I'll take the Job

I am trading my current position of university professor for an executive job for a large public company. The government paymaster has rendered a ruling to limit top executive pay to $500K -- a significant downgrade from the millions usually promised to these executives through pay packages negotiated with boards (who are supposed to speak for the stockholders).

You see I have a chance now, because all those experienced and qualified top executives are fleeing to greener pastures not hamstrung by the arbitrary hand of government. Why, it is naturally beneath them to work for so little. And they will leave a huge vacuum -- how can we find anyone as good?

The argument for $20 million salaries is that this is the only incentive that will drive top performance. Really? For us regular workers it has been shown time and time again that money is not an incentive to high performance (though it is often accepted to be true). Why should it be any different for top executives. As Wall Street Journal columnist Brett Arends asserts, where is all the great performance from these companies and their executive leaders? In the first place the executives being limited worked for companies in hock with the government anyway.

In fact, there is little evidence that stock options and other perks given to executives pay off for shareholders. Here is the conclusion from one study cited in Arends article: "CEOs' personal use of company aircraft is associated with severe and significant under-performance of their employers' stocks. Firms that permit personal aircraft use by the CEO under-perform market benchmarks by about 4 percent or 400 basis point per year, after controlling for a standard range of risk, size and other factors."

I will accept the airplane privileges and will accept a piddling salary of $500,000 for the chance to outperform the returns of most of these companies. The bar isn't all that high.