"It's nice to see an executive giving away a huge chunk of money to the employees that had as much to do with Lenovo's successful year as any executive within the company"
Here in the US we have a cultural flaw where we irrationally conflate equilibria in the supply/demand of labor with distribution of credit for a company's success.
The CEO gets paid a lot more because there is a much smaller supply of people who have the pedigree/qualifications to be CEO than to be a line worker. There is no chain of logic that can take you from there to the conclusion that he's more important to the success of the company than those 10,000 line workers.
What you need is a sensitivity analysis, of profitability of the company versus changes in CEO versus line worker performance. I'd imagine you'd find that a 20% efficiency jump in the line workers would have a much bigger change on the bottom line than a 20% better CEO.
10,000 "low-level" employees take two weeks off (all at once.) What happens to the company?
Companies operate without CEOs while boards seek candidates. Companies can't produce product while it seeks 10,000 replacement workers.
As long as we have the chief executive on one hand and the workers on the other, that is.
I take it you're a Communist then, and follow Communist thinking in other economic thought as well.
The classical economic theory of pricing holds that goods (and labor) are exchanged at a point where the supply and demand curves cross. This, according to the principles of free markets as expressed first by Adam Smith and subsequently refined, and has certain prerequisites including low barrier to entry, equal access to information, fair and open competition (and a lack of collusion on the part of either buyers and sellers), and a clear understanding of value.
All of which undoubtedly hold true for the CEO employment market, I trust.
https://en.wikipedia.org/wiki/Labor_theory_of_value https://en.wikipedia.org/wiki/Free_market
Karl Marx allowed for supply and demand, quoting Adam Smith himself, and I believe, describing the status quo of the era:
" It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say, with their values as determined by the respective quantities of labor required for their production."
I don't think that this disagrees with the classical economic theory you mention, in any way. Would you to care to explain your point in a little more detail please? If anything it's one of the refinements that you speak of.
I'm not being dishonest here, I genuinely can't spot the difference. I have difficulty in spotting what aspect of biot's statement is inherently communist.
In Marx's own view on how things ought to be, paraphrasing, communism was a world in which each gave according to their abilities, and received according to their needs.
In this communist scenario, what each person contributed has no bearing on their compensation. So by supporting the current status quo, biot is not in my opinion expressing Marxist views, in fact, quite the opposite.
In fact, I've heard people denounced as communists for wishing for wage caps.
It's that a lot of what's passed off as free-market capitalism is anything but.
In biot's case, arguing that the value generated by an individual should serve as the basis for that person's pay. It isn't, but is only one input (essentially defining the demand curve, and setting a possible upper limit), but the true market pay scale being one that would also have to take into consideration supply. As I noted (somewhat snarkily), market conditions for establishing executive pay fall somewhat short of the free market definition. For a more popular treatment, Eddie Murphey and Dan Akroyd's "Trading Places" explores a similar idea. Mark Lewis's writings on the stock market provide some insight on trader qualifications and pay.
A friend some years ago provided an intriguing argument for why financial traders' pay was as high as it was. It was less a conventional market pricing argument than one of creating incentives to minimize incentives for fraud. Essentially: we're going to pay you so goddamned much money that you'd be completely mental to try to cheat on us and lose out.
I really cannot speak to the merits of this.
What that, and numerous other arguments for the rich getting ever richer do suggest is that there is a class of people who are very well versed at rationalizing their income and remuneration rates.
There's also a great deal of very, very, very sloppy thinking, rationalization, reportage, etc., in economic matters.
I'm also coming to feel that much of economics as it's been taught for the past 150 years or so simply isn't so. That the conditions described by free markets are far less common and far more fragile than commonly believed. That much of macroeconomics is bunkum used, again, to rationalize why them that has gets more (though, oddly, I'm also coming to understand money, fiscal policy, and Keynesian theory better than ever before), and that much of the economic gain is really a power game played for leverage and advantage, rather than for strict financial gain. A lens which makes the MPAA/RIAA, copyright, patent, trade and immigration law, etc., far more understandable.
Jonathen Nitzan's Capital as Power seems to have stumbled on this same insight: http://www.amazon.com/Capital-Power-Creorder-Political-Econo...
Thanks for your detailed reply, I was thrown by the communist thing, and missed your point almost entirely.
One of the values in these online discussions isn't the ability to convince others nearly so much as it is to hone and refine your own arguments. I'm not sure I'm even partially cogent yet, but I'm starting to stumble in a direction I like.
Most recent that comes to mind was a banker interviewed on the BBC. I was listening, critically as I frequently do, and realized that the view he was espousing was flagrantly Marxist.
Amusing, that.
Then why do companies with flat hierarchies exist and operate just fine? You don't need someone at the top because you don't need a top.
See:
* http://mariewiere.com/2012/03/04/a-company-that-manages-with...
* http://agile-commentary.blogspot.co.uk/2009/09/bees-self-org...
The interesting thing about people, and any social, intelligent agents is that they self-organize.
Even bees (intelligent, social agents) do this:
http://www.pnas.org/content/96/22/12611.full
So do ants:
http://en.wikipedia.org/wiki/Patterns_of_self-organization_i...
We can even manage traffic without direction:
http://thecityfix.com/blog/naked-streets-without-traffic-lig...
The biggest myths of our societies are that we need a hierarchy, directions and managers. We're quite capable of leading ourselves and getting everything done. And more efficiently, no less.
Has this been actually measured?
This is wrong. It's Econ 101. Salaries are the price of labor, and like any other market, the price of labor is the result of equilibrium in the supply and demand in the labor force.
What you need to look at is impact of decisions. If the CEO makes a wrong decision the entire company can go down. If a worker makes a wrong decision it's much less of an issue.
I don't see any particular justification for "What you need to look at is impact of decisions." Why is "impact of decisions" a more important criterion than "who does the work."
Unless the employee gets his hand caught in a machine, the press jumps all over it and stocks plummet 5%.
Say you have a median CEO and median line workers. If you got a CEO 20% better than the median, would he be able to motivate the line workers to be 20% more efficient? Highly unlikely. I think you need a 10x median CEO to see something as huge as a 20% jump in the efficiency of line workers.
My point is that it does not work in the long run, but shareholders are sometimes interested in the short-term gains (as in improve efficiency by 20%, flip the company, not my problem)
Say CEO X provides V units of value to the company. What should CEO X be paid (P)? It has nothing to do with Y, except in the degenerate case where P > V. P is going to be determined by the supply of CEO's with credentials similar to X. P can vary dramatically depending on that supply, but obviously V doesn't change.
The CEO is just the pointy end of the stick. They're not the singular reason the company is successful.
If anything the job of the CEO is to not screw up more than it is to be amazing. There are too many bad decisions to be made on a daily basis.
It is however about the amount, you're right on that. There is 1 CEO and there are 10 000 employees. It's much easier to pay 1 CEO "a lot" than 10 000 employes "a lot". (and to become CEO you have to look good/smart/etc but you don't have to be or work hard. You can however stab people in the back in the name of capitalism all day long. I don't know many "big" CEOs who haven't done that.)
The only thing that really comes with a CEO title is the responsibility for other people's jobs. Large bonuses in that case make sense, but in general, they're already paid so well, that it's peanuts.
Being peanuts, they can afford the luxury of redistributing to employees. Don't get me wrong, I admire the gesture. But if the CEO wasn't paid so much to begin with, and bonuses weren't out of proportion, he wouldn't have done that.
Now, even "less well paid" CEOs still get paid a lot, so that's not an argument for paying CEOs $100k. But it may be an argument to pay CEOs towards the lower end of the CEO payscale, rather than towards the higher end.
The thing is, being CEO is generally way less specialized (and thus easier).
It almost entirely depends on having good employees rather than direct CEO decisions (even thus some are really bad most are OK).
Sure there are exceptional CEOs but it's pretty damn rare. (rare meaning 1 every 100000 not 1 every 10)
To take just one random, high-profile example: David Ebersman, Facebook's CFO, while by all accounts a knowledgable and hard-working guy, was also the protégé of one Arthur Levinson, chairman of the board of Apple. This is the kind of thing that may be totally unimportant to Facebook's day-to-day operations, but that could also be very useful at some unknown point in the future (when negotiating to integrate Facebook products into as-yet-unreleased versions of Apple's mobile OS, say).
Investors also pay attention to "who's who" in the executive suite, which is important to many companies.
A captain steers the ship, but it's the rest of the crew that sails the boat. You can steer to your hearts content, but without the right team and culture, you aren't going anywhere.