https://en.wikipedia.org/wiki/Executive_compensation_in_the_...
Well, executives are paid a ton because they need to compete in an environment where other executives of successful companies are already filthy rich. And why is that? Well, it's actually not because of compensation policy at all.
Those other executives are rich because they were founders who hit an exit. That is, it's all HN's fault (and the fault of the VC-based startup money engine more generally).
We created an environment where to staff a successful C suite you need to hire away senior people from FAANGs. And you can't do that unless you pay them crazy numbers. And that means the rest of your executive staff, and your board, need to see the same numbers. And so on, across the rest of the economy.
You can't have an economy producing huge numbers in the stock market without handing those dollars out, in proportion, to the senior staff, basically. The same analysis does not hold to the regular employees, who don't compete against people getting that exit money.
I said salaries in competition trend to market price points, and market price points for executives are set by externalities like "IPO windfalls" that don't exist for workers.
Wages aren't set but effort or value creation, but by marginal benefits of salary
There are other reasons that might inspire, elicit or compel one person's labor at someone else's direction; but if you accept the idea of "salary" as a concept, then it exists to create value, by definition.
If I make a fixed $100 from some labor, that number is an upper bound for how much I would ever pay, but doesnt determine how much I actually do pay. That is set by supply and demand for someone that can do the job. Maybe it is $1, maybe it is $99.
For jobs with variable productivity, pay is set by marginal benefit. If paying $1 more nets $10 more profit, you pay more. Repeat until you dont get more profit from raising wages.
Wages are set by the derivative of profit, not profit itself.
Uh... yes it is? Are "benefit" and "value" not synonyms here? I think you're confusing "value" with "profit" maybe? They may not be equal, but the denominator in "cost/benefit" is exactly what I'm talking about.
The pre-cost benefit of having any worker might be $100. If you can get a worker for $10, the marginal benefit or paying $20 is negative $10.
There were very few executives rich from an exit.
In point of fact, ~1971 seems to be almost exactly when this started. For reference, the term "Silicon Valley" was first used in print in 1971!
This explanation doesn't seem to explain why the CEO/staff comp ratio goes up. It just seems to say that comp should go up. If CEOs and staff both got their pay doubled by moving to one of these startups, the ratio would just stay the same.
That worked quite well prior to robber barons looting and pillaging, declaring bankruptcy, and screwing the workers out of their pensions.
How do you engineer this, do you think? If every burgerflipper at Wendy's owned stock, the performance of that stock isn't connected to performance of their job at all. They can fuck off completely, and the stock either rises or falls. Even if we tie it not to traded stock, but some sort of profit-sharing of that one franchise, there are 40 or 50 workers, minimum, all of whom have been trained to coast along and hope someone else has to do the real work. One could hope they (and the other workers) would learn that their contribution is essential before it goes out of business, but that's absurdly unrealistic.
>That's how it used to be "in the good old days" when folks had both pensions and stock tying them to the long-term success of the business.
It was never that way for any significant fraction of the workforce. Sure, if you worked for one of the Fortune 100 companies, already wildly successful. But anyone struggling at their city's papermill or textile mill or whatever, there wasn't stock and pensions. And at the biggest companies, unions managed to wedge their foot in the door to the point that you had UAW workers and the like quitting the week after lunch on Tuesday because they'd made quota. It was good for them, personally, of course, but to the long term detriment of the very businesses that employed them. They too, despite their stock and pensions and vested interest int he financial success of their companies and ownership stakes, just sort of coasted along and let it all fall apart.
The grunts, it turns out, are rarely all that interested in their own vesting.
That's not really true at all. If they fuck off completely, they're either getting fired, or if everyone at the store takes the same stance, the store closes entirely. If enough stores close, the stock dips.
I'd counter with: what's stopping them from fucking off right now when they don't have stock? Why would stock inherently make them more likely to fuck off? Just like executives, the stock would vest over a period of time. And clearly nobody is talking about giving $500k in stock to a person making $5/hr. It is commensurate to their salary.
>It was never that way for any significant fraction of the workforce. Sure, if you worked for one of the Fortune 100 companies, already wildly successful. But anyone struggling at their city's paperkill or textile mill or whatever, there wasn't stock and pensions. And at the biggest companies, unions managed to wedge their foot in the door to the point that you had UAW workers and the like quitting the week after lunch on Tuesday because they'd made quota. It was good for them, personally, of course, but to the long term detriment of the very businesses that employed them. They too, despite their stock and pensions and vested interest int he financial success of their companies and ownership stakes, just sort of coasted along and let it all fall apart.
This literally didn't happen, and I find it laughable you're portraying unions as a horrible blight on the working man. You might want to go a bit further back into history and look at what the factory conditions were like prior to unionization. If you think that would've just naturally occurred without unions, you're delusional, and need to look at all the non-unionized places we've outsourced manufacturing to, and what their work life looks like. Hint: exactly like it was in the US prior to unionization.
Then take a look at unionized manufacturing economies in Europe. Hint: they didn't get that standard of living because businesses just thought it was the right thing to do.
But in summary, your argument appears to be: people are lazy, and if you give them more they'll just stop trying. Which might be one of the most absurd takes I've ever heard on the subject.
Additionally stock based compensation creates incentives to work towards raising the stock price not actually performance.
All of that is why back when Hewlett-Packard was still run by Hewlett and Packard they banned stock plans and instead introduced profit sharing
So the beneficiaries of the money printer and big government are corporations who are now able to spend everyone's savings that have been converted into equities.
Pick any public company and divide CEO pay by headcount and it'll come out to a dollar figure way, way, way too small to account for the reduced share that workers are getting. There's something (likely multiple things) else sucking up all the money that was formerly shared with workers.
Before the rise in CEO comp, CEOs were upper-middle class or borderline upper class. After the rise, CEOs are solidly upper class.
That aligns CEOs' interests much more firmly with the interests of capital and less with the interests of labor.
The "Celler–Kefauver Act is a United States federal law passed in 1950 that reformed and strengthened the Clayton Antitrust Act of 1914" [1]. It kicked off the conglomerate boom in the 1960s by incentivising buying "companies in unrelated fields" [2]. (Conglomerates were nudged along "thanks to low-interest rates and a market that fluctuated between bullish and bearish, providing good buyout opportunities for acquiring companies.")
That ended with Volcker's early 80s recession [3], which co-incided with (a) computers in finance enabling new entrants to (i) create new financial instruments, e.g. high-yield bonds [4], and (ii) circumvent banks to distribute them [4]; and (b) a multi-decade decline in rates [5].
Herego, my pet theory: since the 1960s we've been in a series of corporate regime changes, each which created demand for a new type of leader (about once a decade), said leader being scarce and thus valuable at the beginning of each shift. (The internet also gives executives unprecedented direct access to investors, customers and employees, current and potential.)
[1] https://en.wikipedia.org/wiki/Celler%E2%80%93Kefauver_Act
[2] https://www.investopedia.com/terms/c/conglomerate-boom.asp
[3] https://en.wikipedia.org/wiki/Early_1980s_recession
[4] https://www.thegentlemansjournal.com/article/story-michael-m...