Thursday, July 8, 2010

Megan McArdle on CEO pay:
I myself believed for a long time that board capture--wherein CEO's appoint their own pay committees--mean that CEOs are not held accountable for performance, and grotesquely overpaid.

I was disabused of this view by Ed Carr, a brilliant business editor at the Economist who wrote a survey on the topic in 2007. Most convincing piece of evidence: public company CEOs are not paid more than their private counterparts. I just can't square this with a "board capture" account where CEOs don't matter much, but manage to manipulate the boards into paying them a lot of money anyway. If they aren't worth that much on the open market, I'm pretty sure they couldn't sweet talk the mercenary sharks who run private equity shops into overpaying them. Everyone I know in private equity thinks that CEOs matter a lot--largely because they've watched so many run their companies into the ground.
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