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missedthecue

I hate this comparison. Stock based compensation didn't exist in 1965. It's an oranges to apples comparison.

CEO salaries today are still about 20-1, depending on the business. For instance:

- Doug McMillon of Walmart makes $1.2 million in salary.

- James Quincy of Coca-Cola makes $1.5 million in salary.

- JPMorgan's CEO Jamie Dimon has a $1.5 million salary.

- Sundar Pichai of Google makes $2 million in salary.

You only get 312-1 by adding in performance based stock and incentive alignment options. But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. Knowing this, the whole thing is way less of an outrage. The comparison is so uneducated.

If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does. Carl Icahn for example is wildly against this level of CEO compensation because it dilutes his ownership.

John Doe on his forklift stacking pallets in the Coca Cola factory is not made poorer over excessive CEO pay. Carl Icahn is.

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You're not wrong, but the perspective feels like missing the forest for the trees. So what if stock-based compensation was uncommon in 1965? The average employee doesn't get to benefit from the very real contributions they've made to the company, while the CEO does benefit. Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs? That's still relevant.

Additionally, your comment leaves out the golden parachute CEOs often have, which is orders of magnitude greater than most severance packages, if there's even a severance package in place. Financially, it's pretty hard to fail as a CEO of just about any public company; even in failure, you profit considerably.

Exactly, pensions were considerably more common in the 1960s also, but at the end of the day, I don't really care if my retirement is actually funded by a pension or a 401k or by stuffing dollar bills under my mattress, I want to know when I can retire and how comfortably I can live when I retire.

Yes, getting into the weeds is valuable, but here we're talking about the money in your bank at the end of the day, and that CEO salaries haven't changed much doesn't say anything.

Yes, a CEO should be making more money than the average employee. The debate is over how much -- why do CEOs get absolutely massive bonuses and golden parachutes and stock options and for employees it's expected that you put in the work in the hope of future recompense in terms of bonuses, promotions, etc.

Didn't you just say the stock owners were being diluted by the CEO compensations? Doesn't that include the 401k and pension funds? Isn't this is a massive transfer of wealth the the managerial class, justified simply because they can do it, and leave the consequences to others to clean up.

Bingo. The massive growth in the stock market in the past 40 years is directly a result of the massive inflow of capital from middle class 401k purchases. Overinflated CEO compensation packages are a way to siphon some of this into the pockets of the ruling class.

No it’s not due to that. How do I know? Look at PE ratios. Stock prices are backed by earnings.

I think the Cyclically Adjusted PE ratio is more useful in this regard. It does seem to point to overinflated prices compared to earnings. The current PE ratios are only surpassed by those during the dot-com boom when people found it difficult to create valuations grounded in reality. One theory is this is due to access to cheap capital in the last decade +

https://www.multpl.com/shiller-pe

> why

Because their decisions can drive a company into bankruptcy or transform it into a trillion dollar company. Your average line employee has no such leverage from their actions.

That would make sense as a post-exceptional-transformation windfall. Not as standard comp for keeping the seat warm while saying "yeah do more of that thing that prints money".

Why would any company hire a CEO and pay him millions to warm a seat? Why would the stockholders put up with that?

I don't know, but half of them are below average by definition.

Take a scan down the Fortune 500 and put a star next to each one you think has had 'exemplary leadership' rather than 'competent administration' or 're-arranging deck chairs while the titanic burns'.

The CEO of eBay got busted sending bloody pig masks to people who left bad reviews on the internet, for god's sake. These people aren't a higher plane of being.

Stockholders are increasingly not putting up with it. Votes against are still kind of rare, but they do happen: https://www.restaurantbusinessonline.com/financing/starbucks...

But also, the board makes CEO decisions, and it's not totally uncommon for board members to also be CEOs of other companies, so they buy the kool-aid because they also benefit from it.

Plus, CEOs and boards don't exist in a vacuum. You've got to keep up with the Joneses if you think you're letting a good candidate get away.

The stockholders can revolt. If they don't, and it's their money being handed to the CEO, is it reasonable for non-stockholders to gripe about it?

Almost everyone owns stock in all the major companies - indirectly via their 401k or index fund.

To a first approximation, there are no non-stockholders.

One real question is why, when stockholders vote on CEO compensation, fund managers are allowed to cast the votes of fund investors. If you invest money on behalf of other people, there are all sorts of fiduciary duties to keep the money separate, but that money gets you votes, and you get to vote them according to your personal preferences, not according to the preferences of your investors.

We're all stockholders, and anyone with a 401k is, by way of Vanguard and Blackrock.

So don't invest in corporations who you believe overpay their CEO.

1) The CEO compensation, while grotesque, is a drop in the bucket. Would I avoid eBay because they've employed a revolving door of terrible CEOs? No, I avoid them because they're a bum opportunity. The CEOs know this, better ones go elsewhere, yet somehow they still pay top dollar for the leftovers they can get.

Good company, bad company, the CEO compensation won't drive the stock price. It's still grotesque and unnecessary, you could pay half or less and get the same mediocre result in most cases.

2) I lied, I don't avoid eBay. I buy the same index funds as everyone else. Shareholder activism is a myth right now unless you're one of a very few people controlling in actuality a very small % of the market.

Tim Cook.

Compared to Steve Jobs, Cook is milquetoast. He's fantastic at supply chain management, and milking existing products/services. He's exactly what stockholders have wanted for a CEO after the Jobs died. Someone to basically do the same thing for decades. Milk the iPhone for all it's worth.

Yes, I know he's introduce the Watch and AirPods. But he also introduced the HomePod. He's no tech visionary, and eventually his value will drop and Apple will need a new leader. But for now, he's warming the seat.

Do you really believe Cook is just warming a seat? There's a lot more to running Apple than being a visionary.

I'm an Apple shareholder since before Cook, and admit I was skeptical about Cook. But as a shareholder I'm very happy with Cook's leadership. If his compensation is $$$$, that's cool with me.

BTW, Jobs was a visionary, sure. But that wasn't enough - he nearly wrecked Apple through mismanagement. Next Inc. bombed due to his mismanagement as well. But Jobs learned how to run a company with his management of Pixar, and then returned to Apple as still a visionary, but with management competence.

But hey, I might be wrong. Let us know how your shorts on Apple are working out.

I don't own any stocks directly, I prefer index funds. But I've owned Apple hardware since 1984, so perhaps I've invested in Apple through side channels.

I'm sure Apple shareholders are happy with Cook's leadership. AAPL has done very very well in the last 20 years. But is that due to Cook, or is that inherent in being CEO of a company that created the iPhone? Would Scott Forstall have been as effective in driving the stock price higher had Tim stayed as COO?

Imagine Apple today without the iPhone. It would still be a 2nd tier personal computer manufacturer with a recognizable design aesthetic. But everything that makes Apple the trillion dollar gorilla stems from the iPhone. Not only the outsized profits from selling 200m units a year, but without the iPhone, there's no iPad. No watch (same cpu designs). And no M1 Macs to boost sales to 2x the previous year. All stemming from a bet Apple made in 2004.

And when they drive it into bankruptcy, the company will still go to court to argue that these bonuses, compensation, parachutes should be paid, regardless. Win-win game. Except for the employees and shareholders.

Stock based compensation goes to zero in bankruptcy.

Usually somehow the execs have sold out just before the bad news, while the regular employees haven't liquidated their 401s/stock plans.

Usually? Please ...

That's called insider trading and those who do that ends up in jail or at best have to hide in the sun for the rest of their life.

A recent example would be Intel's CEO Brian Krzanich dumping as much stock as he could after learning about Meltdown and before the news went public.

https://arstechnica.com/information-technology/2018/01/intel...

The article also cites Equifax's CEO selling before the news of their data breach went public.

And that's just the ones that are prominent enough that everybody knows about it.

Even just the routine sell off ten percent a year or whatever a financial planner would advise is something one can't do with your 401k.

There's of course legal ways to do similarly. I thought this was a good example of John Krafcik's resignation which to a certain extent meets the same aim:

Official resignation letter:

https://blog.waymo.com/2021/04/capstone-of-my-career-email-f...

"Interpreted" letter:

https://gist.github.com/ChuckM/ff5fc8c800c7fe9160483b68ec45a...

Is "hide in the sun" an idiom I'm unfamiliar with? Genuinely curious about what this means

Not OP, but I take it to mean that they flee to a tropical country with limited extradition laws.

> Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs?

Because employees generally hated profit sharing and created unions to fight against it. Joseph Blasi talks about this in his book The Citizens Share. And it's not like he's some crank conservative, he's the economic advisor for Elizabeth Warren.

A good example of that [0]. Amazon is quoted as saying that hourly employees prefer the "predictability and immediacy of cash to RSUs", and I imagine Amazon would prefer to give RSUs, so this is probably accurate.

[0] https://www.theverge.com/2018/10/3/17934194/amazon-minimum-w...

If I'm making a below-livable wage, I need ALL of that cash NOW. I can't wait a few days for it to clear - I can't handle the loss if I have to sell in a dip.

And amazon is using that fact to justify lowering total compensation for hourly workers, so I don't think they actually do have an incentive to give RSUs in this case

Cash is generally better than its equivalent worth in RSUs. If Amazon faces fiscal troubles, then you can potentially both lose your job and your retirement plan. The upside of potentially becoming a millionaire doesn't make up for this.

The problem is that a lot of people will spend their surplus cash on more consumer goods rather than rather than investing it their 401ks.

an RSU is a massive tax problem, for one thing.

How so? Isn't it just taxed as normal income at vesting time? Most employers automatically sell enough to cover the tax withholding to solve any issues.

Wash sales, long term/short term gains and associated tax issues, RSU withholding which is a fixed amount and not based on the income tax withholding, and a typical broker account to sell/get money are massively more complicated than a direct deposit to your bank account and money back from the government at the end of the year unless you massively screw it up.

By number, most of Amazon’s employees are working minimum wage and probably don’t have much of a balance. Many of them might get evicted if pay gets delayed even a couple weeks.

FWIW, Amazon doesn't treat its warehouse employees well, but it does pay more than minimum wage.

I only have limited experience but first I had to do an 83(b), then dealing with a K-1, and didn't make crap from the company so my RSU ended up costing more in accountants than netting money for me.

Amazon is probably a safer bet.

You can't get a CEO without offering a golden parachute. This is because you're not hire a loser CEO, you're going to hire a winner, and you'll need to attract him away from his current lucrative position.

It's the same thing as top athletes getting contracts paying them millions of dollars whether or not they continue to win games.

> top athletes getting contracts paying them millions of dollars whether or not they continue to win games.

I know in the NFL, a lot of those contracts have clauses big enough to drive a dump truck through. Many of those million dollar football contracts are back loaded to only pay out if the athlete competes the full term [0]. Winning and losing games is definitely tied to whether they stay or are cut.

Unlike a CEO, a poor performing athlete has no golden parachute to fall back to.

[0] https://www.pff.com/news/nfl-salary-cap-terms-tricks-to-know...

You don't think that CEOs also have a lot of performance related clauses? Stock options are, for example.

They get paid more for good performance but they don't get paid less for bad performance.

Athlete contracts on the other hand are fixed. If the athlete does well the team organization gains the benefit. If the athlete does poorly the athlete may be fired or transferred. And there is no gold parachute when they are cut.

So I don't recognize the similarities between CEO and pro athlete compensation at all.

In practice compensation clawback can be quite difficult. https://hbr.org/2021/03/why-executive-compensation-clawbacks...

Athletes aren't comparable to the CEO in this situation.

Athlete pay (at least for athletes who are paid by an owner and not mostly from prize money) isn't really tied to winning or losing, but is largely defined by collectively bargained negotiations, based on how much the league brings in. You also have guys like Bryce Harper who, even when he goes 0-for-3, will earn their keep in other ways, like getting people to watch games on TV which increases rights fees & ad rates, selling tickets to games where people spend money on parking and beer or jersey sales: https://www.mlb.com/news/bryce-harper-sets-pro-sports-jersey...

In short, athletes get paid a lot because they know how much money their bosses are making from their labor and have collectively bargained to get their fair share.

I must say I'm amused by the notion that people running around a field holding a ball are worth megabucks while people managing a company that provides jobs to 100,000 people and valuable services/products to millions ain't.

> The average employee doesn't get to benefit from the very real contributions they've made to the company, while the CEO does benefit. Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs? That's still relevant.

This is correct, but the post you're replying to has the answer: CEOs successfully claimed more of the portion of surplus value which was going to stockholders, employees claimed less.

It's key to analyze these things if the goal is to see employees better rewarded, as they should be, but it must start from the correct analysis.

The details of how to do this are way over my head, and I won't embarrass myself by trying to make suggestions here.

Give stock to employees. Easy

Instead of cash? Just like money, stocks don't grow on trees.

They find them for CEOs.

There are about 100 references on this page here alone stating that CEOs get relatively low cash comp in return for exceptionally high equity comp. Even CEOs have to treat equity as a form of compensation (duh!), and they have to trade off one against the other.

Some people here also pointed out that Amazon would rather pay RSU, but people prefer cash. We all know that Amazon outperformed the market in the last couple of years and that the RSU would have been more valuable than cash, but even with the benefit of that hindsight, most warehouse workers would still pick cash because they don't have the privilege of making long-term investments. The sad reality of today's society is that it's not that hard to make profitable long-term investments (just look at pretty much anyone's 401k) - but for the majority of the population, they just don't have enough money to put it to work.

> There are about 100 references on this page here alone stating that CEOs get relatively low cash comp in return for exceptionally high equity comp.

No, there are references stating that CEOs get exceptionally high equity comp in addition to exceptionally high cash comp.

Win on the carousel, don't lose on the swings. They've set it up so they can't lose.

To a certain extent, I think the worker is at least in part to blame. According to the BLS, union membership has declined from over 20% in the early 1980s to 6.3% today in the private workforce. I personally don't think it's by chance that this coincides with wage stagnation or even decline.

Union membership is much higher in public institutions (I personally have some issues with that but it's a digression) which probably un-ironically are known to be relatively stable and well paid.

And yet, workforces continually vote against unionization while these debates about pay abound. Maybe it's just the vocal minority, but I don't quite get it.

Interesting that you phrase this as the worker being to blame and not anti-union lobbying and legislation, coupled with an intense psyops campaign from the landed gentry to convince the serfs that voting for their own interests is un-american.

Yes, because I give the individual's agency and try not to infantilize them. They have a right to collective bargaining protected by the right of association (within the US at least). They choose not to wield it.

Why can’t employee compensation also come from diluting Wall Street?

Why do they vast majority of those benefits go to top executives?

The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO (eg: what was Apple doing before Steve Jobs came back?). The workers can obviously leave and seek employment elsewhere. So can the CEO.

For better or worse, the data presented in the parent post indicate that the market seems to be increasingly siding with the CEO-side of the above argument. I am not really sure that there's a simple regulatory move that would negate that (eg: you can cap salaries, but CEOs make most of their money from stocks. You might be able to cap how much stock a hired CEO can own, but most of the wealthiest people like Bezos and Zuck are founders).

>The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO

And a pragmatism can say that all kinds of CEOs have driven companies to the ground, reducing their valuation even 1/10 what it was, and destroying their market share, and walked away just fine, with golden parachutes and even bonuses...

CEOs get more because CEOs get to determine what they get (and the board members and execs rub each other's back when it comes to their collective advantages).

It has little to do with performance and "whoever is responsible for the success of the company".

A sharper metric: it tends to do with whoever is responsible for the success of the company at the least cost to shareholders.

Imagine a company starting out. If they need you to join or they fail, and they can get you for 1% of the company, that founder is rewarded incredibly for securing you with very minor cost to the company, making them rich and you not, even if you are responsible for the success of the company. The reason being: if you’re so integral why didn’t you start your own company and keep all the equity? Why didn’t you bargain for more?

Capitalism doesn’t make any prescriptions about what should happen, it’s just a system where individuals make consensual transactions and the chips fall where they do.

In the above scenario, whether the founder “deserved” to be rich or not doesn’t matter, because you “made” them rich with your consensual transaction. As long as we are all free to be the founders or the employees, I don’t see why there should be some moral issue there. If your effort is worth more to others, either you need to haggle harder, start your own company, or you’re lying to yourself.

Everyone is a stock in capitalism, that’s all that is true. Everyone sets the value of each other’s labor and capital. If your stock isn’t doing so hot it’s because others aren’t buying it.

The problem with this position is its naivety. Are you going to say with a straight face that all potential founders are equally likely to be funded by investors purely on their probability of success, and not via false signals and stereotyping if not straight up bigotry? That there aren't credentials that can be effectively bought to gain access to that?

Markets are just markets, not oracles of unbiased merit. Making whatever the market does morally normative as you're doing is frankly, evil. They're useful tools, but that is all. They should not be a religion.

It's advocating for evil – how evil such advocacy actually is depends on your influence.

That argument sounds familiar, but it's not reflected in the latest YC stats (32% of founders come from underrepresented groups). I feel good knowing that one of the fastest career paths in the history of the world has a 32% admission rate to practically anyone anywhere in the world (again, if you're feeling down about your chances as a US citizen, spend a minute talking to one of the Nigerians in YC and your perspective with change instantly).

>I feel good knowing that one of the fastest career paths in the history of the world has a 32% admission rate to practically anyone anywhere in the world

Anybody, as long as they had a westernized upbringing, access to computers and education, and a middle class or higher status in their country...

Fair enough. But having all those things in Nigeria still puts you way behind someone who was born into a poor family in the US (out of around 200 founders I met at YC, far more of them reminded me of Garry Tan - who is awesome! - than of the Winklevoss twins). It's not ideal in either case, but some things are less ideal than others.

It's simultaneously possible for YC to perpetuate the problem while having better stats than typical.

I was making the opposite point actually: markets ARENT moral, and what they support isn’t moral. It isn’t necessarily immoral either. They’re just systems of consensual transactions where everyone collectively decides value. The parent comment was making the point that markets should be moral, but are currently immoral. My stance is that they have nothing to do with morality.

They certainly shouldn’t be a religion, but they aren’t just “useful tools”. Not infringing on people’s freedom to make consensual decisions should be the default, not some “tool” we “allow” because it’s “useful”.

This isn’t about worshipping capitalism or markets, this about the fact that preserving individual freedom necessarily results in free markets. The core ideal is individual freedom - which is moral - free markets are just the byproduct.

> As long as we are all free to be the founders or the employees

But we're not. Much of it comes down to the simple lottery of the circumstances into which you were born.

If you have an inherited trust fund, or wealthy parents and friends to fall back on, you can take huge risks, one of which might eventually lead to a multi-million dollar payout even if several of them fail dismally in the meantime.

But if keeping a roof over your head and putting food on the table today is dependent on working two backbreaking jobs today and every day, you're not "free" to be a founder.

"To them that have, more shall be given."

As someone who grew up lower middle class to poor, with parents that struggled to put food on the table for a great many years, and who dropped out of an abysmal highschool to go full time into tech at 16 - and is now in stealth mode founding a startup - while what you are saying is OFTEN true, it is never ALWAYS true.

The things I got from my parents are things many people have had - some of which; such as help buying a terrible beat up old ‘78 Dodge Van to move states to my first real job, or a relentless drive to get better, to DO better, a great many people have had. I’ve also been lucky to get into the industry when someone motivated but without credentials could get started.

I’ve had zero money from them since I started working at 16, and before that it was a minimal allowance I earned through hard work with chores. I earned the $200 to buy my first computer digging holes and repairing fences.

Don’t buy into the myth it’s not possible. It’s self defeating. Also, don’t buy into the myth it’s easy for anyone - even those from money. It will test you like nothing else will, and I’be done enough hard things over the year to know

Performance and incentive alignment. John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast, and he plays a very minute part in the direction of the business. The CEO on the other hand can have a huge impact, and it's why shareholders choose and vote on certain incentives and bonuses.

But more importantly, in other businesses this type of comp is certainly offered. If you work in a small startup in any position, you probably get stock options, because your performance on a 10 or 20 person team probably does have real noticeable and measurable impact on the business's success.

> John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast.

A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving.

Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.

> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.

While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.

> As long as you are still employed by the company that granted you the options

I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.

> A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process.

But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small. To make it bigger, John Doe needs to stop being a fork lift driver and move to some other position with more leverage. And a person who really does have the ability to "improve efficiency and innovate" enough to make investors notice is probably better off quitting their current job and starting a startup.

> stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.

My experience is that virtually all employees of large corporations who get stock options exercise them for direct cash, meaning they never actually own the stock; they "buy" it and then "sell" it immediately and take the cash (in practice whatever financial institution is running the company's stock option program does all this automatically and just sends the employee a check and a 1099 form for when they file their taxes). So virtually no employees actually take the opportunity to invest in the company. They just take the additional immediate income.

>But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small

Depends on whether you count sharing his "this is a better way to use a fork-lift" around the company as best-practice as being due to his innovation or due to the manager who made it best practice.

If you count that as his innovation, then it isn't small if there are a lot of other people doing his job. If Amazon could use fork-lifts in their warehouses 10% more efficiently, they'd save an enormous amount of money.

> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.

As a technicality that's true, but irrelevant in practice. Employees receiving options are nearly always going to do a same day sale where the option is excercised and immediately sold and you get the difference. No need to put any money in.

> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.

Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.

> i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.

And lose the opportunity at longer-term gains for the ability to afford the short-term cost. They're really not equivalent at all. I know they're billed that way, but there are very real reasons startups forgo IPO for so long and remain on the options track in the meantime. Startups can offer stocks and often choose not to.

But why not give them stock options as well? Why shouldn't all the people employed by the company share in its success? Even if it's the CEO's decision which determines the direction the company will go, it's all the people implementing that plan that actually cause the company to make money and succeed.

A lot of companies do. Microsoft has generated 20,000+ millionaires or more from its employees.

And it's not like a top down plan is the key. Having all the people in the company feel interested in and empowered to fix problems they see is the key to a successful organization these day. A genuine commitment to "people are valuable" is key to getting people's interest in fixing problems.

Another example is salesmen. They get paid mostly on commission. Their sales are good, they take home $$. If they sell less, they take home less.

A lot of employee compensation does come from diluting Wall Street. Until recently, Tesla was operating at a loss. During that time the workers were paid by diluting equity.

"Heads I Win; Tails You Lose" --Majority Top Executives

I don't think "upper management comp has exploded only because they invented an entirely new way of compensating themselves" is the get-out-of-jail-free card you seem to think it is.

This distinction seems meaningless. At the end of the day, the stockholders own the business. They are paying the salaries of both the CEO and the pallet worker, regardless if it comes in the form of cash or stock.

Also wages don't always come from cashflow. Amazon lost money for its first X years. Salaries and everything else were covered by investor cash.

First, when PG compare wealth of rich persons, he does not just compare salaries but the total wealth that come from the total of incomes.

Second, there is something not to forget about the stocks:

It is a "right" to the proportional part of all the future financial results of the company.

So, let's forget about inflation and consider equivalent dollars:

Imagine you have a 30 employees company, that will generate 1000$ of income. Of these 1000$, there is a 50% margin, so it remains 500$ of benefit.

In 1965:

- Boss will have a salary of 200$

- 30 employees total wages of 300$ (so 10$ per person)

- Net result of 0$ (total of stocks, going to the boss anyway)

In 2017, same company and conditions:

- Boss will have a salary of 50$

- 30 employees total wages of 19,23$ (so 0,64$ per person)

- Net result of 430,77$

The net result belongs to Boss + other shareholders.

-> boss get: 150$

-> other shareholders get: 280,77$

(So in result 200$ for the boss, 0,64$ per employee, 312-1 ratio)

Some people will say that the stocks value, based on valuation, does not correspond to 1 year of revenue. So, for example a 100$ stocks might correspond to an expectation of 10 years of 10$ benefit.

But, on the previous article the 312-1 ratio corresponds to a year compensation, that is repeated every year. So it means that as a boss, you will also get new stocks or bigger capital for your stock every year to have this ratio maintained.

A more useful longterm metric is total compensation CEO:worker ratio. Stating the salary ratios are the same isn't a compelling argument since that's only one factor in the total package.

This analysis is about as apt as saying, "Larry Ellison's salary was only $1, so what are you complaining about?"

The guardian article and the commenter I replied to are pointing out the difference between 1965 and 2020 as if it's a problem.

A problem is defined as something that has a negative impact on people. My analysis points out that the only people that modern CEO pay has a negative impact on is the shareholders.

I illustrated that it makes literally no difference to your average floor worker whether the CEO gets $0 or $20 million in stock comp.

If that worker has a pension or 401k, then it does matter. The fleecing isn't directly from him, but aggregate it by "managerial class" and "middle class" and you see the high $ managerial cash flows are directly at the expense of the middle class and retirement of the middle class. Thru in some tax policy, and you can see it is also taking money away from education of young middle class folks, and investment in communal things like roads and public health and so on.

Yes, it hurts shareholders. That's what I wrote in my first comment. You agree with me then?

I agree it's a diversion of wealth from the workers to the management class.

This argument is fucking ludicrous.

Money is money. If the business used to have it and now the CEO has it then the business gave it to him.

There's no class of equity that wasn't originally created and owned by the business so that's where the money comes from.

And lest there be any confusion, all the companies we're talking about do massive stock buy backs so it's not even hypothetical, they spend billions of dollars to prop up the price of stocks and the executives get it.

It is not "fucking ludicrous".

Both stock comp and cash comp are the same from the shareholders view. They are not the same from the employees view. A higher cash comp for CEOs may well result in lower employee pay, a higher stock comp will not.

> A higher cash comp for CEOs may well result in lower employee pay, a higher stock comp will not.

Why? The whole point of publicly traded stock is that it's, like traded, in public. That means it's freely exchanged for cash in a matter of seconds.

If the company can use it to compensate one person it can use it to compensate another person.

What's your theory here, is it that the company has a resource that can generate compensation without any consequence to the company's finances, but it's only possible to give that compensation to certain people?

No. There is really no difference whether CEO is paid in cash or in stock, regarding the negative impact of the pay.

Scenario 1: CEO get paid $50 million in stock. Scenario 2: CEO get paid $50 million in cash. And then the company raise $50 million from stock market, so that it will have the same amount of cash as scenario 1.

They are the same.

Or they may not be able to raise cash, or they may be a private company without access to the stock market, or they may have bylaws preventing such a thing.

Either way, the employee is not made worse off because the CEO collects a fat stack of options at the expense of the shareholder.

> Either way, the employee is not made worse off because the CEO collects a fat stack of options at the expense of the shareholder.

Of course the employees are made worse off by that: If the shareholders didn't give all that money to the CEO, they could give it to the other employees in stead and be no worse off themselves. The CEO uses up all the available potential for employee compensation at the expense of everyone else.

Your thesis is just astonishingly weird.

> CEO salaries today are still about 20-1

Base salaries are not significant to the discussion. Sometime high profile CEOs make $1 salary.

What matters it the total comp, just as with any employee. Some FAANG engineers might make $175K in base salary but total comp is over 1M.

This is nonsense.

What you clearly have here is a principal/agent problem.

The way it works is like this:

1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified by people responsible for managing money.

2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management.

3) What is actually happening is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that.

They'll concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations (like the article we're all commenting on) but at the end of the day the people who should be tasked with fairly apportioning resources in a common enterprise are taking more and more of it for themselves.

The solution is to stop letting them get away with it.

> Stock based compensation didn't exist in 1965.

In 1965 employees also typically got pensions, the value of which is not counted in those figures.

stock based compensation exists for C-level employees because it allows them to reduce their tax burden by taking their income via long term capital gains. It's still income!

I think that only works for ISOs (incentive stock options), and now the rules on who can get them and how many can be issued are very restrictive.

> If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does.

One doesn't have to be a shareholder or even a direct stakeholder in a specific company to claim the right to outrage over this growing inequality in pay.

The question is whether anyone is worse off because of it, and my comment points out that contrary to popular rhetoric, if anyone is getting hurt by it, it's not the employees.

If you think nobody is getting hurt by it, it's not a problem, it's just envy.

It's certainly possible to view these things from other perspectives than a narrow transactional economic perspective. Can you imagine some of those?

Yes, jealousy and envy that other people do in fact make more money than I do. This is not a real societal problem, it's a personal and human nature problem.

What does "diluting wall street" mean? How is it different from "taking money from the business owners"? If I'm CEO at a company what difference does it make to me if I'm compensated by salary or shares/bonuses? If I'm an employee at a company what difference does it make to me if the CEO is compensated by salary or shares/bonus3s? If I'm a shareholder in a company what difference does it make to me if the CEO is compensated by salary or shares/bonuses?

The distinction between salary and bonus compensation is irrelevant outside of possibly some minor tax impacts.

And in that context, the article does speak to this point.

>the companies themselves are more valuable, because newly founded companies grow faster than they used to.

The added reliance on stock-based compensation combined with higher valuations leads to higher CEO salaries.

This isn't making a case one way or the other about whether this is a fair or sustainable model, just meant to bolster your point about why greater context is needed when discussing executive salaries as a multiple of the individual employee.

I'm not going to name companies, but I think this is actually not quite right. While I agree with your broader point, in a lot of larger legacy companies the heavy use of buybacks to buoy the stock price, which in turn benefits executing compensation, directly plays into whether that cash is available to use for employee compensation.

> But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street.

How are these different? If the business pays its employees $X more, that money doesn't just appear out of nowhere. It comes out of other areas of the business -- such as capex, M&A, or retained profits. All of these things contribute directly to the value of the shares held by Wall Street, whether directly (in the case of a dividend or share buyback) or indirectly by growing the business. Likewise, dilution means that an existing shareholder benefits less from $X worth of these things, and therefore should demand an increase in X (or a reduced stock price).

It's all money either way, and money is fungible.

TLDR: CEOs are wildly better paid nowadays, compared to decades ago, via mechanism X, as opposed to mechanism Y. Both X and Y ultimately deliver money.

And the question is whether that's a problem or not, and if so, who is it a problem for. My comment illustrates that modern CEO pay does not hurt the average employee in any way, only the shareholders.

Either you don't think modern CEO pay is a problem, or you think it's a problem because it makes shareholders poorer. It doesn't impact the rest of the employees or reduce their incomes.

I find the notion that paying a CEO 321 times the salary of a worker in cash to be problematic for society while paying the CEO 321 the salary of a worker in stock options/grants is not not problematic to society to be completely unconvincing. Both illustrate to me the historic and increasing inequality in distribution of income and wealth. Asking me to ignore that divide and instead sympathize with someone like Carl Icahn is obscene in a humorous way.

Why is it a problem then? Your personal intuitions about how much any human should earn in a given year sounds less like a convincing argument to me and more like envy.

> Why is it a problem then?

I honestly think the Ayn Rand crowd are missing a few circuits. Well, that's a crude way of putting it, but let's just say it's like color blindness but for ethics. No amount of oratory will make a color-blind person see red. And that's just the way it is.

Those "circuits" play an important role in regulating how groups behave. Lacking them, you open the door for extremely bad things to happen. This is why libertarianism and related ideologies should be treated with extreme caution at best.

> Either you don't think modern CEO pay is a problem, or you think it's a problem because it makes shareholders poorer.

The fact that you appear to be completely blind to the third option - the actual issue - is far more telling than any argument you've made so far.

My argument eliminated the third option. It doesn't hold water.

So, you're still missing the point. Or "missing" the point, not sure which. Interesting.

No, you're ignoring where he answered the point. You're not answering his argument, you're trying to pretend that he never made it.

I'll admit I had to look fairly hard to find where he did, but he did in fact answer that. (Not saying that I necessarily agree with his answer, but he gave it. Refute it rather than saying he's dodging answering.)

Salary isn't How People Get Rich Now, seems like you missedthecue.

> They come from diluting Wall Street. Knowing this, the whole thing is way less of an outrage.

The outrage is why all that dilution goes to the CEO. Options can be granted to all employees more fairly than common these days.

> But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street.

This distinction doesn’t make sense. Cash and stock are fungible for a public company.

This, many companies even make this quite explicit by issuing stock to employees and buying back the same number of shares, in order to pay with cash flow rather than dilution.

> They come from diluting Wall Street.

Yes, until the company offers a stock buyback (which these companies collectively spent more than 50 billion on in 2020)

ok. But then they're using cash from the business to get the share count back down to prior levels, and it's still a net loss for Icahn. There are only 100 percents. If the management team gets more ownership through dilution, it means Carl Icahn owns less.

But the employees don't gain anything. You've modeled this is a fight between wall street and the CEO, entirely forgetting about employees who get no (or trivial) stock compensation.

Hypothetically, a company could pay 100M in stock to the CEO, and then issue 100M in stock buybacks to the CEO. This is functionally equivalent to paying the CEO 100M, but it wouldn't count in your salary numbers. And notably, both of these, stock buybacks and CEO pay, dilute wallstreet in the same way. But neither benefits employees.

To use the JP morgan example, (and this is roughly equivalent for Google), the company could stop stock buybacks, and instead pay every employee an additional $150,000.

That results in the CEO and wall street getting less money, and employees getting more.

Walmart and Coke modulate the share price in other ways, so stock buybacks won't tell a particularly interesting story.

Yes, and that cash is a part of the revenue that could be used to pay the workers who generated that revenue.

Thus CEO pay is absolutely the concern of workers, unions, and union supported politicians.

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