CEO pay

Counter intuitive it is directly proportional instead of inversely to Co performance. Why? Simple short-term actions impacting long-term survivability

CEOs from the top business schools are taught that quarterly return is the only meaningful measure of success, that the manufactured product is a byproduct of stock valuation, not the reverse; and that greed is the reason for business. They are taught to view work and technical skill with disdain. CEOs with pay multiples 4-5 times the employee average are probably more skilled in the company's product or service than those with 100x average pay. Read Kenneth and William Hopper's "The Puritan Gift" for more on this phenomenon.

Garydpdx: point taken. The CEO's minions on the board would be another way to get a mindless board.

To EDA-Graffiti Sir 12:45 11/09/2009 1) It is sometimes quoted by the defenders of huge bonuses that huge bonuses have to be offered/provided in order to align the interests of the CEO with that of the donor company; why? If the CEO candidate needs that sort of carrot to do his job, he is a greedy illegitimate bastard; such naked greed aught to bar him from the job of CEO. 2) Since when does organisational/leadership talent come only packaged with outrageous greed. There must be many equally competent candidates who subscribe to the principles of proper service in return for a salary: ? giving and not grabbing; i.e. earning a salary. 3) Why is the value-to-the-company assessment of such bonuses based on short-term view of the figures? Spectacular figures now are useless if followed by disastrous figures next week - R. Seyd

I watched a client company disintegrate as the board members bought Mercedes for themselves and squandered money on high priced "name recognition" talent instead of focusing on their product. I had to fight just to get paid when they started to run out of money. I've seen dozens of startups spend money on marketing and sales Executives years before they had anything to sell. I've come to believe that Venture Capital is rarely about products, value or technology anymore, it's about money people spinning a story, and trying to make it look good so they can dump the stock onto the market. I know plenty of good engineers, and agree good ones can do more than twice the productive work of average ones, but after about $150,000 it's more about ego in a small talent pool than talent. Ironically the person's ability to sell themselves is much more important than technical or managerial skills, especially for the few dozen executives I've met from companies like Oracle.

Actually, V-Rex, it's not a matter of recent boards of directors losing their minds, but that they are installed as minions of the CEO. For example, what was discovered at the fraud trial of Conrad Black (installing one director not for her background as an economist, formerly with a large investment house, but because she was a shopping buddy of his wife). And agreed on your observations about Bill Gates ... what kept Microsoft on top was that their people at the top never lost their perspective of having a personal stake in the company's outcome. I would be interested in hearing of other examples of companies that kept to the mission, going from start-up to maturity.

I think there is some truth to this because what you get is a lot of candidates who are in it just for the money beating down the door each time the board starts looking for a new CEO. It may be more a factor of boards of directors that fall for the conventional wisdom that you cannot get a good CEO without giving away the business. A company with a stupid or lazy board of directors is not likely to do well even with a good CEO. In my opinion, boards of directors have lost their minds in recent years. I think a founder like Bill Gates is entitled to get huge compensation because founders gambled that they were in the right place at the right time - they actually took personal risks. The rest of these folks are just hard working employees like the rest of us, but made choices that helped them get to the top - 5 times senior engineer pay Max!

It's a good discussion starter but the bottom line really depends on how the CEO is compensated in totality. If it is based on long term success (yes, very hard to implement, I get it) then the low salary is a pretty good motivator for the CEO. If the person is measure on a quarterly basis (thanks to the monkeys with Harvard MBAs on wall street), he's probably inclined to pump things up as much as possible and keep it pumped for as long as possible then move on to the next job just before the current company blows up. Stuffing channel partners, squeezing your best customers, making unprofitable long term deals for big short term revenue injection, etc.... Nothing we haven't seen a hundred times over. Apart from time, the actual metrics matter also. IMHO, it has to be a composite measure that includes actual revenue, profitability, customer and employee satisfaction, net value per customer, etc... Pure revenue alone is probably one of the worst measures if you care about long term success. Btw, Mr. Thiel is mistaken about CEO salaries being the ceiling. There are many companies with senior executives getting higher salaries than the CEO/President. Check out Microsoft, Oracle and the likes.

The author has a point about burn rate vs runway, etc. And, I am certain that there is a correlation between the CEOs salary and the company following suit. However today, EDA startups don't offer enough stock options to employees to get rich. EDA startups must recruit the best people with specific domain expertise from mostly public companies. This is how salaries are determined. Acquisition is almost always their only exit option. There are few exceptions. The length of their runway aside, pressure from larger companies with competing in the same space also makes it a narrow runway. Lately, another factor is funding. With VCs running away from EDA these days, there is an argument that being privately funded gives an EDA startup a better chance to succeed.

A stock holder needs to know how much of the increased value of a company (stk price, cash etc) will go to the stockholders and how much will go to the execs. Doesn't mean much if my stock goes up 10 per cent where it could have gone up 50 per cent if it hadn't been watered down with exec bonuses.

"If you are on a $100K/year salary at market, you probably can?t afford to work for $50K/year. If you are an executive at a big EDA company making $400K/year you can afford to work for under $200K/year." Based on what? I've seen a few people jump from $100k to $30k successfully...not without a little pain, but they managed. On the other hand, I know other people who if they made $400k would not be able to handle even $50k less without losing houses, cars, etc. It's really all about a lifestyle people live. Some are conservative regaurdless of pay, others will spend as much or more than they make no matter how highly paid they are. When people decide to take a job or start their own start-up this is a personal choice that has to factor in and relates a lot to their own lifestyle vs. how much they want the company to succeed (which may indeed be a good indicator of company success), but even so how can the author of the article really judge what cuts in pay are or are not acceptable to everyone?