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Comment by fullshark | Hacker News Reader

The decisions made at the executive level regarding Netflix will have a much greater impact on each shareholder's value than the decisions made regarding Squid Game's creative direction. I mean it's not even a question. Now could you find someone to do as good a job as an executive for less? Maybe but when you have a 180 billion dollar company why are you going cheap here to save a few bucks? The wrong executive can be utterly disastrous, and a lot of what I think stockholders are paying for is risk reduction.

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C-level folks make huge strategic and tactical mistakes _all the time_. They are humans. Amazon has burned tens of billions of dollars on dead-end consumer electronics devices (fire phone?). Facebook is shoveling money into a burning pit trying to convince people to wear goggles for eight hours a day so that they can beam ads directly into our eyes using lasers. Huge companies fail and flounder for decades before toppling over under the weight of incompetent, highly-compensated leadership - this is the norm, not the exception.

The assertion that paying more money to the folks at the top has yielded commensurate returns is really not backed by ... anything at all, as far as I can see.

What if you examine the dead horsed mantra of “improving shareholder value”? Does their compensation reflect their ability to have improved shareholder value?

Actually another comment links to an article about:

“CEO Pay and Performance Often Don’t Match Up: The S&P 500 CEOs who received the biggest pay increases scored middling shareholder returns”

- comment link: https://news.ycombinator.com/item?id=36168067

I feel like that entire study is flawed because you can't just compare stock performances straight up.

You have to look at how the same stock would of performed with a different manager.

There are many factors outside of management's control that will dictate the return on a single stock. But don't confuse that with the fact that management decisions do have an impact and can make a large difference.

If they can't control a substantial portion of the downside risk, they shouldn't be allowed to take credit for the full upside, either.

The problem with the executive compensation ratchet of the past few decades is that it is completely divorced from any actual measure of C-level impact. If things go bad, not their fault - if things go well, it couldn't possibly have happened without these strong leaders at the helm.

Who said they don't? Who says those stocks wouldn't have performed considerably worse without good management? That's what I am getting at. Just because a stock goes down does not imply bad management or vice versa. But again that doesn't mean that management decisions don't matter, they can matter a lot.

You are arguing with a point I'm not making, I think. Have a nice day.

Amazon and FB are not the norm, especially FB which is controlled by one person. These are tech companies trying to win market share in emerging sectors, and pulling the plug when they fail to get a foothold. Amazon created an entire industry (Cloud) that it's the dominant player in, totally tangential to its main business as durable goods retailer with this strategy, and it's the company's main profit center now.

I can't imagine a shareholder in either company also thinking you know...these guys at the top of both companies have been paid too much, the various right and wrong decisions they've made turned Amazon and FB into the 4th and 7th most valuable pubicly traded companies in the world in 20 years. They should have paid their c-suite half and become what? Still the 4th and 7th most valuable companies in the world? We know this why?

At the end of the day it's a very hard job, and no one has any idea who the hell is good at it. Prior performance is a good signal, but who knows really? Why would you go cheap when the potential for billions of dollars in wealth destruction/creation is at risk?

See the sibling comment for an article with some data answering some of your rhetorical questions.

> Now could you find someone to do as good a job as an executive for less?

Yes, 100% absolutely, yes.

I’d disagree that you can find them for less. If they are better they would probably demand and get equal or more.

Not sure about that logic. If true, you could never find anything better for less. And that is just plain wrong.

You're just wrong: https://www.wsj.com/articles/ceo-pay-and-performance-dont-ma...

I am not saying I am right, but my theory is:

If you are able to deliver a better result than "Person X" who is paid more than you, and if you get a chance to deliver that result, won't you demand to be paid more than the "Person X"?

And for the company who is paying, who already seems to agree to pay that much for "Person X"'s result - would likely to be happy to pay you the same or more since you are delivering more

Where am I wrong? Isn't this just capitalism? Help me understand :)

If you voluntarily say I need only half the pay of "Person X" aren't you basically being charitable or just sacrificing what you could potentially get? I am not saying that doing this is wrong (probably morally right) but this is probably rare.

You don't seem to understand that there is nothing preventing mediocre applicants from asking for more money than better applicants. How much a person asks to be paid may or may not have anything to do with their actual ability to deliver results. And in fact, what has been empirically shown is that applicants who ask for and receive outsized compensation are actually worse performers on average.

Ok, probably you and I are talking about different things.

But on your point, what's the root cause of this issue? Why do people hire people with outsized compensations when the other option is empirically proven?

If you read the article I linked you to, it answers that very question.

You can use archive.is to read it if you don't have a WSJ subscription: https://archive.is/bkDCO

The problem with this is that it presumes there's significant actual skill being exercised at the top level that is unique to the very wealthy who already make up most executives.

Note, I'm not saying "being a top exec takes no skill"; I'm saying "many people have the skills required, they're just rarely given an opportunity to demonstrate them in the same way." (I'm also saying "many execs do not have any significant skill to bring to the table; all they have is connections and money".)

Essentially, you're repeating a variant of the Just World hypothesis—that people who have skills that are relevant to high-paying jobs must be highly-paid, and people who are highly paid must be skilled enough to warrant it.

Neither of those propositions holds up to actual scrutiny.

I don't think he is disputing your claim that there are many people with the skillset to run Netflix that have never had the opportunity to demonstrate it.

The problem is that if they have never had the opportunity to demonstrate it then how do you find them in the first place?

The skill is "don't take useless payouts" you'd be surprised at how good many people are without practice.

+1 to everything you say. Actual scrutiny will probably yield more optimized results that costs less.

Some of the variable factors that will make the actual scrutiny extremely hard are human emotions such as desire, ambitions, ego, time, impact to morale [employee, shareholder, customers]

Of course you can. People that get highest salary are best at one thing. Getting highest salary, that's their job and they're amazing at it. Their actual performance doesn't matter. They can destroy the company and next one will hire them for even more. There are numerous examples.

No the board is just lazy and has no real plan for if the CEO keels over.

Imagine if how long it takes the board to find a replacement CEO was how long it took to restart a failed server ... They just don't have contingency plans and so they shovel money at the CEO to ensure that the fact that they don't have a contingency isn't a problem.

If the CEO changes often the media will quickly portray that as the biggest problem - "The company that cannot find a CEO that will stick" and the shareholder value will be destroyed.

I completely agree that the whole thing is influenced heavily by how its going to "look" - perception.

Sure constantly changing your CEO is not good.

But being in a Disney situation where your CEO (Iger) wanted out and choose a poor replacement for himself. (Note: Iger choose a poor replacement not the board, they're useless). And now Disney stock is at the same value in 2023 as they were in 2015.

If the Disney board actually had a plan on who a replacement CEO should be they wouldn't be in this problem.

If they're that good, why wouldn't they go to another company who is willing to pay more?

The money means very little in actuality.

Most CEOs are doing it for other reasons besides money (personal enjoyment, thrill, respectability, “duty,” etc.).

Because it's extremely unlikely that there aren't more such talented people than there are multibillion dollar companies needing someone to run them.

Which company would fire their current CEO and hire Ted Sarandos at his current salary?

> to save a few bucks

Because a few bucks compounded by the marginal next best CEO might be a major improvement for shareholder.

The real reason boards don't cheap out is because no one has ever[1] got fired or sued for paying top dollar for the best when things go to crap and everyone else is pointing fingers

[1]: don't get pedantic about this common phrase

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