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Compensation

There's a lot of talk lately about how nonperforming CEOs are overpaid, but CEOs who can deliver the goods are worth any price.

Also a lot of talk about how developers are incompetant and can't deveiver the goods and there needs to be accountability through licensing or what have you.

Let's tie these together.

CEOs who truely deliver exceptional performance should be well paid because they are a rare talent.

Likewise, developers with a proven track record of delivering winning products should be paid astronomical salaries. I'm talking tens of millions here. Superstar salary for superstar talent. The key is proven ability.

And the guys who can't do that, the minor league guys, should be happy with whatever they can scrounge up.

Tony Chang
Saturday, May 03, 2003

Can someone explain to a simpleton like myself exactly what a CEO at a large company such as IBM, GM, AMR, and so on, does other than be the 'face' of the company?  Especially to deserve multi-million dollar compensation no less.

For some odd reason this reminds me of a quote from Spaceballs:
"Help me! You gotta help me. I don't know what to do. I can't make decisions; I'm a President!!"

GiorgioG
Saturday, May 03, 2003

Wasn't it the presidents of Citibank and Travellers and decided on a merger while playing golf? Somehow, that created the largest financial institution on the planet.

A corporation is similar to the US government. The board of directors determines policy and generally represents the stockholder... sort of like Congress, while the president executes (the E in CEO) that policy.... similar to the executive branch of government.

I'm not sure I need to remind you what the president of the US can do, though in a different era, under a different administration, you might have been saying the same thing about the him.

Soooo... CEO's are paid outrageously large amounts of money because you need to pay them that much to attract star talent. If you paid your CEO $100,000 a year, you would get a CEO that's really a middle manager becuase that's a middle manager salary.

Ben & Jerry's had to break their "5 to 1" policy, which stated that no employee, including the president, would get paid more than 5 times that of any other employee because as the company grew, they needed to hire on business school types to run the company because after all, Ben & Jerry were hippies and would make mistakes and make obviously bad business decisions that were right for personal reasons.

www.marktaw.com
Saturday, May 03, 2003

CEO's should be payed for exceptional performance to the same degree as any other employee of the company (lets not forget that is all they are, and should be accountable (the same as any employee if they are not (i.e. get fired)

The system is out of whack though for several reasons,

1) Exceptional performance is currently defined as growth period, but what if the economy is doing really well and sales grew 30% is that good performance? not if the average company grew sales 50%.  performance should be measured in how the company did against competitors, not
how it did overall.

2) Performance should not be measured by making analysts right, analysts set price and earnings targets based on what they think might happen with a company and an economy, and to say that, well doing what is good for wall street is good for the investor is often at best a lie.
People often forget this but Stocks exist to allow investors to participate in a profitable business venture by sharing the profits (these are called dividends) thus when you channel stuff, cook the books, fire staff, kill morale you are not rewarding "investors" you are rewarding "seculators"

3)CEO's just like any other employee should be accountanle for his lack of performance by getting fired, in the current economy the CEO is often rewarded for his incompetence by getting Stock options repriced, and recieving golden parachutes.

4) If a company did exceptionally well the CEO is given all the credit, but where does all the talk of team go when it is time to divide up the loot (bonus money), 90% in the senior managements pockets. Don't forget for all the talk of Jack Welche's greatness there still had to be someone building and designing the washing machines etc, and just as their jobs are on the line if they fail (much more so than the CEO's),  shouldn't they too have a carrot other than keeping their jobs?

But if you reward everyone according to what they contributed guess what there is no money left for the share holders, i.e. if I grew sales by 1000000 dollars and I am paid 1000000 dollars I HAVE DONE NOTHING FOR THE COMPANY which brings me to my last point

5) CEO's are managers and employees not owners and entrepeneurs, they DO NOT "own" the company, since they are merely managing the company, the gains from that capital should ALL go to share holders, and this does not leave much room for the extravagent bonuses that we have seen.

Unfortunately, CEO's and their cronies in mutual funds, boards of directors etc..., lets face it the boards and executive suites are a pretty incestous place, all make sure to take care of each other, and since there are no laws to protect small share holders (someone with 51 percent of the shares should not be able to vote themselves all the profits) corporate governance is screwed until further notice.

My advice, let the corps cannabalize each other, and stick to fixed income investments: real-estate, bonds, annuities, your business, but don't give these guys money, they WILL steal it.

Wake up dude
Saturday, May 03, 2003

"CEOs who truely deliver exceptional performance should be well paid because they are a rare talent."

Depends on what you mean by performance. There have been several research studies that suggest most CEOs have little impact on how well a company performs financially.

The "rainmakers" are typically the people who are always well compensated within an organization. I have no problem with a CEO earning 50 million a year or more if he/she can prove that they were directly responsible for bringing in more money then what they took out. That said, it seems to me that most CEOs are simply glorified big picture decision makers and are overcompensated.

"Likewise, developers with a proven track record of delivering winning products should be paid astronomical salaries. I'm talking tens of millions here. Superstar salary for superstar talent. The key is proven ability. And the guys who can't do that, the minor league guys, should be happy with whatever they can scrounge up."

Okay, here you need to clarify what the word "developer" means to you. I am assuming you are talking about someone who single-handedly creates some type of computer product that eventually generates a lot of income for their employer. I believe most of these individuals do receive generous compensation packages from their employers.

One Programmer's Opinion
Saturday, May 03, 2003

One reason modern CEO's are paid a lot is that they are able to get away with large scale cost reductions that have a big impact on 1,000's of people, mostly staff.

That is, they get paid a lot because they're skilled at persuading other people to accept lower rates of pay, job uncertainty and even mass sackings. It's a straight win-lose.

The original poster's comment that some discussion here had canvassed licencing as a reaction to "incompetent" developers completely missed the point. That would be the common, and naive, interpretation of licencing schemes.

The discussion here actually explored the more sophisticated theme of how licencing protects the financial well-being of a profession. This effect is neutral with respect to competence. This situaiton prevails in more established professions.

However one of the conclusions of the original poster is spot on. Some developers are exceptional, and their work can add millions of dollars to company value. Hundreds of millions even. In software companies, those people might be rewarded. In user companies, they're generally not.

I think we could draw an analogy with movies. Exceptional developers are like exceptional directors and have a similar impact. I think we will move towards that goal. Business's current preoccupation with cost cutting will cause big problems and lead to a reexamination.

By then, the best developers will be smarter and will have learnt that being a team player only benefits the big boss.


Saturday, May 03, 2003

There's no way either the CEO's relative value can be proven.  There's no way you'll ever convincingly separate the contributions of other factors, other people, and sheer dumb luck.  How would another CEO have performed instead?  Can't prove that either.  The developer's talents are maybe a bit more certain, but most of the same problems apply.

The superstar talent argument is totally spurious.  All 'superstar' salaries attrack is the greediest slickster.

John Aitken
Saturday, May 03, 2003

Truly great contributors are never motivated by a search for the absolutely fattest paycheck.

John Aitken
Saturday, May 03, 2003

Corporations no longer exist primarily to make money for shareholders; they have become tools for filling the pockets of CEOs and top executives regardless of the company's performance.  Profits to the shareholders are now a secondary side effect that may occur after the executives' pockets have been filled.

In addition to the huge severance packages, there is also hidden compensation in the form of megabuck loans to executives which are forgiven when they leave the company or the company goes bankrupt.  Those often fly under the radar of shareholders because loans given out are considered to be assets.

Also witness the many steps that have been taken to shield the bonuses and pensions of top executives if the company goes under, while the shareholders, creditors, and rank-and-file employees get left out in the cold.  American Airlines is only one of many companies who have taken such steps to pad their executives' pockets in the event of company failure; they just happen to be in the news because of the recent bankruptcy considerations.

You don't need golden parachutes to attract really good CEOs. The really good ones are confident enough to know that they are unlikely to screw up the company so they won't need one. And very often, those golden parachute provisions aren't put in place until after they have already joined the company.  Megabucks are also needed to attract top sports stars because they are rare and valuable, but they don't get golden parachutes for bad performance.

T. Norman
Saturday, May 03, 2003

That Ben and Jerry 5-1 policy (no one would be payed more than 5x the salary of the lowest paid worker) always really annoyed me. Not so much the concept, but how smug they always were about it.

The fact was that it was essentially meaningless since Ben and Jerry themselves owned so much of the company. Their compensation was not mostly from their salaries but rather from the appreciation of their stock. Which is as it should be.  Just don't pretend that you are some supremely altruistic being while at the same time you are getting rich. I would have been amazed if they said something like "The employee with the most stock will have no more than 5x the stock of the employee with the least." That would have been meaningful.

And yes, there are some CEOs out there (read Larry Ellison and Michael Dell) who both own huge percentages of their companies yet insist on getting paid (and additional option grants) as if they didn't.

billm
Saturday, May 03, 2003

I also think that CEO remuneration is higher because they're more likely to be knackered by a sacking.

Ferinstance - you screw up this job, you get sacked, you weasel your way into another job and keep going.

CEO nosedives a company into liquidation, gets hauled through the courts, has his pants sued off him etc, is he going to be able to work again? Not as a CEO. How many people of that ilk fancy flipping burgers for minimum hourly wage.

They get paid big because they take big risks in the event of big payoffs, but also big f*ckups. This might be their only shot.

Geoff Bennett
Saturday, May 03, 2003

CEO screwups often move on to another company without any problem. And onto the next, and the next.  Plus, they generally make so much money during their stay that they don't have to work another day in their life, even without a big severance package.

T. Norman
Saturday, May 03, 2003

According to this http://biz.yahoo.com/p/o/orcl.html , Larry Ellison only made $39K in 2002!

T. Norman
Saturday, May 03, 2003

CEO are certainly not overcompensated. Sacking thousands of people and making them feel guilty for being underachievers, blaming your subordinates during the bad times, claiming all credit during the good times, and still keeping a straight face requires true genius!

anon
Saturday, May 03, 2003

"According to this http://biz.yahoo.com/p/o/orcl.html , Larry Ellison only made $39K in 2002!"

The flip side is that I believe he made something like 780 million in 2000 when he sold some of his stock.


Saturday, May 03, 2003

John Aitken, if you personally would prefer not to receive your fair share of the wealth you create for other people, you can donate it to a deserving charity.

But as things stand, you're giving it to those conniving types who get rich rewards for diverting wealth from the rest of society into their own pockets.

For me, I would like to receive my share and then I will decide what I do with it.


Saturday, May 03, 2003

"They get paid big because they take big risks"
LOL, what exactly is the "risk" of making enough money in a year to last 3 or 4 lifetimes. Now I am not saying that CEO's should not be paid handsomely, but think about it this way, your first three months on the job you made 3 million dollars, where is the pressure to perform? You are already set for life. Just think about that after 3 months you NEVER need to work again.

Daniel Shchyokin
Saturday, May 03, 2003

Risks? What risks?

What risks are the CEOs taking other than risking other people's money?  If they get megabucks when the company thrives, and megabucks when they screw up, what is the risk for them?

T. Norman
Saturday, May 03, 2003

It's funny... apparently a lot of you think that every CEO position in the world is for a multi-billion dollar company that pays hundreds of millions of dollars.

The VAST majority of companies are small, some quite tiny. The CEOs of those companies do not get paid ridiculous amounts of money, and as often as not, yeah, they are risking the entire company with their decisions. Since any chance of making any significant money is usually tied up in the fiscal success of such company, I'd say that's risk for them, too.

Brad Wilson (dotnetguy.techieswithcats.com)
Saturday, May 03, 2003

I think most of us here are referring to CEOs and executives of Fortune-1000-sized corporations, not the CEOs of firms with 20 employees.  Small companies rarely have the money to give golden parachutes, and their CEOs tend to have a sizeable ownership stake in the company, not to mention that they probably started the company. With those companies, the CEO can't collect megabucks if the company doesn't prosper.

Anyway, this article "CEOwners" suggests that it's not perks and bonuses that bring high-performing CEOs, but it's their ownership stake in the company that makes the difference: http://www.forbes.com/2003/05/02/cx_aw_0502ownersintro.html?partner=yahoo

Click the "Slide Show" link to get a popup with the CEOs, their compensation, and their ownership percentage.

"Of the ten graded CEOs with the largest ownership stakes, only Philip Knight of Nike failed to beat the S&P 500 over the last six years."

T. Norman
Saturday, May 03, 2003

Goodness! Please, forget I mentioned anything about CEOs. That topic has been talked to death and I only wanted to incorporate it by reference.

The topic was meant to be, assuming for the sake of argument that CEOs who can REALLY DELIVER results (and aren't just ransacking the corporation and filling the cash bins of hteir cronies) are rare birds and thus need to be attracted by say, large salaries.

I postulate that developers who can deliver spectacular results reliably are just as rare if not much rarer and they shuld be paid spectacular salaries too. I don't mean $150,000. I don't mean $450,000. I mean ten million dollars and up. Annually.

A recent discussion was on Cigna's boondoggle. THe spent upteen zillion dollars on a computer system and it failed in such a spectacular way that they lost a huge percentage of their customers and lost BILLIONS of dollars because of the incompetand CIO anid developer/consultants. Forget who is to blame, let's just note that the system failed. How much would it have been worth to Cigna to avoid all this by hiring someone with proven results and letting them have at it? Well, there are not very many of these guys around since Cigna hired some top consultancy and they screwed up big time. But there are a few. Let's say that Joel is one of them, by way of example. So they contact him and offer him $350,000/yr to put together their system full time for 2 years. He is going to give up his company for this piddling amount? I think not. What if they offer him a million? Nah. But ten million, well... maybe...

Tony Chang
Saturday, May 03, 2003

There is such a thing as a million dollar developer. They make millions of dollars. I have two friends that are million dollar developers. The thing is, million dollar developers do not work on business systems such as Cigna's. They write compilers, or games, or operating systems...or they wrote yahoo store, or yahoo, or ebay, or whatever. Most software is like plumbing; it isn't that hard, it is just distasteful do do it. Thus, most programmers are paid the same as plumbers.  If you want to make a shitload of money, you either have to do something really fucking hard (like writing your own compiler, graphics engine, or operating system) or think of something that no one has thought of before (like ebay or amazon). 

choppy
Sunday, May 04, 2003

"million dollar developers do not work on business systems such as Cigna's"

Right choppy! I agree - businesses are not going to be able to draw from the pool of competant stars at mere million dollar salaries because it's not enough -- the stars are doing their own thing and it would take serious compensation to bring them on. But doing so could turn a billion dollar failure into a billion dollar success. Companies serious about success with critical systems might consider this. Look at google - that's a business system. It's a plain looking search engine. But they've been able somehow to attract and motivate some real superstars and in so doing have dominated their market segment.

Tony Chang
Sunday, May 04, 2003

Google isn't really a business system. It was founded by hardcore stanford CS nerds. There are weird esoteric search algorithm issues to deal with. There are huge systems-y "how are we going to manage 15,000 linux machines" issues to deal with. Many of the issues are interesting to nerds who find CS problems interesting. The work environment is a bunch of software people, the value of google is purely IT. Contrast this to a bunch of GM execs who want to minimize the IT budget for the latest b2b muffler exchange.  Most "consultant" systems are not really very interesting from a pure CS or even engineering standpoint.

The other thing is, google may have attracted some superstars, I know a few of them. However, those superstars certainly aren't being paid millions of dollars. ;-)

Maybe they will be millionaires, someday. Google seems to operate the same way as microsoft, to a degree. They pay  better than average salaries to people who pass their interview gauntlet, and promise that if they stick around for a while, that they will make some real dough. And maybe they will.

choppy
Sunday, May 04, 2003

As far as developers and compensation is concerned, very good developers are way underpaid.  Studies have shown that very good developers are often 10 times as productive as average developers.  But still they only get paid maybe 30-50% more than average.

Stellar developers can be 100 more times more productive than average. For example, it only took John Carmack, John Romero and 1 or 2 other programmers to write Doom.  Put 400 average developers together for a few years and they still couldn't produce Doom.

Companies whose main products are not software related will never pay what it takes to attract really good developers, because they see Information Technology as an expense that needs to be minimized, not an investment that can bring positive returns.  Occasionally they will hire a very good developer by sheer luck and circumstance, or a good developer will emerge from within the company, but it's not by design.

T. Norman
Sunday, May 04, 2003

You normally get to be a CEO by being one already, or by being one step lower in the same or an equivalent company.

So in fact the pool of available CEO's is about the same as the pool for any other job, and the risks are not significantly greater.

Now the reason for this is partly the old boy network, but mainly shareholder conservatism.

Imagine Bill Gates's job went vacant. Now there are probably dozens of people here on this board, including Joel and myself who have the requisitie knowledge and qualifications to do the job. You need to know a bit about code, a bit about the market, a bit about the law, a bit about motivating people, a bit about organization skills, a lot about bullshitting convincingly on keynote speeches at Comdex, and if you are a nasty paranoid bastard it helps but is not necessary.

But what would happen to the shares if any of us were appointed? They would immediately go into a tailspin, because nobody knows who we are; we are not "a sure pair of hands"; have not passed through the stage of being an acolyte which is only waived on grounds of consanguinuity.

Indeed those shares would keep plummetting until we resigned, or announced something incredibly stupid like we were going to make Office Open Source and free, whereupon the shareholders would breathe a sigh of relief and say. "Oh, that's all; at least he hasn't sold the software division to start an ice-cream factory in Alaska.

Stephen Jones
Sunday, May 04, 2003

"Occasionally they will hire a very good developer by sheer luck and circumstance, or a good developer will emerge from within the company, but it's not by design. "

Yes but, then they will do the damndest to try to keep him from developing anything

scarred for life
Sunday, May 04, 2003

"Imagine Bill Gates's job went vacant. Now there are probably dozens of people here on this board, including Joel and myself who have the requisitie knowledge and qualifications to do the job.

I realy doubt that, but feel free to prove me wrong.

Just me (Sir to you)
Monday, May 05, 2003

"Imagine Bill Gates's job went vacant. Now there are probably dozens of people here on this board, including Joel and myself who have the requisitie knowledge and qualifications to do the job."

Somehow I really doubt that.

I think the only point of  reference many people have of CEO's is from Dilbert and corporate scandal such as Enron. Stephen's post perfectly demonstrated that. In his mind all ya gotta know is a little bit about this and that and hey! You're all set. Insta-CEO! If it were only that easy.

What do you know about leading thousands of people? How good are you at managing highly educated and talented people? What do you know about making huge decisions that affect the lives of thousands of people? I guess that you know very little. it's not all drinking latte's and having your secretary print your email. It's not all BS'ing at Comdex and smiling for the cameras.

Are there idiot CEO's? Absolutely. But this mentality that the only requirement for a CEO is good hair and good teeth is just hopelessly naive.

Mark Hoffman
Monday, May 05, 2003

This entire thread had largely been an anti-corporate fanatical rant. Can't objectively measure CEO performance, determine who's a good CEO or not? That's bullshit.

Maybe you can't objectively measure CEO performance over a year. But as CEOs develop a track record, you can measure their performance. Good CEOs have a long track-record of turning bad companies around or strengthening already strong companies. They leave good impressions where-ever they go, from fellow execs, shareholders, employees, and customers. Bad CEOs have a long history of flops. Gary Wennig -- the President of Global Crossings -- is a great example of a bad CEO. He's failed at almost everything he's done, and is a lofty dreamer who sets unrealistic goals and makes his shareholders pay the price for his idealism.

Good CEOs have a history of success. Can you attribute it solely to them? No. CEOs aren't gods. What does a good CEO do when (s)he comes to a faltering company?

Well, (s)he assesses all those around them. Who works hard, who doesn't? Who's competent, who isn't?

(S)he fires people who don't fit the bill as good workers. (S)he hires those who do.

In general, (S)he has a good eye for talent, and does not tolerate subpar efforts from those around him/her.

(S)he holds others to a high standard, but holds himself or herself to an equally high standard.

(S)he brings out the best in those around him or her, and has good interpersonal skills.

(S)he is not egotistical, and will listen to the specialists who are particularly knowledgeable in their fields.

(S)he either already has a significant knowledge of the business (s)he's running or is eager and capable to learn quickly.

(S)he does not want yes-(wo)men but wants people who will advise him or her in the way they feel, and is capable of decisively deciding between two conflicting suggestions from subordinates for the right reasons, and probably working out some kind of compromise to at least partially satisfy the needs/concerns of both advisors (e.g., a media-relations person will have a different take on how the "software should look" compared to a purely functional developer).

(S)he sets ambitious but realistic goals, and works hard to achieve them, while also motivating those around him or her to work hard.

Most importantly, (s)he leaves the company better off for her successor than it was when (s)he obtained it.

Believe it or not, executives like this do exist. There aren't that many, which is why many companies are flops or are touch-and-go. Is the CEO solely responsible for the companies success? No, of course not. But the CEO is responsible for bringing in winners to the company and motivating them to work.

I'm sorry, but saying you can't tell if a CEO is a good CEO is absurd. It's like saying, "well, we can't really tell if Michael Jordan is one of the best basketball players ever" because we dont' know how he would have done in every conceivable situation.

dh003i
Monday, May 05, 2003

btw, what the fuck is up with Warren Buffet only getting $84,000 dollars compensation?

dh003i
Monday, May 05, 2003

dh003i, you had a good post, but it was painful to read because of your insistence on using the s(he) and his/her crap...

Hell, use "she" for all I care, but this (s)he his/her garbage is hard on the eyes and it detracts from your otherwise informative post.

Not PC.
Monday, May 05, 2003

Not PC,

Thanks for the critique. I'll just use she and her from now on (after all, she does contain "he" in it). Oh what misery we reap when politically correct speach we seek.

A good example of what I'd call programmer-user disconnect -- to be absolutely formally correct, I went through the entire document like that, but never bothered to asses it's readability.

dh003i
Monday, May 05, 2003

dh003i,

It would have been better to have chosen one form (masculine or feminine) rather than (S)he, etc.  There's a reason authors don't do it - it does not enable a text to flow properly.

GiorgioG
Monday, May 05, 2003

Intelligence and the ability to make money are talents orthogonal to each other.  Being good at one does not entail being good at the other.

Hence the saying, "if you're so smart, why ain't you rich?"

If I wanted to be rich, I'd have to give up coding.

Alyosha`
Monday, May 05, 2003

Arg! Just use 'they' instead of he/she -- that's the way it's done in Shakespeare and the King james Version of the Bible.

Now back to the topic of DEVELOPERs salaries. No more CEO talk please!

Tony Chang
Monday, May 05, 2003

Isn't the gender neutral form in English "he"?
(Sorry, not a native speaker).

Just me (Sir to you)
Tuesday, May 06, 2003

Just me: It is possible that "he" used to be the gender neutral singular pronoun in English in the past, but I dare say that is no longer the case. We really don't have one anymore, so its generally a beter idea to either choose one and go with it (occasionally with a leading comment that the gender doesn't matter) or switch genders at random.

Steven C.
Tuesday, May 06, 2003

There is some mis-informed rantings in this topic. I don't see many people offering views on how we can solve this (perception?) problem.

It's always so easy to be critical and damning. It's also easy to generalise wildly - I think there are some CEOs who perhaps are guilty of some of things mentioned here HOWEVER there are lots of CEOs of large multinationals that are the complete opposite of what has been described. It's just you don't tend to hear or read about them as much, as *often* they are the more modest, self-effacing ones.

I think compensation for senior management is a tricky issue and I think we'd all agree it needs to be linked strongly to actual performance - it's just defining what performance actually means where the problem is.

Yanwoo
Wednesday, May 07, 2003

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