A fantastic piece: Why C.E.O. Pay Reform Failed bY
JAMES SUROWIECKI
“At root, the
unstoppable rise of C.E.O. pay involves an ideological shift. Just about
everyone involved now assumes that talent is rarer than ever, and that only
outsize rewards can lure suitable candidates and insure stellar performance.
Yet the evidence for these propositions is sketchy at best, as Michael Dorff, a
professor of corporate law at Southwestern Law School, shows in his new book,
“Indispensable and Other Myths.” Dorff told me that, with large, established
companies, “it’s very hard to show that picking one well-qualified C.E.O. over
another has a major impact on corporate performance.” Indeed, a major study by
the economists Xavier Gabaix and Augustin Landier, who happen to believe that
current compensation levels are economically efficient, found that if the
company with the two-hundred-and-fiftieth-most-talented C.E.O. suddenly managed
to hire the most talented C.E.O. its value would increase by a mere 0.016 per
cent.”
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I would also note that it is ridiculous to compare star athletes
pay to that of CEOs. There is only one Lionel Messi and hundreds of millions of
fans watch Barcelona play just to appreciate his extraordinarily high quality
of play. True athletic talent is indeed extremely rare and is relatively easy
to spot. Same argument can be made for highly paid
scientists/inventors/artists.
Additionally, it is erroneous to compare ridiculous CEO pay
in the US to the technology (and increasing returns to scale) driven global
phenomenon of “winner-take-all”. High CEO pay in the US primarily reflects
underlying institutional weakness in America’s corporate sector [the frequent combining of the positions of CEO and Chairman of the Board is one especially egregious
flaw in US corporate structure].
A good read on “winner-take-all”:
Will programmers rule? By Raghu
Rajan
http://www.livemint.com/Opinion/dfJUVdlwRUiK9vAtOa1YDK/Will-programmers-rule.html