Like most people I think that this is ludicrous, but could someone give a shot at playing devil's advocate and justifying this? Are competent CEOs so much harder to get, do they really produce a 1,460% more value compared to '78, etc.?
> Alluding to the fictional town in the radio program A Prairie Home Companion, Clifford (2017) describes the Lake Wobegon world of setting CEO compensation that fuels its growth: Every firm wants to believe its CEO is above average and therefore needs to be correspondingly remunerated.
In other words, CEO pay isn’t just a way of attracting CEO talent, it’s also a way of signaling to investors that you have a good CEO. After all, who wants to invest in a company whose CEO (by the compensation committee’s own reckoning) is worse than average! This is rational for an individual company, but has the aggregate effect of inflating CEO compensation for everyone.
If CEO's of today on average leading companies that are orders of magnitude larger than in the 70's (CEO has 100-1000 people in the company in 70's vs 1,000-100,000 today), then the jump in pay isn't surprising. If the CEO is driving the direction of a company and those decisions affect orders of magnitude more workers and orders of magnitude more revenue, then it follows that they can get a higher salary. They might not be any better, but the stakes of their decisions are bigger.
1) Technology has always helped Top Performers. So, it is natural that the impact of high performers will grow faster than average performers.
2) American CEOs now also increasingly service the rest of the world. So, naturally their Total-Addressable-Impact have grown significantly. US Management Innovation are adapted / copied quickly unlike the rest of the world
3) Musk, Jobs, Bezos, Nadella have demonstrably added Trillions of Dollars of value to their firms. So, it make sense to award a %age of value they create
Unlike CEO's of yore who contributed a tenth of the value to their companies?
In the 'Yore' It took a great deal of time for any firm to add $1 Billion value to their Market Cap. So, naturally CEOs compensation grew slowly.
In the modern era, companies can add a Trillion Market Cap in a year. So, naturally CEO's growth rate will rapidly grow.
A lot of phenomenon in this world can be explained if you apply Mathematical concepts and natural laws instead of resorting to conspiracy, billionaire-hate and anything lately pushed by mainstream media
It NOT Math 101. You're making some assertions that really don't stand up to even basic Econ 101 theory of markets. Why shouldn't other employee compensation be tied to market cap of firms (relative to the number of employees) and CEO compensation be fixed/sticky wages?
The forces driving CEO wages should be no different than other employee wages. They should be driven by the net value they can provide for a company. (Seriously, if you're going to tie anything to the market cap of a firm, it should be more CFO/comptroller type roles, not CEO... but you don't see the accounting team being compensated more just because the company has a bigger budget.) It's not unreasonable that companies might think that CEOs provide more value than their other employees (not always true, but not an unsurprising perspective), but you'd have a hell of a time convincing me that CEO performance has improved 1460% in the last 50 years.
Indeed, for the most part the job hasn't become harder, nor have the criteria become more stringent. You go back 50+ years ago, and you actually had a more difficult job because a company needed to manage far more employees to achieve the same economic value. If you can get so much more economic value out of fewer employees, it should follow that the individual employees should be valued, if anything, more relative to the CEO.
Sure, absent other factors, if a company is able to produce more economic value with fewer employees, that increases the value of the CEO... but it also increases the value of most, if not all, of the employees as well, and arguably it increases their value proportionately more than the CEO's.
> while employees have fixed/sticky wages.
You have to ask yourself why it works that way.
If employee productivity increases (as measured by ARPE), it stands to reason that employee compensation would grow proportionately (or at least near proportionately... you would expect some of the increased productivity to be siphoned off into profits) with it. Instead, the CW is that CEO pay should increase disproportionately to employee productivity increases, and employee wages should stay stagnant... because against all reason, we attribute any productivity growth to the CEOs.
> A lot of phenomenon in this world can be explained if you apply Mathematical concepts and natural laws instead of resorting to conspiracy, billionaire-hate and anything lately pushed by mainstream media.
You can rationalize anything with; mathematical models are abstract, so it's all about how you map those models to the real world.
I'm not trying to suggest there's any kind of conspiracy, nor am I engaging in "billionaire-hate" (and let's be real, billionaire CEOs are, for the most part, owner-CEOs, not your typical hired-gun CEO).
What I am trying to suggest is that there might be flaws in the systemic structures we have for compensation and attribution. No conspiracy necessary.
However, yes, a fantastic CEO can potentially provide incredible value to a company. But it is incredibly hard to tell who will succeed and who will fail. It is a complex job. Some of it comes down to gut instincts and intangibles.