The rich get richer. An analysis of a paycheck.
rzwitserloot posted in politics on June 24th, 2006

These days there are lots of waves about CEOs of big companies earning bizarrely large paychecks. This kind of thing has been going on for a very long time, but only now do people take notice.

Here’s a breakdown of why these large paychecks occur.

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There are 3 different types of people who earn a paycheck like that.

Type 1: The self-serving bastard

This type tends to care, a lot, about money. They are not particularly good at making their company profitable and usually their respective company’s performance isn’t very good compared to others in the business. Yet they eventually get sent off with a golden handshake that defies description.

In some situations, this is sheer nepotism. This kind of thing is particularly rampant amongst political families. In other, more sinister situations, it’s really a form of hush money. Possibly orchestrated by the CEO himself, not paying that hush money would cost the company even more money, so economically speaking its a wise move.

Type 2: The ruthless downsizer

This type is worth the money - they make the stockholders a lot of money. However, they pull this off in non-sustainable ways by sacrificing long term for short term gain. Stockholders couldn’t care less: If you tell a stockholder that the stock will be worth double tomorrow, but nothing next week, he’ll give you the go ahead immediatly and make a mental note to sell all shares tomorrow. This kind of CEO has a keen sense of what matters to the stock world, and tends to have a lot of experience by way of running job after job of CEO - usually having been brought in to other companies they didn’t form, possibly in wildly different areas.

These guys tend to catch a lot of flak, of the variety that half the company is laid off while the ruthless downsizer CEO walks off with a bonus of millions. However, the true hands that hold the reigns here are the stock holders’. they, in the end, wanted it that way. If you want this kind of thing not to happen so much, a look at the stock holder system might be warranted.

Type 3: The guy who is worth every penny

These are the rare breed of CEO that make a million a day for their company coming up with creative solutions. They throw their experiences, built on decades of blood, sweat, and tears, about to jockey their company to the top of their game. They exist, and their 10 million a year paycheck stems forth simply from an intense desire by the company’s stockholders to do everything in their might to ensure this guy doesn’t leave. Types like this get head-hunter calls 5 times a day, each with increasing monetary offers.

Their experience tends to flow in the same direction of the company they head: technical degrees in geology or chemistry plus starting their carreer as a trench grunt in a refinery becoming spot on CEOs are on example. Somebody like Steve Jobs is another: He has little experience heading companies - he’s run Apple for a while, then NeXT, then apple again. Also note that all those companies are his own creation. This is marked contrast to the ‘profile’ of the ruthless downsizer.

Some observations about this type:

They set their own paycheck

Because they keep getting better offers, anytime they are not satisfied by their paycheck, they are in the position to quickly fix that shortcoming; anytime they feel they aren’t getting enough of a paycheck, they have the opportunity to switch ships and make a lot more. I personally don’t see any problem here: If someone is worth it, they are worth it. period. That’s what capitalism means.

… but money is not the only reason they play the game

Type 3 guys tend not to be after the money. That’s not why they worked so hard to get as good as they are. That’s because it’s just easier to use one of the other 2 paths if tons of cash is all you ultimately care about. Almost all human beings recognize that there are things money cannot buy. There’s power, of course, but also a feeling of being a player on the world stage.

They don’t earn enough

If you compare the amount of creativity and sheer work ethic it takes to reach this position to what tech startup veterans have to do to sail their companies to a sale or IPO, I’m certain this type of CEO wins by a mile. Start checking average age for starters. Yet money-wise they tend to get the short end of the stick. Perhaps the reason why startup veterans don’t get nearly as much flak for their self-made millions is because there aren’t many opportunities to be a ruthless downsizer, and a self-serving bastard won’t get his company there.

They also like their work in strange and twisted ways. There’s just no way you can become this good if you have a “9-to-5 and now I’ll have my paycheck” mentality - something shared by the startup crowd.

The problem with measures against the individual

The downsizer and the self-serving bastard are common, but there are plenty of CEOs that fall into the third category. They tend to feel the sting just as much, if not more, and this is a real problem because losing them to other countries can make a serious difference to the economic well-being of your nation.