PT 21.S2.Q15 - Setting executives salaries

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• 1 Like

  LOWERCASE EVERYTHING Member ⭐

  November 2020 1952 karma

  they can benefit from setting generous benchmarks for executives' salaries. for example, microsoft's ceo can be like: "hey y'all. look at apple. tim cook gets paid $$$$. what do you think about bumping my salary up to $$$$? i'm microsoft's ceo."
• Ashley2018-1 Alum Member

  November 2020 2249 karma

  So executives setting high salaries for other executives influences their chances of getting higher salaries? Isn’t that a bit of a stretch
• canihazJD Alum Member Sage ⭐

  November 2020 edited November 2020 8491 karma

  @"ashley.tien" said:
  So executives setting high salaries for other executives influences their chances of getting higher salaries? Isn’t that a bit of a stretch

  Breaking away from the question a bit, but no, its not. That's literally how it works. If I am a board member setting salary for executives, I will set them high enough to be 1. attractive to people I'd like to hire, and 2. incentive for people I have not to leave. Competing corporations will follow suit unless they want their executives to jump ship to my outfit. If I am also an executive at a different corporation, I can benefit in that my own salary will likely be affected by the benchmark I set with a new higher salary for a different corporation in my capacity as a board member. The board of the company I work for will be like... well we should probably raise salaries too.

  A bit more direct effect but same idea: if I am an associate at Generic Big Law Firm, and Cravath asks me to decide how much to raise their associate pay, there is room for an enormous amount of criticism because what I decide pay will be will then also become my pay.

  Regardless this is given to us as a premise, therefore it is true as far as this question is concerned.