Comments on: The Illusion of Leadership: Are CEOs Paid For Luck?

By: Sunny Smith

Sunny Smith — Fri, 10 Nov 2006 19:47:40 +0000

It is pretty clear that the trend has been for CEO compensation to be on the rise. According to Forbes, in 2004 the heads of America's 500 biggest companies received an aggregate 54% pay raise. http://www.forbes.com/2005/04/20/05ceoland.html These are the most current stats that I have, but I think that it is safe to say that this trend has not drastically changed since then. I guess the key to making CEO's accountable is linking their pay to controllable factors, and utilizing pay and compensation as an incentive to influence desirable behaviors and performance. I guess as far as hiring the superstars is concerned, I guess that most companies that follow this trend are betting that a track record of success lowers their risk, as well as perhaps earns their company some free press and PR once the star is signed; these benefits for them outweigh the added costs.

By: Larry

Larry — Wed, 08 Nov 2006 22:13:52 +0000

Is this not essentially the same argument as in Moneyball?

“Superstars” (baseball players, movie stars, CEO’s) are handsomely rewarded for results they have very little to do with (RBI’s, box office returns). In baseball, the question has focused in on questions such as “what is a pitcher truly responsible for?”, and it is generally accepted that the homerun, the strikeout and the walk are all areas in which the pitcher exerts complete control.

so, then, what area’s does a CEO control explicitly? More importantly, how does the average CEO perform in these capabilities? I don’t know, but smart boards should figure this out and play smarter than their competitors.

By: laurence haughton

laurence haughton — Wed, 08 Nov 2006 18:32:42 +0000

David is right. “In a complex, multi-variable, non-repeatable situation, it’s not always possible to distinguish luck from skill.” But because something is “not always possible” it’s not necessarily “not at all possible or even “mostly not possible.” What’s the old saying about the “unexamined life?”

By: david foster

david foster — Wed, 08 Nov 2006 17:04:00 +0000

Eisenhower said “I’d rather have a lucky general than a smart one.” In a complex, multivariable, nonrepeatable situation, it’s not always possible to distinguish luck from skill, and I’d be suspicious of any statistical methodology claiming to reliably do so.

I do agree that boards are too susceptible to the susperstar syndrome, often overlooking perfectly good talent in order to pay twice as much for someone who is hot at the moment. But this isn’t a matter of luck vs skill; it’s a matter of mindless fashion-following.

By: laurence haughton

laurence haughton — Wed, 08 Nov 2006 15:46:38 +0000

Rob, Great post but scary. You remind me of that kid in the “Emperor’s New Clothes” (Look, He’s naked… and really lumpy!)
You’re going to get into trouble if you keep this up.