So a pay gap of up to (and sometimes over) 1000x between CEOs and rank-and-filers, given all the saving and investing that the CEO could do just like any Average Joe, would not be enough to "soften" any "blows"? Huh.
If you look at walmart for example, and entirely eliminated the compensation of the CEO (19.4 million), and all executive vice presidents and CFOs (2.8, 10.8, 8.4, 10.1, 11.5, and 8.5 million respectively) and total them all up you get ~$71.5 million.
71,500,000 / 2,000,000 million employees = $34 dollars per employee per year of a raise. That's almost negligible, and if you assume minimum wage (7.25) 50 weeks a year, for 40 hours a week gives $14,500 / year, you get $35 / $14,500 = a .24% raise. That's less than a 2 cent per hour raise per employee if you completely slashed the salaries and compensations of the top executives.
But I think it's a negative thing because it's a sign of a shift in behavior. Look at the graph here: https://en.wikipedia.org/wiki/Executive_compensation_in_the_...
CEOs have gone from making 20x the average worker to 200x. Are CEOs ten times more amazing? If anything, I think they're worse. I think that, broadly, they've shifted their focus from economic value creation to generating the numerical appearance of success in ways that let them extract lots of money.
There's also the problem of worker motivation. Companies are human enterprises. The greater the wealth differential, the less the people doing most of the work will feel part of something bigger than themselves. As with Walmart, they may show up and do what they're told, but they are less likely to actually give a shit.
It seems at least from what I've noticed that the companies with the highest differential in terms of rank and file -> CEOs, tend to be the ones with some of the lowest barriers to entry and the lowest skill levels. This is a subject that I would love to see a detailed study on because what "it seems like" is not always the reality of the situation.
I used Walmart precisely because besides being an extreme example, it is one of the largest employers in North America by a good margin.
Edit: forgot a word.
According to Google search: "Google CEO Sundar Pichai made $100.5 million in 2015, according to a regulatory filing released Tuesday. The filing revealed that Pichai was paid a salary of $652,500, awarded restricted stock worth $99.8 million"
and according to Business Insider, Google has roughly 57k employees.
If we just take Pichai's $652k salary, it is +$11/employee/year which is a couple cups of coffee.
Alternatively, if take his entire compensation of $100M, it becomes +$1754/employee/year which is more tangible but still nowhere near the $6k/year cited in parent.
If we just consider salary, I think the multiplier between the lowest to highest paid is going to be lower than you expect in tech. It's really only visible in more low skilled industries.
And what would compensation per employee be indicative of? Nobody is criticizing that. There can be tension in public companies between the board's interests and the shareholders'. Questions of compensation is a common source.
Then assume the CEO will be replaced if profits drop. In the absence of a "golden parachute", a CEO might reason that a 25% chance of being fired and loosing their cushy job makes the plan not worth pursuing. The theory (OP wasn't necessarily endorsing it) is that a rich severance package can better align the interests of the parties. While I personally think "cronyism" is a better explanation for the current situation, the theory is better than others I have seen.
There's nothing "subtle" about a plain racket. And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down.
At 1000x pay gap, the CEO needs only work a few months to have nothing to worry about for the rest of his life. Anything on top of that, anything, is a luxury item.
"Risk" of what? Having to manage with only 2 yachts instead of the customary 3? Right, that's a serious existential threat, gotta mitigate it.
Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
I may be the one missing the subtlety now, but if you are referring to my phrasing, I didn't intend any insult. From your comment (voted below zero before I upvoted and replied) I felt you were being unreasonably dismissive of a potential explanation that I found interesting and had not heard before.
There's nothing "subtle" about a plain racket.
The theory offers an explanation of why stockholders might rationally offer a generous severance package to a CEO. I agree that the "racket" theory has greater explanatory power, but I found it worth contemplating alternative explanations. Maybe "subtle" is the wrong word? "Counterintuitive"?
the CEO needs only work a few months to have nothing to worry about for the rest of his life
In practice, though, CEO's worry tremendously about their ability to accumulate further wealth. I wouldn't be surprised if this worry increases the greater their current salary. And from the shareholders' point of view, it's the CEO's perceived risk that affects their decision making, not the actual risk.
Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
Well, no. As a theory to explain current behavior, I think this theory is actually more applicable the greater the discrepancy in pay between the CEO's current job and the other jobs available if they are fired. You are right that the situation would be different the if the gap was less, but that doesn't mean the theory is not relevant when the gap is large.
Maybe you'd prefer looking at it from a "Prisoner's Dilemma" perspective. Assume you have a extremely-well-paid self-interested psychopath making the executive decisions for your company. Ideally, this would not be the situation you find yourself in, but let's assume it's the case.
Assume that as a rational (read, "amoral") shareholder you wish to maximize your gains, which is positively but nonlinearly correlated to the company's profitability. How do you best achieve this? Perversely (and to me counterintuitively) reducing the downside to the CEO for risky decisions may be a strategy with a positive return.
A citizen, which is to say, part of a group that collectively decides the "rules of engagement" for corporations. Society has chosen to grant certain rights to corporations because society feels that properly regulated corporations are a net benefit. At the point where enough individuals decide that the benefits are no longer sufficient, new rules can and will be made.
There is (to me) nothing inherently sacred about allowing amoral corporations to operate in the manner that they decide is most effective for their interests. We've decided that minimum wages are acceptable, that maximum work weeks are a good thing, that certain styles of contracts are unenforceable, and if we wanted to, we could decide that excessive differences in pay are legally unconscionable.
There's always a danger that societally we'll make the wrong choices, and that new rules will do more harm than good, but I don't think there is any question that society has a "right" to make such rules? At least no more than there is question that society has the right to make and enforce any other law? Turning it around, who are you to tell us that we can't regulate these companies how we choose?
Shareholders, in theory, should have the right to make any decision that is legal and is advantageous to them. That's what I think should happen, in an ideal world.
The practice, however, is different. The entity that decides CEO compensation is not "we the people". It's more like the smoke-filled room at the Republican Party's HQ in The Simpsons.
You are struggling hard to make a victim where everyone involved is happy.
There is a tremendous amount of back scratching that goes on when setting executive pay.
The board hires pay consultants, the consultants are not going to rock the boat and suggest pay cuts, so they approve a nice increase over the current going rate. Rinse and repeat and you have out of control executive compensation.
Majority shareholders are often in the same position - very well paid, and well connected with other CxOs.
That leaves the rest of the shareholders along for the ride.
Whenever I argue with a staunch defender of social inequality, the put-down tactics are par for the course. "You struggle", "you fail to comprehend the subtlety of the argument".
If doesn't take a PhD in psychology to understand why that is. For someone to be pro social inequality, they must believe they are already topkek - or are standing a very good chance to make it. If that is the case, then it's a simple matter of statistics that any random stranger is likely placed lower in the pecking order. Therefore they must be "struggling" to comprehend, etc.
There is no "struggle" when you're telling the truth. The higher cognitive load happens when you make stuff up from whole cloth - there are studies showing it, look it up.
> everyone involved is happy
In this reality, the trends in political news in the last several years show otherwise. Not sure about other realities.
You probably earn enough in a single year to live the rest of your life in a different part of the world, yet you continue to work, in part because you want your current standard of living.
Likewise, a CEO will want to continue to live at his current standard of living, or even better.
The CEO of Kroger earned $13 million in his last year there, and called his own compensation "ludicrously high". I doubt he's spending a million a year, but even if he is, the ratio is indeed ludicrous. And he's nowhere near the high end for executive compensation.
Are you suggesting that the average top-tier executive lives a lifestyle in the same proportion of their income as the average software developer, or blue collar worker, or...? Really?
Al Capone and the robber barons had the same goals.