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Comment by kyleschiller | Hacker News Reader

There are a lot of good points here, but it feels like most of her compensation is explained right here

  To lure Ms. Mayer from Google and compensate her for options she forfeited there, Yahoo’s board offered her a lucrative employment agreement. She initially received restricted stock worth $35 million and stock options worth $21 million, based on 2012 stock prices for Yahoo, along with a cash salary and bonus.

It sounds like Mayer was initially making way more than the 900k/week figure quoted in the title, so it almost doesn't make sense to talk about her performance the rest of the time if we're interested in explaining here salary. There were a couple of significant missteps that the article explains resulted in meaningful pay cuts, but it sounds like the bulk of her compensation was determined from the beginning.

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That doesn't mean it's not worth discussing. I could get hired to be the CEO of Ford and get a contract for a ton of money. But I'd do a poor job probably. It would be worth discussing afterward; how did this happen? Why are executive salaries so incredibly disproportionate to their impact and benefit to the company? What can be done? What should be done?

It isn't clear that the salaries are in fact disproportionate. The article makes the case that there were many mistakes, but that it's hard to say if anyone else could've done better. And the shareholders did end up making a lot of money.

I'm not sure anything should be done here. The shareholders chose to pay a lot to get her as CEO. Even if they lost out, it's not a reason to intervene. People make bad bets all the time.

It's funny, but when people talk about CEO compensation, they refer to the value created by the company, yet when they talk about e.g. office cleaner compensation, they talk about the market price of labour.

The salary of a CEO could do with more reference to the cost of the next available substitute, rather than how much the CEO changes the stock price. That would require changes in how CEOs are compensated, but it could also change short-term perspectives. Options would seem to motivate CEOs to think with a longer term, but in fact they align with shareholder interests, which are more often short term with investment decisions reviewed quarterly. And shareholder interests are not the most important reasons why we, as a society, have companies.

"The salary of a CEO could do with more reference to the cost of the next available substitute, rather than how much the CEO changes the stock price. That would require changes in how CEOs are compensated [...]"

Would it? I assume that just like in every market, the pay of the CEO is based on exactly this. Supply & demand tend to be the cause of prices.

When we talk about the value that CEOs bring, and quite specifically talk about how no one else could've done the job that Marissa Mayer did, we're implicitly talking about supply & demand - the supply of people who can do the job she did is very small, the amount of companies who would love to have a high-functioning CEO that can raise their stock price is very high, and therefore CEO pay is what it is. I assume that if Yahoo could've gotten some other succesfull figure at a fracftion of the price, they would've done so - it's in the shareholder's interests and they more-or-less make the decisions.

Of course, I'm not naive enough to think that this is a purely technical matter - I assume a lot of human psychology, precedent and culture goes into this, e.g. the amount that exectuvies make is well-known, which causes other executives to raise their price to "compete", etc. This effectively makes wages higher than they "should have been". But I do assume that none of us are smart or knoweldgeable enough to say what CEO pay really "should" be, even assuming that's a well-defined concept. I think that most people just hear a big number, say "that's way too much" and have this as the bottom-line of their thinking, then come up with all sorts of arguments for why their bottom line is right, rather than questioning the core assumption and realising that maybe, CEOs are worth their price.

"It's funny, but when people talk about CEO compensation, they refer to the value created by the company, yet when they talk about e.g. office cleaner compensation, they talk about the market price of labour."

Inasmuch as we are talking about either of them, the discussion of CEO involves fairly high level abstractions about jobs and tasks that most people have never done at a scale they have never done it at. So I think it makes sense that you have a deeper, more abstract discussion of value.

On the other hand, all of us have cleaned an office/room/building. We've all cleaned toilets and vacuumed floors and washed a kitchen. There's no reason for abstraction or analogy or depth - we all know how it works so we can just cut to the chase.

Something must be done to rein in executive pay though. I am not talking about MM in particular. She is probably a fine executive. However, my point is that unchecked executive pay is not good for anyone. We don't live in a free market. There ought to be some way to cap pay.

A progressive income tax that caps out at 90% of income above $3M a year? So if you make $3,000,001, you pay 90 cents in taxes on the last dollar you earned sounds fair to me.

"However, my point is that unchecked executive pay is not good for anyone. We don't live in a free market. There ought to be some way to cap pay."

Why? To all those questions.

I mean, in some specific cases you might be right, but in the case of shareholders, who own a company, deciding how much to pay to the executive that they choose to run that company, why would someone else need to be involved in that decision? Who is supposedly losing out here? The shareholders themselves?

They (vicariously) own the money in the company, and choose how much of it to pay to the executive, because they believe that's the best way to make more money in the long run. Why do you think you know better than them, when they're actually betting money on it?

Or is someone else being hurt here?

Also, as far as I understand it, you're mixing two different things by proposing to "fix" this with an income tax. You said in the paragraph above that executive pay is not good for anyone, which I presumed to be about (or at least to include) the shareholders of the company. But by introducing taxing, you are quite literally talking about taking money from the shareholders and giving it to the government. So at least in this way of doing it, you're quite literally not protecting the shareholders but rather "harming" them. (This doesn't make income taxes bad or anything, I'm just pointing out that one thing they're not good for is to protect shareholdres, IMO).

The idea that shareholders own the company and are therefore good, objective arbiters of CEO pay sounds good on paper but even the simplest of examinations of how this functions in reality should tell you what the problems are.

First, the board who decides the CEO pay are not objective. They are friends with the CEO. They are not objective. The social circles of boards of large companies and the CEOs they hire is not that big, and they do not think objectively about each other.

Second, there's no real motive for them to be strict with the CEO; there's every motive to be overly generous. If they give the CEO ultra generous pay and bonuses, they then expect (and receive) to be treated in the same way when the shoe is on the other foot. When the CEO is on a board for a company they are an executive at.

Executve pay has been on an insane runaway explosion for years. You can say "That's because the companies are so successful!" But Yahoo is evidence success has nothing to do with it.

And I would argue even if it were due to success; the workers should be benefit at least as much as executives, and they don't.

"First, the board who decides the CEO pay are not objective. They are friends with the CEO. They are not objective."

Well you might be right, but aren't hostile takeovers, activist shareholders, etc. disproof of that? In fact, the article mentions that it was activist investors who had Marissa Mayer instated, though I don't really know the history of Yahoo that well.

"Executve pay has been on an insane runaway explosion for years. You can say "That's because the companies are so successful!" But Yahoo is evidence success has nothing to do with it."

It's pretty weak evidence, considering that Yahoo was very succesful for its shareholders. I mean it's one thing to make the argument when the company fails, which I still don't buy. But to make the argument when a company succeeds, by claiming it didn't succeed enough, or that the CEO wasn't enough responsible for the success?! (Defining success as what shareholders care about in this case, which is making money). We can see examples of CEOs who do much worse and destroy lots of value. And I'm not even talking about the fact that they had to pay Marissa Mayer enough to take the risk, or that you can't judge investments solely on whether they succeed or not, since all investments are risks.

But I'm still left with one thing I simply don't understand here - who are you trying to protect that is getting hurt? The shareholders? How are you protecting them by limiting the ways in which they can use their money? If you really think that shareholders aren't well represented and therefore make bad decisions, then maybe you're right, but wouldn't the solution be to fix that problem, instead of attacking a symptom?

"And I would argue even if it were due to success; the workers should be benefit at least as much as executives, and they don't."

Not sure what you mean by "at least as much", but workers do benefit. They tend to hold shares of the company, which have increased in value just as much as the CEO's shares. Salaries in e.g. tech companies are much higher, which is another way in which workers benefit.

Workers in general do not hold shares of companies. It is a small minority of workers in the US who have shares of their company.

The workers are who I'm concerned about, not the board members. The workers suffer from the current trend of executives and boards looking out only for themselves and their fellow large shareholders.

Even when workers do have some shares of their company; I'm sure most Yahoo employees who were laid off would rather still have their jobs than get a final small dividend when Yahoo was sold off.

"Workers in general do not hold shares of companies. It is a small minority of workers in the US who have shares of their company."

Fair enough, I was talking more about tech than about other industries, with which I'm less familiar. Still, a companies success, as you allude to later, is important for employees to keep their jobs.

"The workers suffer from the current trend of executives and boards looking out only for themselves and their fellow large shareholders."

In what way? And why do you specify "large" shareholders?

"I'm sure most Yahoo employees who were laid off would rather still have their jobs than get a final small dividend when Yahoo was sold off."

But you're changing the point of the debate! This option wasn't on the table. Yahoo was failing one way or another. The whole articles' point was that Marissa Mayer tried what she could to turn Yahoo around, but ended up not entirely succeeding on that front. That said, Yahoo overall was a good stock to buy because of other investments.

As other people in the article and in the thread tend to agree with, it's not clear if someone else could've done better. The big question that people have talked about in this thread is whether Marissa Mayer should've received so much money for a growth in Yahoo that purportedly happened without her having anything to do with it.

Btw, I'm just as sure that the shareholders of Yahoo would've been as happy as the employees for Marissa Mayer to have succeeded and breathed new life into Yahoo. Why wouldn't they? Trying to cast this as shareholders vs. employees strikes me as completely wrong.

Sorry, I should have been clearer. I don't want to make this about about MM v Yahoo!. MM is at worst a symptom. My argument is that the disease is systemic.

> In what way? And why do you specify "large" shareholders?

I don't want to go too far into conspiracy theories but I think it is logical that under certain circumstances, a "large" individual shareholder may not have the best interest of ALL the shareholders in mind. Of course, I don't think what I propose will ever exactly happen. This is merely a thought experiment to guide us.

A guiding principle I remember learning in elementary school was that our rights are not absolute. Our right to freedom of speech is not absolute and neither is the right to bear arms. These rights, even though enshrined in our constitution, are arbitrary lines drawn in sand.

I think the right of a corporation to pay and the right of an individual to make a living are also such rights. Now, I don't expect anyone to pick this idea up. It is too toxic. The idea that we should put caps on how much an individual is allowed to earn is unthinkable for most people. People are talking about repealing the estate tax permanently which is a huge blow to my idea.

I hope some day we can push for an aggressive progressive income tax and estate tax. There are a lot of things that need to fall in place for it to happen though. For instance, it should become impossible to transfer large sums of wealth without it showing up on a public ledger of some sort. If someone has not earned $3M+ sum total (including inheritance) over their life and they buy something that costs $3M, that should automatically trip some alarm about back taxes.

The more I think about it the more absurd it begins to sound though. Maybe I was wrong to suggest progressive taxes as a way to enforce caps. If not taxes, what are some ways we can try to rein (is this the proper spelling?) in executive pay?

Hostile takeovers and activist shareholders have been virtually eliminated. Public companies stack their boards and shareholders aren't even allowed to propose different board slates.

Which shareholders exactly, though? Asset managers like vanguard, blackrock and others control a large block of shares in many large companies, and don't really have skin in the game in the same way small investors do.

Blackrock in particular have changed their tune recently, but in 2016 they voted in favour of 99% of all executive pay packages:

http://m.pionline.com/article/20170418/ONLINE/170419868/blac...

> Which shareholders exactly, though? Asset managers like vanguard, blackrock and others control a large block of shares in many large companies, and don't really have skin in the game in the same way small investors do.

If you want to make the argument that investors don't have leverage over Fortune 500 companies, Yahoo is a pretty bad example to argue that case. Yahoo has succumbed more than once to pressure from investors during Mayer's tenure - look at the Alibaba spinoff, for example. (That was halted, but only because the IRS changed the tax treatment, making it no longer financially viable for investors).

As for Vanguard and the like, that's a red herring. Vanguard has as much of a skin in the game as its individual shareholders do. If they don't see a problem with the way a company is operating, then that's pretty much all there is to say. If the operations end up affecting the bottom line, they'll put pressure on the company, put pressure on the board, or they'll divest - and we've seen all three of those happen with Yahoo and many other large companies in recent years.

I don't think vanguard do have skin in the game to the same extent that an individual shareholder does. They care about tracking an index, not micromanaging individual companies

A progressive income tax that caps out at 90% of income above $3M a year? So if you make $3,000,001, you pay 90 cents in taxes on the last dollar you earned sounds fair to me.

Sounds fair to me too. My attitude is that the CEO of a business is homo economicus. Their job is to grab as much value from the company as possible for themselves, just like every other shareholder, employee, supplier, customer, etc. It's none of my business how many billions they take home, but they should be taxed up the wazoo.

> However, my point is that unchecked executive pay is not good for anyone. We don't live in a free market. There ought to be some way to cap pay.

Why? This is not an axiom, it's a conclusion. Defend the premise.

> Why? This is not an axiom, it's a conclusion. Defend the premise.

My basic premise is that shareholders do not have the tools to protect themselves from (to use inciting language) predatory management. Sometimes it looks like it works perfectly. Google seems to be doing just fine with a dual class arrangement and not all shares having the same voice.

We have certain restrictions on freedom all the time. You may not consent to die* for example.

I am not very good at explaining but the idea is that freedom of speech and freedom to carry arms have restrictions imposed on them. Even freedom to privacy is not absolute. I don't know what the legal words mean in practice but from what I've read even habeas corpus has the limitation of "unless when in cases of rebellion or invasion the public safety may require it". The point is that if all these rights are in some way capped, why can't the right to earn money and spend be capped as well?

OK, I haven't answered your question so far. I don't have a good answer with formal proof. I just think an effective income cap is possible within our ethical/moral framework.

* well this one is changing but I guess you could argue that the wording can be you cannot consent to die without adequate safeguards to make sure you know what you are consenting to.

I think you would need to start taxing equity grants for that to have the effect you want. Otherwise, executives just won't sell more equity than $3m a year. And when they found new companies and non-profits, they'll just grant the equity directly and never have paid any personal taxes on it.

> income tax that caps out at 90%

Kind of like it was in the 50s back when America was "great again"?

I am obligated, any time these very high historical tax rates are mentioned, to point out that these were very special, very specific actions taken to discourage war profiteering during world war two.

The extremely high marginal rates that did indeed exist were not implemented as part of a tax regime nor were they enacted to redistribute wealth - they were a patriotic wartime measure enacted to ensure nobody got rich on war contracts.

They have almost no relation to our current discussion of tax rates and taxation.

Maybe so, I'm not an expert on such matters, but the highest tax rate was 50% or higher from 1932-1986. I would say that is relevant to our current discussion.

You realize that almost no one ever paid 90% or anything close to that, don't you? The tax code that had a 90% rate also had massive deductions.

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