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> a generous severance package, as well as generous benefits if the company does exceptionally well, are on the table, to simultaneously soften the blow if he t

> a generous severance package, as well as generous benefits if the company does exceptionally well, are on the table, to simultaneously soften the blow if he takes a bad risk So a pay gap of up to (and sometimes over) 1000x between CEOs and rank-and-filers, given all the saving and investing that the CEO could do just like any Average Joe, would not be enough to "soften" any "blows"? Huh.

nkurz 10y ago
The gigantic pay gap may be an injustice, but I think you are missing the subtlety of the theory. The worry is that the CEO will become too personally dependent on that 1000x salary to take "appropriate" risk. For example, assume that launching a new product line has a 50% chance of doubling the companies profit, a 25% chance of doing nothing, and a 25% chance of cutting the profit in half. For the shareholders, this is probably a good bet to take. Then assume the CEO will be replaced if profits drop. In the absence of a "golden parachute", a CEO might reason that a 25% chance of being fired and loosing their cushy job makes the plan not worth pursuing. The theory (OP wasn't necessarily endorsing it) is that a rich severance package can better align the interests of the parties. While I personally think "cronyism" is a better explanation for the current situation, the theory is better than others I have seen.
- Florin_Andrei 10y ago
  > I think you are missing the subtlety of the theory There's nothing "subtle" about a plain racket. And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down. At 1000x pay gap, the CEO needs only work a few months to have nothing to worry about for the rest of his life. Anything on top of that, anything, is a luxury item. "Risk" of what? Having to manage with only 2 yachts instead of the customary 3? Right, that's a serious existential threat, gotta mitigate it. Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
  - drakonandor 10y ago
    Why do you think that the shareholders don't have a right to offer generous compensation packages to those they consider good leadership talent?
    - Florin_Andrei 10y ago
      Why do I think something I don't actually think? Shareholders, in theory, should have the right to make any decision that is legal and is advantageous to them. That's what I think should happen, in an ideal world. The practice, however, is different. The entity that decides CEO compensation is not "we the people". It's more like the smoke-filled room at the Republican Party's HQ in The Simpsons.
      - drakonandor 10y ago
        Shareholders do decide. You seem to be implying that shareholders are being cheated, however, if they are actually unhappy they can a. sell (or not invest in the first place if they don't like the representation they'll receive), or b. vote in a new board, or c. sue. You are struggling hard to make a victim where everyone involved is happy.
        wstrange 10y ago
        I don't think it is that simple. There is a tremendous amount of back scratching that goes on when setting executive pay. The board hires pay consultants, the consultants are not going to rock the boat and suggest pay cuts, so they approve a nice increase over the current going rate. Rinse and repeat and you have out of control executive compensation. Majority shareholders are often in the same position - very well paid, and well connected with other CxOs. That leaves the rest of the shareholders along for the ride.
        Florin_Andrei 10y ago
        > You are struggling hard Whenever I argue with a staunch defender of social inequality, the put-down tactics are par for the course. "You struggle", "you fail to comprehend the subtlety of the argument". If doesn't take a PhD in psychology to understand why that is. For someone to be pro social inequality, they must believe they are already topkek - or are standing a very good chance to make it. If that is the case, then it's a simple matter of statistics that any random stranger is likely placed lower in the pecking order. Therefore they must be "struggling" to comprehend, etc. There is no "struggle" when you're telling the truth. The higher cognitive load happens when you make stuff up from whole cloth - there are studies showing it, look it up. > everyone involved is happy In this reality, the trends in political news in the last several years show otherwise. Not sure about other realities.
- wott 10y ago
  The kind of CEOs who get golden parachutes earn enough money in a single year to live a whole life on it without having a job again. There is absolutely NO risk whatsoever taken. There is not even any investment that they could lose either, it's only profit + more profit.
  - wtbob 10y ago
    > The kind of CEOs who get golden parachutes earn enough money in a single year to live a whole life on it without having a job again. You probably earn enough in a single year to live the rest of your life in a different part of the world, yet you continue to work, in part because you want your current standard of living. Likewise, a CEO will want to continue to live at his current standard of living, or even better.
    - Florin_Andrei 10y ago
      > a CEO will want to continue to live at his current standard of living, or even better Al Capone and the robber barons had the same goals.
    - knodi123 10y ago
      The only thing that matters is your annual income and your expenditures. If you earn 1x as much as you spend, you're staying afloat. If you earn 30x as much, then a year of work covers 30 years of retirement. The CEO of Kroger earned $13 million in his last year there, and called his own compensation "ludicrously high". I doubt he's spending a million a year, but even if he is, the ratio is indeed ludicrous. And he's nowhere near the high end for executive compensation. Are you suggesting that the average top-tier executive lives a lifestyle in the same proportion of their income as the average software developer, or blue collar worker, or...? Really?
charrondev 10y ago
I never really understood why people think the pay gap between the CEO's and the rank-and-filers is such a negative thing. If you look at walmart for example, and entirely eliminated the compensation of the CEO (19.4 million), and all executive vice presidents and CFOs (2.8, 10.8, 8.4, 10.1, 11.5, and 8.5 million respectively) and total them all up you get ~$71.5 million. 71,500,000 / 2,000,000 million employees = $34 dollars per employee per year of a raise. That's almost negligible, and if you assume minimum wage (7.25) 50 weeks a year, for 40 hours a week gives $14,500 / year, you get $35 / $14,500 = a .24% raise. That's less than a 2 cent per hour raise per employee if you completely slashed the salaries and compensations of the top executives.
- kornish 10y ago
  When people talk about pay gaps between executives and rank-and-filers, they generally mean pay gaps between individuals, not pay gaps between collectives (in this case, the 7 executives vs the 2 million employees).
  - brbsix 10y ago
    There's a popular narrative that CEO compensation is at the expense of workers, that workers could be paid a livable wage if only executives could do without their extravagent bonuses. It's commonly referenced with respect to Walmart. I believe this is the myth the OP was attempting to dispel.
- jdavis703 10y ago
  Walmart is an extreme example. If you read "Capital in 21st Century" you'll see a lot of the worries of inequality is caused by the general rise of "super managers." If you don't have time to read that massive book, I think this is a good summary: https://jesiwagle.wordpress.com/2015/01/16/super-managers-do-not-produce-wealth-but-get-highest-income/ https://jesiwagle.wordpress.com/2015/01/16/super-managers-do....
- wpietri 10y ago
  You picked the an extreme example there. Walmart employs a zillion unskilled people. Similar numbers for Google would yield something like an extra $6,000 per employee per year. But I think it's a negative thing because it's a sign of a shift in behavior. Look at the graph here: https://en.wikipedia.org/wiki/Executive_compensation_in_the_United_States https://en.wikipedia.org/wiki/Executive_compensation_in_the_... CEOs have gone from making 20x the average worker to 200x. Are CEOs ten times more amazing? If anything, I think they're worse. I think that, broadly, they've shifted their focus from economic value creation to generating the numerical appearance of success in ways that let them extract lots of money. There's also the problem of worker motivation. Companies are human enterprises. The greater the wealth differential, the less the people doing most of the work will feel part of something bigger than themselves. As with Walmart, they may show up and do what they're told, but they are less likely to actually give a shit.

nkurz 10y ago

The gigantic pay gap may be an injustice, but I think you are missing the subtlety of the theory. The worry is that the CEO will become too personally dependent on that 1000x salary to take "appropriate" risk. For example, assume that launching a new product line has a 50% chance of doubling the companies profit, a 25% chance of doing nothing, and a 25% chance of cutting the profit in half. For the shareholders, this is probably a good bet to take. Then assume the CEO will be replaced if profits drop. In the absence of a "golden parachute", a CEO might reason that a 25% chance of being fired and loosing their cushy job makes the plan not worth pursuing. The theory (OP wasn't necessarily endorsing it) is that a rich severance package can better align the interests of the parties. While I personally think "cronyism" is a better explanation for the current situation, the theory is better than others I have seen.

Florin_Andrei 10y ago
> I think you are missing the subtlety of the theory There's nothing "subtle" about a plain racket. And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down. At 1000x pay gap, the CEO needs only work a few months to have nothing to worry about for the rest of his life. Anything on top of that, anything, is a luxury item. "Risk" of what? Having to manage with only 2 yachts instead of the customary 3? Right, that's a serious existential threat, gotta mitigate it. Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense.
- drakonandor 10y ago
  Why do you think that the shareholders don't have a right to offer generous compensation packages to those they consider good leadership talent?
  - Florin_Andrei 10y ago
    Why do I think something I don't actually think? Shareholders, in theory, should have the right to make any decision that is legal and is advantageous to them. That's what I think should happen, in an ideal world. The practice, however, is different. The entity that decides CEO compensation is not "we the people". It's more like the smoke-filled room at the Republican Party's HQ in The Simpsons.
    - drakonandor 10y ago
      Shareholders do decide. You seem to be implying that shareholders are being cheated, however, if they are actually unhappy they can a. sell (or not invest in the first place if they don't like the representation they'll receive), or b. vote in a new board, or c. sue. You are struggling hard to make a victim where everyone involved is happy.
      - wstrange 10y ago
        I don't think it is that simple. There is a tremendous amount of back scratching that goes on when setting executive pay. The board hires pay consultants, the consultants are not going to rock the boat and suggest pay cuts, so they approve a nice increase over the current going rate. Rinse and repeat and you have out of control executive compensation. Majority shareholders are often in the same position - very well paid, and well connected with other CxOs. That leaves the rest of the shareholders along for the ride.
      - Florin_Andrei 10y ago
        > You are struggling hard Whenever I argue with a staunch defender of social inequality, the put-down tactics are par for the course. "You struggle", "you fail to comprehend the subtlety of the argument". If doesn't take a PhD in psychology to understand why that is. For someone to be pro social inequality, they must believe they are already topkek - or are standing a very good chance to make it. If that is the case, then it's a simple matter of statistics that any random stranger is likely placed lower in the pecking order. Therefore they must be "struggling" to comprehend, etc. There is no "struggle" when you're telling the truth. The higher cognitive load happens when you make stuff up from whole cloth - there are studies showing it, look it up. > everyone involved is happy In this reality, the trends in political news in the last several years show otherwise. Not sure about other realities.
wott 10y ago
The kind of CEOs who get golden parachutes earn enough money in a single year to live a whole life on it without having a job again. There is absolutely NO risk whatsoever taken. There is not even any investment that they could lose either, it's only profit + more profit.
- wtbob 10y ago
  > The kind of CEOs who get golden parachutes earn enough money in a single year to live a whole life on it without having a job again. You probably earn enough in a single year to live the rest of your life in a different part of the world, yet you continue to work, in part because you want your current standard of living. Likewise, a CEO will want to continue to live at his current standard of living, or even better.
  - Florin_Andrei 10y ago
    > a CEO will want to continue to live at his current standard of living, or even better Al Capone and the robber barons had the same goals.
  - knodi123 10y ago
    The only thing that matters is your annual income and your expenditures. If you earn 1x as much as you spend, you're staying afloat. If you earn 30x as much, then a year of work covers 30 years of retirement. The CEO of Kroger earned $13 million in his last year there, and called his own compensation "ludicrously high". I doubt he's spending a million a year, but even if he is, the ratio is indeed ludicrous. And he's nowhere near the high end for executive compensation. Are you suggesting that the average top-tier executive lives a lifestyle in the same proportion of their income as the average software developer, or blue collar worker, or...? Really?

charrondev 10y ago

I never really understood why people think the pay gap between the CEO's and the rank-and-filers is such a negative thing. If you look at walmart for example, and entirely eliminated the compensation of the CEO (19.4 million), and all executive vice presidents and CFOs (2.8, 10.8, 8.4, 10.1, 11.5, and 8.5 million respectively) and total them all up you get ~$71.5 million. 71,500,000 / 2,000,000 million employees = $34 dollars per employee per year of a raise. That's almost negligible, and if you assume minimum wage (7.25) 50 weeks a year, for 40 hours a week gives $14,500 / year, you get $35 / $14,500 = a .24% raise. That's less than a 2 cent per hour raise per employee if you completely slashed the salaries and compensations of the top executives.

kornish 10y ago
When people talk about pay gaps between executives and rank-and-filers, they generally mean pay gaps between individuals, not pay gaps between collectives (in this case, the 7 executives vs the 2 million employees).
- brbsix 10y ago
  There's a popular narrative that CEO compensation is at the expense of workers, that workers could be paid a livable wage if only executives could do without their extravagent bonuses. It's commonly referenced with respect to Walmart. I believe this is the myth the OP was attempting to dispel.
jdavis703 10y ago
Walmart is an extreme example. If you read "Capital in 21st Century" you'll see a lot of the worries of inequality is caused by the general rise of "super managers." If you don't have time to read that massive book, I think this is a good summary: https://jesiwagle.wordpress.com/2015/01/16/super-managers-do-not-produce-wealth-but-get-highest-income/ https://jesiwagle.wordpress.com/2015/01/16/super-managers-do....
wpietri 10y ago
You picked the an extreme example there. Walmart employs a zillion unskilled people. Similar numbers for Google would yield something like an extra $6,000 per employee per year. But I think it's a negative thing because it's a sign of a shift in behavior. Look at the graph here: https://en.wikipedia.org/wiki/Executive_compensation_in_the_United_States https://en.wikipedia.org/wiki/Executive_compensation_in_the_... CEOs have gone from making 20x the average worker to 200x. Are CEOs ten times more amazing? If anything, I think they're worse. I think that, broadly, they've shifted their focus from economic value creation to generating the numerical appearance of success in ways that let them extract lots of money. There's also the problem of worker motivation. Companies are human enterprises. The greater the wealth differential, the less the people doing most of the work will feel part of something bigger than themselves. As with Walmart, they may show up and do what they're told, but they are less likely to actually give a shit.