High CEO pay is one reason that American GDP growth rate is so low?

by philg

During Election 2016, the Trumpenfuhrer-elect harped on the fact that U.S. GDP is growing only at about the same rate as the population. I.e., we’re not getting wealthier on a per-capita basis.

Skunk Works: A Personal Memoir of My Years at Lockheed (Ben Rich, 1996) was written by the manager of what became a sizable business:

The stealth fighter brought in more than $6 billion. Refurbishing the U-2 and the Blackbird brought in $100 million. By my fifth year I was heading a small, secret R & D outfit whose annual earnings placed it among the Fortune 500.

As an officially crabby old person, though, he was pessimistic about the future:

There are very few strong-willed individualists in the top echelons of big business—executives willing or able to decree the start of a new product line by sheer force of personal conviction, or willing to risk investment in unproven technologies. As salaries climb into the realm of eight-figure annual paychecks for CEOs, and company presidents enjoy stock options worth tens of millions, there is simply too much at stake for any executive turtle to stick his neck out of the shell.

What’s changed 20 years later? The “stock options worth tens of millions” are now worth hundreds of millions of dollars for some CEOs. What is the incentive to put them at risk by funding a radical product?

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5 thoughts on “High CEO pay is one reason that American GDP growth rate is so low?”

  1. Could it be the other way around? mature companies willing to pay millions for a mirage of future growth, which has been priced in the the stock market valuations but can be only achieved by moving all business activity to the developing world? So, it is not as inward-looking metric as the post suggests.

  2. philg: “What is the incentive to put them at risk by funding a radical product?”

    Currently, CEOs really have no risk at all (assuming no illegal activity).

    If they are “fired”, they still end-up ridiculously wealthy.

  3. davep: Hmm… http://fortune.com/2016/07/26/marissa-mayers-verizon-yahoo-pay/ suggests that you are correct. Marissa Mayer apparently was able to collect over $122 million for turning over the reins at Yahoo! to a Verizon middle manager.

    But what about a more typical executive who has stock options? If a risky project goes south, the stock options become worthless. The CEO is not fired so there is no golden parachute. He or she simply earns a lot less than planned due to the fact that the company stock doesn’t rise with the market and inflation but instead falls due to a spectacular product failure. When Dow went bankrupt over breast implant liability, I don’t think that the executives did well. In retrospect they would have been better off sticking to lower-margin traditional chemicals rather than trying to innovate with medical devices.

  5. “What is the incentive to put them at risk by funding a radical product?”

    Perhaps Tim Cook would like to answer this question. Mr Cook, your views please?

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