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The same could be said for any other employees. Programmers, warehouse workers or whatever. Maybe they could be paid for the difference they make too. Yet this doesn't happen, because the supply side is important as well, as well as the lack of power these people have.

No, this can't be said for every other employee. The best warehouse worker is not adding $1B or anything close to it to the bottom line.

It can be said for some programmers and these programmers do tend to make lots of money. (Though in many cases they are given titles other than "programmer", e.g. "managing director" of a team of 0.) See also top traders - at many firms they can make more than the CEO.

The fact that not all CEOs are perfect doesn't contradict this claim. In fact, if you are attributing JC Penny's 32% loss to the CEO you are supporting the claim of gizi.

If you read the paragraph which you say I am attributing 'attributing JC Penny's 32% loss to the CEO' then you will find that I was talking about it being unpredictable when a new CEO is hired, he had a good track record at apple before he ballsed it up at J.C. Penny by not taking into account that the customer demographic was different, he just went with the one thing that worked for him before. And no, what I said doesn't support the claim of Gizi because showing someone can destroy or damage a company does not show they can run one excellently, or that a high paid CEO will run one better than someone who is willing to work that job for substantially less.

Here is an article that shows that higher pay only increases performance until a point, then performance drops: http://eganassociates.com.au/high-ceo-pay-inspires-better-pe... These results came from data that compared CEO remuneration to average employee remuneration. This directly contradicts what Gizi was proposing, because the real world data shows a negative correlation between CEO pay and performance after a point. The full paper is available here http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2529112 if anyone is interested in it.

Consider the GFC, it shows how well upper management really stuffed things up at the largest companies and still got away with it, no problems, still getting huge payouts for sub par leadership. Yet when things go well, the CEO gets bonuses for things that may have had nothing to do with them. Random fluctuations are wrongfully attributed to CEOs, and they get hefty bonuses for it as well. Here is a study that shows this http://www.sciencedaily.com/releases/2015/10/151022192337.ht... , unfortunately the original source is behind a paywall so I am not linking it.

...showing someone can destroy or damage a company does not show they can run one excellently...

What it shows is that the marginal effect of a CEO is large - multiple percentage points of the company's value. Therefore, the difference in value between a good and bad CEO is equally large.

Gizi: "If the right guy manages the joint, it will do $11 billion. Are you willing to pay 10 million a year for this person?"

Repeat the math with $10B and $7B, and you'll still see that $20M or $50M is a very reasonable pay package to get the guy who is less likely to screw things up. Of course, if you truly believe CEOs have an insignificant effect, I encourage you to invest in companies with CEOs who are perceived as being terrible.

These results came from data that compared CEO remuneration to average employee remuneration.

Your linked study provides very weak support of these claims. It's restricted to bank holding companies and thrifts during the financial crisis. In fact, there is a pretty obvious alternate explanation of it's results - banks with a high pay ratio consist of a CEO + lots of tellers, mortgage officers, etc (e.g., Citi, Countrywide). In contrast, banks with a lower pay ratio consist of CEO + quants, traders, etc (e.g., Goldman, Morgan Stanley).

Can you think of another reason why banks with lots of mortgage officers might have performed worse during the crisis?

Just because someone burns a house down while most people don't, doesn't show that the same percentage of people can build one in the time it takes to burn a house down. I'm disappointed I had to make an analogy like this to show the flawed logic that led to that silly idealised simplified math that ignores reality. I have already shown that the effects of hiring a different CEO are unpredictable.

The support of having is stronger than you suggest. The study showed a significant negative association between firm performance and pay disparity in the Korean companies as well, from a separate study where more financial information is required to be disclosed.

I will also say that the CEO compensation is reasonable in most companies, it is just that after about the 8th decile performance starts decreasing and risk increases. The real problem seems to be the more extreme CEO to average employee pay ratios.

Can you think of another reason why banks with lots of mortgage officers might have performed worse during the crisis?

A larger pay gap in the executive ranks promotes greater risk-taking.

By the way, there was the highest CEO compensation compared to employee compensation just before the GFC hit.

...I encourage you to invest in companies with CEOs who are perceived as being terrible.

I would say that is terrible advice that has nothing to do with the conversation, as we were discussing pay ratios.

The same could be said for any other employees. Programmers, warehouse workers or whatever.

Some programmers, maybe, but very few could move large company's revenue by 10%. And almost certainly no one moving physical stuff around in a warehouse could.

> no one moving physical stuff around in a warehouse could [move large company's revenue by 10%]

Sure they could. They're the feet on the ground, so to say, and so they have the best insight into inefficiencies which are occurring on a day-to-day basis. You can bet it wasn't a CEO who discovered UPS' "only make right turns" trick. Or Bezos who optimized Amazon's warehouses.

A 10% reduction in costs is very realistic for these kinds of finds, and those reduction in costs are worth more than a 10% increase in revenue.

I was referring to the amount of money the employee makes for the company.

Does the employee get near what they make the company? I doubt it.

Does the company need to pay the employee near what they make the company? No.

So a company does not need to pay the CEO the difference that they supposedly make the company. They just need to pay what someone will accept to do a similar job (I am not saying worse in any way), just like other employees.

> The pricing should factor in the uncertainty and risk of the performance of someone in the position of CEO.

This is what options/share-based compensation seeks to do in large part.

Still, when those packages pay off, people get all kinds of jealous butt-hurt over that as well...