CEO Recruitment


The only salaried employees paid more than professional athletes are CEOs. In the age of Enron, Global Crossing, and WorldCom, we shouldn’t necessarily assume that CEOs deserve their salaries. Perhaps CEOs get their millions through manipulation and control of the compensation process. Prisoners’ dilemma, however, provides a more benign explanation of why rational companies need to pay astronomical sums to attract the best bosses.

A CEO candidate slightly better than the rest is worth a lot to your company. If the top candidate would increase the equity value of your $10 billion company by only 1 percent, then he’s worth $100 million to you. Still, he would probably be willing to run a company for only $10 million, so why do you need to give him the extra $90 million he’s worth?

As with the professional sports’ dilemma, competition forces organizations to pay CEOs near what they bring to the firm. If all large companies agreed to limit salaries to, say, $10 million a year, then they would all probably still attract top talent. When companies compete, however, every firm finds it a dominant strategy to pay high salaries. If only your firm does, you get the best. If everyone but you does then, well, I bet Ken Lay is willing to work cheap.




Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
ISBN: N/A
EAN: N/A
Year: 2005
Pages: 260

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