Time and again, we see CEOs and similar executives make horrible decisions that massively damage a company both financially and in terms of reputation and the perpetrator is forced to resign, yet receives so much money as a going away present you’d think they’re being rewarded for their fuck up. Why??
Because the people that set compensation is the board of directors, and they are composed of other executives. They want to set the precedent for themselves.
Also, they are all generally good friends, and want to make sure they keep the wealth “where it belongs”
Another similar question: why has executive pay skyrocketed when it’s exactly opposing to (most) companies best interests? Also, you could merely hire a qualified candidate from within the company who is already familiar with how things work and pay them still six figures, but not millions or billions. It seems kind of insane that one person is “worth” that much to a board.
Essentially, there aren’t a lot of candidates for roles like “CEO” at really large companies, so they want to attract the best candidate from a limited pool. Those people get to ask for whatever crazy thing they want if the board really wants them, and golden parachutes aren’t illegal, so why not?
Moral hazard, you say
Oh, there are plenty of candidates, just not ones they will consider. They only take rich people from the right background.
Are you saying that these CEOs have it in their contracts that they get a ridiculous amount of money if they fuck up enough to get fired? Doesn’t that incentivize them to be reckless?
No candidate for those jobs ever believes he will fuck up, nor that disastrous results are their direct responsibility. They always believe that the only reasons they’d be fired are political infighting or an investor/BoD revolt. Therefore, they want golden parachute clauses to protect them from such completely unjustified threats and criticism.
They’re usually just separation clauses - i.e. whenever Joe Blow leaves his CEO position, he gets $X million. Like a lump-sum pension, which is more money that they don’t have to call salary.
Because there are also CEOs and similar executives that do NOT fuck up and make billions for their companies. Big risk, but big reward.
Some would argue the workers make the companies all their money…
