Why has our society organized itself
so that company executives win whether
or not they do a good job?
It suggests several reasons, including:
* Many of the conventional mechanisms put in place to prevent this do not work. For example, the observed behaviour of boards does not resemble arms-length negotiation with executives over pay. "Independent" remuneration committees and external consultants likewise do not effectively represent shareholders' interests.
* Shareholders' voting power is very diffuse. If I own one billionth of Google via an index fund in my retirement savings, I ain't exactly got much leverage over them.
* Minority shareholder lawsuits and hostile takeovers are relatively powerless in the current age.
* Outrage costs - i.e. damage to the executives' reputations and future employment prospects - can often be mitigated by camouflaging big payments .
* The few large institutional shareholders don't seem inclined to do much about corporate governance. Some such as CalPERS have done things effectively in the past.
 One example the book gives is a CEO whose pension terms were modified so that it the rate was based on his highest-paid year, with pay defined to include income he made from exercising stock options. A minor change that gave the executive an extra $20 million.