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I take issue with the "Average Company Salary" graph at the center of the article. The article claims that "This means that the rising gap in pay between firms

by Sone7 10y ago

I take issue with the "Average Company Salary" graph at the center of the article. The article claims that "This means that the rising gap in pay between firms accounts for the large majority of the increase in income inequality in the United States." However, when CEOs make on average 300 times more than their workers, it kinda screws up that crucial average, doesn't it. Then there's the other executives messing up the data. For reference, in 1965 the ratio was 20-1. Between 1978 and 2014, inflation-adjusted CEO pay increased by almost 1,000%, according to a report by the Economic Policy Institute. Meanwhile, typical workers in the U.S. saw a pay raise of just 11% during that same period. Hmm. It's cute that the article lumps rent-seeking behaviour, political corruption, monopolistic practices, exploitation of the environment by a handful of massive companies, tax dodging and evasion etc. into one small paragraph that acknowledges there are other problems. And it's hilarious that the article claims that "focus on education" and "focus on anti-trust" are "unique recommendations" born of looking at the issue this way. But to me, it smells of a deliberate attempt to shift blame. There were only a handful of protesters angry at how much Google employees get paid (Bless their hearts). But this article will reach many people, and under the surface - it's bullshit.

cjwilliams 10y ago
Ceos only make an average of 300x employee salary in a subset of the largest us firms. That statistic is often used imprecisely which i think can be confusing.
- Sone7 10y ago
  The authors of the report anticipated your criticism: "Critics of examining these trends suggest looking at the pay of the average CEO, not CEOs of the largest firms. However, the average firm is very small, employing just 20 workers, and does not represent a useful comparison to the pay of a typical worker who works in a firm with roughly 1,000 workers. Half (52 percent) of employment and 58 percent of total payroll are in firms with more than 500 or more employees. Firms with at least 10,000 workers provide 27.9 percent of all employment and 31.4 percent of all payroll." Also, you'd think they could have at least mentioned possible distortion of average wage figures, considering they base their entire article on the idea that top companies paying their employees well are somehow responsible for the insane levels of inequality. It worries me that this turd of an article is getting attention (no disrespect OP). The 8 richest people who own the wealth of 3.5 billion people would probably find it real fucking funny that the 'esteemed' Harvard Business Review is blaming Google employees for the inequality we all face.
  - pitaj 10y ago
    Their anticipation doesn't cover the criticism. If you want an average (average worker to CEO) pay ratio, then doing what they did is also inaccurate. I think that you should pick the average firm size, select a sample of firms around that size, and then get the pay ratio from that set.
    - Sone7 10y ago
      I think you've missed the point, a couple times. First, the EPI weren't trying to find the "average worker to CEO" pay, they were examining trends to determine how well the top 1 and 0.1 percent were doing in 2014. Second, the article is blaming the largest and most successful companies and using their average wage to make their point - while making no attempt to account for or mention the CEO getting paid as much as 300 or more workers. This is a pretty gross mistake, and I find it disturbing that the HBR could spread bullshit like this. Third, a study that looks at the top 350 firms' ratio of CEO to worker pay is in this case :more: relevant than the average of all companies, as the article is talking about :the largest companies:. What I want to know is, why are so many people trying to make an issue of the EPI study I referenced, when the HBR article is riddled with basic, glaring errors and ludicrous claims?
      - pitaj 10y ago
        I was only addressing the your comments regarding the study addressing certain criticisms. I didn't read the article, and I don't really care about it. Yes, them using the mean wage at those companies is inaccurate. They should probably be using median instead.
  - natoliniak 10y ago
    > blaming Google employees for the inequality we all face. exactly. The employees riding that bus are ultimately in the same economic boat as the ones throwing the rocks. They might be slightly better off, but are still probably 3-5 paychecks away from being homeless and without health insurance. The ones who are responsible for this polarity and who have the power to do something about this, do not ride on the 7:30am employee shuttles.
cperciva 10y ago
However, when CEOs make on average 300 times more than their workers, it kinda screws up that crucial average, doesn't it. Not at all. The "300x" statistic comes from an analysis of the 350 largest firms; these all have at least 10,000 employees, so even the outsized CEO compensation is at most a few percent of the total.
- Sone7 10y ago
  cjwilliams wrote pretty much the same thing. See my response to him. Also, considering that TFA is expressly talking about the largest firms and blaming them for income inequality, the criticism holds even less water for me.
coredog64 10y ago
How much of CEO pay prior to the Reagan tax reforms were cash, and how much were things like corporate apartments, golf club memberships, company cars, etc.? Follow up question: When US CEO pay is compared to CEOs of European and Asian companies, how much of those same non-cash benefits are included? Final question: How much of US CEO pay is cash (I.e. payed by the company) and how much is equities (I.e payed by shareholders)?
- Sone7 10y ago
  Yeah I'm sure CEOs had other perks in the past. This refutes precisely none of my criticism of the article. As to your other two questions, I completely fail to see how they affect my argument, and I don't want to get off track. To reiterate the criticism I was making - basing your entire article on the claim that the difference between average pay in companies is at fault for "the majority" of inequality, while making no attempt to account for or mention the fact that those firms average wages are likely grossly distorted by executive pay, is at best ignorant and more likely intentional. We live in a world where the 8 richest people own the wealth of 3.5 billion of the poorest. This is insane, it's dangerous, and it's :not: the fault of Google employees' wage packets; no matter how much CEOs in the 60s or in Asia are paid. For the HBR to suggest this is grossly irresponsible, I find it ghoulish.
  - dukeluke 10y ago
    In a global economy, workers have no leverage. If a group tries to form a union, the work goes elsewhere. Globalism exploits the fact that there are people willing to work for $1/hr, and leads to many of the problems of capitalism predicted by Marx and friends in the early 1900s. As long as globalization is allowed to continue, inequality within the US will just grow worse.
    - bobwaycott 10y ago
      Small nit: Marx worked and predicted these issues in the mid-1800s. He died in 1883.
    - 10y ago
yummyfajitas 10y ago
The statistic you are citing doesn't say CEOs don't make 300x their workers. It says they make 300x the average worker. Between 1978 and 2014, inflation-adjusted CEO pay increased by almost 1,000%, according to a report by the Economic Policy Institute. Meanwhile, typical workers in the U.S. saw a pay raise of just 11% during that same period. Hmm. Did all CEOs see this raise, or just the CEOs of the top corporations (who's workers also saw raises)? None of the statistics you cite remotely contradict the claim that between-firm inequality is the primary driver of inequality.
- Sone7 10y ago
  I doubt any one but you thought I meant that CEOs make more money than 300x ALL their workers, but er, thanks for the clarification anyway. I didn't say the statistics refute the claim, I said the article's claim is mostly based on a graph that fails to take extreme executive pay into account when discussing average worker pay. The statistics I cite back that up. And the word you're looking for is 'whose'. Who's means ' who is'. Apostrophes can be tricky, I know, but hey - you got pedantic on me first.
  - yummyfajitas 10y ago
    I doubt any one but you thought I meant that CEOs make more money than 300x ALL their workers, but er, thanks for the clarification anyway. You are completely misinterpreting me. I was not arguing against this claim at all. The statistic you cite claims that a select set of CEOs make more than the average worker across all firms. I.e., the CEO of Goldman makes 300x more than the average worker at Goldman and Walmart combined. It does not make any claims about inequality within forms - i.e., whether the CEO of Goldman makes 300x the average worker at Goldman.
    - Sone7 10y ago
      You are correct, thank you for the clarification. I remain convinced that CEOs of Google and Goldman make hundreds of times more money than their average workers, and that if you're going to publish an article that makes such a large claim as this one, based almost entirely on average pay data, then that should be taken into account. Did you know the CEO of Goldman made 54 million dollars in 2007? I don't know if you remember, but the next year there was a significant economic crash that caused immense hardship for a large portion of the world, and a huge amount of the blame for it was laid at Goldman's door. HBR had fuck all to say about that, or the massive global austerity protests. A few protesters yell at Google employees getting on the bus, and they're all over it drawing wild conclusions. I point that out because it's ironic that you'd use Goldman to make that point, considering the effect they've had on inequality. Let's be real - blaming the amount Google pays its employees for the extreme inequality in America is fucking absurd. It's misdirection, and apparently it works to an extent even on literate, mathematically educated populations, such as this one. This is deeply concerning to me.
frgtpsswrdlame 10y ago
>under the surface - it's bullshit. It's really not. Here's a great blogpost summarizing some research that points to the firm inequality theory. http://economistsview.typepad.com/economistsview/2016/10/how-clones-can-experience-unequal-economic-outcomes.html http://economistsview.typepad.com/economistsview/2016/10/how...
- Sone7 10y ago
  I don't doubt that firm inequality is a factor worth looking at. But, the article claims, with the flimsiest of evidence, that "the rising gap in pay between firms accounts for the large majority of the increase in income inequality in the United States." Really? Do you honestly believe it's more relevant than rent-seeking behaviour, political corruption, monopolistic practices, environmental pillage, tax dodging and evasion? Again, I have no doubt that it might be a good idea to look at antitrust issues, invest in education, and somehow make business leaders look at the consequences of their actions on the economy as a whole. But claiming that these are "unique recommendations" that emerge from "shifting the focus from individuals to companies", while relegating the other factors I mentioned above to a minor sidenote against "the majority of the increase in income inequality" - Straight bullshit. Please.
  - frgtpsswrdlame 10y ago
    >Really? Yes >Do you honestly believe it's more relevant than rent-seeking behaviour, political corruption, monopolistic practices, environmental pillage, tax dodging and evasion? Firm inequality is an expression of many of these factors. Specifically political corruption, rent-seeking behavior, monopolistic practices and tax issues. Companies that can engage in these activities first in a competitive market can corrupt the market, make themselves more profitable and make their firm the one that pays much more than their competitors. Overall I sometimes think the debate over inequality has been a little poisoned by the 99% - 1% rhetoric. Yes the CEO class makes ridiculous amounts more than their workers and I think this is wrong but there are large gulfs between the 95% and the 5%, the 90% and the 10%, all the way down. Focusing specifically on the wealth of C-level executives ignores a lot of other ways inequality manifests itself. Focusing on firm level inequality helps lower inequality in these other divides.
fanzhang 10y ago
I think looking at CEO-only pay is a red herring. The CEO of a company like Google might be paid a lot, but if you cut that pay to zero and redistributed to the rest of the company, the impact wouldn't be massive. To wit, the CEO of google was paid $100 million in 2015, and Google has about 50K employees, resulting in a $2K difference for everyone. Do you believe that if all corporations just reduced the pay of the top 1% of the pay grade, that within-US inequality rises would be majority eliminated? What's the evidence either way?
- Sone7 10y ago
  No I don't believe that. Never implied anything of the sort. You made a fair point about the number of employees, but I was careful to also mention other senior executive pay. I mentioned a host of other factors such as political corruption and rent-seeking behaviours being likely far more important factors. Jumping to the conclusion implied in your question is unfair, and might point to a bias you're walking around with, I think. Do you believe, as this article claims, that :the majority: of inequality in the US is due to how much Google and other top companies choose to pay their employees? Regardless, do you believe that this article employed convincing analysis and evidence to back up such a belief?
  - fanzhang 10y ago
    I don't think that between firm inequality is the main driver of inequality within the US. (Internationally, inequality has decreased over the last 40 years). My personal belief is that the main causes are technology and globalization. I think the article looks at it in a unique perspective that is missed. Between firm inequality is a result of technology, especially technology with natural monopoly characteristics (search, social network). I don't think the article's recommendation of breaking up monopolies will reduce inequality at all. If you break Google or Facebook up, you'll get two companies with nearly isomorphic hiring and pay practices.

by Sone7 10y ago

cjwilliams 10y ago

Ceos only make an average of 300x employee salary in a subset of the largest us firms. That statistic is often used imprecisely which i think can be confusing.

Sone7 10y ago
The authors of the report anticipated your criticism: "Critics of examining these trends suggest looking at the pay of the average CEO, not CEOs of the largest firms. However, the average firm is very small, employing just 20 workers, and does not represent a useful comparison to the pay of a typical worker who works in a firm with roughly 1,000 workers. Half (52 percent) of employment and 58 percent of total payroll are in firms with more than 500 or more employees. Firms with at least 10,000 workers provide 27.9 percent of all employment and 31.4 percent of all payroll." Also, you'd think they could have at least mentioned possible distortion of average wage figures, considering they base their entire article on the idea that top companies paying their employees well are somehow responsible for the insane levels of inequality. It worries me that this turd of an article is getting attention (no disrespect OP). The 8 richest people who own the wealth of 3.5 billion people would probably find it real fucking funny that the 'esteemed' Harvard Business Review is blaming Google employees for the inequality we all face.
- pitaj 10y ago
  Their anticipation doesn't cover the criticism. If you want an average (average worker to CEO) pay ratio, then doing what they did is also inaccurate. I think that you should pick the average firm size, select a sample of firms around that size, and then get the pay ratio from that set.
  - Sone7 10y ago
    I think you've missed the point, a couple times. First, the EPI weren't trying to find the "average worker to CEO" pay, they were examining trends to determine how well the top 1 and 0.1 percent were doing in 2014. Second, the article is blaming the largest and most successful companies and using their average wage to make their point - while making no attempt to account for or mention the CEO getting paid as much as 300 or more workers. This is a pretty gross mistake, and I find it disturbing that the HBR could spread bullshit like this. Third, a study that looks at the top 350 firms' ratio of CEO to worker pay is in this case :more: relevant than the average of all companies, as the article is talking about :the largest companies:. What I want to know is, why are so many people trying to make an issue of the EPI study I referenced, when the HBR article is riddled with basic, glaring errors and ludicrous claims?
    - pitaj 10y ago
      I was only addressing the your comments regarding the study addressing certain criticisms. I didn't read the article, and I don't really care about it. Yes, them using the mean wage at those companies is inaccurate. They should probably be using median instead.
- natoliniak 10y ago
  > blaming Google employees for the inequality we all face. exactly. The employees riding that bus are ultimately in the same economic boat as the ones throwing the rocks. They might be slightly better off, but are still probably 3-5 paychecks away from being homeless and without health insurance. The ones who are responsible for this polarity and who have the power to do something about this, do not ride on the 7:30am employee shuttles.

cperciva 10y ago

However, when CEOs make on average 300 times more than their workers, it kinda screws up that crucial average, doesn't it. Not at all. The "300x" statistic comes from an analysis of the 350 largest firms; these all have at least 10,000 employees, so even the outsized CEO compensation is at most a few percent of the total.

Sone7 10y ago
cjwilliams wrote pretty much the same thing. See my response to him. Also, considering that TFA is expressly talking about the largest firms and blaming them for income inequality, the criticism holds even less water for me.

coredog64 10y ago

How much of CEO pay prior to the Reagan tax reforms were cash, and how much were things like corporate apartments, golf club memberships, company cars, etc.? Follow up question: When US CEO pay is compared to CEOs of European and Asian companies, how much of those same non-cash benefits are included? Final question: How much of US CEO pay is cash (I.e. payed by the company) and how much is equities (I.e payed by shareholders)?

Sone7 10y ago
Yeah I'm sure CEOs had other perks in the past. This refutes precisely none of my criticism of the article. As to your other two questions, I completely fail to see how they affect my argument, and I don't want to get off track. To reiterate the criticism I was making - basing your entire article on the claim that the difference between average pay in companies is at fault for "the majority" of inequality, while making no attempt to account for or mention the fact that those firms average wages are likely grossly distorted by executive pay, is at best ignorant and more likely intentional. We live in a world where the 8 richest people own the wealth of 3.5 billion of the poorest. This is insane, it's dangerous, and it's :not: the fault of Google employees' wage packets; no matter how much CEOs in the 60s or in Asia are paid. For the HBR to suggest this is grossly irresponsible, I find it ghoulish.
- dukeluke 10y ago
  In a global economy, workers have no leverage. If a group tries to form a union, the work goes elsewhere. Globalism exploits the fact that there are people willing to work for $1/hr, and leads to many of the problems of capitalism predicted by Marx and friends in the early 1900s. As long as globalization is allowed to continue, inequality within the US will just grow worse.
  - bobwaycott 10y ago
    Small nit: Marx worked and predicted these issues in the mid-1800s. He died in 1883.
  - 10y ago

yummyfajitas 10y ago

The statistic you are citing doesn't say CEOs don't make 300x their workers. It says they make 300x the average worker. Between 1978 and 2014, inflation-adjusted CEO pay increased by almost 1,000%, according to a report by the Economic Policy Institute. Meanwhile, typical workers in the U.S. saw a pay raise of just 11% during that same period. Hmm. Did all CEOs see this raise, or just the CEOs of the top corporations (who's workers also saw raises)? None of the statistics you cite remotely contradict the claim that between-firm inequality is the primary driver of inequality.

Sone7 10y ago
I doubt any one but you thought I meant that CEOs make more money than 300x ALL their workers, but er, thanks for the clarification anyway. I didn't say the statistics refute the claim, I said the article's claim is mostly based on a graph that fails to take extreme executive pay into account when discussing average worker pay. The statistics I cite back that up. And the word you're looking for is 'whose'. Who's means ' who is'. Apostrophes can be tricky, I know, but hey - you got pedantic on me first.
- yummyfajitas 10y ago
  I doubt any one but you thought I meant that CEOs make more money than 300x ALL their workers, but er, thanks for the clarification anyway. You are completely misinterpreting me. I was not arguing against this claim at all. The statistic you cite claims that a select set of CEOs make more than the average worker across all firms. I.e., the CEO of Goldman makes 300x more than the average worker at Goldman and Walmart combined. It does not make any claims about inequality within forms - i.e., whether the CEO of Goldman makes 300x the average worker at Goldman.
  - Sone7 10y ago
    You are correct, thank you for the clarification. I remain convinced that CEOs of Google and Goldman make hundreds of times more money than their average workers, and that if you're going to publish an article that makes such a large claim as this one, based almost entirely on average pay data, then that should be taken into account. Did you know the CEO of Goldman made 54 million dollars in 2007? I don't know if you remember, but the next year there was a significant economic crash that caused immense hardship for a large portion of the world, and a huge amount of the blame for it was laid at Goldman's door. HBR had fuck all to say about that, or the massive global austerity protests. A few protesters yell at Google employees getting on the bus, and they're all over it drawing wild conclusions. I point that out because it's ironic that you'd use Goldman to make that point, considering the effect they've had on inequality. Let's be real - blaming the amount Google pays its employees for the extreme inequality in America is fucking absurd. It's misdirection, and apparently it works to an extent even on literate, mathematically educated populations, such as this one. This is deeply concerning to me.

frgtpsswrdlame 10y ago

>under the surface - it's bullshit. It's really not. Here's a great blogpost summarizing some research that points to the firm inequality theory. http://economistsview.typepad.com/economistsview/2016/10/how-clones-can-experience-unequal-economic-outcomes.html http://economistsview.typepad.com/economistsview/2016/10/how...

Sone7 10y ago
I don't doubt that firm inequality is a factor worth looking at. But, the article claims, with the flimsiest of evidence, that "the rising gap in pay between firms accounts for the large majority of the increase in income inequality in the United States." Really? Do you honestly believe it's more relevant than rent-seeking behaviour, political corruption, monopolistic practices, environmental pillage, tax dodging and evasion? Again, I have no doubt that it might be a good idea to look at antitrust issues, invest in education, and somehow make business leaders look at the consequences of their actions on the economy as a whole. But claiming that these are "unique recommendations" that emerge from "shifting the focus from individuals to companies", while relegating the other factors I mentioned above to a minor sidenote against "the majority of the increase in income inequality" - Straight bullshit. Please.
- frgtpsswrdlame 10y ago
  >Really? Yes >Do you honestly believe it's more relevant than rent-seeking behaviour, political corruption, monopolistic practices, environmental pillage, tax dodging and evasion? Firm inequality is an expression of many of these factors. Specifically political corruption, rent-seeking behavior, monopolistic practices and tax issues. Companies that can engage in these activities first in a competitive market can corrupt the market, make themselves more profitable and make their firm the one that pays much more than their competitors. Overall I sometimes think the debate over inequality has been a little poisoned by the 99% - 1% rhetoric. Yes the CEO class makes ridiculous amounts more than their workers and I think this is wrong but there are large gulfs between the 95% and the 5%, the 90% and the 10%, all the way down. Focusing specifically on the wealth of C-level executives ignores a lot of other ways inequality manifests itself. Focusing on firm level inequality helps lower inequality in these other divides.

fanzhang 10y ago

I think looking at CEO-only pay is a red herring. The CEO of a company like Google might be paid a lot, but if you cut that pay to zero and redistributed to the rest of the company, the impact wouldn't be massive. To wit, the CEO of google was paid $100 million in 2015, and Google has about 50K employees, resulting in a $2K difference for everyone. Do you believe that if all corporations just reduced the pay of the top 1% of the pay grade, that within-US inequality rises would be majority eliminated? What's the evidence either way?

Sone7 10y ago
No I don't believe that. Never implied anything of the sort. You made a fair point about the number of employees, but I was careful to also mention other senior executive pay. I mentioned a host of other factors such as political corruption and rent-seeking behaviours being likely far more important factors. Jumping to the conclusion implied in your question is unfair, and might point to a bias you're walking around with, I think. Do you believe, as this article claims, that :the majority: of inequality in the US is due to how much Google and other top companies choose to pay their employees? Regardless, do you believe that this article employed convincing analysis and evidence to back up such a belief?
- fanzhang 10y ago
  I don't think that between firm inequality is the main driver of inequality within the US. (Internationally, inequality has decreased over the last 40 years). My personal belief is that the main causes are technology and globalization. I think the article looks at it in a unique perspective that is missed. Between firm inequality is a result of technology, especially technology with natural monopoly characteristics (search, social network). I don't think the article's recommendation of breaking up monopolies will reduce inequality at all. If you break Google or Facebook up, you'll get two companies with nearly isomorphic hiring and pay practices.