4 ms·

Overpaid relative to what? Your estimation of perceived value? What do you define as value? How would you even begin to empirically establish what you're saying

by dsacco 10y ago

Overpaid relative to what? Your estimation of perceived value? What do you define as value? How would you even begin to empirically establish what you're saying? Executive compensation is a construct of market consensus, not an absolute based on individual performance. The tangible value contributed by chief executive staff is one component of the compensation package, and what is valuable to the board or shareholders in aggregate may be utterly dissimilar to what you'd consider valuable. Your premise in why an executive should be paid is probably different from the premises used by those who actually choose what the executive will be paid. The difficulty in finding an appropriate candidate, the risk of their having to publicly "fall on the sword" for the company, their contributed value, their particular skills/culture match, their years of experience, their network of available connections, etc all play a part in determining the compensation. And what's more, you may not measure each of these things with the same respective weighting or definition that the company would. This is to say that you can arbitrarily say that executives as a class are overpaid, and I can arbitrarily say they're underpaid. You're free to propose a new compensation model, but for better or worse, most boards and shareholders seem fine with the status quo. Given that, it's not very productive to make a blanket statement about them being over or under-compensated if we can't establish that we're all working from the same set of premises. You'd have about as much rigor in claiming that TSLA is overvalued relative to GM. Sure, you might be right, but 1) why listen to you rather than, say Zacks and 2) what makes your model of compensation more valid, when you have to surmount the burden of not just correctness but market consensus?

RodericDay 10y ago
I'm honestly baffled every time a free market zealous believer goes around saying "nothing is unfair! the market, by definition, makes everything fair!" What is it going to take to make statements like "bosses are making too much money compared to their workers" popular again, so that people can actually mobilize and enact legislation to protect their own interests as a class? Reminds me of this little short: --- http://www.newyorker.com/humor/daily-shouts/l-p-d-libertarian-police-department http://www.newyorker.com/humor/daily-shouts/l-p-d-libertaria... I was shooting heroin and reading “The Fountainhead” in the front seat of my privately owned police cruiser when a call came in. I put a quarter in the radio to activate it. It was the chief. “Bad news, detective. We got a situation.” “What? Is the mayor trying to ban trans fats again?” “Worse. Somebody just stole four hundred and forty-seven million dollars’ worth of bitcoins.” The heroin needle practically fell out of my arm. “What kind of monster would do something like that? Bitcoins are the ultimate currency: virtual, anonymous, stateless. They represent true economic freedom, not subject to arbitrary manipulation by any government. Do we have any leads?” “Not yet. But mark my words: we’re going to figure out who did this and we’re going to take them down … provided someone pays us a fair market rate to do so.” “Easy, chief,” I said. “Any rate the market offers is, by definition, fair.” He laughed. “That’s why you’re the best I got, Lisowski. Now you get out there and find those bitcoins.” “Don’t worry,” I said. “I’m on it.” I put a quarter in the siren. Ten minutes later, I was on the scene. It was a normal office building, strangled on all sides by public sidewalks. I hopped over them and went inside. “Home Depot™ Presents the Police!®” I said, flashing my badge and my gun and a small picture of Ron Paul. “Nobody move unless you want to!” They didn’t. “Now, which one of you punks is going to pay me to investigate this crime?” No one spoke up. “Come on,” I said. “Don’t you all understand that the protection of private property is the foundation of all personal liberty?” It didn’t seem like they did. “Seriously, guys. Without a strong economic motivator, I’m just going to stand here and not solve this case. Cash is fine, but I prefer being paid in gold bullion or autographed Penn Jillette posters.” Nothing. These people were stonewalling me. It almost seemed like they didn’t care that a fortune in computer money invented to buy drugs was missing. I figured I could wait them out. I lit several cigarettes indoors. A pregnant lady coughed, and I told her that secondhand smoke is a myth. Just then, a man in glasses made a break for it. “Subway™ Eat Fresh and Freeze, Scumbag!®” I yelled. Too late. He was already out the front door. I went after him. “Stop right there!” I yelled as I ran. He was faster than me because I always try to avoid stepping on public sidewalks. Our country needs a private-sidewalk voucher system, but, thanks to the incestuous interplay between our corrupt federal government and the public-sidewalk lobby, it will never happen. I was losing him. “Listen, I’ll pay you to stop!” I yelled. “What would you consider an appropriate price point for stopping? I’ll offer you a thirteenth of an ounce of gold and a gently worn ‘Bob Barr ‘08’ extra-large long-sleeved men’s T-shirt!” He turned. In his hand was a revolver that the Constitution said he had every right to own. He fired at me and missed. I pulled my own gun, put a quarter in it, and fired back. The bullet lodged in a U.S.P.S. mailbox less than a foot from his head. I shot the mailbox again, on purpose. “All right, all right!” the man yelled, throwing down his weapon. “I give up, cop! I confess: I took the bitcoins.” “Why’d you do it?” I asked, as I slapped a pair of Oikos™ Greek Yogurt Presents Handcuffs® on the guy. “Because I was afraid.” “Afraid?” “Afraid of an economic future free from the pernicious meddling of central bankers,” he said. “I’m a central banker.” I wanted to coldcock the guy. Years ago, a central banker killed my partner. Instead, I shook my head. “Let this be a message to all your central-banker friends out on the street,” I said. “No matter how many bitcoins you steal, you’ll never take away the dream of an open society based on the principles of personal and economic freedom.” He nodded, because he knew I was right. Then he swiped his credit card to pay me for arresting him.
- wiwofone 10y ago
  They didn't say that though. They just proposed that the blanket statement is baseless. As the parent states, I could as arbitrarily state that CEO's are underpaid. They also provide further explanation on what might dictate CEO pay, factors that some people might not consider when making such blanket statements. You on the other hand provide nothing constructive to the discussion. I do not doubt that there are CEOs that are overpaid, as do I not doubt that there are those that get paid fair. Chants and overly ideological short stories aren't going to fix the problem with the former.
  - RodericDay 10y ago
    If every time someone says something as inoffensive as "CEO's are overpaid", people (who don't much care about inequality) jump and lash out and demand precision, they're just making the job of organizing and discussing that much harder. CEO's are ovepaid. It's a fact. People are increasingly comfortable just saying this. A socialist sympathizer just made a decent bid for the presidency of the USA.
yourapostasy 10y ago
> Overpaid relative to what? Your estimation of perceived value? What do you define as value? How would you even begin to empirically establish what you're saying? Some research has been trying to answer these questions, for example the MSCI study [1]. Anyone can play around with the collected data of public companies, for example the WSJ data model is kind of nice [2]. As a passive index small-time investor, this is of keen interest to me. My theory is passive indexing can potentially be supplemented in the future by specific value-oriented long-term Buffett-style investments in companies that establish a track record of promulgating a culture that successfully selects CEO's who deliver sustainable (5+ years) returns to shareholders, and CEO compensation linked tightly to such results is one of the signaling indicators I look for to draw attention to such possible organizations. Thus far in the US, I see very few companies who can pull this off, and unfortunately, they are all private, and precise returns are fuzzier than public companies and only theoretical. I do not need five sigma results to discern actionable data. But the consistently relatively poor performance of CEO compensation to sustainable shareholder returns is one of my confirmation signals that passive broad indexing still works (like some fellow passive indexers, I believe under some specific conditions, the strategy will not work). If price discovery is broken in the CEO compensation market, then I'm better off ignoring it until it works. Definitely YMMV. My style is not your style. Investing isn't my day job, and it isn't even my hobby; it is simply a facet of modern current life that I carry out as a duty, like flossing. I select for a strategy that can return results I can relatively count upon over long (20+ year) periods, with very little personal time (<80 hours per year) required. So while I am happy to listen to Bloomberg for example, I'm not so keen on a hands-on active investment to micromanage a portfolio. [1] http://chiefexecutive.net/higher-ceo-pay-produce-better-company-performance/ http://chiefexecutive.net/higher-ceo-pay-produce-better-comp... [2] http://graphics.wsj.com/ceopay-2015/ http://graphics.wsj.com/ceopay-2015/
valuearb 10y ago
There is little free market influence on public CEO salaries. Most CEOs can heavily influence board composition, as well as reward board members who please them. This divorces their salaries from market prices.

by dsacco 10y ago

RodericDay 10y ago

I'm honestly baffled every time a free market zealous believer goes around saying "nothing is unfair! the market, by definition, makes everything fair!" What is it going to take to make statements like "bosses are making too much money compared to their workers" popular again, so that people can actually mobilize and enact legislation to protect their own interests as a class? Reminds me of this little short: --- http://www.newyorker.com/humor/daily-shouts/l-p-d-libertarian-police-department http://www.newyorker.com/humor/daily-shouts/l-p-d-libertaria... I was shooting heroin and reading “The Fountainhead” in the front seat of my privately owned police cruiser when a call came in. I put a quarter in the radio to activate it. It was the chief. “Bad news, detective. We got a situation.” “What? Is the mayor trying to ban trans fats again?” “Worse. Somebody just stole four hundred and forty-seven million dollars’ worth of bitcoins.” The heroin needle practically fell out of my arm. “What kind of monster would do something like that? Bitcoins are the ultimate currency: virtual, anonymous, stateless. They represent true economic freedom, not subject to arbitrary manipulation by any government. Do we have any leads?” “Not yet. But mark my words: we’re going to figure out who did this and we’re going to take them down … provided someone pays us a fair market rate to do so.” “Easy, chief,” I said. “Any rate the market offers is, by definition, fair.” He laughed. “That’s why you’re the best I got, Lisowski. Now you get out there and find those bitcoins.” “Don’t worry,” I said. “I’m on it.” I put a quarter in the siren. Ten minutes later, I was on the scene. It was a normal office building, strangled on all sides by public sidewalks. I hopped over them and went inside. “Home Depot™ Presents the Police!®” I said, flashing my badge and my gun and a small picture of Ron Paul. “Nobody move unless you want to!” They didn’t. “Now, which one of you punks is going to pay me to investigate this crime?” No one spoke up. “Come on,” I said. “Don’t you all understand that the protection of private property is the foundation of all personal liberty?” It didn’t seem like they did. “Seriously, guys. Without a strong economic motivator, I’m just going to stand here and not solve this case. Cash is fine, but I prefer being paid in gold bullion or autographed Penn Jillette posters.” Nothing. These people were stonewalling me. It almost seemed like they didn’t care that a fortune in computer money invented to buy drugs was missing. I figured I could wait them out. I lit several cigarettes indoors. A pregnant lady coughed, and I told her that secondhand smoke is a myth. Just then, a man in glasses made a break for it. “Subway™ Eat Fresh and Freeze, Scumbag!®” I yelled. Too late. He was already out the front door. I went after him. “Stop right there!” I yelled as I ran. He was faster than me because I always try to avoid stepping on public sidewalks. Our country needs a private-sidewalk voucher system, but, thanks to the incestuous interplay between our corrupt federal government and the public-sidewalk lobby, it will never happen. I was losing him. “Listen, I’ll pay you to stop!” I yelled. “What would you consider an appropriate price point for stopping? I’ll offer you a thirteenth of an ounce of gold and a gently worn ‘Bob Barr ‘08’ extra-large long-sleeved men’s T-shirt!” He turned. In his hand was a revolver that the Constitution said he had every right to own. He fired at me and missed. I pulled my own gun, put a quarter in it, and fired back. The bullet lodged in a U.S.P.S. mailbox less than a foot from his head. I shot the mailbox again, on purpose. “All right, all right!” the man yelled, throwing down his weapon. “I give up, cop! I confess: I took the bitcoins.” “Why’d you do it?” I asked, as I slapped a pair of Oikos™ Greek Yogurt Presents Handcuffs® on the guy. “Because I was afraid.” “Afraid?” “Afraid of an economic future free from the pernicious meddling of central bankers,” he said. “I’m a central banker.” I wanted to coldcock the guy. Years ago, a central banker killed my partner. Instead, I shook my head. “Let this be a message to all your central-banker friends out on the street,” I said. “No matter how many bitcoins you steal, you’ll never take away the dream of an open society based on the principles of personal and economic freedom.” He nodded, because he knew I was right. Then he swiped his credit card to pay me for arresting him.

wiwofone 10y ago
They didn't say that though. They just proposed that the blanket statement is baseless. As the parent states, I could as arbitrarily state that CEO's are underpaid. They also provide further explanation on what might dictate CEO pay, factors that some people might not consider when making such blanket statements. You on the other hand provide nothing constructive to the discussion. I do not doubt that there are CEOs that are overpaid, as do I not doubt that there are those that get paid fair. Chants and overly ideological short stories aren't going to fix the problem with the former.
- RodericDay 10y ago
  If every time someone says something as inoffensive as "CEO's are overpaid", people (who don't much care about inequality) jump and lash out and demand precision, they're just making the job of organizing and discussing that much harder. CEO's are ovepaid. It's a fact. People are increasingly comfortable just saying this. A socialist sympathizer just made a decent bid for the presidency of the USA.

yourapostasy 10y ago

> Overpaid relative to what? Your estimation of perceived value? What do you define as value? How would you even begin to empirically establish what you're saying? Some research has been trying to answer these questions, for example the MSCI study [1]. Anyone can play around with the collected data of public companies, for example the WSJ data model is kind of nice [2]. As a passive index small-time investor, this is of keen interest to me. My theory is passive indexing can potentially be supplemented in the future by specific value-oriented long-term Buffett-style investments in companies that establish a track record of promulgating a culture that successfully selects CEO's who deliver sustainable (5+ years) returns to shareholders, and CEO compensation linked tightly to such results is one of the signaling indicators I look for to draw attention to such possible organizations. Thus far in the US, I see very few companies who can pull this off, and unfortunately, they are all private, and precise returns are fuzzier than public companies and only theoretical. I do not need five sigma results to discern actionable data. But the consistently relatively poor performance of CEO compensation to sustainable shareholder returns is one of my confirmation signals that passive broad indexing still works (like some fellow passive indexers, I believe under some specific conditions, the strategy will not work). If price discovery is broken in the CEO compensation market, then I'm better off ignoring it until it works. Definitely YMMV. My style is not your style. Investing isn't my day job, and it isn't even my hobby; it is simply a facet of modern current life that I carry out as a duty, like flossing. I select for a strategy that can return results I can relatively count upon over long (20+ year) periods, with very little personal time (<80 hours per year) required. So while I am happy to listen to Bloomberg for example, I'm not so keen on a hands-on active investment to micromanage a portfolio. [1] http://chiefexecutive.net/higher-ceo-pay-produce-better-company-performance/ http://chiefexecutive.net/higher-ceo-pay-produce-better-comp... [2] http://graphics.wsj.com/ceopay-2015/ http://graphics.wsj.com/ceopay-2015/

valuearb 10y ago

There is little free market influence on public CEO salaries. Most CEOs can heavily influence board composition, as well as reward board members who please them. This divorces their salaries from market prices.