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Adam Smith Inst - Fat Cat Tuesday is pub economics, not serious analysis

Executive Director of the Adam Smith Institute, Sam Bowman, commented on the High Pay Centre’s promotion of ‘Fat Cat Tuesday’

Despite consistent attacks on chief executive pay, the High Pay Centre has never told us how much they think CEOs are actually worth. Their complaints are the hand-waving of pub economics, not serious analysis – “Surely you don’t think executives can be this valuable to firms?”, or “Surely you don’t think executives are more important now than they were forty years ago?”.

None of these complaints are valid unless the High Pay Centre thinks it has a better way of estimating the value of executives to firms than those firms themselves. Can the High Pay Centre tell us how much CEOs are worth? If not, how can they say that they are overpaid?

Chief executives can be worth quite a lot to firms, as is shown by huge moves in company share prices when good CEOs are hired, or bad CEOs are fired. Steve Jobs can make a firm; Steve Ballmer can break a firm. The High Pay Commission’s complaints only make sense if you assume firms don’t actually care about making money – which is to say, they don’t make sense at all.

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Notes to Editors:

The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

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