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View Diary: Bwahahahahahaha! American Airlines and Bain Capital. (282 comments)

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  •  The golden parachute is supposed to free CEOs (0+ / 0-)

    to take risks rather than just maintaining the status quo and collecting a fat paycheck. Not all CEOs get them, but they're more commonly offered by the boards of companies that need to innovate. It sometimes works, but in some cases, the risks taken don't pan out, so we see what appears to be abnormally high compensation to someone who failed.

    Now, does it actually work this way in practice? Probably not that well, but acedemic research is continuing on this, and at some point in the future we'll have enough data to talk about this from a scientific perspective. My guess is that the typical CEO doesn't need this extra security to take risks, and golden parachutes will decline within the next couple of decades.

    •  I saw a study recently that said (0+ / 0-)

      monetary compensation was the worst way to encourage better performance, in particular in complex and/or high-end professions. It causes people to make worse decisions for the organization than if they have no pending bonuses at all. Providing creative freedom or various other non-monetary perks, however, did increase performance.

      Works fine for lower level employees like janitors or cashiers, but of course it's rarely offered to them.

      Atheism is a religion like Abstinence is a sexual position. - Bill Maher, 2/3/2012

      by sleipner on Tue Feb 07, 2012 at 05:01:31 PM PST

      [ Parent ]

      •  There's a lot of academic research on compensation (0+ / 0-)

        packages out there. "Monetary compensation" can take many shapes, so I'd have to look at the study to address it. Here's an example of where monetary compensation can demotivate:

        A couple of years ago, Microsoft gave everyone a 10% raise. This pissed off the people who performed well and thought they deserved more than their peers. This had the effect of many of Microsoft's top performers leaving for Google or other firms. So yeah, monetary compensation can definitely be a bad way to encourage better performance.

        Still, there's pretty strong correlation between things like stock options and performance. The correlation between golden parachutes isn't that good, but that might be what you expect, considering that they're given to explicitly encourage risk-taking...

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