Dr. Moore wrote:Executives are paid to do a job, ultimately answering to a board of directors. Directors and executives are fiduciaries with primary duty to maximize shareholder value, within the law. For this service, they are compensated with money. The job is to MAXIMIZE shareholder value, and the compensation is money, A LOT of money. And to accomplish the job they are required to assess and take monumental risks, every day, with imperfect information and scarce resources (people, time, money, whatever). Their pay is conditional on doing the job. Fail and someone else is hired to do the job. Get tired and someone else is hired to do the job. Get cold feet about taking risks and someone else is hired to do the job.
I don't think it works this way in practice, unfortunately. My experience from lives past, is that executives are better con artists than they are anything else. For every one person who is a visionary, the entrepreneur genius, there are a hundred that contribute very little. They do not take "monumental risks" because they all have contracts they've negotiated should they fail. For instance, a certain executive hired to do monumental changes in conjunction with Mitt's company, failed dismally. He was pushed out or fired, but his contract gave him several million as a reward for exiting the door, and he went on to the next company to do the same thing. Would he have made more had he succeeded? Sure. But the pressure is off. Other executives at that same place played the same game. They came from large institutions where things were relatively efficient and they had one thing on their resume they were proud of, then they go shopping, find a board of suckers and pitch their story. Of course, they need that golden parachute secured before they'll sign the dotted line. Once they have the job, they seek to execute that one thing they think they know how to do to make their new place work like their old place, without any consideration that the new place has a totally different set of problems, and they were probably the beneficiary of efficiency rather than creator of it anyway, and so they work with blinders on to execute that one thing they were hired to do with enough deniability that when they move on a couple years later having achieved nothing, they claim the consolation prize. A startup or growth company doesn't work like an an established fortune 500.
But even if you get the person who was there from the beginning with a hot company, there's no guarantee, because now the person is rich and probably getting way overcompensated, the incentive just isn't there, but then today's world isn't the same one as where that guy made his name. At another previous life, a famous executive was hired for the highest-priced package I believe the company had ever paid. He was rude, difficult, a total primadonna who had strict demands for outfitting everything about his work environment to be exactly like what he had at his old place, down to impossible demands of securing obsolete technology that you can't find anymore because that's what he was used to. I have no reason to think he did a bad job, he was simply vastly overpaid for what he did. You or I, had we happened to take the right job with the right startup 20 years ago could have been where he is. There is talent, but also historical context that matters every bit as much but probably vastly more.
Yet one more example from a startup I worked for long ago, the company had contracts with all these big Hollywood labels, and lured away a few execs with big reputations to get us going with their experience and contacts, and they did little to nothing. One spent 100 grand building a beautiful office for himself and that was about all he did from what I understand.
Hiring execs is itself a random walk, there is no formula for getting a good one if indeed, there are any good ones left. How did things get this way? Warren Buffet said looking back on the financial crisis, that the biggest problem he sees is overcompensation, and these super-contracts negotiated with golden parachutes where there's no risk. How did things get this way? My speculation is that it's a slow boil. A person working two jobs for minimum wage has less negotiation power than I do. But a person who makes 10x what I make or simply has enough to not need a job, has supremely more negotiating power than I do. And so the moderate pay bump an exec got above a professional peer a hundred years ago has slowly worked its way up, in sync, with greater stratification in personal or family wealth -- that's the resistance to market efficiency. As income stratification widens, those making out have greater bargaining power, bumping the pay, and further widening the gulf.