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CEO compensation has grown 940% since 1978
- orf 7y agoBut that money will trickle down to the workers ... right? Right??
- vernie 7y ago"Actually this is good."
- vernie 7y agohttps://news.ycombinator.com/item?id=20707758 https://news.ycombinator.com/item?id=20707758
- vxxzy 7y agoI've read that since CEOs are appointed by a board, and since CEO pay is public knowledge, that Boards don't want to "look bad", that they've "picked the right person for the job". They only put in "winners" - and you don't pay a winner less than the "known market rate". This has the affect of the "average" moving up. Is this really a legitimate reason for the increase in CEO compensation?
- devoply 7y agoDoes any person deserve a 1000% more just because of their position?
- mars4rp 7y agoI go a level deeper, does any person working in the same company deserve 1000x more compensation than average worker?
- vonholstein 7y agoLogically, shouldn't the compensation for a worker be a function of both leverage and risk? CEOs have enormous leverage to affect change in their company, with proportionate increase in company returns. An average worker or even an excellent one has fewer opportunities, and even then influence is usually limited to a single team or product. An example of leverage would be, investing $x million in product line x instead of y. While anyone theoretically can make this decision, the larger $x is the more you want someone owning this who has made these type of decisions before. Which requires someone who has progressively taken more risks in their career and made the right calls.
- Kaveren 7y agoIt is completely possible to be worth 1,000x more than the average worker in your company. Just because many (if not most) CEOs don't deserve this doesn't at all, does not mean that you can definitively say that nobody does. Really awful rhetoric (from anti-capitalists) I hear is that nobody works 1,000x times as long or as hard as the average worker. Value is not manifested in how long or how hard you work. I think it's part of a wider worldview that doesn't believe that talent is very impactful, and in favor of cooperation rather than competition.
- jachee 7y agoTalent is merely applied luck.
- Kaveren 7y agoI don't know how you can possibly believe this. Do you really believe that Terry Tao got lucky, and just worked way harder than everyone else? Same can be applied to business executives.
- jachee 7y agoSure. His luck started by being born to a pediatrician and a math/physics teacher, rather than—say a couple of itenerant agricultural workers.
- Kaveren 7y agoAnd yet there are so many more people who came from as fortunate or more fortunate means, including those who went into mathematics, but are not as talented as them. Michael Phelps is not just a product of luck, either. You could train your entire life and not be as good a swimmer as him. You'd have to redefine luck to include genetics.
- jachee 7y agoGenetics are 100% luck. You can't choose your parents.
- Aunche 7y agoJK Rowling sold hundreds of millions of books. Like every other author, she made a few dollars a book. It's completely fair that she is a billionaire. You can say the same thing about CEOs. Jeff Bezos had a part of play in every Amazon package shipped. Virtually every phone in the world was inspired by the designs of Steve Jobs.
- charlesdm 7y agoThe short answer to that question is yes. A good CEO will invest $200 million in a good asset (i.e. factory), resulting in a great return for the organisation. A bad CEO will invest $200 million in a bad asset (i.e. Tumblr, $1.1bn -> $3m) and lose their shirt. Say the decision of the good CEO makes the company $100m. How much is he worth? A lot.
- devoply 7y agoYou invest in assets using tools like NPV. CEOs don't have crystal balls. Some might have a gut instinct, but then they are no different than your gambling stock trader... who might be up today and down tomorrow. It's a function of luck, not a function of ability. You have founders like Stuart Butterfield who can claim over 2-3 successes to make products worth billions. I doubt most CEOs could do the same thing.
- charlesdm 7y agoYou're basically saying good investors don't exist and everything is priced to perfection? This could range from investing in equipment, to expanding in a new business line, to acquiring a competitor and realising synergies that someone else would not have noticed. Putting 1 and 1 together in specific business focus areas might result in 3 for the well trained eye or the smart mind. Plenty of people are good at investing (understanding how it all ties together, and understanding how they take risk) outside of the public markets. And plenty are horrible (i.e. mom and pop investing in the mutual funds of your bank).
- rootusrootus 7y ago> saying good investors don't exist I am probably misremembering many key details here, but didn't Bogle make a pretty good case for this?
- RobertDeNiro 7y agoSounds like it should be entirely commission based ? I don't think anyone sees an issue if you get a share of the amount you generated, but getting large salary without having achieved anything seems a bit unreasonable.
- simplecomplex 7y agoNobody deserves anything. CEOs get paid because they negotiated the pay and people are willing to pay them that. That’s a fact not an economic theory.
- devoply 7y agoBorn with a golden spoon into a community willing to pay for their status.
- charlesdm 7y agoClearly not someone who thinks in terms of value creation. If I can add $20m of profit to the bottom line of an organisation, then there is nothing wrong with capturing some of that value, no? Call it CEO or entrepreneur, at the end of the day, it's the same job, with the same end result.
- Catsandkites 7y agoOver my total career I have probably helped safe guard millions upon millions of dollars. How much value did that create or protect? How much of that was I allowed to capture compared to the CEO? A fraction.
- dv_dt 7y agoSort of like if the serfs consent by not revolting, then the aristocrats must have a mandate to rule?
- doubleunplussed 7y agoSort of. I forget where I read it, but some rich guy wrote an article along the lines of "hey other rich guys, we gotta deal with this inequality thing, otherwise the pitchforks are coming for us"
- dv_dt 7y ago
- Trias11 7y agoIn business you don't get what you deserve. You get what you negotiate.
- dcolkitt 7y agoI think a lot of people get hung up on the idea that income is equivalent to dessert. Prices have nothing to do with who "deserves" what. They are merely a way to allow markets to clear supply and demand. This includes salaries, which after all are just the price of labor. Let's take the human element out of it. Do diamond "deserve" to be a million times more expensive than water? Water's essential for life, whereas diamonds are just decorations. Yet what would happen if we mandated that water must be priced higher than diamonds? It would wreak havoc. At the end of the day, markets are a social technology. The only one that humans have for effective large-scale coordination of economic activity. It would be great if there was a functional alternative system, but it simply doesn't exist. The enormous increases in material living standards that humanity has experienced over the past 200 years is only possible because we let markets determine supply and demand. (With a caveat for trained economists to design targeted interventions concerning well-studied and classified examples of market failures.) If you're concerned about inequality, the correct way to deal with it is with a robust welfare state and economist-designed redistribution schemes. Let markets decide price, and balance supply and demand. Then fix it on the backend with a welfare state. Don't mess with the machinery that literally feeds us.
- doubleunplussed 7y agoIt's very frustrating that less distortionary, plain old redistribution is so much less politically palatable than corporate welfare and random subsidies and taxes. I want a wealth tax funding a UBI, tuned to whatever level is necessary to stop inequality from growing, and for markets to do the rest. (There are market failures that benefit from government intervention too, but I'm just talking about the plan to address inequality, which has no reason to pick on specific industries or practices)
- paulgb 7y agoThis is sometimes called the Lake Wobegon effect. The idea is that the pay of a CEO compared to their peers is a signal of the quality of a CEO, so everyone wants to pay their CEO above average, creating a vicious cycle of upward CEO salaries. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=966332 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=966332 I'm not sure how true it is, but the game theory makes sense to me. The alternative, that CEOs are correctly priced by the market but that correct price has grown by 10x in half a century, actually seems less believable to me.
- leetcrew 7y agothere's a third alternative: CEOs are currently priced by the market but were underpriced in 1978. not sure I believe that, but it's a possibility.
- knodi123 7y ago> This is sometimes called the Lake Wobegon effect. Due to a humorous quote from Garrison Keillor's Prairie Home Companion show: "Well, that's the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average."
- imtringued 7y agoIt is possible that we now have bigger companies that can afford to pay their CEOs more.
- dv_dt 7y agoAlso note that the board is very often composed of current/past/future CEOs of other companies.
- charlesdm 7y agoAnd generally the shareholder(s).. ?
- dv_dt 7y agoOn the board? Not really unless they're activist investors with some substantial slice of the total shares. The vast majority of shareholders do not actively participate in the compensation decisions of the CEO except perhaps at an essentially superficial approval of the compensation package. At best one might say a vote against would be to sell the shares, but if public companies broadly all overcompensate their CEOs then it's this tension between leaving most of the market or investing in companies that might make money despite overpaying.
- methodover 7y agoWe should require employee representation on Board of Directors. Germany requires half the board to be represented by the company's employees: https://en.wikipedia.org/wiki/Codetermination_in_Germany https://en.wikipedia.org/wiki/Codetermination_in_Germany I believe German CEOs typically make around 1/3rd of what American CEOs make (having trouble finding the source on that, but that's the number I've seen cited before), possibly in part due to these laws.
- zajio1am 7y agoNote that there is a difference in corporate management between USA and many european countries, where there is two boards: https://en.wikipedia.org/wiki/Dual_board https://en.wikipedia.org/wiki/Dual_board The requirement for half representatives for company's employees is for (secondary) supervisory board of directors, not for (primary) management board.
- 7y ago
- deelowe 7y agoIs this all simply the side effect of having transparent pay for executives? If worker pay was similarly transparent, if companies were required to post pay ranges on all job postings, we would see a similar pattern?
- axaxs 7y agoThis, while potentially true, is ridiculous. I'm just going to pick a big company, ATT (I have no services or interactions with this company). If they believe in this effect of paying more to get the best, then why not the workers? Would not paying more for better workers ensure better end results? I want my cell towers and fiber being serviced and programmed by the best, after-all. Oh what's that, they don't give two shits about hiring the best, and just want it done cheaply? Seems a one way street to me...
- goatlover 7y agoSo either CEOs are 78 times more valuable today than average workers compared to 1978, or the game has been rigged in their favor.
- MiroF 7y agoThink you meant 10
- koolba 7y agoOr they were undervalued in 1978.
- refurb 7y agoI'm not sure why you think a person's compensation is related to the value they add. It's supply and demand - you can add very little value, but be an extremely scarce commodity and command a high wage. Same with the inverse - adding a lot of value, but there are too many of you, so your wage is low.
- MiroF 7y agoYes, but supply and demand still doesn't permit your wage to outstrip your value. No reason to get a CEO at the margin if they are not valuable (even if CEOs are in very short supply)
- nothrabannosir 7y agoPlanet Money has a relevant episode on this: https://www.npr.org/sections/money/2016/02/05/465747726/-682-when-ceo-pay-exploded?t=1565891255639 https://www.npr.org/sections/money/2016/02/05/465747726/-682... Recommended, Planet Money is great.
- tabtab 7y agoWhat really chaps my hide is that failing CEO's still get large benefits of one form or another. If a regular Joe fails, they usually get the boot and little else. If money is incentive to make people more productive, why pay them to fail? Is meritocracy only for the poor? Some co's wised up to this and pay mostly in company stock. But CEO's then initiate buy-back programs to jack up the stock price.
- harryh 7y agoI CEO of a large public company who fails is likely to end up with a ruined career. Exit packages compensate for that risk.
- MiroF 7y agoBut that's not how it works at all? They almost always get a very good C-suite job after and remain on boards with influence
- dajohnson89 7y agoAverage joe getting terminated from a job will not receive references from that employer. References are critical part of most professional interview process.
- rootusrootus 7y agoDoes that really happen? The CEO of my company left his last company in disgrace. His 'ruined career' means he makes 15M a year instead of 20M. I need that kind of 'ruined career'
- scruple 7y agoSame here. In fact, the very Googleable person that I call CEO today took > $5 million in severance from the last 2 companies he fucked up. I've been hearing this story my entire life, now I have the privilege to be old enough to see it first hand. What a treat.
- dragonwriter 7y ago
- RcouF1uZ4gsC 7y agoI would actually be OK, with the CEO/worker pay discrepancy if the CEO was held criminally responsible for company wide illegal behavior. I would like a rule that the CEO is criminally responsible for any company-wide illegal behavior. Even if they claim that they did not know, at their pay scale, it was their responsibility to know and thus they are criminally negligent. Under this rule, the WellsFargo CEO would be a convicted felon and had a prison sentence. This rule would do wonders to clean up illegal activity. Right now, it is in the CEO's interest to put incentives in place that can only be achieved via illegal behavior and then turn a blind eye to the behavior as long as the stock price goes up. This would change that and force them to actively try to keep illegal behavior from happening, since they now face prison time if it occurs.
- pembrook 7y agoThis makes no sense. If you read Matt Levine, you know that literally everything a public company does can be considered securities fraud. It'd be impossible to run a public company if this were the case.
- qqqwerty 7y agoThe OP is suggesting that CEO's face harsher penalties when criminal activity, significant enough to be investigated and prosecuted, is discovered. If 'everything is securities fraud', and those frauds are not worthy of an investigation currently, then those companies would not be impacted by the suggestion. But they would have an incentive to be more diligent, as a precautionary measure.
- dahdum 7y agoI would expect compensation to rise substantially under this rule to account for the new risk of the position, from the Fortune 50 all the way down.
- nostrademons 7y agoI would expect businesses to split up. It's physically impossible to keep 100,000 people from ever committing crimes. (By comparison, that's a mid-sized city. How busy are the police forces in a mid-sized city on a typical day, and how many crimes go uncaught?) You'd likely see one CEO after another go to jail until there's nobody with an ego big enough to take the position, at which point the company splits up until it reaches manageable chunks. ...which may not be a bad thing. Lock up all the sociopaths and narcissists, and improve competition too!
- nv-vn 7y ago>Stock options make up a big part of CEO pay packages, and the conservative measure values the options when granted, versus when cashed in, or “realized.” The "conservative" measure is the only correct way to measure here. Using realized gains makes no sense because that's not the value the company paid out. That's like saying you invested your salary and the gains are part of your compensation package.
- turk73 7y agoNot just CEOs. We had a terrible Superintendent of Schools in a nearby district and to fire her the contract required they pay her $500,000. So utter incompetence is actually rewarded handsomely.
- pembrook 7y agoThis is true, but the overall reason CEO pay has ballooned is a dramatic cultural shift in Corporate America during 1980s towards stock options/grants for executives. Meanwhile corporate earnings have not grown 940% faster than they did in the 80s. Funny story, for a while, corporate America actually believed that equity pay was "free" and didn't realize that shareholders were paying for it. The reason worker pay hasn't kept up has a lot to do with simple stock market compounding. The stock market goes up 9.8% a year on average--regardless of executive skill. Even if worker salaries keep pace with inflation (which they don't), they would only go up 2-3% per year. Further reading, this article from II: https://www.institutionalinvestor.com/article/b1db3jy3201d38/The-MBA-Myth-and-the-Cult-of-the-CEO https://www.institutionalinvestor.com/article/b1db3jy3201d38... Also, highly recommend this newsletter: https://eomail1.com/preview?p=d9e18eae-6673-11e9-9307-06b4694bee2a&pt=campaign&t=1556101007&s=fad440ca5338bc1a92a229534c3562917c431f245224f98024e530365a4868e5 https://eomail1.com/preview?p=d9e18eae-6673-11e9-9307-06b469... This planet money episode: https://www.npr.org/sections/money/2018/06/22/622646316/episode-682-when-ceo-pay-exploded https://www.npr.org/sections/money/2018/06/22/622646316/epis...
- sokoloff 7y ago> Even if worker salaries keep pace with inflation (which they don't), they would only go up 2-3% per year. It seems to me that they do slightly better than keep pace: https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us... Or do better than that (albeit over a shorter timeframe): https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N
- xutopia 7y agoTypical workers increased by about 10% in the same time and minimum wage workers decreased by 5.5%. Something is rigged. https://memepoliceman.com/misleading-with-inflation-since-1978/ https://memepoliceman.com/misleading-with-inflation-since-19...
- harryh 7y agoGlobalization simultaneously brought competition for many workers and allowed for large multinational companies with the ability to pay their CEOs more. Is that rigged or is that just change?
- ajross 7y agoChanges to minimum wage levels are policy, not competition. The majority of these positions are things like service jobs not subject to global workforces. Basically: you can reasonably argue that a US textile job might pay less today because of competition from abroad. You can't say that about burger flipping or fruit picking. Those jobs are payed less because we deliberately dropped (in real money terms) the legally mandated floor on the salary.
- twblalock 7y ago> The majority of these positions are things like service jobs not subject to global workforces. They are subject to automation. If you make service labor more expensive than robots, you'll be buying your Big Macs from robots instead of human cashiers.
- ajross 7y agoTrivially disproven by the handful of high minimum wage metropolitain areas. If New Yorker cooks aren't getting displaced at $15/hour, I think Missisippi or Wyoming employees probably have safe jobs too. There's always an excuse. Yet real wages continue to drop.
- 7y ago
- Trias11 7y agoSummary of this (typical socialist) nonsense: When rich are too rich and poor are too poor - the solution is to make rich more poor. Nothing is said about making poor more rich.
- blueline 7y ago>the solution is to make rich more poor. Nothing is said about making poor more rich. uhh... im pretty sure the strawman you're attacking would advocate for better compensation for the poor
- methodover 7y agoPlenty is said about it, you may have not been paying attention. Take some money from everyone who can afford it, and more from the rich than everyone else. Redistribute it into education, roads, healthcare, food, research, national defense, police, and other things that benefit society as a whole (including the rich). You might want to do some research on what socialism actually means, because though it includes the above, it is not defined by the above. You can tax and spend that money on social (and other) services, while retaining a capitalist economy. Which is what we and every other developed nation does. Socialism is state control of the means of production, which though it does happen with certain industries in some countries (usually energy related), it's pretty rare.
- Trias11 7y agoI lived in socialist society for 30 yrs and I know what it means and what are the consequences for people. What you learn about it by flipping TV remote and checking your favorite social media is not what you'll actually be getting at the end. And it's not going to be pretty.
- dragonwriter 7y ago> I lived in socialist society for 30 yrs and I know what it means and what are the consequences for people. The only organized societies (at a state level) that have called themselves “socialist” are Leninist or descendants of Leninism; Leninism was (viewed generously) an attempt to adapt Marxist Communism to bypass the necessary (in Marx’s view) development through mature capitalism on which the socialist society, the next stage in the evolution to the communist end-state. Part of that adaptation is moving the development of a broad-based educated distributed ruling class from a prerequisite to the socialist transition to something which was to be built afterwards, with a narrow educated and ideologically pure vanguard assuming authoritative direction of the movement in the interim. Modern Western forms of socialism, whether rooted in or identifying as Marxist or not (and many of them are neither) almost never are ideologically rooted in Leninism—for which there is no need, even if it worked well in its motivating case, in the developed world—or its descendants (with the exception that some of the far fringes are Maoist, but they are just a fragment of the fringes) and tend particularly to strongly reject vanguardism and authoritarianism in favor of more robust development of the democratic institutions of liberal democratic states. Western socialism is a continuation of the long arc of change in developed Western economies since Marx first described capitalism, not a recreation of the Leninists rejection of development through capitalism. Whether Leninism is genuinely a socialism is a matter of fairly heated debate among self-styled socialists, but it is very clearly a very different thing than modern Western socialism, and it'd outcomes have limited, if any, value in assessing the merits of modern Western socialisms.
- Glyptodon 7y agoI think the paradox is that having a very good CEO hypothetically is worth a premium for businesses with massive revenues: Where even the square root of a profit delta relative to a 1% less effective CEO is huge, it makes sense that it's worth a nonlinear increase in pay to get someone who's 1% better. But simultaneously people are very unlikely to correctly identify which person of a group of competent candidates actually is the best. It's just that marketing and confirmation bias are good enough to cover it up.
- JustSomeNobody 7y agoExcept it has been shown that CEO pay doesn't correlate to better performance.
- Glyptodon 7y agoI'm not saying it does correlates, I'm saying that the idea that it would be worth it to pay a lot more for small % increases in performance makes sense, so people pay like they can pick winners regardless.
- deleted 7y ago[deleted]
- lordnacho 7y agoOne thing you always hear is "if the CEO makes a 1% difference, that's another 100M in the bank". What people never mention is that it is very hard to separate skill from noise. How do you know what would have happened if some average guy had held the seat? The other one is risk. How do you judge whether the CEO was taking a good tradeoff between risk and reward?
- liquidise 7y agoCumulative inflation rates over the same period[1]: 293.5% Nominal GDP growth over same period[2]: 875% This study appears to focus on CEO compensation instead of CEO salary, which is an important distinction as it means large CEO compensation packages are often based on stock increase and not on paychecks. I'm all for people being paid more, so the issue to me is less about CEO compensation and more about worker compensation. Many of us in tech have seen considerable wage growth in the last decade. Unskilled workers less so. Which is honestly the real concern: as automation gets more mature and as unskilled labor gets more expensive, we could see a stark displacement of workers in america and abroad. I don't know that modern society is arranged in a way that can deal with these shifts effectively. 1. https://www.usinflationcalculator.com/ https://www.usinflationcalculator.com/ 2. https://www.thebalance.com/us-gdp-by-year-3305543 https://www.thebalance.com/us-gdp-by-year-3305543
- avocado4 7y agoSounds like a good time to start a company.
- kevstev 7y agoYou hear a lot about successful companies, and the numerous quantities of startups that don't make it, but you don't really hear much about founders of companies that don't make it. Do they typically get "regular" jobs? It would be interesting to see where they end up a few years after the failure.
- chapium 7y agoWhat is limiting the supply of CEOs? I know some like to point out CEO pay as a problem, but isn't this just basic economics?
- ryanmercer 7y agoI mean it's only fair that the Chairman and CEO of my parent company made 16.6 million in compensation in 2018, 474x (four hundred and seventy four) what I made. I'd just hate to be our new President and COO, he only has a base salary of 955 thousand. And for some reason people wonder why I'm always asking if it's time to go home, if it's time to die, and why several people in the office several times a week mention how many years or weeks they have left until they 'get paroled' (can retire and go find another job). It couldn't possibly be because my CEO made 20-23x what I need to retire last year.
- hackeraccount 7y agoHow much has compensation grown for professional basketball players - or any sort of professional sport - over the time period? Or Doctors?
- Medicalidiot 7y agoPhysicians are grossly underpaid for the level of education they have to go through, the amount of work that is done weekly, and the high stakes nature of their job. I'm biased as a medical student though. Fun fact: ~5% of health care costs come from physician salaries, 8% is from nurses.
- collinstom 7y agoDo you have any data on how many physicians there are, vs. the number of nurses? According to the Bureau of Labor Statistics, there are nearly 3m [1] nurses, and less than 1m [2] physicians. Physicians still, categorically, are more expensive than nurses. [1] https://www.bls.gov/oes/current/oes291141.htm https://www.bls.gov/oes/current/oes291141.htm [2] https://www.bls.gov/ooh/healthcare/physicians-and-surgeons.htm https://www.bls.gov/ooh/healthcare/physicians-and-surgeons.h...
- hackeraccount 7y agoCompare a Doctor to an Airline pilot - especially a regional carrier. A Doctor screws up and they can kill maybe 1 person?
- lliamander 7y agoAh yes, but doctors usually survive their own screw ups.
- JustSomeNobody 7y agoThe reason I think this is not good is that CEOs are out of touch with what losing a job would feel like to most of their employees. They can afford to take risks or just become complacent. What happens, though, is that employees lose their jobs and struggle because we all know that's the first tool in the CEO belt; cut jobs. I think if wages weren't so inflated companies might be better run because even the CEO has skin in the game.
- ryanmercer 7y ago>The reason I think this is not good is that CEOs are out of touch with what losing a job would feel like to most of their employees. A million times this. My CEO took 16.6 million in compensation last year, I can retire 20-24x with that (if it were net not gross, hard telling how much in taxes he paid)
- chrisco255 7y agoI've got a problem with how these figures are calculated. For example "CEO-to-worker" compensation is a relative figure that is individual to each company. A company like Google, that operates a high margin, high revenue business, can afford to pay its employees $200K+ a year on average, whereas a company like Wal-Mart, which has a low margin, high revenue business with millions of employees, CAN NOT ever match Google's compensation. Even though they are both complex businesses with multi-national operations and high revenue in the hundreds of billions of dollars. There's other compounding factors. The business landscape has changed in many ways since 1978. The late 70s and 80s were a time when global trade was rapidly expanding. International corporations outsourced a lot of labor to China, India, and many other lower cost labor centers during this time. As as result, total manufacturing employment has declined: from a high of nearly 20 million employees in 1979 to just 12.8 million in 2019 [1]. In 1978, the U.S. labor force was about 100 million and today it's 163 million. So not only have the absolute number of manufacturing jobs decreased (as offshoring increased), but the relative percentage has dropped dramatically for U.S. workers...from nearly 20% in 1978 to just 7.8% [2]. So I would rather look at CEO pay relative to profit-per-employee figures or something else that's far more relevant. Further compounding factors are the tax code and how that has changed dramatically since the 1986 Tax Reform Act. The act lowered tax rates but completely eliminated tax shelters and restricted personal expenses (which executives used to take egregious advantage of). The number of write offs an individual and a corporation could claim prior to 1986 was dramatic. Consumer credit card interest was deductible! Auto interest? Deductible. Empty commercial office buildings? Could be deducted over a 15 year accelerated depreciation schedule [4][5]. Caused all sorts of bad signals in the economy and contributed to the Savings & Loan crisis. At any rate, it is very, very dubious to compare businesses of 2019 to businesses of 1978. The variables in all vectors have shifted dramatically, and an over-simplified look at complex multi-variable systems is unfortunately, rather rampant today. [1] https://fred.stlouisfed.org/series/MANEMP https://fred.stlouisfed.org/series/MANEMP [2] http://www.dlt.ri.gov/lmi/laus/us/usadj.htm http://www.dlt.ri.gov/lmi/laus/us/usadj.htm [3] https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986 https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986 [4] https://www.fdic.gov/bank/historical/history/137_165.pdf https://www.fdic.gov/bank/historical/history/137_165.pdf [5] https://library.cqpress.com/cqalmanac/document.php?id=cqal86-1149342 https://library.cqpress.com/cqalmanac/document.php?id=cqal86...
- outlace 7y agoI wonder if there is a market explanation for this rather than "CEOs are more evil and greedy now" that seems to be the dominant talking point. Perhaps running a company now requires more skills than it did the 1970s and before and yet there are not proportionally more skilled people. Just like software engineers are paid a lot because it's a high skilled job and the proportion of people with the talent and skill to be a software engineer probably hasn't increased correspondingly.
- Areading314 7y agoShareholders are ridiculously beholden to management during this era, and it almost defeats the purpose of public markets. There is a lot of evidence that shows that paying ungodly amounts of money to a CEO does little for company performance, but boards still allow it to happen. I almost think there needs to be a way for shareholders to have a bigger say, perhaps a social network for shareholders, where opinions can form on best steps for keeping management accountable, and not wasting money on executive comp.
- zerd 7y agoNPR Planet Money has a good episode on this: https://www.npr.org/sections/money/2018/06/22/622646316/episode-682-when-ceo-pay-exploded?t=1565899867325 https://www.npr.org/sections/money/2018/06/22/622646316/epis...
- cperciva 7y agoFine print: The compensation of CEOs at the largest 350 (publicly traded?) companies is 940% higher than the compensation of CEOs at the largest 350 companies 40 years ago. Guess what? The largest 350 companies are much bigger than the largest 350 companies were 40 years ago. This is an apples-to-oranges comparison.
- xster 7y agoIf only the workers at those 'much bigger' 350 companies would also have a compensation increase...
- twoodfin 7y agoTo emphasize your point, the first $1M/year sports contract in the U.S. was in 1978 for an MLB player[1]. That's about $4M after inflation, for the highest contract in the nation. Today, the top end of MLB contracts are around $30M/year[2], NFL top end contracts are at similar values. That's right around the same growth. [1] https://www.firmex.com/thedealroom/when-did-athletes-start-getting-rich/ https://www.firmex.com/thedealroom/when-did-athletes-start-g... [2] https://www.mlb.com/news/largest-contracts-in-mlb-history-c300060780 https://www.mlb.com/news/largest-contracts-in-mlb-history-c3...
- georgeecollins 7y agoInteresting point: The market cap of the S&P 500 has grown by 3100% since 1978. Maybe through growth and consolidation (there are fewer public companies in general, but obviously the S&P is always the 500 top ones) the average CEO is in charge of a larger company? https://www.multpl.com/s-p-500-historical-prices/table/by-year https://www.multpl.com/s-p-500-historical-prices/table/by-ye...
- AcerbicZero 7y agoCEO pay, as a metric, is somewhere between a misunderstanding of the problem, and a red-herring. Taking the top "350" companies makes this particular example lean towards the red-herring column. Companies are larger than ever, have access to financial instruments that are more capable than most small nation states, and "grow" by eating their competition left and right. There are numerous other factors in play, many of which I likely don't know. All that combines to create an environment where CEO pay out paces "reasonable" metrics, and each of those items needs to have its own nuanced discussion to even begin to make changes. I believe we legislated our way into this situation, and the current political landscape leaves little hope for legislating (or de-legislating) our way out of it.
- londons_explore 7y agoSupply and demand suggests that either there must be a very limited supply of CEO's, or there is a huge demand for them. Which is it?
- amai 7y agoMeanwhile in Germany the relation between highest and lowest salary in a company is on average at 1:50. The maximum is 1:97,see https://m.spiegel.de/wirtschaft/unternehmen/volkswagen-wo-vorstaende-das-97-fache-ihrer-mitarbeiter-verdienen-a-1271793.html https://m.spiegel.de/wirtschaft/unternehmen/volkswagen-wo-vo...
- chiasson 7y agoI am not agreeing or disagreeing with the conclusions, but I find the statistics as used in the article to be weak. They had a whole article to convince me and I still don't have confidence in whether there is a problem or not. A few immediate thoughts: Comparing the top 350 firms in 1978 and 2019 is not a fair comparison. There are more and bigger firms today. It is like comparing the ten fastest sprinters at a school of 10,000 and a school of 100. No one will be surprised to find that a bigger pool produces bigger numbers. Average is not a statistically robust metric. A couple of crazy outliers could skew the statistic dramatically, and may not actually give us a clear idea of the typical case. It is not clear exactly what metric the author uses for "reasonableness" of CEO compensation. Is it reasonable for the compensation to be proportional to the size of the organization? Was the 30-1 ratio reasonable to begin with? Should everybody have exactly the same salary? Without some kind of standard or reasoning here, you can't claim that any salary is too high. There are many ways they could rehash their data in a way that I would find more convincing, and it makes me suspicious that I am being fed an inflated story. I would like to see what the median salary-to-market-cap ratio of CEOs in the largest %5 of companies is. Maybe a hard statistic to measure, but we could get a whole lot closer. Disclaimer: I have almost no background knowledge of CEO compensation or wealth inequality, this may indeed be a serious issue that needs to be addressed. However, as a casual observer I find this article unconvincing.
- notSupplied 7y agoAt the very least, this needs to control for consolidation. Are companies much bigger today that three decades ago due to M&A? Due to winner take all nature of new industries? If a person is at the helm of a company with 10x the market cap, wouldn't the difference between the right and wrong decision be 10x greater? Wouldn't you want to pay much more to find the right person in this case?