Kristof has a nice column today about about the inflating scale of CEO compensation which reminded me of this great column by Surowiecki about performance pay for hedge fund managers and CEOs. Here is his conclusion:
One lesson of the current market chaos, then, is that it’s hard to get incentives right. Investors, after all, want fund managers and corporate executives to take reasonable risks—that’s the only way to make money—and many of them do just that. But, in trying to reward reasonable risks, we’ve encouraged unreasonable ones as well. And when you make it rational for people to bet the house, you may end up without a roof over your head.
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