Why don't these big execs get paid based on stock price?

[rudeguy]

Wouldn't this make sense?

 

[spidey07]

They do. A good amount of their compensation is in stock. Not to mention performance based goals/bonuses on stock price and other metrics.

 

[fishmonger12]

that's where a large chunk of executive compensation comes from.

and the answer to your question is market forces. if company A pays its executive only in company equity, while company B pays similar compensation but half stock and half equity, executive will choose company B because his income has less variability.

company A will attract less talented executives compared to company B, and management has a lot to do with a company's success.

the problem with executive compensation has less to do with the form and more to do with who sets it. the market for execs is a long shot from the more competitive labor markets that you and i (non executives) face, and executives have a lot of influence on their pay, while we don't. for executive compensation to be more reasonable, there needs to be more pressure from shareholders and the general public to keep these costs down. there used to be a lot of political pressure for companies to keep executive pay low, but that pressure disappeared about the time we started voting for movement conservatives, starting with reagan and perhaps ending with bush.

 

[StormRider]

I think that's what they do now and that's part of the problem. Instead of doing what's good for the company long term, they do things that artificially boost the stock price so they could get those big fat bonuses.

 

[MagnusTheBrewer]

Originally posted by: spidey07


They do. A good amount of their compensation is in stock. Not to mention performance based goals/bonuses on stock price and other metrics.

The stock value is indirect and most of the other metrics are set by the CEO himself. There is no accountability period. The vast majority of folks have no understanding of how difficult it is to lose really large amounts of money. We're not talking about a few millions. It takes as much talent to destroy wealth as to create it. The free enterprise model is broken due mostly to global economics, greed and, good 'ol boys protectionism. Society will always pay the price for the select few until we remove the protections given corporations.

 

[Lonyo]

It's all about supply and demand.
You have to supply the exec with the money he demands, or he will go elsewhere.
Like people have said, who would take a risky payday over a more certain one?

 

[MustISO]

They run the company and the board of execs work with the CEO to grab as much money as they can. It will never change.

 

[LS21]

they do. and rightly so - steer a company right and you raise the stock price and make a killing on options.

except, when they fail, they get a golden parachute

so anyway they do they still get bank

 

[mugs]

They do... but the downside is that doing so causes them to prioritize stock price over the long-term health of the company.

 

[DrPizza]

When the economy is bustling and their stock does well, it's the CEO who takes credit. Big fat bonus. When the company isn't doing well, it's because of the economy, and you have to give the CEO a big fat bonus, because good CEOs are an asset.

 

[TruePaige]

Originally posted by: StormRider
I think that's what they do now and that's part of the problem. Instead of doing what's good for the company long term, they do things that artificially boost the stock price so they could get those big fat bonuses.

 

[thegimp03]

The stock price isn't really fully-dependent on the performance of the CEO. Tons of things factor into the stock price. Yes, how well the company is doing factors in, but also how well the economy is doing. Prices of all stocks are so low right now because in this bad economy people have pulled their money out of the market. You can't take away from a CEO because of this. A lot of the investors were going to pull their money out and did pull their money out regardless of how well the individual company is doing.