When I contacted Peter Swan recently about a paper he had written with colleague Jaeyoung Sung (Executive pay, talent and firm size: why has CEO pay grown so much?) I was pleasantly surprised to receive a polite holding reply and then a later follow up with the information requested.

I was after the table their paper hinted at listing the Top CEO Talent for the years 1995 to 2007. It is below:




“Talent” is a tricky notion to nail. The paper's proxy is based on post appointment CEO performance and involves 13 years of S&P 1500 data and an eight page algebraic model. A model, reassuringly for the hardcore, that is supported by a further four pages of mathematical proofs.

Once through the greek (or Maginot-like, for many, around it) the end result is the finding that talent, as estimated under the model, explains 64% of the firm's enterprise return* and 82% of the incremental quantum of salary that CEOs trouser. Steve Jobs obviously puts a small spanner in the works with his $1 pay packages of 2005 and 2007.

It is notable that ten of the thirteen on the list come from the tech world. That tends to raise question of, erm, dumb luck. Put Ellison in charge at Bear Stearns, Lehman or CIT and would the assumption he controlled enterprise returns independently of industry hold?

In that context - and perversely perhaps - intuition suggests the Top Talentless CEOs list might better showcase the Swan/Sung model. Incompetence respects no frontier (nor, increasingly, does the threat of litigation).


*The market value of year-end assets plus the difference between net distributions and net (capital equity and debt additions).

NB: ARM subscribers may recognise the paper as one featured in July's issue. The table is taken from a fine op-ed by Messers Swan and Sung that appears in today's Australian Financial Review (have to pay, I'm afraid).

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(July Newsletter content snippet)

"Barney Frank, Chairman of the powerful US Congressional Financial Services Committee, asked bankers during one of his hearings last February “Why do you need to be bribed to have your interests aligned with the people who are paying your salary?”.

Contrastingly, he had a scant month earlier personally written an “earmark” provision into the Troubled Asset Relief Program bill specifically aimed at helping a failing bank in his home state. No ordinary collaterally-damaged-by-the-fallout bank but one under a Federal Deposit Insurance Corporation “Cease and Desist” order for (amongst a great many managerial and operational failings) “allowing the payment of excessive compensation”.

This US-focussed study does not do irony but it does look at the economic impact made by a leading politician in his home state when he is appointed to the chair of one of the 10 most influential congressional committees..."

(Ludicrously generous summer trial available in July and August, email for more info)

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In March a small "Pros vs Cons" of the US Public Private Investment Plan (PPIP), more accurately known by its vernacular "toxic asset plan" title, appeared here. A quote from PIMCO's Bill Gross was cited:

“This is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically. We intend to participate.”

Which is interesting because they chose yesterday not to participate in the "win/win/win".

Now, observes can choose to believe PIMCOs reasoning that "as a result of uncertainties regarding the design and implementation of the program, PIMCO withdrew its application to serve as a manager for the PPIP in early June" although no one else in the race did.

Or they can consider the merits of a LA Times piece yesterday:

"Pimco may have stumbled badly with its initial foray into buying troubled mortgage-backed bonds in 2007. That could have fueled concerns internally that the firm wouldn’t be able to raise from investors the minimum $500 million seed capital required for a manager in the PPIP under the Treasury’s rules." (link)
Hazards of bottom fishing...

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