Time and again, we see CEOs and similar executives make horrible decisions that massively damage a company both financially and in terms of reputation and the perpetrator is forced to resign, yet receives so much money as a going away present you’d think they’re being rewarded for their fuck up. Why??
Because the people that set compensation is the board of directors, and they are composed of other executives. They want to set the precedent for themselves.
Correct, also execs have strong bargaining power and entire industry of advisors to advocate for their comp.
This is opposed to wage slaves who are atomized and forced to negotiate for themselves while most industries collude to fix their wage. Many industries share their salary data to third party aggregator who will in turn provide reports that enable companies to fix wages for specific professions/industries. This is illegal but as you might know, government does enforce rules against “legal people” only organics who are of “lower quality”
Also, they are all generally good friends, and want to make sure they keep the wealth “where it belongs”
Essentially, there aren’t a lot of candidates for roles like “CEO” at really large companies, so they want to attract the best candidate from a limited pool. Those people get to ask for whatever crazy thing they want if the board really wants them, and golden parachutes aren’t illegal, so why not?
Moral hazard, you say
Oh, there are plenty of candidates, just not ones they will consider. They only take rich people from the right background.
There is another aspect, sometimes a CEO is brought on in a knowingly temporary situation. Sometimes a company needs to make an “unpopular” decision, like massive layoffs or restructuring. Or they just need a CEO to come in and stir the pot. They’ll bring the CEO in, they’ll do their thing, and then once the deed is done, they will “decide it’s best to part ways” in some form.
This sort of CEO position usually is a one and done for that person making them a less desirable candidate for employment in the future, so they get a nice golden parachute to compensate. Basically, they get paid to be the “bad guy” and are essentially selling themselves as a scapegoat for the company.
Are you saying that these CEOs have it in their contracts that they get a ridiculous amount of money if they fuck up enough to get fired? Doesn’t that incentivize them to be reckless?
No candidate for those jobs ever believes he will fuck up, nor that disastrous results are their direct responsibility. They always believe that the only reasons they’d be fired are political infighting or an investor/BoD revolt. Therefore, they want golden parachute clauses to protect them from such completely unjustified threats and criticism.
They’re usually just separation clauses - i.e. whenever Joe Blow leaves his CEO position, he gets $X million. Like a lump-sum pension, which is more money that they don’t have to call salary.
To make them go away before doing more damage although their contract is still valid for some years. Same with a messie as tenant, you essentially bribe them to go before they damage the flat even more.
Not only that, but that parachute comes with… well… strings attached. (Sorry.)
Most CEOs have a high-level understanding of a companies long-term strategic plan, which would be very valuable to competitors. That payout is probably tied to an iron-clad NDA and non-compete clause. While non-compete clauses get a lot of bad press when peons are forced to sign them, for executives they make total sense, especially when directly tied to a payout, which can be clawed back if there is chicanery.
If an executive is bad enough, paying them to not work anywhere for a few years may be less risky than firing themand risking them blabbing to th3 competition.
Because there are also CEOs and similar executives that do NOT fuck up and make billions for their companies. Big risk, but big reward.
Some would argue the workers make the companies all their money…
Decorum of the rich and wealthy. You wouldn’t understand, peasant. /s
Not always, but often, making unpopular changes is precisely what the executive is being paid to do. Their job is to implement these changes, make sure that they are the one everyone gets upset with, and then take that anger with them when they leave.
Usually because it was the result of part of the contract when they took the job. “Golden parachute if we ever fire you” is a reward for joining the company, it isn’t decided when they are fired.
