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Comment by econperplexed | Hacker News Reader

> From 1978 to 2021, CEO pay grew by 1,460%, adjusted for inflation, versus just 18.1% for the typical worker.

Why has the supply of CEOs not kept up with the demand for them? Surely, with the improvement in education and in increase in MBA programs, there must be far more CEOs today than in 1978. Why has the ratio of CEOs to Companies fallen by 14x for their wages to rise this much? /s

As many argue, wages are only set by supply and demand. And if workers are underpaid, then it is because they are replaceable. Use the same framework to explain CEO pay.

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> As many argue, wages are only set by supply and demand.

Most of the time that I see people invoke "Econ 101" concepts, they are wrong. Supply and demand does not account for the power imbalance between workers and leadership, which unions specifically attempt to address. It does not account for the class differences between workers trying to make ends meet and the board of directors who believe they deserve much higher pay than workers. We are free to change the perceived value of workers through the power of worker solidarity - ensuring that individual workers are not so easily replaced to keep wages suppressed. You can simply say "it's supply and demand" and do nothing to support the workers whose labor is so clearly needed for our economy to function, or we can support collective bargaining rights to make sure that individual workers are not crushed under the power of company leadership. How you view this is up to you, and not a simple fact of natural laws of economics.

> Supply and demand does not account for ...

Yes, it does, in each scenario you presented.

> We are free to change the perceived value of workers through the power of worker solidarity

It's more like using the power of government to ensure the company has no alternative to the union.

Company leaders have no actual power over the workers. They cannot force anyone to come to work. They cannot have you arrested. They cannot confiscate your property. They cannot beat you. They cannot prevent you from accepting a job at another company. They cannot prevent you from leaving. They cannot extort, libel, slander, blackmail, or threaten you. They cannot put a hit on you.

All they can do is offer you money in exchange for your labor. That's it.

> They cannot prevent you from accepting a job at another company.

They can totally do that with a non-compete clause. Just not in California.

I'm pretty sure that there is no US state where a company can "prevent you from accepting a job at another company."

In some states, and in some circumstances, they may be able to prevent you from accepting a job at a competitive company.

Clearly a competitive company counts as "another company".

Yes - but not every other company - so they have not prevented you from working at another company...

This seems like a bad faith reading of the english sentence here. The phrase "every other company" was not used. Obviously they can depress the value of worker's wages as a whole if they can prevent you from working at the competition - because a worker with a specific skill set will be best utilized at companies which are in the same field, and so generally in competition with one another.

Not within the context of the long list of things that the OP listed companies can't do...

Most people with skills are only really capable of working at competing companies.

Really?? I've lived and worked in Massachusetts and Washington, both states with very strong support for non-competes, prior to living in California, and, as a skilled worker (bachelors and masters degrees in computer science, mba, many years experience in tech) I've not had trouble working in many companies that don't compete with each other. And even in companies that do, as long as I wasn't working in directly competitive parts. And I've had collectively hundreds of thousands of colleagues who've also created careers across companies.

I mean, I'm in California so my employer can't prevent me from taking a competing job, but the contract does cover starting a business in your free time and they definitely seem to think doing anything on a computer competes with them.

Which means they can prevent you from utilizing the skills you have, forcing you to start from the bottom. How is this not an extremely lopsided power akin to preventing you from working? In general people will keep quiet to keep making the same money to support their family, etc

Having control of money is power. A kind of power that everyone needs, and many workers (who are typically poorer than company leaders) don’t have secure access to.

Having skills someone with money needs is power, too.

> It's more like using the power of government to ensure the company has no alternative to the union.

Unions absolutely do not need the government to exist. It is only through government attempts to control and curtail unions that the government has involved itself in unions. See for example the Taft-Hartley act:

https://en.wikipedia.org/wiki/Taft%E2%80%93Hartley_Act

> Unions absolutely do not need the government to exist.

That's absolutely correct. But in America, the unions use the government to tilt the balance heavily in their favor.

What makes you say that? The Taft Hartley act I linked to significantly weakened union power in this country. In other countries like Germany unions have much more power and representation.

Unions help politicians get elected. Said politicians repay the favor.

My econ 101 talked about the difference between commodity and illiquid markets which explains the difference between worker and CEO pay. The CEOs are coming from a restricted group of insiders and can't be replaced because of their relationships which make them unique. Workers in the sectors most often unionized have few distinguishing characteristics from the perspective of the company and are thrown around by the same laws as the price of corn. The black death is a well-documented example of a restriction in the labor supply raising the price of labor and improving the wellbeing of laborers. There is no indication anywhere that supply and demand is wrong about the job market.

This is so obviously the right answer, I can’t believe its not upvoted more. To be clear, I stand with the union on the principal of their argument. However, the principals of economics itself, much like gravity, do not care about the nobility of your cause.

It seems to me that what the union is asking for is that the corporation act more like a benevolent force than one that is restricted by market pressures. Of course, you could use the power of government as one poster mentioned to force this issue, but those violent delights have violent ends.

"but those violent delights have violent ends." You talk as though the US isn't steeped in regulation. All modern capitalist nations are. Without regulation, you get absurd instabilities as we saw until the New Deal.

If someone's selling you a simple explanation, they're likely wrong.

> It seems to me that what the union is asking for is that the corporation act more like a benevolent force than one that is restricted by market pressures.

I disagree. The union is simply changing the market pressures that the corporation experiences. There is no benevolence required when you are faced with a strike. You either negotiate acceptable terms, or you have to deal with the consequences.

You've got it backwards. The principals of economics accurately describe a shitty situation created by corporations. They do not determine how the corporations must act; economics models exchanges of wealth. When the corporations control the wealth they simply model what the corporations are doing.

From a purely laissez-faire perspective, so long as the union does not call for government interference -- and there is no indication in the article that they have done so -- their strike action (or threat of such) is merely a way to influence the supply side in the question of supply and demand.

Do you feel this to be illegitimate? If so, why?

> The CEOs are coming from a restricted group of insiders and can't be replaced because of their relationships which make them unique.

Wouldn’t that be simply favouritism/cronyism rather than a free market?

Favoritism, cronyism or more like it would actually be described by the people who do it, a preference for trusted associates you've worked with in the past over strangers to run your stuff for you isn't a violation of your "market freedom" but rather an expression of a set of preferences that make all your choices incommensurable. P.S. it is not in the interest of investors for one employee to make way more money than normal it's just that nobody knows how to avoid it when that employee is the center of decision-making. The kids of yesterday's owner-operators have an entirely different set of preferences from their parents due to being real, "classical" capitalists... Which makes the focus on CEOs kind of ironic! Technically they're workers who escaped the cruelty of a liquid market.

Employees at the bottom of the pyramid can make bullshit excuses too, but it is a privilege of the upper layers to have no one in a position to call them out.

> it is not in the interest of investors for one employee to make way more money than normal it's just that nobody knows how to avoid it when that employee is the center of decision-making

See "A Principled Approach to Executive Pay", Chapter 1.F in The Essays of Warren Buffet, arranged by Cunningham.

The issue I take with your line of reasoning is that executive compensation is often at odds with investor interests in more ways than just its amount. Buffet describes "heads I win, tails you lose" executive compensation plans in an essay from the 80s/90s. He describes how they do things at Berkshire Hathaway - they're doing very well and I doubt have any issue recruiting good executives.

Despite this, and decades later, we see terrible compensation plans being approved by boards. We see executives exiting failed businesses with enormous paychecks. We see boards offering those same executives new management positions with terrible (for investors) compensation plans. What gives?

It certainly looks like cronyism to me, but maybe I ought to be applying Hanlon's Razor.

Cronyism isn't an exception to microeconomics, it's a lesser-known example of a consumer preference. In this case the board has a... preference... for cronies. :-)

Yes, I believe that is exactly the point: the invocation of econ 101 as explaining away all the iniquities of life as "simply how the world works" is simply a veneer of objectivity over what is just cronyism and imbalances of power and oppirtunity.

Yeah it’s like trying to apply supply and demand to politican’s wages. Company directors and executives set their own wages using others’ money. It’s obviously not a market.

Or for this audience, the tech industry, where in-demand skills are often bid up in the form of higher salaries.

> There is no indication anywhere that supply and demand is wrong about the job market.

If supply and demand worked as theorized in the labor market then there would necessarily be a loss of employment when the minimum wage is raised, but that is not always the case [1].

Some studies find effects and some don't, which is a good indication that the labor market is more complicated than Econ 101 principles.

[1]https://en.wikipedia.org/wiki/Minimum_wage#Empirical_studies

I think that's called an "inflexible demand curve," and is part of the complete theory. I do remember drawing flat lines in econ 101. :)

You are looking at it a different way, but the conclusion should be the same. You are saying there is more demand for specific CEOs because they are the ones who control the industry (this is actually why they "can't be replaced"); yes, of course, they value themselves highly. They already have control of all of the money that can be used for hiring and therefore determine what is desirable even when it is not valuable. This makes the situation that much worse because: 1. Supply and demand can be used to model it and 2. It doesn't do anything helpful to resolve the very real problems that exist.

Demand isn't the same thing as value. When we create an economy where a few people have all of the disposable income then we also create one where the only business interests represented are theirs. We should let value dictate demand, which only happens when we spread the money around.

> There is no indication anywhere that supply and demand is wrong about the job market.

It's not that supply and demand is wrong. It's that supply and demand is not the whole story. It is an open question whether workers should change the market forces at play by unionizing and demanding collective bargaining of their wages. This does not subvert supply and demand, it simply alters the pressures the company leadership experiences in the market. I said that the original comment was "wrong" because the comment stated clearly that "wages are only set by supply and demand". This seemed to me to imply that nothing could be done about low worker wages, which is clearly wrong. What workers can do, and apparently in this situation have done, is unionize and strike for better wages.

Exactly this. The "law of supply and demand" is like the ideal gas law: it is a useful model, but it has certain key assumptions. And just as the ideal gas law breaks down in extreme conditions, supply and demand does not hold without certain invariants.

The farther actors are from perfect information, the more asymmetry in the system there is, the slower the system is to react, the more the relationship between supply and demand breaks down.

> Supply and demand does not account for the power imbalance between workers and leadership, which unions specifically attempt to address.

You’re both right. Power dynamics and supply and demand are interrelated.

Most forms of human organization involve hierarchy. Even co-ops have a CEO and that CEO makes a multiple of base worker pay.

What that multiple is and how it gets decided is a fair question: in co-ops, voting rights are built-in, but for private corporations you need collective bargaining

> Most of the time that I see people invoke "Econ 101" concepts, they are wrong.

It's not that they're wrong. Worse, they're thought-stopping.

They're mantras we all know and we are trained to "accept their wisdom" and stop questioning.

I have bad news for you. Those workers who demand 40% wage increases and 32 hour work weeks will be "easily replaced" by auto factories in the South who have right to work laws.

This is why global worker solidarity is so important.

Interesting. What's that if I may ask?

It’s also unrealistic. Different workers in different nations have different cultures and compete with each other for a scarce supply of buyers.

> Different workers in different nations have different cultures and compete with each other for a scarce supply of buyers.

This is a description of the status quo of capitalist competition, but is not a fact of nature. We can arrange our economies to work in cooperation with one another, rather than in competition. Competition is used specifically to depress all worker wages for the benefit of the ownership class, and we do not have to accept that at face value.

Why would workers in the global south feel any solidarity towards workers in the wealthiest country on earth who earn global top 5% wages?

well, the unions pushed for wage requirements in the auto industry within the USMCA (NAFTA2) and required Mexico to (effective) legalize unions alongside lots of other rights enshrining measures. So Mexican workers benefited greatly from the work of these unions.

Other than the 10 million+ of Mexican farmers impacted.

> Supply and demand does not account for the power imbalance between workers and leadership

Supply and demand is the imbalance. The workers, individually have no control over supply. The whole point of a union is to control the supply of labour and shift the balance of power.

It depends how they're counting.

There was an example in Money Stuff this week where a CEO got a pay package "worth $110 million". It's actually made of stock options that vest if the share price went above $150, but the expected value was $110 million so that's what was reported.

…But the share price only reached $66. So in fact he was paid zero, and he quit. (Well, $1.5 million in cash.)

https://www.wsj.com/business/ceo-with-110-million-pay-packag...

> paid zero

> paid $1.5 million in cash

These are two wildly different things.

Yes - that is serious tails I win heads you lose sort of numbers

Just think of all the risk that executive took by potentially only earning $1.5 million dollars! EDIT: called it, MichaelDickens just made this argument unironically.

$1.5 million is approximately $0 in comparison to the originally-quoted $110 million—it's less than 2% of the original amount.

And yet, a massively life-changing annual salary level for almost all Americans.

You don't spend a percentage, you spend a fixed amount. $1.5 million is enough to live in a nice house, eat what you want, send your kids to nice schools, Aruba in the summer and Aspen in the winter, and still have enough to buy a very fast car. It's easier to focus on EV once you live this life.

Everyone read that as $1.5 million in salary but I didn't mean to say he got that every year. He got it once.

So? It's still more than most families will make in a decade. How many years was that $1.5M compensation for? What other compensation did he get?

Being honest, I'd really have to know what kind of timeframe that $1.5M was paid out. Was that a single year? 5? 10? It changes my opinion, slightly.

If its $1.5M in a single year, I have absolutely no tears to shed.

If that was 5 years, that's $300k/yr in compensation. A very comfortable salary in just about every place in the country. Once again, I probably have no tears.

If that was 10 years, that's $150k/yr. Ok, if you're expected to live in Manhattan or whatever, I'll agree that's pretty tight. Still though, that's a couple times the average household income in the US. Congratulations on being a bit closer to a plebeian. Boo hoo, guy who could have had generational wealth just had to live like the rest of us. What a tragedy. Truly zero income, being more than twice the average household income for a single earner without even thinking of other compensation he might have received.

I can't imagine this was some kind of performance pay over 15-20 years, so his pay has to be in this. I don't have a WSJ subscription, so I can't comment further on it.

"A million here and a million there, and pretty soon you're talking real money." (To paraphrase.)

Right, but in general the CEO doesn’t really do much to the stock price. If the general market is up, it’s going up. If the market is down, it’s going down.

How many companies really break that relationship in their market sector?

So tldr, ceo pay is based on the economic cycle rather than how the company does.

Some public CEOs comp packages are defined by them exceeding $SPY so boards do expect more than just the economic cycle.

50% of SPY constituents are going to beat SPY. That in itself doesn't imply the CEO is a meaningful factor in company performance.

This isn’t true because of the weighting. If apple doubles in value SPY will be up 8% from that alone. It’s easy to see a scenario where one massive company has an incredible year and every other company returns below the average.

Or, alternatively, one massive company has a bad year, and everyone else comes out smelling like roses.

On average, 50/50 is a pretty decent benchmark here.

> but in general the CEO doesn’t really do much to the stock price

Steve Jobs, Bill Gates, Elon Musk, Satya Nadella, etc.

> ceo pay is based on the economic cycle rather than how the company does

You can always start your own corporation, name yourself CEO (all you gotta do is file some paperwork and pay an annual fee) and rake in the dough for doing nothing!!

That is true. Elon Musk has greatly affected the stock price of the Company Formerly Known as Twitter.

Since Musk took it private, the stock price is not known.

It has public shareholders like Fidelity, so they do report what they value it at. I don't remember what it is, but it's at least 1/3 marked down.

Those are founders but this is an external hire at a later stage not really the same.

The story I linked is actually a cofounder.

Nobody is complaining about founder pay. The complaint is about publicly traded companies being subjected to elite capture by parasitical execs.

Satya Nadella is not a founder. But during his tenure the value of MSFT went up by 10x. I'd say he's well worth his compensation.

> It's actually made of stock options that vest if the share price went above $150, but the expected value was $110 million so that's what was reported.

It gets a little weirder than that I suppose since you might have a great deal of shares in a company, which you never exercise so you could say that money doesn't really exist until exercised.

You can however use those shares as collateral for a mortgage or other line of credit which is a pretty common tactic for wealthy people to avoid paying income tax that they otherwise would if they were to sell said shares.

In this case he didn't get any shares. If he'd used the options to get a mortgage then he's got a pretty big hole in his pocket when they became worthless.

Shares can and do go up and down quite a bit. I bought heavily into one tech company where the shares went down 90% in a couple months. It was pretty devastating for me.

> You can however use those shares as collateral

Only shares that you own, not have an option to buy. And only a portion of the shares, and if your shares become worth less than the loan, you still owe the money, and they'll come after any other assets you have.

> you might have a great deal of shares in a company, which you never exercise

You're confusing owning shares with having an option to buy shares. They're very different. You'll also owe income tax on the difference between the exercise price and the current price of the shares. (A friend of mine didn't know that, and consequently lost his house.)

Isn’t that kind of lending what caused the Great Depression? Pretty sure you can’t take a loan out on a promise of an option value…

As someone pointed out "1.5 million in cash" for not doing the job you were hired for is .. not zero.

I'm fairly sure I could achieve the same results for considerably less.

Moreover making compensation dependent on stock price movement encourages corruption and fraud - look at the numerous Enrons and other financial claims. All of which left the majority of those responsible enriched while destroying the lives of others.

> I'm fairly sure I could achieve the same results for considerably less.

I'm highly skeptical of that. Not driving the company value to zero is worth a significant amount of money; anyone who has worked under a bad executive or CEO can tell the difference between one that didn't accomplish aggressive goals and one that's objectively bad. If you have a bunch of executive experience, maybe you'd be able to replicate that CEO's performance, but absent that it's more likely you'd cause more harm than just not making the goal.

well the CEO's been set a target share price, and he did not reach it. Dunno if you could consider that as failing.

The CEO here is the least likely to be responsible for the increase/decrease in profits/value in that one year. The best you can hope for is a pr boost. Whatever strategy change would not be visible in the short period. Key hires there is not enough time for an impact. Whatever value increase is going to come from vps and everyone down the line. Why not give them the upside on the value they create?

> If you have a bunch of executive experience, maybe you'd be able to replicate that CEO's performance, but absent that it's more likely you'd cause more harm than just not making the goal.

I doubt this is true. Organisations have inertia, and getting one to change direction or do something different is remarkably difficult. (source: I have been hired as a CEO to change the direction of an organisation. It was difficult).

I strongly suspect that an average person being put into the CEO role would do fine as long as the organisation was basically OK. They'd make mistakes, sure, but everyone makes mistakes. The organisation has ways of limiting the damage of mistakes.

The hard bit about being CEO is taking full responsibility for your decisions with no feedback. You can deal with this in a wide variety of ways; arrogance, narcissism, authoritarianism, or humility, honesty, and teamwork. We tend to see the first three because those kinds of personalities cope well with this kind of difficulty. But that doesn't mean this is the best way to deal with it.

It's zero of the bonus, of which the CEO had assigned a prior that made him choose that job over other offers he likely had.

Performance based bonuses exist at virtually all levels of skill in companies. What you see as a catalyst for fraud could also be framed as a catalyst for incentivizing an outcome most likely achieved via hard/smart work.

$1.5M is not nothing, but it's less than 1% of the CEOs potential compensation.

>Performance based bonuses exist at virtually all levels of skill in companies

lol. Any data on that? In tech maybe, but I'm fairly confident(also an unsourced opinion) that the vast majority of workers in the US receive zero bonus, skill based or otherwise

What percentage of Walamrt's employee base probably has a significant part of their pay tied to performance?

Home Depot? UPS? Amazon's 1.6M, not just those in Seattle making well into the six figures? Kroger? Albertsons? Target? Starbucks? You really think a bagger or cart grabber or barista is getting a performance-based bonus? These are some of the largest employers in the US.

The vast majority of the US workforce probably has less than 10% of their income (probably close to 0%) directly tied to performance. A massive chunk is entirely how many hours they get on the clock, that's it.

> Performance based bonuses exist at virtually all levels of skill in companies

This really sounds like the perspective from someone who's never punched a clock.

When I picked groceries in a freezer for Target, my pay was based on my performance relative to the baseline performance as measured by engineers. If I picked at a higher rate than 120%, I was granted incentive pay. If I picked below 80%, I was on my way to termination. It was meaningful on a $13.50/hr job.

Not all jobs have quantitative measures for impact. The more a job is decoupled from a measurable value, the more likely that job is to be bid up to "as much as the company can afford."

I've seen this in my career, the closer I get to "SRE" or "platform engineer" the more decoupled my salary has become from my actual measurable value.

I'd articulate the thinking as, roughly:

We know this role is important. We know that having a bad SRE team (or CEO or platform team) is expensive, it could cost us the 100% of the business. And we don't know how to measure the value a good one provides. Therefore we are willing to spend as much as we can afford to make sure we get a good one.

SREs aren't on the board of directors setting the pay for other SREs who are on their board of directors though.

The elite/ownership/"capitalism winner" class are playing on an entirely different level with their power and influence. Don't kid yourself into drawing comparisons with your situation and miniscule in comparison compensation. It's always heads they win, tails you lose.

> Don't kid yourself into drawing comparisons with your situation and miniscule in comparison compensation.

There are two ways to read my comment.

One as explaining CEO salaries.

The other as actionable career advice for negotiating your own salary.

I've used this insight to nearly 5x my salary.

That salary was not minuscule to me.

> as much as the company can afford.

This is pretty much it. Everyone wants to avoid hiring a bad CEO so it’s a bidding war for executives with track records at large companies.

And when you’re making billions a year the CEO compensation is a drop in the bucket.

> We know this role is important. We know that having a bad SRE team (or CEO or platform team) is expensive, it could cost us the 100% of the business. And we don't know how to measure the value a good one provides. Therefore we are willing to spend as much as we can afford to make sure we get a good one.

And who are "we" in this train-of-thought? If it's shareholders, that's where the root of any problem lies. If shareholders are real businessmen and entrepreneurs who built up the company or similar companies, they will have a clue as to what is a good CEO. If the shareholders are real workers who believe in the company they're working for, they will have a clue as to what is a good CEO.

Today, shareholders are no longer real businessmen or real workers, but retirees represented by bureaucratic investors. That's why they have no clue as to what is a good CEO.

Yup the shareholder is an ETF today. The people voting on behalf of shareholders aren’t the people benefiting from the success of the company.

To paint the above in starker terms:

Worker pay is set by the leadership, leadership pay is set by the leadership.

100% this. Leadership gets to decide how insanely hooked up they will be. Same as congress. Remember when they carved themselves out their own Health Insurance requirements? Same thing.

That hasn't been true for ~13 years now, Congress's healthcare comes from ACA exchanges.

While this is true, they do get 72% of the premiums paid for by the USG, as well as numerous perks like free onsite visits from OAP etc. Not unlike some large employers.

I remember I was reading a subreddit for actually rich people (/r/fatFIRE) and there was a thread about concierge doctors; everything about the service sounded worse than FAANG health benefits I've used. (Which does include an onsite doctor's office.)

Leadership is set by shareholders. There is still accountability.

Public unions seem more undesirable. There we have the gov negotiating with itself with no external accountability, unlike your example.

institutional ownership has entered the chat.

> Leadership is set by shareholders.

Funny thing, I own a vast number of stocks through various means, either directly or via ETFs, and yet never in my life have I had an opportunity to weigh in on the salaries of anyone in the companies I hold equity in.

> Public unions seem more undesirable. There we have the gov negotiating with itself with no external accountability, unlike your example.

The government is negotiating with unions, not itself. However, if we're going to take a crack at public sector unions, let's start with the police unions.

> Funny thing, I own a vast number of stocks through various means, either directly or via ETFs, and yet never in my life have I had an opportunity to weigh in on the salaries of anyone in the companies I hold equity in.

Because obviously what you call "vast" is actually a minuscule percentage of the company.

> and yet never in my life have I had an opportunity to weigh in on the salaries of anyone in the companies I hold equity in.

None of them do the "say-on-pay" thing where stockholders get to vote on whether they're happy with the pay packages for named officers?

>Funny thing, I own a vast number of stocks through various means, either directly or via ETFs, and yet never in my life have I had an opportunity to weigh in on the salaries of anyone in the companies I hold equity in.

Really? I get shareholder meeting notices for voting on compensation packages all the time. I admit that the chances of me personally shutting down the pay package of AIG's executive team is pretty much nil, but that's also because I personally own pretty much nil in terms of voting stock, and most people like me probably either don't vote at all, or vote with the board recommendations. Still, it's always within my power to try to start a shareholder movement on this front.

Technically that’s true but the holdings of these public mega firms tend to be in the hands of many small holders such as you or I, who it’s well understood are unlikely to cause a fuss for the reasons you mentioned.

Exactly. "shareholder activism" is called that because it is a considered an anomalous, bizarre state of affairs. Imagine the temerity of the people who own the shares of the company calling the shots! In reality, management has basically a completely free hand to do whatever they want so long as an incumbent board doesn't get its shit together and replace them (and even that is sometimes not enough).

This is also beside the main point, which is that management shares a class interest with shareholders, even if they aren't literally the same people at some particular point in time. Capital and management are obviously on the same side, and labor isn't part of the club.

I haven't actually kept track, but it wouldn't surprise me for my direct stock ownership I've voted on executives in at least 70% of them and executive pay packages on probably 20% of them. Mostly mid to large cap though.

Not that my votes "no" were ever successful in curbing the growth of executive pay. Hard to vote against the executives who probably own a decent chunk of the voting shares themselves.

Public union leadership is determined by a member vote. Union leadership represents the worker. The external accountability comes from you regardless if your elected official is dealing with a union or a private company

> Public union leadership is determined by a member vote.

Correct. But unlike private businesses, I can not vote by taking my business elsewhere.

> The external accountability comes from you... Sure. It does via voting. Fair point.

> regardless if your elected official is dealing with a union or a private company

These are two separate things. The gov only affects private companies by regulating. It cannot negotiate benefits with the union or the private company. It is the neutral third party.

With public unions, the gov is both sides of the discussion and the mediator. There is no unbiased party in the negotiation, and seemingly no incentive to vote out pro union officials. I cannot understand why.

This is a good listen as to the problem with public unions:

https://youtu.be/6PI_EldBehU

1. The gov doesn't haven't to turn a profit, so there is no alternative if prices are driven too high by union negotiations.

2. The union members get to vote on both sides of the table: both for their union wages and for the elected "neutral" party, that is obviously not so neutral.

> Leadership is set by shareholders.

This is completely untrue. The board of directors sets leadership pay, and often the BoD is appointed by leadership anyway so it's essentially leadership setting their own pay.

The board, elected by the shareholders, sets the compensation of executives.

Worker pay is set by supply & demand. After all, the pay has to be enough to attract workers.

I support the workers' decision and negotiating on labor rates is the basis of our economic system. Get what you deserve.

That said, the CEO pay is easily explainable:

> Profits at the struck auto companies increased 92% from 2013 to 2022, totaling $250 billion, according to EPI

> CEO pay at the Big Three has grown 40% in the last decade, according to EPI

If you're the CEO of a company and you increased profits by 92%, I don't know seems pretty fair to me. There's a lot of other businesses that suck and haven't raised their profits in the meanwhile.

I think talking about the CEO pay is the wrong path (though I do admit it's marketable in the mainstream news). Just ask for what you think you deserve and don't work if you don't get it. It's as simple as that.

The workers also contributed to that 92% increase in profit.

And they got 18.1% for it.

The effort is to close that gap. Can’t build cars without workers. Elon famously tried and failed.

https://techcrunch.com/2018/04/13/elon-musk-says-humans-are-... (“Elon Musk says ‘humans are underrated,’ calls Tesla’s ‘excessive automation’ a ‘mistake’”)

Tangent: This is a mathematically muddled discussion that turns out to be about right anyway.

If profits went from $5 per year to 10, they increased by 100%, but that doesn't mean that you have room for a 100% increase in everybody's salaries.

A much better way to have this discussion would be to look at the dollar value increase in profits versus salaries.

Profits are forecast to be about $32b in 2023, up from about $19b in 2013. At about 240k total employees, and an average union pay of about $30/hr - call that about $90k year fully burdened per employee - a 40% increase would cost the company about $8.6B, or about 2/3 of the growth in profits. That may be overestimating the costs, as there are only 146k workers in the union, in which case the $5.2b increase in employee costs is... 40% of the profit growth, which seems like an entirely reasonable split of employee vs shareholder gains.

> If you're the CEO of a company and you increased profits by 92%

Did you? Attributing all the success a company achieves to the CEO feels shortsighted.

Aside from anything else: if all these companies saw their profits grow by so much surely there’s an external commonality there? “The CEO did it all” would be slightly more plausible if only one company experienced that success.

And that's easy to test. Remove everyone except the CEO, and see how things work out.

Bad argument. I could just as easily say "remove everyone except the ICs and see how things work out."

That would work and leave the company functioning well. Without the talking heads there is little need for management and IC domain experts and IC architects and IC sales and customer service will continue and leadership will naturally come from the rank and file.

It doesn't matter what "the truth" is, as long as the board (aka the owners) believe that the CEO's decision making is what led to the profits. The CEO's compensation is commensurate with this belief of cause and effect.

Maybe. It could well just be the market and luck, but it could be the CEOs decision. On the other hand, it's never because the line workers just started working harder. Think about being an early engineer at Amazon vs the same at another startup that never went anywhere. Those engineers did the same amount of work, but the difference is that Jeff Bezos was telling the Amazon engineers what to build. BTW I'm not making an argument that workers shouldn't share in the gains, just that people at the top are much more likely to be responsible for them.

> Those engineers did the same amount of work, but the difference is that Jeff Bezos was telling the Amazon engineers what to build

Particularly at early stage startups engineers are often responsible for a ton of innovation. It’s rarely exclusively top down instruction. Same goes for pretty much every company I’ve ever worked at. The CEO is not making every decision and coming up with every idea.

It seems erroneous to me to imply that the CEO deserves a bigger pay increase than the workers that actually increased profits by 92%

Doing math like this is always bad and just leads to arguments.

Imagine a chocolate bar factory, making chocolate bars for 50 cents and selling them for $1... 1mio per month, 500k profits per month.

Then a new ceo comes, sees that all the ingredients are vegan, there are nuts inside, making the bars "healthy", slaps on vegan logos, superfood logos, changes the ads to make the chocolate bar seem more high end and raises the price to $2 each... due to new logos, superfood text and ads, even with a price increase, 1mio of chocolate bars are sold, and the profits rise from 500k to 1.5mio per month.

Did the workers make the chocolates that brought in 500k? sure. Did the same workers make the same chocolates that brought in 1.5mio? sure. Did the workers do anything differently than the month before? Change anything? No. Did the ceo make a single chocolate bar? Nope. If the workers did the same as they did the month before, and if the CEO didn't make a single chocolate bar, who 'created' the extra 1mio of profits?

Sure, it sounds intuitive to put dollar values to each person, but reality is more complex than that. In the end, workers want to get the as much as possible money for least work done, and owners want to pay as little as possible for as much as possible work done... and that applies to everything, from workers and owners in a company to average joe buying apples (most apples for least amount of money)

this is a superficial argument that leads to the point that you want it to, rather than determination of the factors such as:

Was there an entire marketing department that was needed for this to be successful? Why aren't we quantifying that?

Why aren't we quantifying the new QA processes to make sure the packaging is correct?

Why aren't we factoring in workers downstream contributing to the success by being able to pivot and be malleable in the job making this possible in the first place?

Why is it so anathema to people that everyone can share in the profits? Its not like we're saying only pay CEOs 100K per year or something. 1:25 ratio pegged to the lowest paid worker use to be the norm, for decades, and CEOs were plenty happy with that too.

You cannot calculate stuff like this... you just can't.

If they earn so much more, should they pay contractors more too? Does your plumber ask how much do you earn before he fixes your toilet?

What about other supplies? Should they pay more for cocoa? For sugar? Do you pay more for bread in your local store than someone who earns minimal wage?

You do none of that... you try to get the lowest price when you're paying (even if the plumber has 8 kids to feed at home) and get as much as possible when you're the one getting paid. Same with workers.. you pay enough to have them stay and they do as little as work as possible to stay employed.

I agree that some workers should be paid more, and that's why they're striking and hopefully they'll succeed... but taking out a calculator and saying that someone made X more so someone else should get paid more too by the same ratio is stupid. In my country, there's a huge shortage of contractors (electricians, plumbers, painters, tile-layers etc.) and the good ones earn as much as doctors... and due to a shortage, large companies have problems getting eg. electricians (because contracting pays more and gives more freedom), so their pay is going up... does that mean that accountants pay should go up too? (there's no shortage of accountants)

>You cannot calculate stuff like this... you just can't.

Then why assign the cause of the increase to the CEO?

The owners brought in a new CEO, and your company earned 1 mio more due to his decisions. The owners could've chosen a cheaper CEO, or a more expensive one, if the ceo made the company earn 1mio more, they probably made a good choice. Starting a company is easy and cheap, and anyone can be a CEO... making million(s) per month is hard.

you're saying that you can't calculate how everyone in the company can share in the success of the company?

Literally used to be called profit sharing.

> If you're the CEO of a company and you increased profits by 92%

This assumes that the increase in profit is attributable primarily to the CEO. Well, that at least 43% (40/92) of it is.

> Just ask for what you think you deserve and don't work if you don't get it. It's as simple as that.

This only really works with unions. Fortunately, these workers have one.

> Just ask for what you think you deserve and don't work if you don't get it.

This is the most wildly privileged take possible on the issue.

I agree. Someone in the leadership tier can generally get by longer without desperately needing to work; their house is often paid off, they get dividends from shares, etc. Down in the blue collar ranks, many of those people are scrounging to stay on top of rent, or pay a mortgage, or getting hit by rising food costs. Many workers aren't in a position to change jobs on a whim.

It's probably a bit easier if you can collect unemployment for refusing to work, like I hear California is doing.

It's called a strike and it seems to be working. The key is that everybody does it at once.

> The key...

If that were true, the pay of every non-union employee would be minimum wage.

That does not follow in the slightest.

> This assumes that the increase in profit is attributable primarily to the CEO. Well, that at least 43% (40/92) of it is.

The CEO's didn't get 100 billion extra pay, they just got 40% more than before not 40% of all the profits.

CEO pay has gone up pretty much across the board, significantly outpacing workers for several decades, even at companies that have not done well.

> If you're the CEO of a company and you increased profits by 92%

YOU, the CEO, didn't single-handedly increase profits by even a single percentage point. One employee out of 1 million, take your millionth of a cut of the profits, that's still $150K.

the CEO has quite a bit more influence over the company financials than ICs do, however good they are.

Good leaders are able to make other people more profitable. If someone was able to make 500k people more profitable that is worth a lot.

There is a big difference between "CEO responsible for increasing profits" and "CEO while profits increased", and it's not at all clear that this is one or the other. (Although in fact, if all competitors in an industry all had their profits grow, I think that's actually likely excellent proof that the CEOs weren't responsible at all.)

> If you're the CEO of a company and you increased profits by 92%,

If it's a company of one than I agree. In any other scenario the CEO led the company to a 92% increase. The CEO didn't do this alone. They maybe managed that increase and had a part in it but others most likely did the vast majority of all the work.

Now, how do you feel if the CEO fired 50% of the workers and maybe the remaining work twice as much to make up the slack. This leads to a 92% increase in profits and the CEO deserves the vast rewards?

So ceo and boards increased profits by screwing workers out of pay and in return ceos got pay raises.

If a ceo grew front line employ pay and also profits at the same rate, the ceo pay should naturally follow that rate.

On the other hand, if they grow profits by suppressing wages, then they should eat the same pudding they served everyone else.

gross growth should be less important than relative growth.

From 2013 to 2023 GM was beat in innovation by both Tesla (Model s,X , Y, and 3) and Ford (aluminum f150 and electric f150, mustang mach e) and has only recently been producing vehicles that look like their 2030 lineup - on the competitor's charging network technologies.

GM was even particularly slow on ice adoption of things like independent rear suspension. Or, the Corvette - where they basically pulled a Nissan and bought the competitor's engine.

Slow to innovate, early to fail (Volt/bolt), purchase from the competition is not what we should define as a good CEO.

That's assuming that the CEO has anything to do with the growth in profits. Average US GDP looks to have grown by ~66% in the past decade. Do some spreadsheet shenanigans and it wouldn't take much to drastically outperform that number.

Who's to say that the various attempts to "chart a new course" and change business strategy for the shareholder's benefit during that time didn't actually make these corporations underperform vs locking the executives in the boardroom and cutting off all their decision making ability for the same time period?

Absolute lukewarm take here. Wages are not only set by supply and demand. Institutional power, regulatory concerns, etc... are huge factors in compensation, too. You can argue they're abstracted over by the market anyway, but you're not saying anything interesting until you dive into the tensions between those concerns.

And that's not even touching the fact that the workers are clearly valuable and irreplaceable enough that they can halt production like this.

the supply of prospective management people definitely has kept up. there are literally tens of thousands of MBAs graduating every year, to say nothing of managers at existing F500 companies. there are only so many large companies, and thus so many CEOs.

look at tiny barely profitable companies, the gap between median wage and CEO is sometimes less than 2X.

all these takes on CEO pay when the reality is simple - CEOs are paid a lot because they the cost of being wrong is more than their pay. this results in companies that have a lot of money competing, driving up the price. the end. it's the same reason lebron james is paid 10X more than NBA average.

> there are only so many large companies, and thus so many CEOs

This is a statement that there is low quantity demanded by the market. It's actually a great example of how the naive supply-and-demand argument doesn't make a lot of sense.

how so? low supply, high demand for "perceived" good ceos. thus those large corporations can throw money at talent.

Stellantis has 270,000+ employees across 16 brands. I'm not saying their CEO does or doesn't deserve $20m in compensation but at some point you're going to run into a problem where... nobody wants to do that job for $1m/yr and they wouldn't be qualified or very good at it.

> nobody wants to do that job for $1m/yr

I invite everyone here to raise their hand if they're just as hard-pressed as me to think of any job that they wouldn't do for a million per year.

Nobody who is qualified to do it... I've worked with executives at that level, and let's face it-- most of us don't have the single-minded devotion to do it, nor the experience to manage thousands of people.

I do not understand people that believe all executive are useless and do nothing.

Can you blame anyone? For decades, average workers have faced layoffs, shrinking wages, stagnant career growth and numerous other downsides. For instance, Wells Fargo has gone through multiple layoffs and downsizing over the last 2 decades, and yet their CEOs have all gotten golden parachutes, never once facing the negative affects of their own decision making. There's so many examples of this it hardly makes front page news anymore.

Between the failures of Kodak and RIM/Blackberry, and with hindsight being able to see how those falls could have been avoided, I've come to see the job in new light.

I mean, to be fair, no executive is managing thousands of people. Maybe leading thousands of people, but there's a real physical limit to how many people you can directly manage.

That was my first thought at "270,000+ employees across 16 brands". They're not handling those people. They're paying multiple tiers below them to deal with those people. They'd be thinking of brands as units, and staff below them think of teams within those brands as units, and so on.

> nor the experience to manage thousands of people.

No-one is managing thousands of people.

You might have ~10 direct reports as CEO (common incident command theory says that number should be between 3 and 7, optimal around 5, because after that, you start to lose connectivity between what each report is doing).

I wouldn't take that CEO position. Seriously. I would make a terrible manager, let alone a CEO of a massive company responsible for the livelihoods of thousands of people. I might be able to keep something floating for a year, if I leaned heavily enough on other experienced people around me, and even then only if I could trust them. I've been places where the people just under the top layers were royally screwing things up and the top layers weren't competent enough to see it.

Do I wish I could make that sort of money and run a world changing company? Sure do. But I'm self aware enough to know how badly that would likely go for both me and the people I'd be responsible to.

Maybe if a company gets so big that finding people to manage it becomes disproportionately expensive, it's time to break it up.

As long as we do the same to the gov.

Why is that in anyone’s best interest?

Because it's unable to allocate resources efficiently. Breaking it up may be more rewarding for sahreholders over the longer term.

That would be even more expensive with every company needing its own C suite

True, although if you're getting above $1M/year as a CEO, it's not because "the job is really hard." In fact, the bigger the company, the more layers of management to keep you from any real work.

Instead, the board has approved that compensation based on very real business needs: growing the company, acquiring competitors, changing business models, etc. It's actually hard to find a leader who has experience doing that thing and is also the right fit. Hiring the wrong CEO is a quick way to kill the whole company. On the flip side, to the board, a CEO that can drive meaningful growth is worth the risk, even if they have to fire with a golden parachute two years later.

I'm not trying to justify pay disparity (in fact I think there should be minimum AND maximum FT salaries when currently there are neither), but that's what's going through the board's mind when they set CEO compensation.

But apparently people will do it for $2 - $5 million. In the most recent fiscal years, Stellantis’ revenue was about double Honda’s.

https://www.motorbiscuit.com/how-much-money-does-ceo-of-hond...

The fact that terrible CEOs obviously exist is what drives up the prices for the ones that are not obviously terrible. It is an extremely high leverage role (see also: Microsoft).

What separates the good CEOs from the poor CEOs isn't something you can readily teach. Some of the best ones have a preternatural ability for the role in the same sense that Lionel Messi has a preternatural ability at his sport, and are equally rare. The majority of CEOs are journeymen with the skills to do the job but not to be great at it. This doesn't mean that average employees are fit to be CEOs; you don't have to look further than startup CEOs, which are pulled from an above average pool of semi-random people, to discredit that notion. It is a highly specialized skill set that is difficult to acquire and most people aren't mentally cut out for what is required to be good at it. The experiment of promoting rando employees to CEO has been tried on occasion across industry with almost universally poor results.

This is true of most professions that command a high wage. Thinking that anyone could be a CEO is like thinking any dev can be Fabrice Bellard. Even if that turned out to be the case in a specific instance, no one should expect it to generalize.

That's almost a x100 increase.

If you ignore Pelé, the top soccer player had a similar increase in the same period. https://www.expensivity.com/soccer-salary-inflation/ Compared with the median income, they went from 10x in 1979 to 1300x in 2020. Why has the supply of Messis not kept up with the demand for them?

Thanks, I think this is the best answer and really gets at what is going on.

"Star" pay has exploded across all industries (entertainment, sports, and yes, business) and it's not hard to see why. Technology has vastly grown the size of markets, and the "winner take all/most" dynamics of these star-driven occupations means the winners are able to take an outsize chunk of the revenue.

I think there are some other things going on with CEO pay (CEO salaries are basically set by other CEOs, for example), but the parent comment absolutely gets it wrong when they say "the supply of potential CEOs has increased". In the competitive market for CEOs (as well as actors, musicians, sports stars, etc.), people are not interchangeable commodities. Someone who is only slightly better can be responsible for their corporation completely "winning" in some industry, and thus companies are willing to pay top dollar for this chance at getting the brass ring.

Alternatively, as many argue, wages are not only set by supply and demand.

More like the CEO pay is a cushy symbiotic relationship with the board, which sets their pay. This is not a line worker job when there's competition.

CEO pay is adjusted based on another CEOs in the market. Since every board members has already markup their CEO pays higher and then higher, the increases are what you see today for CEO pay. Not every CEO skills at Steve/Tim/Jensen but they all delude themselves by paying high, hoping they will eventually get Elon-quality CEO into their company and make their stock the next Tesla-NVIDIA-Netflix. Most of the time, they get Stephen Elop type of CEO, unconsciously destroying company in the name of strategic stakeholder value maximization (MBA lingo). Now what about workers? The good one will just hop away. They then will tell everyone "no one is replaceable" and then go on to mis-hire even more incompetent or noob staff in. Or they will outsource it just like Dell and others during Bush Jr time.

What they need to do is to publicly disclose the performance of their CEO. Have CEOs rated by staff and publicly distribute this info worldwide. They also need to implement clawback dating as far as a decade depending whatever products they in charge during their tenure. And lastly, always put full jail offenses directly on CEO without any plea bargain. Not doable? Then workers need to get retrenched as they rightly deserve it when they didnt bother to hop away.

CEOs are an illiquid market, and demand for CEOs is pretty inelastic (companies need but one CEO after all). It's not a market which can reach price equilibrium.

If you expand your horizon somewhat to C-suite in general, it seems that demand for C-suite has tended to increase over time. If you also consider that C-suite is to some degree a Veblen good (demand increases as price goes up) [1], that makes sense under economic laws. Worker pay, unlike executive pay, is going to be considered a significant cost center, and business will higher fewer workers if individual pay is growing too quickly, making worker pay act like regular goods and not Veblen goods.

[1] The framework for setting CEO salaries tends to be "take the median CEO pay, add a little extra because our CEO's clearly better than average..."

... thus increasing the median CEO pay. Rinse and repeat and that explains a lot.

> Use the same framework to explain CEO pay.

Sure. It's the same framework that explains the pay of Lebron James. The NBA became a massively popular global game during the era of fast growth globalization, in which billions of consumers entered into the active global economy.

Now you've got like 50 players earning $30m or more per year in the NBA. To play a game in just the US market.

~450 active players earning around $5 billion per year in just league salary (not counting endorsements).

Now do it for global football, NFL football, Nascar, Major League Baseball, Hockey, F1, and so on.

Who knows the insane total compensation figure. $30 billion?

The economic force producing that comically massive figure, is the exact same reason Tim Cook is worth every dollar he's getting paid to operate the juggernaut that is Apple. The same goes for Nadella at Microsoft.

The top 450 NBA players earn more in salary every year than the CEOs of the S&P 500. Why shouldn't a CEO get paid extraordinarily well, as well as an NBA all-star, for operating a $10 or $20 billion market cap corporation? Obviously they should.

The only time I see arguments against high CEO pay (speaking generally), it's from people that know absolutely nothing about what a CEO does or how exceptionally difficult it is to operate a very big company.

And should mediocre CEOs that fail or otherwise perform poorly get golden parachutes? No, of course not. Exceptional CEOs should get properly exceptional pay. They deserve to earn drastically more than the average worker.

The common Redditor railing against CEO pay, looks at a Tim Cook and thinks they can maybe do what Cook does (he just sits in his chair in a big office while other people do all the work, dur dur dur), or what Nadella does, or a random S&P 500 CEO does. In reality they can barely do their own basic job, much less one ten tiers above them. The average Redditor is further away from being able to do Tim Cook's job than they are being able to do the job of Lebron James. The issue is the average person doesn't know anything about what a CEO does at all, they're entirely ignorant of it. However they can watch Lebron James play basketball and immediately understand they can't do anything like what James can do, because they get the physical visual display immediately, meanwhile they know zip about the job of a CEO at a big company. As usual the issue is extreme ignorance and mediocre education.

> The only time I see arguments against high CEO pay (speaking generally), it's from people that know absolutely nothing about what a CEO does or how exceptionally difficult it is to operate a very big company.

The most common argument I see is that the ceo pay has increased relative to the common or average employee salary. I doubt being a ceo has become that much more difficult over the same time period though.

People are not paid based off difficulty.

I did not make the claim that it was. I was only responding to:

Which links ceo pay via complaints to "how exceptionally difficult" it is to do the job of a ceo. The implication is if people understood how hard the ceo job is that they would not complain about the pay. That implication does not make sense if there is no link between difficulty and pay.

> I doubt being a ceo has become that much more difficult over the same time period though.

So what? The fact that you think this is an argument and not a meaningless talking point further supports the idea that you cannot even comprehend what a CEO does.

The comment I am responding to implied a link between difficulty to pay. What I quoted does not make sense otherwise. If you take that implication to be true and the difficulty of being a ceo has not change in portion to the wage change, which is my claim, then there has to be some other mechanism at play.(this is similar to what I said in my other comment[1]).

The best response I can hope for to my comment is one that tries to explain the mechanism and whether or not it makes society more productive or not and maybe other associated costs if there are any.

[1] https://news.ycombinator.com/item?id=37565350

One big difference is with a NBA team there are only about 9 - 11 other primary contributors, maybe some coaches and back office staff. At any large company there are tens of thousands pulling the boat (pick your metaphor), however the rest have limited bargaining power (without a union). CEOs sit on the board and are good friends with board members and often return the favor on other boards and networks.

CEO wage negotiations have nothing in common with employee wage setting.

I can follow your logic for basketball players beause I know the players compete with each in grade school, middle school, high school etc.. until being recruited to play in the NBA.

Does this mean that I have been missing the CEO tournaments? surely they must compete with one another after all how else can you compare who is better without a direct face off?. It seems like the big companies always get the best CEOs so they must have scouts all over the place on the lookout for that great undiscovered CEO talent.

Or could it be that big companies always produce "great" CEO because its a lot harder to fail and a lot easier to win when you are stearing the biggest ships.

CEO opportunities, especially the first, are very network heavy or "right place right time" heavy. Try contacting some headhunters. They may have leads.

> And should mediocre CEOs that fail or otherwise perform poorly get golden parachutes? No, of course not.

Oh but they do! That’s the rub. Also it’s very hand wavy to say “the CEO’s job is exceptionally difficult”. But that person has a whole bunch of people bringing him ideas and trying to improve the company. In fact, that’s how you even get promoted. So they pick a bunch of things to do. If it doesn’t go well and the stock tanks, the first person to leave are the workers and not the CEO. In fact, in almost every case the CEO is the last to get affected. Win or lose for the company, the CEOs only win.

Lebron James is not the CEO of his team. In your analogy, he's a worker not a CEO. He was the vice president of the player's union.

The NBA compensates workers based on the value they bring to the team. Isn't that what the UAW is arguing for?

Sure, but the problem is that the UAW is likely wrong. Their work, relative to its substitutes is of lower value to the company on the margin. It is also why the NBA doesn't compensate, say the concessions workers millions, they can more easily be replaced. Likewise, the team's medical staff is payed much better both due to the alternatives they could find outside of the sport, and due to the relative difficulty in finding talent.

The UAW has skilled workers, and they are compensated well in general. Perhaps they should earn, more or less, I'm not sure. But the relative value is exactly the point.

>And should mediocre CEOs that fail or otherwise perform poorly get golden parachutes? No, of course not

So start there instead of making it seem like your few specific examples speak for the entire population of CEOs. Talk about the CEOs who fumbled completely during COVID despite having a great position, demanded benefits despite their huge reserves and are now crying about having to pay it back while their profits are up.

Talk about the CEOs dumping their toxic waste straight into the rivers to avoid having to pay costs. And the CEOs who push for every trick in the book to pay a close to zero net tax. And the ones who will lobby and keep almost any potential upstart from ever becoming a threat. And those who have solidified themselves in their branch thanks to first mover advantage, and can do whatever they want and still succeed despite our 'competitive free market' (yeah right).

>They deserve to earn drastically more than the average worker.

They already did in absolute terms. Percentages compound. How about explaining why CEOs need an even bigger advantage in both absolute and relative terms than they had before? Did the workers not contribute to their success?

And why are the workers the first to feel the headwind whereas the CEOs are the first to feel the tailwind?

> The top 450 NBA players...

The top 450? There's only 450 players. 30 teams, 15 players on the roster.

> earn more in salary every year than the CEOs of the S&P 500.

No, they don't.

There are 30 teams, with a salary cap of $136M, i.e. $4.08B.

I'm looking at the top CEO salaries and I'm already at $2.6B and I'm only at number 20.

> I'm looking at the top CEO salaries and I'm already at $2.6B and I'm only at number 20.

I appreciate how many of you immediately jump to make such egregiously bad displays of business logic in response to someone asserting that you cannot even comprehend the job of a top CEO.

Acting like receiving some of your compensation in immediately exercisable stock grants being not technically a salary is a distinction that matters to none but the IRS.

Yet somehow, bundling in endorsements and book deals and other extracurriculars when referring to NBA player salaries? Totally reasonable, apparently.

"Steve Jobs only took a $1 salary from Apple!"

The CEO's of the banks that went bankrupt in 2008 carried on "earning" 10´s of millions of dollars for years after they were bailed out by the government.

Is that performance related pay?

Or is it Crony Capitalism?

What we choose to value as society is entirely subjective. While supply and demand influence the change in the mid point of the bid/ask spread - it doesn’t set the absolute clearing price.

Yes. But now take CEOs and their pay and map it to company performance and stock performance. Are they skilled at bringing out the best in their company, or squeezing staff wages more and more?

> From 1978 to 2021, CEO pay grew by 1,460%, adjusted for inflation, versus just 18.1% for the typical worker.

We should remember that CEO pay is often equity linked, and thus can vary. Not sure if workers want large portions of pay equity linked. I remember I was once in discussion with a hedge fund for a job and they offerred a sliding scale of pay that was cash vs equity. The more equity I opted for, the greater the pay, since of course there was risk involved.

There are two determinants of your pay. One is supply and demand, and the other is how much could your potential replacement screw things up. For most workers the supply/demand is the only part that matters because if you are a line worker, you don't really have the potential to do much damage if you screw up. So if Ford needs to replace a competent line worker, their potential bad replacement won't be able to cost the company much even in the worst case, so this does not grant the worker any leverage.

CEOs are much different. A bad CEO can cost a large company 10s of billions in stock valuation. If you have a decent CEO, and you fire and replace him with a poor replacement, the damage to the company will be tremendous, so the board won't want to risk it. This gives good CEOs the leverage to demand massive compensation. A CEO can basically hold the company hostage by saying "I want a $10 million raise this year, and if I don't get it I'll quit. Have fun rolling the dice with my replacement!" (Though they would never actually say it that way) And the company will basically have to choose to pay an extra $10 million or roll the dice on potentially losing billions. This is why they almost always pay CEOs a massive amount.

“Supply and demand” is a very limited special case of a broader principal, which is that pay reflects power. CEO’s power and control over their own pay has increased, and the power of regular workers has decreased. There are a myriad of reasons for this but it’s certainly deliberate.

Because the board and the investors don't want just any MBA to be their CEO: they want a person with a record of success in leading organizations (or at least collaborating closely with such a leader).

During the same time, the US automakers worldwide market share shrunk from 30% to about 10%.

Because the number 1 quality that you want in a CEO is that he has experience being CEO, and there aren't that many openings for you to get in on it, and the ones that are are given to people who's been CEO before.

Obviously.

No, the number 1 quality I, as a board member, want in a CEO is that he will vote me a massive pay package when I take my turn.

There is no academic training to be a good CEO. They are not easily replaceable. If they were, board members wouldn’t bother offering such high pay. Shareholders don’t appreciate wasting money.

But if we offer more money, surely we will attract the attention of a better CEO!

No one wants to hire a below average CEO! Our CEO needs to be Above Average, so we better pay above the median! And so the salaries spiral up and up......

They've become 14.6x more efficient at ... what? Increasing their pay? C'mon.

Like it or not, they've become more efficient at maximizing shareholder returns. 1978 to present included all sorts of financial shenanigans designed to turn a company from the old school "return on assets" model to a financial vehicle that profits on the spread between it's revenue stream and financing costs. I think it's shit too, but the job turned from running a company go making money appear, and the pay went with it.

Don't hate the player, hate the game (seriously, the system is screwed up horribly)

Any idea why this change occurred?

I know it’s probably multifaceted, but my first thought was that increasing inflation since the 70s has meant that there is an incentive to have as much debt as possible, the hope being that it will be inflated away

The Friedman doctrine[1] + hyperstition[2].

1. Friedman, Milton. "The Social Responsibility of Business Is to Increase Its Profits." The New York Times, 13 September 1970, https://web.archive.org/web/20230913104415/https://www.nytim...

2. Carstens, Delphi. "HYPERSTITION." Xenopraxis, n.d., http://xenopraxis.net/readings/carstens_hyperstition.pdf.

With the complete end of the gold standard in the 1970s, the government/fed's been free to create as much USD as it wants. The benefit of newly created money goes to those who spend it first (it's essentially a wealth transfer from those who get it last to those who get it first), and it's the banking/financial system that generally gets first dibs on this newly created money. This means there's a continuous, persistent transfer of wealth from the real economy to the financial system. In theory this wouldn't happen if the fed instead created money by e.g. dropping it out of helicopters equally to everybody (or direct transfers to their bank accounts), but the whole financial industry has a vested interested in keeping the current approach.

This is such a simple and clear explanation of the financialisation of society I just wanted to keep a reference

Genuine question, have you tried hating the game and observed the response? I'm curious if your experience has been the same as mine?

yes actually - I spoke with a contractor at giant banks, at a high level of security, and with it compensation. The casual stories he told were related to beyond-belief daily animosity, racist language, whoring references and other verbal attacks and harsh emotional content. The whole thing was told in the same breath as I get this much per hour (a lot), I travelled to this place and got this hotel, I got this bonus.. in the same breath.

There is more going on with people and work and money than most people seem to acknowledge when speaking in general.

> Don't hate the player, hate the game (seriously, the system is screwed up horribly)

I say it is fair to hare the player unless they are working to change/improve the "screwed up" game they are playing.

The person you're replying to is suggesting that their pay rates are inelastic due to scarcity.

Price is based on how difficult it is to find someone that won’t drive a massive company awry, not based on them becoming better.

Like Carly Fiorina? The pay for CEOs is set by the board, and the board of most large companies is made up of CEO's from other large companies. It's the private equivalent of plutocracy.

The board is not made of other CEOs

> There is no training to be a good CEO. They are not easily replaceable.

If Steve Jobs—who first created and then basically rescued Apple and started it on the path to where it is today—can be 'replaced' then any other leader can be replaced.

Similarly there are plenty of CEOs that are paid oodles of money that were or are absolute garbage: see Boeing for the last 15+ years as Exhibit A.

He was replaced, but not with someone as good. Apple has done well under Tim Cook, but there is an obvious lack of innovative vision since Steve’s passing.

Perhaps if they offered a pay increase they could attract someone better, but maybe they can't afford it.

The Apple Watch launched 4 years after he died. He probably wasn't involved in that at all, or just barely. Which means that was all Cook's doing. It's now a multi-billion dollar business on its own.

AirPods launched 5 years after he died. It's highly unlikely he was involved at all. That's now also a multi-billion dollar business.

Apple Vision is about to come out. I wouldn't be surprised if that turns into a mult-billion dollar business after a few years.

Yes, Tim Cook does not have the charisma of Steve Jobs, and probably doesn't have the design sense either. But he's awfully good at putting the right people in the right places to steer the ship with him and have quite a strong vision of the future.

Steve was replaced with one of the greatest minds in Operations that history has ever known, and much of Apple's success under Steve was thanks to Tim. So Apple is not the best example if you're trying to show "CEOs don't matter."

> So Apple is not the best example if you're trying to show "CEOs don't matter."

I wasn't try to show that they don't matter, but that they are replaceable. And few companies need to have "the greatest mind in Operations that history has ever known" to function well.

Does Eli Lilly, Unitedheath, Johnson & Johnson, Procter & Gamble, Home Depot, Pepsico, Walmart, Coca Cola, Accenture, Intuit, Caterpillar, Lowes, Nike?

* https://www.slickcharts.com/sp500

* https://en.wikipedia.org/wiki/List_of_S%26P_500_companies

Heaven knows that the last few CEOs of Boeing mattered as they have completely screwed the pooch and basically wrecked that company—all the while making a whole lot of money.

So CEOs can definitely wreck a company, but they’re all interchangeable? Not sure I follow.

Everyone is replaceable, but some people are simply better suited for their role than others.

Your definition of “replaceable” is so loose to be meaningless. Yes, any person can be appointed to the CEO position when another leaves. No, it is not easy to appoint one that will steer the company to greater success than the previous one.

Steve Jobs is practically an example of WHY top CEOs get paid so much. Apple was basically in its death throes when he came back. A few years later they had the iPod. A few years after that the iPhone. When he died in 2011 they were well on their way to being the worlds most valuable publicly listed company.

I do think a lot of CEOs are way overpaid. That said, if a couple hundred million package means the difference between a company folding and firing everyone, or being a multi-billion dollar business with thousands of employees, the math works out.

> Steve Jobs is practically an example of WHY top CEOs get paid so much.

Yes, I explicitly mentioned that: without Jobs AAPL would not be where it was today. But he was replaced.

If someone as instrumental as Jobs can be replaced then so can any CEO that is/was less instrumental.

And what other CEOs are / were as instrumental as Jobs? What other major companies need to have someone of that calibre?

* https://en.wikipedia.org/wiki/List_of_S%26P_500_companies

> That said, if a couple hundred million package means the difference between a company folding and firing everyone, or being a multi-billion dollar business with thousands of employees, the math works out.

Now do the example of packages that cost millions of dollars and the CEOs wrecked the companies, like Boeing, or Enron, or WorldCom. Or Jack Welch's financial shenanigans at GE.

Of course there is training to be a CEO. Do you think all the good CEOs were born with the knowledge to be a CEO?

The argument is not that CEOs are not valuable. The argument is that there's no obvious increase in their value since the 70s that might justify their relative pay increase.

Since there's no pay penalty for being a bad CEO (pay correlates almost exclusively with company size) I guess we can assume that being good at the job is not the quality most important to those who do the selection.

Is that an apples to apples comparison? Is the mean inflation-adjusted market cap of all the companies in both their 1978 dataset and 2021 dataset the same?

It's actually hard to find people who will reliably break unions, and generally do whatever it takes to de-prioritize line workers and eliminate "cost centers" - while also showing pure allegiance to the board without defecting.

That's the entire process of creating the professional corporate managerial class - you have reliably shown that you care more about the financial success of the company, and yourself, than you care for your employees and coworkers.

I mean how many movies and characters have we made that are precisely calling out this exact behavior:

Gordon Gekko

Bill Lumburgh

Mr "Coffee is for closers" Blake

Richard Chesler (Fight Club boss)

etc...

Like...we've been roasting this precise kind of corporate myopic psychopathic forever as what precisely not to be yet it's like an entire generation used them as pathfinders

Are you being rhetorical, or are you actually positing that CEO pay is driven purely by supply and demand?

> Why has the supply of CEOs not kept up with the demand for them?

Why would it?

Because the pool for a CEO hire is much smaller, than "people with MBAs" as has been floated in thread elsewhere.

If you want to hire a CEO, you either usually are looking either at A) A CEO of another company with experiences relevant the current situation, at a size similar to the current company's size. Or B) A senior exec (CFO, COO, etc ...) at the same company, or more rarely an involved board member.

These are self-limiting pools.

So why would it?

What if CEOs were underpaid in 1978?

They weren't

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