Yes it does.
Aetna employees almost 50,000 people.
Aetna owes some success to their CEO. They owe most of their success to their employees.
Aetna employees almost 50,000 people.
Aetna owes some success to their CEO. They owe most of their success to their employees.
The relative impact of a CEO, whose job is to set strategic direction and direct human (tens of thousands of employees) and financial capital (billions of dollars) at scale, dwarfs that of any of its individual employees and the vast swath of them combined.
Most relevant to you, the majority of the benefit of this 7x increase in value in 7 years is actually accruing to the the shareholders, not the CEO. And guess who are the top shareholders of Aetna?
#1 Blackrock #2 Capital World Investors #3 Vanguard #4 T Rowe #5 State Street Source: https://whalewisdom.com/stock/aet
All of these above are money managers of "the people's" 401k's and retirements funds. So you can rest assured that the majority of the benefit is going to the people for whom Aetna owes its success.
Because that's what he negotiated with his employers.
Or - according to my anecdotal experience - get out of the way and stop interfering with employees that know what they’re doing? I can think of several asinine “big plans” that just ended up burning huge stashes of capital and costing even more in opportunities that were heralded as the new Advent of Christ, “and don’t you dare be the naysayer!”
I think many people who argue against the value of great management have just never worked at a company with great management. Great managers are as awesome and empowering as bad managers are terrible and soul-destroying.
Numbers matter though. Most people don't own much capital and it's getting worse year by year. In other words, if I have a small 401k, I'd prefer the cheaper healthcare to a small bump in my meager savings (many don't have a 401k at all).
Or getting laid off.
And, yes: Non-C-level execs make directional decisions all the time. Especially in a company the size of Aetna.
If you get the big decisions incorrect, then your company will not survive even if all the small decisions are correct.
[citation needed]But:
- Had the company declined, the CEO would have gotten all the blame and been crucified. Can't give blame if you can't also give credit.
- The CEO negotiated this deal, the employees did not.
- A good portion of this $500M is from the value of his stock, which is part of his compensation. I don't know the percentage of this payout that comes from stock (WSJ paywall...), but we certainly can't take stock AWAY from him to reduce his payout.
- Employees who have cashed in their options will also make money from this deal. Other stockholders will make money too.
Again -- I am NOT condoning our American trend of over-paid CEOs. More money in the working class is good for the economy. But this event specifically is not ridiculous.
CEOs interests are aligned perfectly in this situation: increase shareholder value. The vast bulk of CEO pay is derived from the stock that's granted to them and vested over time just like it would be for any employee that received RSUs or stock options.
I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk.
A big part of my compensation is commission and another big part is RSUs. If I don't deliver results and if I don't align my goals with that of the major shareholders and the market, I don't make as much money. I don't see how this contravenes the startup/get-rich zeitgeist here in HN.
Capitalism for me but not for thee?
If only you owned stock in CVS or Aetna you'd be able to make your voice heard.
You think I should keep my opinion to myself or something?
If anyone could do what they do, they'd be paid accordingly.
The market (via the shareholders) sets the rate of pay. Why the general public cares about one and not the other is beyond me.
Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention. A more rational species would substitute cheaper entertainment.
And a Fortune 500 CEO's pay is a natural consequence of being a Fortune 500 CEO. There are only 500 of them. This is the top of the game, just like pro athletes.
> A more rational species would substitute cheaper entertainment.
But we aren't, and we don't.
This is not at all self evident. There is a lot of reporting suggesting CEO compensation is not really tied to the best interests of share holders.
As cited elsewhere in this thread:
A company's performance may be strongly correlated to a CEO's ability and performance, or not. These salaries aren't set algorithmically and there's no way to predict ahead of time exactly what the impact of a given person on an organization will be. Past performance is not a guarantee of future returns, but there's really nothing else to determine CEO salary by except for experience, fit, and past performance. The salaries are set by whatever the board and shareholders are willing to pay, which is influenced by all the data (objective and subjective alike) -- a central tenet of free markets.
The truth is there's really no other way to do it.
First you have to prove that the CEO market is efficient. Then you can praise the free hand.
High compensation is partly a result of businesses choosing from a small pool of candidates...
That is wrong. The CEO's risk is asymmetric. Huge upside with limited downside, which encourages reckless risk taking. It is also shorter term (until his grants vest), encouraging short term profit over long term value.
> I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk.
Is the CEO not an employee? Why would he be owed a share of the capital gain, and other workers not?
I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't.
I'd also suggest you try the job of leading people and groups of that size. There are very few who can do this sort of work effectively.
Also consider that a CEO has to consider the types of challenges he or she would like to tackle. A Board of Directors is shopping for talent and trying to get the right fit. Why does a CEO not get the same opportunity to negotiate a pay package?
But what actual risk is the CEO taking? Sure, the board might decide to let them go. But that usually comes with a multi-million dollar severance package. They're not hurting. There is no practical downside. On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own.
"I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't."
They land on their feet more often than not. And, again, they're not hurting for money. If they don't find another job, their children are not going to go hungry.
Again, there is no room for socialist populism here. He negotiated a package and he delivered results. His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. They trust the board and the CEO to increase the value of their investment.
Why is this controversial? Why does it matter if he's rich before or after he does the job? All of these guys are already wealthy before they even sign up. They don't need to do this work to survive.
Somehow the notion seems to go around that anyone who makes a boatload of money suddenly has to kowtow to the public on whether or not they deserve that money. That's not how this works.
I'd be bummed. That's it. I wouldn't be wondering if I was going to lose my house, or if I'd still be able to eat.
" His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. "
But not with the interests of the employees who risk their human capital.
"Why is this controversial?"
Because those who do the majority of the work making the company successful are not rewarded for it.
Tell them they need to work for free for 4 years (or for far below market wages) in order to account for the capital contribution of their labor, comrade, and see how far that gets you.
Ben and Jerry's tried to cap CEO pay at 7x their lowest paid worker and soon realized that nobody wanted the job (or at least nobody that was qualified). Now their current CEO is taking home a whole lot more than that and he's not being paid in Chubby Hubby.
http://abcnews.go.com/Business/companies-follow-ben-jerrys-l...
"I'm talking about Ben Cohen and Jerry Greenfield and their iconoclastic Ben & Jerry's ice cream company.
But it's neither Cherry Garcia nor Phish Food that's on my mind right now—well, maybe just a little—as much as it is the social pact that Messrs. Cohen and Greenfield made with their employees at the start of their venture: From top to bottom, the pay ratio between the highest salaried executive and lowest-earning-worker would be no greater than 5 to 1.
To their credit, the ice cream kings kept to their pay scale deal for 16 years. At that point, Cohen was set to retire and no successor who was willing to accept B&J's compensation compact could be found.
End of an Era
So the bar was raised to 7 to 1 to attract new talent, and ultimately to 17 to 1 over the course of a half dozen years more. The company was then acquired by Unilever USA in 2000, after which the corporate cone of silence descended on what was once a very transparent practice."
That is a cop-out answer that shows that you're not interested in discussing the issue. If you don't see an issue with corporate greed in the world today, that's your prerogative, but don't make it to seem like those who do are the ones who don't know what they're talking about.
Trust me, I wouldn't be. I pity the person who is bummed to have only $25M.
> He negotiated a package and he delivered results. His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. They trust the board and the CEO to increase the value of their investment.
Ever tried getting a CEO's compensation reduced as a shareholder? Warren Buffett describes it as follows: "the deck is stacked against investors when it comes to the CEO’s pay" [1].
"Though I have served as a director of twenty public companies, only one CEO has put me on his comp committee. Hmmmm . . ."
Everyone in this thread claiming CEOs usually "earn" their compensation needs to read this and explain why Buffet's arguments are wrong.
(Not because it's Buffett, because his arguments are well thought out and reflect a lot of personal experience with the topic.)
Not much financial risk, no. But they are accountable in many other ways. Personally, I'd never want to be the CEO of a Fortune 500 company, even with a $10M salary.
> usually comes with a multi-million dollar severance package
Only at the top of the game at the largest companies.
> On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own.
This is of course true, but you're only looking at financial hurt.
> If they don't find another job, their children are not going to go hungry.
For many CEOs, this _was also true_ at some point earlier in their careers.
From your perspective, sure, especially if you're only considering financial downside. There are huge non-financial downside risks, like staking your personal reputation on the performance of the 50,000 person company that you're running. Maybe you don't personally care about those other risks, but CEOs in that position do.
> encourages reckless risk taking
Not all CEOs take reckless risks.
> encouraging short term profit over long term value
This is a function of shareholders, not of CEOs.
> Is the CEO not an employee?
No, the CEO is an Officer of the Corporation and is literally held accountable for the performance of the company. An employee is not. The CEO and CFO of public companies can go to jail for misleading investors, insider trading, falsifying financial reports, etc. There is no such law that holds employees accountable for those things.
> Why would he be owed a share of the capital gain, and other workers not?
Because he owns stock. Anyone is free to buy shares of a public company. Any employee can buy stock and therefore take a share of the capital gain. There are lots of companies that give workers options and even stock grants. CEO compensation packages are designed to be heavy on stock so that the incentive to increase shareholder value becomes personal.
That doesn't actually happen. CEOs get golden parachutes and move on to high paid jobs somewhere else when their company does poorly.
- $230m from "already-vested stock-appreciation rights"
- $190m from "Aetna common stock he currently owns"
- "Between $60 million and $85 million" as part of a "change-in-control package" which is paid out if he's terminated as a result of the sale.
One of my biggest pet peeves regarding reporting of executive compensation is when the headlines pretend that CEOs are being paid hundreds of millions of dollars in cash, when it's mostly coming from stock-based compensation, which is arguably the most fair way to pay a CEO (if they do poorly leading the company, they make much less money).
He was making 10+ million dollars a year already [1], which he would have been able to keep. The worst that could have happened to him if he was underperforming was being fired. Calling it being crucified is ridiculous hyperbole.
And he would have been given a golden parachute worth far more than most of us will see in our lifetimes. His family wouldn't go hungry or homeless. At the same time, many employees will get laid off, and their families will have a very real chance of going hungry or homeless.
Hahaha, that's a good one.
The CEO would get a golden parachute payout and move onto another highly paid position.
Who "owes" most of the success in building the house? The labor, or the person employing the labor productively?
Edit: Just to clarify. I genuinely don't know who should get credit for the success of building a house. Both are almost equally as important. However I can say that it seems, maybe, possibly that labor collectively is as important as the single person making all the decision. That is no single laborer is as important as the person trying to get the building made.
A CEO's job would be someone who makes a small number of very broad, directional choices (should the home be Victorian, or Brutalist?) then hires and manages a team of people to hire and manage teams of people to hire and manage teams of people to build a house.
Given that the only decision they made was "Victorian vs Brutalist" and then hiring some decent managers, should they still receive that much compensation just for (in this case!) happening to have made the right choice?
So yes, the CEO is an owner as well.
Great analogy for a company too. Whether it's a start up or growing a large company to be even larger. There is no automatic force that just makes a company grow, innovate, grab market share. Things don't just happen without the leadership and direction from the top.
Even taking your example at face value, I don't agree with it. The house wouldn't exist without either labourers or the planner. They are both vital. But in the Aetna situation, only one is rewarded.
I think it's fair to say that no single laborer, it seems, is as important in the process of production than the person making all the decisions to employ labor to some final product.
Hell even at the very top the Commander in Chief doesn't make "all the decision".