Steve Jobs is the world's reigning wizard of technological gadgets that are easy and fun to use. And he has parlayed his success into a massive fortune, collecting virtually no salary and earning billions in stock options on Apple stock that has risen to new heights under his leadership. With the success of the Ipod and all of its myriad manifestations, Jobs has created an expectations maelstrom that will be almost impossible to meet.
Yet many analysts are predicting that Apple's iPhone will not just meet those sky high expectations, but totally remake the way people use their cellphones. The iPhone is a revolutionary product. Not since Motorola released their Razr phone, which earned iconic status for its super-thin profile, has any phone so captured the public interest. The iPhone, which will initially retail for more than $500, promises to finally achieve the sort of perfect blend between software and hardware that has eluded all previous phones to date.
Jobs is planning to leverage Apple's masterful record of combining software and hardware expertise to create another product that functions significantly better than all of its competitors, which will shortly be reduced to producing insufficient knock-offs.
The Apple iPhone doesn't come out for some time yet, but the media feeding frenzy has been underway for quite a while. Regardless of whether the iPhone ultimately lives up to expectations, Apple stands to make a bundle on its legions of loyal customers who buy its products as much for their status symbol aspect as for the underlying technology.
Apple's real challenge therefore will be to somehow maintain their difficult balancing act as the world's leading technology gadget-makers. Hyping new products and then actually meeting heightened expectations has proved impossible for every other manufacturer in this sector, but Steve Jobs has exhibited a truly uncanny touch.
Showing posts with label Stock Options. Show all posts
Showing posts with label Stock Options. Show all posts
Tuesday, June 5, 2007
Friday, May 25, 2007
The Chief Executive Compensation Premium
The NYT reports that the rewards of scaling the very top of the corporate ladder have grown significantly in the last few decades. A study put out by Carola Frydman of MIT and Raven E. Saks of the Federal Reserve found that chief executives today earn 260% more than their third ranked executives. Compared with the 1960s and 1970s, this represents a massive increase from the previous 80% premium.
The NYT is perhaps more interested in the implications of this shift in terms of basic fairness and economic equality, but their single-minded approach to the issue ultimately misses the point. The economic ladder of the 1960s and 1970s was indisputably flatter than the one today, but it didn't reach nearly as high. Obviously, the economic relationship between top-tier compensation and economic well-being does not automatically follow in the same way that straightening a ladder inevitably makes it taller. But the basic fact that most journalists overlook is that the changes in terms of executive compensation have come about as a result of a fundamental shift in the way society seeks to compensate its highest performers.
Stock options were almost unheard of in the 1960s and 1970s, but today most of the highest paid executives receive the great majority of their pay in the form of stock options. This dramatically increases the chances that the CEO is going to get a massive payout on retirement, but it also more closely aligns the financial interests of the CEO with the shareholders of the company.
Stock options lead to wildly inflated pay packages that "fairness" types are going to criticize as being basically unfair to Joe Six-Pack. Yet Joe Six-Pack actually does better if the CEO is working non-stop to get that titanic payout than if the CEO spends the day at the golf course - which is precisely where the old fixed compensation scheme left the incentives for the CEO to go.
Society in general has become a much better place to be if you're the CEO. But if the CEO is watching out for everyone's interests in order to advance his or her own, everyone ends up better off.
The NYT is perhaps more interested in the implications of this shift in terms of basic fairness and economic equality, but their single-minded approach to the issue ultimately misses the point. The economic ladder of the 1960s and 1970s was indisputably flatter than the one today, but it didn't reach nearly as high. Obviously, the economic relationship between top-tier compensation and economic well-being does not automatically follow in the same way that straightening a ladder inevitably makes it taller. But the basic fact that most journalists overlook is that the changes in terms of executive compensation have come about as a result of a fundamental shift in the way society seeks to compensate its highest performers.
Stock options were almost unheard of in the 1960s and 1970s, but today most of the highest paid executives receive the great majority of their pay in the form of stock options. This dramatically increases the chances that the CEO is going to get a massive payout on retirement, but it also more closely aligns the financial interests of the CEO with the shareholders of the company.
Stock options lead to wildly inflated pay packages that "fairness" types are going to criticize as being basically unfair to Joe Six-Pack. Yet Joe Six-Pack actually does better if the CEO is working non-stop to get that titanic payout than if the CEO spends the day at the golf course - which is precisely where the old fixed compensation scheme left the incentives for the CEO to go.
Society in general has become a much better place to be if you're the CEO. But if the CEO is watching out for everyone's interests in order to advance his or her own, everyone ends up better off.
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