To contrast, take the typical American CEO: he or she would have taken this money, offshored it, spent another couple of years going to board meetings, and then jumped ship to another gig in some other company's c-suite. You know what I call that person? A COWARD.
In buddism, the term for discipline is the same turn used for morality. ( they dont make the distinction )
You, here, interrestingly, suggest that a relationship between morality and guts.
Im not agreeing or disagreeing with anything in particular here. Just considered the contrast interesting.
Now does it follow that it takes guts to have discipline or vice-versa? I think so, more in the sense that it takes discipline to have guts. Courage (guts) has a shelf life--it needs to be exercised to be maintained.
What's the term?
On page 66 of http://www.lenovo.com/ww/lenovo/pdf/report/E_099220120531d.p... it looks like his base pay is just over $1 million. Not shabby. He has up to 300% of his base as an incentive. That would give $3 million. Seems like unless they are paying him separately under the table, he really is giving up his full bonus.
Just this once I won't be a cynic.
Cynicism never fails me.
Same concept as the Lenovo situation. I'm a cynic about many things, but I do believe that they could have kept the money if they wanted but decided to split it among the team. Earned my respect.
I think this kind of thing builds internal loyalty way more than the external PR aspects.
After all, if the CEO really thinks, as he says, that this is just giving the workers the share of the company's success they deserve, he is uniquely well situated to propose a change to the bonus structure so that, in the future, that would actually be how bonuses are distributed. But it might be that a $300/yr bonus delivered the normal way (via HR, according to an official bonus policy) wouldn't have the same PR effect as a bonus positioned as a personal donation from the CEO, even if it's the same amount of cash.
This is why, for instance, a firm may decide not to pay out bonuses to employees during a bad year -- but may still reward its top executives with hefty bonuses. The firm may actually be obligated to pay out the bonuses to its executives by way of their contracts, or in some cases, as scheduled advances on their insurance policies. (This latter practice is becoming increasingly common as a tax-deferral strategy).
But I honestly don't see what's the problem with such a technique. Of course it would be better for the employees to get a raise. But it would certainly be worse to get nothing at all.
If they get something (money) and the company gets something (loyalty), it's a win-win. Could be better for the employees, I agree, but that's a bit unrealistic these days for the reasons you mention.
One issue though. I wonder what the tax aspect is of getting a 3 million dollar bonus and giving it away.
The story says this:
"The CEO of Lenovo, Yang Yuanqing, recently received a fat bonus of $3 million. Rather than stuffing that big bonus away in his own bank account, Yang Yuanqing gave it away."
So by "recently received" Yang received the money. So that is a taxable event (assuming US). You can't receive money and not pay taxes on it no matter what you do with it. (Even if you throw it in the trash can it's still taxable).
To answer my own question the story might leave out an important detail. That the CEO had the right to the money but said "disburse to the employees instead". That's the same thing but lacks the tax implication as the money was never received. But it would lean more toward your "cynical" view. (Good thinking by the way).
If it was possible for him to do that, it would have been wise and there's nothing cynical about it at all. Those employees would be on the hook for income taxes regardless, so it's all the same to them. If the CEO gets the money first, the total going to employees is reduced by the fraction represented by the taxes he pays, or he pays the taxes out of pocket. None of the parties involved benefit from that.
Not at all. It may have been calculated and declared, but the actual funds not transferred yet.
I happen to personally own a Lenovo and it's certainly top-notch. Perhaps we should think about getting new desktops from them instead of Dell and DFO.
This classy move is another gold star for the CEO of a seemingly top-notch tech company.
"It's nice to see an executive giving away a huge chunk of money to the employees that had as much to do with Lenovo's successful year as any executive within the company"
Here in the US we have a cultural flaw where we irrationally conflate equilibria in the supply/demand of labor with distribution of credit for a company's success.
The CEO gets paid a lot more because there is a much smaller supply of people who have the pedigree/qualifications to be CEO than to be a line worker. There is no chain of logic that can take you from there to the conclusion that he's more important to the success of the company than those 10,000 line workers.
What you need is a sensitivity analysis, of profitability of the company versus changes in CEO versus line worker performance. I'd imagine you'd find that a 20% efficiency jump in the line workers would have a much bigger change on the bottom line than a 20% better CEO.
10,000 "low-level" employees take two weeks off (all at once.) What happens to the company?
Companies operate without CEOs while boards seek candidates. Companies can't produce product while it seeks 10,000 replacement workers.
As long as we have the chief executive on one hand and the workers on the other, that is.
I take it you're a Communist then, and follow Communist thinking in other economic thought as well.
The classical economic theory of pricing holds that goods (and labor) are exchanged at a point where the supply and demand curves cross. This, according to the principles of free markets as expressed first by Adam Smith and subsequently refined, and has certain prerequisites including low barrier to entry, equal access to information, fair and open competition (and a lack of collusion on the part of either buyers and sellers), and a clear understanding of value.
All of which undoubtedly hold true for the CEO employment market, I trust.
Karl Marx allowed for supply and demand, quoting Adam Smith himself, and I believe, describing the status quo of the era:
" It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say, with their values as determined by the respective quantities of labor required for their production."
I don't think that this disagrees with the classical economic theory you mention, in any way. Would you to care to explain your point in a little more detail please? If anything it's one of the refinements that you speak of.
I'm not being dishonest here, I genuinely can't spot the difference. I have difficulty in spotting what aspect of biot's statement is inherently communist.
In Marx's own view on how things ought to be, paraphrasing, communism was a world in which each gave according to their abilities, and received according to their needs.
In this communist scenario, what each person contributed has no bearing on their compensation. So by supporting the current status quo, biot is not in my opinion expressing Marxist views, in fact, quite the opposite.
In fact, I've heard people denounced as communists for wishing for wage caps.
It's that a lot of what's passed off as free-market capitalism is anything but.
In biot's case, arguing that the value generated by an individual should serve as the basis for that person's pay. It isn't, but is only one input (essentially defining the demand curve, and setting a possible upper limit), but the true market pay scale being one that would also have to take into consideration supply. As I noted (somewhat snarkily), market conditions for establishing executive pay fall somewhat short of the free market definition. For a more popular treatment, Eddie Murphey and Dan Akroyd's "Trading Places" explores a similar idea. Mark Lewis's writings on the stock market provide some insight on trader qualifications and pay.
A friend some years ago provided an intriguing argument for why financial traders' pay was as high as it was. It was less a conventional market pricing argument than one of creating incentives to minimize incentives for fraud. Essentially: we're going to pay you so goddamned much money that you'd be completely mental to try to cheat on us and lose out.
I really cannot speak to the merits of this.
What that, and numerous other arguments for the rich getting ever richer do suggest is that there is a class of people who are very well versed at rationalizing their income and remuneration rates.
There's also a great deal of very, very, very sloppy thinking, rationalization, reportage, etc., in economic matters.
I'm also coming to feel that much of economics as it's been taught for the past 150 years or so simply isn't so. That the conditions described by free markets are far less common and far more fragile than commonly believed. That much of macroeconomics is bunkum used, again, to rationalize why them that has gets more (though, oddly, I'm also coming to understand money, fiscal policy, and Keynesian theory better than ever before), and that much of the economic gain is really a power game played for leverage and advantage, rather than for strict financial gain. A lens which makes the MPAA/RIAA, copyright, patent, trade and immigration law, etc., far more understandable.
Jonathen Nitzan's Capital as Power seems to have stumbled on this same insight: http://www.amazon.com/Capital-Power-Creorder-Political-Econo...
Thanks for your detailed reply, I was thrown by the communist thing, and missed your point almost entirely.
One of the values in these online discussions isn't the ability to convince others nearly so much as it is to hone and refine your own arguments. I'm not sure I'm even partially cogent yet, but I'm starting to stumble in a direction I like.
Most recent that comes to mind was a banker interviewed on the BBC. I was listening, critically as I frequently do, and realized that the view he was espousing was flagrantly Marxist.
Then why do companies with flat hierarchies exist and operate just fine? You don't need someone at the top because you don't need a top.
The interesting thing about people, and any social, intelligent agents is that they self-organize.
Even bees (intelligent, social agents) do this:
So do ants:
We can even manage traffic without direction:
The biggest myths of our societies are that we need a hierarchy, directions and managers. We're quite capable of leading ourselves and getting everything done. And more efficiently, no less.
Has this been actually measured?
This is wrong. It's Econ 101. Salaries are the price of labor, and like any other market, the price of labor is the result of equilibrium in the supply and demand in the labor force.
What you need to look at is impact of decisions. If the CEO makes a wrong decision the entire company can go down. If a worker makes a wrong decision it's much less of an issue.
I don't see any particular justification for "What you need to look at is impact of decisions." Why is "impact of decisions" a more important criterion than "who does the work."
Unless the employee gets his hand caught in a machine, the press jumps all over it and stocks plummet 5%.
Say you have a median CEO and median line workers. If you got a CEO 20% better than the median, would he be able to motivate the line workers to be 20% more efficient? Highly unlikely. I think you need a 10x median CEO to see something as huge as a 20% jump in the efficiency of line workers.
My point is that it does not work in the long run, but shareholders are sometimes interested in the short-term gains (as in improve efficiency by 20%, flip the company, not my problem)
Say CEO X provides V units of value to the company. What should CEO X be paid (P)? It has nothing to do with Y, except in the degenerate case where P > V. P is going to be determined by the supply of CEO's with credentials similar to X. P can vary dramatically depending on that supply, but obviously V doesn't change.
The CEO is just the pointy end of the stick. They're not the singular reason the company is successful.
If anything the job of the CEO is to not screw up more than it is to be amazing. There are too many bad decisions to be made on a daily basis.
It is however about the amount, you're right on that.
There is 1 CEO and there are 10 000 employees. It's much easier to pay 1 CEO "a lot" than 10 000 employes "a lot". (and to become CEO you have to look good/smart/etc but you don't have to be or work hard. You can however stab people in the back in the name of capitalism all day long. I don't know many "big" CEOs who haven't done that.)
The only thing that really comes with a CEO title is the responsibility for other people's jobs. Large bonuses in that case make sense, but in general, they're already paid so well, that it's peanuts.
Being peanuts, they can afford the luxury of redistributing to employees. Don't get me wrong, I admire the gesture. But if the CEO wasn't paid so much to begin with, and bonuses weren't out of proportion, he wouldn't have done that.
Now, even "less well paid" CEOs still get paid a lot, so that's not an argument for paying CEOs $100k. But it may be an argument to pay CEOs towards the lower end of the CEO payscale, rather than towards the higher end.
The thing is, being CEO is generally way less specialized (and thus easier).
It almost entirely depends on having good employees rather than direct CEO decisions (even thus some are really bad most are OK).
Sure there are exceptional CEOs but it's pretty damn rare. (rare meaning 1 every 100000 not 1 every 10)
To take just one random, high-profile example: David Ebersman, Facebook's CFO, while by all accounts a knowledgable and hard-working guy, was also the protégé of one Arthur Levinson, chairman of the board of Apple. This is the kind of thing that may be totally unimportant to Facebook's day-to-day operations, but that could also be very useful at some unknown point in the future (when negotiating to integrate Facebook products into as-yet-unreleased versions of Apple's mobile OS, say).
Investors also pay attention to "who's who" in the executive suite, which is important to many companies.
A captain steers the ship, but it's the rest of the crew that sails the boat. You can steer to your hearts content, but without the right team and culture, you aren't going anywhere.
There was also a government initiative known as 'the threshold' but that was a permanent uplift in pay, again depending on transparent criteria, and again accessible to all teachers after their 'probationary year' (first year of teaching) was completed.
 Source for e.g. receptionists: http://www.worldsalaries.org/hotelreceptionist.shtml
I would presume that a gesture such as this buys him and Lenovo more than $3MM worth of good will/publicity. A nice counter to the "world dominating corporate overlord" impression most people have.
Plus I bet the employees have got some smiles that'll take a while to shift, and that's really awesome.
He was a weird dude.
Seriously: are there any laptops/PCs still manufactured within the national borders of the US?
Its a good guesture of the CEO, no question. But it highlights the perverse difference in income between the different levels of employees. http://en.wikipedia.org/wiki/Gini_coefficient
For, you know, making it physically possible for them to earn that bonus in the first place.
Dude, it doesn't matter how rich he is. He gave away his own money to the people who are making him rich as a gesture of thanks and goodwill. WTF would you find anything to belittle that?
Whatever you think of Ubuntu, he has certainly done that.
I'd be more impressed by somebody who is living check-to-check donating $10 to a good cause.
We must encourage the wealthy to give back, and snide remarks are certainly not encouraging.
I wonder what the tax consequences were.
Your allowed to give each individual 13K (last time I checked) in gifts each year—but there's a lifetime limit to watch out for. In either case, even if there were issues with gift tax, it would be the gifter that would have to pay the tax, not the recipient. So, it would still be a win for the employees. Good for them, and for him.
That should result in zero tax liability for him.
Story implies he received the money.
"Rather than stuffing that big bonus away in his own bank account"
Like I said, it is extremely unlikely he put the money in his bank account, then sent it to employees.
Non-Lenovo-specific rant: I know there's a lot of negative attention being given to "bonus" compensation for executives and high-ranking bankers, and I agree. I don't like the bonus model (for non-executives) either because it includes an implicit penalty for leaving a job except at a known time. It's why, if you're in a New York startup, you can't hire anyone from finance in October through December (or from Google in February-March).
That said, the real fuck-up in executive bonuses and compensation isn't that good executives get huge bonuses. They should. I would rather have a good CEO getting a ridiculous package than a bad one. $20 million is chump change in comparison to the difference between a large company having a good CEO vs. a bad one. It can be worth 100 times that to have a good leader. The vomit-inducing criminality is that all big-company executives (even the incompetents and assholes) get million-dollar payouts, not for achieving anything necessarily but just for winning the social-climbing contest necessary to get those jobs. CEOs who actually build and maintain great companies, or who turn failing companies into great ones (as I hope Marissa Mayer does with Yahoo) deserve to get filthy rich. Shitty CEOs (most of them, since getting that job in most companies is mostly about social favor-peddling rather than competence) deserve jack shit.
The real problem with executive compensation is not a moral issue (if they're excellent, they deserve it, because they're capturing less than 1% of the value they add) but that it seems to have a negative effect on performance: http://michaelochurch.wordpress.com/2010/11/22/pay-more-get-... .
When we say the "law of gravity" it's a way to understand how the world works, not an edict from some moral authority.
What if he'd taken that 3 million, put it in a big pile and burnt it?
The "free market" doesn't want you to do this, because it needs that money to be back in the market somehow (investing, start up, salaries, purchases, whatever)
Doing 'whatever you want' with your own money is not exactly what the free market wants you to do.
As a slight aside, while I'm not burning my income, I'm not a good "market citizen" in the eyes of the free market. I have no debt, no cell phone, no car. I grow and hunt my own food, live off grid (no bills) and spend the least amount of money possible. This, the "free market" does not want. Imagine if even 25% of people in developed countries did this from now on. Market collapse.
Burning money, by the way, doesn't actually destroy value. It just increases the value of all the other money in circulation. So in effect it's a gift to other money-holders.