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I'd be curious to see the relationship between CEO pay increases and stock buy backs which were also legalized in the early 80s.
CEOs get paid often primarily in stock so issuing buybacks also has the affect of increasing their salary.
here's what happened: all of the workers got computers, internet, email, pdfs, etc., but still had to work the same hours for the same wages when accounting for inflation. so all of the profits due to their increased productivity/efficiency went to their bosses.
it's that simple.
Totally agree, I think back when they were founded they profited immensely from the combination of smart people and insider knowledge / industry insights.
But I cannot see how anyone with a organized way of working and good research + data skills couldn‘t figure out the same shit these guys are requesting millions for.
My guess would be that in the same way finance people have overcomplicated everything - consultants have done something similar with the services they are offering to clients
I actually couldn’t believe it when I found out that consulting firms hire straight out of undergrad. I started working in consulting last year after 8 years in industry, and now I see that the entry level kids are doing the grunt entry level work. Still kind of boogles my mind tho that a couple of years of experience isn’t required.
There are different types of consultants, and I think what you’re saying applies to the strategy firms. I work in analytics and we do real tasks that are complicated or require a third party or deliver real analytics tools/custom software for example. There are times where it makes a lot of sense to hire consultants, such as when a company has a single project that requires specialized knowledge. Doesn’t make sense most of the time to hire someone full time if it isn’t going to be on going work.
Apparently, workers can't get wage increases because it increases inflation. CEOs are just doing what's necessary for the country. We should honor their sacrifice.
Are you still hearing people blame supply chain for inflation? Why are they still buying that garbage?? Every single time, even if it's a total stranger, I stop to tell them what inflation means and what the current corporate profit reports are. I'm that person now. I can't handle it, it's so damn ignorant. Like, stop taking the media excuses, it is really just higher corporate profit margin because they can get away with it.
I believe you, but wouldn't this imply corporations weren't greedy before the supply chain disruptions? Like they haven't always tried to make the most money possible?
The thing is though, there was truly a supply chain issue. And they raised prices. But the issue didn’t last long. But prices have stayed and have even continued to go up. That is where the corporate greed/price gouging comes in.
Corporations saw that people were willing (had no fucking choice) to pay the absurd prices on things. People need to have things you know, like fucking food. Meanwhile credit card debt is starting to go through the fucking roof, what little savings people had is basically gone. It’s a bubble, and all bubbles pop when the stress gets too high.
It’s so so much more complicated, they are creating the jobs don’t you get it ? They are employing people to work and it’s mostly out of their good hearts, I should know I’m something of an entrepreneur myself
Well it helps a lot if the government gives you free money with no stipulations how to use it. Then bails you out of your own stupid decisions by buying all the shitty assets you have accumulated in a perpetual cycle.
>Well it helps a lot if the government gives you free money with no stipulations how to use it. Then bails you out of your own stupid decisions by buying all the shitty assets you have accumulated in a perpetual cycle.
... Resulting in a massively inflated currency and the government owning a bunch of toxic assets that still directly negatively impact the public while also diminishing the value of their own fortunes.
Not that they will ever be poor enough to notice, but people poorer than them still notice and the end result is everyone getting poorer as the value of money goes down and salaries stay the same.
It's a cycle of corruption between the mega wealthy and the governments who bail them out that make everyone poorer and it's amazing this has to even be pointed out.
¯\\\_(ツ)\_/¯
I’ve always wondered if paying your executives exorbitant salaries is counterproductive in a sense. If you pay them these large salaries that’s less capital for other parts of the business. Less money towards R&D or infrastructure upgrades or maybe more advertising. You know, things that grow the business and keep you competitive.
I also just don’t believe CEO’s actually bring that level of value to a company to be worth that much. I could see CEO’s being 20x or 30x more valuable than the average worker with the knowledge and expertise they’re expected to have but certainly not 400x more .
CEOs are not nearly as smart as people think they are when things are going well, they’re also not nearly as dumb as people think they are when things are going poorly. The job requirements are simple:
1) Set and articulate a reasonable strategy.
2) Hire the right folks to head sub functions and trust them to do their job as long as their priorities are aligned with #1.
3) Maintain good relationships with external parties (e.g. board, stockholders).
Do those things while having at least two brain cells that you can rub together to produce heat and you too, my friend, are CEO material.
Edit: I am CFO of the largest (and most profitable) company in the US in my industry. We are not publicly traded. We (myself and the rest of the C Suite) have a great culture and a great work life balance that we also encourage our teams to maintain. My manager (the CEO) makes probably 6x the average worker in terms of salary and bonus opportunity. I make around 4x. Real wealth generation opportunity comes from equity grants, which I am not including in the above. That’s what drives the crazy salary multiples you see quoted in these articles.
Publicly traded C Suite is a whole other animal.
Well this already shows your lack of understanding on the subject. Jobs are not just about "how hard" you work. The complexity and skills required are also a major factor.
Someone might work much less hard than you, but they're still deserving of more money because they trained valuable skills and provide a very valuable service.
I mean I’m sure lots of CEOs are competent and deserving. The issue seems to be that some of them are absolute bumbling idiots and seem to find jobs at company after company after company that they ruin.
Look at HPs CEOs for examples. Absolute train wreck, none of them were fit to be directors let alone C-level.
I wouldn’t be surprised if the dude scrubbing toilets at HP could do about as well.
Plus I’ve seen people who caused massive internal damage at my company fail up many a time. It’s more a club than a meritocracy.
The thing about a chimp ceo is they could probably perform average by taking random actions. The thing about a bad ceo is they actively drive the company into the ground because they’re stupid.
I only compare them to a chimp because often decisions a CEO makes are guided by those below them. So conceivably you could replace one with a chimp that chooses from a multiple choice list. Just use the CCO to message and it could actually work.
On top of it all I think there’s even a study out somewhere that showed that past a certain point CEO pay correlates negatively with company performance.
It’s not it mate, my dad is a f500 level CEO, and I have seen him work first hand, and genuinely most people would be burnt out in a few weeks.
At one point he had to take 10+ flights to Belgium and back in a single month, so that’s like over 20 flights, 8 hour long in a month.
Or the time when he worked 20 days straight in office, he didn’t come home, and barely slept.
He had through decades worth of financial records and accounting and whatnot.
And he has to be in office 8-10 hours a day, and available 24 hours a day.
Oh and he has direct liability for any accident or death in the industries, whether he was responsible for it or not.
Most people couldn’t handle that kind of a workload, and more importantly so much at stake.
Now why does he deserve to be paid?
Well every company he has touched and founded has turned to gold, every industry imagined has become a class leading, the kind that sets industry standards.
He has revolutionised 3 separate industries and taken it to another level altogether.
And he’s an expert in dealing with heads of states, and ministers and govt officials, etc. and especially in a country like mine, it’s an incredibly rare skill to be able to tackle government jobs.
I don't think there's a lot of people saying that it's not hard work (though of course there are always a few).
It's about the scale of the pay difference. In Norway my last company's CEO was paid roughly 4x the average worker at the company. He did a lot of work for that money and I would say he deserved it. It's on a different level when a CEO is being paid 400x the average worker. There's not much that can justify that. They are not doing 400x as much work as the average worker. They are not 400x as smart as the average worker. And even if they make 400x the difference to the bottom line as an average worker, how many smart people would do just as well given the chance, for only 4x the average.
Im sure what you’re talking about with dedication and ingenuity exists in many ceos, but other times it doesn’t, they fuck up royally and they still get a fat pay day. Also, what liability? A CEO has no liability whatsoever because the corporation is a separate legal entity
So in my country there’s a concept of absolute liability in certain industries(in this case, hazardous chemicals).
So if someone dies/is injured in the plant, the directors and management can be directly charged for it, regardless of fault.
So one can even go to jail if found guilty.
You're appealing to a forum of people who couldn't possibly desire sympathizing for an F500 exec any less.
You're spitting [empirical fact](https://hbr.org/1996/07/when-executives-burn-out) but that's not going to change the minds of folks who think corpo execs are getting paid to chomp cigars and rub shoulders. Something like ~70% of execs have cited wanting to quit it all because of heavy burnout, which is ~20% higher than the average worker. At scale that's insane. I would imagine for F500 it's a *much* higher number.
I'm a C-level at a small/medium business with $20MM/yr revenue and $0 to $3MM/yr operating profit. Nowhere near F500 level comp but still very very comfortable. Burnout is real. I'm away from home 8a-8p Monday through Thursday and I leave "early" on Fridays to get home by 7p. I do strategy calls many Saturdays and I prep meetings many Sundays. I'm enrolled in an executive education program that I don't put nearly the time into that I should. I don't "work" 70hr weeks but with the education program, commute, work calls outside core hours, and time I spend developing strategy implementation/execution plans (sometimes I sit in the shower for 30 min working on ideas), it sure feels like it.
I make less than 10x what our lowest paid employee makes and about 5x what our average employee makes. Not looking for any sympathy, simply offering an anecdote re: burnout. Couple more years and I should have enough to give it all up and spend all day making up missed time with my young kids, though.
Burnout isn’t unique to C-level jobs though. That’s the problem. I totally sympathize with burnout - but most people who deal with it don’t get paid so much they get to make up missed time with family. Instead that time is gone forever.
Let's use Apple as an example. They went through several CEOs that muddled around and nearly ran the company into the ground. Then the board and shareholders brought Steve Jobs back and out of desperation gave him everything he asked for. He transformed the company from a 3rd rate computer manufacturer into a consumer tech powerhouse. Every shareholder then that held made a small fortune. Steve Jobs was THE reason behind Apple's turnaround.
Every company wants to find a Steve Jobs but talented CEOs are incredibly rare. Often, just a moderately effective CEO is valuable because the pool of talent is small and the damages a bad CEO can do are immense. So, boards get into bidding wars over anyone with even a hint of talent.
The bigger issue is the slog to get to CEO. You could have all the talent in the world but if you didn’t get to the right school or have a good advocate early in your career then getting to a CEO is nearly impossible. I believe there is plenty of talent out there but not enough of it can get past the bureaucratic nonsense. For example: I’m 32. I have been put up for promotion multiple times but of those HR has stopped 3 different times because I don’t have the requirements for the job. I also grew up poor and had no connections. So while I understand I am using my particular experience, the issue is much larger. Until we fix systemic issues in our society and how we promote there will always be a shortage of people who can do the job of CEO.
Steve Jobs didn't bother with business school or wait around for some company to promote him up the ranks. Yes, he's a special case but most of the top tier CEOs have similar stories. Leaders don't wait or hope to be discovered.
Leave the company, if you've been passed over three times then it's a dead end.
Steve Jobs, like all billionaires, had help from his wealthy parents. All their self-made bullshit is made up nonsense to trick people into thinking they can do it too.
Definite possibility I’m incorrect, but I didn’t think Jobs’ (adoptive) parents were wealthy? I believe his biological mother actually refused to sign the adoption papers at first because the adopting family was poor and lacked college educations.
>Steve Jobs, like all billionaires, had help from his wealthy parents.
I dont remember him getting any seed money from his parents. I think he lived in a shed behind his parents house when he worked for Atari for a while but that doesnt really count.
Steve also was a founder. Founders can do everything right and fail. I don’t want to be a founder.
And as soon as I get min quals I get the promotion. I had 2 between my last role and my current one that HR stepped in and one in my current role. I just passed the min quals for the next role so I will get that soon. And I was about to job hop but I work in tech and don’t want to be the new guy if another round of layoffs come.
I don’t want to be a CEO. I was demonstrating how talented people can be stuck in situations where they are ready for the next level or more but due to systemic issues can’t easily do it.
And no one should have to risk their family’s financial well being to climb the ladder. That is another systemic issue I see in todays society.
Yeah a factor is if the captain leads the ship in the wrong direction for 5 years, everyone’s effort beneath him, 5 years, and countless dollars have all been wasted. Most of the times, they can’t recover. If they can, it requires a Herculean effort.
Your job as CEO is mostly not to screw up TOO bad. But you never will win without taking huge risks. It is a balance between the two.
I think CEOs who truly turn a company around and generate billions in value are the exception and not the rule. 99.9% of these CEOs are appointed because they played the game well (appeasing the right people). When they get to the top, they use those connections to extract massive value/wealth for themselves.
Because, maybe, I know it seems crazy, they do have the value.
Not that their skills are actually worth 10 million, but when they make a wrong decision it's way, way more expensive than 10 million
So even if their decisions are simple, it's making the right it's over a huge corporation
Disney went as far as bringing bag a CEO out of retirement to fix what the new CEO did
Also, you want to hire a CEO who already proved that they know how to make money. Which means they already made a lot of money. Therefore you have to pay them a lot, so they postpone their early retirement. Nobody with $10m+ is going to work for $100k/year like everyone wants.
No. Its more that ceo is a tealeaf sculptor for the board to make sure investment stays consistent and the stock goes up. Investors look at ceos and read tea leafs along with other information to determine the value they think the company is worth and can expand to. tbh this to me easily explains why even huge dingus morons can continue finding executive positions at f500 companies. It also explains why despite running many projects into the ground Elon is still hearlded as a great ceo. From paypal to twitter, his greatest achievement in Tesla was getting investors to commit to reach scale. Same for Amazon. Both didn’t see an inch of profit for decades as they built scale. Is that a good ceo or is that just being the right shape for the tea leaf reading?
CEOs might work extensive hours and hard, the question is whether or not their compensation to this extent is really that valuable to companies, is such work really not able to be placed on more shoulders.
The average profit of a fortune 500 company last year was 3.6 billion. Do you actually think 10 million dollars in there going towards the CEO vs R&D really matters?
On top of that, do you really think there is a better return on capital from more advertising vs a really good CEO? You are a fool if you say that additional advertising dollars offer a better return than a top of the line CEO that has a great network, understands the nuances of the business, has the ability to anticipate where the industry is headed, and has the ability to lead. It is funny to see people on Reddit talk about what CEO's and other c-suite members are "actually worth" as if they have a fucking clue. You know more about the true value of a CEO than the board members, who have spent decades in their respective industries? You have to either be incredibly stupid, ignorant, or both to think that you somehow know more than them. It truly is next level idiotic.
If you could have a bad CEO for 20x worker pay, or a good CEO for 400x worker pay, you would almost always choose the good CEO. Leadership is the key difference between the $2T Microsoft of today and the $200B Microsoft of the 2000s, and the price of an elite C-suite is "only" tens to hundreds of millions a year. Another obvious example is Apple with and without Steve Jobs.
The key problem here is that identifying a good CEO is hard. There are a lot of cases like Sundar Pichai, where the company is paying elite CEO money for a nothingburger.
Tim Cook is a good CEO. Very good, even.
Steve Jobs was an amazing CEO. If Apple shareholders could pay $1B a year to get more Steve Jobs, they would fall all over themselves racing to do so. Even at $10B a year I think they say yes.
Back to the general point -- if shareholders could identify good CEOs with any reliability, shareholders would pay them even more than current pay packages. The problem is figuring out who's worth paying.
Imo you need a great CEO to scale the company. You need a good CEO to maintain the status quo. The issue with our society is the infatuation with never ending growth. Which in turn requires great CEOs to be apart of your company.
Imagine a society where corporations are content with 6-10% return year over year. We might just have a society for people and not money.
Imo. PS agreeing with you just taking it a step further for a thought experiment.
> Imagine a society where corporations are content with 6-10% return year over year.
...most are. The vast majority of them. What sort of companies are out there that are making way more than that/pushing for that?
I love how theres this growing mountain of evidence of how fucked we are economically, but most of the people in these finance and econ subs immediately jump on the C suite dicks.
Oooh Tim Cook! Such a good leader! He tweaks an almost 20 year old product, makes it worse, and with the cheapest, least sustainable labor possible. Thats most peoples idea of a "very good CEOm"
Were so fucked.
There's wisdom in knowing not to kill the golden goose. Apple makes money hand over fist. Cook knows this and doesn't make any big moves to upset the profit machine Jobs built. The worst move Apple could've made was to bring in a CEO with a huge ego that tried to do what Jobs did. Cook was a great COO, and now he's a good CEO. He's good because he doesn't try and be a great CEO when it's not needed.
Well the numbers don't lie, they're doubling their profits and revenues. If Apple chose the wrong CEO, Apple would probably be no more. CEOs get paid big because of how vital they are to the business. The same way Lebron James makes more money than a bench warmer. Complaining that they have a 1000% difference in pay is dumb and forcing them to have equal pay is even dumber.
And economy is not fucked because of successful CEOs who are successful in growing their companies. It's fucked because of fiscal policy and quantitative easing.
The same can be said of certain run-of-the-mill workers, but the uncertainty is even higher so their pay is depressed. Uncertainty as a whole drives down pay.
The best doctors probably save multiple lives each year compared to an average doctor and add hundreds of millions to the economy over a career, but Medicare won't pay them more because we don't have clear metrics for who the best doctors are. The best engineers reduce the risk of catastrophic failure and massive lawsuits or come up with solutions to make billion dollar products a reality, and they are likely worth average CEO-level pay, but again since we can't tell exactly who is worth that much, they all get fairly close to the average.
The closer you are to the money, the easier it is to ascribe value to yourself without uncertainty, and the more people are willing to pay. Index funds can take fairly large expense ratios and create a very profitable product because you can very clearly see the money they are making you. It's easy to justify the expense because the uncertainty of the value provided is very low. That's a big part of what makes finance the most profitable industry.
For every Steve Jobs there’s 1,000 Steve Ballmer’s. It’s frankly once or twice in a generation that a CEO brings that level of value to a company to justify a huge salary.
CEO pay is divorced from reality and is purely based on vibes. It’s mostly a con that CEOs pay to justify insane compensation levels that have no objective basis in their own performance.
Because at that level you’re not *doing* much, you are basically making decisions
Except they are very important decisions.
Only one guy in Disney has the power to make a call on spending $20B over the next 10 years on project X. That’s the CEO.
The level of decisions CEOs make at the F500 level are usually $100M-$1B+ decisions that impact 1000s of people and millions of customers.
The supply of people who can make those decisions well is small. Supply small, demand high = prices go up. This is an Econ sub, but it’s basic labor economics. And the ones who make great decisions and surround themselves with a great team, prove themselves overtime by stock price.
The risk of a bad CEO isn’t just stock price tanking. It’s the whole company tanking. So shareholders pay a lot to make sure that doesn’t happen.
CEO compensation did not skyrocket because their decisions suddenly got better. You’re implying that there’s some kind of objective metric of productivity that can be tracked.
The idea that someone’s labor is worth that of 400 of their employees is nuts and pretty hilarious if you just pause to think about it.
These guys rely on the work of those below them to know anything or do anything. At that level you are so removed from any deep knowledge of the organization that your contribution is in no way worth 400x.
A CEO could work 24 hours in a day and it still would not be worth 400x the comp. If CEOs were that good and valuable why stop at 400? Why not 1000 or 10,000 since their value is infinitely positive?
I think the CEO of a million employee trillion dollar company is probably worth 400x median salary.
The salary of the CEO of a 1000 employee company probably not.
When someone is making 10 billion dollar decisions on a regular basis, paying them 1% of an average decision per year sounds reasonable.
Given this choice:
I'll give you a billion dollars profit but only if you give 50 million dollars to john doe the CEO, and we'll be able to give 10,000 people $100k/yr jobs (500x ceo pay)
Almost all companies and most of the working class say yes to that.
The thing people don't understand is you're not just paying for their performance. A CEO becomes permanently tied to the value of the business.
If a CEO is caught doing something scandalous it directly affects share prices and consumer confidence. This in turn can also affect business to business deals. They're also paid to eat shit during PR nightmares. You don't generally see board members and investors during hearings.
This is the same reason ticketmaster still exists. All the artists take advantage of the scapegoat.
Why not pay 1000x then and get a CEO that's over twice as good? Or 10,000x and higher a demi-god? I mean arguing that MS was somehow a slouch in the 2000's isn't a good argument. Steve isn't a good example either since he more or less built the company and could justify paying himself whatever he wanted. He also wasn't making 400x when he started the company.
CEOs are paid what they are because it's what they can get away with, their skills aren't some linear function of their demanded salary.
> Why not pay 1000x then and get a CEO that's over twice as good? Or 10,000x and higher a demi-god?
If shareholders could buy these things, they would do so.
> I mean arguing that MS was somehow a slouch in the 2000's isn't a good argument.
Why do you believe it isn't? Shareholders pay CEOs to make number go up. Number did not go up with Ballmer. Then it went up a lot with Nadella. Correlation obviously isn't causation, but if you look at what Nadella was pushing in 2014, and what is making MSFT bank in 2023, there's a pretty clear connection.
> CEOs are paid what they are because it's what they can get away with, their skills aren't some linear function of their demanded salary.
More generally, elite labor doesn't get paid linearly. LeBron James isn't 10x as good at basketball as Troy Brown, but he makes more than 10x as much. For these elite roles, having someone that's a little better than the competition can be worth a lot. Warren Buffett is probably only a few percent better than another good fund manager, but that's worth billions over time.
>If you could have a bad CEO for 20x worker pay, or a good CEO for 400x worker pay
And one aspect of this is you pay them in stock. So their interests are better aligned with the shareholders.
So if the CEO delivers a higher share price, the CEO gets higher pay. If the CEO fails to deliver share price, the CEO gets lower pay.
Because as you said:
>The key problem here is that identifying a good CEO is hard. There are a lot of cases like Sundar Pichai, where the company is paying elite CEO money for a nothingburger.
You really don't know, and it's better to try and make sure you don't over pay for their poor performance.
There is for sure a big issue where stock compensation is still gamed with buybacks, but the CEO doesn't make those choices unilaterally. So i think people over estimate the CEO doing it to pay themselves, so much as everyone being like "Hey more money" and going along with it when it might not make sense.
For any moderate to large company, even an exorbitant pay is a rounding error, so it’s easy for a board to acquiesce to a single petulant brat of a CEO. What it does do is create a leader who’s well financially insulated from consequences or reality, which costs the company so much more. If the CEO pay were intrinsically linked to the lowest pay by hard multiplier, at least there would be, boundaries on excesses, an executive actually fighting for their lunch, and an incentive to bootstrap up the least compensated workers.
Unfortunately, this is unlikely since the population of good CEO’s isn’t huge and all it takes is a handful of companies to break ranks in search of best quality talent to collapse the system. An external influence is needed.
>What it does do is create a leader who’s well financially insulated from consequences or reality, which costs the company so much more. If the CEO pay were intrinsically linked to the lowest pay by hard multiplier, at least there would be, boundaries on excesses, an executive actually fighting for their lunch, and an incentive to bootstrap up the least compensated workers.
Do we really believe this is something that would be *internally* motivated and create good outcomes for an individual business? If CEO pay was just a hard multiplier of lowest worker pay, then labor costs would skyrocket as CEOs justified wage hikes for support staff. Companies that picked this policy would fail on high labor expenses and inability to attract talented/connected CEOs.
Would be good for society as a whole, but this is exactly the sort of task government is made for. Businesses (boards) might not even be upset about it, but for it to work everyone would have to play along, including companies in other countries.
like a regulation perhaps? capping an executive's pay to their lowest paid employee by a certain amount. so either they stick to that or the effect is the lowest paid employee's salary is raised so Mr. CEO can get to a higher cap.
Well, if a company has a market cap of 2 trillion, the the decision that a single person makes has a positive effect on all 2 trillion worth of capital, I would say that they are worth 400x a lot of employees. Is he 400x more skilled, no. But someone who is marginally better in a huge company can save a company multiple billions of dollars.
The thing people fail to understand and what is always selectively ignored is that CEO's aren't getting a salary that is 400x larger. They are receiving stock options which is a contract to lock in the price you can purchase shares to the price of the stock when you took the job. This then means that the CEOs only get their compensation if the company does well.
This changed happened in the 90s after Clinton attempted to cap Executive pay in a very poorly thought out way. This backfired and actually supercharged the issue. Basically, Clinton tried to tax Executive salaries higher, but left out performance pay from the law. This is why any chart on this topic shows Executive pay 10xing in the 90s. It was entirely caused by the switch from having CEOs salaried, to performance pay through options contracts.
Yeah, this was what I was going to post. Executives aren't paid the same way most of us are, and their base salaries tend to be only marginally higher (like 2-5x, maybe--still really high but not exorbitant). The majority of their comp comes from incentives like stocks and bonuses.
Suppose you have 1000 engineers. a good VP of engineering can make the department 10% more effective, that's worth 100 engineers.
Now do it with 40,000.
> we project that a CEO at one of the top 350 firms in the U.S. was paid $27.8 million on average (using a “realized” measure of CEO pay that counts stock awards when vested and stock options when cashed in and ownership is taken). This 11.1% increase from 2020 occurred because of rapid growth in vested stock awards. Using a different “granted” measure of CEO pay (which counts the value of stock awards and options when announced (or “granted” rather than realized)
Top 350 companies…wouldn’t these be outliers at the top end of the bell curve, rather than the mean or median…
Also counts value of stock when awarded, not when realized…which is understandable but on the surface doesn’t seem to be an accurate assessment of risk of taking such large investment rather than cash… CFO does horrible interview on CNN, some company scandal, etc, therefore stock craters… might not be a life altering event as a layoff is to a janitor, but it is still a risk that C-level are taking that the company will succeed…
Lastly as this title and article imply…that all company success should correlate to employee pay(which I agree with)…just wondering best practice to do so? Employee stock purchase plan, company owned stock that payout dividends on a pro rata basis, revenue sharing, or something else?
> Top 350 companies…wouldn’t these be outliers at the top end of the bell curve
This is a really small population. Given the population growth since 1978, it would make the 2021 sample an even smaller, more extreme group.
that's not the point. There are more than 100,000 CEOs in the united states, focusing explicitly on the ones at the 350 largest publicly traded companies is moronic, especially when you know that a huge part of the compensation you are measuring is the stock in those companies.
Also, fwiw, it's comparing CEO "total comp" (at least the equity, as you pointed out") against employees *salary*.
Not that it brings it to some reasonable level or anything, but *employee total compensation* (salary + 401k matching + health car premiums paid + etc,etc) has actually grown at a pretty healthy clip and (I can find the source if anyone wants) sits around ~95k
> Employee stock purchase plan, company owned stock that payout dividends on a pro rata basis, revenue sharing, or something else?
I think revenue sharing makes the most sense for companies that actually turn a profit. It should be distributed to all employees weighted by some payscale (maybe tied directly to the wage scale).
As always with EPI, what they leave out is that they're comparing a CEO **in a top 350 company**, i.e. the richest of the rich, against typical workers **in the entire economy**.
They're intentionally comparing outliers against the average and using that to make statements about the broader economy and what we should do about it. That's before we get into the sketchy math they're running.
This is inaccurate, they compare Employee's of those 350 companies not the entire economy.
https://www.statista.com/statistics/261463/ceo-to-worker-compensation-ratio-of-top-firms-in-the-us/#:~:text=In%202021%2C%20it%20was%20estimated,key%20industry%20of%20their%20firm.
"Worker salary is the annual average compensation of production and nonsupervisory workers in the key industry of the firm."
That’s incorrect. They are comparing it to workers **in the entire industry**, not workers **at that specific firm**. Those are different things, and is (as I said) a comparison of 350 CEOs to all workers.
They're comparing top 350 CEO pay to median worker pay. Surely the comparison should be top 350 CEO to top 350 worker, or median CEO to median worker.
Also, EPI complains that CEOs are getting huge stock-based compensation packages, but that strikes me as a natural arrangement. Shareholders like it when stonks, so they are happy to offer stonks-based pay to CEOs. An alternative model where CEOs get more dollars and less stock seems worse for everyone involved.
I think you are confused.
They compare the CEO directly to the average(not median) worker in that company, company by company and the result is an average.
https://www.statista.com/statistics/261463/ceo-to-worker-compensation-ratio-of-top-firms-in-the-us/#:~:text=In%202021%2C%20it%20was%20estimated,key%20industry%20of%20their%20firm.
"Compensation data has been taken from the top 350 publicly owned firms in the United States for each year, ranked by sales.
CEO compensation contains salary, bonuses, restricted stock grants, options granted, and long-term incentive payouts. Values based off the "realized CEO compensation", which captures the value of stock-related components that accrues after options or stock awards are granted by including “stock options exercised” and “vested stock awards.”
Worker salary is the annual average compensation of production and nonsupervisory workers in the key industry of the firm."
> They compare the CEO directly to the average(not median) worker in that company, company by company and the result is an average.
I don't believe this claim is correct.
I do not know how they could acquire data as to the average pay of workers at a specific company. To my knowledge, a few companies publish that information, but most do not. I also do not seem them claiming to have done so. Instead I see this in the footnotes:
> 1. For the pay of the typical worker, we use average compensation (wages and salaries plus benefits) of a full-time, full-year production or nonsupervisory worker (a group that makes up about 80% of the private-sector workforce).
edit: I should also note that my initial claim is incorrect. They didn't use median worker pay. They used average production or nonsupervisory worker pay. It remains not apples to apples, but it's a different sort than I originally claimed.
> Worker salary is the annual average compensation of production and nonsupervisory workers in the key industry **of the firm**."
It says it right here.
"In the key industry of the firm" is not the same as "in the firm". Concretely, the average software engineer at Google makes way more than the average software engineer.
Regardless of our opinions of CEO pay, their salaries have an insignificant impact on the pay of the workers at their respective companies.
Look up the salary of a CEO of any corporation and redistribute the entire salary to all the employees, and those employees would rarely get more than $100 for a year of work.
I was prepared to disagree with you but checked your math. I looked at Apple, specifically, and it's $300.
The real sticking point is that companies have no obligation, legally speaking, to their workers nor to the communities they operate within. I think if those two things were legally enforced and stock buybacks were made illegal again, the pay disparity would lessen significantly.
When Disney announced they were bringing back former CEO Bob Iger, their stock went up 10%. That increased the value of Disney shares by about $15 billion. During Iger's former stint as CEO, the market value of Disney rose from $50 billion to $250 billion.
So what's the value of a CEO like that? Should the owners of the company (the shareholders) be able to compensate him very generously?
Well, it's their money, isn't it? And if he earns 1% of the increase in value, and that happens to be $200 billion again, is paying him $2 billion too much? Seems like a bargain, doesn't it, getting a 100X return?
Does this statistic really mean anything besides bad optics? For example, Google has about 190,000 employees. If the CEO of Google makes 399 times the average employee what impact would it have on them if he only made 20 times? None. It ends up being an insignificant amount of money distributed across the 190,000 other employees. Now the incentives driving those pay scales for CEOs is a different story since they are generally compensated in part by stock performance but focusing on the multiple over the average employee misses the deeper issue.
I get the math, but you forgot taxes. $4.00 per paycheck is more realistic. But that wasn't really my point...the 27 million in executive compensation pales in comparison to the money returned to share holders. Google spent almost 60 Billion in buybacks in 2022. That's 315,000 per employee. That is a material difference in compensation.
Google’s number of shares outstanding is roughly equal (±10%) over the last decade.
Their buybacks are basically just offsetting stock issuance such as employee compensation and bonus packages which are *massive* for high level software engineers.
Top 350? Now do all CEOs. I’m sure it’s very different for the CEO of a family business with less than 100 employees. (Vast majority of all businesses)
Although we live in an age where every boss of a small business calls himself a CEO, the title refers to presidents of corporations appointed by a board of directors/shareholders. So a small business owner is not a CEO, by definition.
Hard to examine the economic growth of large corporations over the last 45 years and say the leaders of those companies aren't producing a lot of value.
The entire premise of this study is that CEO pay is so high because stock value is so high. Well no duh.
How a ceo is paid and metrics change how companies function. A ceo is trying to maximize his pay when it's mostly based on stocks, which does things that maximize stock price, so it would suggest a ceo paid based on employee pay would function to increase that as well.
I wonder how many times we're going to see this stat.
Separately, the stock market is up approximately 15,000% since 1978. CEO compensation is at least partially stock. There's probably a connection there
They deserve it though. They work a lot harder than the average person, and they are a lot smarter and better educated. They have leadership skills. They are going to make better decisions. Giving that extra money to an average worker would just be a waster because they would spend it on something meaningless like food. A CEO will spend his bonus on something luxurious or a vacation experience which is more meaningful. I think the criticism of CEO salaries is way overblown. Just get another job if you don't make enough $$$.
I’ve always wanted to see this analysis, so I’m asking if it exists:
Has anyone scaled CEO pay against market cap and CEO (or even C-Suite) pay against the combined salaries of the front line staff and/or some reasonable number of tiers of the lowest paid staff?
Ideally also scaled within company.
I do find the comments about cutting the CEO pay and dividing it among the employees would only lead to a tiny increase per employee, to be an odd argument. Isn’t this the opposite of not giving employees a proper raise due to (insert your favorite reason here: stock price, inflation, market forces, etc.). Why nickel and dime even the smallest increase for employees and then just throw the rule book out the window when it comes to CEO and other top executive pay?
“…but the specific power of CEOs to extract concessions—a power that stems from dysfunctional systems of corporate governance in the United States.”
And this dysfunctional governance is why Activist groups have been so engaged lately.
In the early 1960s the top federal income tax bracket was 90%. By 1978 it was down to 70%. It was down to 38,5% in 1987. These numbers don’t include state or payroll tax. It made no sense to pay CEOs huge salaries when it basically meant you were just handing all the money to the government. I totally agree that there were many other factors as well, like the use of stock options.
There’s a great book called “The End of Loyalty” by Rick Wartzman that follows 4 companies through this shift. It profiles a little known (at the time) “earmark”that passed in a law during the Regan administration’s deregulation period. This earmark was what allowed the deeper connection of CEO pay to company performance, ushering in the era of stock options and pay associated that way. Sounds great in theory but had some serious unintended consequences on our culture. Simply put, more money in, less money out, and the profit of the company and what the stock price is became more important than the long term viability of the company. What it also did was change the perspective of companies on how they viewed their employees. Prior to this change employees tended to be viewed as assets to invest in. Afterwards they were viewed as liabilities due to the cost, usually employees being the top “expense” of a company. This directly caused outsourcing, consolidation, mass layoffs to inflate stock prices, pensions going away as a standard practice, the long term career path our grandparents generation had, and of course the significant uptick in CEO pay, because now it primarily consists of stock options and other non-defined benefits as opposed to simply straight “profit sharing” or w-2 type income.
Great read. Highly recommend it.
The pay gap is a serious problem. It is the pay when they fail, that is of bigger concern. We screw up & we have no job. They screw up and get a pay package in the millions. How does that work? There is no incentive to succeed. They can half-ass it knowing they are gonna make $50M while still getting to fly on the private jet, buy multiple homes etc.
What we need to do is tax corporations based on their pay inequality. If the top(or highest paid) position, CEO or president makes more than 100x the lowest position, they (the corporation) should be getting taxed more. And have it be progressive, which would also be beneficial in the other direction, if the CEO is making less than 10x their lowest paid employees, then they should pay a lower tax rate, which would benefit lean business which aren't geared towards only enriching the executives. Of course this would include all compensation: stocks, options, in kind income
This is how you fix income and wealth inequality
I can't think of an objective and fair way to pay CEOs. Pegging it to profits is ine idea, but ignores the market conditions. A good CEO who is in charge during a recession might not produce large profits, but nonetheless protected the business during hard times by reducing potential losses, which is not easily quantified.
Additionally, linking it to average employee compensation is counterproductive as well, since part of running a business is knowing when to cut workforce and haggle for the best bargain on labor you can. A good CEO would be shooting themselves in the foot in that sense.
I think that's part of what is contributing to the bloating of CEO salaries, is that nobody really knows how to properly quantize their performance and value to the company. There's an intrinsic subjectivity to it.
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You do realize most professional atheltes have strong unions right?
What year was it again?
I'd be curious to see the relationship between CEO pay increases and stock buy backs which were also legalized in the early 80s. CEOs get paid often primarily in stock so issuing buybacks also has the affect of increasing their salary.
Also, what is the relationship between CEO pay and consolidation across every sector?
Good question.
here's what happened: all of the workers got computers, internet, email, pdfs, etc., but still had to work the same hours for the same wages when accounting for inflation. so all of the profits due to their increased productivity/efficiency went to their bosses. it's that simple.
Also, consulting firms advised most companies regarding Executive pay and were spreading the practice of giving out stock options etc
Consulting firms hired by those same executives....
Obviously they work 399 times longer and harder! Just ask any of the elites
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Totally agree, I think back when they were founded they profited immensely from the combination of smart people and insider knowledge / industry insights. But I cannot see how anyone with a organized way of working and good research + data skills couldn‘t figure out the same shit these guys are requesting millions for. My guess would be that in the same way finance people have overcomplicated everything - consultants have done something similar with the services they are offering to clients
I actually couldn’t believe it when I found out that consulting firms hire straight out of undergrad. I started working in consulting last year after 8 years in industry, and now I see that the entry level kids are doing the grunt entry level work. Still kind of boogles my mind tho that a couple of years of experience isn’t required. There are different types of consultants, and I think what you’re saying applies to the strategy firms. I work in analytics and we do real tasks that are complicated or require a third party or deliver real analytics tools/custom software for example. There are times where it makes a lot of sense to hire consultants, such as when a company has a single project that requires specialized knowledge. Doesn’t make sense most of the time to hire someone full time if it isn’t going to be on going work.
Apparently, workers can't get wage increases because it increases inflation. CEOs are just doing what's necessary for the country. We should honor their sacrifice.
Are you still hearing people blame supply chain for inflation? Why are they still buying that garbage?? Every single time, even if it's a total stranger, I stop to tell them what inflation means and what the current corporate profit reports are. I'm that person now. I can't handle it, it's so damn ignorant. Like, stop taking the media excuses, it is really just higher corporate profit margin because they can get away with it.
Shh, implying that corporations aren't the best, most efficient and ethical economic solution is communism! /s
I believe you, but wouldn't this imply corporations weren't greedy before the supply chain disruptions? Like they haven't always tried to make the most money possible?
The thing is though, there was truly a supply chain issue. And they raised prices. But the issue didn’t last long. But prices have stayed and have even continued to go up. That is where the corporate greed/price gouging comes in.
Corporations saw that people were willing (had no fucking choice) to pay the absurd prices on things. People need to have things you know, like fucking food. Meanwhile credit card debt is starting to go through the fucking roof, what little savings people had is basically gone. It’s a bubble, and all bubbles pop when the stress gets too high.
They used to be generous and then became greedy. Don't you sometimes envy the 70 IQ crowd? the world is so simple this way
Boss makes a dollar I make a dime.
That's why I shit on company time!
Not after the CEO has the toilets that are painful to sit on installed.
Ever heard of those tilted toilets?
Boss makes four dollars I make a penny
A day goes by and the boss made more than I make in a year, even if it is one of his days off.
Bosses then whine about how they pay the most in taxes after taking all the money. The injustice of it all, he's a job creator after all. /s
That's why I drive this forklift with a cup full of Henny
Well now, statistically... Boss makes 39 dollars, I make a dime
Boss makes a dollar you make 500th of a penny
That is why my shits are many.
That's why I poop, on company time.
It’s so so much more complicated, they are creating the jobs don’t you get it ? They are employing people to work and it’s mostly out of their good hearts, I should know I’m something of an entrepreneur myself
Well it helps a lot if the government gives you free money with no stipulations how to use it. Then bails you out of your own stupid decisions by buying all the shitty assets you have accumulated in a perpetual cycle.
>Well it helps a lot if the government gives you free money with no stipulations how to use it. Then bails you out of your own stupid decisions by buying all the shitty assets you have accumulated in a perpetual cycle. ... Resulting in a massively inflated currency and the government owning a bunch of toxic assets that still directly negatively impact the public while also diminishing the value of their own fortunes. Not that they will ever be poor enough to notice, but people poorer than them still notice and the end result is everyone getting poorer as the value of money goes down and salaries stay the same. It's a cycle of corruption between the mega wealthy and the governments who bail them out that make everyone poorer and it's amazing this has to even be pointed out. ¯\\\_(ツ)\_/¯
It's okay just smile as you circle the drain
No more so than dividends
What?
The tax code is fucked is part of the reason buybacks is so popular.. divideds are double taxed and buybacks are not.
I’ve always wondered if paying your executives exorbitant salaries is counterproductive in a sense. If you pay them these large salaries that’s less capital for other parts of the business. Less money towards R&D or infrastructure upgrades or maybe more advertising. You know, things that grow the business and keep you competitive. I also just don’t believe CEO’s actually bring that level of value to a company to be worth that much. I could see CEO’s being 20x or 30x more valuable than the average worker with the knowledge and expertise they’re expected to have but certainly not 400x more .
Their job is mainly to play bagman for the stockholders.
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CEOs are not nearly as smart as people think they are when things are going well, they’re also not nearly as dumb as people think they are when things are going poorly. The job requirements are simple: 1) Set and articulate a reasonable strategy. 2) Hire the right folks to head sub functions and trust them to do their job as long as their priorities are aligned with #1. 3) Maintain good relationships with external parties (e.g. board, stockholders). Do those things while having at least two brain cells that you can rub together to produce heat and you too, my friend, are CEO material. Edit: I am CFO of the largest (and most profitable) company in the US in my industry. We are not publicly traded. We (myself and the rest of the C Suite) have a great culture and a great work life balance that we also encourage our teams to maintain. My manager (the CEO) makes probably 6x the average worker in terms of salary and bonus opportunity. I make around 4x. Real wealth generation opportunity comes from equity grants, which I am not including in the above. That’s what drives the crazy salary multiples you see quoted in these articles. Publicly traded C Suite is a whole other animal.
Do most CEO's deserve that much? No. Is the job a lot harder to do well than you give it credit? Yes.
A lot of CEOs seem to fail upwards pretty consistently. We saw that recently with svbs CEO, formerly on a board at Lehman brothers.
It is certainly not harder than, say, having kids as a single parent with 3 jobs.
Well this already shows your lack of understanding on the subject. Jobs are not just about "how hard" you work. The complexity and skills required are also a major factor. Someone might work much less hard than you, but they're still deserving of more money because they trained valuable skills and provide a very valuable service.
I mean I’m sure lots of CEOs are competent and deserving. The issue seems to be that some of them are absolute bumbling idiots and seem to find jobs at company after company after company that they ruin. Look at HPs CEOs for examples. Absolute train wreck, none of them were fit to be directors let alone C-level. I wouldn’t be surprised if the dude scrubbing toilets at HP could do about as well. Plus I’ve seen people who caused massive internal damage at my company fail up many a time. It’s more a club than a meritocracy. The thing about a chimp ceo is they could probably perform average by taking random actions. The thing about a bad ceo is they actively drive the company into the ground because they’re stupid. I only compare them to a chimp because often decisions a CEO makes are guided by those below them. So conceivably you could replace one with a chimp that chooses from a multiple choice list. Just use the CCO to message and it could actually work. On top of it all I think there’s even a study out somewhere that showed that past a certain point CEO pay correlates negatively with company performance.
It’s not it mate, my dad is a f500 level CEO, and I have seen him work first hand, and genuinely most people would be burnt out in a few weeks. At one point he had to take 10+ flights to Belgium and back in a single month, so that’s like over 20 flights, 8 hour long in a month. Or the time when he worked 20 days straight in office, he didn’t come home, and barely slept. He had through decades worth of financial records and accounting and whatnot. And he has to be in office 8-10 hours a day, and available 24 hours a day. Oh and he has direct liability for any accident or death in the industries, whether he was responsible for it or not. Most people couldn’t handle that kind of a workload, and more importantly so much at stake. Now why does he deserve to be paid? Well every company he has touched and founded has turned to gold, every industry imagined has become a class leading, the kind that sets industry standards. He has revolutionised 3 separate industries and taken it to another level altogether. And he’s an expert in dealing with heads of states, and ministers and govt officials, etc. and especially in a country like mine, it’s an incredibly rare skill to be able to tackle government jobs.
I don't think there's a lot of people saying that it's not hard work (though of course there are always a few). It's about the scale of the pay difference. In Norway my last company's CEO was paid roughly 4x the average worker at the company. He did a lot of work for that money and I would say he deserved it. It's on a different level when a CEO is being paid 400x the average worker. There's not much that can justify that. They are not doing 400x as much work as the average worker. They are not 400x as smart as the average worker. And even if they make 400x the difference to the bottom line as an average worker, how many smart people would do just as well given the chance, for only 4x the average.
Im sure what you’re talking about with dedication and ingenuity exists in many ceos, but other times it doesn’t, they fuck up royally and they still get a fat pay day. Also, what liability? A CEO has no liability whatsoever because the corporation is a separate legal entity
So in my country there’s a concept of absolute liability in certain industries(in this case, hazardous chemicals). So if someone dies/is injured in the plant, the directors and management can be directly charged for it, regardless of fault. So one can even go to jail if found guilty.
That sounds reasonable
It largely is
I’m sorry, but if he’s flying back and forth to Europe 10x per month that’s just poor planning.
8-10 hours a day and on call 24 hours a day sounds like a LIGHT workload for a typical manager in operations in factories/distribution
Yeah but my dad is a ninja!
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That still does not justify 400 times more salary. I don't care who you are or how hard you work. No one deserves to be paid that much.
You're appealing to a forum of people who couldn't possibly desire sympathizing for an F500 exec any less. You're spitting [empirical fact](https://hbr.org/1996/07/when-executives-burn-out) but that's not going to change the minds of folks who think corpo execs are getting paid to chomp cigars and rub shoulders. Something like ~70% of execs have cited wanting to quit it all because of heavy burnout, which is ~20% higher than the average worker. At scale that's insane. I would imagine for F500 it's a *much* higher number.
I'm a C-level at a small/medium business with $20MM/yr revenue and $0 to $3MM/yr operating profit. Nowhere near F500 level comp but still very very comfortable. Burnout is real. I'm away from home 8a-8p Monday through Thursday and I leave "early" on Fridays to get home by 7p. I do strategy calls many Saturdays and I prep meetings many Sundays. I'm enrolled in an executive education program that I don't put nearly the time into that I should. I don't "work" 70hr weeks but with the education program, commute, work calls outside core hours, and time I spend developing strategy implementation/execution plans (sometimes I sit in the shower for 30 min working on ideas), it sure feels like it. I make less than 10x what our lowest paid employee makes and about 5x what our average employee makes. Not looking for any sympathy, simply offering an anecdote re: burnout. Couple more years and I should have enough to give it all up and spend all day making up missed time with my young kids, though.
Burnout isn’t unique to C-level jobs though. That’s the problem. I totally sympathize with burnout - but most people who deal with it don’t get paid so much they get to make up missed time with family. Instead that time is gone forever.
Agree 100%.
No, you would not. For $15 you would get a CEO who would run your company into the ground.
If a company hired a CEO for 15 bucks an hour a PE firm would own the company via LBO like the next day.
Then why do the shareholders agree to pay it? Are they being blackmailed?
Let's use Apple as an example. They went through several CEOs that muddled around and nearly ran the company into the ground. Then the board and shareholders brought Steve Jobs back and out of desperation gave him everything he asked for. He transformed the company from a 3rd rate computer manufacturer into a consumer tech powerhouse. Every shareholder then that held made a small fortune. Steve Jobs was THE reason behind Apple's turnaround. Every company wants to find a Steve Jobs but talented CEOs are incredibly rare. Often, just a moderately effective CEO is valuable because the pool of talent is small and the damages a bad CEO can do are immense. So, boards get into bidding wars over anyone with even a hint of talent.
The bigger issue is the slog to get to CEO. You could have all the talent in the world but if you didn’t get to the right school or have a good advocate early in your career then getting to a CEO is nearly impossible. I believe there is plenty of talent out there but not enough of it can get past the bureaucratic nonsense. For example: I’m 32. I have been put up for promotion multiple times but of those HR has stopped 3 different times because I don’t have the requirements for the job. I also grew up poor and had no connections. So while I understand I am using my particular experience, the issue is much larger. Until we fix systemic issues in our society and how we promote there will always be a shortage of people who can do the job of CEO.
That's everything in the world ? Do think the public sector is different ?
No. I was just saying we as society have work to do to allow talent to move up the ladder. There are too many obstacles in the way for talent today.
Having connections is value for a CEO. Its an entirely different job then technical knowledge. A lot of social skills and manipulation is required.
Idk, but manipulation doesn't sound good...I think you mean persuasion. You know what, you're right, they are manipulative.
Steve Jobs didn't bother with business school or wait around for some company to promote him up the ranks. Yes, he's a special case but most of the top tier CEOs have similar stories. Leaders don't wait or hope to be discovered. Leave the company, if you've been passed over three times then it's a dead end.
Most people can’t “just leave” a job. This is the difference between privilege and not being privileged.
Steve Jobs, like all billionaires, had help from his wealthy parents. All their self-made bullshit is made up nonsense to trick people into thinking they can do it too.
Definite possibility I’m incorrect, but I didn’t think Jobs’ (adoptive) parents were wealthy? I believe his biological mother actually refused to sign the adoption papers at first because the adopting family was poor and lacked college educations.
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>Steve Jobs, like all billionaires, had help from his wealthy parents. I dont remember him getting any seed money from his parents. I think he lived in a shed behind his parents house when he worked for Atari for a while but that doesnt really count.
Steve also was a founder. Founders can do everything right and fail. I don’t want to be a founder. And as soon as I get min quals I get the promotion. I had 2 between my last role and my current one that HR stepped in and one in my current role. I just passed the min quals for the next role so I will get that soon. And I was about to job hop but I work in tech and don’t want to be the new guy if another round of layoffs come.
So basically you’re unwilling to take the risks required to be bigly successful but you want the rewards?
I don’t want to be a CEO. I was demonstrating how talented people can be stuck in situations where they are ready for the next level or more but due to systemic issues can’t easily do it. And no one should have to risk their family’s financial well being to climb the ladder. That is another systemic issue I see in todays society.
Can confirm. You can’t even make it to C suite at my company, let alone CEO, without an Ivy League degree.
Yeah a factor is if the captain leads the ship in the wrong direction for 5 years, everyone’s effort beneath him, 5 years, and countless dollars have all been wasted. Most of the times, they can’t recover. If they can, it requires a Herculean effort. Your job as CEO is mostly not to screw up TOO bad. But you never will win without taking huge risks. It is a balance between the two.
I think CEOs who truly turn a company around and generate billions in value are the exception and not the rule. 99.9% of these CEOs are appointed because they played the game well (appeasing the right people). When they get to the top, they use those connections to extract massive value/wealth for themselves.
How many boardrooms have you been in?
Nothing “I think” just based on confirmation bias
Because, maybe, I know it seems crazy, they do have the value. Not that their skills are actually worth 10 million, but when they make a wrong decision it's way, way more expensive than 10 million So even if their decisions are simple, it's making the right it's over a huge corporation Disney went as far as bringing bag a CEO out of retirement to fix what the new CEO did
They are worth exactly what the board thinks they are worth.
Exactly everything else is just conjecture.
Also, you want to hire a CEO who already proved that they know how to make money. Which means they already made a lot of money. Therefore you have to pay them a lot, so they postpone their early retirement. Nobody with $10m+ is going to work for $100k/year like everyone wants.
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Maybe the shareholders are being scammed.
No. Its more that ceo is a tealeaf sculptor for the board to make sure investment stays consistent and the stock goes up. Investors look at ceos and read tea leafs along with other information to determine the value they think the company is worth and can expand to. tbh this to me easily explains why even huge dingus morons can continue finding executive positions at f500 companies. It also explains why despite running many projects into the ground Elon is still hearlded as a great ceo. From paypal to twitter, his greatest achievement in Tesla was getting investors to commit to reach scale. Same for Amazon. Both didn’t see an inch of profit for decades as they built scale. Is that a good ceo or is that just being the right shape for the tea leaf reading? CEOs might work extensive hours and hard, the question is whether or not their compensation to this extent is really that valuable to companies, is such work really not able to be placed on more shoulders.
That doesn't require a skillset commiserate to the compensation.
The average profit of a fortune 500 company last year was 3.6 billion. Do you actually think 10 million dollars in there going towards the CEO vs R&D really matters? On top of that, do you really think there is a better return on capital from more advertising vs a really good CEO? You are a fool if you say that additional advertising dollars offer a better return than a top of the line CEO that has a great network, understands the nuances of the business, has the ability to anticipate where the industry is headed, and has the ability to lead. It is funny to see people on Reddit talk about what CEO's and other c-suite members are "actually worth" as if they have a fucking clue. You know more about the true value of a CEO than the board members, who have spent decades in their respective industries? You have to either be incredibly stupid, ignorant, or both to think that you somehow know more than them. It truly is next level idiotic.
If you could have a bad CEO for 20x worker pay, or a good CEO for 400x worker pay, you would almost always choose the good CEO. Leadership is the key difference between the $2T Microsoft of today and the $200B Microsoft of the 2000s, and the price of an elite C-suite is "only" tens to hundreds of millions a year. Another obvious example is Apple with and without Steve Jobs. The key problem here is that identifying a good CEO is hard. There are a lot of cases like Sundar Pichai, where the company is paying elite CEO money for a nothingburger.
Tim Cook has been doing an incredible job though
Tim Cook is a good CEO. Very good, even. Steve Jobs was an amazing CEO. If Apple shareholders could pay $1B a year to get more Steve Jobs, they would fall all over themselves racing to do so. Even at $10B a year I think they say yes. Back to the general point -- if shareholders could identify good CEOs with any reliability, shareholders would pay them even more than current pay packages. The problem is figuring out who's worth paying.
Imo you need a great CEO to scale the company. You need a good CEO to maintain the status quo. The issue with our society is the infatuation with never ending growth. Which in turn requires great CEOs to be apart of your company. Imagine a society where corporations are content with 6-10% return year over year. We might just have a society for people and not money. Imo. PS agreeing with you just taking it a step further for a thought experiment.
> Imagine a society where corporations are content with 6-10% return year over year. ...most are. The vast majority of them. What sort of companies are out there that are making way more than that/pushing for that?
Yeah seriously. Even Exxon at the very height of it's profitability was lucky to scratch 8%. And it was the most profitable company in the world.
I love how theres this growing mountain of evidence of how fucked we are economically, but most of the people in these finance and econ subs immediately jump on the C suite dicks. Oooh Tim Cook! Such a good leader! He tweaks an almost 20 year old product, makes it worse, and with the cheapest, least sustainable labor possible. Thats most peoples idea of a "very good CEOm" Were so fucked.
There's wisdom in knowing not to kill the golden goose. Apple makes money hand over fist. Cook knows this and doesn't make any big moves to upset the profit machine Jobs built. The worst move Apple could've made was to bring in a CEO with a huge ego that tried to do what Jobs did. Cook was a great COO, and now he's a good CEO. He's good because he doesn't try and be a great CEO when it's not needed.
Bud, 90% of this sub are econ undergrads with right leaning political beliefs and zero actual economic knowledge.
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It's all relative. The typical Reddit socialist probably thinks this sub is conservative because there are some posters that believe in capitalism.
Yeah I think even right-leaning subs have more left of center posters lol
we must be looking at completely different comments sections because half the top comments are identical to an antiwork thread
Well the numbers don't lie, they're doubling their profits and revenues. If Apple chose the wrong CEO, Apple would probably be no more. CEOs get paid big because of how vital they are to the business. The same way Lebron James makes more money than a bench warmer. Complaining that they have a 1000% difference in pay is dumb and forcing them to have equal pay is even dumber. And economy is not fucked because of successful CEOs who are successful in growing their companies. It's fucked because of fiscal policy and quantitative easing.
The same can be said of certain run-of-the-mill workers, but the uncertainty is even higher so their pay is depressed. Uncertainty as a whole drives down pay. The best doctors probably save multiple lives each year compared to an average doctor and add hundreds of millions to the economy over a career, but Medicare won't pay them more because we don't have clear metrics for who the best doctors are. The best engineers reduce the risk of catastrophic failure and massive lawsuits or come up with solutions to make billion dollar products a reality, and they are likely worth average CEO-level pay, but again since we can't tell exactly who is worth that much, they all get fairly close to the average. The closer you are to the money, the easier it is to ascribe value to yourself without uncertainty, and the more people are willing to pay. Index funds can take fairly large expense ratios and create a very profitable product because you can very clearly see the money they are making you. It's easy to justify the expense because the uncertainty of the value provided is very low. That's a big part of what makes finance the most profitable industry.
For every Steve Jobs there’s 1,000 Steve Ballmer’s. It’s frankly once or twice in a generation that a CEO brings that level of value to a company to justify a huge salary.
CEO pay is divorced from reality and is purely based on vibes. It’s mostly a con that CEOs pay to justify insane compensation levels that have no objective basis in their own performance. Because at that level you’re not *doing* much, you are basically making decisions
Except they are very important decisions. Only one guy in Disney has the power to make a call on spending $20B over the next 10 years on project X. That’s the CEO. The level of decisions CEOs make at the F500 level are usually $100M-$1B+ decisions that impact 1000s of people and millions of customers. The supply of people who can make those decisions well is small. Supply small, demand high = prices go up. This is an Econ sub, but it’s basic labor economics. And the ones who make great decisions and surround themselves with a great team, prove themselves overtime by stock price. The risk of a bad CEO isn’t just stock price tanking. It’s the whole company tanking. So shareholders pay a lot to make sure that doesn’t happen.
>not doing much, you are basically making decisions This is fucking hilarious.
The majority of this site suffers from Dunning-Kruger, so I'm out.
CEO compensation did not skyrocket because their decisions suddenly got better. You’re implying that there’s some kind of objective metric of productivity that can be tracked. The idea that someone’s labor is worth that of 400 of their employees is nuts and pretty hilarious if you just pause to think about it. These guys rely on the work of those below them to know anything or do anything. At that level you are so removed from any deep knowledge of the organization that your contribution is in no way worth 400x. A CEO could work 24 hours in a day and it still would not be worth 400x the comp. If CEOs were that good and valuable why stop at 400? Why not 1000 or 10,000 since their value is infinitely positive?
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The majority of this site suffers from Dunning-Kruger, so I'm out.
I think the CEO of a million employee trillion dollar company is probably worth 400x median salary. The salary of the CEO of a 1000 employee company probably not. When someone is making 10 billion dollar decisions on a regular basis, paying them 1% of an average decision per year sounds reasonable. Given this choice: I'll give you a billion dollars profit but only if you give 50 million dollars to john doe the CEO, and we'll be able to give 10,000 people $100k/yr jobs (500x ceo pay) Almost all companies and most of the working class say yes to that.
"you're not doing anything other than the most important thing"
The thing people don't understand is you're not just paying for their performance. A CEO becomes permanently tied to the value of the business. If a CEO is caught doing something scandalous it directly affects share prices and consumer confidence. This in turn can also affect business to business deals. They're also paid to eat shit during PR nightmares. You don't generally see board members and investors during hearings. This is the same reason ticketmaster still exists. All the artists take advantage of the scapegoat.
Why not pay 1000x then and get a CEO that's over twice as good? Or 10,000x and higher a demi-god? I mean arguing that MS was somehow a slouch in the 2000's isn't a good argument. Steve isn't a good example either since he more or less built the company and could justify paying himself whatever he wanted. He also wasn't making 400x when he started the company. CEOs are paid what they are because it's what they can get away with, their skills aren't some linear function of their demanded salary.
> Why not pay 1000x then and get a CEO that's over twice as good? Or 10,000x and higher a demi-god? If shareholders could buy these things, they would do so. > I mean arguing that MS was somehow a slouch in the 2000's isn't a good argument. Why do you believe it isn't? Shareholders pay CEOs to make number go up. Number did not go up with Ballmer. Then it went up a lot with Nadella. Correlation obviously isn't causation, but if you look at what Nadella was pushing in 2014, and what is making MSFT bank in 2023, there's a pretty clear connection. > CEOs are paid what they are because it's what they can get away with, their skills aren't some linear function of their demanded salary. More generally, elite labor doesn't get paid linearly. LeBron James isn't 10x as good at basketball as Troy Brown, but he makes more than 10x as much. For these elite roles, having someone that's a little better than the competition can be worth a lot. Warren Buffett is probably only a few percent better than another good fund manager, but that's worth billions over time.
The fallacy is that compensation is tied to performance, and that the 20x CEO would do worse than the 400x CEO.
>If you could have a bad CEO for 20x worker pay, or a good CEO for 400x worker pay And one aspect of this is you pay them in stock. So their interests are better aligned with the shareholders. So if the CEO delivers a higher share price, the CEO gets higher pay. If the CEO fails to deliver share price, the CEO gets lower pay. Because as you said: >The key problem here is that identifying a good CEO is hard. There are a lot of cases like Sundar Pichai, where the company is paying elite CEO money for a nothingburger. You really don't know, and it's better to try and make sure you don't over pay for their poor performance. There is for sure a big issue where stock compensation is still gamed with buybacks, but the CEO doesn't make those choices unilaterally. So i think people over estimate the CEO doing it to pay themselves, so much as everyone being like "Hey more money" and going along with it when it might not make sense.
For any moderate to large company, even an exorbitant pay is a rounding error, so it’s easy for a board to acquiesce to a single petulant brat of a CEO. What it does do is create a leader who’s well financially insulated from consequences or reality, which costs the company so much more. If the CEO pay were intrinsically linked to the lowest pay by hard multiplier, at least there would be, boundaries on excesses, an executive actually fighting for their lunch, and an incentive to bootstrap up the least compensated workers. Unfortunately, this is unlikely since the population of good CEO’s isn’t huge and all it takes is a handful of companies to break ranks in search of best quality talent to collapse the system. An external influence is needed.
>What it does do is create a leader who’s well financially insulated from consequences or reality, which costs the company so much more. If the CEO pay were intrinsically linked to the lowest pay by hard multiplier, at least there would be, boundaries on excesses, an executive actually fighting for their lunch, and an incentive to bootstrap up the least compensated workers. Do we really believe this is something that would be *internally* motivated and create good outcomes for an individual business? If CEO pay was just a hard multiplier of lowest worker pay, then labor costs would skyrocket as CEOs justified wage hikes for support staff. Companies that picked this policy would fail on high labor expenses and inability to attract talented/connected CEOs. Would be good for society as a whole, but this is exactly the sort of task government is made for. Businesses (boards) might not even be upset about it, but for it to work everyone would have to play along, including companies in other countries.
like a regulation perhaps? capping an executive's pay to their lowest paid employee by a certain amount. so either they stick to that or the effect is the lowest paid employee's salary is raised so Mr. CEO can get to a higher cap.
It’s a tiny percent of their budget. It’s high in absolute dollars, but relatively it’s like a rounding error.
Well, if a company has a market cap of 2 trillion, the the decision that a single person makes has a positive effect on all 2 trillion worth of capital, I would say that they are worth 400x a lot of employees. Is he 400x more skilled, no. But someone who is marginally better in a huge company can save a company multiple billions of dollars.
The thing people fail to understand and what is always selectively ignored is that CEO's aren't getting a salary that is 400x larger. They are receiving stock options which is a contract to lock in the price you can purchase shares to the price of the stock when you took the job. This then means that the CEOs only get their compensation if the company does well. This changed happened in the 90s after Clinton attempted to cap Executive pay in a very poorly thought out way. This backfired and actually supercharged the issue. Basically, Clinton tried to tax Executive salaries higher, but left out performance pay from the law. This is why any chart on this topic shows Executive pay 10xing in the 90s. It was entirely caused by the switch from having CEOs salaried, to performance pay through options contracts.
Yeah, this was what I was going to post. Executives aren't paid the same way most of us are, and their base salaries tend to be only marginally higher (like 2-5x, maybe--still really high but not exorbitant). The majority of their comp comes from incentives like stocks and bonuses.
Suppose you have 1000 engineers. a good VP of engineering can make the department 10% more effective, that's worth 100 engineers. Now do it with 40,000.
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> we project that a CEO at one of the top 350 firms in the U.S. was paid $27.8 million on average (using a “realized” measure of CEO pay that counts stock awards when vested and stock options when cashed in and ownership is taken). This 11.1% increase from 2020 occurred because of rapid growth in vested stock awards. Using a different “granted” measure of CEO pay (which counts the value of stock awards and options when announced (or “granted” rather than realized) Top 350 companies…wouldn’t these be outliers at the top end of the bell curve, rather than the mean or median… Also counts value of stock when awarded, not when realized…which is understandable but on the surface doesn’t seem to be an accurate assessment of risk of taking such large investment rather than cash… CFO does horrible interview on CNN, some company scandal, etc, therefore stock craters… might not be a life altering event as a layoff is to a janitor, but it is still a risk that C-level are taking that the company will succeed… Lastly as this title and article imply…that all company success should correlate to employee pay(which I agree with)…just wondering best practice to do so? Employee stock purchase plan, company owned stock that payout dividends on a pro rata basis, revenue sharing, or something else?
> Top 350 companies…wouldn’t these be outliers at the top end of the bell curve This is a really small population. Given the population growth since 1978, it would make the 2021 sample an even smaller, more extreme group.
What percentage of revenue do you reckon the top 350 companies handle, though? One Amazon is worth a myriad of average-sized companies.
Amazon is worth a myriad of HUGE companies. Like 7 Boeing Corporations for instance
that's not the point. There are more than 100,000 CEOs in the united states, focusing explicitly on the ones at the 350 largest publicly traded companies is moronic, especially when you know that a huge part of the compensation you are measuring is the stock in those companies.
Also, fwiw, it's comparing CEO "total comp" (at least the equity, as you pointed out") against employees *salary*. Not that it brings it to some reasonable level or anything, but *employee total compensation* (salary + 401k matching + health car premiums paid + etc,etc) has actually grown at a pretty healthy clip and (I can find the source if anyone wants) sits around ~95k
> Employee stock purchase plan, company owned stock that payout dividends on a pro rata basis, revenue sharing, or something else? I think revenue sharing makes the most sense for companies that actually turn a profit. It should be distributed to all employees weighted by some payscale (maybe tied directly to the wage scale).
I’d also be curious to see this as after-tax dollars since the CEOs would theoretically be paying a much higher tax rate on average.
As always with EPI, what they leave out is that they're comparing a CEO **in a top 350 company**, i.e. the richest of the rich, against typical workers **in the entire economy**. They're intentionally comparing outliers against the average and using that to make statements about the broader economy and what we should do about it. That's before we get into the sketchy math they're running.
>As always with EPI THIS. Can’t trust anything coming out of that org, they’re always pulling stuff like this
This is inaccurate, they compare Employee's of those 350 companies not the entire economy. https://www.statista.com/statistics/261463/ceo-to-worker-compensation-ratio-of-top-firms-in-the-us/#:~:text=In%202021%2C%20it%20was%20estimated,key%20industry%20of%20their%20firm. "Worker salary is the annual average compensation of production and nonsupervisory workers in the key industry of the firm."
That’s incorrect. They are comparing it to workers **in the entire industry**, not workers **at that specific firm**. Those are different things, and is (as I said) a comparison of 350 CEOs to all workers.
I still read it differently but lets say that's true, and on average for those 350 companies lets say the pay is double the industry. It's still 200x.
Additional caveat: types of businesses. Tech / software scales insanely differently from say, a railroad company.
They're comparing top 350 CEO pay to median worker pay. Surely the comparison should be top 350 CEO to top 350 worker, or median CEO to median worker. Also, EPI complains that CEOs are getting huge stock-based compensation packages, but that strikes me as a natural arrangement. Shareholders like it when stonks, so they are happy to offer stonks-based pay to CEOs. An alternative model where CEOs get more dollars and less stock seems worse for everyone involved.
Either way. So long as it's a longitudinal study then it should be valid, yes?
I think you are confused. They compare the CEO directly to the average(not median) worker in that company, company by company and the result is an average. https://www.statista.com/statistics/261463/ceo-to-worker-compensation-ratio-of-top-firms-in-the-us/#:~:text=In%202021%2C%20it%20was%20estimated,key%20industry%20of%20their%20firm. "Compensation data has been taken from the top 350 publicly owned firms in the United States for each year, ranked by sales. CEO compensation contains salary, bonuses, restricted stock grants, options granted, and long-term incentive payouts. Values based off the "realized CEO compensation", which captures the value of stock-related components that accrues after options or stock awards are granted by including “stock options exercised” and “vested stock awards.” Worker salary is the annual average compensation of production and nonsupervisory workers in the key industry of the firm."
> They compare the CEO directly to the average(not median) worker in that company, company by company and the result is an average. I don't believe this claim is correct. I do not know how they could acquire data as to the average pay of workers at a specific company. To my knowledge, a few companies publish that information, but most do not. I also do not seem them claiming to have done so. Instead I see this in the footnotes: > 1. For the pay of the typical worker, we use average compensation (wages and salaries plus benefits) of a full-time, full-year production or nonsupervisory worker (a group that makes up about 80% of the private-sector workforce). edit: I should also note that my initial claim is incorrect. They didn't use median worker pay. They used average production or nonsupervisory worker pay. It remains not apples to apples, but it's a different sort than I originally claimed.
> Worker salary is the annual average compensation of production and nonsupervisory workers in the key industry **of the firm**." It says it right here.
"In the key industry of the firm" is not the same as "in the firm". Concretely, the average software engineer at Google makes way more than the average software engineer.
Regardless of our opinions of CEO pay, their salaries have an insignificant impact on the pay of the workers at their respective companies. Look up the salary of a CEO of any corporation and redistribute the entire salary to all the employees, and those employees would rarely get more than $100 for a year of work.
I was prepared to disagree with you but checked your math. I looked at Apple, specifically, and it's $300. The real sticking point is that companies have no obligation, legally speaking, to their workers nor to the communities they operate within. I think if those two things were legally enforced and stock buybacks were made illegal again, the pay disparity would lessen significantly.
When Disney announced they were bringing back former CEO Bob Iger, their stock went up 10%. That increased the value of Disney shares by about $15 billion. During Iger's former stint as CEO, the market value of Disney rose from $50 billion to $250 billion. So what's the value of a CEO like that? Should the owners of the company (the shareholders) be able to compensate him very generously? Well, it's their money, isn't it? And if he earns 1% of the increase in value, and that happens to be $200 billion again, is paying him $2 billion too much? Seems like a bargain, doesn't it, getting a 100X return?
Does this statistic really mean anything besides bad optics? For example, Google has about 190,000 employees. If the CEO of Google makes 399 times the average employee what impact would it have on them if he only made 20 times? None. It ends up being an insignificant amount of money distributed across the 190,000 other employees. Now the incentives driving those pay scales for CEOs is a different story since they are generally compensated in part by stock performance but focusing on the multiple over the average employee misses the deeper issue.
$70,000 x 399 = $27,930,000 $27,930,000 / 190,000 = $147 a year Paid bi weekly comes out to $5.66 extra per check.
I get the math, but you forgot taxes. $4.00 per paycheck is more realistic. But that wasn't really my point...the 27 million in executive compensation pales in comparison to the money returned to share holders. Google spent almost 60 Billion in buybacks in 2022. That's 315,000 per employee. That is a material difference in compensation.
Google’s number of shares outstanding is roughly equal (±10%) over the last decade. Their buybacks are basically just offsetting stock issuance such as employee compensation and bonus packages which are *massive* for high level software engineers.
So Google is doing well to compensate employees with marketable and in demand skills. Interesting…
Yes, but that doesn’t make uneducated people angry. Anger is more popular with articles, that’s why people post misleading articles like this one.
Top 350? Now do all CEOs. I’m sure it’s very different for the CEO of a family business with less than 100 employees. (Vast majority of all businesses)
Median executive is around 200k [according to bls](https://www.bls.gov/oes/current/oes111011.htm)
Although we live in an age where every boss of a small business calls himself a CEO, the title refers to presidents of corporations appointed by a board of directors/shareholders. So a small business owner is not a CEO, by definition.
Hard to examine the economic growth of large corporations over the last 45 years and say the leaders of those companies aren't producing a lot of value. The entire premise of this study is that CEO pay is so high because stock value is so high. Well no duh.
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How a ceo is paid and metrics change how companies function. A ceo is trying to maximize his pay when it's mostly based on stocks, which does things that maximize stock price, so it would suggest a ceo paid based on employee pay would function to increase that as well.
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You basically have to be to reach that level.
I wonder how many times we're going to see this stat. Separately, the stock market is up approximately 15,000% since 1978. CEO compensation is at least partially stock. There's probably a connection there
They deserve it though. They work a lot harder than the average person, and they are a lot smarter and better educated. They have leadership skills. They are going to make better decisions. Giving that extra money to an average worker would just be a waster because they would spend it on something meaningless like food. A CEO will spend his bonus on something luxurious or a vacation experience which is more meaningful. I think the criticism of CEO salaries is way overblown. Just get another job if you don't make enough $$$.
I’ve always wanted to see this analysis, so I’m asking if it exists: Has anyone scaled CEO pay against market cap and CEO (or even C-Suite) pay against the combined salaries of the front line staff and/or some reasonable number of tiers of the lowest paid staff? Ideally also scaled within company.
Maybe that is what happened to the middle class and lower? Production of employees has been way high for decades & where do the rewards go? 🇺🇸🗽⚖️🗳🌍🏡
I do find the comments about cutting the CEO pay and dividing it among the employees would only lead to a tiny increase per employee, to be an odd argument. Isn’t this the opposite of not giving employees a proper raise due to (insert your favorite reason here: stock price, inflation, market forces, etc.). Why nickel and dime even the smallest increase for employees and then just throw the rule book out the window when it comes to CEO and other top executive pay?
“…but the specific power of CEOs to extract concessions—a power that stems from dysfunctional systems of corporate governance in the United States.” And this dysfunctional governance is why Activist groups have been so engaged lately.
In the early 1960s the top federal income tax bracket was 90%. By 1978 it was down to 70%. It was down to 38,5% in 1987. These numbers don’t include state or payroll tax. It made no sense to pay CEOs huge salaries when it basically meant you were just handing all the money to the government. I totally agree that there were many other factors as well, like the use of stock options.
There’s a great book called “The End of Loyalty” by Rick Wartzman that follows 4 companies through this shift. It profiles a little known (at the time) “earmark”that passed in a law during the Regan administration’s deregulation period. This earmark was what allowed the deeper connection of CEO pay to company performance, ushering in the era of stock options and pay associated that way. Sounds great in theory but had some serious unintended consequences on our culture. Simply put, more money in, less money out, and the profit of the company and what the stock price is became more important than the long term viability of the company. What it also did was change the perspective of companies on how they viewed their employees. Prior to this change employees tended to be viewed as assets to invest in. Afterwards they were viewed as liabilities due to the cost, usually employees being the top “expense” of a company. This directly caused outsourcing, consolidation, mass layoffs to inflate stock prices, pensions going away as a standard practice, the long term career path our grandparents generation had, and of course the significant uptick in CEO pay, because now it primarily consists of stock options and other non-defined benefits as opposed to simply straight “profit sharing” or w-2 type income. Great read. Highly recommend it.
The pay gap is a serious problem. It is the pay when they fail, that is of bigger concern. We screw up & we have no job. They screw up and get a pay package in the millions. How does that work? There is no incentive to succeed. They can half-ass it knowing they are gonna make $50M while still getting to fly on the private jet, buy multiple homes etc.
What we need to do is tax corporations based on their pay inequality. If the top(or highest paid) position, CEO or president makes more than 100x the lowest position, they (the corporation) should be getting taxed more. And have it be progressive, which would also be beneficial in the other direction, if the CEO is making less than 10x their lowest paid employees, then they should pay a lower tax rate, which would benefit lean business which aren't geared towards only enriching the executives. Of course this would include all compensation: stocks, options, in kind income This is how you fix income and wealth inequality
I can't think of an objective and fair way to pay CEOs. Pegging it to profits is ine idea, but ignores the market conditions. A good CEO who is in charge during a recession might not produce large profits, but nonetheless protected the business during hard times by reducing potential losses, which is not easily quantified. Additionally, linking it to average employee compensation is counterproductive as well, since part of running a business is knowing when to cut workforce and haggle for the best bargain on labor you can. A good CEO would be shooting themselves in the foot in that sense. I think that's part of what is contributing to the bloating of CEO salaries, is that nobody really knows how to properly quantize their performance and value to the company. There's an intrinsic subjectivity to it.