100 Economics Question of the Day: An Intermittent Blog: Aligned Incentives are a Good Thing

Wednesday, August 24, 2005

Aligned Incentives are a Good Thing

So what genius created this situation:
Jure Sola, the CEO and chairman at Sanmina-SCI (SANM, news, msgs) collected $26.4 million during the past four years while Sanmina shares fell 78%. The bulk of Sola's pay came in the form of a performance bonus of $19.9 million, paid for hitting one recent quarter's targets. [emphasis mine]


So in one quarter of the past two years, the company hit some target. As you can see from the stock price history, this didn't exactly do the investors any good.

Under what economic system does a manager receive more than 3x his annual compensation while the company gains less than that? If your answer is "capitalism," please explain the variety without using the word "crony."

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