How Much Is Your CEO Really Worth?
: In the New Yorker, the always entertaining Malcolm Gladwell reviews
The Wages of Wins, a book that seems to do for basketball what Michael Lewis and Moneyball did for baseball—which is to say, it measures performance using hard data rather than subjective opinion. (I’m not nearly as big a hoops fan as I am a baseball fan, but even I can appreciate the “discovery” that Allen Iverson is, by objective measures, a seriously mediocre player.)
“The problem for basketball experts is that, in a situation with many variables, it’s difficult to know how much weight to assign to each variable,” says Gladwell, before making an intriguing, and not necessarily intuitive, leap to another field of endeavor in which the contribution of an individual is not easily measured, but in which some individuals are rewarded with astronomical contracts.
“It’s hard not to wonder, after reading The Wages of Wins, about the other instances in which we defer to the evaluations of experts. Boards of directors vote to pay CEOs tens of millions of dollars, ostensibly because they believe—on the basis of what they have learned over the years by watching other CEOs—that they are worth it.”
Given the amounts involved, you would think someone might have come up with a viable objective measure of CEO performance.