What do executives do, anyway? | Hacker News Reader

What do executives do, anyway?

apenwarr.ca

666 pointspanic203 comments

IMO this post has some good points but makes the executive sound like a passive referee, ultimately misunderstanding what High Output Management (also one of my favorite books!) is about. (Admittedly adding my own editorial here from my experience founding a startup and now running it as a ~3,000-person public company.)

The basic principle of HOM is that the fundamental job of an executive is to deliver results ("output"), and that the measure of an executive is the output of their organization. Importantly, there is no one right way to deliver results -- successful CEOs can have very different styles and techniques.

That said, for every effective way to deliver results there are vastly more that are ineffective. Complexity, ambiguity, and uncertainty are not your friends. Time is not your friend. Everything is situationally dependent. There are many skills to develop and principles that can help but there's no formula.

This also partially explains why the median CEO or exec is perceived as ineffective, often because they are. It's a hard job, otherwise everyone would do it well and there would be a surplus of good (and cheap) execs.

Contrary to what the post suggests, HOM does not say not that the job of an executive is to wave some kind of magic culture or "values" wand and rubber-stamp whatever emergent strategy and behavior results from that. CEOs and executives absolutely do (and must) make important decisions of all kinds, break ties, and set general direction. Occasionally they need to give commands but more typically you work collaboratively with and (as the post correctly suggests) empower your team and avoid doing too much as an individual contributor.

If you're curious about what execs do and how to be a good one, HOM is an incredible book. The Effective Executive by Drucker is another favorite.

https://hbr.org/2009/05/what-only-the-ceo-can-do is one of my favorite articles about the responsibilities of the CEO.

https://hbr.org/2018/07/the-leaders-calendar is a fascinating study of where CEOs spend their time and what they actually do day to day.

Thank you. When I read the OP article I though “this isn’t the book I read”. I remember it as you described - a managers output is the output of their organisation.

Thanks Drew Houston, CEO of Dropbox!

"The basic principle of HOM is that the fundamental job of an executive is to deliver results"

Just like every other job in the world.

Thanks for refuting this blatant distortion of Andy Grove's thinking.

Unintentionally or willfully, the OP sought the credibility of a seminal book to support a soft-headed presupposition. The kind that engineer nurtures when real leadership is invisible (or undetectable) to their work in the weeds.

Well, I'm not going to argue much with Andy Grove. But my answer to "What do executives do?" is: Work on environmental problems.

Problems can be put into three buckets: 1) Can be solved by things 100% under your control. 2) Can be solved only by influencing others to participate, 3) Things that are part of the environment and can really only be mitigated.

Area 1, control, is the realm of the first line manager. The FLM has the people, the budget, the FLM's team has the know-how, so execute well and the problem is solved.

Area 2, influence, is the realm of the middle manager, and also sales and marketing. You need to borrow resources from somebody else, argue for corporate re-allocation of resources, convince a sales prospect to become a customer, etc.

Area 3, environment, is the realm of the executive. You have no control and no influence, unless you can find some levers and then delegate. But some things will not have obvious levers. Example: It rains. No body will stop the rain. But everyone can fix the holes in their roof. Likewise, companies have competitors and an economic environment in which they operate. Predict and make plans.

When I was at Intel, one of the great things that senior Mids got to participate in was "red teaming" as competitors. Given all that Intel knew about a competitor, a team would be give a data dump and a short number of weeks to come up with a strategic plan for that competitor to Eat Intel's Lunch. Then they presented to Intel executive staff. From what I heard, it was an excellent experience all around and very valuable to the company. (Before you ask, no.... I was not ever in any danger of participating....)

>Given all that Intel knew about a competitor, a team would be give a data dump and a short number of weeks to come up with a strategic plan for that competitor to Eat Intel's Lunch. Then they presented to Intel executive staff.

I guess it's safe to say that they didn't predict AMD's Zen?

I could not say. My time at Intel pre-dates Zen.

It is safe to say that Intel is well aware of the capabilities of all their competitors, but obviously not their detailed plans. But even so, even with 100% perfect prediction there are numerous choices of how to proceed.

They probably didn't expect all their performance tricks to backfire in last two years, too.

No doubt they did predict Zen, and planned to counter it with super chips from their new fab. Which didn't work. Not everything does.

Normally a well-run shop has several alternatives running, so when one flops, another is there to step in. They often did that with next-generation chip architecture. That's hard to do with your fab.

In principle they could have had a design ready to go on TSMC if their fab flopped, but scheduling fab capacity takes long-term commitments that they didn't plan to be able to honor.

Quote: "One of the book's claims, which I found shocking at first, was that in a large organization, executives don't set strategy".

Yeah, let's agree to disagree and let's take a look at history. 1 - Microsoft. Bill definitely had a strategy, one that almost cost him his sanity at the end of 90's, but nevertheless made Microsoft in only 25 years a behemoth. 2 - Apple. Steve definitely had a strategy when returned to Apple. Got all hardware licenses back and worked on iPhone until was the game-changer. 3 - Amazon. You going to tell me Jeff didn't had any strategy? Yeah right.

You know who didn't had a strategy after almost 100 years of strategies of its CEO's? Kodak. Remember Kodak? Yeah, it took only 15 years of streams of CEO's to be one per year with no strategy and a board full of idiots to make that company disappear from the face of Earth.

I think you misread the claim.

> So what, then? A company just drifts in the void, with no strategy?

> Not exactly. It's harder than that. What executives need to do is come up with organizational values that indirectly result in the strategy they want.

> That is, if your company makes widgets and one of your values is customer satisfaction, you will probably end up with better widgets of the right sort for your existing customers. If one of your values is to be environmentally friendly, your widget factories will probably pollute less but cost more. If one of your values is to make the tools that run faster and smoother, your employees will probably make less bloatware and you'll probably hire different employees than if your values are to scale fast and capture the most customers in the shortest time.

The claim is that as a CEO, you can't make the right decisions because you're too far from the individual decisions that need to be made. If you intervene in decisions directly, you risk overruling the people who are supposed to have the information needed.

So you need a different lever than dictating the decisions made, even the strategic decisions. You do that by having the right people and getting alignment between them. That's what the author calls values. Telling everyone "our strategy is to have a game-changing product like the iPhone" lacks sufficient detail to be called a strategy. Getting into more detail risks making decisions you may not have the information to make. So you set values, like "we focus on the overall end-user experience, not just hardware or software." You get people on board with them. If you pick the right values, the strategy you want should emerge from the individual decisionmaking of the people below you.

"we focus on the overall end-user experience, not just hardware or software." sounds like strategy to me (perhaps it needs to become a little bit more elaborate than that, but strategy at least).

Imo, Strategy at a high level is high level guidance. What is important to focus on and what should we not focus on (and preferably why). Some companies do however have these sneaky strategies like emergent strategy that is not set from the top but let it emerge along the way, possibly from the bottom up, based on the culture or whatever. Some companies simplify it to the extreme with the "simple rules" strategy (1-3 simple rules which steers the company, such as "turnover first, profit later").

Strategy can be very important, but usually takes a lot of time to affect the bottom line. You don't need a strategy (well, that in itself is kind of a strategy). Anyhow, the rest (the implementation/execution) is always more important - just add with startups (the idea is 1%, execution 99%).

This doesn’t sound like Elon Musk runs his companies... therefore I’m not sure it the right strategy.

What executives do is come up with organizational values that indirectly result in the strategy they want.

That's still incorrect. Microsoft didn't come up with Internet Explorer because Bill Gates set some organizational values. They came up with Internet Explorer because Gates identified Netscape as an existential threat to the company and told his engineers and product managers to do whatever it took to come up with a viable response. Similarly, when Steve Jobs designed the original Macintosh (or, later, when he came up with the iPhone), he definitely had a strategy in mind. It wasn't some values-setting, which led to a lower-level engineer or product manager creating the product. Likewise, when Jeff Bezos sent out his famous communique [1] mandating that Amazon move to a service-oriented architecture, I'm pretty sure he had some idea of a strategy.

I can keep going. When Larry Page and Sergey Brin decided to spend 9 figures on a video-sharing site with no history of profitability and a massive potential copyright liabilities, I'm pretty sure they had a strategy in mind. Likewise, when Zuckerberg decided to spend ten-figures on a messaging app, I'm pretty sure he wasn't doing it to "set values". The entire category of mergers and acquisitions is inherently strategic -- companies only seek mergers when their CEOs have a specific strategic outcome in mind.

[1]: https://gist.github.com/chitchcock/1281611

Many at Kodak knew they were toast and the smart executives left. Tens of thousands of patents and employees having to do with complex chemistry around photography and almost no natural edge against competitors that were cleaner camera plays like Canon. The clearest strategy for the agents of the firm to capitalize on their own information was to leave.

This was a stimulating read and I'll be adding "High Output Management" to my reading list.

I've worked in organizations where the company strategy was poorly defined and this led to confusion and misalignment at the lower levels. I remember talking to some of my coworkers, wondering whether we had an issue with our executive team. It's interesting to think that it's not the role of the exec team to set strategy, and the issue may have been with the management layer below the exec team. Then again, maybe the problem was with the culture/value of diffuse ownership set by the exec team...

Ben Horowitz, when he was CEO at Loudcloud/Opsware, required his managers to read H.O. Management. Here's the foreword he wrote for a recent edition:

https://a16z.com/2015/11/13/high-output-management/

Thanks, really enjoyed that foreword and it really pushed High Output Management up on my reading list. Plus as a bonus I finally learned the name of "The Peter Principle" (the idea that people in a hierarchy tend to rise to their level of incompetence).

The peter principle and the dunning kruger effect define the majority of leadership I see these days.

The Peter Principle book is awesome too, by the way. Highly recommended!

High Output Management is required reading at my startup. But so is Horowitz's book [0], which I think is actually better.

[0]: https://smile.amazon.com/Hard-Thing-About-Things-Building/dp...

Great book. I also recommend "The Effective Executive."

The duty of the general is to ride by the ranks on horseback, show himself to those in danger, praise the brave, threaten the cowardly, encourage the lazy, fill up gaps, transpose a company if necessary, bring aid to wearied, anticipate the crisis, the hour, and the outcome. - Onasander

And get paid far more than the average worker - Onasander

I don't think the average worker would agree to do the work of his general without a change in his wage.

British Army private’s pay is £20k, general £120k. It’s far less than the ratio in a typical corporation.

Seems all well and good, except:

  > threaten the cowardly, encourage the lazy

You would reap more fruit if you encouraged the cowardly and threatened the lazy.

is this a joke I'm not understanding - I ask just because fruit is not normally something one reaps.

At any rate the construction of the phrase attempts to pair the sin with a motivator suited to that sin - threaten is suited to cowardice because one should be afraid of threats.

That said - I would have gone with prod the lazy.

I think it's just someone, possibly a non native speaker, mixing "reaping the benefits of" and "plucking the fruits of"

The management methodology The article presents is interesting, but a little too neat. It fails to address some of the obvious practical problems that would come from applying it (though perhaps the book does). In particular, what happens when two reports simply cannot agree?

Many business decisions are time-sensitive. They cannot be endlessly deferred until a consensus is reached. And even reasonable people, with access to the same information, can reach opposite conclusions that will never be reconciled. In these cases, somebody has to break the tie, as even a sub-optimal decision may be better than a non-decision.

Also, in the matter of strategy, it's true that knowledge workers are better informed within their domain, but they are also usually blind to larger scale factors. The individual soldier knows the ideal outcome is to defeat the enemy, and is best informed as to how to overcome a particular local strong point. But it doesn't follow that he is best placed to make the tactical or strategic decision to attack or not. Nor does it follow that a war-winning strategy will spontaneously emerge.

Agree. I think two things are clear to me - management benefits from decisiveness to a greater degree than accuracy. the Try/fail loop is better than the wait/see loop.

The other thing that management benefits from is information asymmetry. the little details from a lot of different parts of the companies do roll up to a good manager, these in turn roll up even higher. Each group may be clamoring for different changes, but a good executive can see the pattern of needs emerge and pinpoint a root cause.

It goes without saying that not all executives are good at all things. They're still people.

I share your point of view. The decision making process as described in the piece is such a timewaster and also very, very common in large cooperations. Mainly because management is highly cautious to make decisions at all. They tend to leave it up to „experts“ so they can shift responsibility just in case. This is also the reason why they love to hire consulting agencies and waste so much money on irrelevant powerpoint slides. The author is simply wrong. MGMT should be courageous, resposible, involved, highly informed and reflective!

Bike shedding can be a horrific time waster because there is no best answer.

In cases where multiple experts legitimately support both views a vote or random choice is often just as effective as a 3rd party.

I think it did address that case, with "If it continues, people have to get fired, because they are bad at making decisions." "Bad at making decisions" includes being unable to make time-sensitive business decisions with incomplete and ambiguous information.

If there are two reports who cannot agree, then in the methodology given, there's no reason to think their executives can either.

So, what's the executive to do? Flip a coin? In that case, can't the two reports decide to flip a coin?

Or, bring in more people to advice the executive? In which case, why can't the two reports bring in more people?

If they can't, fire the one who won't flip a coin - or fire both if neither can accept a reconciliation plan - since the corporate culture in your scenario includes the ability to make time-sensitive business decisions with incomplete and ambiguous information.

That sounds completely alien to the high output corporate environments I recognise. Sounds like the book may well be a wrong summary of Grove after all.

The best executives are people who understand their reports work well enough to do it themselves, if only they had the time. That means an executive absolutely can and should not only break ties, but even override their reports regularly if they aren't making the right decisions (hopefully with training so they come into alignment with the executive's way of thinking).

The idea that a man like Steve Jobs did nothing but create vague 'values' is absurd. Yes, he did that. He also "micro-managed" decisions like how many buttons a phone should have, what programming languages developers should use and so on. Without this kind of decision making how should an organisation ever learn how to translate values into concrete decisions?

Your depiction of an execute implies a completely passive entity who simply aggregates decisions made below them, with no insight or experience of their own. There certainly are execs like that - ineffective ones.

There's no way Jobs could have done Bill Atkinson's job well to do QuickDraw, so I don't know what you mean by "well enough to do it themselves."

"A completely passive entity" sounds exactly like the example of the Queen's Governor General ratifying everything.

If Apple was primarily an algorithms company then yes, he'd have been a failure. Apple's relative disinterest in R&D during Jobs' tenure was quite legendary though. They were first and foremost a design company. Once they started trying to compete with Google on raw technology grounds like AI, mapping etc, they started to struggle much harder. They were always the strongest in the areas where Jobs can and did override his lieutenants sometimes.

The way Apple seemed to be constantly balancing over-design against engineering concerns seems like a case in point. Once Jobs was gone the consensus seems to be that Jony Ive became unrestrained and had nobody above him who could do what he did anymore, so he kind of went a bit wild and then disengaged.

The thesis is that "the only other responsibility of an executive is to enforce company values."

(Note, there's no place where the author said those values need to be 'vague'.)

Your example of how 'many buttons a phone should have' could be interpreted as enforcing a specific design value.

You ask "Without this kind of decision making how should an organisation ever learn how to translate values into concrete decisions?" I don't see how your question is necessarily incompatible from the thesis.

I don't know about the 'what programming languages developers should use'. Is that Pascal (on the Mac), Dylan ("created in the early 1990s by a group led by Apple Computer"), Objective-C, Swift, or something else? I'm guessing Obj-C. What role did he play in choosing that as the language?

Yes, Jobs believed Objective-C was fine and nobody would ever need or want another language. Swift had to wait until Jobs passed away, as he'd have never authorised it otherwise despite lots of people telling him Objective-C was out of date.

As for the rest, yes, fair point. Usually in corporate English "values" are very vague indeed, but I suppose you can consider it to be precise.

I had not heard that Jobs played any important role in the choice to use Objective-C. Looking around now, I can't find corraboration of that.

For example, https://www.quora.com/How-did-Steve-Jobs-invent-Objective-C has one person commenting "I’m not even sure if it was Jobs’s decision to include Objective C with NeXTStep, though he might have had a role in it." This is based on Jobs' seemingly lack of understanding or experience with OO programming.

(Other links also offer no pointers about Jobs' involvement.)

Now, to be certain, Jobs knew about the decision. He negotiated with Stallman about the licensing for the Objective-C front-end. But that's different than making the decision.

Once the decision was made, I could see why he might argue that it's fine. We see, for example, companies which make a decision to only use one or a small handful of languages. He could be using his reality distortion field to keep that decision in place, rather than allowing a large diversity of languages in-house.

>But it doesn't follow that he is best placed to make the tactical or strategic decision to attack or not. Nor does it follow that a war-winning strategy will spontaneously emerge.

Because that argument is made within the confines of the current system that does not allow an individual soldier to contribute on strategy.

CEOs are not some magical beings and putting knowledge workers together into that position is theoretically much better. It's just that human ego comes in the way.

This doesn't seem useless, but it hardly seems worth 1000x the wage of a regular worker either.

I don't disagree with 1000x, but it also strikes me that - at that level - you're more like a pro athlete than a regular salaried employee. Your career and job is on shakier ground as responsibility grows, with less direct control over what actually happens. So greater pay makes some sense to compensate for unpredictability, if you amortize the economic risk of stepping out into leadership across a lifetime.

Also the predominant theory of exec comp is that because it's tied to equity, your incentives as a manager are exactly aligned with what's best for the company.

I'm confused, do you agree with them earning 1000x more or not? Frankly if there was a legislative way to tone it down so it more accurately reflects their value at the company, i'd like that. Risk, equity, company status, all play an important role but they don't play 1000x the role of any other job.

I don't know how much executives should be paid, but it does seem pretty high right now. (But it's generally equity so ¯\_(ツ)_/¯ )

I don't know how to feel about it. Some Japanese aquaintances have liked to point out that that the difference in salary between top execs and low-level employees is much smaller in Japan. I usually counter that IMO personal experience USA companies pay salaries 2x to 3x more than Japan so I don't really care the boss makes 1000x more given they're paying me more as well.

I have no idea if that translates over the entire workforce though.

As a software engineer, starting software engineers in Japan start at ~$25k a year. Same ballpark as fast food jobs.

> Your career and job is on shakier ground as responsibility grows, with less direct control over what actually happens

Contrarily, it seems that many execs "fail upwards" or at least fail into the exact same level, bouncing around C-suites and board positions regardless of the success of their companies.

Additionally - the term "golden parachute" exists for a reason. Many comp packages are structured so the execs are exiting with multi millions regardless of how the company does.

Nonsense. Exec comp is tied to backscratching with the Board, to the detriment of shareholders, who cannot generally exercise effective control under the rules cooked up by the Board and the execs for their own benefit.

Companies that earn profits for shareholders commensurate with market success are companies that the execs have not got their hooks securely into.

When you have the responsibility of 1000's of people's livelihood, their paychecks rest on your hands - you don't think that's worth a heck of a lot more than an average worker? And before anyone downvotes this - think about the responsibility for a bit. Companies don't just plod along - they actively manage into greatness, or actively manage into death.

But when an executive fucks up, he gets a golden parachute. Where is this "responsibility" you speak of?

Not in all cases, and at top levels, of top companies. While I agree some golden parachutes are extensive, one person cannot be expected to see and perfectly manage every severe situation; executive pay can help focus on strategies, but one operates in a fluid market, fluid economics, and fluid landscape.

It is hard to be perfect at one’s job, and no one expects anyone to be flawless executives. But I think we underestimate how much more high-level executives are compensated in relation to their actual duties, and that even a severance package that seems small to an executive is probably pretty large compared to the salaries of most workers, who also do a lot of important work beyond sitting in on meetings and enforcing a set of abstract values.

I disagree. Normal workers are managed via Gantt charts, tasks lists, and projects completed. High level executives are managed in stock price share increase, or business value increase each of which have multiplier effects.

But do any of those metrics really have much to do with how good CEOs are at their job? The “multiplier” comes from the efforts of workers. CEOs don’t create business value - workers do and get paid a fraction of the value they create for their employers. Low-level managers, not CEOs, are the ones making the task lists and the concrete decisions. The CEO just sits in on meetings and occasionally steps in to enforce “values”. At a certain level of abstraction from the actual work, don’t you think high-level management has less impact than the people actually doing the business’ work? Why, then, should they be rewarded more?

I thought the justification for their high salary was to manage dangerous situations as a single entity though? If the execs of DoorDash earn millions of dollars a year and leaked 4 million users data, that's on them.

And yet, they continue earning a salary in one year some will never make in their whole life. And continue to get away with these things.

So i think you're underestimating how many golden parachutes get handed out.

Wages are determined by supply and demand, no? The number of subordinates doesn’t even figure in the equation

The market for executives is highly affected by many factors that don't fit easily into an economic analysis.

But those factors can easily be summed up as: Trust. Not many are able to demonstrate that trust to the board, and so the supply is vanishingly small.

And trust, as we see in the totally-free-and-definitely- not-completely-composed-of-back-scratching-b-school-flunkies market, is very very expensive.

You forgot backstabbing on the side

The boards of firms like Google, Apple and Facebook are hardly composed of school flunkies. Aren't they mostly made up of former tech CEOs and similar?

I think the reality is that CEOs can get paid a lot because the number of executives who can meaningfully increase the value of a large organisation is vanishingly tiny.

Look at Microsoft. When Gates left and Ballmer took over their share price stagnated for over a decade. The organisation missed major opportunities and went nowhere. Now Nadella is in charge and suddenly things are moving again. To us maybe it seems "obvious" that Nadella would be a perfect fit for Microsoft and maybe his good decisions seem obvious, but apparently it wasn't so easy to find such a guy during Ballmer's reign.

What about Google? Does anyone really believe that since the Page/Brin/Schmidt triumverate stepped back that Pichai has been able to really fill those boots? The modern day Google is a visionless organisation that seems to spend its days cat-fighting over how many genders there are.

Getting the right CEO at the top of organisations like these would be worth practically any amount of money at all, because even improving outcomes by 10% immediately drowns their comp into irrelevance.

Yes, they are deeply effected by much handwaving.

Come again?

There are always a lot of people looking to justify how things are, independent of how much sense it makes.

Paying the CEO 1000x the average worker is more likely to be sustainable with 100,000 employees than with only 100 employees, so I think the number of subordinates figures in the equation somehow.

I can't think of many reasons my company couldn't keep trotting along if the CEO left and we went months without. The only thing I can think of is someone needs to appoint the people directly below him were they to leave.

You're assuming companies need to keep growing and need some flashy face of a CEO as a marketing gimmick. A steady business is fine.

A steady business is fine until conditions change. A good CEO can see those changes coming and convince the business to change course.

That change could save the investors and board millions (or could cost them millions) thereby justifying paying enough to get a good CEO.

This is exactly the problem that anarcho syndicalists are eager to solve via worker cooperation. https://en.wikipedia.org/wiki/Anarcho-syndicalism

Anarcho-syndicalism is one of the few alternative ideological strategies i can see working besides capital, but i'm not counting on it happening so for now some legislative measures against this kind of inequality would be ideal.

people don’t have to struggle needlessly so that one kind of work can be glorified

Everyone contributes

> When you have the responsibility of 1000's of people's livelihood, their paychecks rest on your hands - you don't think that's worth a heck of a lot more than an average worker?

No, this is absurd. Their paychecks don't simply rest only in the hands of the executive, but in the hands of the worker as well. I'll concede it's a more valuable position, but not 1000x or 100x or even 10x worth the value of the avg. line worker.

Taking it further, frankly most of the executives I've worked with aren't responsible at all. They're generally sociopaths as well!

The Gervais Principle holds.

It's a shame more HN people don't understand this. You can be pro-business and still recognise the injustice of executive salary.

you're totally free to start a few companies and pay 'fair' salary to the execs you hire

or, if an executive at some publicly-traded company is paid way over his/her value, it would mean that the company is inefficient; subsequently, you may want to invest in the competition, or short this company's stock to exploit this inefficiency

in other words, put your money on the line to prove your argument

They didn't used to receive anywhere near as much compensation and still did just fine. It has gone up steeply in recent history.

> responsibility of 1000's of people's livelihood,

There are plenty of workers for whom responsibility for other people's lives is a lot more literal than paying wages. Nurses, police officers, even teachers fall into this category, yet somehow we don't see reason to pay them magnitudes more than software developers.

In fact, many of them have much more education and a more qualified at their respective line of work than the average bootcamped software developer. Wages are mostly cultural, not some intrinsic value of work. Aliens would probably find this system one of stranger parts of human culture.

There is a competitive market for talent. The board is going to try to hire the best person they can. That person typically has lots of options.

While there is truth in the existence of that competition, it is also a fundamental mistake to believe this market is basically a meritocracy.

C-suite execs have something common with politicians that way. To wit, some of them get to the top by being very good at the things they do and having generally respected talent... but another path is to be good at campaigning.

Leaders are leaders. You can't trust anyone with power if they want power, but you have to give someone power. The contradictory demands make people make weird decisions, because trustworthy people seem infinitely scarce.

Money is a diversion from destructive uses of power, besides being a response to apparent lack of supply.

You don't have to give someone power - you can have cooperatives or other forms of democratic management.

It's a meritocracy in the sense that boards want to hire executives with prior experience running large companies or large divisions. How many such people are available for hire and didn't run their last company into the ground? It's a tiny number.

On the other hand, I worked for a president who was brought in to run a brand new division, ran it into the ground within a few years, was forced out of the company under rumors of financial improprieties, and was recently announced as CEO of another company. So, who knows? Maybe boards are just stupid.

Compensation is usually defined more by risk/reward tradeoffs than by the amount of effort you put in.

Executive pay is high because of the risk that your values will not line up with the board's values at some point in the near future and hence you'll be summarily fired over something you had little control over, with your career being effectively over. It's not out-of-line with other careers that have similar risk/reward tradeoffs, like being a startup founder, pop star, hedge fund manager, venture capitalist, bestselling author, or lottery winner.

I was thinking about the Gervais Principle [1] while reading this, in particular this formulation:

"Sociopaths, in their own best interests, knowingly promote over-performing losers into middle-management, groom under-performing losers into sociopaths, and leave the average bare-minimum-effort losers to fend for themselves."

This rather absurd strategy actually makes a lot of sense given the risk/reward tradeoffs of being an executive. Doing nothing under conditions of extreme risk & uncertainty, but doing it in a way that looks good to your superiors, is exactly the skillset that one needs to be a successful executive. And people who can do this without getting fired have passed the first test already. So this selection process is effectively an extended job interview.

[1] https://www.ribbonfarm.com/2009/10/07/the-gervais-principle-...

Don't underestimate the value of doing nothing.

People who can be bribed with money not to use power to wreck things are perhaps scarcer than the average person realizes.

> Executive pay is high because of the risk that your values will not line up with the board's values at some point in the near future and hence you'll be summarily fired

Lots of people live with that risk every day and get paid peanuts.

I dont mind executives earning millions, but perhaps their salary should be capped at 100x of average employee.

The do not run the ship alone, and if the ship does well, the rest of the crew should be at least paid lip service. I would like to see some framework for doing that, whether that is profit sharing or relative salary caps.

Also I believe all salaries in the country should be public. How is free market suppose to work if no-one knows the price?

Instead of capping (which people for whatever reason don't seem to like) why not propose a lower bound for regular employees of 1/100th of the CEO's total compensation?

CEO wants to make $20M? Nobody in the company can make less than $200k. Seems fair to me.

I agree, except I would prefer we use median or mode compensation. It would probably paint a fairer picture. But debatable.

Why do you think the operation of a complex decentralized economic system would be improved for workers if it operated according to some rules that you think are fair?

> CEO wants to make $20M? Nobody in the company can make less than $200k. Seems fair to me.

This seems likely to result in a situation where any work that can be is performed by external contractors not "in the company". Unfortunately, it's very hard (or maybe impossible) to legislate what things should cost.

Salary transparency at all levels would help quite a bit. The SEC rules around required pay package disclosure for execs is a major reason that CEO pay spiked in the 90s. You gain a good amount of negotiation leverage when you know exactly how much each or your peers are making.

We're working on salary transparency across different levels with our website http://levels.fyi (mainly software engineering to start).

We were thinking of launching an executive version of our site. Still in our plans down the road, but it'd require people willing to submit their compensation to our site in a verified way. We're still brainstorming, but there's a lot more nuance at upper levels where people negotiate across way more things than just strictly compensation.

The point about strategy vs culture reminds me of an article on here yesterday about how cephalopods have neural subsystems for controlling each limb separately, and they obviously have attention and intent - but it's still impossible to say if they have 'consciousness' such as wee know it. Similarly, it can be hard to tell if companies are run by intent from a central place or it's mostly the enduring culture in the subdivisions that produce the actual results.

I wonder to what extent this should also apply to e.g., schools or churches, or even parenting.

Conflict between kids? Make them decide together on a mutually acceptable outcome. Set values, don't make decisions. Mediate. I guess the difference is you can't fire your kids.

Sometimes there is one right answer and other wrong answers.

The sun always (at present) rises in the East. Not in the West. Also: not a compromise of somewhere in between.

Can the manager marshal the resources to determine a correct scientific answer for questions that are not a matter of opinion? Or even recognize when such issues are present?

Below a certain age you can make them sit in a room without toys or electronic devices until they decide to be cooperative.

It's not firing, but it can be motivational.

I'm intrigued both by the original idea and your thought of applying it to parenting. I've found that most good management technique turns out to be relevant to parenting.

Where I am we call that false imprisonment and indict people for it...

It would be interesting to do the exercise for universities. At a very high level, universities* are incentivized to enroll and produce more and more graduates, to reduce the drop-out rate, and to retain a high quality of output. How should that apply at the level of a prof in terms of pass/fail decisions for their students?

* at least universities who depend on a large extent on tuition money and government incentives to match said tuition.

Negotiating good decisions is a skill kids and maybe most people don't have and generally are not taught.

Whenever a conversation about executives come up, many tend to jump into the "this is not fair" band wagon. Below is a different take on senior executives that may help shed light on why some things are the way they are.

To become a senior executive, the individual must often pass through many trials and tribulations which entails risk taking. A portion of that comes with taking a leap into different verticals, inheriting and resolving other people's mess, taking a strategic perspective on things, etc. But you must think, "other's also have to go through that" and it is true, but for potential and new executives, it tends to happen more often and at a greater risk to the self and the organization. The risk they take also needs to account for competition, time without family/friends, emphasis in the company not in the self, etc. All of these are risks, and when compounded can increase the compensation value of an executive. If the market functioned differently it is likely that a lot less people would be interested in taking that jump, specially in today's economy, where most computer & IT occupations have a similar median pay than a top executive [1][2] (USA numbers).

As they become the 0.01% of the 0.01% in their area of expertise, they are able to command better compensation for their time. By being part of that equation, you often have to jump into publicly traded companies and become a public figure (internally & externally) which is viewed as a premium in market led opportunities (artists, sports players, etc).

A simpler way to visualize the demand aspect of it is to ask yourself: If you had $1m, would you prefer to put it in the hands of someone with reputation or in the hands of the average Joe passing by? Would you pay $300k to get the best doctor to treat your illness with a 5% higher odds of survival or would you be fine to do it with someone else for $50k?

Of course, there are still questions regarding market distortions, cronyism and many others that should be taken into account and potentially acted upon to create what society perceives to be fair. It is just important to be mindful of the overall picture.

[1] https://www.bls.gov/ooh/computer-and-information-technology/... [2] https://www.bls.gov/ooh/management/top-executives.htm

Like anything, there are good executives and bad ones. The good ones have worked in the domain for a long time, they have built a-lot of experience, and have good leadership qualities. The bad ones are professional "management" material, they seem to rely more on politicking than actually generating value. The latter make me think i could easily do their job, and it makes me resent the fact that i'm doing all the work and they are making much more money than me.

Agree. So how do we get more of the former category and less of the latter?

Executives leverage their personal relationships with shareholders and other executives to enrich themselves at the expense of shareholders and taxpayers through lobbying or shady deals. That's what they really do. All the other stuff they do is just a pretext to deflect attention away from what they're really doing.

I’ve always thought the film Margin Call got it so right:

John Tuld : Let me tell you something, Mr. Sullivan. Do you care to know why I'm in this chair with you all? I mean, why I earn the big bucks.

Peter Sullivan : Yes.

John Tuld : I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more.

When a company does well it is usually because the mid-level management is effective. This article doesn't say much about the hiring, training and promotion of an effective mid-level management team, which are all key tasks that must be managed well from the top.

On the other hand, when a company does badly, it is usually because top level management has made a bone-headed decision, e.g. makes a big investment in a product that fails in the market, fails to respond to a major change in the market that obsoletes current products, or makes a big acquisition that is a disaster.

This book [1], written by a renowned scholar of executivology describes exactly what an executive does.

[1] https://www.goodreads.com/book/show/7177278-how-to-relax-wit...

But wait! Where does my budget or authority come from? Andy Grove does not answer the question that underpins corporate life. How are resources allocated?

I've recently been very intrigued about executive pay.

Because your average work makes like, what, 1/1000 of what an executive makes. But those 1000 workers help that executive earn very high compensation, but then I guess managing 1000 workers is 1000 times more valuable than the work those workers do.

But all that sounds like an idea an executive would invent to justify earning 1000x more than what an average worker makes.

> But all that sounds like an idea an executive would invent to justify earning 1000x more than what an average worker makes.

Of course, and the recent absurd ratios of executive pay vs average workers are likely unsustainable. It is all part of the same echo chamber that gave us trickle down economics.

Realistically, most people in charge of money are the ones that decide how to allocate it and, without any other constraints, will allocate themselves as much of it as possible, as there is virtually no one else at the negotiating table to object. There are very few truly independent boards that would interfere in this self-dealing, as most are a self-referential loops of executive relationships.

Does an executive manage workers? I thought executives manage managers, and managers manage the workers?

Workers dig holes. Managers dug holes. Executives decide if holes can be profitable. Directors know a general who needs a lot of holes dug for the empire's war effort.

That isn't how it works out. Normally the executive gets far less than his workers get. Remember, there are many workers.

When I divide the pay of Boeing's CEO by the number of Boeing workers, I get just $100 per year. I am confident that the typical worker earns far more than that. The CEO pay is insignificant. He could sacrifice his entire pay to give raises for the workers, and they wouldn't gain even 1%.

Clearly, that CEO's work is not considered "1000 times more valuable than the work those workers do".

> 1000 times more valuable than the work those workers do

With a salary of $23M, Boeing's CEO is paid ~1000x what a worker is paid, which is how I read it.

"managing 1000 workers is 1000 times more valuable than the work those workers do" sounds like it's referring to the total work. At least it's ambiguous and ill-phrased if it means one worker.

That's the thing. If a top executive even makes the tiniest productivity impact across his organization compared to the next best candidate, he has enriched shareholders significantly compared to his comp. This is what makes competition for top executives intense, and fuels the crazy pay.

I’ve always sort of thought of it in reverse. You dont pay an executive to work at your company, you pay them not to work at a different company. In this sense Executive pay and employee pay aren’t directly linked.

Part of this doesn't make sense. It says the executive is supposed to have a meeting a ratify the one decision. But right before that it says that the two people disagree.

It seems to imply that those two people are magically going to agree to something before the meeting.

Is the idea that they are forced to either compromise or cancel all of their plans? It seems like a common outcome might be for them to pretend to agree and then go back to their own section and just do what they want.

I feel like there needs to be some kind of verification to ensure that different perspectives are actually being integrated rather than people just talking past each other. Also, sometimes just mashing two ideas together creates a third idea that doesn't work even though either one of the two original could work. Also, even if they come up with a viable idea, someone has to check that they are actually implementing it.

I think the article might be a little bit of a simplification. Sometimes an executive needs to integrate different perspectives and choose a direction that neither party could see.

This seems to make sense to me. The executive's job, then, is one of facilitation. It's modeling how to resolve questions, and asking the appropriate questions that questions their operating assumptions. This is a part of setting and enforcing values.

> It seems to imply that those two people are magically going to agree to something before the meeting

it's not magic, it entails preparation, but if you are holding meetings and you don't have the principal attendees at the meetings in agreement before the group gathers, you're going to have highly unproductive meetings and you'll encourage civil wars to break out.

Meetings work best when they present a solution to a problem, and get "buy in" from the attendees who each present to the group what they will be doing to advance toward the agreed upon goals.

The executive or manager who is calling the meeting achieves this by visiting each participant in the upcoming meeting in advance and asking, "here's what we are going to talk about at the meeting, what are you going to say on this topic?" and revisiting with "here is what so-and-so is going to say, how does that affect your team, what do you need to do to prepare?" etc.

People find it much easier to agree to group goals one-on-one and very much appreciate being given time in advance to prepare their plans and statements of purpose and not be caught off-guard. Other participants in meetings benefit from hearing the harmony of purpose at the meeting and they in turn step forward to announce how they will help.

Think of it like a football huddle where plans are announced and agreed to; people aren't going into the huddle looking to argue, they're looking for agreement.

And yes, I realize that many of you have not experienced meetings organized this way, and that's why I wrote it up, it was incredibly refreshing when I first got to experience a company run this way.

During the Grove era, Intel practiced "consultative decision making". The leader of the meeting owned the decision. The leader consulted all the meeting participants. Then the owner of the decision makes the decision (NOT NOT NOT voting.) One person owns the decision. As a participant, you get your chance to make your case. After the decision, you either "agree and commit", or "disagree and commit". To disagree and not commit is to undermine, and that is a "career limiting move".

> Sometimes an executive needs to integrate different perspectives and choose a direction that neither party could see.

Exactly why "disagree and commit" is so important. The decision maker is expected to have the integrated perspective that you may not have.

edit: Added clarification

This approach is really appealing to me, it sounds like a good way to cut through all the dancing around egos.

In retrospect, though, is this effective?

Absolutely it is effective. Of course, it presupposes consultative decision making as a cultural norm.

The idea of a single person owning any decision cuts a lot of crap, blame-shifting, and responsibility-dodging. The idea that you are expected to gather input from those that have it, and synthesize that into the best decision you can, makes information flow up the organization where it does some good.

The “disagree and commit” works both ways. I once had an issue that I felt very strongly about and made a “disagree and commit” phone call to a VP 3 levels above me on an issue I had been intimately involved in. I stated a coherent case. He heard me out with respect. I executed a plan I disagreed with. Life went on.

Also, in cases where I was the decision-maker, when things went bad, I knew who to go to when creating Plan B. When you own the decision, you own the recovery plan.

—- Edit to add: W.r.t. egos, the cultural norms play a role there, too. At the time I was there, people outside Intel viewed Intel people as arrogant — but inside the company that exact same behavior was not viewed that way at all. Being very direct and expecting clear thinking was just the way we interacted. It was kind of an inside joke that once you had absorbed Intel meeting culture, going to, say, a PTA or church board meeting would drive you nuts and you had to be careful not to seem abrasive when all you were trying to do is surface issues in a clear and cogent way.

That's fascinating, and exactly the type of working environment I'm looking to create.

Outside the US, I think we (rightly or wrongly) view American working culture as blunt and direct. From what you've said here, Intel seems like a very good case study to learn from.

> It says the executive is supposed to have a meeting a ratify the one decision. But right before that it says that the two people disagree.

Yes. If the two people agreed, there would be no decision to make; everyone would just do what they already agree is the right thing to do.

When the two people disagree, the purpose of the meeting is for them to come to agreement on what to do before the meeting, and then explain to the executive at the meeting why the thing they agreed to do is the right thing to do. That means they have to figure out something they can agree on.

> Is the idea that they are forced to either compromise or cancel all of their plans?

The idea is that each of them wants to do something, but the two things are different, and neither of them can do anything until they've agreed on a decision and gotten the executive to ratify it. If neither of them wanted to do anything not already agreed to, then, again, there would be no decision to make.

> It seems like a common outcome might be for them to pretend to agree and then go back to their own section and just do what they want.

And then they get fired because the executive is their boss and knows what they said they would do, and it's their job to do it.

> I feel like there needs to be some kind of verification to ensure that different perspectives are actually being integrated rather than people just talking past each other.

That's what the meeting is for. If they can't convince the executive that they've done this, they have to go back and try again.

> Sometimes an executive needs to integrate different perspectives and choose a direction that neither party could see.

I don't see why this couldn't be suggested at the meeting--and of course this would result in a "go back and try again" outcome, but this time with extra input from the executive on what they might want to try.

I almost asked this a few days ago: with all of the applications that deep learning AI/ML etc. have been put to, how come none of it ever touches the C-suite?

This is to ask: why haven't CFOs been automated?

See also The Manager FAQ by Peter Seebach, 2001:

http://www.seebs.net/faqs/manager.html

But how can we quantifiably score the talent of executives?

There are many things that can't be quantified for practical reasons. Executive talent is one of them.

The article says "There's even an algorithm for this. It seems too easy to be real." - I think that might be literally true; there is no reason why the highest job in the hierarchy should be the hardest. So there may not be anything there to quantify.

We like to think that, don't we. But the more I think about it, the less true it seems.

We seem to be able to measure every other form of talent. I think those with power vehemently resist measurement because they know it opens them to scrutiny.

Literally all they do is facilitate meetings so other people can do things for them.

You are a better executive the more you delegate and the less you actually do.

I'm not making this up, literally this is what the article talks about. If you don't do shit, you get paid more for it.

>Literally all they do is facilitate meetings so other people can do things for them.

No, they define the process for decision making (ie: the values) and then enforce that it is followed. That includes finding those who don't follow it and either providing guidance or ultimately firing them. Of course, the people you're trying to find may be actively trying to hide.

There is a difference between not making direct business decisions and doing nothing.

Dude they don't even do this. You don't get it. They DELEGATE the decision making, the values and the enforcement as well. The firing, the finding guidance is all delegated.

It've very very minimal what they do. The overall performance of the executive is determined by his selection of right hand men. The executives main skill is managing the board and selecting the right people to do things for them.

The executive is not talented at creating, building or running a company. His main talent is selecting the people who do it for him. Also honestly, all this "value setting" stuff is trivial. Ultimately the people underneath him adapt to what works regardless of values.

I've always kinda suspected this just because so many execs seem to have time to be on multiple boards, CEO of whatever, head of some charity, advisor to some startup they have a stake in, et c., all at once, and "they work a lot" can't explain all of that.

Caveat I should mention. Not all execs are like this, but most are, and this is all that is, in the end, required from the exec.

A contrarian example is Steve Jobs. A man who dipped his fingers into every aspect of the company.

Not true. It was just unpredictable what aspect he would go off on.

Hold on. You say not true but then you say he did dip his fingers in an unpredictable way.... Of course perhaps you meant he didn't dip his fingers into everything at the same time... Well of course he didnt... he did dip his fingers into random things and eventually over time it led to him basically touching almost every aspect of the company.

No. He went off on the color of plastic, the radius of curvature of a housing, the color of the resin in a circuit board. He had no concept of the control of electrical noise in the read head of a disk drive, but almost everything in the company was more like that than the damn plastic. He flattered himself that he controlled everything, and nobody contradicted him, but it was both delusory, and a damn nuisance when he did notice some detail to bother people over.

My phone is different from an iphone in literally millions of ways, some thousands of which Jobs could conceivably have perceived, but very, very few of them are better for his attention to them, and in many of them my phone is objectively better.

Steve Jobs built the company. Then he was ousted by an executive who only knew how to delegate.

Then Steve Jobs came roaring back and turned the entire company around.

The anecdotes you describe. I'm sure it's true. But it's not the full story.

Two paragraphs being the full story would be an anomaly.

But it matters whether they are true.

Former Apple employees disagree btw:

https://www.forbes.com/sites/quora/2018/12/13/how-did-steve-...

Ever notice how management always think estimates have tons of wiggle room as if you are screwing around half the day?

That's because that is their experience in the workplace.

A line worker must make 1000s of decisions a year, but even if all of them are made wrong, it won't break the company.

An executive only has to make a few decisions a year, but any one of them could make or break the company.

Selecting people and value setting may seem trivial, but that's because you only see the results, and not the process. Start from a blank slate and try to select the right people and choose the right values to make a company, and see how easy it really is.

It's not easy but it's not inhumanly hard that only special people can do it.

Also believe it or not, if the executive wanted to, he could delegate those few decisions as well. The key choice is he has to find the right people to delegate to, that's it...

If the executive has any type of special skill AT ALL. All it usually is, is having the ability to get to his position. That involves navigating politics, convincing people to give him money, making the seed money himself. These are the only things that make him standout if he isn't a founder or worked any other unrelated job.

A fire safety inspector, or people in charge of infecting nuclear facilities should earn millions

The reality of the world is that people are not paid by how much they deserve but by supply and demand.

The even deeper reality is that people aren't even paid by supply and demand but they are paid on the perception of supply and demand.

(Most) executives are paid not by supply and demand but by perception.

But those people don't really make decisions, do they? It's about strictly following a set of rules, to minimize your personal liability.

The rules are not strict or clear cut, in UK we recently had a skyscraper burn down (grenfell tower). The residents complained that it was a fire hazard for years. The court case is going on for the second year, and it's still unclear if regulations were broken, or regulations themselves are broken.

But even if we adopt your point of view, is the civil defining rules for safety of nuclear powerplants paid even 1% of the damage Fukushima has caused?

Execute misbehaving underlings

There is no question that executives do important stuff in the company. I've observed on several occasions their decisions that almost failed the company and the ones that succeeded and almost decimated much more experienced and rich competitors. The questions is - should they be payed x50 to x500 of the median yearly wage of the regular and senior staff in their own company? Their work may be x50 more important (debatable but possible) but it is definitely not x50 times harder, it is not even x10 times harder, it is at most x2-x3 times harder and slightly different. Question number 2 is - should they have almost complete financial and reputational immunity for their "bad" actions and decisions? (unlike regular staff)

Should athletes be so well paid? How about musicians?

Construction work is much harder than office work, maybe 2-3x. Should office workers be paid less, or construction workers more?

Whether something is "harder" has very little to do with compensation in a market-driven economy.

Majority of athletes and musicians are paid extremely little, if anything at all. It is only the top 0.1% that takes home serious money.

Spot on. And excutives are the 0.1% of the staff. They climbed up to the top levels of responsibility.

Whether they bullshited their way through is another story. But I do see some artists who climbed their way to the top selling charts, with little artistic talent.

Why people buy the bullshit from imposters, whether them be artists or executives, that is an interesting question.

> Spot on. And excutives are the 0.1% of the staff. They climbed up to the top levels of responsibility.

I think you meant top levels of decision making.

Executives rarely deal with the fall-out of bad decisions. Management and normal workers get axed, executives get a golden parachute and a cushy board job at another company from one of their fellow executives. In other words, they carry zero consequences and thus zero responsibility for their actions.

> Executives rarely deal with the fall-out of bad decisions

This is a fantasy. Executives come-and-go at the same cadence as regular employees as a % of staff. Look at any exec on LinkedIn and you'll see the same 18-36 month stints as everyone else.

Yes, they come and go, by their own decision. For promotions, bigger salaries and other reasons. How many executives were actually fired for underperforming? What is even underperforming for that type of job?

> by their own decision

Another fantasy. Plenty of execs are fired, it's just handled differently at that level.

> How many executives were actually fired for underperforming?

A lot.

> What is even underperforming for that type of job?

Poor performance, just like anyone else that's fired.

They're actually the top 1.5-2%, at least in the US.

There are roughly ~170M working folk of which an estimated 2.5-3M are "top executives".

Executives of small companies should not be counted, I really doubt they are paid as much as the rest of the company if the entire company is 200 people. For big companies of over 10,000 people there are not enough companies to have that many top executives.

> as the rest of the company if the entire company is 200 people

It's easy to confuse income with capital and earning potential. There are no shortage of well-off restaurant owners or other small-business owners with < 200 employees - I run into no shortage of them in Los Angeles. Thomas Keller, Gordon Ramsey, and their less-known partners make a lot more than their staff. It may not manifest in 1000x annual pay, but it definitely manifests as 1000x quality of life thanks to the magic of compound interest and financial leverage.

Being a capitalist puts you in an entirely different game - salaried or hourly employees are not capitalist, they're labor. This makes a big difference to banks and other money lenders, further giving leverage for future earnings potential.

> Majority of athletes

The average salary/income for any major league sport puts all of them in the top 1-2%. Baseball min is around $500k, NBA is around $480k.

How many basketball players never make it to NBA? Major leagues are elitte, there are thousands of players at lower levels.

If we're comparing executives at top companies vs. not, it's a fair comparison.

Most executives don't make it into the "big league", and those that do are paid pretty much like their pro athlete counterparts. In the U.S., the NFL is in the $16-25bn in annual revenues; NBA is ~$3-5bn; MLB ~ $11bn. Think about how well players are paid relative % of revenues.

Google is at $110bn. Microsoft $125bn. Apple ~$258bn. There are "pro executives" that pull in big paychecks because, just like their pro athlete counterparts, they make a difference. We just don't get to watch them at work and score their every move with easy-to-track-stats.

No one bats an eye when a pro athlete is paid $10m+ (besides other pro athletes).

It is not the point of the argument, but the "pay 50x". The top 0.1% of the athletes that take home serious money (50x more than average, let's say) don't work (train) 50 times harder, they are just successful at what they do; they are paid for success, not for the effort.

Wrong analogy.

Athletes don't own, shepherd the capital. For sports, that'd be the owners, GMs, etc.

Athletes are more akin to superstar sales persons. Many sales persons are pretty good. Some are amazing.

I think we’d get further if we asked, “should employees be paid so little”. Extreme inequality isn’t healthy for a free society, but paying CEOs less isn’t going to help people who are living pay check to pay check.

A better question is why are they paid so little. Right now that’s mostly supply and demand.

Why doesn't supply and demand drive down executive income then?

Surely we don't believe the supply of potential executives is so limited.

There is definitely a shortage of proven executives.

Can we even define what a "proven" executive is?

> There is almost no persistence in CEO performance [1]

Meaning that a successful performance as a CEO does not indicate that future stints will be successful.

[1]: https://www.institutionalinvestor.com/article/b1db3jy3201d38...

In a large company where a top executive earns over a million dollars per year you have multiple levels of managers, directors, VP's. They all earn more than the lower level, from 20-30% to double that, otherwise there is no incentive go invest all that time and effort in a career for a 5% increase. That means the top executives need to be paid more than the people below them, that makes it quite a high starting point. Yes, paying executives more than 10 million a year is probably too much, but the number of such position is quite small and there is still the benchmarking: you cannot offer a CEO of a top 25 Fortune 500 company the same package as the CEOs of the bottom 25 in the same list. Running successfully a larger company should be rewarded better, at least in theory.

The fact that supply and demand creates this kind of situation is a good reason not to rely too much on it.

"little" is relative. An employee could be a single student living alone or a parent of 5. It's really not up to the employer or society to make sure an employee is financially responsible.

Just giving people an instant raise is a band-aid and will only last a few years before inflation catches up.

Education is the answer. Anyone not making enough to survive should focus on learning new skills and getting a better job.

We also need to teach personal responsibility. Some people are in bad situations and are responsible. But many never learned it in the first place and have multiple kids with no way to support them or just continue to make poor financial and life decisions that lead them to a situation where they have a job and are still living paycheck-to-paycheck. No government action (unless it means total control over a person's life and decisions) or pay boost will ever fix this because the amount of money needed will just continue to increase over time.

It's pretty difficult to start making good decisions and dedicate all of your free time to educating yourself when you've busted your ass all day, you're tired, and you still have shit to do. This bootstraps mentality just ignores reality.

I personally always really want to learn new programming languages and start new projects! But after working all day I just can't bring myself to do it and all the other things I need to do most of the time. Sometimes I can do a couple hours or devote a Saturday, but it doesn't feel like much. And I love programming, and it's one of the easiest, cheapest things to extend your knowledge in. So how is someone who works bent over 40 hours a week going to have the physical and mental energy and the money to learn to be a welder on his own?

"It's pretty difficult to start making good decisions and dedicate all of your free time to educating yourself when you've busted your ass all day, you're tired, and you still have shit to do. This bootstraps mentality just ignores reality."

I'm thinking about the big picture: preventing someone from getting in that situation in the first place, rather than trying to fix every individual case that's happening now.

The bootstrap reality doesn't ignore reality. You can always find some spare time to learn something new.

"So how is someone who works bent over 40 hours a week going to have the physical and mental energy and the money to learn to be a welder on his own?"

We all have free time, even if you are busting your ass. Most people don't work on the weekends. It takes sacrificing your free time and forcing yourself to stay motivated, to succeed.

How is it not up to society to make sure that the people in it who are working to the best of their ability are getting a share of total economic output that makes it possible and bearable for them to live in said society?

If you are already living in a cheap area, in a studio apartment or with roommates, if you are not splurging on luxury items, you are working 40-70 hour weeks, and what is left over after you've paid rent, utilities and insurance is < $100/month, it is not an issue about financial responsibility anymore. It is an issue of those workers not getting a fair stake in society's economic output.

Education in and of itself is not the answer, when reality is that there are going to be people at the bottom rungs as long as there are fewer decent-paying jobs than there are people who need them. At the local level it's a zero-sum game: If I outcompete someone and get a job, someone else will not. The problem is not solved, the burden has just been put on someone else's shoulders.

It will if you accomplish it by taking the money you would have given to CEOs and giving it to workers instead.

The risk and reward of hiring the wrong CEO is way, way higher than a single engineer. Combine that with supply and demand to try and hire the best exec, and it's not hard to see why exec comp can get very high. It might not feel "fair" but this is capitalism and the market pays for value not how hard you toil in the field.

> should they have almost complete financial and reputational immunity for their "bad" actions and decisions? (unlike regular staff)

Do they? Bad execs should be fired by the company's board. If the board is not doing a good job there, the business is bound to fail spectacularly. Also, execs at public companies tend to be public officers - their reputation is very much on public display. They are taking a big risk personally compared to a typical staff member. Maybe not so much financially - but they are employees, not founders.

Can you elaborate on the risk you think they are taking? If they lose their job, well, they spend a little quality time with their money then move on to some other multimillion dollar job. They were a senior executive at one company so they can go be a senior exec at any other company.

If I get fired, I panic as I blow through my savings and take whatever job I can get. I find that scenario to be a lot more of a risk.

> They are taking a big risk personally compared to a typical staff member.

Negative effect of a failed CEO: $25M in severance pay [1]. Roughly 10-12 times the lifetime earnings of a college graduate [2]. When the cost of failure is to have enough income to live very comfortable for the rest of their lives, that is not a large cost.

Negative effect on employees: needing to find a new job, move to a new location, start a new social life, and that is all assuming that there is the recommended 3-6 month emergency fund. When 40% of US adults would be underwater from an unexpected $400 bill [3], this adds debt and uncertainty to be able to start up again.

[1] https://www.beckershospitalreview.com/compensation-issues/he...

[2] https://www.ssa.gov/policy/docs/research-summaries/education...

[3] https://www.fool.com/retirement/2018/05/23/guess-how-many-am...

I didn't mean financial risk. As a public officer, you are taking risk in terms of your public reputation and legal responsibilities. That does factor into the comp - in fact, it is fairly common in certain highly regulated industries for the CEO's entire role to just to take the burden of liability.

So, how many banking executives were found criminally liable after, say, the 2008 global financial crisis?

In places such as Iceland, where bankers have not 'integrated' so deeply with the government, the banks were allowed to crash and top executives served years in prison. [1] This included people all the way up to chairmen. It had a catastrophic short term impact, but Iceland's economy rapidly recovered and remains healthy to this day. Incidentally their current president has an approval rating upwards of 90%.

Obama in 2009 was optically in conflict with bankers. Quoting things such as "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street" [2]. 8 years later, he's getting paid $400k for 30 minute talks by them, repeatedly. For some reason banks and investors don't seem so anxious to turn Icelandic presidents into multimillionaires for a few hours of talking once they leave office.

[1] - https://www.independent.co.uk/news/world/europe/iceland-to-s...

[2] - https://www.reuters.com/article/us-financial-regulation-obam...

Economically, risk is impact times probability. If there are more than just a few companies that are reasonably comparable to one another, then it should be possible to quantify an executive's risk by looking at the past performance of similar executives.

An executive can, and should, arrange matters so that they come out ahead of the average worker even if they fail at their jobs. In that case, their risk is still lower than the average worker's.

Maybe they take some kind of big psychological risk? I doubt it. I'll bet that they are as rational about their jobs as we are about ours, and they see it as a pure transaction with no emotional attachments.

I don't think parent is talking about risk to the executive, but rather risk to the company.

Or to put it another way, executive compensation must be order of magnitude comparable with potential personal gratification should the executive act in their own (and not the company's) best interests.

Paying an executive less than that is asking someone to make a suboptimal personal choice.

And while you may find people willing to do that (because ethics), you won't reliably always find good people who make that sacrifice.

To me, this sounds like general purpose wage competition. I mean, even doing my own job for much less than the going rate would be a suboptimal personal choice, a sacrifice, etc. My wage level is enough to ensure that acting in the company's interest is also in my personal interest.

In fact, every player who is involved with the company (workers, suppliers, shareholders, customers, etc.) is assumed to be acting out of self interest. What management does is to arrange matters so that self interest coincides with a unified interest that is the business entity.

They should take as much money as they can grab, just like the rest of us. If inequality is a problem, I think it's better to address it through taxation than through wage fixing.

this might be the only realistic way of solving the immediate problem, but I don't find it very satisfying. I don't believe people like mark zuckerberg have actually created billions of dollars of value themselves. it does require hard work, skill, and a bit of luck to get that initial advantage, but then the few people that find themselves in this position are able to ride network effects all the way to the top, basically exploiting a market failure.

imo, the ideal society is the opposite of what you said: people who do "useful" stuff should get to keep most of the value they create, and there should be mild restributive programs to ease the burdens of people who can't really contribute. definitely not realistic, but this is the ideal I think we should shoot for. the team of researchers who cure cancer should be worth more than guys like zucc.

note: I don't mean to single out zucc; I just think Facebook is a good example of a valuable company that hasn't improved the world.

Why should the tax payers subsidize Zuck's income? Imagine facebook has a $100 million profit. If it pays that to Zuck, the company then makes NO profit and pays no tax. Zuck pays income tax on it, but it's not double taxed through the corporation.

Thus, the tax payers are subsidizing Zuck's income.

I'm suggesting that in a society where only people who do useful things get rich, owners of businesses that have attained most of their value through exploiting network effects will not be extremely wealthy.

I have to deal with middle and top tier executives in many sufficient big companies, if not fortune 500, most of them are quite responsible and efficient in the work they do.

> parallels with Canadian parliament, where theoretically all decisions must be ratified by the seemingly powerless Governor General, who represents The Queen

This sounds to me a lot like the executive is superfluous, much like the monarchy can be discarded

He'd be a fool to intervene in the affairs of a sovereign nation, he only has this grandfathered position because he's never been fool enough to use it.

> To paraphrase the book, the job of an executive is: to define and enforce culture and values for their whole organization, and to ratify good decisions.

For larger orgs, sure. For small and quickly growing orgs, ie the majority audience here, no.

The article has a section about this ("Epilogue: small companies")

Good point, though the author does address that a bit in the epilogue:

Almost none of this applies to small companies. They are so small that the founders and the CEO actually do have a chance of fully understanding problems, which means they don't yet need to delegate decisions.

> For small and quickly growing orgs, ie the majority audience here

Is there any data on this?

The transition from small to large insofar as it defines an executive's role happens pretty fast. I'd guess it should happen in as little as one quarter of a person's monkeysphere. Not many people would consider a 30-ish person organization to be "large".

I think you can still have quite a bit of understanding on the overall status of a 30 person company. The CEO has 4-5 direct reports, of which the biggest departments have 10 reports. The CEO can have a pretty good handle on what's going on overall, and people can know their departments damn well.

This stuff definitely starts coming into play at around ~100; then as a department head who's been there since the get-go, you might have 30 reports; on some topics you're an expert who should be directly involved, sometimes not...

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