Doug,
I appreciate your thoughtful response. I agree with most of what you say. Yet, let's give another spin to this subject. I believe that inordinate compensation to CEO's is a pernicious form of stock manipulation which benefits the CEO and the board at the expense of the rest of investors. Here are my thoughts.
Let's try to separate business from ethics for one moment. I know this is not possible but for the sake of argument, let's imagine that we live in a rational world in which there is no injustice, no taxes, no abuse of power and no SEC:-)
I agree that stock options motivate CEO's. However I question the wisdom (and the good faith) of a board which gives excessive compensation to a single individual.
Companies are made of customers + investors + employees. The happier these three groups are the faster a company grows.
A CEO is a captain. He doesn't make the company grow; he makes decisions which, assuming that are good and are executed correctly, will make a company grow. In theory, captains make good decisions; in practice their decisions are often vague, impossible to execute or irrelevant.
High level decisions are spread downwards; in their downward path they generate a myriad of problems which employees have to solve. Many times, the most important decisions are made from the lower ranks. The lower ranks have immediate feedback from their actions and therefore have a better understanding of the problems and how to correct them. If they screw up, they know immediately. When a CEO screws up it takes years before the board notices it.
If you compensate too much the officers you are sending the wrong message to the other employees: you are telling the employees that the officers are many times more essential than the rest of people. This is pure and simple arrogance. You can replace officers as often as you want and in most cases it doesn't make a damned difference.
People have emotions, dreams and pride. People want to be appreciated for what they do. By telling the employees of a company that the CEO, and only the CEO, deserves a disproportionate compensation you are effectively downgrading every other employee and by downgrading them you are discouraging them from doing the best job they can; as a consequence, execution suffers, customers suffer and eventually the company suffers. When the company suffers, its value goes down and over-incentivated CEOs will exercise their options an jump ship [->stock manipulation] or in an attempt to raise its value squeeze their executive power which in turn burns out more people and further exhausts the company (see DEC).
Again, I'm not saying that you shouldn't give incentives; what I'm saying is that they have to be proportionate to the merits of an individual and spread across the best teams. Great companies are not made of good individuals alone but good individuals and good teams. We are humans. Favoritism creates resentment, not teamwork.
Maybe this is "dinosaur" thinking:-) Yet, I believe that our emotions haven't changed much in the last million years. Show me a person who is not depressed when he is told that his work is worthless and I'll never speak up in public again.
b. |
