That seems like a bad incentive. If someone had a debt to the IRS or a bad divorce and needed the extra money, do you want them to start taking moonshoots with their companies? You want them to do right by their companies not themselves.
Already with performance based compensation you have the problem with rewarding executives with the general market as opposed to their own performance. I mean, potentially Jensen Huang is terrible at his job and Nvidia is only making half of the money it should but the AI boom is covering for it.
100% performance means no one would man the ship of a failing company trying to correct the course.
> If someone had a debt to the IRS or a bad divorce and needed the extra money, do you want them to start taking moonshoots with their companies?
Yes? We need more moonshots.
> I mean, potentially Jensen Huang is terrible at his job and Nvidia is only making half of the money it should but the AI boom is covering for it.
Why exactly do you think NVIDIA was well positioned for the AI boom? Jensen Huang saw it coming long before anyone else did, and oriented his company to be perfectly positioned.
Jensen is an arbitrary example. I'm asking how do you disentangle company performance from internal and external factors.
If you had a company that was making buggy whips at the invention of the automobile, you expect the company profits to go down at no fault of the CEO. A better CEO just changes the slope not the direction.
So what you want to do is not reward based on performance of the company, but on the CEO and to do that you need to figure out the "wins above replacement" [1]. How much better did the CEO do than any schmuck chosen at random.
What investors want is a CEO that returns more shareholder value, full stop. I fail to see an argument here for why the Tesla pay package doesn’t meet that criteria.
It’s essentially like a stock picker who only takes their fee from how much better their fund does vs the S&P 500.
Shareholders voted for it.
Don't understand how the will of Tesla Shareholders is a corporate governance failure... couldn't read the rest of the article behind paywall, but the premise seems so borked that I'm not going to bother.
Article reminds me of a Delaware judge who also ruled that shareholders were not properly informed about the implications of their vote ‐ then after a very high profile court case and ruling ‐ shareholders voted a 2nd time to retroactively approve the same pay package. Who was right, this activist judge or shareholders?
It's funny how judges and The Economist's writers tell shareholders how they aren't really able to make an informed decision by voting their shares.
You ought to vote in a way that activists agree with!
Elon is too rich, how dare you vote for something that will make him and shareholders a lot of money!
"We know better than shareholders what pay structure is appropriate!"
This is my view too. The shareholders voted for it.
Granted, Musk (or maybe it was a couple board members) did make some strong statements that felt like threats (that if the vote didn’t go through, Musk was going to leave).
> Shareholders voted for it. Don't understand how the will of Tesla Shareholders is a corporate governance failure... couldn't read the rest of the article behind paywall, but the premise seems so borked that I'm not going to bother.
Sounds like a failure on to think critically.
The board consists of long time friends of Musk's, people who are heavily invested in his other companies (and so have and want to continue maintain their positive relationship with him), and his brother.
It's not that the board can't vote, it's that the board isn't remotely independent. And according to the WSJ A number of members of the board have hung around many late nights doing drugs with him.
And to be clear it's that that their doing drugs, it's that if you're close enough with someone to be regularly doing hard drugs with them you clearly aren't independent.
https://archive.ph/IXl27
1T/8.5T is 12%. Hedge funds ask for more (yearly 2% + 20%).
I hope more movers and builders take 100% performance based pay packages.
Yes, provided the performance is sustainable rather than making a number this qtr or next.
Why? That just incentivizes the wrong things.
That seems like a bad incentive. If someone had a debt to the IRS or a bad divorce and needed the extra money, do you want them to start taking moonshoots with their companies? You want them to do right by their companies not themselves.
Already with performance based compensation you have the problem with rewarding executives with the general market as opposed to their own performance. I mean, potentially Jensen Huang is terrible at his job and Nvidia is only making half of the money it should but the AI boom is covering for it.
100% performance means no one would man the ship of a failing company trying to correct the course.
> If someone had a debt to the IRS or a bad divorce and needed the extra money, do you want them to start taking moonshoots with their companies?
Yes? We need more moonshots.
> I mean, potentially Jensen Huang is terrible at his job and Nvidia is only making half of the money it should but the AI boom is covering for it.
Why exactly do you think NVIDIA was well positioned for the AI boom? Jensen Huang saw it coming long before anyone else did, and oriented his company to be perfectly positioned.
You’ve got causality entirely backwards here.
Jensen is an arbitrary example. I'm asking how do you disentangle company performance from internal and external factors.
If you had a company that was making buggy whips at the invention of the automobile, you expect the company profits to go down at no fault of the CEO. A better CEO just changes the slope not the direction.
So what you want to do is not reward based on performance of the company, but on the CEO and to do that you need to figure out the "wins above replacement" [1]. How much better did the CEO do than any schmuck chosen at random.
[1] https://en.wikipedia.org/wiki/Wins_above_replacement
What investors want is a CEO that returns more shareholder value, full stop. I fail to see an argument here for why the Tesla pay package doesn’t meet that criteria.
It’s essentially like a stock picker who only takes their fee from how much better their fund does vs the S&P 500.
> a stock picker who only takes their fee from how much better their fund does vs the S&P 500.
What funds have that fee structure? Genuine question: I hadn't heard of any, but it intuitively seems "fairer" than the conventional two and twenty.
Some more discussion: https://news.ycombinator.com/item?id=45841026
Shareholders voted for it. Don't understand how the will of Tesla Shareholders is a corporate governance failure... couldn't read the rest of the article behind paywall, but the premise seems so borked that I'm not going to bother.
Article reminds me of a Delaware judge who also ruled that shareholders were not properly informed about the implications of their vote ‐ then after a very high profile court case and ruling ‐ shareholders voted a 2nd time to retroactively approve the same pay package. Who was right, this activist judge or shareholders?
It's funny how judges and The Economist's writers tell shareholders how they aren't really able to make an informed decision by voting their shares.
You ought to vote in a way that activists agree with!
Elon is too rich, how dare you vote for something that will make him and shareholders a lot of money!
"We know better than shareholders what pay structure is appropriate!"
This is my view too. The shareholders voted for it.
Granted, Musk (or maybe it was a couple board members) did make some strong statements that felt like threats (that if the vote didn’t go through, Musk was going to leave).
But still, it went to a vote.
> Shareholders voted for it. Don't understand how the will of Tesla Shareholders is a corporate governance failure... couldn't read the rest of the article behind paywall, but the premise seems so borked that I'm not going to bother.
Sounds like a failure on to think critically.
The board consists of long time friends of Musk's, people who are heavily invested in his other companies (and so have and want to continue maintain their positive relationship with him), and his brother.
It's not that the board can't vote, it's that the board isn't remotely independent. And according to the WSJ A number of members of the board have hung around many late nights doing drugs with him.
And to be clear it's that that their doing drugs, it's that if you're close enough with someone to be regularly doing hard drugs with them you clearly aren't independent.
It sounds The Economist doesn't want workers to earn what they produce.