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Comment by russell | Hacker News Reader

Pop Quiz: Why do CEOs get such outrageous compensation?

Answer: They are all on each other's boards, so when it comes time for their own compensation review, they trust that the other board members will remember their generosity.

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HP last year had revenue of something around $125 billion from running a complex global supply chain spanning every continent except for Antarctica (who knows, maybe there as well). The company employs more than 300,000 people across dozens of countries, not to mention thousands of suppliers and subcontractors. They make money from selling consumer products, enterprise products, and services. Depending on the source, there are only about 55 countries in the world with GDP more than HP's annual revenue.

How many people in the world can run an organization of that size and scope? Not many at all. And surprise, surprise: those people are in high demand. Very high demand. Do you seriously believe that a guy getting paid $50 million a year at a Fortune 500 company had no other offers or alternatives, and so the board could have hired him at $5m instead? Right or wrong, they offered $50m because they thought that this individual could move the needle enough to make it worth it. Which is probably true, by the way: a 1% increase in HP's revenue is enough to cover the CEO's jumbo salary 20 times over.

Big companies benefit from economies of scale, but is there such thing as too big? Shareholders might get better return if a company was split into small companies, where management could be more closely involved (and paid less).

Considering the public good, big companies lead to monopolies (bad for consumers and innovation), "too big to fail" bailouts (bad for taxpayers and employees), and backroom political lobbying (bad for democracy). Perhaps antitrust laws could be proactive instead reactive, prescribing limits on company sizes for some metric(s).

This is a myth. What about the employees? We are also getting vastly more done with vastly less. Why is it only the CEO's that are seeing the benefit of scale here.

The reason the salary increase has been concentrated on the top and nearly ignoring everyone else is exactly what the parent said: these people are on each other's boards.

I would argue the difference between a great CEO and a mid-level manager is closer to negligble by far than their salaries.

I wonder more recently if we should force more re-distribution, through tax or otherwise. Not because I am hippy (or not going to be a squillionaire myself), but because I doubt the capacity of the top CEO to allocate his capital wisely.

I don't believe this argument for one second. First off: Of those 55 countries you cite, how many of those countries leaders would you guess are making more money than an HP or equivalent CEO. Any? Surely 'running' a country comes with a tiny bit more responsibility than running a large company. Yet there is no shortage of wannabe leaders and that's because money isn't the motivating factor. And I don't think it's the motivating factor of a good CEO. You want to do a great job, build great products, run a great company. But salary? Do you think Tim Cook would have rather switched to HP if they offered to pay him $5m more?

  > How many people in the world can run an organization of
  that size and scope?  Not many at all.

This is not actually self-evident, and I'd really love some (any) attempt establishing it, either rhetorically or evidence-based.

Personally, I think a great many people have the skills & abilities needed to run these companies, but that is not what headhunting committees look for/what is actually being valued. They are looking instead for choices that are defensible, i.e., no one ever got sued for breach of fiduciary duty by appointing the Harvard MBA who ran three other multinationals -- even if they ran them all into the ground.

(to clarify: i think that you're actually claiming that few people can run these behemoth companies successfully. I think that success is actually very difficult to measure: e.g., establishing what would've happened if you appointed an 'average CEO', vs. appointing someone from 'the factory line' who knows the product, vs. appointing a bum on the street. What trends were already in place for/against the company, etc., what cultural inertia did they inherit, etc. )

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