You could try to pay the CEO of Netflix $500k, but you're going to be out a CEO pretty quick. This is just how markets work.
We expect the CEO of McDonalds to earn hundreds of millions even if he destroys McDonalds as a functioning entity.
It's a kind of Stockholm syndrome.
We should really think about performance based incentives - e.g. average pay + shares that start to vest 7-9 years later.
CEO is a job like any other.
Maybe we should index all employees comp to company performance with a base comp floor...
Not trying to be pedantic, but genuinely curious.The size of a company is not directly correlated to how hard is it to managed. MacDonalds for exemple is a well oiled machine whith a well defined market, well defined business model. I am gonna assume that the role of the CEO is more about "dont't ** stuff up" as opposed to improve/innovate. Compare that with say openai... which is in a crazy competive market operating at the apex of human knowledge.
> We expect the CEO of McDonalds to make more money than the CEO of a local diner.
We should compare the CEO of McDonalds to something more realistic than a CEO of a local diner.
> It would be easy for Sarandos to get an executive role at any other tech company, which is not the case for the CEO of a local business.
Then let him...
> You could try to pay the CEO of Netflix $500k, but you're going to be out a CEO pretty quick. This is just how markets work.
The is a large difference between 40 millions dollars and 500K. Nobody is trying to pay CEO 500K, the fundamental question is why not 20 millions or 10 millions.
I think the general sentiment is that the usual market forces do not apply to CEO and the way their salary is computed, and that's an issue.
This is exactly wrong though, and demonstrates why laypeople undervalue executive leadership. Staying still in an evolving market is a doomed strategy. McDonalds has transformed its image to stay relevant many times in the last few decades. McCafe is a great example of this.
Also, the size of a company is a huge factor in the complexity of managing it. The more people you need to have pulling in the same direction the harder it's going to be. Leading tens of thousands of people without creating an obstructive bureaucracy that stifles innovation is very very hard.
And yet that's exactly what a lot of CEO have done in the passed and still have had great compensation packages. Like intel before Patt for example.
> Staying still in an evolving market is a doomed strategy. McDonalds has transformed its image to stay relevant many times in the last few decades
Sure, the "specific CEO" doing this evolving strategizing should/could be compensated "out of bound".The main point i am making is the life of a company is usually cyclical : Some crisis, some coasting... But CEO pays never reflect that.
> The size of a company is a huge factor in the complexity of managing it.
This is the logic that creates "empire building" inside company. I am not sure there is any evidence that this is correct. Again, i am skeptical that the size in term of number of employee is a "huge factor". Again we talking about companies which already have precesse, departement etc...etc... well defined
Hopefully the organization is capable of weeding-out poor performers, but it's no easy thing. Again, the same goes for executives. Poor performers (should) get fired by the board. If they're not, the board is failing. In this case we're talking about an exec who has been at Netflix for 20 years and was one of the people who built the company from nothing. I don't think anyone is suggesting he is a poor performer.
You seem to be labouring under the assumption that leadership is easy. It's anything but. Well defined processes, high-functioning departments, all of that is fragile as hell. A few key people turn over, formerly-respected processes start being ignored, things go to shit. This has happened time and again. One of the jobs of leadership is to keep people accountable. Why would anyone follow a process that no one is checking on? Especially if the person is new or they feel the process gets in their way (which it often does!).
The size of a company is very correlated with the value add between a good CEO and a bad CEO, or between a good CEO and a great CEO. It's the same reason why basketball players make more money than ping pong players. It's not that basketball is harder than ping pong, it's that way more people watch basketball so there is more money to be made by the team that has the best players. Because the CEO's decisions are leveraged by the scale of the business, big businesses are willing to pay top dollar for whoever they think has the best shot at running the company well. Of course, this judgement might be incorrect, because the world is hard to predict.
Just because performance differences are less visible in CEOs than they are in basketball players doesn't mean the differences don't exist, or are less valuable.
This is true for any other employee. If a dev optimize a code base by 1%, that 1% value add is correlated to the size of company : could 10$ for a small company or 1Mill for a large company.
A company is a collective of individual working together to preduce (in general) more than just the the sum of the output of each individual. So it's normal that any individual output value would be a function of the collective output.
However, the current social contract is that "regular" employee trade some of the upside of the synergy for less risk and more predictable compensation. The question is, why are we so comfortable treating the CEO any differently.
Let's go one step further and replace that one CEO with 3 employees in some part of the world with lower wages, for 50k/year each.
Ask them if they will expect the CEO pay to be zero if the company doesn't show a profit?