22 September 2006


Competitive markets help drive down prices and raise the probability that resources will be best used. In the last 25 years, CEO pay has shot upwards from about 25X the average employee's salary to about 500X. Some argue that this tracks the escalation of salaries for pop stars, movie stars, and famous authors like JK Rowling. CEOs are the new stars of the business world, and like stars in other arenas, they are beneficiaries of the new information economy and globalization.

I'm less impressed with this argument. Nobody has to be JK Rowling but somebody has to be the CEO of GE or GM. Nobody advertises for a position described as "create a world of magic for fame and fortune." Boards do advertise (albeit informally) for someone to manage their company.

What if companies used markets as a means to drive down the price and raise the quality of one of their biggest costs? What if stockholders were allowed to use eBay to vote on the next CEO?

CEOs could campaign - taking advantage of internet technology to create broadcasts and informative web sites. They could compete with one another by offering alternative strategies for products, for process, and for work environments. Employees, who so often own a significant share of stocks, would have influence over this process as well, able to vote their stock. The process of competing campaigns would, itself, help to buttress the quality of the company by forcing every CEO candidate to respond to the ideas any candidate might put forth. Mutual fund managers could take a more activist role, looking for candidates they felt would do the most to enhance stock value because of their combination of positive impact on business profits and their affordability vs. other candidates.

This campaign could exploit auction technology, allowing CEO candidates to under bid one another and "voters" in the form of stockholders to out bid each other for particular candidates.

CEO's currently make too much and impact companies too little. Perhaps C-eBay-O's would be more affordable and help to open up a currently opaque process in a way that would allow them to have a more positive impact.

No comments: