Executive Pay
Executive Pay: Who should decide?
In a recent editorial in the Seattle Times, the editors complained that the executives of a public company, Simon Property Group, should have their salaries determined by the shareholders. Among the many things wrong with this piece is first, how do shareholders know anything about the performance of the executives in question? They don’t. They don’t work beside them on any kind of basis. They do not know what kind of challenges the company faced and whether the executive responded superbly or poorly to some change in the business environment. An executive could have responded with perfect decision making in a company whose destiny was determined by technology. Think Kodak or Xerox. Even then the company might show poor results even though all the right decisions were made. The world changed and buyers are fickle. Think of how many restaurant chains went from being the hottest item on the stock market to bankruptcy. Customers are faddish, they go for something for a while and then change allegiances when another fad comes along. Sure, it would be nice to think that some magical CEO could have done something about the changes, but most likely, even God could not have prevented the disaster.
A company’s executives are reviewed every day by the customers and then confirmation of the consumer decision is made by the stock market, also daily. This is the bottom line: If the company is failing, then the stock market will evaluate the executives. Stockholders don’t need to meddle in the management affairs. Their vote on salary or whatever is easily registered by a sell notice to their broker. It is a free country, nobody is forced to remain a stockholder. Voting with your feet is the best way of managing those in control, whether it is a company executive or a state governor. Just leave.
The article implies that shareholders have rights. Yes, a very simple one. Property rights. They can either own something or they can sell it.
In a recent editorial in the Seattle Times, the editors complained that the executives of a public company, Simon Property Group, should have their salaries determined by the shareholders. Among the many things wrong with this piece is first, how do shareholders know anything about the performance of the executives in question? They don’t. They don’t work beside them on any kind of basis. They do not know what kind of challenges the company faced and whether the executive responded superbly or poorly to some change in the business environment. An executive could have responded with perfect decision making in a company whose destiny was determined by technology. Think Kodak or Xerox. Even then the company might show poor results even though all the right decisions were made. The world changed and buyers are fickle. Think of how many restaurant chains went from being the hottest item on the stock market to bankruptcy. Customers are faddish, they go for something for a while and then change allegiances when another fad comes along. Sure, it would be nice to think that some magical CEO could have done something about the changes, but most likely, even God could not have prevented the disaster.
A company’s executives are reviewed every day by the customers and then confirmation of the consumer decision is made by the stock market, also daily. This is the bottom line: If the company is failing, then the stock market will evaluate the executives. Stockholders don’t need to meddle in the management affairs. Their vote on salary or whatever is easily registered by a sell notice to their broker. It is a free country, nobody is forced to remain a stockholder. Voting with your feet is the best way of managing those in control, whether it is a company executive or a state governor. Just leave.
The article implies that shareholders have rights. Yes, a very simple one. Property rights. They can either own something or they can sell it.