Chapter 13: The Scapegoating Premium: A Rational View of New CEO Compensation
13 The scapegoating premium: a rational view of new CEO compensation Andrew Ward, Allen C. Amason, Peggy M. Lee, and Scott D. Graffin Objectively, it’s a great achievement for any of us to attract a superstar CEO to one of our companies. If nothing else, it gives peace of mind that our investments are in good hands. Ravi Chiruvolu, Venture Capital Journal, 1 November, 2004 Twas the night before Christmas, and all through the shop The board of directors was ready to drop. . . Four years of bad business had laid them quite low, And then came a surprise third-quarter blow. Shareholders were angry; they grumbled with disdain. They wanted a scapegoat to shoulder their pain. The board knew they’d have to appease the masses (And still find a way to save their own a****.) Which led this grim board, though hard to believe Into firing their CEO . . . on Christmas Eve. M.M. Picoult and J. Picoult, 22 December, 2003 Chester Barnard explained that accepting symbolic responsibility for the organization was the single most important function of the top executive (Barnard, 1938). This symbolic responsibility for the organization and its performance is reflected in the chief executive’s hiring (Khurana, 2002) and firing (Grusky, 1963; Gamson and Scotch, 1964). As the quotations above suggest, top executives are often credited with the successes and failures of their organizations. Hence, they are catapulted to superstar CEO status when the firm outperforms expectations and scapegoated when the firm underperforms. This ability to use a top manager...
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