I got some great comments from readers about the CEO compensation piece I wrote on Friday, including one challenging my claim that public boards aren’t worth a damn, one comparing CEO’s and other star players in sprts and Hollywood, one asking how to keep the good CEO’s if you take away the stock option free-ride, and one from a wonderful young man who just got his first Wall Street job. You can read them by clicking on the comments button under the Forbes on Fox story.
Which brings me to coal miners.
OK, I’ll admit it–I read a lot of weird stuff. I have a fire-hose of journal abstracts, dissertation topics, and newspapers from all over the world landing in my inbox every day so I can see what other people are working on. Imagine how exciting it was this morning when volume 22 of, Research in Law and Economics showed up on my desktop.
I know what you are thinking. “JR, you are so lucky! please tell me how I can get in on this fascinating subject. Please answer soon because I can hardly wait for my first issue.”
All you have to do is sign up as a Guest user at ScienceDirect. It’s free. Once you have signed up you can graze through a list of at least a gazillion professional research journal titles (Actually, only 2692) and check off the ones you want to track. ScienceDirect will then send you an email evey time htey release a new issue with a table of contents and abstracts for all the articles. If you want to buy an article they will sell them to you ala carte, but you can graze the abstracts for free. It’s like eating at a dim sum restaurant of nerdly ideas.
Back to the coal miners. This issue contains an interesting article called Lays vs. Wages: Contracting in the Klondike Gold Rush. Mine owners during the gold rush had two different types of compensation arrangements with the miners they hired to work their claims, ordinary wage contracts and lay contracts which gave the miners a share of the takings. The author analyzes the conditions–the risk of working in extreme weather conditions–that typically led to lay contracts.
That concept–pay for work but upside interest for taking risk and bulding the vallue of a business–makes sense for executive compensation discussions today. If someone wants a piece of the upside they need to have some skin in the game. I think that’s why leveraged buyoouts–where the managers frequently pony up their life savings to invest in the company–have a better track record than public company stock options.
But why stop there? I have always thought that franchise players–the Magic Johnson’s and Michael Jordan’s–that can impact a sports team’s value should structure contracts where equity is a big piece of the package. Same for TV, movies, music, and ordinary businesses.
Let me know what you think.
JR
I was a managing director of the VC firm of E M
Warburg ,Pincus and CO.We always did better that
public co investors over the 27 years I was there for
just the reasons you point out.
Scott Marsh
John, We should give a shot out to Mario Lemuiux, former star of the Pittsburgh Penguiens who now owns the team. Next you might have read the quote of Joe Dimagio’s when asked about 10 years ago how he would negoiate with George Steinbrenner Joe replied “George you now have a partner.”
Or think Tom Cruise at United Artist. When he are in style we must run with it.
Bill
Absolutely, pay for performance, but now we have to define performance.
Is that profits for the company, which is owned by the shareholders, or a
higher stock price? I say the former and the latter will follow.
Regards, Paul McWilliams
NextInning.com
Paul
Paul,
Totally agree!
JR
According to NBA rules, Michael Jordan had to sell his shares in the Washington Wizards before coming out of retirement as a player.
And the NFL prohibits further Packers-style fan ownership structures.
Why do the existing team owners keep these rules? Wouldn’t the market value of the teams be raised by allowing active players and groups of fans to bid?
Don
Don,
I think so too and I wonder the same thing. I will ask some owners I know about it and report back.
JR
John, great read, as usual. But for now I will let you read those abstracts and pass along what you find. As far as the “overpaid” CEO’s you said it right the first time, let the market decide. Unfortunately, these severence packages are negotiated when everyone is madly in love and wants to work together. At the time not much consideration is paid to what will happen if this does not work out. Those makig the hiring view it as a cost to obtain the talent.
The CEO incentives are also negotiated when the company doing the hiring is “recruiting” the new hire so they appear to give away the store.
Why not try for the type of packages the the CEO’s on Wall Street obtain. I do not hear much about them being “over paid” since the wealth is spread over the entire company and their bonuses are multiples of their salary, no guaranteed and with half coming in options, not options that were obtained at the begining of their contract. I think the problems with Nardelli are that the employees at Home Depot are not highly paid and that the earnings did nto keep pace. Also, if when he was hired the package was properly disclosed the chatter after the fact would be kept to a minimum and those board members who agreed to it would be answering to shareolders instead of those left with no choice years later when the contract can not be changed.
My girlfriend is at NYU-Stern obtaining her MBA. They were discussing this issue today and the professor said he felt that a high school basketball coach could do the job of these CEO’s. I was wondering if anyone has tried this type of theory.
Murray
Murray,
I have great regard for the leadership ailities of high school basketball coaches. Mine was Mr. Fencik (father of Brian Fencik of the Chicago Bears); he was tough as hell. But CEOs are people that have survived the road to the boardroom. They are usually very tough and very smart. Be interesting to test your theory.
JR
John, great read, as usual. But for now I will let you read those abstracts and pass along what you find. As far as the “overpaid” CEO’s you said it right the first time, let the market decide. Unfortunately, these severence packages are negotiated when everyone is madly in love and wants to work together. At the time not much consideration is paid to what will happen if this does not work out. Those makig the hiring view it as a cost to obtain the talent.
The CEO incentives are also negotiated when the company doing the hiring is “recruiting” the new hire so they appear to give away the store.
Why not try for the type of packages the the CEO’s on Wall Street obtain. I do not hear much about them being “over paid” since the wealth is spread over the entire company and their bonuses are multiples of their salary, no guaranteed and with half coming in options, not options that were obtained at the begining of their contract. I think the problems with Nardelli are that the employees at Home Depot are not highly paid and that the earnings did nto keep pace. Also, if when he was hired the package was properly disclosed the chatter after the fact would be kept to a minimum and those board members who agreed to it would be answering to shareolders instead of those left with no choice years later when the contract can not be changed.
My girlfriend is at NYU-Stern obtaining her MBA. They were discussing this issue today and the professor said he felt that a high school basketball coach could do the job of these CEO’s. I was wondering if anyone has tried this type of theory.
Murray
Murray,
I have great regard for the leadership ailities of high school basketball coaches. Mine was Mr. Fencik (father of Brian Fencik of the Chicago Bears); he was tough as hell. But CEOs are people that have survived the road to the boardroom. They are usually very tough and very smart. Be interesting to test your theory.
JR
John, great read, as usual. But for now I will let you read those abstracts and pass along what you find. As far as the “overpaid” CEO’s you said it right the first time, let the market decide. Unfortunately, these severence packages are negotiated when everyone is madly in love and wants to work together. At the time not much consideration is paid to what will happen if this does not work out. Those makig the hiring view it as a cost to obtain the talent.
The CEO incentives are also negotiated when the company doing the hiring is “recruiting” the new hire so they appear to give away the store.
Why not try for the type of packages the the CEO’s on Wall Street obtain. I do not hear much about them being “over paid” since the wealth is spread over the entire company and their bonuses are multiples of their salary, no guaranteed and with half coming in options, not options that were obtained at the begining of their contract. I think the problems with Nardelli are that the employees at Home Depot are not highly paid and that the earnings did nto keep pace. Also, if when he was hired the package was properly disclosed the chatter after the fact would be kept to a minimum and those board members who agreed to it would be answering to shareolders instead of those left with no choice years later when the contract can not be changed.
My girlfriend is at NYU-Stern obtaining her MBA. They were discussing this issue today and the professor said he felt that a high school basketball coach could do the job of these CEO’s. I was wondering if anyone has tried this type of theory.
Murray
Murray,
I have great regard for the leadership ailities of high school basketball coaches. Mine was Mr. Fencik (father of Brian Fencik of the Chicago Bears); he was tough as hell. But CEOs are people that have survived the road to the boardroom. They are usually very tough and very smart. Be interesting to test your theory.
JR
John, great read, as usual. But for now I will let you read those abstracts and pass along what you find. As far as the “overpaid” CEO’s you said it right the first time, let the market decide. Unfortunately, these severence packages are negotiated when everyone is madly in love and wants to work together. At the time not much consideration is paid to what will happen if this does not work out. Those makig the hiring view it as a cost to obtain the talent.
The CEO incentives are also negotiated when the company doing the hiring is “recruiting” the new hire so they appear to give away the store.
Why not try for the type of packages the the CEO’s on Wall Street obtain. I do not hear much about them being “over paid” since the wealth is spread over the entire company and their bonuses are multiples of their salary, no guaranteed and with half coming in options, not options that were obtained at the begining of their contract. I think the problems with Nardelli are that the employees at Home Depot are not highly paid and that the earnings did nto keep pace. Also, if when he was hired the package was properly disclosed the chatter after the fact would be kept to a minimum and those board members who agreed to it would be answering to shareolders instead of those left with no choice years later when the contract can not be changed.
My girlfriend is at NYU-Stern obtaining her MBA. They were discussing this issue today and the professor said he felt that a high school basketball coach could do the job of these CEO’s. I was wondering if anyone has tried this type of theory.
Murray
Murray,
I have great regard for the leadership ailities of high school basketball coaches. Mine was Mr. Fencik (father of Brian Fencik of the Chicago Bears); he was tough as hell. But CEOs are people that have survived the road to the boardroom. They are usually very tough and very smart. Be interesting to test your theory.
JR
John, great read, as usual. But for now I will let you read those abstracts and pass along what you find. As far as the “overpaid” CEO’s you said it right the first time, let the market decide. Unfortunately, these severence packages are negotiated when everyone is madly in love and wants to work together. At the time not much consideration is paid to what will happen if this does not work out. Those makig the hiring view it as a cost to obtain the talent.
The CEO incentives are also negotiated when the company doing the hiring is “recruiting” the new hire so they appear to give away the store.
Why not try for the type of packages the the CEO’s on Wall Street obtain. I do not hear much about them being “over paid” since the wealth is spread over the entire company and their bonuses are multiples of their salary, no guaranteed and with half coming in options, not options that were obtained at the begining of their contract. I think the problems with Nardelli are that the employees at Home Depot are not highly paid and that the earnings did nto keep pace. Also, if when he was hired the package was properly disclosed the chatter after the fact would be kept to a minimum and those board members who agreed to it would be answering to shareolders instead of those left with no choice years later when the contract can not be changed.
My girlfriend is at NYU-Stern obtaining her MBA. They were discussing this issue today and the professor said he felt that a high school basketball coach could do the job of these CEO’s. I was wondering if anyone has tried this type of theory.
Murray
Murray,
I have great regard for the leadership ailities of high school basketball coaches. Mine was Mr. Fencik (father of Brian Fencik of the Chicago Bears); he was tough as hell. But CEOs are people that have survived the road to the boardroom. They are usually very tough and very smart. Be interesting to test your theory.
JR
John, great read, as usual. But for now I will let you read those abstracts and pass along what you find. As far as the “overpaid” CEO’s you said it right the first time, let the market decide. Unfortunately, these severence packages are negotiated when everyone is madly in love and wants to work together. At the time not much consideration is paid to what will happen if this does not work out. Those makig the hiring view it as a cost to obtain the talent.
The CEO incentives are also negotiated when the company doing the hiring is “recruiting” the new hire so they appear to give away the store.
Why not try for the type of packages the the CEO’s on Wall Street obtain. I do not hear much about them being “over paid” since the wealth is spread over the entire company and their bonuses are multiples of their salary, no guaranteed and with half coming in options, not options that were obtained at the begining of their contract. I think the problems with Nardelli are that the employees at Home Depot are not highly paid and that the earnings did nto keep pace. Also, if when he was hired the package was properly disclosed the chatter after the fact would be kept to a minimum and those board members who agreed to it would be answering to shareolders instead of those left with no choice years later when the contract can not be changed.
My girlfriend is at NYU-Stern obtaining her MBA. They were discussing this issue today and the professor said he felt that a high school basketball coach could do the job of these CEO’s. I was wondering if anyone has tried this type of theory.
Murray
Murray,
I have great regard for the leadership ailities of high school basketball coaches. Mine was Mr. Fencik (father of Brian Fencik of the Chicago Bears); he was tough as hell. But CEOs are people that have survived the road to the boardroom. They are usually very tough and very smart. Be interesting to test your theory.
JR