reward him for with performance based incentives.

These are very simple concepts, and while you can be forgiven for not already knowing them, aspiring to retain your ignorance certainly isn’t admirable.

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