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Comment by Yizahi | Hacker News Reader

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)

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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.

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.

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.

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.

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