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.
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.
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...
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.
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.
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.
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.
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.
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.
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.
Trust me, I understand why they are compensated so highly, because it's a free market. I also understand that really, the boards are to blame. But there are structural issues that protect the CEOs from a more efficient market. Shareholder voting and board lock-in are real governance issues that make it harder to fire underperforming CEOs.
> 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.
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.
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.
> 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".
Most CEOs are probably worth a lot less than what they are paid, but some are definitely worth paying up for.