

No CEO is Worth Their Multi Million Dollar Paycheck. Except... - alain94040
http://blog.foundrs.com/2011/08/27/no-ceo-is-worth-their-multi-million-dollar-paycheck-except/

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MikeCapone
CEOs matter because, as Warren Buffett said in one of his annual letters: If a
company generates, say, 10% free cash flow per year and that money is
retained, after only a few years the CEO will have been responsible for the
allocation of the equivalent of the company's entire equity. Doing a good job
there makes all the difference in the world, and sadly, good capital
allocators are rare.

Most CEOs are probably worth a lot less than what they are paid, but some are
definitely worth paying up for.

~~~
Hyena
Assuming _the CEO_ is the one responsible for that. I mean, that's just this
huge assumption.

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MikeCapone
Even if he hires other people to do it, he is ultimately responsible for it
and must know what he's doing, if only to hire the right people and fire them
if they don't do the job. It's not something you can truly delegate and wash
your hands off from.. Just like how the CEO is ultimately the real 'chief risk
officer' in a company and can't delegate managing risk to someone else.

~~~
Hyena
I don't find this to be a meaningful reply. Hiring people is important, sure.
So is maintaining cash flow. So is accounting. So is marketing. Etc.

But all these things are only important _because_. The CEO is the head of
_because_ ; if that's not what he's actually head of, he's doing it wrong.

~~~
MikeCapone
I disagree. The whole point of a business is to use assets to get the best
possible returns for shareholders. The CEO is the guy in charge of those
assets, and another name for that is capital allocation. It's the top job on
the list, basically. It's not just one more thing he does...

~~~
Hyena
I've already addressed this: <http://news.ycombinator.com/item?id=2937832>

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simonsarris
No other CEO? What about John Chambers who took Cisco from $1.6bn in revenue
to $40bn?

I'm sure you could easily find a lot of CEOs who are not worth their
paychecks, but it probably isn't hard to find the opposite too if you look.

~~~
alain94040
Yes, John Chambers looks like a good candidate to be in the exclusive club of
"worthy" CEOs. Bill Gates too.

For smaller companies, there are plenty of CEOs who _are_ their company, and
deserve all the credit (or the blame).

There just happens to be so many public companies that are run by MBA-type
consultants, managing for wall street, with no product or industry vision. And
they tend to make as much or more money than the other CEOs.

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zachcb
Again I'll tout Alan Mulally. Ford was headed for bankruptcy until he came in
and he's done a magnificent job. Ford avoided the bailout and is now actually
turning a profit. Without him, the company would be in the same spot (likely
worse) as GM right now. I think he makes $10M a year, and he deserves every
penny of it.

~~~
jinushaun
Another vote for Mullaly. The UAW likes to demonise his salary and claim he's
overpaid compared to the factory workers. Yes, workers actually make the cars,
but workers aren't worth shit if their leader leads them off a cliff (GM and
Chrysler). If his job is so easy, then why did the CEOs of GM and Chrysler
drive their companies to the ground and force a bankruptcy? Not just one CEO,
but a long line of really bad CEOs at GM and Chrysler. Mullaly is worth every
penny and more.

~~~
alain94040
100% in agreement, and notice how your argument relies on _comparing_ with his
peers. If you had just stated that Mullay is a great CEO, it would just be
your opinion. But by using compare and contrast, you build a valid argument.

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robfig
Jobs makes consumer electronics, so it makes sense that his work is the most
visible to us. How can we even begin to judge CEOs working in e.g.
Agriculture, Pharma, etc etc? Clearly Jobs is a god among CEOs, but without
really doing quite a bit of research it seems like poor form to say that no
one else is worthwhile.

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ChuckMcM
Must say I disagree here. The CEO job is a market just like any other market.
If you have ever served on a board of directors you will get a much better
appreciation for exactly what the CEO adds or doesn't add to the company's
value.

There is a fairly aggressive "CEOs are paid too much" meme about and while it
sounds great to someone who can't get a job, if you look at it objectively
there are few contraints on the board with respect to CEO hiring. And contrary
to what folks might say, CEO compensation is a mix of salary and stock
generally so if they suck at the job part of their pay auto-magically
evaporates.

alain94040 uses the disparaging "so many public companies that are run by MBA-
type consultants" which is false. There may be such types running the company
but if they are it is the desire of the board that they be run that way.
People who take the job generally try to do it to the best of their ability
I've found, but my experience is limited to a few dozen CEOs I've actually
gotten to know over my career.

Getting an MBA costs maybe $150K at a top executive-MBA type program, if you
could pop one of those off and get a million dollar salary do you really think
folks wouldn't be lining up? If all it took was the MBA then the MBA market
would show huge inflation as the demand would far outstrip the capacity of the
system to provide diplomas.

If you don't understand why someone is compensated the way they are that is
one thing, to assert they are not worth their compensation when you don't
understand why they are compensated in that way, that's just a lack of
understanding showing through.

~~~
vannevar
_If you have ever served on a board of directors you will get a much better
appreciation for exactly what the CEO adds or doesn't add to the company's
value._

I suspect that a CEO has a lot more impact on the board than she has on the
company as a whole, and it's this impact that boards are really reacting to
when they judge a CEO's performance. Unless someone has been in the position
for a very long time, it's difficult to attribute a company's long term
success with the actions of its CEO. There are just too many variables. Boards
want to hire someone with a resume similar to their own (ie, experienced and
wealthy), and by definition that is going to be an expensive pool of prospects
regardless of their individual management qualities. In reality there are
probably a lot more people with the inherent skills to be successful CEOs than
exist in that exclusive pool, but since the boards don't really know what
makes a great CEO (or even whether there is any such thing) they fall back on
the basic instinct to stick with their own kind. This is one of the
contributing factors in the increasing concentration of wealth that we observe
in our economy.

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Goladus
> Can any one person really be worth 10 million dollars, or 100 million
> dollars?

In sports and entertainment it's not even that hard to measure. Put Matt Damon
in your movie and a lot of people are going to go see it, just because he's in
it.

~~~
larrik
And it doesn't even have to be that you like the actor.

If I see Brendan Frasier in a movie, I think "that dude seems to ONLY pick
terrible movies."

Nic Cage: "His appearance in a movie often has nothing to do with it's
quality, although as time goes on he's gotten pretty bad at picking movies"

Leonardo DiCaprio: "Never picks a bad movie. Regardless of opinion on his
skill, he has never made a Ghost Rider or a Mummy Returns."

I'd say Joseph Gordon-Levitt also seems to have great taste in scripts, as
long as you realize how hard it is to turn down being "the GI Joe bad guy
alongside Doctor Who."

YMMV

*Directors, sadly, seem to be much less consistent. Besides Nolan.

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Hyena
This discussion is dumb. To begin with, CEOs don't all do the same thing. To
end with, it's only a certain sort of CEO people don't like.

In reality, the CEO is just the top level person in an organization. The most
important task the company faces should be expertise and focus of the CEO. If
your company is product driven (Apple), it should be your chief product dude.
If your company is advertising driven (Coca-Cola), it should be your chief
marketeer. Etc. This ensures (we hope) that the focus of the company is on its
most important dimension because the CEO can quash all opposition to its goals
(on paper).

The CEOs who are truly reviled are those which are "standard management
hacks". These are placeholder CEOs. If your company has one of these, it's in
trouble.

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larrik
You can just as easily say "only founding CEOs are worth the money" using this
sort of analysis.

It seems to me that the _right_ CEO is worth way more than the 2nd best. It's
just that you might do a poor job of determining who is right.

Kind of reminds me of the old joke "what do you call the guy who graduated
last from med school? 'Doctor'!"

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anamax
> Here’s one wild idea: the CEO stock options should be compared to a
> reference index built with its main competitors.

It's not clear that US tax law makes that reasonably possible. If it doesn't,
it's a safe bet that the relevant provision was promoted as "protecting
investors".

