No CEO should earn 1,000 times more than a regular employee
theguardian.com
theguardian.com
When Steve Jobs came back to Apple, it made terrible products. It had a market cap of $3 billion, hadn't had profits in years, and was six weeks from bankruptcy.
During his tenure as CEO, Apple made consistently excellent products, and it entered the right new markets. Its market cap rose to $350 billion. It has since doubled that, and is now the largest and most profitable company in the world.
The value that CEOs bring to their companies is exclusively in the decisions they make. That's why Jobs deserved to be paid well over 1000X a "regular" employee!
Or do you think that the management team at Apple also does nothing?
Much of the board and many of the execs at Apple changed when they bought NeXT. So much so that many people at the time called it a "reverse acquisition."
Jobs was great at finding the best talent. Jony Ive was at Apple long before the NeXT acquisition, and Jobs put him in the right position very, very rapidly. Would the average person have done the same thing? Would the average person have cared nearly so much about design?
A decision this big has to be made by the CEO. At the time, Apple was dying, and Jobs was the one that made that call. It was quite unpopular at the time. But it was also absolutely the right thing to do!
You might find this hard to believe, but Gil Amelio (Apple's CEO before Jobs) floated the idea of splitting Apple into two disintegrated companies - "Apple Hard" and "Apple Soft." Can you guess how that would have turned out? (You can't build an iPod, an iPhone, an iPad or a Mac that way, because the entire point is to make the product better by integration.)
Or it could be made by the employees of the company as a whole, or their representatives. The currently popular hierarchical structure isn't the only or necessarily the right way to structure a company. Companies could be worker-owned and allow employees much greater participation in decision making.
Anyway, even if one person's decisions are exceptionally consequential doesn't mean they have to be paid an exorbitant amount of money to do it. I'm sure plenty of other people would have taken a fraction of Jobs' salary to make the same decision.
There's a cult of personality around Steve Jobs in SV, and I for one find it very hard to swallow.
Prove it. Why don't you found a company and show us?
Anyway, worker-owned and run businesses already exist. You don't need me to show you.
There were literally thousands of armchair CEOs - mostly classic Mac cultists - that were writing about what Apple should do to avoid bankruptcy in 1996-1998. None of the ones I read (and this is all I did back then) made the right calls!
Tell me which one of these people - all of which chose to pontificate about the first iPod in 2001 - would have led Apple to its current heights: https://slashdot.org/story/01/10/23/1816257/apple-releases-i...
That being said, I really don't like the cult around Jobs. However, the cult was clearly an advantage for Apple, and it made him a rare manager. And thus, expensive.
There are other definitions, like satisfaction of the employees, or corporate social responsibility. These are harder to evaluate, and empathy and humane interactions costs money - that's why company boards want robots.
Suppose it takes something like Microsoft's policy of "embrace, extend, and extinguish", or the FUD policy associated with IBM, or the LBO-and-loot-the-pension-plan of KKR, for a company to become huge.
These are rather cutthroat approaches, and not examples of what I would consider to be good corporate social responsibility.
If a worker-owned structure is less likely to be socially irresponsible, because so many people are involved in the decision making instead of the dominating personalities that tend to be at the top of a hierarchical structure, then that would explain why the most successful companies are not worker-owned.
I have no idea if this is true, but based on the lectures I've heard by pro-worker-cooperative people, it's not unreasonable.
As to the second point, Richard D. Wolff's most recent "Economic Update", at https://youtu.be/KrPHl1s9MNw?t=864 , comments about the recent rejection by doctors in Quebec of a pay raise their union negotiated. Quoting from the translation of the rejection letter, given at http://home.nzcity.co.nz/news/article.aspx?id=265449 :
> "Contrary to the Prime Minister's statements, we believe that there is a way to redistribute the resources of the Quebec health system to promote the health of the population and meet the needs of patients without pushing workers to the end."
Wolff comments (at t=1002) "the capitalist model: you pay the people at the top a great deal and part of that money is to keep down everybody else. Because you know something, it's been learned by capitalists that if you pay the top a lot you can avoid paying the mass of your workers what they ought to be paid. It's cheaper to pay those at the top a lot more than it is to give everybody a fair shake. So you're top-heavy, with overpaid folks at the top. And you know something? This happens everywhere. ....
Remember, Apple was one of the many large tech companies involved in an anti-trust lawsuit that charged they colluded to avoid poaching each others' employees. Such a collusion would have the effect of depressing everyone's wages, and therefore increase corporate profit. Just like that model predicts.
Anti-trust laws are important facets of these boundary conditions, especially because they keep the market from falling into degenerated states. In the end, the different local markets, shaped by the laws of each country, are competing on a world scale.
I am not saying that worker-owned companies wouldn't be nicer, but they are clearly less effective/less fit in the current market system. Otherwise we would have more of them. It is not clear to me that this is just because a "strong leader" system is cheaper and more easily extorts the workers. I am not convinced that steering by committee, especially if most of the committee members are maybe less educated than the average CEO, works very well from a long term strategy perspective.
The current market system is built by capitalists, for capitalists, and include the goal of squeezing everything they can out of the workers.
Of course a worker-owned cooperative will be a less effective fit. The current system should not be the final arbiter of what success means.
You mentioned anti-trust laws. What of worker right laws, and laws related to unionization? (In the last, I include laws like the Taft-Hartley Act which limit what unions can do.)
I don't understand your last sentence. Most large companies are already run by committee, no? There's an ongoing negotiation between the C-level officers and the board of directors. It isn't that the CEO sets policy by dictate.
Perhaps https://en.wikipedia.org/wiki/CEO#Celebrities is relevant?
> Business publicists since the days of Edward Bernays and his client John D. Rockefeller and even more successfully the corporate publicists for Henry Ford, promoted the concept of the "celebrity CEO". Business journalists have often adopted this approach, which assumes that the corporate achievements, especially in the arena of manufacturing, were produced by unique talented individuals, especially the "heroic CEO". ... Journalism thereby exaggerates the importance of the CEO and tends to neglect the harder-to-describe broader corporate factors. There is little attention to the intricately organized technical bureaucracy that actually does the work. Hubris sets in when the CEO internalizes the celebrity and becomes excessively self-confident in making complex decisions. Indeed, there may be an emphasis on the sort of decisions that attract the celebrity journalists.
This does not mean that the situation is static. The current system can be changed, by setting different bounding conditions. Anti-trust, unions etc. are all instruments to affect such a change. But again: Since you cannot dictate the global boundary conditions, you have to build a system which can survive in the global economy. Socalist planned economy, for example, has been proofed by experiment to not work. Unions often work, if balanced in power. Consumer protection laws often work too. Note here: Survive, not be the biggest. Your economy can fulfill a niche role with better social aspects, but other downsides. Take Germany for example. The social security and general high level of living goes hand in hand with general good education and, for example, larger investment in science. On the other hand, this sets a minimal productivity a job must have to exist in the first place. There a no "Apple store greeters". This means that low-education jobs which pay enough to actually live in Germany are rare. These jobs are often filled by guest workers from countries where cost of living is significantly lower. The problem is that not everybody can be brought up to a high enough education level. Having not enough viable jobs available for those who cannot make that jump is tragic. While in Germany the social system takes care of them to some extend, not having a job is bad for your psyche even if you have enough money.
I wouldn't say big companies, especially privately held ones, are run by committee in the sense that everybody has the same power. There is a hierarchy. But even if so, it's a committee consisting of selected people from a special pool, not from the general pool of workers.
Regarding the celebrity CEOs: In the current state, it obviously works, otherwise companies which do not fall into this pattern would outperform those who do. If you want to change it, you have to change the system. It seems to me that focusing on the salary is not the right way though, because they follow from the celebrity system (which makes "good" CEOs more rare).
Sure, planned economies don't work. That's one of the reasons for social democracy ("... a political, social and economic ideology that supports economic and social interventions to promote social justice within the framework of a liberal democratic polity and capitalist economy as well as a policy regime involving a commitment to representative and participatory democracy, measures for income redistribution and regulation of the economy in the general interest, and welfare state provisions."; Wikipedia). But I don't see why this comment is particularly relevant?
Abstractly speaking, a balance of power is good. Concretely speaking, I can't make sense of it. Does Germany have the right balance of power? Does the US? My sense is that unions rarely have enough power. Certainly not in the US, where workers don't even have the right to a representative on the company boards.
"this sets a minimal productivity a job must have to exist in the first place"
Sure. But given the several centuries of productivity improvements, why are we all still working as long in the first place? Quoting Wikipedia again, in the article on John Maynard Keynes: "Keynes thought that the pursuit of money for its own sake was a pathological condition, and that the proper aim of work is to provide leisure. He wanted shorter working hours and longer holidays for all."
If we worked 28 hours per week, as IG Metall recently negotiated, then there would be more jobs.
"not having a job is bad for your psyche"
I'm of mixed feelings of this. I know a lot of people who would love to work on free and open source software, but cannot because it's not a viable source of income. If there was a basic income, which was enough to live on, then I think they would "have a job" doing software development, even if it wasn't really a job.
A lot of rich people don't have a job, but volunteer to be on, say, an art museum board or other organization. I think this helps the psyche, even though it isn't a paying job.
Regarding committees, I used it to point out that most companies are not run by a dictatorial head, which appears to be your argument. I brought up "celebrity CEOs" to point out that that might be more a marketing and journalism myth, or selection bias, than a reality.
DuPont is one of the longest-lived companies in the US, so by your standard it's one of the most successful. What do you know of its management style? Probably nothing. It's simply not flashy enough to make the popular press.
"It seems to me that focusing on the salary is not the right way though, because they follow from the celebrity system (which makes "good" CEOs more rare)."
As I pointed out in the quote by Wolff, the high salaries are true for more than just celebrity CEOs. They are true of nearly all CEOs in mid-to-large companies, and to many college presidents, and many non-profits (the Wolff piece mentions the recent at a Chicago YMCA, but I can include the American Red Cross and Susan G. Komen for the Cure).
/s
Remember, Jobs’ choices were controversial. No stylus!
The question in determining the fairness of a 1000x CEO pay is, to what extent the success is attributible to that CEO. It WIDELY varies. Some CEOs inherit money machines.
People don’t realise, pay, for the masses who dont participate in stock or profit sharing, is ONLY a function of market rates for your role and your salary negotiation.
Fairness is a question of ethics, not a question of how much money a company is making. An ethical decision might actually cost the company money, but still be the right thing to do.
Distributing the profits of the company more equitably among its employees is arguably the right thing to do, whether or not it results in a greater profit for the company.
That said, with CEO salaries being as astronomical as they are, it's doubtful whether paying them substantially less so that the rest of the employees will be paid more will result in any serious negative impact on the company's profits. Even a tenth of an astronomical salary is still an astronomical salary, and there'll always be supremely qualified people lining up around the block to take those jobs.
It is therefor the charge of the political system to set boundary conditions to shape the optimal point to be ethical (and, at the same time, capable to survive in the world) That's, for example, the idea behind social market economy as in Germany.
Why should that benefit be only extended to CEO when it is his or her job to set long term vision and make large bets?
To give a sense of scale, Tim Cook, leading the most valuable company in the world, earned $13M in 2017, working what is likely 60-80 hour weeks. In comparison, Bill Gates with his $82B assets can sit on his couch all day, and make $13M in investment returns in a couple days.
If anything, CEOs have more in common with regular workers, than with the truly wealthy. This focus on CEOs as the bogeyman, causes us to overlook some more important causes of inequality, such as the ultra-low tax rates on capital-gains, the numerous deductions available to the 0.1%, and the preservation of wealth across multiple generations via estate inheritances.
Not so fast, comrade :-)
You just showed his salary, but forgot the stock ownership which is part of the total compensation package.
In 2017, he cashed in at least 43 million from this sale.
https://www.bloomberg.com/gadfly/articles/2017-08-30/tim-coo...
His net worth is about 800M, increasing by about 100M every year, so he will be a billionaire in a couple of years.
He did not invent anything, he did not start a world-changing company (like Gates). He is a competent manager, but nothing more than that.
Someone who makes $13 million a year never has to work another day in their life, and neither does anyone in their family. They can buy pretty much anything they want, live anywhere they want, can send their children to the most elite schools, and money is not just not an issue for them, unless they're trying to buy themselves a country or trying to reshape the entire political landscape of the United States.
Meanwhile, the median family income in the US is about $60k and more than half of Americans have less than $1k in savings. Many of these regular workers struggle to survive, living paycheck to paycheck. They may never afford to retire and could easily be bankrupted by medical bills.
Help me to understand how a CEO making $13 million a year can have much in common with them.
This focus on CEOs as the bogeyman, causes us to overlook some more important causes of inequality, such as the ultra-low tax rates on capital-gains, the numerous deductions available to the 0.1%, and the preservation of wealth across multiple generations via estate inheritances.
You might want to look into the cost of purchasing and operating a nice yacht. Not even talking about superyachts...
While I don’t personally believe there is any job in the world worth one hundred million or more per year (I mean, these people aren’t even physically in harm’s way!!!), why on earth aren’t companies making sure that money swings far in the other direction too? If you want a chance at $100M a year, the company should be able to FINE you millions and millions of dollars when you make costly mistakes, for example.
When one person's choices can make the difference between bankruptcy and having surging profits, how should we compensate them? I do think our distribution is a bit top heavy, but I think of it ethically, not pragmatically or fiscally. Short of executives collectively deciding against their own financial interests, or regulators choosing for everyone (and the economy being exposed to regulatory capture), I don't see what you're proposing.
And physical danger is like physical labor. It's not intrinsically tied to the value society places on that work. Personally I don't think skydiving instructors should be paid more than high school teachers.
Anyone who says "you could easily", wrt business, obviously is either a business genius unlike the rest of us, or has never tried.
Trust me, finding top notch talent that you're willing to trust with the direction of your company is probably harder than finding a spouse.
Then it's not about the company setting their pay rate, they can set their own if they can justify raising the median salaries. Win/Win.
What median should they be tied to?
If money is not a factor, I want to feel important, have people suck up to me, travel on corporate jet, etc.
:-)
The janitor goes home after their shift and is completely free. They get their 4 weeks vacation and max 40 hour working week and can do whatever they want in their spare time.
For starters, unless you've got a lot of executive experience, if you had to turn up to work tomorrow and be the CEO, you'd be awful at it. So would I, so would anybody else that doesn't have that experience. I guess this wouldn't evenly apply to early stage start-ups, but they tend to not have much executive leadership anyway, regardless of whether they have a "CEO".
Being the CEO is all responsibility. There's very little room for error, and you unavoidably have to deal with a myriad of issues that you will have no personal interest in whatsoever. It is absolutely the most high pressure and difficult job in an organisation. If it weren't, then anybody could do it, when obviously that's not true. Also, if you're measuring who is the most stressed in an organisation, then you're going to come up against a lot of selection bias. You'd expect CEOs to have a better responsibility to stress ratio, because you'd expect CEOs to be better at managing stress.
Oh please! What is the consequence of a CEO failing to perform up to expectation?
They get a golden parachute, take off with a mountain of cash and stock, and get rehired as a CEO of some other company. Once you reach that level you pretty much never have to worry about money or your job ever again, unless you're massively irresponsible with money or start committing crimes that can land you in jail.
Compare that with a typical worker whose entire family depends on them having a job, who's living paycheck to paycheck, and who is far from guaranteed to find another job if they're fired. They typically get absolutely nothing if they get fired, and if they don't find another job soon they and their family might be out on the street.
How's that for pressure?
You also seem to be quite ignorant to what a CEO does, and the stakes of the position. Failure for a CEO can end your career, regardless of whether you’ve already established yourself as entirely financially independent. It is also by definition the position of greatest responsibility in a company. There is nobody in a company that faces greater pressure to perform.
If you fail at your job, it’s really unlikely that your failure will be dissected in the news paper for everyone to see. You could get fired and go out and get a new job. For a disgraced CEO, this is usually not an option. We could all point out a couple of examples of revolving door CEOs, but for most executives, this isn’t a career path or even an option.
¹ https://online.wsj.com/public/resources/documents/CEOperform...
Fortunately, shareholders can dedcide and influence each company's Board. There is no need for the government to get involved unless politicians are trying to raise another witch hunt for distracting peasants.
I know exactly two people who deserve that kind of money: Jobs and Musk (there may be a couple more) with a track of repeat success and world-changing impact.
Most big-corp CEOs don't deserve the money they get. People who got lucky and complete failures in particular (like Gil Amelio, or Carly Fiorina).
It's extremely easy to find somebody that can serve food.
Evidently, it's 1000 easier to serve food (or whatever other job).
What is the problem with that?