16 February 2006
Overcompensating
In response to James Surowiecki's comments in the February 13 & 20 New Yorker, CEOs' compensation must be understood to accord with their accomplishment of the objectives of their companies' shareholders. Performance will always be the primary criterion of merit for CEO pay packages. It's just that financial performance -- stock-market valuation -- outweighs microeconomics in the eyes of many companies' shareholders.
More and more frequently, stock market valuations reflect hype as much as audited growth or profitability. The better a CEO is able to convince the market and its opinion leaders that his company is succeeding -- for whatever reason -- the more he is worth. Fraud cannot be rewarded, but spinning the outcome of operations is a skill that has become valuable in today's economy.
It's sour grapes to blame CEOs in certain industries, like oil, for their good luck. Some have it and some do not. Some know how to take advantage of it, and should be even better compensated.
In response to James Surowiecki's comments in the February 13 & 20 New Yorker, CEOs' compensation must be understood to accord with their accomplishment of the objectives of their companies' shareholders. Performance will always be the primary criterion of merit for CEO pay packages. It's just that financial performance -- stock-market valuation -- outweighs microeconomics in the eyes of many companies' shareholders.
More and more frequently, stock market valuations reflect hype as much as audited growth or profitability. The better a CEO is able to convince the market and its opinion leaders that his company is succeeding -- for whatever reason -- the more he is worth. Fraud cannot be rewarded, but spinning the outcome of operations is a skill that has become valuable in today's economy.
It's sour grapes to blame CEOs in certain industries, like oil, for their good luck. Some have it and some do not. Some know how to take advantage of it, and should be even better compensated.
Comments:
Post a Comment
