Google Executives

The article Google Chiefs agree to work for $1 explains how various executives have cut their salaries to $1. This relates to the first part of the semester when we were talking about the principal agent problem and how to fix it. For example Google’s cofounder Larry Page only earns one dollar but he sold 400,000 shares of Google stock earning him approximately 70 Million dollars. His best interest is to make Google successful because his livelihood depends on the sell of his stock. Do you think this is the most effective way to solve the principal agent problem?

1 comment:

Dr. Tufte said...

-1 on Mack's post for spelling errors.

Would you believe that there is a literature in finance arguing that this doesn't go far enough? In order to really "solve" the principal agent problem you have to have the CEO loan the firm the amount of expected future profits, to be paid back by the firm when those profits materialize.

But ... for practical matters, I think that Google has gone far enough.