Comment by bko | Hacker News Reader

Comment by bko | Hacker News Reader

The question is often framed as "fairness" but the more interesting question, are the high salaries worth it? One person they cite as a high salary is the Starbucks CEO.

> The report listed Starbucks CEO Brian Niccol as making 6,666 times more than the company’s typical worker, the largest pay gap in the S&P 500. (Niccol took over the company’s helm last September. The AFL-CIO annualized his compensation, listing it as nearly $98 million, compared to the typical Starbucks worker’s pay of less than $15,000.)

But what happened after he was announced? The stock jumped nearly 25%, resulting in an increase market cap of 27.2 billion [0].

So the $98m per year compensation is a great bargain for Starbucks and all their shareholders. This at least suggests that CEOs are very important (or investors are stupid?). But the stock price today is about the same level post announcement, so the value of his leadership mostly matched expectations for now.

It would be great if the article had some of this context and nuance rather than a press release from the AFL-CIO.

https://www.forbes.com/sites/petercohan/2024/08/13/why-starb...

Interestingly, I don't know why the investors thought this is such a great deal. Looking at the financials, he certainly did not have a significant impact on growth (it's been stagnating for the last 2 years it seems). So maybe the conclusion is, investors make decisions based on vibe much more than facts?

It could also be that the previous CEO was so bad that investors expected growth to be worse or negative.

Your data point for the stock uptick is so cherry picked.

Aug 12th, 24: Stock price is 77.03

Aug 13th, 24: New CEO announced, stock price is 95.9

Sept 9th, 24: New CEO starts, stock price is 92.21

(Peak) Mar 3rd, 25: 117.46 (est)

(Trough) Apr 30th, 35: 75.5 (est)

Jul 23rd, 25: 95.92

In no way do I look at the starbucks stock price history and think "wow the new CEO really turned the ship around!" There was a huge spike when he was ANNOUNCED and no growth since. Vibes economy.

Edit: Data from NASDAQ https://www.nasdaq.com/market-activity/stocks/sbux/advanced-...

How is it cherry picked? The day the announcement was made the stock jumped 25%. That's the market digesting new information. Or do you believe that jump was just coincidence. And that level persisted so the CEO roughly met expectations or the market is still irrational. But that's a pretty long time to be at this elevated price

Because you still seemingly haven't actually looked at the chart, just some "sweet" spots. Prior to the new CEO announcement there was a 3 month dip in the stock price. Prior to that? The price was averaging higher than the current price.

The gains are tied to the ANNOUNCEMENT of a new CEO, not during his tenure.

Why is that the more interesting question? It seems obvious that the salaries are likely to be worth it. Our entire society is optimized to do nothing other than increasing shareholder value.

It seems surely more interesting to ask why the rest of us bother to go along with it.

Because we are all shareholders and this has worked much better for us than all the shit other people have tried elsewhere.

The bigger these pay gaps get, the more expensive for the average person those shares get. We are not all shareholders in any meaningful sense, and over time less and less of us will be. This works better than other things we've tried, but we've only tried about three things. There's plenty of ideas that we should look into.

You...you know you don't have to buy whole shares, right? VOO has a minimum investment of $1.00. While I won't argue that not a single person in the country is incapable of investing $1.00, the % of the population that couldn't stick a few bucks every now and again in a free account is probably single digit.

Sure, but owning one trillionth of a share or even a few whole shares doesn't help you in any way. You're a shareholder in name only.

The current form of the system we practice is massively different from the one that put us so far ahead. We tried many things trying to push it to be more successful. This gap change is a result of some of that. We now need to evaluate whether that change was actually better. This gap may be short term worth it but with trends like quiet quitting, we probably should think about whether these changes will slowly cause larger long term losses in productivity at the lower ends of these hierarchies.

What do you mean we are all shareholders?

No we aren't? Not even everyone on this forum is a shareholder, nevermind everyone in society?

More than one third of Americans do not own any stock at all, even indirectly through mutual funds or retirement accounts[1]. Although admittedly, this number has been falling steadily (in 1989, more than two thirds of Americans did not own stocks).

1: https://news.gallup.com/poll/266807/percentage-americans-own...

'We' haven’t seen an economy like this since the Gilded Age. The 'this' you talk about is new territory for post-WW2 America, and the people at the bottom are pretty pissed about it. Not sure how long/how much force it will take to continue with it's making your life 'much better'.

The society whose foundations 'this' is built upon, the one that built the middle class, was built on very different rules. Marginal tax rates over 90%, strong(er) labor protections, and CEO-to-worker pay ratios today's CEOs would balk at.

'Income inequality' is really just a pyramid scheme with branding pretending it's still an extension of post-WW2 America that built the middle class. The American public isn't buying it anymore.

We don't actually live in the perfect world with one vast and ecumenical holding company from Ned Beatty's speech in Network

Starbucks is a business. If they can produce things we like and fork money over, it's valuable and creates value for society. If it can do the same thing with less resources, that also benefits society (efficiency).

I guess you go along with it because it's a proxy for using precious resources efficiently and creating things people want.

> So the $98m per year compensation is a great bargain for Starbucks and all their shareholders.

And their employees, too, actually, since they have something called the Bean Stock[1] program. But citing this wouldn't fit the article's narrative. Comparing salaries of a regular employee and a CEO (especially one of a public company) is like comparing apples to oranges; it has nothing to do with fairness. The two are fundamentally different in effort, incentive, and risk:reward structure.

[1] https://www.starbucksbenefits.com/en-us/home/stock-savings/b...

Sorry but the risk:reward narrative is tiring. Many of these CEOs walk away with millions whether they succeed or fail, there's little to no risk for them. In fact, even they fail in cases they end finding another well paying executive position. Meanwhile, many of their employees are living paycheck to paycheck.

Even if he got fired and had his entire pay package clawed back somehow, Brian Niccol would still be fabulously wealthy. His risk is basically zero.

There's something about the human mind that makes it feel worse for a rich person to lose insignificant-to-them millions than for a poor person to lose a thousand bucks.

People have trouble with orders of magnitude. A billionaire could lose 99% of his wealth, and still have $10M--set for life, never having to work again.

I don't necessarily mean financial risk (though tbh, even the golden parachutes you cite are often a drop in the bucket compared to the market cap of these companies), but there's a lot of legal risk involved: think testifying to Congress, embroilments with the FTC/FCC, etc., dealing with a board of directors, navigating potential hostile takeovers or activist investors, etc. My point is that it's just a different ball game and being a CEO of a public company simply isn't the same thing as being an accountant that works 9-5.

I personally have significantly more of a problem with Congress having no term limits and being able to trade on the very market they're regulating.

Non-CEO employees like lawyers and corporate accountants have legal risks too and could be subpoenaed.

Where are these CEO convictions then? If there's this "risk"? And please don't cite deliberate fraudsters like Holmes or SBF.

And what conviction length do those tiny few who get convicted of aomething actually get?

> Where are these CEO convictions then?

Not sure if this is rhetorical, but there are Wiki entries, investigative articles, documentaries, and even entire books dedicated to corporate malpractice and its consequences over the past century.

But now you are talking about malpractice. I would argue a regular employee is just much exposed to legal risk. I would argue that their risk is actually higher, because they don't have a full office of corporate lawyers to defend them.

Take the VW Diesel scandal, several engineers went to jail over this. In contrast Winterkorn has been charged, but AFAIK the case has been suspended and I'm not sure if it will ever go forward.

I disagree with term limits. I'd prefer to see the number of representatives vastly increased (no increase since 1929) and gerrymandering removed. I do agree they should not trade on the market.

I think you misunderstand the risk that non-CEO employees are exposed as cycomanic pointed out. CEOs that make this much money are more capable of defending themselves than a regular employee, not only from their wealth but from their network. It's rare that a CEO has to testify to Congress, or deal with FTC/FCC, etc. And dealing with BOD, hostile takeovers, or activist investors pales in comparison to what many people deal with day to day. A CEO is not going to go homeless from a hostile takeover.

> "Many of these CEOs walk away with millions whether they succeed or fail"

Surgeons walk away with their pay whether a high-risk patient lives or dies, aside from provable malpractice. Why? Because they made a good faith effort to do their jobs despite an uncertain outcome.

I have never seen the high pay commanded by surgeons justified by the risk of the profession.

Surgeons are paid highly because it is 1) a highly-skilled profession, requiring many years of schooling and practice to gain the medical knowledge necessary; 2) a stressful profession (related to risk, but not the same thing); and 3) highly in demand—due to both 1 and 2, not a lot of people choose to become surgeons, and AIUI, there's a fair amount of specialization within the surgical field, so you can't just swap in a heart surgeon to cut into someone's knee, for instance.

Ridiculously high CEO pay is frequently justified by the supposed "risk" they take on, but experience doesn't back that up. Observation indicates that the primary factor that leads to high CEO pay is the incestuous relationships between company boards and the CEOs they pick—far too often, the CEO of company A will be on the boards of companies B and C, and vice versa, and they will just each support higher compensation for the others because they're all buddies.

> citing this wouldn't fit the article's narrative

Did you do any research at all into whether this makes a material difference to starbucks employees?

What do you mean by "material" difference? The stock literally went up 25%+, so of course every SBUX employee got to share in that rise. Or are you asking if it minted any new millionaires? Maybe a few, who knows.

It is not hard to understand. Does it prevent them from having to use government welfare in order to survive on their meager salary?

Very quick and shoddy estimates:

$100m per year / $400k employees = $250 per employee per year.

Meanwhile, $ of stock per year is really hard to estimate, but one person online said ~$500 per year for a barista. A 25% increase in price due to a new CEO is then +$125.

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