Monday, November 17, 2008

A Culture of Overcompensation


Within the executive suites and throughout the finance industry, a culture has developed that divorces compensation from performance. The rationale is pretty consistent, as described by William Cohan:
The gibberish about needing to pay that much just to keep superstars from fleeing to private-equity firms or hedge funds is just another Wall Street myth. The truth is most of them are lucky to have a job at all and they know it.
Within the finance industry, this has translated into compensation disproportionate not only to performance, but to the value of work performed - "compensation has historically consumed half or more of every dollar of revenue generated on Wall Street".

As for the executive suite, if CEO's truly believed they were worth their salaries, or that they were such hot properties that they could easily get the top job at another corporation, I doubt that they would invest so much energy into fashioning themselves glorious golden parachutes before agreeing to lead a company.
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Update: Let me guess... If they didn't get paid this much, they'd quit? And that would be so sad....

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