Friday, February 06, 2009

Natural selection and executive compensation

Imagine a world of sterile herbivores.

No predators, no reproduction.

Some are better at running, some are better at calculus, and some are better at gathering food.

Now imagine we rank the herbivores by food gathering capacity and call the top herbivore the CEO.

In the curious ecosystem of modern capitalism, do we select for executives who's primary skill is the ability to gather money to themselves?

Ok, it sounds silly, but wait a minute.

We usually define the CEO by their alleged job function -- that is, to lead, etc. They need to get the most money because ... well, they're the ... you know ... the alpha.

What if we have it backwards?

What if the primary skill of the modern CEO is "money gathering" -- the ability to, by various means, gather the most money to themselves? Since we organize corporate income distribution by corporate hierarchy, what if it's primarily the money gathering skill of an individual that determines their corporate stature?

In this case, the best "money gatherer" would, almost be definition, become the CEO.

Trust me, there's something here.

Of course it's not that simple. "Money gathering" is a complex skill, and it's associated with other skills that are relevant to the role of "leadership". On the other hand, it's also associated with traits that are perhaps not so good for leadership, judgment and direction.

Natural selection, remember, isn't about being handsome, smart, or fast. It's the statistical process of finding a local minima. In the peculiar world of modern capitalism, and given the rule that the CEO makes the most money, it may also be true that the person who makes the most money is the CEO.

So maybe we do "select", above all, for money gathering capacity -- much to the detriment of other skills.

That would explain quite a bit, wouldn't it?

Update 2/11/09: A similar post of mine from 2004.


Chris said...

In professional sports the manager/coach makes a little less than the median player salary, and well below the superstar player salary. Sports has the advantage of measurable performance.

John Gordon said...

Great comment.

It reminded me that in the hospital environment big-ticket surgeons and radiologists often make more than the hospital CEO -- esp in smaller hospitals. (Large integrated systems tend to corporate CEO salaries, whereas even high end surgeons top out at around $1 million or so.)

Different "ecosystems" with different rules.