2/15/2007

What Drives CEOs?

There seems to be a general understanding that the only thing that drives CEOs is money. Therefore people heavily scrutinize the enormous salaries and huge benefit packages that CEOs get, even when companies seem to perform poorly under their management. There is a great article on BusinessWeek online that talks about the psychology of CEOs.

http://www.businessweek.com/magazine/content/07_04/b4018001.htm?chan=search

Most will argue that it is money and power that drives CEOs, but I think most overlook the most important motivator: the rush that comes from winning. I’m mean let’s face it if you are worth over a hundred million money can no longer be a real motivator, at least not for most people. Why does Michael Schumacher, formula one driver, keep putting his life on the line? Why do top athletes keep putting in so much effort? Everyone knows it’s not the money but their need for victory. Why would this be any different for CEOs.

Beating the crap out of the competition, being a rival business, another racing team, or the world number one track runner, that’s what drives these people. They are the best of the best and the only thing that matters to them is becoming the best they can be. Of coarse the pay also plays a role but it’s not the only thing that drives them.

In today’s hyper competitive business world a lot of corpses are left behind on the battlefield. Executive turnover is spiraling out of control and corporate scandals are becoming a daily phenomenon. That is the risk CEOs have to take and that is why I think there is nothing wrong with paying them enormous salaries. Of coarse it is crucial to link pay to performance, but corporations will have to keep increasing pay if they want to get the top performing CEOs. The next question is: How do we define performance?

5 comments:

Jessica said...

How can we classify these individuals as the best of the best? Perhaps becoming a CEO is inheritance, as in the case of Donald Trump. The assumption that the professional athletes are the best of the best is wrong as well. I recently watched the Senior Bowl, and the announcers loved and praised the athletes who had siblings or fathers play football professionally. I am sure that most have seen the movies "Miracle" and "Invincible," none of these people were considered the best of the best. Their success was simply inhibited by life circumstances. I think that it is time to look for other avenues for finding CEOs and athletes, alike. It is comparable to business, when prices get too high some little guy enters the market and begins to chip away the arrogance. I think it is only a matter of time before this happens, and we will salute the "Best of the Best" on a sinking ship. If it isn't the money, then keep the competition in the market of CEOs and other executives with lower wages and benefits.

isabelle said...

I would agree that a major motivator to CEO's is the rush that comes along with knowing that you are worth 100 million a year. I just recently got a raise at work and I had that rush experience. It is quite the motivator to know that you are appreciated. Granted, once you find out that you are worth more than 2 million, anything over that is almost rediculous. I also agree that CEO's aren't the best of the best. As Friedman spoke of in Free to Choose, alot of these things are placed upon us by chance and life circumstances. But hey, if you can make 100 million a year, more power to you.

joseph said...

I agree with Friedman's theory about chance, but he also talks about talent. In order to make it to the top in both sports and management you need to have both. Possibly there might be better CEOs out there, but since they don't have the neccesary experience they are not the best. Doesn't that mean current top performing CEOs are the best of the best?

Dr. Tufte said...

-1 on Joseph and Isabelle for multiple errors.

If I could turn around the post of Joseph and comment of Jessica, I think if it isn't the money that motivates these people then we wouldn't see them being paid as much. Nobody's forcing them to take it.

Jordan said...

If money isn't their motivator, then why do we see so much money tied up in white collar crime (many times, embezzlements by top executives)? There may be a thrill in beating out all the other competition, but I bet they wouldn't do it for free. I bet they wouldn't even do it for half as much. I bet they wouldn't take a pay cut at all.