Should a CEO’s Job Be Precarious?

Should a CEO’s Job Be Precarious?

On the face of things, it seems like a great time to be the chief executive of a major American business: median CEO compensation at US public companies is high and rising, and a high-performing executive can command a sizable pay package. At the same time, however, average CEO tenure has been on the decline as boards have become more willing to fire CEOs who fail to live up to shareholders’ high standards for performance.

At the Wall Street Journal earlier this month, Vanessa Fuhrmans and Joann Lublin observed that CEOs of major companies were being forced to resign under investor pressure at an unusually high rate this year. The reasons for this churn are numerous: Activist investors have become more numerous, powerful, and demanding, pushing for major changes not only in financial performance, but also in company culture, talent strategy, and other aspects of a CEO’s job to which shareholders used to take a more hands-off approach. Ethics scandals have become more likely to lead to the demise of a CEO as well. Beyond that, competition has stiffened in many industries and the pace of change has accelerated to the point that even star CEOs are challenged to keep up.

Bloomberg View columnist Matt Levine has a hard time feeling sorry for these “embattled” CEOs, however, considering the kind of money they earn “The job should be terrible!” he writes, “That’s why you’re getting paid so much!”

If you want a long tenure, a good lifestyle, and the uncritical admiration of everyone you meet, you should be a financial newsletter writer instead. The reason CEOs get paid so much is not that they are unique and irreplaceable talents. Quite the reverse: They’re being compensated for being so replaceable, for the risk that some activist will come along, say extremely hurtful things about them, and force them out of a job. …

Part of the premise of high CEO pay is that it is supposed to be linked to performance. This is debatable, but certainly the premise of high CEO precarity is that it is supposed to be linked to performance: You perform, or you’re out. I am not sure that that is actually a good way to run a company — perhaps stability, trust, long-term vision and modest pay are a better combination — but it is in a sense an obvious way, one with quantifiable results and demonstrable responsiveness to shareholder demands. And so the life of a modern CEO is supposed to be one of constant struggle, solitary, rich, nasty, brutish and short.