Checking myself to see what has rubbed off

Posted by Marc Hodak on January 5, 2009 under Executive compensation | Read the First Comment

Robert Frank, to whom I have been less than gracious on this page, today pays me the highest compliment.  In an article about CEO pay, he notes that:

In large companies, even small differences in managerial talent can make an enormous difference. Consider a company with $10 billion in annual earnings that has narrowed its C.E.O. search to two finalists. If one would make just a handful of better decisions each year than the other, the company’s annual earnings might easily be 3 percent — or $30 million — higher under the better candidate’s leadership… That’s why companies where executive decisions have the greatest impact tend to outbid others in hiring the ablest managers.

Sound familiar?  Here is what his NYU colleague said last May:

Consider that the average S&P 500 company has a market value on the order of $10 billion. If one had to choose among CEO candidates, and the board believed that one candidate’s leadership was likely to yield a return on capital just one percentage point better than the next best candidate’s, that difference would be worth $100 million per year to investors. A conscientious board with the shareholder’s interests at heart could hardly risk letting the best candidate go elsewhere over even a few tens of millions of dollars.

Thanks Bob.  I feel bad now about the other thing.