Confidence Men
Megan McArdle writes:
Not that being a CEO is easy, or that they don’t do valuable work; I venture to say that 100% of the commentators who think that running a major company is a matter of riding around on the corporate jet and stealing from the workers and shareholders would be surprised at how quickly the company sank under them if they were thrust into that cushy sinecure.
I think that running a major company is largely a matter of riding around on the corporate jet, etc., etc. But at the same time, I’m 100 percent sure that if you put me in charge of Proctor & Gamble, the company would sink like a stone. But that’s because there’s a big element of bluff to the whole thing. Appointing some random blogger CEO would seem very weird to people, and then it would immediately become clear to all my subordinates that I can’t play the part of CEO very competently. There’d be damaging leaks in the press that this new guy doesn’t know what he’s doing, some top executives might leave and others would start trying to shiv me. Waves of bad vibes would ricochet throughout the corporate structure, and the stock price would start to tank in response. And with the stock tanking, I’d be expected to act as a good front man for the firm and say something very confident and serious sounding. But I’d look like what I am — a 27 year-old political blogger with no interest in running a business — and next thing you know our credit would dry up and the whole thing would collapse.
But that’s different from saying that brilliant CEO decision-making is really crucial to the success of a well-established firm and that people are succeeding because of brilliance rather than good luck. Or in another venue, guys who make a fortune earning commissions off trading in the market do have to have a real skill that most people lack. It’s just not the skill of beating the market through canny stock-picking, it’s the skill of tricking people into thinking they have that skill. That a lot of the people succeeding in business are sort of frauds (needless to say, other people get rich by inventing stuff that turns out to be incredibly lucrative and that’s a whole different sort of thing) doesn’t detract from the fact that the most successful among them are good at being frauds and that most people couldn’t do nearly as well.
Ultimately, though, this sort of issue doesn’t get explored properly because business issues are covered by the business press which needs to be very respectful of the whole enterprise.
78 Responses to “Confidence Men”
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November 15th, 2008 at 12:49 pm
It’s a good news day.
Elizabeth Warren to TARP.
The Pistons take apart the Lakers.
And you’re busy debunking McArdle?
Methinks you need a better assignment editor…
November 15th, 2008 at 12:52 pm
You’re reading her far too literally so that you can construct a straw man.
November 15th, 2008 at 12:52 pm
And what, exactly, do you base all of this off of? I would hope that you are aware that many people would say the exact same thing about pundits/strategists/political bloggers/etc etc etc. Except, apparently, that CEOs get shitcanned if they turn out to be wrong over and over again. Not so much in politics.
November 15th, 2008 at 12:53 pm
I assume she means “sank a large company faster than many of these CEO’s have already sunk them.” As far as I can tell, there’s virtually no depth to which a CEO can drag a company before the punditocracy thinks it’s more than just yet another particularly badly chosen individual CEO.
November 15th, 2008 at 1:02 pm
It’s natural in a period of transition for the more timid investors to run for cover. But just wait till that 27-yr-old blogger invents the Hula Hoop!
November 15th, 2008 at 1:02 pm
All I know is that cabinet secretaries for the federal government, state governors, presidents of universities, generals and admirals in the military, heads of non-profits, and numerous other individuals successfully occupy positions of high executive responsibility without the enormous compensation that CEOs receive.
I also know that prior to about 1980, CEOs were to be had for far less than they are to be had now.
One of the prime arguments for capitalism is that people need to be motivated to be productive. Showering huge fortunes on a privileged few posses two problems:
1) People can be adequately motivated for much less. ( See, eg. Barak Obama’s salary ).
2) The non-privileged many who lack these generous salaries also need to be motivated. ( Do not tell me that the CEO of a successful corporation is the only guy who achieves its profits. ) With the lion’s share going only to the top guys while the rest of us are stuck in cubicles, we have every reason to cut corners rather than to produce.
November 15th, 2008 at 1:03 pm
best proof of my’s view:
the number of us ceo’s that are over 6′3″ height. a ludicrous proportion.
but, it helps them look the part.
and looking the part is the main skillset.
November 15th, 2008 at 1:16 pm
Isn’t the reason executives get such high compensation effectively because the executives generally control the board, rather than the other way around, and these corporations are basically run for the benefit of the executives, rather than of the shareholders?
November 15th, 2008 at 1:24 pm
I don’t necessarily disagree with you, but I feel that the use of the word “fraud” is a bit overly provocative. It is not as if these people are representing themselves as wizard economists or geniuses (unlike, say, random stockbrokers), but rather are basically decent public speakers, politicians, and gamblers all at once. Perhaps you could widen the meaning of fraud to incorporate all of these talents, but the common implication is much more sinister.
November 15th, 2008 at 1:25 pm
No one denies that being an effective corporate executive officer requires a powerful skill set–one that eluded apparently our current President when he held such positions. The problem we have is the disproportionate salaries they earn for their work combined with an apparent lack of accountability for their failures.
Right now there’s a big brouhaha about giving teachers tenure, but when all is said and done, teachers earn very little in relation to the wealth they generate. CEO salaries, which are so otherworldly in relation to the proportionate wealth they create, need to be reigned in. Period.
As this is occuring in private enterprise, rather than government as occurs with teachers, it really is up to stock owners demand CEO salaries become more proportionate to that of other workers in their corporations and distinctly tied to performance. However, if the taxpayers have to step in to save these corporations, then taxpayers have the right to put salary caps and performance demands upon those who become CEOs, with strict guidelines as to what failure to meed these demands will result, i.e. firing, for such a CEO.
November 15th, 2008 at 1:25 pm
I’m a top level Wall Street consultant; have been for 30 years. My direct clients are CEO and board level. Let me tell you unequivocally that most CEO’s are VASTLY overrated. With few (but some) exceptions, most of my client firms have been successful because of very good decisions made decades ago by someone else.
Far more important than the CEO is the firm’s structure (is it structured in a way that makes sense operationally & in terms of info flow & accountability), culture (do they reward innovators, free-speakers, etc), and method of compensation (are you compensating people down the ladder for the activities that actually benefit the firm’s overall goals.)
Day-to-day CEO decisions are mostly bullshit that can be made by just about anyone at the firm with any experience & above the level of secretary or intern.
The real test of a CEO is whether he can make a difference when things are going wrong and, I promise you, you’re going to see in the coming biz environment that most of them can’t. (Perfect example: Lehman, Merrill and many others blew up, Goldman and JPM didn’t; this wasn’t an accident. GS and JPM execs made decisions well over a year ago to scale back on their risky holdings, LEH and MER didn’t.
The monstrous salaries paid to public company CEOs in this country are a national disgrace, and an insult to the 99.9% of Americans who are non-CEOs or investors.
November 15th, 2008 at 1:29 pm
Thomas Frank discusses the ‘Celebrity CEO’ phenomenon (or: CEO as Prophet of Profit) in One Market Under God. It’s a book that bears re-reading: people are still watching CNBC as if it were ESPN.
November 15th, 2008 at 1:29 pm
I’m sufficiently highly placed in a large organization so I can see what CEOs do, but sufficiently low so I have some perspective. And I’ve been there a while.
Matthew is half-right. Many “successful” CEOs are empty suits. They have excellent interpersonal skills, and can assimilate a brief well enough. But their companies are running themselves, with the CEO just sitting high in the saddle. However, many successful CEOs are very impressive, and make a big positive difference to their companies. I won’t use my company as an example (I value my continued employment), but I’d just like to point at Apple Computer. Without Steve Jobs, it wasn’t very impressive. With Jobs? Insanely great.
November 15th, 2008 at 1:32 pm
I think your feelings about CEOs probably result from never having worked at a company where the executive leadership makes much of a difference.
You’re not entirely wrong that there’s a large element of showing confidence in the business, but that confidence is as important–if not more so–for those within the company as it is for those outside it. And it’s a lot easier to convey confidence when you know what you’re talking about.
I’ve worked at companies with inspirational executive leadership–obviously competent, clearly able to articulate a vision for the company and how to execute on it–and that leadership impacted all areas of the business.
I’ve also worked a company where the executive leadership were muppets. Cronyism abounded, all decisions were reactive, and it was clear no one had any idea how to run a company. It was a toxic, awful place to work.
The net of it is that executive leadership has a huge impact on the business, and one CEO is not just like the other.
It’s not hard to see how this is the case. Imagine being a good lawyer in the Justice department under Bush–it would be demoralizing and eventually all the good people would leave.
Companies, just like governments, don’t run themselves. It takes constant effort to keep an organization of any size running smoothly in what approximates a smooth fashion (it’s never actually smooth). It’s really up to all of the LOB (line-of-business) employees to do this, but if they leadership is lame, they’re just much less likely to do so.
November 15th, 2008 at 1:32 pm
As for CEO compensation, I wonder if a lot of it is related to the dramatic lessening of the top-bracket tax rates in the country. If a company with 9999 workers and one CEO has $100m to give out in bonuses, and the top tax rate is 90%, it is probably much more worthwhile to spread the wealth around: happier workers -> more productivity, etc. With low top tax rates, though, you might as well give all the money to that one guy: the market sees that the CEO of the company had this awesome bonus, assume he’s doing something good, and the stock goes up.
November 15th, 2008 at 1:32 pm
Andrew Sullivan quotes Micheal “Liars Poker” Lewis:
November 15th, 2008 at 1:55 pm
There are 2 different propositions:
1) Its hard to successfully run a large organization.
2) It requires brilliant decision making to successfully run a large organization.
I think Matt’s post can be summed up as follows: 1) is undoubtedly true but not because of 2). But CEOs prefer to see themselves and be seen by others as brilliant decision makers.
It reminds me of what Larry Ellison said about Bill Gates: He’s a Rockefeller who’d like people to think he’s Edison.
November 15th, 2008 at 2:05 pm
What crater said. There is a subset of CEOs that generally create a huge amount of value for the company. These are the CEOs whose companies are fairly often breaking new ground and creating new structures. This is what a CEO is paid to do. Apple is a good example of this. For example, launching iTunes would require quite a bit of organizing work, getting programmers and support staff into place, making contracts with content providers, and so on. Big work.
For most companies however, this sort of work is fairly limited. There’s not much creation of new structures needed, and the big work is all in the past. The structures exist, and they just need to be tended to.
November 15th, 2008 at 2:17 pm
There are 2 different propositions:
1) Its hard to successfully run a large organization.
2) It requires brilliant decision making to successfully run a large organization.
I think Matt’s post can be summed up as follows: 1) is undoubtedly true but not because of 2). But CEOs prefer to see themselves and be seen by others as brilliant decision makers.
It doesn’t require brilliant decision making, but it does require avoiding awful decision making. That’s less trivial than it sounds.
But more important than decision making is the ability to provide leadership–to make people feel like their work will help the firm move in a positive direction and get the mid- and upper-level managers coordinated.
Executives don’t do much in terms of day-to-day operations (though COOs, CFOs and sometimes CIOs tend to be more involved than other C-level execs) but they set strategy, (should) communicate why these strategies are important and how they will help the firm, and they should serve as the ultimate decision makers when it can’t be made at a lower level.
None of this justifies the absurd (and frequently disconnected from performance) payouts that CEOs have gotten in recent years. But it’s not the case that one old white guy who sounds authoritative is just as good as the next. Competent leadership makes an enormous difference–given how things turned out with the Bush administration, I have a hard time believing that’s a controversial proposition.
November 15th, 2008 at 2:22 pm
When we got to the Strategic Management class in my MBA curriculum, I was very excited to get a look at how the top-level decisions are made. Imagine my shock when I learned that it almost doesn’t matter which strategy you choose, that any non-insane strategy can succeed with good execution.
CEO’s work at the strategic level. You could replace nearly all of their decisions with arbitrary ones and come out with outcomes just as good. It’s the people who execute the strategy and make 1% of what the CEO makes that make or break the business.
As long as the CEO doesn’t rise to Yglesian levels of implausibility, he or she will probably not be a factor in the company’s success or failure to an extent even remotely in line with their compensation.
November 15th, 2008 at 2:24 pm
CEO is a lottery position. It is the reward for good support of the company or years of dedication within it. It acts as a goal post for others in the firm and motivates them to work towards it. There is research on this to support that in the case of the richest CEO’s, they could probably spend their days playing video games and still it would be beneficial to the company because it motivates the players under him who want that job. The rest of the nonsense is just the normal super-star market, where the perception of slightly better results in significant increase in pay.
November 15th, 2008 at 2:25 pm
This is a strange POV for a liberal. If it doesn’t matter who the CEO is, why does it matter who the president is?
November 15th, 2008 at 2:25 pm
mccardle thinks everyone who works in the executive suite is John Galt.
what most of them really are, as Yglesias points out, are frauds. And they are very good at it.
November 15th, 2008 at 2:33 pm
There’s also a reason why I was once a household name despite NOT being one of ‘those’ Carnegies. But I never taught anyone what to do after they’d learned to win friends and influence people, and thus the modern CEO.
November 15th, 2008 at 2:33 pm
Being a CEO has meant one thing for a generation. Incrasing your stock price by financial means. Top management of American corporations are totally finance centric. That is the reason we abandoned manufacturing. Most large corporations in fact became finance players first and pretended to make stuff or sell stuff. Operational profits often invented by the magic of modern accounting.
While I have often theorized that the modern business corporation is the most successful human organizational model in history and would win history, replacing the state it is now apparant that is not a done deal. Our financial/economic crisis is in fact a crisis of the corporate model.
November 15th, 2008 at 2:36 pm
Agreed.
I think this gets to the heart of the argument. People respect both Rockefellers and Edisons. However, its easier to believe that Edisons (like the Google guys) are entitled to their wealth no matter how absurdly high because its assumed they earned it. For Rockefellers, on the other hand, once their wealth reaches a certain ridiculous level, one suspects these are robber barons gaming the system.
So “riding out in the corporate jet” is a simplifying sound-bite but its used in opposition to the “you can’t possibly understand why we geniuses deserve 1000s of times the pay of the average employee”. This whole argument occurs only in the context of CEO pay reaching ridiculous levels, it doesn’t exist in a vacuum.
November 15th, 2008 at 2:41 pm
So Matt, are you any good at your job or have you just been promoted through fraud?
Listen, it is obvious that CEOs benefit from conflict of interests with their board, and it is obvious that there are frauds in business as there are anywhere else. This doesn’t mean we can just say all CEOs are chumps, and everyone who trades is a leach on the system.
Presumably people are in some sense promoted on the basis of merit, if not, if people/the mkt is completely incapable of identifying productivity and structuring incentives to elict work from those people, well, then it really calls the whole excercise into account.
Matt, do you even realize that by calling all traders/fund managers as pure luck you are relying on the crutch of the Chicago School Efficient Market Hypothesis (EMH)? I love your writing but sometimes you really need to watch when you blithely stray into specialised areas that you obviously have little to no background understanding. Are you up on the academic literature tearing into EMH? Do you know anyone who actually trades/participates in these markets? Or are your pronouncements based on dinner party conversations with similarly distanced and mildly bitter yuppie Washington punditry?
I’m just saying if you are going to go out there with these views, you would be better served giving us some reason why you ascribe to this world view. Or is it just the bog-standard jealousy?
November 15th, 2008 at 3:03 pm
Matthew,
Youre becoming jaded my friend – better step back and re-assess your macro-life-plan before this blog spins into what those ‘over-paid, fraud ceos’ call a “DEATH SPIRAL”
Seriously man, enough with this socialistic shit – america as a whole doesn’t want it, your readership doesn’t want it but most importantly, it’s reeks of both frustration and anger with your present lot in life…
November 15th, 2008 at 3:04 pm
I’ve reported directly to several CEO’s, and indirectly to quite a few others. One was a classic empty suit — an imposing personality who didn’t do anything or know anything about the business (he’d been brought in from outside the company). Most of the others I’ve known ranged from good to excellent. At the high end you get into men with Steve Jobs-like “reality distortion fields” around them, which can lead to triumphs or disasters, but gets big, new things done.
On the other hand, in my little industry, CEO salaries and bonuses in the 1980s and 1990s were traditionally only mid-six figures, with stock options that let the best ones get really rich, if they delivered. The idea that you had to pay two orders of magnitude more to get good talent is ridiculous.
November 15th, 2008 at 3:28 pm
Once upon a time, the chief executives of manufacturing companies actually knew how to make their products. Edison could make a lightbulb. How many GM executives would it take to tune up, let alone build, a car?
November 15th, 2008 at 3:30 pm
I presume this is based on your vast experience in corporate America? Or perhaps your detailed research on the subject?
What you are is a partisan pundit, and that’s what you’ve been your entire adult life. Your experience consists of:
1) Attacking Republican politicians and candidates for office.
2) Promoting the Democratic party line.
3) Studying philosophy at HARVARD.
4) Writing the occasional “contrarian” blog post so you can look “thoughtful” and “independent.”
5) Interspersing the above with comments about how this relates to philosophy jargon you learned at HARVARD, YOUR ALMA MATER.
6) Generally talking out of your ass.
7) Writing books doing the above, using the valuable bullshit skills you learned at HARVARD.
What do you know about this subject? Nothing. I don’t know anything about it either, so for all I know you could be 100% correct. But that doesn’t make you any less ignorant.
November 15th, 2008 at 3:33 pm
I read your blog because it is usually intelligent. But this is an assertion not backed by any evidence. Worse, you realise you could assert the same thing about practically any occupation? For example, that one needs no special qualifications to be President of the United States? That all that counts is that you should appear plausible? Recent history suggests otherwise.
In fact, the assertion that being CEO of a large company doesn’t take special skills is wildly implausible on the face of it. Which is quite different from saying that CEO’s are overpaid. There is evidence that they, or rather, those without proper oversight are.
November 15th, 2008 at 3:36 pm
> I think your feelings about CEOs probably result
> from never having worked at a company where
> the executive leadership makes much of a difference.
I have certainly experienced the difference between useless G5 rider (one who actually kept first call on the G5 for her husband to fly to his favorite barber back in their hometown – no joke) and inspired creative leader. Problem is that less than 1% of executives fall into the inspired leader category but 100% of them pay themselves as if they did.
Cranky
November 15th, 2008 at 3:55 pm
Dear Matt: My father was a Dow Jones 30 CEO. He was not a fraud. He was not, as he freely admits, a genius either. He improved his company and its stock price by instituting common sense improvements (like worker safety!!) that had been SOP at his previous corporation.
Leadership is way, way more than ideas, which I think was what you were trying to say.
November 15th, 2008 at 5:00 pm
This is the same argument to be made about a president or a general. They aren’t on the front lines leading troops into a firefight or personally signing your social security check, but the vision and culture they set are enormous to an organization. Think about Bush and the culture he has set in the federal government to see how quickly a semi-functional organization can be ran into the ground.
This also goes the same for a Robert Gates. The culture and vision of Rumsfeld were toxic to a warrior culture. Doing things as cheaply and efficiently as possible might work in building certain widgets, but it doesn’t work with people’s lives. Attempting to “transform” something without laying the ground work for success with some proven capability is a guarantee of abject failure. Setting achieveable goals and reasonable timeline for making them happen gets results. Holding people accountable gets results. Respecting reality – technical and professional expertise – gets results.
I bet if you look at the companies that survive and fail in this environment, the differences in corporate cultures will be obvious.
November 15th, 2008 at 5:00 pm
All this business of “CEOs are paid too much!” seems a little ridiculous to me. I mean, so what? Boo hoo. That’s terrible. But it’s really just whining unless you go out and propose a solution.
Now, if the solution is “a Fortune 500 company should go out on a limb and say ‘These salaries are ridiculous, we’re not paying them anymore and we think that the “second rate talent” we pick up will be just as good as any other CEO’ “, than that’s fine, makes sense, and I’d agree with you. But if you start talking about government regulation here, or using this as a talking point to push for a more progressive tax code, well, then I think you’re starting to edge into a more blurry area. The market doesn’t set these things by accident, and to assume you can see all the potential non-linear effects of a rash move like “Capping CEO salaries” is a bit presumptive and characteristic of the Democratic Party’s traditional Achillies’ Heel.
All in all, I just think it’s a pointless discussion that amounts to whining, unless you want to put some actual policies forward.
November 15th, 2008 at 5:30 pm
This is one of the stupidest posts Matt has ever written.
November 15th, 2008 at 5:43 pm
I don’t know if i fully understand Matt’s logic here, but he is arguing against McArdle, so I tend to think Matt is right; what with the whole McArdle always being wrong paradigm.
November 15th, 2008 at 5:47 pm
It’s just not the skill of beating the market through canny stock-picking, it’s the skill of tricking people into thinking they have that skill.
90% of political blogging is spinning and bullshitting. There’s also a huge amount of incestuous mutual backslapping and promotion. Hence, Ezra Klein is anointed an “expert” on health care on the grounds that he wrote a couple of articles on it.
November 15th, 2008 at 6:03 pm
“It’s just not the skill of beating the market through canny stock-picking, it’s the skill of tricking people into thinking they have that skill.”
Matt, get your Wittgenstein on, for heaven’s sake.
Being a CEO is a language game. Like most everything else.
Are you Matt Yglesias, talented blogger, or are you just good at tricking people into thinking you’re a talented blogger?
Is the distinction important?
To trick people into thinking I’m a competent CEO, I would have to act a lot like a competent CEO.
November 15th, 2008 at 6:07 pm
All this business of “CEOs are paid too much!” seems a little ridiculous to me. I mean, so what? Boo hoo. That’s terrible. But it’s really just whining unless you go out and propose a solution.
By that standard, most complaints are “just whining” because most problems are beyond the reach of most of the people who notice them. More than that, it seems entirely reasonable to me that one can have an opinion about CEOs being overcompensated without necessarily being motivated to do anything about it because, in the larger scheme of things, it doesn’t have much direct impact on one’s life. I daresay most of the things of which most human beings disapprove are in this category. I may not particularly like it, for instance, when people where oversized baggy jeans but I am not much interested in doing anything about it because it really doesn’t matter much to me.
With respect to CEO salaries, I think its pretty clear that Matt’s post is not “whining” about how much they get paid but rather about pointing out, in only a halfway serious way, some of the less obvious reasons for why they receive the salaries that they do. I am not sure that that is even accurately described as a complaint but even if it is, its pretty clear that he has no intention of blowing it up into some larger social problem that “we” need to solve. I suspect he shares my opinion that there is probably some benefit to somewhat devaluing our society’s high estimation of CEOs but also that this is much less a matter of policy so much as it is about perception. We attempt to change people’s perceptions by sharing our opinions which is what Matt has done here.
November 15th, 2008 at 6:08 pm
This is a cool hypothesis–that the job of a CEO is largely about signaling within the firm, to competitors, and the business press. But does that really mean the successful CEOs are “frauds” in a negative sense? Maybe the really good ones are aware of the pretense and are conscientiously attempting to manage expectations and the company’s image so as to maximize the firms success rather than purely for their own personal aggrandizement? This theory of the CEO sounds a lot like how I might describe the job of POTUS or many other species of politician–~90% image & expectations management in order to encourage institutional stability, ~10% pursuing new constructive policies.
November 15th, 2008 at 6:40 pm
It’s one thing when a corporation through various means including bad management fail. When every single one of the greatest bank and financial corporations in the country implode simultaneously then something is seriously amiss, at the top. At the top of the corporations, at the top of the political system and the judicial system.
We are having a systematic failure of epic proportion and the probability of total system collapse is far above zero. While CEO culture, and it is a culture, has been a crucial element in the failures it can’t be said it was the prime cause. Still, those who got the biggest rewards from the failed system should get singled out and punished in some manner. At least by scorning.
Instead we have Hank Paulson privatizing the Treasury and making things worse.
November 15th, 2008 at 6:58 pm
This is the same argument to be made about a president or a general. They aren’t on the front lines leading troops into a firefight or personally signing your social security check, but the vision and culture they set are enormous to an organization. Think about Bush and the culture he has set in the federal government to see how quickly a semi-functional organization can be ran into the ground.
Indeed. Nobody seems to think that W’s non-success as a CEO was due to his being insufficiently skilled at riding the corporate jet and generally looking like a CEO.
November 15th, 2008 at 7:26 pm
Waves of bad vibes would ricochet throughout the corporate structure, and the stock price would start to tank in response.
That’s when you light a blunt and tell ‘em it’s about competing in the market, man.
November 15th, 2008 at 8:33 pm
I think you forget the two things you need to be willing to do to rise in corporate America: move and/or travel.
I deal with it every day, and it never ceases to amaze me how much we have to pay to get people to move or travel. The thing is you don’t go from 70k to 7 million in one step. You go from 70k to 110k to 220k to 550k to 1,500,000 to 3,500,000 to 7,000,000. In each case you ask a man or women – but you need to move to make it happen, you need to spend 2 weeks a month on the road, you need to work 10 more hours a week, and 9 times out of 10 they say no.
If you have a guy making 110k in Tampa and you have a position in Houston paying 220k – 8 times out of 10 they will have a wife or kids that means they won’t be willing to move. At each level you need to offer more and more to get the people you need.
I have a friend who makes 110k as an IT guy and he was offered a CIO position making 240k and he said no because it meant he would have to carry a blackberry and be available 24/7.
People here seem to think they would jump at the chance to make 7 million. But, would they jump at 30k more if it meant moving to another city, 40k more if it meant spending 2 weekends a month on a plane, etc. I’ve found that most people are unwilling to move up to the next level.
November 15th, 2008 at 8:43 pm
I recently had a CEO who was criminally incompetent, made several million during his tenure, and then was paid over a million to walk away quietly…
We were a very small company.
They make way, way too much money. His salary was about 30% of our overall payroll. He could have been paid 1/2 of this and still had a huge salary. The top 4 people at our firm were over 50% of our overall payroll. Very few people who are not founders are worth this much money.
November 15th, 2008 at 8:46 pm
“To trick people into thinking I’m a competent CEO, I would have to act a lot like a competent CEO.”
You must not have been around many C level people before. Because I would say it is much more important to have been at a great company that hit it big, or have good friends, than be talented.
November 15th, 2008 at 8:53 pm
The business worlds favorit CEO, Jack Welch, has stated numerous times that 90% of being a CEO is people management – hiring good people, evaluating those people and then firing the ones who don’t pan out.
Steve Jobs failed at Apple and NeXT before succeeding at Pixar and upon his return to Apple.
November 15th, 2008 at 8:59 pm
I have a serious question for all of you.
If you had a secure job making 280k – nice house, nice car, money put away for retirement and college, private school for the kids etc. How much would I have to offer you to move your family and take a risk with a new position?
I think for 98% of the people here, I wouldn’t be able to offer any amount. For most the ability to move from the E-Class to the S-Class isn’t worth the extra effort. And that’s why I have to offer them not only the S-Class but the ski house and the summer house and the possiblity of retirement at 48.
November 15th, 2008 at 9:20 pm
“These salaries are ridiculous… The market doesn’t set these things by accident”
No, certainly, the “markets” do not set these things by accident. The company boards that set C-level compensation has every incentive to keep the levels high, because they are themselves part of the patrician class where CEOs are recruited from…
November 15th, 2008 at 9:50 pm
For what it’s worth, in my time as a corporate HQ flunky where I could watch such things close up, the talent that really made the place work was at well below the CEO level, and often below the officer level. Some of those guys (and a few gals, this was a long time ago) were genuinely impressive. But their compensation was at a much lower level. The Big Boys, as they were called, got what they got because they could. Couple of them were worth it.
By the way, the comment about height is spot on. I’m six foot six and every year when they did the group portrait of the officers they came running for me to stand in for one or the other of them while the photographers were setting up the lights (which took two hours the officers didn’t have).
November 15th, 2008 at 11:17 pm
Yes, the comments above about the costs of relocation and constant travel while climbing the corporate ladder were good. Woody Allen said 90% of success is showing up, and climbing the corporate ladder consists of years of showing up for the 6am flight out of Tulsa.
November 16th, 2008 at 1:06 am
This theory of the CEO sounds a lot like how I might describe the job of POTUS or many other species of politician
It’s not at all surprising that they’d be similar–the worlds biggest companies have larger annual revenues than many countries. Switzerland has an GDP of roughly 250 billion, Walmart’s revenues are ~350 billion.
November 16th, 2008 at 3:57 am
“This is one of the stupidest posts Matt has ever written.”
Yep. It single-handedly threatens my willingness to continue reading him.
It’s not as if Yglesias is saying that the skills necessary to be a competent CEO are merely overrated. He’s saying that it essentially requires nothing more than being a frequent flyer. That a CEO can neither add nor subtract much from any company.
Only someone profoundly ignorant of the business world would assert this. And we know what Yglesias’s experience is in this respect: he’s profoundly ignorant.
Yes, CEOs are vastly overrated. Almost all leaders of large groups are vastly overrated. US Presidents are overrated; professional football and basketball coaches are overrated; generals are overrated. For the most part, it’s the people below who do the most work and make or break an organization’s success.
However, it’s also simply true—and history demonstrates this time and time again—that exceptional leaders, both good and bad, can have profound effects on organizations. I’ll go farther and echo something someone else said above: leaders have to avoid doing stupid things and, frankly, this is harder than most people think it is. Look, Yglesias can’t even be bothered to spellcheck the work that is his liveliehood. I wouldn’t trust him to run a company. I’d trust Josh Marshall. It’s no accident that Marshall does, in fact, run a company in addition to being a blogger. He’s made competent decisions. Yglesias would hire his friends. You know he would.
And that’s the sort of thing that CEOs do that actually damage their companies. They are careless because they think too highly of their own competence. They think good rhetoric substitutes for making good practical decisions. Especially if you’re in charge and are making a seven or eight figure salary, it’s easy to think that your decisions are necessarily good decisions rather than being sensitive to the ways in which the world proves you right or wrong. It’s easy to be a bad CEO and to make bad decisions that screw your workers and your shareholders.
Conversely, it’s hard to make really good decisions that mean anything beyond simply maintaining the status quo.
CEOs probably deserve fairly high compensation because they do have a great deal of responsibility. Only a few, like Jobs, probably deserve the rock-star level compensation. In that they all think they are rock-stars and the business press thinks they are rock-stars, yes, they’re hugely overrated. But could anyone do the job without disastrously screwing things up? Of course not. Business history is far too full of examples that prove this. Look at family dominated corporations for examples where putting someone in the chair just because they have the right last name proves just how much damage can be done, and how easily.
November 16th, 2008 at 7:09 am
Get some more sleep, Matt. Methinks being wined and dined by the Swiss Committee to Annex America has given you an inflated sense of self-importance. Trust me: you could not be CEO right now of any firm larger than yourself. Please recognize that policy expertise does not translate into knowing everything about every area of human endeavour. Ask people in business before you post nonsense like this.
I hear that top NBA players spend a lot of time flying in jets; you can fly in a jet, perhaps you should be considering a second career with the Wizards?
November 16th, 2008 at 10:57 am
I’m not sure what’s more insulting–the notion that being a corporate executive requires no worthwhile skill, or that the most important skill in business is being good at being a fraud.
It is astounding to me that the same writers who will excoriate people for oversimplifying policy issues (like the debate over school vouchers) will turn around and do exactly the same thing to business and economic issues. Do they realize their hypocrisy? They might as well be right-wing talk radio hosts.
I have worked with good CEOs and bad CEOs. I don’t know whether or not management competence is relevant for a Fortune 500 company, but it makes a big difference in the startup world. My guess is that it makes a difference for big companies as well.
If not, wouldn’t the same logic argue that competence is less important in a President than in the mayor of Wassila, Alaska, and that anyone who could do the latter would be qualified to do the former?
Perhaps Matt has just been taken in by the media’s focus on crappy CEOs like Dennis Kozlowski and Ken Lay. But by that same logic, we should judge all football players based on Pacman Jones and Rae Carruth.
C’mon, Matt, you’re better than that. Right?
November 16th, 2008 at 12:15 pm
no comment sez:
blah blah blah HARVARD
blah blah at HARVARD, YOUR ALMA MATER
blah blah
blah blah blah HARVARD
Envious much? Or is Yglesias supposed to apologize for having a brain?
Enjoy the next 4-8 years…oh have you heard? Barack Obama went to HARVARD
November 16th, 2008 at 12:23 pm
Ya sure, but why is the CEO suddenly worth 400 times the peon’s wage instead of only 50 times like they used to be? They aren’t, and I think part of the reason is that CEO writes his own paycheck.
A bigger part of the reason is 30 years of supply side economics. Capital gains income is privileged with a lower tax rate than every other kind. Therefore, CEOs are encouraged to take as much compensation in the form of capital gains as possible. More importantly, CEOs are encouraged to bias their companies’ activities in favor of inflating the stock price.
I thing the imperative to inflate stock prices is where CEOs get their confidence man aspects, and the compensation of 350 workers. If they just taxed capital gains at the same rate as wages, a lot of this nonsense would gradually dry up.
November 16th, 2008 at 9:03 pm
Wow, Matt, what a lame post. Maybe exec compensation has gotten out of line, but I’ve seen lots of senior execs in action and very, very serious skills are involved. By and large I like your stuff, but let’s face it, you don’t really have a clue on this one. The 27-year old Internet pundit “who isn’t interested in running a business” and has no idea what it is to make a payroll or face a shareholder meeting or to bring a product other than your own bloviation to market is the real empty suit here.
November 17th, 2008 at 12:21 am
I love how the teacher @ comment #10 thinks CEO pay should be based on performance, and that they should be held accountable for their failures.
What if teachers were held to these standards?
November 17th, 2008 at 1:39 am
I’ve been working in the private sector for a number of years now, I’ve worked under several different CEOs, and I’ve never seen the slightest evidence with my own eyes that being a successful CEO requires anything other than exceptional bullshitting skills.
The catch is that you generally can’t get a job like that unless you’ve excelled at the VP level where the real work is done. To become a CEO, you need to either be a highly competent, efficient, and well-organized administrator, or else you need to have such uniquely fabulous bullshitting skills that you can overpower people who are far more competent and hard-working than you are. Either way, it’s not an easy accomplishment and most of us couldn’t do it.
But of course, few of them are Neitzschean ubermenschen who deserve $5 mil per year plus massive bonuses for single-handedly wringing profits out of the market. They’re just the politicians of the private sector.
November 17th, 2008 at 9:01 am
I am with Yglessias on this one (of course). Some here have accused him of writing a stupid, simple-minded generalization…ignoring the fact he is only responding to the stupid, simple-minded generalizations of Megan McArdle.
CEOs are talented, you bet’cha! But so are those excellent dominoe declinist designers of huge displays of falling dominoes seen on CNN yesterday. Who has more talent is in question. uber-CEO Jack Welch admitted that he was a mediocre engineer during his rise at GE then he turned those mediocre skills into a bean-counter extracting record returns from GE. Of course his long-term strategy led GE to where is is now with stock prices just a bit higher than GM. le’z see, that’s talent!?
I suspect if all the CEOs in America fell off the earth in one fell swoop and lower managers took over at much lower costs….. we’d see a rebound in corporate management and profitability.
McArdle ignores the closed club of corporate boards usually including other CEOs who determine the munificent salaries of CEOs which are bank-busting drags on corporate profits and also are enticements to CEOs cooking the books to get bonuses. With shrinkage in employment esp. at American’s top corporations (govt. and small business has taken up the slack in the last two decades), it’s getting to be that upper management is taking nearly the same amount home with them as the whole underlying workforce in those companies…sometimes more.
Over paying egomaniacs who are no more than bean counters with mbas isn’t helping corporate profits.
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