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January 27, 2012


 Luis Enrique

"Although CEOs might not be able to relaibly affect corporate value on the upside, they can assuredly affect it on the downside"

I remember somebody telling me (possibly you) that the main thing CEOs have to do is resist investment bankers selling merger ideas.

 Luis Enrique

I would have thought bargaining power a combination of power and performance. i.e. it's not "a reward for power, not performance" but the combination of the two.

A successful investment banker is in a position to extract nearly all the surplus, but only if they can say "I made you £Xm this year and I want £xm or I'll walk". If they can't say "I made you £Xm" (i.e. if there is no performance) then the power conferred by their position is meaningless.

However, it does appear that CEOs have the power to extract big pay packets without being able to point to performance. I suppose, as you suggest, their performance (contribution) is mainly the avoidance of a negative. They can always say if I leave it will look bad and hit the share price.



“Management“ functions rather like witchcraft. It’s a set of rituals which are wrongly supposed to have effects on the outside world. When, by happy chance, those effects materialize, the witchdoctor takes credit. And when they don’t he blames external malevolent forces

is great!

that, on it's own, is worth reading your blog for a month to find:-)

 Luis Enrique


attractive though it is, I'm not sure Chris' conception of management-as-useless is true.

check out this lot:




Account Deleted

Steven Hester has to be paid a huge bonus, because otherwise he would feel really small when dealing with his direct reports.

In other words, the problem isn't the CEO's bonus (fun though it is to personalise the issue), but the fact that he sits on top of an over-paid hierarchy. As the alpha male, his bonus must be of sufficient size to reflect his position.

This doesn't mean it has to be the largest in absolute terms (he'll get additional remuneration via other routes), but it must be large enough to earn respect.

For comparison, football managers normally earn a salary around 75% of their best-paid player, i.e. usually somewhere between the midfield schemer and the top striker.

When top execs flounce off in a hissy fit over pay, it's usually a status issue, not anxiety over meeting the private school fees.


Anyone could do these jobs. Why not just bring in some civil service bureaucrats on civil service wages?

Tom Voute

Chief executives' excessive bonuses have nothing to do with performance. These people have personality disorders and have so little self esteem that they need to be paid surreal quantities of money to make them feel better. it is just the same same as the big powerfulcar which compensates for a small penis.

Niklas Smith

Chris, a convincing argument in most respects except for high pay being a sort of efficiency wage to "buy off terrible performance".

Surely it is golden parachutes that are the preferred way of buying off terrible performance? They compensate CEOs for their low job security (much lower than that of middle management or the footsoldiers in bank branches) and cushion the pain when they're sacked for doing something monumentally stupid, like buying ABN Amro as financial markets were beginning to collapse. (Step forward, Sir Fred Goodwin.)

I suspect high pay and bonuses for chief executives has much more to do with the "tournament theory" of motivating managers: the pay and perks of the level above are not just (or even not mainly) a reward for the incumbent's productivity, but a carrot to hang in front of the people on the level below competing to get that position - so raising their productivity, in theory.

In practice the problem with this motivational strategy is that it discourages cooperation and information sharing, perhaps one reason why so few people in the top levels of RBS seemed to understand what they were getting themselves into with their rapid expansion of investment banking.


Specifically on RBS's share price, the main driver behind the price is the fact that the markte knows that as soon as it hits a certain price point, 82% of the issue will be hitting the exchanges. That creates an artificial ceiling on the price.

Why the Government doesn't just announce that it will sell 1% of the publicly held portfolio each year, I don't know.


Hi Skaman125,The Hi Skaman125,The full rieevw can be found at digitaltrendsDOTcom if there are some unanswered questions from the video.Thanks for watching!

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