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CEOs are hugely expensive – why not automate them?

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Re: CEOs are hugely expensive – why not automate them?

#111

Post by nrmitchi »

kaczordon wrote: post #77
alexgmcm wrote: post #27

I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.

There was a Danish study that showed that a death in the family of a Danish CEO led, on average, to a 9 percent decline in the profitability of the corporation. If it was the death of a spouse, the decline was 15 percent and, if it was a child who died, 21 percent. From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Ou…

It sounds like that only shows that they have the ability to cause a negative impact, not that they add significant value the rest of the time.

Re: CEOs are hugely expensive – why not automate them?

#112

Post by jacobr1 »

lainga wrote: post #17
nocommentguy wrote: post #9

Earlier quoted context omitted.

To outsource something you have to be able to unambiguously specify requirements (otherwise costs blow up as you go back and forth). Once you’ve made it truly unambiguous, the next logical step is automation.

>otherwise costs blow up as you go back and forth I've seen that and it's apparently a viable business decision. I don't know why - I'm not an MBA

Inability to drive internal decisions and/or CYA.

You can see it even more clearly with "consultancy." The reason consultancies can get away with using so many newly minted MBAs, is that what most of them do is just reflect back the to the company what their employees already knew, but in a form that is consumable and justifies the business case for that action.

There is some internal reason why the organization can't just make the decision, even though plenty of employees know what needs to get done. It could be weak leadership, inability to take risks, analysis paralysis, fear of unfamiliar territory, unwillingness to own the risk (CYA) and even more dysfunctional characteristics (like different teams unwilling to talk to each other). Brining in someone external can cut through much of that mess.

Re: CEOs are hugely expensive – why not automate them?

#113

Post by NovemberWhiskey »

Traster wrote: post #48
unfamiliar wrote: post #28

Earlier quoted context omitted.

Presumably because the market dictates their salary, not a vague notion of what they should be paid. Or, to reframe the question: why don't people hire cheaper CEOs?

The simple answer is that people don't hire cheaper CEOs because the people who hire CEOs are the boards of companies and the boards of companies are mainly staffed by CEOs of other companies who unsurprisingly are incentivized to advocate for higher CEO pay.

The average size of the board of a company in the S&P 500 is 10.8 directors. However, only 43% of CEOs serve on any outside boards. The implication is that the vast majority of board directors are not CEOs of large companies.

Data from https://www.briefinggovernance.com/2016/12/board-composition...

Re: CEOs are hugely expensive – why not automate them?

#115

Post by z3t4 »

ARandomerDude wrote: post #42

CEOs aren't paid for the day-to-day value they provide to the company. They're paid for the long-term, strategic value the owners think they might provide the company in comparison to other candidates. So if you think CEO Candidate X will make you a 3x return on your investment, but CEO Candidate Y will make you a 5x return, it's almost certainly worth it to pay him/her the extra $200K to get you there, if that's the…

One person cannot by her/him self return 3x or 5x profit. Its always about the team. And good team leaders are very hard to get by.

Re: CEOs are hugely expensive – why not automate them?

#116

Post by woeirua »

I too used to think that CEOs were a waste of resources, and that they had minimal if any impact on most companies. But I think people grossly underestimate how important CEOs are, because the vast majority of them do a decent job. When you swap out somebody who does a decent job for another person who performs at about the same level it's not really that noticeable.

That said, you'll come to appreciate those "decent" CEOs after you've had an experience with a truly bad CEO. One such experience was enough for me to decide that who runs the company at the top is critical to the success of most companies.

Re: CEOs are hugely expensive – why not automate them?

#117

Post by lbriner »

harperlee wrote: post #60
ARandomerDude wrote: post #42

CEOs aren't paid for the day-to-day value they provide to the company. They're paid for the long-term, strategic value the owners think they might provide the company in comparison to other candidates. So if you think CEO Candidate X will make you a 3x return on your investment, but CEO Candidate Y will make you a 5x return, it's almost certainly worth it to pay him/her the extra $200K to get you there, if that's the…

They should then be compensated with a leveraged long-term derivative product that pays based on the stock difference between their company and the industry, 5 to 10 years apart. "You want to be insanely rich? Here's a huge company that's not yours as a resource, now make it so it is the best one in 10 years!"

Isn't part of the problem the overlap between action and effect?

I might join a business as CEO and it does really well for 5 years because of the previous CEO, I could claim that it is my leadership and ask for my bonus.

On the other hand, maybe I do well but my successor is an idiot and makes the company tank so now I won't get my 10 year bonus because they screwed it all up.

Unless your idea only works for CEOs who are prepared to stay for 10 years? That then brings in the complication of when you need them to leave quietly because they are rubbish but you don't want your shareholders to know!

Re: CEOs are hugely expensive – why not automate them?

#118

Post by MattGaiser »

sn41 wrote: post #104
hervature wrote: post #74

Earlier quoted context omitted.

I find it funny that people throw out decades of history. Options contracts, as you propose, introduce the incentive for extreme risk taking because doing "normal boring" things literally doesn't pay. It's one of the main arguments for stock compensation because if the company does poorly, the CEO directly feels it where it hurts (the wallet).

And so they go for stock buyback strategies. Reduce the supply, the stock skyrockets, cash in, leave.

You need profits for stock buybacks. Buybacks are just superior to dividends as a way to return capital.

Re: CEOs are hugely expensive – why not automate them?

#119

Post by [deleted] »

ARandomerDude wrote: post #42

CEOs aren't paid for the day-to-day value they provide to the company. They're paid for the long-term, strategic value the owners think they might provide the company in comparison to other candidates. So if you think CEO Candidate X will make you a 3x return on your investment, but CEO Candidate Y will make you a 5x return, it's almost certainly worth it to pay him/her the extra $200K to get you there, if that's the…

[deleted]

Re: CEOs are hugely expensive – why not automate them?

#120

Post by spullara »

SavantIdiot wrote: post #106
spullara wrote: post #102

The comments in here are hilarious. If you think the CEO doesn't matter in a company you have never been on a board of a company and had the responsibility to hire and fire them.

> you have never been on a board of a company and had the responsibility to hire and fire them. Think about that statement, just for 5 seconds. Please. You do realize very, very few people meet this criteria. And their opinions still matter because they are impacted.

People in the comments are making definitive statements that you can't evaluate CEOs. They should think about it for 5 seconds and realize that they are not experts in the domain.
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