Economics: Golden Parachute Myth

[DBTrek]

Precisely. These are EMPLOYEES who have leveraged their management positions to act like owner/founders. I do not believe in the godlike powers of CEO's, with rare exceptions of visionaries like Jobs they're a commodity item who have convinced people they're irreplaceable.

How do they “convince” people they are irreplaceable? You don’t think a board of directors knows what skills are required to helm a multinational corporation? If the board of directors truly could get effective CEO performance out of someone for $250k a year, what is your explanation for them not doing so?

I see no evidence that a board of directors, whose own wealth and power derive from the health of their corporation, would sink millions into a failed CEO out of altruism or a feeling of commonality.

We have two proposed explanations for the Golden Parachute:

• 1. The board offers big compensation to CEOs from which they expect massive returns. When the CEO fails it is often cheaper to buy them out than to let their continued failure run its course.
  
  2. The board are all C-level executives themselves, and they all belong to a self interested and short sighted peer group that values survival of the herd over the individual. Therefore, if one CEO screws over 12 other C-level board members by tanking a company, the board awards that CEO a generous package because if situations were reversed they’d want the same. Never mind that all twelve board members are significantly less wealthy and powerful due to the disastrous performance of the bad CEO.

One of these scenarios seems considerably more likely than the other.

Can we also discuss the finance sector?

That we can. I’ll give it a thread soon.

[Calculus Man]

The premise of the OP is flawed because it assumes that the directors have a net incentive to look out for the long-term health of the company.

In reality the opposite is true. As StA pointed out, directors and management (which are not separate entities as DBTrek seems to think...CEO usually winds up as Chairman of the Board) can often profit more by short-term chicanery than they can by careful cultivation of the business.

I read my company's proxy statements every year. Managers and board members are only required to hold onto the company's stock for three years. Only three years! Thus, if you are managing a company with a strong competitive advantage, the financial incentive is actually to reduce spending on employees, reduce spending on innovation, and milk the current product for maximum short-term profit. These managers might not even be tied to the company in three years, and many of them choose the "economically rational" route.

In general I suppose I'm an "apologist for aristocracy", but I do think that management should reap what they sow. The proliferation of short-term incentives is killing American businesses and American innovation.

I've seen it first hand. The managers of my company were given a gold-giving goose. They didn't kill it outright, but they're wringing its neck like a washcloth, collecting the gold drippings in a bucket, and then demanding that the rest of us nurse it back to health.

It's a pretty fucked up thing to watch, to be quite honest.

[Calculus Man]

Also, lol @ Robert Iger being an example of a valuable CEO. That guy and his team have done immeasurable damage to their ESPN cash cow in order to further a political agenda.

But hey, I'm sure management had a sound business reason for alienating half the country. I'm sure they just know super secret management tricks that I don't know.

That's why they earn the big bucks for leaving, after all.

[DBTrek]

The premise of the OP is flawed because it assumes that the directors have a net incentive to look out for the long-term health of the company.

Believing that people who spend their lives rising up to C-level positions and board memberships have incentive to see the company do well is “flawed”? Based on what, exactly? Their wealth is largely tied up in the performance of their companies. As is their professional reputations. As are their egos.

I see the bit where you suggest that corporations incentivize leadership to loot their company after three years. Yet this is clearly false. If that were actually the case it would be difficult to name any corporation that survived from one presidential inauguration to the next. Instead, the opposite is true.

Lots of feelings and anecdotes about corporate behavior, but when these assertions are taken to their logical conclusion it doesn’t reflect reality.

[Martin Hash]

Also, lol @ Robert Iger being an example of a valuable CEO. That guy and his team have done immeasurable damage to their ESPN cash cow in order to further a political agenda.

But hey, I'm sure management had a sound business reason for alienating half the country. I'm sure they just know super secret management tricks that I don't know.

That's why they earn the big bucks for leaving, after all.

You need to sign up for the Libertyist team, Calcey.

What R U when you're neither a Collectivist nor Libertarian; you're a Libertyist.

[clubgop]

Also, lol @ Robert Iger being an example of a valuable CEO. That guy and his team have done immeasurable damage to their ESPN cash cow in order to further a political agenda.

But hey, I'm sure management had a sound business reason for alienating half the country. I'm sure they just know super secret management tricks that I don't know.

That's why they earn the big bucks for leaving, after all.

You need to sign up for the Libertyist team, Calcey.

What R U when you're neither a Collectivist nor Libertarian; you're a Libertyist.

No, sorry that sounds like a skin condition. That's not happening.

[Calculus Man]

The premise of the OP is flawed because it assumes that the directors have a net incentive to look out for the long-term health of the company.

Believing that people who spend their lives rising up to C-level positions and board memberships have incentive to see the company do well is “flawed”? Based on what, exactly? Their wealth is largely tied up in the performance of their companies. As is their professional reputations. As are their egos.

I see the bit where you suggest that corporations incentivize leadership to loot their company after three years. Yet this is clearly false. If that were actually the case it would be difficult to name any corporation that survived from one presidential inauguration to the next. Instead, the opposite is true.

Lots of feelings and anecdotes about corporate behavior, but when these assertions are taken to their logical conclusion it doesn’t reflect reality.

As I pointed out, they are usually free to divorce themselves from the company economically after a short period. In my specific case, that period is only three years after they stop working here.

That's not a feeling, that is a fact. The incentives are remarkably short-term, when you actually look into it.

Professional reputations and egos can be maintained even through massive failures. Every time my company reports bad results, it's not the managers' fault. It's interest rates that are to blame, or the forex headwinds. Managers across the country do it. Just as corrupt politicians defend other corrupt politicians, just as nukedog defends violent white nationalists, so managers defend the excuses for other managers' failures. Of course they have an incentive to do so. Don't play dumb.

[DBTrek]

Also, lol @ Robert Iger being an example of a valuable CEO. That guy and his team have done immeasurable damage to their ESPN cash cow in order to further a political agenda.

But hey, I'm sure management had a sound business reason for alienating half the country. I'm sure they just know super secret management tricks that I don't know.

That's why they earn the big bucks for leaving, after all.

You need to sign up for the Libertyist team, Calcey.

What R U when you're neither a Collectivist nor Libertarian; you're a Libertyist.

What are you when you believe in a world unsupported by fact?
You’re an anti-factualist.
Maybe that should be the new moniker for the movement.

[Calculus Man]

Also, lol @ Robert Iger being an example of a valuable CEO. That guy and his team have done immeasurable damage to their ESPN cash cow in order to further a political agenda.

But hey, I'm sure management had a sound business reason for alienating half the country. I'm sure they just know super secret management tricks that I don't know.

That's why they earn the big bucks for leaving, after all.

You need to sign up for the Libertyist team, Calcey.

What R U when you're neither a Collectivist nor Libertarian; you're a Libertyist.

I'm open to it, but I need to understand your position on redistribution better.

[clubgop]

The premise of the OP is flawed because it assumes that the directors have a net incentive to look out for the long-term health of the company.

In reality the opposite is true. As StA pointed out, directors and management (which are not separate entities as DBTrek seems to think...CEO usually winds up as Chairman of the Board) can often profit more by short-term chicanery than they can by careful cultivation of the business.

I read my company's proxy statements every year. Managers and board members are only required to hold onto the company's stock for three years. Only three years! Thus, if you are managing a company with a strong competitive advantage, the financial incentive is actually to reduce spending on employees, reduce spending on innovation, and milk the current product for maximum short-term profit. These managers might not even be tied to the company in three years, and many of them choose the "economically rational" route.

In general I suppose I'm an "apologist for aristocracy", but I do think that management should reap what they sow. The proliferation of short-term incentives is killing American businesses and American innovation.

I've seen it first hand. The managers of my company were given a gold-giving goose. They didn't kill it outright, but they're wringing its neck like a washcloth, collecting the gold drippings in a bucket, and then demanding that the rest of us nurse it back to health.

It's a pretty fucked up thing to watch, to be quite honest.

I have read those same proxies about half the board is on a different time schedule than the other half. And they are all leveraged quite a bit, must own 2% of common stock something 20000 shares. DB is on the the right track but it is worse than that it's not just a divorce it is a custody agreement.