Executive Compensation and The Equity Investor

[ssatrofma]

The best place to start in understanding the huge moral hazard built into corporate governance remains the classic "Modern Corporation and Private Property" by Berle & Means.

That same moral hazard also played a huge role in the bubble with the preposterous efficient market hypothesis and buy & hold nonsense peddled by fund managers who take incentive fees when funds go up but suffer no losses when they fall.

Heads I win; tails you lose. It is a thieving racket clothed in respectability.

[ssatrofma]

What he fails to mention is that the consequences of any _bad_ decisions of the CEO are also magnified. When a worker makes a mistake in screwing in the bolt, he causes a loss of $1. When the CEO runs the company into the ground due to bad decisions or sheer incompetence, the loss he causes is equally magnified.

The worker gets fired. The CEO bails out with a golden parachute.

This theory is all BS.

[TheBrightBlackPearl]

@5:33 thanks!!!!.....(i hate commercials)

[RonDeKiller]

If you want to skip all the intro stuff, the lecture actually starts at 5:33.