CEOs & George Costanza

http://www.nytimes.com/2013/06/02/magazine/ceos-dont-need-to-earn-less-they-need-to-sweat-more.html?ref=business&_r=0

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"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)

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Deep Thoughts For This Week (Adam Davidson - NY Times):

(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.

While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.

Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."

Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."

So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."

And, how much did the Dodd-Frank law help with that?