Posted by: graemebird | June 12, 2008

So How Ought CEO’s Be Paid?/Deflating Book Value Increase By Nominal GDR Growth.

Well one answer is in the title. If GDR growth was static and the CEO had still managed to increase the value of the company, then bonuses based on this increase in book value would be valid. And even if it wound up that the CEO walked away with tens of millions of dollars we ought probably be happy for him. That he managed to increase book value with static GDR is a sign that the company outperformed the average of the rest of the economy.

Now since we don’t live in a country where nominal GDR is static, what the pay package people could do, is deflate the book value by the nominal increase in GDR. And only if he can still get an increase in the book value ought we suggest that he gets a bonus.

Starting salary ought be nothing more than about 200,000 USD. He stands to make 200 000USD alone if he doesn’t increase book value after deflating for increases in nominal GDR. But if he does substantially increase book value on that basis then we might be very glad if he walks away with tens of millions. Since if the market he is working in is a competitive market his actions would likely have showered wealth on the community.

But make no mistake about it. The current situation is where the rest of the community is being gypped by these stock-options racketeers.

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Responses

  1. That is a lie Jason. Under that scheme there would be no cap and you know full well I’m not proposing regulation of this.

    But if I was starting a new company, with the full intention of hoping to make a killing, I would still lock this sort of arrangement into my articles-of-association for top-three-tiers pay packages.

    Even this rewards system would give the company a competitive advantage. Guys who have truly added value: T Boone Pickens, Steve Jobs, Warren Buffet…. these guys would still be squillionaires under such a system, even if they were working for someone else rather than running their own companies.

    CEO’s ought only be paid the big bucks if they truly add wealth. Not if the inflated monetary system wrongly CLAIMS they’ve added wealth. Thats an ethical statement. Not a manifesto for regulation. Certainly not a manifesto for regulation of existing companies.

  2. There are some adjustments to be made to the above. Like if they had a new share issue that increased the net value of the company via raising money from the public that ought to be adjusted for. Some other adjustments too.

    The above is just a starting point. Its shareholders and share investors more generally that have to come to the realisation that they are being gypped by a management class of fairly productive but not extraordinarily productive song and dance men.

  3. No we won’t have you lying here Mark Hill.

    Imagine an whole generation of kids so intellectually inept that they are incapable of NOT lying every time they characterise the other fellows point of view. Mark here has accused me of being in support of the government setting salaries.

    This is the intellectual squalor we face from the economic profession. Its so terrible when for practical purposes the laity all have to educate themselves in economics if we are ever to stop the economics graduates from just completely fucking everything up.

  4. Why do CEO’s earn so much money? Because they can. It has little to do with the value of the work they do. It is the “Big Man” idea of tribalism. Oh they have magical powers .,.. .

  5. Right but thats a bit of a nothing statement isn’t it. I mean these guys can be extremely valuable and STILL BE OVERPAID. So we want to nut out the systemic problems which allow them to get away with this incredible grift.

    I suppose that a lot of these fellows are very good at what they do. But I still think they are way overpaid. I think the companies are too big for starters.

  6. Well Graeme, look at how the CEO’s income has risen relative to the workers in their organisation over the last few decades. It began in the 80’s, this idea that CEOs are in possession of some magical qualities. I find it ludicrous that CEO’s can make more in one year than people involved in saving lives can hope to earn in a lifetime. If that is the outcome of market forces then the market be damned.

  7. Well I agree with some of that. But as is often the case with you you get near the end of the argument and you collapse in a heap. Your statement sounds defeatist. We cannot solve our problems by accusing everyone of being afflicted and delusional. Perhaps on account of themselves not being alpha-males or something…… and just leave it at that. We want to get the policy-mix right.

    These high earnings have got nothing to do with the free market. Rather they are a symptom and a measure of just how unfree the market is.

  8. Look Adrien. I’m not having any lies on this forum. Get used to it.

    You are accusing me of wanting the government to regulate salaries.

    Try again. This time without lying.

  9. This is the way it is with these leftists. When you say the word “should” they cannot help think of enforcement with weaponry and all the tools of the state.

    Look Adrien. Hasenkam managed to show up here and not tell any lies. You, Jason and especially Mark Hill appear incapable of pulling off what ought to be a very simple undertaking:

    WRITE SOMETHING.

    BUT DON’T LIE.

    That ought not be too heavy a going.

  10. Where’s the fucking lying? I’m just asking how you’re going to fix these things. You say you wanna start CEOs at $200k US per. Alright how! Just asking a question. Is telling a lie when someone asks you a question you can’t answer?

    You really gotta stop this deleting of comments you’re replying to man it just looks dumb. It’s your blog do what you want. But..

  11. You had imbedded in your question the idea that I wanted to legislate to control the salaries paid by private corporations.

    This is a lie and I’m not putting up with it.

    Scrooge showed up the other day and didn’t lie. He disagreed with me but he didn’t have to lie because of it.

    It ought not be very hard at all. You just resolve not to lie when you show up here.

  12. You have to get the system right in its entirety. Not micromanage every corporation. If the system is right then the sort of compensation packets that are getting paid will reflect this.

  13. “Did I? It’s hard to know ’cause it ain’t there anymore, is it?”

    This implies that you might not have been lying Adrien. Try harder.

  14. This implies that you might not have been lying Adrien. Try harder.

    That’s ’cause I wasn’t lying. Who do you think you are? My father-confessor? This what you’ve said:

    Starting salary ought be nothing more than about 200,000 USD. He stands to make 200 000USD alone if he doesn’t increase book value after deflating for increases in nominal GDR.

    I just ask oh yeah how do you do that? I keep making the dumbarse’d mistake of forgetting that all this happens after the Birdist revolution. Would it be a total waste of time to (again) point out to you that it is possible to be mistaken without lying. Except for that one time at Catallaxy when I told you I’d trashed AGW I haven’t as far as I remember ever actually lied to you.

  15. Well its my contention that if the system was working better more generally, with more general improvements having been implemented, the shareholders would likely see to it that the hired help was being paid more appropriately. Which is not to say that a good uber-butler might not legitimately earn many millions of dollars. But he would have to actually earn EARN earn-type-earn the money.

    Certainly all this money made via the stock-options racket is not a feature of a better-functioning capitalist system.

    I chose 200 000 only as a sort of minimum wage for the top guy. So he isn’t struggling for loose change during his appointment and can keep up reasonable appearances. Its about that arbitrary. But shareholders, to align their interests with those of their uber-butlers, would be well advised to pay them a minimum of this sort and only give them bonuses on the basis of their teams legitimate worth.

    Its not just the top guy we are talking about. But really the top three tiers of the company. If the whole company-REGIMES interests are aligned with the shareholder than the CEO, who ought to be creative-strategist in chief, will find himself having no trouble whatsoever in implementing his radical strategic vision.

  16. Here we are imagining a system where the CEO is a little more conceptual visionary and a little less master-politician.

  17. I chose 200 000 only as a sort of minimum wage for the top guy. So he isn’t struggling for loose change during his appointment and can keep up reasonable appearances.

    Struggling for lose change on a bit less that 200k. Now that’s inflation 🙂

    Here we are imagining a system where the CEO is a little more conceptual visionary and a little less master-politician.

    That’s a great ideal but I’m not sure any system will ensure that. Visionaries are in short supply. Politicans are a little like rats. For every George Eastmen or Steve Jobs there’s 10 000 weasels whose names aren’t worth remembering. Have you read this?

    Actually politicans are a lot like rats.

  18. Look Adrien. Read what I said.

    “Here we are imagining a system where the CEO is a little more conceptual visionary and a little less master-politician.”

    Try and think will you. I didn’t say they would all wind up non-politicians and total coneptual geniuses each one and all with a change of system.

    A said A LITTLE BIT LESS one thing and A LITTLE BIT MORE something else. And now you just decide like a complete numbskull to interpret that as a utopian thing wherein the sheep will lie down with the lamb or something, and no firm will have aspects of internal politics. And all top bosses visionaries and all that.

    I said A LITTLE BIT LESS of one thing and A LITTLE BIT MORE of an other.

    What do you think that means? It means a small shift in the spectrum. It means one thing a little more emphasised and another aspect somewhat less important but perhaps important still.

    In view of that consider what a dumb response this is:

    “That’s a great ideal but…….”

    Stop right there. I don’t want to quote any more of your bullshit. 5 words and you are totally on the wrong track. Since you cannot understand how a business scene can be skewed somewhat. Just skewed somewhat. Not an absolutist thing one way or another.

    This is what I tried to tell you with that quote that you likened to Ralston Saul. I said it was an exaggeration. We see these tendencies, but they are like ghost tendencies on a basically productive setup. So its hard to explain whats gone wrong without exaggeration.

  19. Okay fair enough. Have you read that book?

  20. No but I’ve heard all his speeches he made for the ABC. An immensely frustrating experience even if I couldn’t disagree outright with many specific things he was saying. I could disagree as to emphasis. But in his speeches he was always hiding his preferred solutions to his alleged problems. And there was nothing there to best the presumed policy measures of the ideas he was criticising.

  21. Dude you’ve been watching Yes Minister again haven’t you?

  22. No I haven’t. What’s that all about? We were talking about Ralston Saul and now you are harking back to Sir Humphrey.

  23. Just found that previous comment of yours a little verbose and obfuscatory.

  24. Well what do you expect. I try and choose my words carefully and you always still screw it up. So then I have to use extra effort and suddenly EUREKA. You get all excited. After 1 year and tens of thousands of words you’ve found something that sounds like the public service.

  25. Actually the meaning is at least very clear and precise. You don’t really read anything do you Adrien. I mean you don’t ever try hard to get at the precise meanings of things.

  26. Well you do have your disagreements with the rest of the planet on the veracity of your rhetoric Graeme. I’m not saying it isn’t clear or precise exactly. It’s just…

    I couldn’t disagree outright with many specific things he was saying. I could disagree as to emphasis. But in his speeches he was always hiding his preferred solutions to his alleged problems. And there was nothing there to best the presumed policy measures of the ideas he was criticising.

    What emphasis, what things, what hidden solutions, what alleged problems, what presumed policy measures? Perhaps I’m wrong but I believe I’m trying to get at your precise meaning with these question. You may care to elaborate (or you may not).
    .
    One of Semlar’s ideas is to open up the information flow in his company. That way everyone in it can compare an executive’s salary (known) with how his or her department is actually doing (also known). I brought it up ’cause it seems to be an interesting way of addressing the are-we-getting-value-for-money question when it comes to high level pay in firms.
    .
    One of the greatest impediments to making rational economic choices is the lack of reliable information. How many people out there are paying money to eat ‘healthy’ food that isn;t all that healthy for example? This innovation seems make it difficult to pull snow jobs.


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