Realist, not conformist analysis of the latest financial, business and political news

Doesn’t This Just Kill The CEOs Are Overpaid Argument

There are those who insist that CEOs are overpaid. What shareholders do with their own money is not, of course, something to be determined by cardigan sniffers among the Guardian reading classes.

The slightly more sophisticated go on to say that, actually, it’s not the shareholders who determine these things. They’re a dispersed interest and they’re outdone by the insiders. The non-execs all have an interest in business folk being highly paid, many are CEOs elsewhere themselves, so they as an exploitative class jack up top bod wages.

So, can we test that insistence? Sure, we can. Because there are businesses out there where the shareholders are not a dispersed interest. Where – off over in private equity, or privately owned not public market companies – the power of the capitalists is very much greater than that of the managerial class. If the owners being duped reason is true then private business should pay less than public. So, does it?

Mr Segev will take over as co-chief executive of DAZN, a venture launched by Mr Blavatnik that owns overseas TV rights to the likes of the football Premier League, US baseball and English cricket.

However, sources said that the former Israeli soldier will remain at Entain until as late as July and will likely oversee any potential sale to MGM.

Mr Blavatnik – Britain’s fourth-richest man with an estimated net worth of £23bn – is believed to have approached Mr Segev shortly before Christmas to run DAZN with the promise of a salary of several times higher than the £675,00 he is paid each year by Entain, sources said.

He is also understood to have been offered share options worth tens of millions of pounds, if not more than £100m.

Barry Gibson, Entain chairman, said: “We are sorry that Shay has decided to leave us but recognise that we cannot match the rewards that he has been promised.”

Oh. A CEO is moving from a public company to a private one on the grounds that private pays him many multiples of what the public one will. Something that everyone is being entirely open about as the reason.

Doesn’t that just show that the original complaint, that the shareholders get duped, is bollocks then? But then, you know, we’d sorta expect that given the source among the cardigan sniffing Guardian reading classes.

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Craig
Craig
9 months ago

“shareholders get duped” Of course they can get duped and for sure controlling groups can take advantage of minority groups and so on. Fool me once, right? For sure, but to expound on the point, if that happens that typically triggers a breach of various fiduciary duties and trust me there is an army of plaintiffs’ whorers ready to go to war. Indeed if duping shareholders were the norm, one wouldn’t see Dow 30,000 today. Over the long haul investing in stocks would simply be a losing proposition. Sure, you might get Enronned, and shareholders might be defrauded, duped or… Read more »

Spike
Spike
9 months ago

The notion of overpaid CEOs is an offshoot of Marx’s notion that any profit that goes anywhere but to the workers has been stolen from them. The story that a private company pays more than a public company doesn’t mean they all do, but the Guardian would insist they would never do.

The overpaid CEOs meme might make a Board of Directors of a public company restrain executive pay and accept second best, while a private company knows what it needs and can simply go acquire it.

MrKing
MrKing
9 months ago

Hasn’t Tim previously stated that the reasons rewards are so much higher at the top is that it’s a winner takes all high stakes game? In other words, if you are ruthless enough to make it up the greasy pole then you command a disproportionate amount of the winnings (wages).

None of this says anything about performance. It’s possible that the typo of megalomaniac that reaches CxO level is counter-productive to the business. The best excuse for this seems to be we’d rather they ran a company as a dictator than become serial killers.

That’s not a winning argument IMHO.

TD
TD
9 months ago
Reply to  MrKing

Most of their winnings are not wages but in the form of options or equity grants. No one really knows what they might one day be worth when they are granted. As the CEOs recruited with such inticements generally have already been very successful and could probably live on the beach for the rest of their lives if they wanted, it might need be a pretty big carrot that is dangled in front of them to get them on board.

Esteban
Esteban
9 months ago
Reply to  MrKing

Not sure what game you think is “winner takes all”, but it seems you’re off on the wrong foot in your first sentence. Getting to a good answer is going to be difficult from that point on.

MrYan
MrYan
9 months ago
Reply to  Esteban

@ Esteban

Tournament theory – an example paper here – https://www.sciencedirect.com/science/article/abs/pii/S0148296312001117

Perhaps you could try not being a smart arse next time.

Esteban
Esteban
9 months ago
Reply to  MrYan

Not sure hat [point you think this makes, can you explain?

MrKing
MrKing
9 months ago
Reply to  Esteban

You asked what game I was referring to when I stated “make it up the greasy pole then you command a disproportionate amount of the winnings”. I answered that it was Tournament theory (https://en.wikipedia.org/wiki/Tournament_theory). From the Wikipedia article: “explains why presidents are paid significantly more than vice presidents. In one day a Vice-President may be promoted to President of a company and have his pay tripled. Considering piece rates this seems illogical – his output is unlikely to have tripled in one day. But looking at it using tournament theory it seems logical – he has won the tournament and… Read more »

Esteban
Esteban
9 months ago
Reply to  MrKing

Umm, OK, that’s somebody’s theory, but it doesn’t make any sense to me. If I’m hiring someone to run a large business I want the absolute best person I can get. If it costs me $10M per year to get her rather than $2M per year for someone adequate, that’s worth it. CEOs make decisions that can make or break the company.
Great news everybody, we saved $8M per year by hiring a mediocre CEO!

Spike
Spike
9 months ago
Reply to  Esteban

“There is nothing more expensive that ‘free’ health care,” especially when gov’ts intervene to “reduce the cost” by focusing on lowering big-ticket items (executive salaries and life-saving machines). Independent of their value, on which gov’ts are ignorant.

MrKing’s point that executive salaries are set in an immature piss-fight is offered to suggest that there will be no harm if they are instead set by complete strangers in a bureaucratic piss-fight.

Spike
Spike
9 months ago
Reply to  MrKing

No, executives are not paid because they climbed over all other people but because of the hope that they can manage the business; for example, adapt it to an ever-changing environment. If their ascension carried impunity, then the chief of Ford Motor would not have been cashiered in the last year, nor Intel in the last week.

MrKing
MrKing
9 months ago

Another consideration is what is the relative gap between the top and the bottom in private equity. Are these companies successful because of a highly paid CEO or because the “workers” are well compensated? Or both?

Put another way, can the very well recompensed CEO run a company of monkeys (paid peanuts) more successfully than one where the staff are intelligent and well paid? Probably not if it’s a cleaning services company but more likely if the “product” is IPR (like pharmaceuticals).

What are football managers paid versus the players? Do they command 200x the salary of the workers?

Spike
Spike
9 months ago
Reply to  MrKing

Sports is a bad example; there is such a thing as world’s best hundred players, they have a measurable superiority over others, and it makes a difference. In baseball especially, a top slugger will be the difference in more games than a top manager. There is no such thing as world’s best hundred personnel managers, but a company knows its best five and makes sure they are well-compensated. There is such a thing as the world’s best hundred CEOs. Motivating subordinates is one part of it, even in the case where you or a predecessor have not hired the most… Read more »

dodgy geezer
dodgy geezer
9 months ago

The impression I get about the pay (and, indeed, the general treatment) of apex professionals is that: a) they are a small bunch or people who know each other fairly well and have connections in common b) they are moving in a world of mutual deals, where ‘value for money’ is far less important than maintaining everyone’s high-roller lifestyle and not rocking the boat c) the amounts of remuneration provided come from very large funds, whence a million here or there is not really an issue in terms of accountancy d) the major limiting pressure on remuneration is probably that… Read more »

Spike
Spike
9 months ago
Reply to  dodgy geezer

Dodgy, you – like MrKing – are observing the culture of business from outside and ascribing childish motives to it.

In fact, the confidence artists of business must keep the target from questioning their bona fides. Even donning suit and tie and visiting the hair stylist twice a week are done not out of vanity but to avoid making yourself an issue. And avoiding negative press is a valid concern; the executive will spend less time repairing a broken process than repairing the company’s reputation.

Michael van der Riet
Michael van der Riet
9 months ago

Aha, the rewarding sight of a cherry being picked.

Esteban
Esteban
9 months ago

Another odd thing to me is all the bitching about how much the CEO makes compared to the average employee. Every job I ever got in my life I swear I did not know what the CEO was paid, nor did I care. I cared about the terms of the job I was getting.

Spike
Spike
9 months ago
Reply to  Esteban

Likewise, no neighbor who got a raise in pay has ever pounded on my door to make sure I had not done even better. And yet, money inequality (like scary weather) remains on the list of Biden’s “existential threats,” that is, threats to the existence of the United States. Hold onto your hat.

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