4 ms·

Most Americans (probably 80-90%) conflate corporate greed with profits, which is the wrong way to look at the problem. Most of the asshole greed we see today is

Most Americans (probably 80-90%) conflate corporate greed with profits, which is the wrong way to look at the problem. Most of the asshole greed we see today is not in profit per se, but in back-scratching compensation deals for top management. Note that CEO pay is not profit. It's an expense. Most Americans either don't make or are unaware of this distinction. Managerial overcompensation is strictly worse, because at least one can invest in a company that is "profiting too much". I'd like to see the data for other years. Recessions are bad for health insurers, because when people get fired, young and healthy people tend to drop their insurance while those who are older stay on the plan (with COBRA). So adverse selection sets in and insurance companies lose.

CWuestefeld 17y ago
Most of the asshole greed we see today is not in profit per se, but in back-scratching compensation deals for top management. Citation, please? I'm very skeptical that pay for top execs amounts to a really significant part of corporate expenses, or that corporate profits could be increased substantially by cutting these expenses.
- dfranke 17y ago
  Ooh, interesting question. First number I was able to grab: Citigroup lost $7.8B in 2009. In 2007, their CEO's $24.8M in compensation from the previous year ($1.2M salary, $13.2M bonus, $10.4M stock grant) was denounced as scandalous. Edit: slightly more apples-to-apples: their 2007 profit was $3.6B. Their 2006 profit was $21.5B.
  - CWuestefeld 17y ago
    So in 2006 they paid their CEO about 0.1% of their total profit? That doesn't seem like a lot. But more important, how much does it cost to find someone who can run a company like that competently? I work for a lot cheaper, but I'm also not capable of managing all of Citigroup. And conversely, if I were someone who had proven that I could do that, I'd likely have enough money to retire; you'd have to pay me quite a lot to convince me to subject myself to that kind of stress rather than sipping pina coladas on the beach.
    - jbooth 17y ago
      Well, if we're going to do apples-to-apples, given the recent statements on their ledger, we should ask "How much does it cost to find someone who will run us damn near into the ground and require a government bailout"? :) Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approximately the same quality job as one of those dipper things that replaced Homer Simpson at the nuclear plant for a week once.
      - pw0ncakes 17y ago
        Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approximately the same quality job as one of those dipper things that replaced Homer Simpson at the nuclear plant for a week once. Well said. My post above explains why CEO pay actually results in a worse product. The "best and the brightest are not the ones who end up as CEOs of big companies." Pick one at random out of the Fortune 500. Give me a year to study the company and then replace him with me; I'm now the top dog. There is a 60% chance I will do a better job. I'm 26 and have no advanced degree. Do the same with a small business or a farm. There is almost a 0% chance I will do a better job. What does this say about large companies and their management?
        CWuestefeld 17y ago
        I'd say that your belief that this is true is pretty much proof that it's not. On what grounds do you believe that you can do better than the average Fortune 500 CEO? I assert that you're engaging in empty boasting, with absolutely nothing to back this up. How could there be? Have you any experience near the top management of a company this large and complex?
- pw0ncakes 17y ago
  Executive pay may be small compared to the corporate balance sheet, but the level it's at allows for and encourages bad behavior. 1. The extreme disparity between CEO pay and other vital executives encourages people to backstab in order to ascend the hierarchy. So "work" for those who are in line to be CEOs is more about jockeying for position and trading favors than about building a company. 2. In addition to (1), such disparities are bad for morale, especially when the CEO is a "hired gun" instead of someone who has been part of the company for a long time. Except in athletics, where talent is objectively measurable, the "star system" tends to piss off everyone but the stars, and let's be realistic: non-stars are 99% of people, and probably 3/4 of those who would be considered objectively the most competent. 3. When the CEO makes $500,000/year, he's drawing a good salary but still has the incentive to build a legitimately strong company for the long-term. When he has a "performance bonus" that will give him fuck-you money in 12 months if he plays his cards right, his incentives are in the short term. 4. When there are massive discrepancies in pay between the bosses and the people they are managing, the social class and lifestyle disconnects become problematic and can damage morale. This is why the best CEOs try to appear middle-class in terms of dress and work habits. CEO pay is at such a level that it actually brings lower quality of management. This is what's truly alarming. Decades ago, when CEO pay was much lower, American companies were well-managed and produced great products like (imagine this for a second) cars that people actually wanted to buy. Now, big-company CEOs command stratospheric salaries and generally such ass. This is because executive pay is so high that it has pushed these people completely out of touch with reality.
  - tullius 17y ago
    Companies are much better managed now than they were a few decades ago. Think about the fact that corporate raiders were able to buy large companies in the 80's, split them apart and sell their constituent lines of business for more than the companies were previously worth. CEO pay has simply increased in line with the market capitalization of the largest public companies.
    - pw0ncakes 17y ago
      The stock market is a poor arbiter of whether a business decision is good for the long run. Traders are good at outguessing each other in the short term, but have no sense of the long term.
dagheti 17y ago
A great point, and it's important to remember that this effect also maps to public choice theory in government or excessive compensation of management in the non-profit sector (though statistically I believe it is lower than in private entities), where the incentives in some ways can make it even harder to prevent abuse.
evgen 17y ago
Recessions are bad for health insurers, because when people get fired, young and healthy people tend to drop their insurance while those who are older stay on the plan (with COBRA). It is also the case that insurance companies invest a large portion of their premiums in short and medium term investments; few are allowed to get so fragile that they are in danger of having cash flow problems due to some small fraction of the policyholders shifting the cost basis. When the market tanks they have less income from investments and must cut costs (e.g. deny coverage) and increase income (e.g. raise premiums.) Try graphing DJIA, unemployment rates, and insurance premiums and see when changes in the first two lines best match increases in average premiums...

CWuestefeld 17y ago

Most of the asshole greed we see today is not in profit per se, but in back-scratching compensation deals for top management. Citation, please? I'm very skeptical that pay for top execs amounts to a really significant part of corporate expenses, or that corporate profits could be increased substantially by cutting these expenses.

dfranke 17y ago
Ooh, interesting question. First number I was able to grab: Citigroup lost $7.8B in 2009. In 2007, their CEO's $24.8M in compensation from the previous year ($1.2M salary, $13.2M bonus, $10.4M stock grant) was denounced as scandalous. Edit: slightly more apples-to-apples: their 2007 profit was $3.6B. Their 2006 profit was $21.5B.
- CWuestefeld 17y ago
  So in 2006 they paid their CEO about 0.1% of their total profit? That doesn't seem like a lot. But more important, how much does it cost to find someone who can run a company like that competently? I work for a lot cheaper, but I'm also not capable of managing all of Citigroup. And conversely, if I were someone who had proven that I could do that, I'd likely have enough money to retire; you'd have to pay me quite a lot to convince me to subject myself to that kind of stress rather than sipping pina coladas on the beach.
  - jbooth 17y ago
    Well, if we're going to do apples-to-apples, given the recent statements on their ledger, we should ask "How much does it cost to find someone who will run us damn near into the ground and require a government bailout"? :) Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approximately the same quality job as one of those dipper things that replaced Homer Simpson at the nuclear plant for a week once.
    - pw0ncakes 17y ago
      Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approximately the same quality job as one of those dipper things that replaced Homer Simpson at the nuclear plant for a week once. Well said. My post above explains why CEO pay actually results in a worse product. The "best and the brightest are not the ones who end up as CEOs of big companies." Pick one at random out of the Fortune 500. Give me a year to study the company and then replace him with me; I'm now the top dog. There is a 60% chance I will do a better job. I'm 26 and have no advanced degree. Do the same with a small business or a farm. There is almost a 0% chance I will do a better job. What does this say about large companies and their management?
      - CWuestefeld 17y ago
        I'd say that your belief that this is true is pretty much proof that it's not. On what grounds do you believe that you can do better than the average Fortune 500 CEO? I assert that you're engaging in empty boasting, with absolutely nothing to back this up. How could there be? Have you any experience near the top management of a company this large and complex?
pw0ncakes 17y ago
Executive pay may be small compared to the corporate balance sheet, but the level it's at allows for and encourages bad behavior. 1. The extreme disparity between CEO pay and other vital executives encourages people to backstab in order to ascend the hierarchy. So "work" for those who are in line to be CEOs is more about jockeying for position and trading favors than about building a company. 2. In addition to (1), such disparities are bad for morale, especially when the CEO is a "hired gun" instead of someone who has been part of the company for a long time. Except in athletics, where talent is objectively measurable, the "star system" tends to piss off everyone but the stars, and let's be realistic: non-stars are 99% of people, and probably 3/4 of those who would be considered objectively the most competent. 3. When the CEO makes $500,000/year, he's drawing a good salary but still has the incentive to build a legitimately strong company for the long-term. When he has a "performance bonus" that will give him fuck-you money in 12 months if he plays his cards right, his incentives are in the short term. 4. When there are massive discrepancies in pay between the bosses and the people they are managing, the social class and lifestyle disconnects become problematic and can damage morale. This is why the best CEOs try to appear middle-class in terms of dress and work habits. CEO pay is at such a level that it actually brings lower quality of management. This is what's truly alarming. Decades ago, when CEO pay was much lower, American companies were well-managed and produced great products like (imagine this for a second) cars that people actually wanted to buy. Now, big-company CEOs command stratospheric salaries and generally such ass. This is because executive pay is so high that it has pushed these people completely out of touch with reality.
- tullius 17y ago
  Companies are much better managed now than they were a few decades ago. Think about the fact that corporate raiders were able to buy large companies in the 80's, split them apart and sell their constituent lines of business for more than the companies were previously worth. CEO pay has simply increased in line with the market capitalization of the largest public companies.
  - pw0ncakes 17y ago
    The stock market is a poor arbiter of whether a business decision is good for the long run. Traders are good at outguessing each other in the short term, but have no sense of the long term.

dagheti 17y ago

A great point, and it's important to remember that this effect also maps to public choice theory in government or excessive compensation of management in the non-profit sector (though statistically I believe it is lower than in private entities), where the incentives in some ways can make it even harder to prevent abuse.

evgen 17y ago

Recessions are bad for health insurers, because when people get fired, young and healthy people tend to drop their insurance while those who are older stay on the plan (with COBRA). It is also the case that insurance companies invest a large portion of their premiums in short and medium term investments; few are allowed to get so fragile that they are in danger of having cash flow problems due to some small fraction of the policyholders shifting the cost basis. When the market tanks they have less income from investments and must cut costs (e.g. deny coverage) and increase income (e.g. raise premiums.) Try graphing DJIA, unemployment rates, and insurance premiums and see when changes in the first two lines best match increases in average premiums...