Executive compensation in America never made any sense to me.
Yes, 100% absolutely, yes.
If you are able to deliver a better result than "Person X" who is paid more than you, and if you get a chance to deliver that result, won't you demand to be paid more than the "Person X"?
And for the company who is paying, who already seems to agree to pay that much for "Person X"'s result - would likely to be happy to pay you the same or more since you are delivering more
Where am I wrong? Isn't this just capitalism? Help me understand :)
If you voluntarily say I need only half the pay of "Person X" aren't you basically being charitable or just sacrificing what you could potentially get? I am not saying that doing this is wrong (probably morally right) but this is probably rare.
But on your point, what's the root cause of this issue? Why do people hire people with outsized compensations when the other option is empirically proven?
You can use archive.is to read it if you don't have a WSJ subscription: https://archive.is/bkDCO
Note, I'm not saying "being a top exec takes no skill"; I'm saying "many people have the skills required, they're just rarely given an opportunity to demonstrate them in the same way." (I'm also saying "many execs do not have any significant skill to bring to the table; all they have is connections and money".)
Essentially, you're repeating a variant of the Just World hypothesis—that people who have skills that are relevant to high-paying jobs must be highly-paid, and people who are highly paid must be skilled enough to warrant it.
Neither of those propositions holds up to actual scrutiny.
The problem is that if they have never had the opportunity to demonstrate it then how do you find them in the first place?
Some of the variable factors that will make the actual scrutiny extremely hard are human emotions such as desire, ambitions, ego, time, impact to morale [employee, shareholder, customers]
Imagine if how long it takes the board to find a replacement CEO was how long it took to restart a failed server ... They just don't have contingency plans and so they shovel money at the CEO to ensure that the fact that they don't have a contingency isn't a problem.
I completely agree that the whole thing is influenced heavily by how its going to "look" - perception.
But being in a Disney situation where your CEO (Iger) wanted out and choose a poor replacement for himself. (Note: Iger choose a poor replacement not the board, they're useless). And now Disney stock is at the same value in 2023 as they were in 2015.
If the Disney board actually had a plan on who a replacement CEO should be they wouldn't be in this problem.
Most CEOs are doing it for other reasons besides money (personal enjoyment, thrill, respectability, “duty,” etc.).
The assertion that paying more money to the folks at the top has yielded commensurate returns is really not backed by ... anything at all, as far as I can see.
Actually another comment links to an article about:
“CEO Pay and Performance Often Don’t Match Up: The S&P 500 CEOs who received the biggest pay increases scored middling shareholder returns”
- comment link: https://news.ycombinator.com/item?id=36168067
You have to look at how the same stock would of performed with a different manager.
There are many factors outside of management's control that will dictate the return on a single stock. But don't confuse that with the fact that management decisions do have an impact and can make a large difference.
The problem with the executive compensation ratchet of the past few decades is that it is completely divorced from any actual measure of C-level impact. If things go bad, not their fault - if things go well, it couldn't possibly have happened without these strong leaders at the helm.
I can't imagine a shareholder in either company also thinking you know...these guys at the top of both companies have been paid too much, the various right and wrong decisions they've made turned Amazon and FB into the 4th and 7th most valuable pubicly traded companies in the world in 20 years. They should have paid their c-suite half and become what? Still the 4th and 7th most valuable companies in the world? We know this why?
At the end of the day it's a very hard job, and no one has any idea who the hell is good at it. Prior performance is a good signal, but who knows really? Why would you go cheap when the potential for billions of dollars in wealth destruction/creation is at risk?
Because a few bucks compounded by the marginal next best CEO might be a major improvement for shareholder.
The real reason boards don't cheap out is because no one has ever[1] got fired or sued for paying top dollar for the best when things go to crap and everyone else is pointing fingers
[1]: don't get pedantic about this common phrase
That said, Berlin is definetly much cheaper than other cities due to the Cold War. It's basically Western+Central Europe's Austin.
Some professions push society forward and create long-term wealth. In my mind these are professions where you make decisions with skin in the game, persuade others to do things a better way, and all of STEM. Leadership, sales, engineering, science.
Other professions exist to describe what these prime movers do, or to maintain their work, or to support the people doing it. This is also vital and every society needs this too, but it's just not as important.
So, if in the USA they pay engineers 3x better than in other countries, the question is: what the hell is the rest of the world thinking?
Education and health professionals are much more valuable to society, and it's criminal how little they're paid in general. Sure, they ultimately depend on STEM fields, but without them our societies would literally collapse. The "prime movers" as you put it depend much more on health and education professions than the other way around.
Until recently, the medical profession was literally leeching people until STEM stepped in with germ theory etc. The life expectancy value of going to the doctor was negative!
The US pays salespeople, leaders, entrepreneurs, and engineers a ton of money. And it shows in the results.
Only? No professions would exist without teachers. Education is fundamental to our society, and has been for millenia. There's nothing more transformative than a good education.
> No science would mean 90% of the value in education is gone.
Again, I'm not saying that science is not important. It plays a critical role in driving other fields forward. But I'd argue that an average teacher and health care worker are more valuable to society than an average IT professional, while the discrepancy in pay between them is abysmal. We only care about health care workers in times of crisis, but then quickly forget about them when it's not trendy to call them "heroes" anymore.
> Until recently, the medical profession was literally leeching people until STEM stepped in with germ theory etc.
I'm not talking about scientific breakthroughs that push other fields forward. Those obviously deserve the merit and recognition they have received. I'm talking about the value of the average working class professional in these fields, and their relative salaries.
> The US pays salespeople, leaders, entrepreneurs, and engineers a ton of money. And it shows in the results.
What results? How is a software "engineer" working for an adtech or social media giant to build spyware valuable to society exactly? Or yet another startup peddling their bullshit product designed to lure in investors and make their shareholders rich? Or the sleazy sales people making all those deals happen? You're telling me that this is somehow more valuable than health workers literally saving people's lives, or teachers building future professionals?
One group lives in luxury, while the other can barely make ends meet working a much more stressful and laborious job. This shows in the results, alright.
Thinking that somehow our profession is more important is indicative of the tech bubble we're in. But I'm not surprised to see such mentality on this forum.
If we had no tech, education would consist of learning history and poetry. It would still be useful, but would not transform our world.
This belief is a big part of why we have such a crisis of culture and politics today.
Education in civics and humanities are vital for understanding our culture, other cultures, ourselves, other people, our relations to them, and how best to participate in our society and government.
Education in practical skills—the kind that used to be taught in "home ec" courses—is vital for being able to navigate this world safely and effectively—things like how to make basic foods, how to balance finances, etc.
But if it weren't for leaders, salespeople, and STEM, we'd still be throwing rocks at sabre-tooth tigers; naked, hungry, sick, and hoping for the best.
Nearly every good thing in our world exists because we invented it, or invented a way to use a natural thing. Everything in home ec and all of bookkeeping were created and spread by prime movers.
The past few centuries of economic growth were ushered in by the industrial revolution, a staggering increase in global wealth culminating with people so rich that they have time to question the value of STEM, and with so few problems that they think what we're living through right now qualifies as a political crisis.
— “Who wants to work that hard for nothing?”
— “We’re a tech company? What do we actually do? Something that: atomizes social relations; enables the violation of people’s privacy and rights; or simply plays hot-potato with funny money? Yeah, pass. My friends and family would think I’m a chancer.”
— “What you’re doing goes against local laws and ethics. You can’t do that here.”
— “A business should help the country and its people; not the people that built it.”
— “Spending all my free time to become marginally more knowledgeable and skilled than my coworkers/‘competition’? I’d rather spend time with my friends and family — or a hobby.”
— “Money? What am I gonna do with money — buy a house? Then what.”
Countries like India, China, Israel, and South Korea also have tech industries that can pay EU level salaries (and in Israel's case US level) despite a cost of living comparable to Eastern Europe (excluding Israel).
The reason is those counties and the US have an oversized software+hardware industry with a very mature VC+PE+IPO market within the tech sector or a pipeline to the US's financial sector, and are thus able to make 8-9x multiples of revenue based on a single IC.
Most of the EU doesn't have software+hardware companies with comparable revenue multipliers. That said, in certain niches (eg. Pharmaceuticals, Finance, Defense) in some regional employment markets like those in the UK, Denmark, Netherlands, and Ireland might be able to offer US comparable salaries (not SV level but a decent $70-100k base)