[extropy-chat] You're Fired

J. Andrew Rogers andrew at ceruleansystems.com
Mon Oct 16 19:38:39 UTC 2006

On Oct 16, 2006, at 11:38 AM, The Avantguardian wrote:
> --- BillK <pharos at gmail.com> wrote:
>> Some directors will be lucky to be in the right
>> place at the right
>> time and some won't.  There are only a very few
>> directors whose
>> decisions have much effect on company performance.
>> Usually in new,
>> fast-moving sectors where rapid change is paramount.
> If you are right and that is the case, then there is
> no justification whatsoever to huge CEO salaries. Cap
> their salaries at ten times the salary of the average
> employee and use the savings to pay the shareholders
> dividends.

This type of populist thinking is naive and wrong.  If this was  
really true, the shareholders already have the power to do it.

The kind of CEO that gets paid $10 million is also the kind of CEO  
that immediately adds $1 billion in value to a company, making it one  
of the best investments a shareholder can make.  Only a fool would  
think this is a bad deal for the shareholder.  If paying the mail boy  
a ton of money had the same ROI, the shareholders would be all over  
that too.  As a point of fact, most CEOs do not make all that much  
money and they have to put up with hours, risks, and other crap no  
ordinary employee has to.  Not surprisingly, in a free market a good  
CEO is usually worth to shareholders what they are paid whether you  
recognize it or not, anecdotes notwithstanding.

A somewhat relevant tangent is that until the Bush tax cuts, the tax  
code made this kind of indirect investment in high-value CEOs one of  
the best ways of returning value to shareholders.  Now that old- 
fashioned dividends are (for the moment) a moderately good (but not  
great) vehicle for returning value to shareholders, it will mitigate  
some of the creative ways in which shareholders try to maximize their  
profit.  Much of what people dislike about how money is shuffled  
around and allocated at companies is a direct result of stupid  
taxation policies and regulations and the investor market responding  
to said stupid taxation policies and regulations.  The government  
created this environment for the most part, not the companies.

J. Andrew Rogers

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