Técnica de investigación :

Elson and Ferrere blame the celebration of CEO talent on a false notion of the transferability of managerial skills. A notion which fails to recognise that CEO success is often attained by investing a significant amount of time working within a firm or industry. Skills acquired thus are not always transferable being more specific to the firm in question. Unsubstantiated claims about their transferability may have

stemmed from misguided comparisons between CEOs and star athletes45_.

Rosen noted that advancements in technology had provided the platform for talented

individuals to develop valuable skills, which enhance their earning potential46_.

Advancements in and utilisation of technology had caused Anglo-American firms to dominate markets and consequently grow the size of their operations, with some of the gains going to larger pay packages for executives. There are however notable flaws in making such comparisons: one is the fluidity of movement across industry and genre that athletes and entertainers have, allowing them to find success in areas outside their natural artistic/athletic inclinations. For instance, recording artists could delve into film making and succeed or athletes could move across teams-or sports-and

flourish, the firm or industry-specificity of CEO talent may inhibit such fluidity47_.

A second limitation has more to do with the discernibility of executive talent as well as those for athletes and other like professionals, discernibility impacts the way they are subsequently priced. Compensation for athletes and entertainers is purely market

45 _{Charles Elson and Craig K. Ferrere, ‘Executive Superstars, Peer Groups and Over---Compensation –}

Cause, Effect and Solution’ 18 http://ssrn.com/abstract=2125979 (downloaded 01/08/15).

46 _{Rosen (n35) 849.}

47 _{Monika Hamori and Maria Kakarika, ‘External Labour Market Strategy and Career Success: CEO}

Careers in Europe and the United States’ Human Resource Management, (May-June) Vol. 48 No.3, pp. 355-378.

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driven, simply put, demand determines the price paid for supply48_{. Barring the outlying}

instance where reputation could be artificially enhanced to advance productivity, generally star entertainers and athletes are perceived by the buying public to be worth the value of their product, which in this case is the athlete or entertainer himself or at least the persona he exudes. But the pricing of CEO talent varies markedly, despite the contentions of high pay advocates, the pricing for executives is not entirely market-

driven, contrary to conventional thinking49_.

Further on the issue of discernibility, CEO ability as well as contribution to firm growth and success tends not to stand out as much as that of the average EAOS. With the talent of the average superstar being on display for the casual observer to make a value judgement on his marginal product. Value judgements of CEO talent and ability are based on second-hand information as their activities are rarely witnessed on a first-hand basis by those outside the upper-echelons of management. As noted by Elson and Fererre, executives are tasked more with the formulation and organization

of the corporate policy and operations, as such “rather than being a factor of

production an executive directs and organizes other factors”50_.

Pouring further scorn on the comparisons between CEOs and EAOSs is the pay for performance aspect which is substantially more apparent in compensation for EAOSs than with CEOs. With EAOSs a dip in performance levels-a downward surge in the value of the product-would necessarily cause earnings to follow a similar path. With CEO pay however, a flailing firm would not always have as negative an impact on managerial

48 _{Robert Gordon ‘Has the Rise in American Inequality Been Exaggerated? Challenge 52, Issue 3 p.92,}

104-105.

49 _{Elson and Ferrere (n45) 19.} 50 _Ibid.

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pay, as evidenced by the much documented ‘reward for failure’ instances pre-and

post-recession51_{.The bottom line as Elson concludes, is that managerial expertise}

within a firm or industry is acquired by experience gathered only by functioning within

that firm or industry, hence CEO skills are not so easily transferable52_.

Those who argue for transferable CEO skills, believe in the existence of core

knowledge-based skills, which are applicable regardless of industry53_{. Murphy and}

Zabonjnik correlate the unprecedented rise in CEO pay levels to the increasing

generalisation of managerial skills and state that “over the past three decades, the

society has steadily accumulated a body of knowledge in economics, management science, accounting, finance, and other disciplines, which, if mastered by a CEO, can substantially improve his ability to manage any modern corporation successfully”. As well they put forward the impact technology has had in enhancing CEO talent. Stating that the digitization of company operations can allow CEOs transition more fluidly between sectors, allowing them to learn the nature of the firm’s operations easily, with the aid of available interactive technologies. They cite the increase in the number of external hires as evidence of a shift towards generalisation in management, to alternatively explain the rise in CEO pay, as external hires tend to earn higher than

those promoted from within the organisation54_{. The theory is the demand for}

51 _{It is said that performance only accounts for less than 5 percent of pay, certainly not as much as}

firm size, which is of significantly larger consideration in pay decisions. see Elson and Fererre (n45) 19.

52 _{Ibid, 20. See also, Carl T. Bogus ‘Excessive Executive Compensation and the Failure of Corporate}

Democracy’ Buffalo Law Review Vol.41 1 1993, at 29.

53 _{Kevin J. Murphy and Ján Zábojník, ‘Managerial Capital and the Market for CEOs’. Queens Economic}

Department Working Paper No.1110.

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generalised managers has led to competition amongst prospective employers in the market for managerial talent, causing prices to increase.

However, this view is unsupported statistically. Ang and Nagel, found it to be more beneficial economically to promote from within than hire from outside. Using a sample of firms gathered over two decades, their results show that firms hiring from outside

should have expected to make a loss 86.2 percent of the time55_{. That one could}

mention a few other instances of outside failures, is not conclusive of the futility of the generalisation argument. Corporate management like any other skill-based endeavour requires, time in a methodical process of skill acquisition and dissemination, just as the best dramatists and athletes learn their craft for extended periods of time so would successful management require an in-depth knowledge of the workings of the specific market. It is no surprise that some of the most successful managers, spent an

incredible amount of time at the firms they managed56_{. It is on this note that}

arguments for transferability fail to convince.

55 _{James S. Ang and Gregory L. Nagel, The Financial Outcome of Hiring a CEO from Outside the Firm,}

(Working Paper 2011) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1657027 (accessed 27/07/2015). Also, Bogus (n52) at 29.

56 _{Former GE CEO Jack Welch, had spent a total of 21 years at the company before assuming the role}

of CEO/Chairman in 1981. Other examples, like Xerox’s Ursula Burns, Rex Tillerson of Exxon-Mobil and Samuel Palmisano of IBM represent a number of employees who worked their way from entry level positions to the helm. See, Nicole Hardesty ‘Entry-Level to CEO: 11 Corporate Titans Who Started at The Bottom’ theHuffingtonPost.com 10/22/2010 (accessed on 09/11/2015).

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