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Culture War Roundup for the week of December 2, 2024

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The fact pattern may not recur with those numbers, but it will recur with ever smaller numbers being seen as out of bounds.

Which honestly it should. Elon is a bad example in that Tesla wouldn't be where it is today without him, it's overvalued because of his perceived genius.

But look at GM and Ford! Tesla's direct competitors! Each CEO makes over $28mm, while they ceded the American passenger car market entirely to Honda and Toyota (among others). Honda and Toyota paid their CEOs $3mm and $6mm.

US executive pay is off the charts level of crazy. UK and European companies have CEOs rarely being paid more than $5 million or so and I don't think the quality of the people who become CEOs themselves is significantly better over the pond than here.

Fun fact: British American Tobacco (BAT), a large FTSE 100 company has an American Subsidary called Reynolds. The Finance Director of Reynolds, never mind the CEO, gets paid more than the global CEO of BAT based in London...

I'll try to steelman the high pay.

Let's take Musk. In the counterfactual where he leaves Tesla in 2018, the stock is down at least 95% from its current levels. So he gets paid $56 billion for generating something like $950 billion in shareholder value. I think that's fair.

What's the situation like in Europe? Well, it's grim. Twitter search sucks, but I saw a graphic comparing new companies started after 1980 in the US vs Europe. The US has huge numbers of huge new companies. The EU has only a handful of new companies that have reached a market cap of $10 billion. The US has something like 50 times as many, and the ones that do exist are much larger.

Edit: Found the chart

There's no reason to give a European CEO high pay. They are mere shopminders who are so hamstrung by regulations they can't build a big company anyway. You can't grow a redwood in barren soil.

What I can't steelman is high CEO pay for people like Mary Barra or Marissa Mayer who do an awful job as CEO, do real damage to their companies, and still get paid hundreds of millions of dollars.

What I can't steelman is high CEO pay for people like Mary Barra or Marissa Mayer who do an awful job as CEO, do real damage to their companies, and still get paid hundreds of millions of dollars.

Aren’t most CEOs compensated in equity/options, precisely to align their incentives with those of their shareholders? A CEO who is paid in shares, or in at-the-money call options struck at the beginning of her tenure will, by definition, stand to make no money by tanking her company’s share price.

I don’t know the details of the two cases you mentioned, but potentially the steelman is that from the perspective of shareholders/the board of directors/whoever decides executive comp, hiring these folks was a positive EV bet ex ante, which turned out to be a dud ex post. That a given instance of a positive EV bet pays out negative is not evidence that taking the bet was a bad decision.

I don't understand it! Especially where foreign companies are clearly outperforming American companies, why wouldn't GM target a rising Toyota exec and offer him twice what a Toyota CEO would make but half what the incompetent GM CEO makes?

You're assuming that CEO competence is unlimited in its range and potential. It could be that decisions CEOs make are fairly obvious and simple ones, that their skillsets are only somewhat more demanding than those of any other top tier professional, and that a lot of the variance of outcomes between companies comes down to more structural matters than whose at the helm. If business churn is more about structuralism than great man theory, then there are diminishing returns for attempting to poach talent.

Isn't Toyota still family-run?

You could even try to poach the literal Toyota CEO with twice his current salary... Even if he's meh at GM you've still destabilised your competition somewhat by taking away their sitting CEO. That alone is probably worth it.