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Comment by dotdi | Hacker News Reader

Well, in contrast to other situations, this appears to be a zero-sum game.

A company has a certain revenue, which is used to pay employees, invest back into the business, etc. If you pay the CEO an exorbitant amount of money, it means it takes up a larger part of the income, which means you have to pay employees less, invest less, etc.

Then these lowest-paid employees need to be supported by social programs, which means we - the taxpayers - are subsidizing the enormous paychecks CEOs are taking home. Corporate socialism.

Eat the rich.

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How do you avoid a "pay peanuts, get monkeys" problem, making the company perform worse due to incompetent leadership? Under your zero sum framing, I'm sure the shareholders would love to be able to pay the ceo less as well, because that means more profits for them.

Is there actually any evidence that higher pay results in better performance from CEOs? I’m sure there’s some threshold below which you’re going to get an incompetent but I strongly suspect that threshold isn’t actually tens of millions a year and a company jet.

No.

Somewhat ironically, if it was obvious what made for good CEO performance, they wouldn't be expensive.

How much would you pay Steve Jobs vs the previous CEOs Apple had? Yes I know Jobs only took $1, but what if he demanded more - at what point would you say too much?

I don't know how to value a CEO, but it is clear that a good CEO makes a big difference.

There's a theory that high executive pay isn't really meant to buy competent leadership. It's to inspire the people one rung below to work harder and try to be CEO one day.

Also: whatever happened to working for passion and love of the job? Or does that only apply to the lower ranks?

>Also: whatever happened to working for passion and love of the job? Or does that only apply to the lower ranks?

"gotcha" arguments like these only work if you assume the other side is some sort of monolith that both believe CEO should be highly paid and that employees should be driven by passion. Both might vaguely be pro-business, but by no means does one imply the other, and therefore makes for a strawman.

I believe one side talks out both sides of their mouth, by saying employees need to be passionate but also CEOs and other execs have to highly paid in order to motivate them. I don't think that's a strawman.

Not agreeing with GP, but your point about paying the CEO less for more profits for the shareholders isn't always true, especially for growth companies like big tech.

Their valuation is based on the future growth of the company, so while profit today matters, what matters more is increases in revenue and hitting or exceeding your guidance. Look at amazon's recent 20% tumble, it was all driven by not increasing revenue. Amazon increased it's profits just fine through cost cutting, was more profitable than ever, but missed the expected growth in revenue by half a billion dollars and it cratered.

Ignore short term changes in stock value. What I care about is long term. Companies often do those 20% jumps (either way), but at the end of 5 years it all balances out.

"profits" isn't limited to next quarter's results. It includes future profits as well.

This is the same argument that says high tax rates will deter them from working.

Driven people will work hard regardless, and in leadership, the right kind of leaders will work mainly for the reputation, fulfillment from a job well done, people elevated, legacy, etc - and a respectful level of comp. The narcissists, grifters and mercenaries maybe need the $$$$$.

Edit: I should clarify I mean high tax rates on the wealthy.

> Driven people will work hard regardless

Not everybody is driven by work. Many people are driving by the things they can get from work. The mythical rational man would eventually see that hard work isn't worth the toys anymore and so will start finding something cheaper to spend money on. You need to eat, but you can eat "beef and caviar", or "rice and beans" - at very different prices.

>Driven people will work hard regardless, and in leadership, the right kind of leaders will work mainly for the reputation, fulfillment from a job well done, people elevated, legacy, etc - and a respectful level of comp. The narcissists, grifters and mercenaries maybe need the $$$$$.

They might be still CEOs even if they get paid $1, but all things being equal, they'll still go for the higher paying job. What happens if you have a competent CEO and your competitor decides to poach him? This happens all the time. Starbucks recently poached Chipotle's CEO. Given the different trajectories in stock price between chipotle and starbucks, the incoming CEO is arguably more competent. The market seems to agree[1]. If you pay your CEOs $1, it's only a matter of time before your competitor poaches him and you're left with a worse CEO.

[1] https://www.economist.com/cdn-cgi/image/width=1424,quality=8...

It's a good argument for very high taxes on excessive salaries.

Free markets run rampant when they are not properly harnessed to the common good, and this is surely a case where they should be harnessed.

I mean yeah, they either work or they starve. Same with groceries, if you tax the crap out of them, people will still buy it out of necessity, right?

My argument isn't that all workers should be driven.

The argument is that good leaders are usually driven by things other than a huge salary, and so long as the salary isn't an insult, will do what they do.

So why offer huge salaries to CEOs? It just attracts the kind of leaders that only care for the money.

I agree with you.

> Driven people will work hard regardless

This is empirically not true.

Source?

Probably the problem here is: pay gold and get Gorilla

This is straw man bullshit.

Were c-suite execs less competent before the 90s when executive pay regulations were repealed?

Also, your argument cuts exactly into your own fingers when considering employee pay.

>This is straw man bullshit.

That's not what strawman means. I mentioned an objection with paying CEOs less, but there's no implication that's the other side's argument. If that counts as strawmanning, what you're doing is arguably strawmanning as well.

>Were c-suite execs less competent before the 90s when executive pay regulations were repealed?

What regulations are you talking about?

Also, I'm not sure how you got the impression that high pay causes good performance. Clearly paying a monkey $10M isn't going to magically make him a competent CEO. However, there are good CEOs and bad CEOs out there. Microeconomics dictates that firms will bid up their salaries, causing the more competent CEOs to be paid more. If there are regulations on executive salaries, of course that's going to lower the price, by definition. The same would apply if government capped the salaries of software engineers. That doesn't mean there wouldn't be competition between firms, it'll just get shifted to non-financial compensation eg. company cars or whatever.

This argument fails basic math. Take a company with 10,000 employees (small), If we take away 10 million from the CEOs salary (extremely large) that works out $1000 extra per employee. Nice money, not enough to make a major lifestyle improvement. To get that much per employee I had to use unreasonable numbers all around.

Not that CEOs aren't being paid too much, but it won't make much difference to lower their pay.

> Nice money, not enough to make a major lifestyle improvement.

It most certainly is enough to make a major lifestyle improvement when someone is living paycheck to paycheck. That could be the difference between just barely scraping by to being able to comfortably buy necessities and maybe even grow a savings.

> It most certainly is enough to make a major lifestyle improvement when someone is living paycheck to paycheck

This is not what the recent universal basic income study showed.

> the recent universal basic income study

If you're talking about the OpenResearch study that Sam Altman is funding then yes it did [1]. Granted this study was a little bit more money but the results imply that any amount of extra money helps people living paycheck to paycheck in terms of financial flexibility and safety.

[1] https://www.openresearchlab.org/findings/nber-working-paper-...

The article argues that stock buybacks are used to inflate ceo compensation and the value of those buybacks could be used to meaningfully increase worker wages.

Looking at the utility value for the ceo and the employees. 10M for the ceo may make much difference to his lifestyle (slightly better yacht) but the $1000 for the lowest paid could make a big difference.

They just inhabit totally different financial landscapes.

How many CEOs make 10M? Even in the fortune 100 level you will find they make less than that.

> Not that CEOs aren't being paid too much, but it won't make much difference to lower their pay.

I disagree. There are multiple benefits of reallocating CEO pay beyond increasing worker pay. The obvious one is morale. I work for a billionaire. I have no incentive to go above the minimum, because I know he is the only one meaningfully collecting from my labor. If my pay included a larger bonus and stock grant portion, at least there would be some connection between my work and my reward. Instead, I've had the opposite trend in my career, with the percentage of my income delivered as base salary increasing but contingent income decreasing, especially as a relative proportion when compared to my C-suite.

Two, I'd argue, it's a negative for society as a whole to create a class of ultra-rich. I'd rather see my CEO's excess compensation set on fire and delivered to no one rather than enrich him further. Class inequality will continue to be a problem even if average worker pay increases. We need to increase worker pay, but we also need to end class inequality, even if the latter does not deliver on the former.

>I'd rather see my CEO's excess compensation set on fire and delivered to no one rather than enrich him further.

Isn't this just crab-bucket attitude? It's one thing to argue "profits should be redistributed more fairly". It's a whole different thing to argue "excess compensation set on fire".

If the crabs work together, they may be able to get out of the bucket, but they're never climbing to the moon. I believe a few billionaires are in fact planning a visit to the moon shortly though.

Only if you don't believe that extreme wealth causes harm.

Obviously, you didn't read the article yet.

"you'd be able to give every worker a $30,000 bonus, every year"

Not the first time a journalist wrote something that is wrong. Wanting to support a bias is often more important than the truth. (always has been)

It's not zero-sum because companies can grow.

People love to complain about CEO compensation but does anyone doubt that having the right person in charge is important? Think about the US presidency: how much money should the US citizenry be willing to pay to get the best candidate into office? A lot!

There's no way to have a functional labor market for world leader positions.

That probably says something about the labor market for corporate leadership positions too.

> Think about the US presidency: how much money should the US citizenry be willing to pay to get the best candidate into office?

And yet...

> §102. Compensation of the President

> The President shall receive in full for his services during the term for which he shall have been elected compensation in the aggregate amount of $400,000 a year

https://uscode.house.gov/view.xhtml?req=(title:3%20section:1...

If the mightiest person on the planet can live off a $400'000 wage, CEOs can, too.

>If the mightiest person on the planet can live off a $400'000 wage, CEOs can, too.

literally no one is arguing that CEOs need $50M (or whatever) compensation salaries to survive, just like software engineers don't need $500k total comp packages to survive. The argument is that companies need to pay those salaries to attract CEOs (and software engineers), otherwise your competitor will pay 10% more and poach them instead. The same arguably exists for the presidency, except "competition" is literally any other job that a competent leader could be doing, like being a CEO rather than a president.

> Well, in contrast to other situations, this appears to be a zero-sum game.

> A company has a certain revenue, which is used to pay employees, invest back into the business, etc. If you pay the CEO an exorbitant amount of money, it means it takes up a larger part of the income, which means you have to pay employees less, invest less, etc.

This appears to be missing the crucial point of the article. The problem is not the amount the company spends on the CEO's compensation but rather the amount the company spends on financial schemes in order for the CEO to extract their compensation:

"Divide Ellison's $18m among those workers and each of them would net a paltry $126/year. But if you were to share out the $43 billion Ellison had to piss up against a wall on stock buybacks among those workers, you'd be able to give every worker a $30,000 bonus, every year"

Compensation - executive compensation and worker compensation - is a cost.

Buybacks return profits to shareholders. They are not the same.

There's an argument to be made that buybacks benefit bigger shareholders disproportionately. To solve that problem, tax them differently.

> There's an argument to be made that buybacks benefit bigger shareholders disproportionately.

That's not the issue. Non-founder CEOs are usually not among the biggest shareholders. The issue is a kind of conflict of interest: CEOs with stock-based compensation can directly increase their own compensation by directing the company to do stock buybacks. The CEO is the one who makes the decision about whether the company does buybacks or not.

The board of directors authorizes buybacks and dividends, not the CEO.

Boards of directors are rubber stamps. Corporate governance is a joke. Guess who sits on boards of directors? Other CEOs! CEOs get together (that is, conspire) to set their own compensation, which is exactly why, for example, they all get massive golden parachutes for failure.

Even the largest institutional investor of a publicly owned corporation has less than 10% of the stock. Ownership is very diffuse, which is why management has so much power despite so little stock.

Looks like you've arrived at the actual problem. And it's not buybacks themselves.

This is a dumb response and a false dilemma. They're both problems.

>"Divide Ellison's $18m among those workers and each of them would net a paltry $126/year. But if you were to share out the $43 billion Ellison had to piss up against a wall on stock buybacks among those workers, you'd be able to give every worker a $30,000 bonus, every year"

There's no plausible circumstance in which the $43B he spent on buybacks would have made it back to workers. Pretending that "paying $43B profit share bonus to workers" was even an option on the table is laughable.

> Pretending that "paying $43B profit share bonus to workers" was even an option on the table is laughable.

I don't think the author is pretending that. The author is just trying to accurately measure the cost of a CEO to a company compared to the cost of workers to a company.

But some of that $43B could go pay the workers more. And some of it could go toward investment in the future of the company. Some could even go to dividends, which reward stock ownership and long-term investing. Whereas stock buybacks only reward dumping the stock. The article discusses why CEOs prefer buybacks to dividends: it's a lot harder for a CEO to get a massive payday from dividends, because they'd have to sit on their stock for many decades rather than selling after it vests.

>I don't think the author is pretending that. The author is just trying to accurately measure the cost of a CEO to a company compared to the cost of workers to a company.

The $43B for all intents and purposes, is profits waiting to be paid out to shareholders. Attributing it to being a "cost" associated with a CEO, makes as much sense as attributing the company's expenses as being a "cost" associated with the purchasing manager.

>But some of that $43B could go pay the workers more. And some of it could go toward investment in the future of the company.

Even if you take this handwavy argument at face value, it's stretch to imply that if it weren't for the CEO, every worker is going to get a $30k bonus. Moreover, by your own admission, paying it out as a dividend is an option, so that's the reasonable counterfactual to compare against.

>Some could even go to dividends, which reward stock ownership and long-term investing. Whereas stock buybacks only reward dumping the stock. The article discusses why CEOs prefer buybacks to dividends: it's a lot harder for a CEO to get a massive payday from dividends, because they'd have to sit on their stock for many decades rather than selling after it vests.

Buybacks are the same as dividends for all intents and purposes, except for some tax advantages. If you're a long term shareholder, you should be reinvesting any dividend you receive, not using it to fund this year's vacation or whatever.

> it's stretch to imply that if it weren't for the CEO, every worker is going to get a $30k bonus.

That was just an illustration of how far the money could go, as compared to the direct compensation of the CEO, which wouldn't go very far.

> Moreover, by your own admission, paying it out as a dividend is an option, so that's the reasonable counterfactual to compare against.

It's one option, but I'm not sure why you're ignoring the reinvestment option.

The whole issue is that stock buybacks provide no long-term benefit to the company. They're a short-term pump and dump. In a real, measurable sense, stock buybacks shrink the company, by reducing the number of outstanding shares.

> Buybacks are the same as dividends for all intents and purposes, except for some tax advantages.

That's not true at all. Dividends benefit all stockholders, whereas buybacks benefit only the stockholders who sell. The buybacks may temporarily bump the stock price, but again, that's of no immediate benefit to long-term investors who hold onto their stock.

>That was just an illustration of how far the money could go, as compared to the direct compensation of the CEO, which wouldn't go very far.

No, the direct compensation of the CEO is still only a hundred bucks or so. Claiming $30k per employee as the "direct compensation of the CEO" makes no sense for the reasons I explained in my prior comment.

>The buybacks may temporarily bump the stock price, but again, that's of no immediate benefit to long-term investors who hold onto their stock.

No, it provides a permanent bump to the price because there's less investors to split future profits amongst, which means each share gets more profits and is therefore worth more.

> No, the direct compensation of the CEO is still only a hundred bucks or so.

That's what I said: "as compared to the direct compensation of the CEO, which wouldn't go very far." You appear to be confused.

> No, it provides a permanent bump to the price

A permanent bump LOL. There's no such thing in the stock market. If the company maximizes short-term results while screwing itself in the future, that so-called "permanent" bump isn't going to last.

> In 2022, CEOs were paid 344 times as much as a typical worker in contrast to 1965 when they were paid 21 times as much as a typical worker.

https://www.epi.org/publication/ceo-pay-in-2022/

I thought the almighty "invisible hand of the market" would fix this? Or maybe all those theories for trickle down economics and how capitalism helps everyone are absolute bs intended to keep people docile while they are getting exploited?

Let's remove some more regulation and let's bail out some more 2-big-2-fail company, that oughta fix things /s

In all fairness, it's hard to act surprised at news like this. This is the system working exactly as intended. I don't think tweaking it here and there will change things much, only a fundamental change of how we see work, government and society can enact the change we need.

> I thought the almighty "invisible hand of the market" would fix this?

Why did you think that?

That's the argument given to justify hyper-capitalist policies. The money will trickle down and everyone will be better off. We are now seeing that the money often does not trickle down enough to maintain the lifestyle of previous generations and the inequality has negative effects on society (e.g. a two tier justice system, campaign finance issues, regular people being unable to compete for housing, etc.).

> the money will trickle down and everyone will be better off

that's off-base and superficial understanding of "trickle-down" economics, the idea is that the general well-being of society is based in its ability to create wealth which has a very general definition, the ability to create things that people need & therefore value

and yes by pretty much any metric capitalism has raised absolutely enormous amounts of people out of crushing poverty, there's no dispute there based on the numbers

housing is unaffordable due to government intervention, plain and simple, since government debased the money housing became a store of wealth

> housing is unaffordable due to government intervention, plain and simple, since government debased the money housing became a store of wealth

Actually, big amount of people think it's due to collusion of the big real estate firms + using pricing software + monopolization of the housing market by a handful of firms.

https://www.theguardian.com/business/article/2024/aug/23/doj...

Luckily, the government (DoJ) will intervene and hopefully will break down the monopolies and sue them, which, plain and simple, are the reason for the housing crisis.

> plain and simple, are the reason for the housing crisis

we have decades of evidence that policy artificially raised housing prices into unaffordability, and of course everything else worth having that's also been involved with heavy government regulation has risen beyond the reach of lower and middle classes: health care, education, food. the obvious answer is that money has been debased which means that EVERY that's purchased with money will be harder to afford.

> which, plain and simple, are the reason for the housing crisis

It's plain and simple, but not necessarily true. There are multiple factors. We build housing at a far, far lower rate than we import people, never mind organic population growth. That alone doesn't require any conspiracy theories to explain the reason housing is more expensive and subdivided into smaller units: demand is massively outstripping supply, and it's not a luxury. People just have to pay more for it.

Capitalism certainly was an improvement over the previous system of feudalism; even socialists and communists acknowledge that. However, it's less clear that our current system (what people often call "corporate capitalism" or "late stage capitalism") is superior to other systems such as the "welfare capitalism"/"social democracy" seen in many European countries or the highly unionized capitalism America had in previous decades.

What trickles down isn't green.

> Why did you think that?

If you were to believe current establishment economists, the invisible hand of the market fixes everything, from workers salaries, to societal problems like healthcare, public transport, and education. If it doesn't, then it's probably too much involvement by the evil government. Like, when in 2008, the evil government bailed the good banks, using taxpayer money, showing that in capitalism, the most important members of society: the banks and wall street, are totally safe. /s

In reality, I think the "invisible hand of the market" is a bs metaphor serving as an excuse to neocapitalists to pillage our world without regulation. I'd personally love to see a progressive wealth tax on the 1% (85% on gains > 1million seems reasonable to me), and de-privatization of social services like healthcare, education and transport.

Imo our societies must aim towards the "Private Sufficiency, Public Luxury" model: https://commongood.cc/reader/private-sufficiency-public-luxu... and articles like that showing discrepancy between CEO and worker pay, show me I am on the right track.

> If you were to believe current establishment economists, the invisible hand of the market fixes everything

This is far too simplistic. No one thinks it fixes everything. They might say that "CEO salaries aren't broken; you're just engaging in the politics of envy". But they would never claim that it would do things to reduce said "envy".

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