Any factory in China can replace most of their 160k employees overnight if they wanted to. How many Tim Cook's do you have lying around?
CEOs don’t get paid so much because they are personally unique. Every human is globally unique; it’s a consequence of how complex humans are.
CEOs have artificial scarcity because of the hierarchical structure of companies. By definition, there’s only one CEO of Apple.
Does that mean that ONLY Tim Cook, out of billions of humans, could have brought Apple to the success they have today? Try this thought exercise: if Tim had stayed at Compaq in 1997 instead of jumping to Apple, what are the chances that he would be CEO today of a Compaq worth $2 trillion?
“How much of Apple’s success is personally attributable to Tim Cook” is a perfectly valid question to ask. Unfortunately, answering it is extremely difficult; you’d need to rerun history for each alternate person. But the weight of a process doesn’t guarantee that it finds an optimum.
CEOs benefit from a human tendency to attribute systemic qualities to individual things or people. It’s the same reason we say a jacket “is warm” even though all it is doing is trapping the warmth that we created ourselves. We say a “successful CEO” instead of “the CEO of a successful company.”
Tim Cook makes incredibly consequential decisions every day. But the reason they are so consequential is mostly because he is the CEO of a huge company.
The negative effect of the current thinking on CEO “scarcity” is visible in the absurdly outsized personal rewards that the CEOs of successful companies get. But it’s even more visible in what happens to the CEOs of companies that are not successful. They still get absurd rewards! Adam Neumann also became a billionaire.
They get paid proportional to the impact of their decisions, not in proportion to their scarcity, skill, etc.
If Apple must have someone to make decisions every day that could cost the company millions of dollars, what is the correct amount to compensate that person?
And if Apple were instead a $50M market cap company, would that amount change?
CEO compensation is a combination of "someone has to be in the chair" + "how important are our decisions?" + "how much can we afford to pay."
To reach back to the GP's gripe: if 1 (or even 160,000) assembly workers screw up at their job, it has a much lower impact on Apple as a whole.
Probably thousands? Just put a job ad for "Apple CEO" out there, set pay at a generous 10 million/year and I'm pretty sure you won't have issues finding qualified candidates.
I really don't think Apple's valuation would change much if Tim Cook is replaced, so I don't see what justifies such a large bonus.
The risk of getting that wrong and accidentally destroying billions of dollars of shareholder value (don’t like the term, but it seems appropriate here) is very high (low likelihood, extremely high severity).
As a board member, why would you take that risk, when not taking the risk is so cheap? Ultimately I don’t think the risk weighted expected return on finding a cheaper CEO is greater than just paying Tim whatever number he pulls out of his arse. I suspect expected return is actually substantially lower (probably very negative) than what Tim gets paid.
Boards of directors are scared of getting it wrong, and they memorialize that fear in contracts that throw tremendous amounts of money at their preferred candidate, often making guarantees regardless of performance.
But it’s not like boards have a spectacular record on picking CEOs in general. Well-regarded people blow it as CEO every year, but they still get tons of money. Why? Because of this deep belief that “CEO-quality” people are extremely rare, so every plausible candidate is incredibly precious.
To be fair, business boards are not unique in this failing. Professional sports teams fall into the same trap all the time.
What I take issue with is the idea that companies and boards are making irrational, or economically illiterate, decisions by paying CEO this amount. I just don’t think that argument stacks up.
As you say yourself boards don’t tend to be very good at picking executives, and may of them are probably aware of that. So why rock the boat when you’ve got a CEO who’s performing.
If you want to talk about the social consequences of CEO pay, that’s a different story. I would be quite happy to support the idea of CEO pay caps linked the lowest paid employee (I leave the question of what qualifies as an employee as an exercise for the reader). But I think that’s a very different argument to an economic argument.
Definitely happened for HP when they took on Leo
Apple's current valuation is $2.49 trillion. A trillion is literally a million millions.
So that puts them at 2,490,000 millions. Due to meeting various goals, Tim Cook is getting 750 millions. That's ~0.03% of the company's valuation.
Apple's valuation wouldn't have to change very much before it would have been better to keep Cook in charge, even with higher compensation.
It sure seems like whatever Tim Cook is doing is working. Remember when Apple went through three CEOs in a decade and nearly went bankrupt? Mismanagement of a company for even a few years can put a company in a tailspin for a decade. For a mature successful company Tim Cook is exactly what you want. Why mess with success?
Your choices I imagine are the other Apple executives and the CEO of another International technology and/or manufacturing (potentially) company.
Right, all the people running Amazon, Wallmart, Nasa, BMW, Tesla, Spacex, managing contructuon of nuclear powerplants have no knowledge of supply chains.
You know, an iPhone or a macbook has more parts than an A380
Lmfao. Hacker News, never change.
There's one person in the world with a proven track record of succeeding leading the world's most valuable company over a decade. This compensation is a drop in the bucket relative to even a single strategic mishap by a less qualified candidate.
There is no justification needed (in the traditional sense), but there was one anyway: board set a goal, Tim had to meet that goal, and then they'd give him the money.
Say Apple made a couple hundred billions under Tim Cook's leadership and the way was paved for more of that in the coming years (keep in mind that there is no day-to-day, this really is many-year-planning; you practically have to predict the future to some extent), is a fraction of that really such an odd case to pay the person that did that?
Sure, you don't need that much money to live comfortably forever, but this is capitalism, I doubt the value created was needed either. But the board and Tim agreed and met their goal and thus the transaction was completed.
I think that's also silly calculation. Beyond a certain (admittedly unknowable) point, compensation becomes a meaningless number for the individual.
Would Tim Cook "rage-quit" Apple if they could only pay him, say, 75 million instead of 750 million? If yes, then it's pure greed. If no, then it's too much.
Is there something substantive behind that 750 million figure other than very powerful people just paying themselves as much as they can get away with? I think not.
Why quibble about such a small amount? You’ve paid 0.03% of your current Apple holdings for a decade of growth creating value many orders of magnitude greater.
I am not quibbling about THAT amount.
I am quibbling about the fact that he (like other tycoons) sits on top of a giant pyramid of human labor, the majority of which earns just enough to make ends meet in a low cost of living country.
Sure, Tim Cook is a good person and deserves reward for what he has done and it should be "a hellava lot". At some point, however, that reward starts becoming absurd and nonsensical.
Disregarding market cap as not real money would be like disregarding your checking account as not real because the bank operates a fractional reserve.
Then again, I'm not sure it makes more sense to compare stock-based compensation with revenue than with market cap.
If you are already rich enough to retire many times over, why should you keep working on something that doesn't move the scale of your money (and consequently power and ability to do other things, including starting a new business that could disrupt your previous business?)
Think of it this way: a lot of the money that is being paid to Tim Cook is to ensure that he doesn't go to work somewhere else.
Could he turn Apple into an online education platform that leverage open source platforms and open hardware to make it as affordable as possible to everyone? No, he can't. Apple depends on the brand of exclusivity and premium products.
Need I go on?
In any case, it's a sad state of the world when even the CEO of the richest corporation in the world can not be allowed to be interested in anything else that is perfectly aligned with the company's goals.
But anyway, you asked if there is any kind of job that he couldn't do at Apple. I just gave you a couple of examples. You didn't specify that it had to me something that he would be personally interested in doing publicly. I don't know him personally nor I care about him (or Apple) to spend more time and thought about the matter.
But this is getting so much in the realm of the hypotheticals, I really don't care about the argument either way.
Would he have reached/pushed for a particularly aggressive goal for less? Could someone else have achieved that goal for less?
No doubt there is some element of personal relationships between everyone in the compensation committee and the ceo.
I think these numbers are set by compensation committees of the Board of Directors using consultants that analyze other private and public company data. So if you have some small number of greedy individuals pushing for massive compensation based on stock performance, then that trickles through the industry. Cook doesn’t have to be greedy to just not want to be underpaid relative to market, even when the market is set by a few greedy individuals.
It is a race to the top. Solvable via regulation if anyone really cared, but I suspect no one really does.
Well put. I suppose no one cares enough because, after all, there aren't THAT MANY billionaire tycoons. And, sure, they perform a valuable function in putting many people to work and giving away millions of turkeys on thanksgiving, etc.
But now, we're in an era of billionaires racing each other into space and compensation levels which are "astronomical". It's in some ways a repeat of the age of robber-barons except I don't see it slowing down any time soon. Now I wonder what ended "the gilded age" ~100 years ago? Oh yeah, world war + economic crash.
By their perceived scarcity
Chances are that anyone other than Tim could have done just as well.
Still, this is over 10 years, and Apple shares have increased in value by 1900%.
If they were still the same value he’d have gotten 40M, for about 4M per year. Which is much more reasonable.
I still think it’s high, but in line with what others get.
And that's with competent management. (Let's not talk about the multiple management idiocies that happened at HP.)
Apple is now one of the longest lived tech corps. IBM is older but a shadow of its old self. MS is a year or so older, but the rest of FAANG are relatively new.
Cook has kept the plates spinning and turned Apple into a giant revenue machine with a strong R&D back-up. I don't think that's a small achievement, and even if he's helped by the board and senior execs - which of course he is - it's still easy to underestimate the skill that goes into that.
Having said that - he's also turned Apple into a somewhat boring company. The products are nice-looking and usually functional but not particularly thrilling. They feel overpriced. And I suspect some opportunities in home automation, user content creation, and health have been missed.
Cook's Apple is an all-American bureaucratic behemoth - a kind of modern General Electric which keeps churning out high levels of competence, but not much inspiration or excitement, and not a little frustration and irritation over nickel-and-diming of users and developers.
Someone else might not have made Apple as profitable, but personally I wouldn't have minded a friendlier and more inventive and adventurous company.
I do wonder how long it's gonna last.
I suppose at some point all companies die/fade into obscurity/are different companies in all but name; maybe in 2080 or whatever we'll be able to say - ah, yep, knew it, Apple was for the dogs as soon as Jobs left, was only a matter of time!
Any decisions that would affect their trajectory will get a ton of deliberation from a lot of smart people; i.e. there wouldn't need to be a ton of input or ingenuity from the CEO to see returns like those from Apple, imho.
Not to say that Cook isn't great or that it wouldn't be difficult to achieve that success.
I believe most of Apple's value is from delivering a high degree of consistency and polish; owing to its culture of relentlessly developing the UX of their products.
Therefore the CEO's primary roles at Apple would be to maintain that culture, steer the ship into new segments, and discern when the public will care about those segments.
I think Cook has done a decent job of that.
Making it all possible with RnD and supply chain is another story, but also where Cook is known to excel so maybe I'm underselling him. Jobs had Cook so presumably Cook would find a Cook if he weren't Cook.
I don't know much about Microsoft but Balmer was definitely taking over a different beast than Cook.
But that sure didn't last.
Of course you can argue that the wrong leader would have torpedoed the company.
- Because it is not on "us" to try to change this at an universal scale. I am all for people that believe in communist ideals and go to live on their own with like-minded people. The problem is those that take this to totalitarianism and think something like "communism can only work if it everyone does it"
- Because history has witnessed already many people that tried to change this reality without ignoring scale, and ended up causing more problems that solutions, destroyed more wealth and made the world worse than they started off.
The trick would be to allow workers to capture all of their productivity rather than have a large amount of it syphoned off by owners.
How would you even compare that? How would you even measure your productivity? Lines of code? Tickets closed?
We can't even compare "productivity" in our own "profession", much less between different ones.
Fuck, even to think in terms of "professions" today seems so anachronistic... some of the best people I worked with were never trained, should we disregard them and go back to a world of credentialism and guilds?
> The trick would be to allow workers to capture all of their productivity rather than have a large amount of it syphoned off by owners.
More likely, entrepreneurs would simply automate the shit of out of their work and outsource what is not automatable to other service providers. And all of the "workers" who can not think for themselves will be left jobless and crying for someone to help them.
How would you measure your scarcity? It is similarly difficult. "Workers are paid according to their productivity" does not mean "there is a fixed mechanical pay formula based on lines of code or something".
> More likely, entrepreneurs would simply automate the shit of out of their work and outsource what is not automatable to other service providers. And all of the "workers" who can not think for themselves will be left jobless and crying for someone to help them.
If entrepreneurs can already do this, why the fuck are they paying so much money for engineers in the bay area? Wouldn't "can be replaced by machines" be the literal minimum possible scarcity?
Because these people are scarce and companies can't automate that type of job. Yet.
But, just look at what happened when Facebook decided to not pay SF salaries to those that moved out of the Bay Area. That was just Zuck saying "if you want be anywhere in the world to work here, then I can also look anywhere in the world to hire people", which instantly made them realize that they are not that scarce anymore.
> How would you measure your scarcity?
- My employer finds someone that can do my job for less money than I am asking, so they replace me. I am not as scarce as I thought.
- Some other company will offer more money to do the same job I am doing currently. I am more scarce than I thought.
- I work on new things, show experience or an ability that not everyone in the company can - let's say I am now able to manage a team of developers or I can work on both the backend and do devops. My scarcity increased.
It's not that hard.
But you say that if we paid by productivity then entrepreneurs would simply bypass those people. Whether that is possible is independent of how we determine compensation.
> It's not that hard.
You allow yourself to provide a very loose mechanism for roughly determining scarcity but demand a very precise mechanism for determining productivity in the previous post. This is an unfair comparison.
No. Entrepreneurs will bypass them anyway, whenever possible and whenever profitable. The difference is that your idea of "paying by productivity" would make cheap labour expensive, consequently increasing the profitability of automating work process and accelerating the pace of replacing labour.
> You allow yourself to provide a very loose mechanism for roughly determining scarcity but demand a very precise mechanism for determining productivity in the previous post.
No, I am being descriptive of the current reality. You want to be normative about your idealistic method. So, yes, you have the onus of coming up with a system that could replace the existing one and be at least as effective.
Tim Cook working for one day could easily have a larger impact than most people will have in their entire lives because he has extremely high leverage.
Is it fair? Absolutely not, but life is not fair. I don't understand what moral obligation society should have to base compensation on productivity.
PS: you could argue that Tim Cook is far more productive than everyone else because he produces far more results than everyone else.
Of course. "Pay by productivity" does not mean "pay everybody the same per hour of labor". Cook's output has greater influence on the company than any (or perhaps almost any) other employee at Apple. He should be paid commensurate to that output.
I assumed you meant something along the lines "pay everybody the same per hour of labor" since that seems to be how most people describe productivity.
Not everybody is equally productive. Somebody who has more skill or knowledge in a profession like software engineering will be considerably more productive than a less skilled engineer. Among leftist circles, I think you'd be very hard pressed to find people who describe productivity as literally just "number of hours worked".
How many software companies got off the ground, hired people, PAID SALARIES, yet never got to see themselves become profitable?
How many companies would not even have existed if there was no risk investment done?
Exactly. And history is pretty clear that nearly everyone is worse off when society decides how to spend money instead of letting owners decide how to spend money. It's why every first world economy has a massive dose of capitalism and a tiny dose of socialism in their GDP. And why a significant part of the worst economies of the world don't.
>The idea of the specific "rightful" ownership of money we have today is not universal throughout history
Yet the poor (and pretty much everybody else too) in most of the world, if not all, today are vastly richer than the poor of the past.... Maybe there's a reason the world has moved away from the economic systems of the past?
So sad that any other system is completely impossible
What is corruption?
A software engineer doing the same work gets paid way more in SF than in London. State policies prevent free movement of labor between London and SF. State policies do not prevent free movement of capital across nations, as clearly seen by the number of megacorporations actually owned by weird subsidiaries in strange locations for tax purposes.
As for software engineers, recently so many people here are up in arms against the return to the office... But still want to get paid 3x the guy from Indonesia. I'm looking for them replaced with cheaper developers, and what they'll think then about the remote work.
Did you see what happened to Apple after Steve Jobs got fired? Have you seen what has happened to great civilizations after the roll of monarchical dice or even a democratic election?
Have you ever met a bozo? They exist and there's more of them than there are sane people.
I think it’s generally just fine unless the incoming new CEO is determined to suddenly do everything different.
The history of Apple CEOs indicates otherwise.
Your comment is typical from someone who thinks themselves to be smarter than the whole board. Or the investors that never challenged Tim's management, Or all of Apple's upper management who would love to find a way to take his spot and wouldn't care about exploiting some of Tim's weaknesses to dethrone the king...
I’d say it would be just about impossible to find anyone else capable giving such a wooden performance and unnatural fake excitement at product announcements. Perhaps a young Point Break-era Keanu? But even then, I’d actually believe when he says “whoa” as a new product is unveiled. So you’re right, irreplaceable.
I'd say that the foundation Steve Jobs left (Mac, iPod, iPhone, iPad) was pretty damn important to that success, considering they still have essentially the exact same product lineup.
Same goes for MS, Windows, Office, Xbox did not all come about after Bill Gates' departure.
1. Wasn't this priced in already?
2. Is it necessary to pay the new CEOs so much?
You argument is actually in opposition to the one I replied to, justifying Cook's renumeration.
His pay is an expression of the expectation of a lot of other people. His pay is opinion, not direct value. And you can't pick some random unproven person who may or may not perform as well, and say they are of equivalent OPINION. You could say there's a chance, even a good chance, that they're of equivalent value, but that's a gamble.
This is how weird pay disparities develop. It's not in any way that Tim Cook has personally done things worth that much, or that he's personally pressuring all those in charge of paying him to that extent.
Intentionally or not, the question Tim Cook presents to those with the power to keep or dismiss him is this: How much are you willing to bet that if you lose me, things break and everything sucks?
They are willing to bet $750 million.
That's what happened. How much would you be willing to bet? If it's far less, or if you want to kick Tim out anyway, how many are there of you? Are you heavily outnumbered or are you expressing a common opinion?
When will we learn to stop making these silly arguments about "scarcity" and understand that the only thing that matters is a position of power?
Einstein and Steven Hawking were unique and advanced the entire human civilisation, whats their net work? Is anyone except the mentally ill going to suggest we have more Einsteins that Tim Cook's lying around?
I think that if Biden or even Putin decided to color outside of the lines, they would be removed from their positions without prejudice.
So the less people there are who own the majority of the wealth on the planet, the more that is justified?
So their value is what, exactly? Scarcity by itself doesn't mean anything. There are diseases that are extremely rare, that doesn't make it more desirable to have them.
The rent seeking, wealth-siphoning people do need the people who build the stuff they live off. That's not true the other way around. You don't have to replace Tim Cook, you just have to get rid of him.
(edit: I don't mean Tim Cook personally, it's not intended as criticism of that particular person; but the amount of wealth such people (not to mention the people where the ratio is WAY more off) bind destroys so much productivity in the people that have to struggle as a result, that they would provide more value to the world and the people in it by not existing, than by anything they did or could possibly do)
I can't wait until we are over this hump and our future selves are like 'fuck how stupid were we to let one asshole sit at the top and do nothing but PR while we all beat each other ober the scraps.'
See the rich have figured out that if you pay people almost enough to live they will spend their lives surviving and won't have time to look up and realize what's happening.
Love how you put productivity in quotes as if it's up for debate, and math is now plain silly as it goes against your narrative? Top class.
Original quote by Stephen Jay Gould.
I don't think these people are as special and rare as you think they are.
There are plenty of smart people on the planet.
You do realize that it's possible to disagree with that, right?
All the major tech compagnies have increased their value over the last 10 years, so it's def not because of their incredible CEO.