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Comment by sokoloff | Hacker News Reader

Executives have [employment] options. If you believe you need a talented executive to have a chance at turning around your company and your company is in dire straits, you may very well have to offer a golden parachute package to have any hope of engaging the services of the talented exec you seek, particularly when that's the norm at that level.

Failing to offer such terms amounts to forfeiting any chance to hire the talent you think you need. Offering such terms is totally rational under that set of (reasonable, I think) assumptions.

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That is the stated narrative: that it's hard to hire CEOs who are good, and we need to give them every dollar we can.

But there's a darker, and (IMHO) more accurate narrative: corruption or nepotism. Company A's CEO serves on the boards of companies B and C; and company B's CEO serves on the boards of A & C; and C's CEO on A & B. When the time comes, CEO_A votes for a big raise for CEO_B (and so does CEO_C). Now, when their turns come, they point to CEO_B and say: "look, the market is valuing CEOs so much! You've got to do something!". And CEO_B and CEO_C express outrage and vote to give CEO_A a huge raise. And the cycle repeats.

Of course the connections are not as direct, but the club is a very exclusive club, and they all know how the game is played.

Yeah, yeah this same excuse is always used to justify insane executive pays but it's baloney. It's a self perpetuating cycle, "Oh WE Have to pay more because companies X, Y and Z are offering $N million!"

Executive pay has skyrocketed in relation to worker pay over the last 30 years and it's not for any good reason like executives are so much more important or talented. It's because the executive pay is decided by boards that are full of friends of the executives, people who are executives at the same or other companies, and want everyone involved to hook them up when their pay is being decided.

The only way it's going to get fixed is regulation, and I hope it comes sooner rather than later. The greed displayed by boards and high level executives is revolting.

I think the market for CEOs is more like the market for sports stars (MLB pitchers, NFL quarterbacks, and the like).

If the Yankees are offering $100MM over 5 years, why would an MLB pitcher sign for $5MM over 5 years with a second market team? Even $1MM/year seems absurd for someone to throw a ball 65' a couple hundred times per day for a few dozen days a year. Conversely, why would the Yankees pay that much to someone when there are hundreds of minor league pitchers who would all jump at the chance to pitch in the show for the league minimum? Because it's important to get the best (or among the best), rather than someone who is simply adequate and meets the minimum requirements.

Is there some amount of board collusion in some company somewhere? I'm sure of it. Is board collusion driving CEO compensation across all industries? I doubt it.

Market supply and demand is another big part of it. And you are responsible for the fate of mega $$$ corps.

If you can create something more efficient you would outcompete those companies.

I get that a lot of people think that's how the real world market works, but it isn't. Look how long it took Yahoo! to die. It hasn't been relevant for over a decade but it has coasted by on pure momentum, and even as its dying it throws 1% of its purchase price to the CEO as a parting gift.

Entrenched corporations have a lot of momentum and a lot of power. Taking them on is nearly impossible. Tesla has only been able to do what it has done so far because Elon Musk was already a billionaire and willing to risk his entire fortune on it. The Model 3 is obviously in high demand but even so the future of Tesla is far from assured (they have an enormous ramping up of production to do. I have hope they can do it but it's far from guaranteed.)

Verizon and Google made attempts at competing in the telco industry and have basically both failed miserably. Comcast, Charter and TWC continue to dominate the entire country and instead of competing with each other grant each other regional monopolies and try to merge.

The game is rigged and it's not in the favor of the average person.

I think this looks to be the more plausible reason for massive executive pay than anything else. I remember watching a documentary about F1 and there was a comment about Bernie Ecclestone made everyone understand that they have to work together to make the pie (F1 earning) bigger so that everyone's share become bigger.

It seems that executives are essentially doing the same. Making and perpetuating the myth of extreme compensation being essential and justified for such responsibility. I would agree that it can be an extremely complex responsibility to bear and be compensated similarly. Depending on the company I can understand 5-10 times the salary but 10s of millions sound absurd.

> 5-10 times the salary but 10s of millions sound absurd.

and that seems to be regardless of whether you're any good or not.

The only way it's going to get fixed is regulation...

Well yes, but maybe not directly. A quick way for corporate executives to be paid less would be if suddenly corporations became really terrible investments. A quick way for that to happen would be for society to stop bending every law and regulation to benefit giant corporations over normal-sized private firms. Can we envision a scenario by which that could happen? Maybe!

What sort of regulation do you propose?

This is the problem. It's very unlikely that regulation will improve the matter.

If executive pay really is an outcome of market supply and demand, regulation will act as a price ceiling, which will reduce the quality and quantity of executives available. In addition to the well known fact that price ceilings create shortages, these executives don't need to work for a living. Mayer was already set for life before joining Yahoo. Why would they work for less money than they currently ask for, especially if they really are worth it according to market demand?

If executive pay is an outcome of nepotism and corruption, and people on boards helping out their buddies, then they will simply continue to do so. If pay is capped, they will find another way to reward their friends. This cannot be prevented through regulation. It can only be stopped when the shareholders decide that they've had enough of it and appoint board members who behave differently.

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