The way I look at it, there are two kinds of CEOs. There are the ones that founded the company and have led the company according to their own personal vision. Many of them hold stock worth billions and they're generally looked up to as "captains of industry".
The other kind is the CEO who is hired by the board of directors. They're usually very well paid and given a lot of stock, but aren't wealthy the way, say, Bill Gates is wealthy. They also tend not to be as admired, since they didn't build the business from the ground up.
People wonder why the second class of CEO receives such lavish compensation, when they're essentially just a regular employee. I suspect that the compensation is actually part of the qualification for the job. It makes shareholders feel good if the CEO holds a lot of stock, because it's a strong incentive for them to put the interests of the shareholders (whom it's easy to stereotype as rich, entitled lazy people living lavishly off of passive investment income) above the interests of the employees the CEO works with every day (who are usually hard-working people who, if the company is successful, generate far more wealth than they're compensated for).
Normal human behavior would be to put the interests of the employees above the shareholders. Large stock grants counteract that. Sometimes I wonder if a hired CEO were to refuse to receive large stock grants, would that cause the shareholders to revolt and/or the board of directors to not hire or try to fire him/her, simply because they're not comfortable with a CEO who doesn't have an incentive to pump up the stock value.
(It's worth noting that shareholders can change their investments much easier than employees can change employers, so shareholders are more likely to prefer policies that pump up the stock value now even if they're bad for the company in the long run.)
The caricature of investors as "the wealthy" is not connected to reality. If you are interested in having a retirement, you have a stake in the game - even if your entire plan is to rely on social security, someone has to make the money that will be taken and given to you. If you have an interest in a high standard of living or low cost of living, efficient investment decisions are vital to you.
When you hire someone, whether to mow your lawn or run your fortune 500 company, you want their work effort to be aligned with you objectives. Ideally, every employee you hire is aligned with your interest, but that is impossible. This is a hard problem with a huge body of research behind it. If you would like to learn more, look up the "agency problem".
With regard to the ability to easily change investments - that is simply not true for the massive companies you are talking about. As an individual investor, you can shift capital around easily because your decisions have a negligible impact on the market as a whole. However, over 70% of the stock market is held by institutional investors, whose decisions significantly impact market prices.
Stock prices reflect the long term prospects of a company. Shareholders are merciless in punishing companies that optimize for the short term over the long term.
"The caricature of investors as "the wealthy" is not connected to reality."
Because you think the wealthiest top 5% owning 82% of all stocks isn't an accurate statistic? Or because you think the top 5% are not what you'd consider "wealthy"?
More than likely, its because they've got skin in the "keep CEO's great" game, and want to obfuscate the issue being discussed before it devolves into "coz Marxism sucks" ..
Terrible? Is the expected return negative for large portfolios of crowdfunded companies? I ask because it's possible for expected returns on a portfolio to be good even if the the typical outcome for any individual investment within the portfolio is to lose all of the money in that investment.
I reject this entire post. Stock prices reflect the day to day movement. At most the consideration is quarterly. New ceos are commonly brought in to cut costs by degrading internal resources for quarterly bumps. Retirement stakeholders have no say in this.
Sometimes non-founder CEOs are worth it and can completely turn around the fortunes of a company. For example, Eisner for Disney, Kroc for McDonald's, Welch for GE, Jobs (the second time around), and either Ballmer or Nadela (depending on which one you pick). So I don't think the founder / non-founder distinction holds up.
I'll give you Eisner, but Kroc's first franchise was the 9th McDonald's overall and he is the sole reason for its international dominance, so he's not a founder only in the technical definition of founder. Technically, Warren Buffett is not the founder of Berkshire Hathaway, the old textile business.
As for Welch, GE Capital was a good chunk of GE's revenue and profits... right up to 2008 [1] where it might have sunk the company; it is now being sold off by Immelt [2]. So much for the industrial group giving the financial side "stability"...
On its business: " though the average citizen probably thinks of GE as a great industrial company, its industry classification in the Fortune 500 is diversified financials. It is by far the largest company in that industry group. The next biggest - and here we begin to glimpse GE's troubles - are Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).
The reality is that for years, about half of GE's prodigious profits have come from General Electric Capital."
On 2008: "But now the stock trades for less than half its price 12 months ago. More than $200 billion of value has vaporized."
"At another level, a small crowd of professional GE watchers know that CEO Jack Welch owes a surprising amount of his success to a profit dynamo called GE Capital Services. What only a handful of people understand--given GE Capital's reclusive nature--is how important this secret weapon has become to GE's continued prosperity, and what a model it is for managers trying to grow in any business."
That's true. I didn't mean to imply that hired CEOs aren't sometimes great leaders. I just don't think they get the same respect and admiration that founder CEOs do, and on average I think they tend to have somewhat different goals and incentives than founder CEOs.
This is often stated, but when you actually look at his accomplishments (from Wikipedia):
> Under Ballmer's tenure as CEO, Microsoft's annual revenue surged from $25 billion to $70 billion, while its net income increased 215 percent to $23 billion, and its gross profit of 75 cents on every dollar in sales is double that of Google or IBM.
...
> Ballmer also built half-a-dozen new businesses such as the data centers division and the Xbox entertainment and devices division ($8.9 billion) (which has prevented the Sony PlayStation and other gaming consoles from undermining Windows), and oversaw the acquisition of Skype. Ballmer also constructed the company's $20 billion Enterprise Business, consisting of new products and services such as Exchange, Windows Server, SQL Server, SharePoint, System Center, and Dynamics CRM, each of which initially faced an uphill battle for acceptance but have emerged as leading or dominant in each category.
MSFT Market cap when Ballmer announced he was leaving: $270B
That was the problem... even if the initial valuation was ridiculously inflated by the early tech bubble, post-crash, the stock was pretty stagnant throughout his tenure as CEO.
Balmer became the CEO right at the peak of the tech bubble. He couldn't (nobody could) possibly have maintained that sort of valuation. It was all hype and irrational exuberance.
Balmer's reign also coincides almost perfectly with the anti-trust actions taken against Microsoft. He was given the worst Microsoft to do anything with.
Ballmer gets credited with XBox etc, but I always thought MS was doing a lot of spray-and-pray management during the Ballmer years, and there were far more failures than successes. There certainly didn't seem to be any realistic strategy or vision. (I remember going to a trade fair with a huuuge MS stand showing off some kind of library or book management service. That product was dead less than a month later.)
Nadella seems to like strategy so much he has a handful running all at the same time. Which is how you get something like "Cloud-first, mobile-first" - which doesn't even make sense.
Point being that CEOs are there to signify the existence of leadership[tm], not necessarily to provide it - and markets and investors don't appear to be able to tell the difference.
The way I look at it, a good CEO can save a company millions (or even billions if it's a large company like Sony) by negotiating better contracts. That is a skill some CEOs have.
Now, if you're going to hire a CEO with that skill, do you think he's not going to also negotiate a good contract for himself? He has that skill.
A good customer support person can save a company millions too. Same for a good engineer or a good sales person.
The purpose of a company should be to support every employee to make those kinds of contributions. If they can only happen at the top it's probably because the employees at the bottom are handcuffed, which totally negates the million dollar contributions the CEO is making.
The contention is that a CEO saves $x million, and thereby 'earns' some [preposterous] fraction thereof, as a finders' fee.
This is a similar logic to a broker taking a percentage of a large market transaction.
That part I disagree with and think many upset about CEO compensation (or market speculators/industry windfalls) is that this is earning in any meaningful way.
In particular, the presumption that there is some intrinsic relationship between the compensation earned and the numbers transacted seems baseless.
The CEO and market trader alike do not provide the value; they are simply in a desk where the numbers are large.
The reason a CEO can 'save millions or make billions' is merely because they have been seated where their quotidian decisions (however talented) have disproportionate leverage and consequence.
That is not a result of ability or skill, except in the unconvincing sense that they had the skill to weasel (my word) their way into that desk, nominally on personal merit, in fact, usually by virtue of connection and political merit.
That sort of 'earning' does not pass the smell test for most of us who have not lucked into those seats, and never shall.
I would make the contention that it is up to the company and the board of the company to decide the compensation of any of it's employees, including the CEOs.
"Luck" has a lot to do with it, but it also has a lot to do with many other types of success that most people don't have problems with.
It is largely random, and heavily influenced by culture. E.g. CEOs in different countries make vastly different salaries yet don't have noticeable difference in performance or outcomes. CEO salaries has more to do with political ideology of a country than market realities. It is no coincidence that the country were people have the most unrelenting belief in the magic powers of the individual, America, also pays their CEOs the highest. Also no coincidence it happened after the 80s philosophy of "greed is good".
Research, logic, and reason simply doesn't support the myth of the CEO. But board members and CEOs themselves like to indulge in that myth.
"I would make the contention that it is up to the company and the board of the company to decide the compensation of any of it's employees, including the CEOs."
Is it any shock that a class of people value people in their own set over the people that actually do the work?
So management in general doesn't deserve more than $X? CEOs do much more than simply broker deals, and the rest is explained by basic market principles-good CEOs are scarce, and therefore well compensated.
There's much more to it than that. Executive compensation doesn't correlate well to company performance. Companies are historically horrible determining what makes a good CEO.
Other potential explanations for inflated CEO pay (relative to previous decades) include executive compensation boards staffed by executives in similar positions from other companies, and boards that want to keep up appearances by having a highly paid CEO.
CEOs don't generally get a high salary because their amazing negotiation skills. It is far more mundane than that. Also you perpetuate simply a myth about how amazing a CEO is for a company. He/she simple isn't. See:
http://blog.translusion.com/posts/CEO%20Salaries/
I'm curious - is it common to hire CEOs and then compensate them with a commission of their negotiated savings?
I'm sure that the devil is in the details, but for a company that is already up-and-running it seems like it should be possible to measure how much the company is spending currently, then how much less the company spent after the CEO negotiated, and then give the CEO a fraction of that.
That seems like what stock compensation is aimed at. If the company gets a better deal on something, it retains more of its assets and is thus worth more to its owners.
Yeah, but the stock price is affected by too many factors to make the argument that it's a good proxy for any one thing.
Certainly, the stock value isn't going to rise or fall appreciably for most of the deals that the CEO will negotiate - it would have to be big enough to 'make the news' and/or show up in a press release, at a minimum.
I feel like I've heard the argument that "CEOs negotiate great deals and that helps to justify their compensation" before, but I've never heard of anyone actually basing a compensation schema on that directly. Given that we live an an Era Of Data I'd expect companies to be doing this (or trying to do this).
The stock price is what the investors value; they want the CEO to increase it by whatever means. Any other incentive structure would presumably lead the stock price to fall, or rise less, which wouldn't be what they want.
>> pump up the stock value now even if they're bad for the company in the long run
I agree this was the main reason for Dell to become private allowing them to concentrate on long term and i think they have done better as private company than public earlier.
I wonder if it is possible only have retail investor as shareholder who does not care much about strategy as long as they get dividend and stock price kind of keeps a phase rather than always going up.
Without disputing any of your comment, I find it interesting that "the customer" (or what we might call the "end user") is never mentioned in this graph of stakeholders and their competing concerns. Neither customers nor the serving of any sustainable purpose are mentioned in TFA either, although outside investors are added to the mix. The ideal business model would be (I should say, is) to make money without doing any particular thing at all. Indeed, last I heard, that is a growth sector.
I think that is a really excellent observation, however it seems to neglect to take into account what the CEO's actual job entails. It doesn't help that the 'CEO' job changes as the company size and mission changes as well.
It is an interesting exercise to take a moment and write down what you envision would fill the time of a CEO at the office over the course of a month. What problems would arise? Who would ask for their time? When they were investing time what would it be toward? Etc.
Ask yourself, what does the CEO actually do? And given what they do what determines how difficult it is to do that? And finally how would you evaluate their performance relative to the requirements for the job?
The above analysis casts the CEO as the 'decider.' This defines the CEO as the person who makes the decisions that could not be made by people that report to them. I have had the opportunity to ask some CEOs how they spend their time and deciding critical questions is always part of the answer, but it is usually a very small part, typically less than 20% of their time. I have also noticed it confuses the heck out of people who are CEOs of small companies and this is a big part of their time, and their company grows and it becomes less and less of their time (or worse they continue to try to make decisions that would be better off made by their staff) and they panic because they have no idea what their job is any more.
In a wider context at a larger company, the CEOs role moves away from decisions and into choices. Which path, of all the paths available, does the company proceed along. Those choices, and navigating those choices, has an inordinate effect on the long term success of the organization.
Tom Mendoza, who was the VP of Sales at NetApp and later President, used to turn everything into a sports analogy. It was so common that people would sometimes jokingly ask "How can I explain this to Tom in terms of sports?" But the reality is that sports can have a lot in common with business at the higher levels. When you look at the performance of a football team like the San Francisco 49ers across coaches and players, it is startlingly clear that the coach has a huge impact on the overall success of the team. But unlike sports teams, which get a sort of 'natural reset' each season, companies do not.
The CEO position is perhaps the single largest point of leverage on the future success of a company. And while it is impossible to know when you hire a CEO if they will have a positive, neutral, or negative effect on the company, it is clear after a while how it is going. And having it be that important to hire a good one, ones that have a 'proven' track record are going to be able to command a much better salary than one who doesn't. Not because their decisions are more employee focused or shareholder focused, but because their decisions are the ones that are good for the success of the company as a whole.
And then how do those decisions effect the company? Well in three obvious ways; they affect the effectiveness of the company at getting things done (its productivity), they affect the number of markets in which the company can complete, or they affect the company's focus. What is worse, in the midst of all these company critical factors they are trying to balance, they will have directors and VPs working for them who are actively sabotaging other directors and VPs efforts in an attempt to 'get ahead.' It would be like playing chess where sometimes a pawn just decides on its own to capture the piece it can see to make itself look more important to the other pieces on the board with no appreciation for where those other pieces are situated or what part they are playing in the current board strategy.
The bottom line is that there is a spectrum of 'CEO' from 'CEO' of a 10 person startup (which is indistinguishable from a line manager) and 'CEO' of a 100 person, 1K person, 10k person, and 100k person companies. Each order of magnitude changes the role in many ways. The one thing they all have in common is that they can destroy the company they are in charge of if they screw up or simply aren't up to the task.
While the words "decide" and "choice" have slightly different connotations, it's quite frustrating to hear such a just-so explanation without making clean definitions for the two terms. I guess in the end you back away from that particular distinction in favor of the incontrovertible "roles change".
If you don't mind, could you rephrase your conjecture as a falsifiable hypothesis?
How about this, tell me if it works for you or not;
A path is sequence of correlated activities that lead to a particular goal or deliverable.
A choice can increase or decrease the total number of goals or deliverables.
A decision can increase or decrease the success chances of a pre-existing goal or deliverable.
Generally a startup CEO has one deliverable, the product. And all of their actions are decisions on how to de-risk that deliverable at minimum cost.
An enterprise CEO has multiple deliverables, evalutated as 'enterprise value'. Their actions are generally choices to add or remove deliverables to increase enterprise value.
Your theory doesn't explain why so many CEOs are either neutral or spectacularly harmful to the long-term health of the companies they manage.
I think the distinction between choices and decisions is arbitrary.
The real difference is that startups have to keep customers and/or initial investors happy. They're also more likely - on a scale of "absolutely very much" to "I suppose I should care, I guess" - to take an interest in the employee culture.
Enterprise CEOs have to keep their boards and institutional investors happy, and mostly don't give a crap about employee culture, except in so far as it contributes to the first goal.
The problem for enterprise CEOs is that there are painful, obvious conflicts between Wall Street's persistent demand for high quarterly returns, the on-the-ground demands of keeping a business healthy and growing, and the value of their own personal stake in the company.
Can you characterize 'so many' a bit more objectively or quantitatively? I can certainly point to a few CEOs I felt are neutral or harmful to their companies but I don't have any data to suggest that this is any more than the typical left edge of the bell curve kind of thing. If you have any good studies on this I'd love to read them.
I certainly agree that Enterprise CEOs do have to be doing a good job in the view of the board, exactly like any employee has to do a good job in view of their supervisor if they wish to retain their job. The board can fire them. But that also raises the question of how much is the continued presence of a 'bad CEO' the Board's fault.
And I don't agree at all with this statement The problem for enterprise CEOs is that there are painful, obvious conflicts between Wall Street's persistent demand for high quarterly returns, the on-the-ground demands of keeping a business healthy and growing, and the value of their own personal stake in the company.
If the stock price is a proxy for the health of the company and the CEO is in charge of keeping the company healthy, then the stock price and the CEO are aligned. I've only really been on 1:1 speaking terms with two enterprise CEOs, Scott McNealy (Sun) and Dan Warmenhoven (NetApp). And neither of them was 'conflicted' about what Wall Street 'demanding' high quarterly returns, nor did the noise of traders on Wall Street enter into their business decisions as far as I could ascertain. When decisions were made and communicated they are very solid reasoning behind them around how the choice would improve the company. I have also seen startup CEOs that made extraordinarily bad decisions that benefited themselves personally at the expense of the company, both Zynga and Groupon showed how painful that could be. But when you look across the millions of companies, just in the US, it is hard to find a persistent, or even prevalent, pattern of CEOs who put themselves or by proxy the stock price, ahead of the company issues. I am certainly open to evidence that this is the case, I just haven't seen it.
The quarterly reporting process does put perverse incentives on the CEO that cascade through the company. I've seen it first-hand. To meet the shareholders' shortsighted demands for steady growth and accurate short-term budget forecasts, the corporate budgeting process is a top-down bureaucratic affair that emphasizes predictability at the expense of long-term profits.
If a small department has a great set of low-risk, high-reward projects, but runs out of budget, the company should run the project so long as the risk-adjusted reward is greater than the cost of capital. But instead, they must stick to the plan.
That's much better. I don't mind arbitrary new definitions for words, so long as they're explicit and consistently used. However, you might find others like TheOtherHobbes more receptive if you use wholly new phrases to avoid namespace collisions.
Being skeptical of arbitrary new definitions is a good defense against intentional conflation of two definitions. I find psychology papers are frequently guilty of using a very narrow, specific definition for a word in part of their research then switching to a very broad definition for their conclusions.
Selectorate theory (the rules for rulers) would imply the second type of CEO (hired) is there to distribute treasure to the major stakeholders and not primarily to grow/invest in the business aka financial strip mining.
You're ignoring that the treasure is dynamic. If I can have 50% of $1 today or 20% of $10 tomorrow, a leader who can produce the second outcome is preferable to one who'll simply distribute à la the first.
- Business Network: If I had a billion dollars, I would never have been able to acquire Instagram. I wouldn't even be able to get a seat at the table. Zuckerberg closed it in record time while talking to a company that wanted to be on it's own
- Market Knowledge: I thought the iPad was the stupidest device ever, Steve Jobs didn't. I now have 4 at my house along with two of those stupid iWatches (actually they're pretty nice)
- Portfolio: Marissa Mayer wasn't paid what she was paid because the board expected her to perform well, she was paid her salary (and golden parachute) because the company was dying and they had no idea what to do. Mayer had an idea of something that might work, but why on earth would she risk her awesome résumé with taking on the risk of a company on it's last leg?
- Access: If my daughter has a birthday, I can schedule an early day to be home and celebrate with the family. When Steve Jobs came down with cancer, he was required to disclose his medical details publicly because of the fiscal impact it could have on the public stock
- Job Market: I'm a programmer. There are jobs everywhere for me. If the CEO of Uber loses his job (fingers crossed), it might be a looong time before he finds a new one and even then it's not likely to be remotely similar to what he does now. I mean shoot everyone loves Gabe Newell, but if he lost his job, what are his options? Not as many as me.
Look, I'm not saying that some CEO's pay isn't exaggerated. I'm just saying that I'm not worth nearly as much as a talented CEO. If the company your 401k/pension was invested in hired me as CEO, you better believe you'd grab your pitchfork.
The Marissa Mayer one is the one that really stands out to me. A lot of people seem to think that she was brought in to save Yahoo; no one on the inside was thinking that. Everyone understood that Yahoo was hopeless and they were headed for a sudden collapse. Mayer was brought in to rescue whatever shareholder value she could and as long as shareholders got something back they would be willing to split some of it with her.
Interesting. But I think she might have a different agenda wven if she did have such verbal mutual understanding with the board. For someone like her becoming CEO becoming a savior is important. She probably eventually pushed her technical agenda wanted to save the company and make profits so she can stay there long.
> - Job Market: I'm a programmer. There are jobs everywhere for me. If the CEO of Uber loses his job (fingers crossed), it might be a looong time before he finds a new one and even then it's not likely to be remotely similar to what he does now. I mean shoot everyone loves Gabe Newell, but if he lost his job, what are his options? Not as many as me.
I would assume that people in such positions (i.e. people who are thinking about long-term strategic decisions nearly all day long) have some ideas in store for what they could do after their current gig. And they have the wealth to get their next company off the ground more easily.
They may have _ideas_ of what can be next, but the job market is orders of magnitude smaller at that level
As far as having the wealth to get their next venture off the ground, that's part of the negotiation. They know if they leave the company, it will take X days to find a new position or Y amount of money to start that idea they have. I do the same thing when taking a job (i.e. Can I save for a rainy day?)
>I mean shoot everyone loves Gabe Newell, but if he lost his job, what are his options? Not as many as me.
You don't honestly believe this, do you? Everyone here likes to rip on the "Business Guys", but despite what you may have heard, they aren't skilless. Gabe would have a new job tomorrow.
But this competition over who is most valuable in the world or in a company is rather futile. Who matters more, the doctor who saves the lives of 4 talented CEOs or the CEOs themelves? What about the teacher or professor who unlocked the talent of say 10 future world leaders, but still gets a measly salary? What about the scientist who makes an invention or discovery which changes all of society?
There are plenty of people with profound influence on society but who get very little compensation for it, because they don't sit close to and control the money bag.
I think it is time we stop worshiping CEOs and accept that they are not these indispensable Gods. They are like any other talented professional.
Total side note, but I do want to note: Gabe Newell can't lose his job unless Valve Software fails entirely, since Valve is a privately owned company. He and Mike Harrington pretty much own the company outright. And given that Valve had ~2.5 Billion in equity in 2012[0], I don't think Valve is in any danger of going away.
>When Steve Jobs came down with cancer, he was required to disclose his medical details publicly because of the fiscal impact it could have on the public stock
Yeah that's why he waited 9 months and after his surgery to announce it. "there's no specific obligation under the federal securities laws to disclose the health condition of executives."
> This focus has a devastating impact on the lives of CEOs... Leaders deserve to be happy too... solving the problems starts with communication... we need to wage war on this picture
A whole article about how hard CEOs have it, and not a single mention of CEO pay or the ongoing efforts to even get reporting of CEO pay ratios?
I mean I agree that CEOs get a ridiculous amount of stress and an unfair share of credit and blame, but if we want to fix it, I wouldn't start with platitudes like 'why don't we talk more', I'd start by paying CEOs less.
> The result is that a startling 100% of CEOs report that they suffer from stress and, according to research by Apollo Life, one in four say they struggle with insomnia.
Yeah, 100% of the population suffers from stress too. And I just googled it: 30% of the population suffers from insomnia. LOL.
I agree that the stress level of C jobs does not compare to the mean. It must be nice not to have to stress about a mortgage, kids college, affordable healthcare and all the other things that ordinary people in western society struggle with.
I think a lot of people would trade stressing about their families financial well being with the needs of the shareholders. I'm not saying it is not a tough job but at the end of the day I don't think CEOs stress compares to regular middle class people just trying to get by.
A C-level (at least an honest, non-sociopathic, non-clueless one) will stress about the mortgage, kids college, affordable healthcare and all the other things of his or her thousands of employees, since actions at that level impact all of the above. With great power comes great responsibility...
I've just watched the head of a company I know hire 4 employees out of his own pocket in a shell company to do nothing, after the company where they were all employed went bankrupt. He couldn't afford more than that. He hired them a few months later in his new job. This kind of leadership doesn't make it to Business Insider or Tech Crunch.
You don't know what you're talking about. CEOs have mortgages, healthcare, and families to worry about. They also have a handful of very demanding, very intimidating investors to please, to each of whom they owe millions, they have employees that are constantly getting poached, they have users that are shitting on their product online.
At large, people are terrible. CEOs are working with these terrible, dumb, rude, and sometimes harmful people to get them to invest, to work, to be productive, to just help get a product out the door. And if they don't get products out the door - If companies do not succeed - You can say goodbye to your nation. We are built on the fruits of technology-selling companies through and through; our wealthy nations do not come from nowhere, someone has to do the work, and CEOs are all doing the work in addition to family, healthcare, and mortgage woes.
I am a C-level in my own company. It has been wildly stressful. But it's also more fulfilling than any other job I've had because it's mine, I do overtime to fix my mistakes and not other people's mistakes.
The main reason that CEOs have extra stress and get extra blame and get looked at to solve everything is because CEOs as a group have negotiated their compensation and sold themselves as bringing 350x more value to a company than the average employee. If you do that, you're going to get called upon to prove it at some point.
The undue stress is literally caused by the undue compensation, they go hand in hand. If you want to reduce one, you have to reduce the other.
FWIW, I never said C level jobs compare to the mean stress wise, and I even stated that I agree CEOs suffer ridiculous amounts of stress. I pointed out that more of the population suffers insomnia than CEOs according to the article. That's funny; the article was trying to make it sound like CEOs have disproportionate amounts of insomnia, but it turns out the actual numbers for the population are higher than the numbers the article states for CEOs. If you'd care to disagree with that, feel free to cite a source. Here's mine: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1978319/
That wasn't lazy reporting, the article made an intentional and consistent series of assertions intended to paint the CEOs life as unduly difficult compared to other people, insomnia is a conscious part of that narrative.
What is lazy reporting, in my opinion, is completely ignoring the issue of CEO compensation. Even if you agree with current CEO compensation trends, it still needs to be addressed. If you get paid more, you should expect to stress more. If not, then why not? Why should someone making 1M not expect 10x more stress than someone making 100k? There may be reasons, but you should articulate them if you want to be taken seriously.
EDIT: scratch that, my writing is lazy. :P I speculate that ignoring compensation was also intentional, not lazy.
> Is because they are CEOs. The buck stops with them.
Then a commensurate amount of stress comes with the job, does it not? Your point here opposes what the article says, that a company is a team effort and not an individual contribution. So I don't understand, what are you arguing for? You want to have CEOs continue to take ultimate responsibility, but not have to have as much stress? How? Or you want them to continue averaging 350x the pay of employees and also continue to have more stress? Can you have it both ways? Why?
The effort to get pay ratio reporting of CEOs to be standard - something I alluded to - is something the SEC is currently considering rolling back. Do you believe pay ratio reporting is a reasonable goal? Do you believe that the US average CEO pay ratios are trending in the right direction?
This is reminiscent of auteur theory in film, which essentially says that the director is the author of the film. Similar to corporations, making a movie requires a lot of people with different skills/talent. The director overshadows everyone and is the person primarily credited with authoring a film, they even overshadow the writers of the screenplay. One of the leading arguments for auteur theory is that the director has the vision of the film and they set out to create it. This is the same narrative used in the startup world: the founders have the vision. So this extends to why we credit founders for the invention of products, just like how we credit directors for films.
Maybe 100 years from now we will say "Steve Jobs invented the iPhone/smartphone", just like how we say "Thomas Edison invented the light bulb" or "Martin Scorsese made Taxi Driver".
It's older than that, how many innovations are credited to Emperors, and victories in battle to Generals? I think it must be the product of some parts of human nature.
Yes, I think people naturally need well-defined figures to look up to, to praise, and to try to emulate. It's a lot more powerful to say "George Washington" won the US Revolutionary War than to talk about all his subordinates, even when those subordinates made many independent wartime decisions that were essential to winning the war. And yet I can't even name one of those people offhand.
Alexander Hamilton is the next easiest to mind, due directly to the musical. One of Hamilton's complaints in real life and emphasized in the musical was that he wanted as much, if not more, to be as brave/glorious as the generals and soldiers of the War, but was "stuck" in such an inglorious position of being Washington's aide-de-camp and helping Washington run the war.
ETA: The explicit irony being that most of Hamilton's work during the war is of course attributed to Gen. Washington, and in the current zeitgeist the only reason people remember his involvement today being the popularity of a musical of a biography of his.
It is of course an illusion created because all the talent around a director is taken for granted. Put Steve Jobs or Elon Musk is Somalia and come back in 10 years and see what they had accomplished. Probably not very much at all. Elon Musk himself realized early that he could not achieve his dreams in South Africa and left.
The danger of focusing too much on the leading person, is one easily forgets that if one doesn't create a society full of talented engineers, scientists, teachers, with good infrastructure etc, then these people will not be able to do their magic.
It is easy to think that without Eddison there would have been no lightbulb, but really when you look at it, it becomes clear that if he had not lived somebody else would have done it. But they wouldn't have done it any random place. With high chance it would have been the US as well due to the presence of the right sort of mix of talent, drive, money and opportunity.
If you fail to create this environment then "great" leaders are useless.
Napoleon was a brilliant military strategist, but if he not lived France probably would have gotten another brilliant military strategist taking over Europe? Why because the French revolution created a system that allowed talent to flourish. Talented generals moved up the ranks fast rather than those with the proper names and family.
I am not into the cult of anything, nor do I think anyone is superior just for being an entrepreneur. I do think being an entrepreneur is superior in one key regard, "its all on you". No one to fire you or lay you off, no one to blame for hiring practices or corporate culture etc etc. What I personally love about being an entrepreneur is the success is not all because of you, but the failure sure is.
My objective observation of many entrepreneurs I know (i.e. not all of them, but a majority that I know), is that they do not take any meaningful risks: they use other's people money, not their own, they have a pretty good paycheck, a lot of equity, often at an age where hard responsibilities are nonexistent (e.g. no family, no house, sometime they have a dog), and they get to play boss no matter how good, or bad, or clueless, or not CEO material...
So, I did acquire a bias toward agreeing with parent.
Obviously it'll depend. But if a founder/CEO turns a 3-person startup into a 500-person multimillion dollar company within a year or 2, and is responsible for a lot of that effort, then they arguably deserve the bulk of the credit.
In most cases, probably 10% or less of the credit belongs to the CEO, though.
That's the thing though: as the size of the company, customer count, and revenue numbers increase, the founder/CEO has less and less _directly_ to do with that.
If I found a company and directly hire 10 people and act as a day-to-day leader where everyone reports to me, you can say that I had a large impact on everything that happened.
Two years later, when we have 300 people, I'm out of the day-to-day hiring decisions and I'm not directly making all the deals that the company makes, I can still claim to be steering the ship, but I can't claim direct credit for much of what the company does. Sure, it was my initial founding decision that has made all of it possible, but I'd be incapable of being involved in literally everything at a larger scale such that I could take credit for it.
Here are some decisions that you might be faced with when holding the CEO job at a 300 person company:
- The New York Times has just written an article about how your company mined user data and sold it in a nefarious way. But this sort of sale is critical to your business model. What do you do?
- You hired a VP of Sales 6 months ago who interviewed better than anyone you have ever met and came with glowing recommendations, but he has missed his quota for 2 quarters. Do you fire him or do you give him some more time?
- A competitor has, completely unexpectedly, launched a similar product as yours but is charging customers half the price. Your CTO doesn't know how they could be turning a profit at such a low cost. They're very quickly eating into your market share. How do you respond?
Obviously these situations would be far more nuanced than these 2 sentence descriptions and obviously you would get all sorts of opinions from employees & advisors but ultimately making these sorts of calls is the CEOs job. Making these decisions well is not easy and it can have a huge impact on the company.
Translation: why don't many normal people have trust funds, expensive educations, the disposable income and lack of financial responsibilities to be able to work for free for extended periods of time, friends in industry, investor class connections, or some combination of all of the above plus a shitload of luck.
It's unusual for them to be entrepreneurs in anything with a high barrier to entry. Instead they have to become entrepreneurs (and take on extra risk) because they can't easily get other jobs.
Spoken from a German POV, it's quite simple: racism. When you're an immigrant and no one wants to hire you because you have a non-German family name (illegal in theory, hard to enforce in practice!), you have four options: be stuck in low-level menial work for the rest of your life, rely on food stamps/government assistance ("Hartz IV" in Germany), turn into crime life or start a small company (costs ~ 50€ or such for a fully-liable company, and for a sorta-limited company "UG" a bit more).
Also, immigrants usually do not carry cultural dead weight - once again I refer to Germany. Starting a company is not really popular here, as you will be socially shunned if you fail (even if you not end up bankrupt in the process, but that's another can of worms). Germans are risk-averse to the extreme, immigrants usually not.
Since I'm also German, I would like offer a different reason. I frequently observe people on HN talking about their "side projects", where they build a simple app or website in their spare time, and people are willing to pay a dollar a month or so, which (when summed over maybe 1000 users) makes for a decent secondary income.
When I consider such a model for myself (just as exploratory thought because I don't have a nice side project idea ATM) it quickly devolves into a nightmare where I spend all my free time filling out tax report forms so that the Finanzamt can collect taxes on my maybe 100 euros per month.
Maybe that's a misconception and it's much easier to operate a side business as a one-man show, but that's the mental image in my head, and that's also the main reason why I would be quite reluctant to even consider just a side project.
Let's see; I'm a successful entrepreneur and I had...
-trust funds - no
-expensive educations - university, but it's subsidized here so it's cheap. Almost anyone who can use a uni education can get one in western nations now.
-the disposable income and lack of financial responsibilities to be able to work for free for extended periods of time - I earned this working at a corp job and saving 30% of my income for about four years
-friends in industry - no
-investor class connections - no
-shitload of luck - hard to say. Probably yes.
You don't need the above; internal qualities beat these externals every time.
Countless trust fund babies have tried to start companies and done nothing but fritter away Daddy's money.
Anyway entrepreneurship isn't really about tech giants. Most entrepreneurs aren't starting giant tech corporations. They're just normal people trying to start a lawn care company, a plumbing outfit, a local chicken restaurant chain, a barber shop, etc etc. These kinds of businesses actually do have strong growth potential if targeted and run well. It's just that very few of their proprietors have the business acumen or desire to do it. I can name several always-packed local businesses in my town that could grow quite easily, but they just... don't.
Maybe some people just aren't interested in doing that? Many entrepreneurs don't want to be employees and maybe many employees don't want to be entrepreneurs. I think both groups should be happy that the other exists.
Because the risk calculation looks different when one has a bank account that can support one's family while working for free for a x% chance of a payout.
In addition, beware the stories of "self made" tycoons which will conveniently ignore how -- even if they didn't trigger it -- they still had a safety-net of wealthy relatives that they could rely on for emergencies or loans. (Ex: Bill Gates.)
Statistically speaking, poorer people can't afford to undertake the same risks, so they can't take advantage of the same opportunities. Once you hit zero, you can't gamble your way back.
Bingo. Tons of money can't buy you the home run, but it can buy you a stronger bat, a slower pitch, and as many swings as you need to hit that home run.
Why would I/we when between me and my wife we earn > 200k a year with 9-5 jobs? Most SBO owners dont make that much. I get to see my family and children grow. The people I know who run a small business successfully slave away at their workplace because they have to... or the last friend sold it because he burnt out after a year.
The only time one would endeavor to run a massive business rather than a small one is if you invented/patented something or provided a service that can be scaled and you need help to bootstrap it... in which case unless BillG or DonaldT is yer uncle, you're gonna be sucking on some VC's titty anyway... i. e. they own you.
And also a lot of people with "grit" don't amount to anything. They lack networks, capital or the right idea. Or they have something else that they feel is more important than building a startup: a family, work flexibility, or a hobby that consumes them.
they do. you just don't read about the successful entrepreneurs that grow their business from 1 gas station convenience store to 4 gas station convenience stores.
i don't think it really registers in peoples' conscious minds that somebody owns _every single_ restaurant/deli/store/shop/building/etc. in a city, and it's definitely not some rich dotcom guy.
I think it's basically the shrinking of the middle class and people with enough capital to contemplate starting a business. Looking at the number of business starts shows an ever decreasing number - which correlates with the stagnation of wages and size of the middle class. Also linked, the number of hours worked has increased steadily, as well as a increase in both parents working, so availability of time in households to supply "labor capital" to start businesses has also shrank.
But I'd want to see a world where headlines like "Entrepreneurs are just rich kids" cease to be, because that headline is only created when entrepreneurship is put on a pedestal and is seen as something that is inherently superior to everything else.
People wouldn't feel indignant that it is "unfair that rich kids have an advantage" at the entrepreneurship game (which they absolutely do), if entrepreneurship weren't seen as this holy grail mount Kilimanjaro thing.
I'm pretty sure people are going to continue to be pissed off about some lucky assholes winning the birth lottery and cashing in their ticket to further profit off the labor of others less fortunate regardless of what kind of media spin you try to put on it.
I'm guessing you aren't conversant with how taxation and class mobility have changed over the last 40 years. Let me save you the suspense: you're wrong.
Marginal tax rate in the US has fallen like a rock since Reagan got into government. The exact same time class mobility went down as well. If you look at the statistics class mobility is highest in high taxed Nordic countries. Low tax anglo-saxon countries are usually pretty bad at this. The UK follows much of the same ideology as the US and also has among the lowest mobility in Europe.
It is nothing weird about this really. Higher taxed countries are able to offer better public education and health care which gives the lesser of actually stand a chance of making it.
In the US the system is especially rigged. There is no free school choice, so you are forced to go to the public school in your shitty neighborhood if you are poor, while the rich through never ending donations enjoy schools with abundant resources. And even if the schools were good you would be screwed before you even get in, because the US does not offer quality child care to poor people. Research shows the years before school is the most important for future development.
I live in a poorer area of Oslo, but I could if I wanted to send my kids to the schools in the richest part of town without any extra cost to me. But it isn't really important as school quality is pretty even, through proper public funding rather than relying on private donations. Also we get subsidized child care of a quality that typically only upper middle class buy in the US.
If you don't even the playing field in a persons early years you are not going to see much social mobility.
This cult is important, though. Important to achieve exploitation of talented, young people who would otherwise take a save, well paying job in a big company or government.
You're right. I'll have to take down that shrine to Mark Zuckerberg in my closet.
????
"Cult of the entrepreneur"? What does that even mean? What concrete action would cause an end of the "cult of the entrepreneur"? Not starting new businesses? Or just not being friendly to Zuck at parties? What are you talking about?
I'd argue the cult of the entrepreneur and cult of the founder are two different things. You're right, anyone can found a company. Entrepreneurship, on the other hand requires execution, vision, and creativity and is a real art.
Over 60 years ago, Frederick Lewis Allen published "The Big Change". He noted that we do not live in a Capitalist Society, we live in a Managementist society. Capital is too often diced up and spread around so that it has no bearing on decisions and the "owner" has no responsibility or even ability to track things.
Please, how often do you see anything credited to more than 10 people, even though maybe thousands worked on it?
It's human nature to look for the leader, or leaders if there's no clear leader or if that seen leader is actively advertising the others, but no one will ever credit 100+ people actually working on anything.
A single death is a tragedy, a million is a statistic.
Studies by Gabaix and Lanier, who were in favor of performance based pay showed that the difference between the best CEO and the 250th best was 0.016 percent.
Meaning if one replaced the 250th best CEO with the best, then the companies market capitalization would grow by 0.016 percent.
Perhaps what really matters is how bad the CEO is not how good he/she is. E.g. it is like studies of parenting, there is no difference in outcome for kids with awesome parents and those with average middle-class parents. The big difference is between bad parents and average parents.
Something similar with IQ. There is no difference between having 130 in IQ and having 200, with respect to your chances of winning the nobel prize. But there is a noticable difference between having say 100 and 130.
i can't read this without shaking my head. boo hoo. when CEOs' compensation starts to mirror their output/tangible contribution to the company, i'll be able to take stories like this more seriously. i.e., i agree that CEOs are given far too much credit and cannot possibly be looped in on everything that leads to the successes or failures of a company, but they certainly pay themselves as if this was the case.
I'd say the CEO acts as the primary role model and the employees/company often reflect the attitude of the CEO. Think of the workplace stereotypes of amazon - customer focused, google - side projects, spacex - mission, uber/oracle - aholes, apple - design, microsoft - developers , facebook - hackers, etc.. the CEO sets the tone and if you agree with it you'd probably like working there :)
This is just how humans view the world. We attribute everything the government does to the President, we attribute everything in a film to the director, and everything in a company to the CEO. We view the world this way, when in reality things happen at every level.
It is SO true that a company is a team effort. It is also sadly true that CEOs get most if not all the credit of what their teams accomplish even if they didn't have much of a part in it. The current CEO "God" Jobs said as much, and in fact had wrong intuitions on a number of the most critical things today in Apple's business... a gigantic one being a hesitance to open up the iPhone to 3rd party apps. I think other Apple team members eventually convinced Jobs (probably didn't take that much effort) to open things up. Jobs was rightfully concerned 3rd party apps could crash your phone which wasn't a good idea!!
That said, when Apple didn't have a strong product-focused leader we saw where it went earlier, and one can see how it's floundering today -- under Cook, Apple was maybe 2 years or more late with a large screen phone and the iWatch is not good at all. Tesla under a certain CEO has in less than 15 years what's widely considered the world's best car...beating few dozen companies with long histories of making cars and limitless resources. Amazon took big risks with AWS, Prime, and many other things and failed miserably many times e.g. the Fire phone...but they have a leader who kept pushing things forward. Compare Amazon to say Walmart (to my view largely the same company it is today that it was 20 years ago) or any other e-commerce company. The visionary leader who can deliver revolutionary products relentlessly really does matter.
Was anyone else bothered by the way studies were cited in this article?
> 100% of CEOs report that they suffer from stress
Anytime I see 100% I assume the study was bullshit.
> the death of a CEO causes a company's value to fluctuate by $65 million more today than it did 60 years ago (adjusted for inflation)
I'm guessing the sample size here is pretty small or at very least a measure of absolute "fluctuation" doesn't seem like the right thing to measure. I can imagine a world where the death of Steve Jobs alone could have caused this effect. Also what was the fluctuation before was it $100 million? $1 million?
The "cult" underlying this phenomenon is our celebrity culture. We fetishize the 0.01%. The role of overpaid CEO is established; it no longer needs any more special justification than top athletes, entertainers, or TV "personalities."
Conveniently, we have lots of companies that need saving. And it seems to me that, for a country where people still like to pretend there's a "free market," we sure hate to see companies fail. I think of the old saying, "Many a good hanging has prevented a bad marriage." But hey, who asked me.
> Think of a prominent global-company CEO. Sir Martin Sorrell? Indra Nooyi? Elon Musk?
> Now, name the CFO and CMO. I bet you can’t.
I can't, but it's because it's not the CFO and CMO representing the company on the public realm, so they're not the faces and names I see when there's news about a company in which I do not work at or with.
If this "exposure" happens within a company as well, that's an issue for each company to assess and deal with accordingly.
I always wonder why people happily give up the rewards they earned for their hard work. Prestige, connections, bonusses. I think that's a big part for the guy at the top getting most of it as well.
And the reason is self-preservation. While all these things are nice, to most people it is more important to not experience the opposite: public criticism, haters, losing your job. In many situations it is also reasonable, since for a middle-income person a save reliable income is usually the most valuable asset they have. Losing it is much more hurtful to their lifes than losing a bonus. Therefore they give up some higher-risk opportunities for safety.
Summary: The employees probably also want the success and failure associated to their boss not themselves.
I found it hard not to disagree with this article. I am not sure I agree with the premise but this argument wasn't persuasive. Of course a stock drops when the CEO abruptly dies. Of course 100percent of people responsible for the well being of others (employees and shareholders) and countless decisions is stressed.
A counter example to jobs (cliche pic on every article like this) is Ive. The cult of personality is an obvious way to humanize a company. It can be good or bad. Kalanick bad right now; Musk good right now.
Being a good CEO is more important than simply branding yourself.
IDK, article fell flat for me I see both sides and it's subjective in my book
I'm guessing a possible resolution is to disseminate the responsibility that a CEO holds.
I've never been at that level of management, but it appears that other players (inside and out of an org) require a single point-of-contact, or ultimate authority.
I think this might be better, simply because 1:1 relationships are easier to coordinate than 1:n (chair and council), or n:m (council and lieutenants), which dissemination might bring.
My counter question is: where would the buck stop?
》The result is that a startling 100% of CEOs report that they suffer from stress and, according to research by Apollo Life, one in four say they struggle with insomnia. Many multinationals have launched expensive well-being programmes in response, but these just wallpaper over the core problem: CEOs unnecessarily carry the full weight of company performance on their shoulders.
It is the job and responsibility of the CEO to delegate so that decisions can be made elsewhere.
I think this article misunderstands one of the roles of the CEO, which is to be the face of the company, the individual to whom the media can attach its narrative. Group stories don't have the same appeal. Harder to tell. Even if they're more true. CEOs are traveling salespeople. They represent a larger group. They persuade. And one of the groups they sell to is the media.
I'm sure the majority of the article is valid, but Apple's stock skyrocketed after Job's death. I'm sure it's an outlier but kind of wish that had been acknowledged given the image used.
It was fairly well known for months before Jobs' death that he was ill, and that he wasn't very involved in the day-to-day operations of Apple anymore, and that Tim Cook was clearly going to be his successor, and had already taken on many if not most of the CEO's duties.
Even then, AAPL dipped a little during Oct 2011 (Jobs died on Oct 5th), recovered in November, and then started really moving upward over the next 2-3 months. I think the large jump can be attributed to how well and how successfully they handled the transition, and to the point that people -- as much as they viewed Jobs as key to the company's success -- realized that Apple could still perform well without him, based on the idea that the "cult of Jobs" didn't end with his death.
Given that a fair chunk of today's NY Times front page is devoted to Steve Cook rebuking Travis Kalanick, I'm not going to short to incense stocks quite yet.
The other kind is the CEO who is hired by the board of directors. They're usually very well paid and given a lot of stock, but aren't wealthy the way, say, Bill Gates is wealthy. They also tend not to be as admired, since they didn't build the business from the ground up.
People wonder why the second class of CEO receives such lavish compensation, when they're essentially just a regular employee. I suspect that the compensation is actually part of the qualification for the job. It makes shareholders feel good if the CEO holds a lot of stock, because it's a strong incentive for them to put the interests of the shareholders (whom it's easy to stereotype as rich, entitled lazy people living lavishly off of passive investment income) above the interests of the employees the CEO works with every day (who are usually hard-working people who, if the company is successful, generate far more wealth than they're compensated for).
Normal human behavior would be to put the interests of the employees above the shareholders. Large stock grants counteract that. Sometimes I wonder if a hired CEO were to refuse to receive large stock grants, would that cause the shareholders to revolt and/or the board of directors to not hire or try to fire him/her, simply because they're not comfortable with a CEO who doesn't have an incentive to pump up the stock value.
(It's worth noting that shareholders can change their investments much easier than employees can change employers, so shareholders are more likely to prefer policies that pump up the stock value now even if they're bad for the company in the long run.)