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Executive pay ratio is mostly determined by the size of the company. We have allowed mergers and more mergers, even ignoring monopoly concerns, creating huge co

by tropo 7y ago

Executive pay ratio is mostly determined by the size of the company. We have allowed mergers and more mergers, even ignoring monopoly concerns, creating huge companies. Think of the corporate structure tree, with perhaps 5 to 15 people reporting to each manager. In a large company, there are many individual contributors per executive. With those numbers, total executive pay is not a large portion of total employee pay. This is what makes extremely high executive pay possible. The fix is simple in concept, but politically difficult. Break up huge companies into smaller companies.

Marsymars 7y ago
It’s staggering how much the sizes of mergers and acquisitions have grown. Looking at inflation-adjusted numbers, there’s the anomalous $15B purchase of Carnegie Steel by US Steel in 1901, and then nothing >$1B until the 1960’s and nothing >$10B until the 1980’s.
dehrmann 7y ago
> Executive pay ratio is mostly determined by the size of the company At least executive pay is. Amazon and Google have different ratios because Amazon has warehouse workers. Executive to worker pay ratios are more interesting in aggregate. > The fix is simple in concept... Companies age out and split themselves up on their own enough that it's probably better to just be a lot more restrictive on mergers. My fear with breakups is they can be somewhat silly. Breaking up AT&T just created regional monopolies and split local and long-distance. In the era of cell phones, this just looks weird. You're also falling victim to Goodhart's law. Worrying about how much the 500 best-paid executives make doesn't explain why overall wages aren't rising, and that's what we should care about. But I completely agree that company size and executive compensation are correlated, and it's an observation people don't bring up a lot. This ratio might be a better indicator of the size of companies than actual inequality.
- tropo 7y ago
  Overall wages are rising, particularly at the low end. Wages are growing at about a 3.7% annual pace. Income inequality is dropping too. The share of income earned by the top quintile has dropped, and this shows in the Gini coefficient. The above is to be expected based on unemployment numbers. For the first time ever, there are more job openings than people seeking jobs. This has come about because imports have been replaced by domestic goods (the tariffs helped) and because there are fewer immigrants to drive down the cost of labor.
  - AdrianB1 7y ago
    I've seen this happening in some countries, the result was the disappearance of the middle class: the minimum wage was pushed up until it got close to the median, now people are closer and closer to the minimum wage. Imagine minimum wage is 50 units and median is 100, if you grow minimum to 70-80, but you cannot increase the median (because the market does not support all the raises), then the former middle class is now close to lower class; as you increase the minimum wage, this creates inflation and makes purchasing power of the middle class even lower, so in the end you get it transformed in an upper poor class.
- Mirioron 7y ago
  >Worrying about how much the 500 best-paid executives make I think this is actually one of the most important parts about the issue of "CEO pay ratio". Many people don't seem to understand that the ratio that's talked about is among the X largest companies and those companies have grown larger over the years. It makes sense why the pay of someone that needs to manage more people would go up.
  - dehrmann 7y ago
    I haven't looked into it, but I bet salaries grow exponentially with the number of reports.
deleted 7y ago
[deleted]

by tropo 7y ago

Marsymars 7y ago

It’s staggering how much the sizes of mergers and acquisitions have grown. Looking at inflation-adjusted numbers, there’s the anomalous $15B purchase of Carnegie Steel by US Steel in 1901, and then nothing >$1B until the 1960’s and nothing >$10B until the 1980’s.

dehrmann 7y ago

> Executive pay ratio is mostly determined by the size of the company At least executive pay is. Amazon and Google have different ratios because Amazon has warehouse workers. Executive to worker pay ratios are more interesting in aggregate. > The fix is simple in concept... Companies age out and split themselves up on their own enough that it's probably better to just be a lot more restrictive on mergers. My fear with breakups is they can be somewhat silly. Breaking up AT&T just created regional monopolies and split local and long-distance. In the era of cell phones, this just looks weird. You're also falling victim to Goodhart's law. Worrying about how much the 500 best-paid executives make doesn't explain why overall wages aren't rising, and that's what we should care about. But I completely agree that company size and executive compensation are correlated, and it's an observation people don't bring up a lot. This ratio might be a better indicator of the size of companies than actual inequality.

tropo 7y ago
Overall wages are rising, particularly at the low end. Wages are growing at about a 3.7% annual pace. Income inequality is dropping too. The share of income earned by the top quintile has dropped, and this shows in the Gini coefficient. The above is to be expected based on unemployment numbers. For the first time ever, there are more job openings than people seeking jobs. This has come about because imports have been replaced by domestic goods (the tariffs helped) and because there are fewer immigrants to drive down the cost of labor.
- AdrianB1 7y ago
  I've seen this happening in some countries, the result was the disappearance of the middle class: the minimum wage was pushed up until it got close to the median, now people are closer and closer to the minimum wage. Imagine minimum wage is 50 units and median is 100, if you grow minimum to 70-80, but you cannot increase the median (because the market does not support all the raises), then the former middle class is now close to lower class; as you increase the minimum wage, this creates inflation and makes purchasing power of the middle class even lower, so in the end you get it transformed in an upper poor class.
Mirioron 7y ago
>Worrying about how much the 500 best-paid executives make I think this is actually one of the most important parts about the issue of "CEO pay ratio". Many people don't seem to understand that the ratio that's talked about is among the X largest companies and those companies have grown larger over the years. It makes sense why the pay of someone that needs to manage more people would go up.
- dehrmann 7y ago
  I haven't looked into it, but I bet salaries grow exponentially with the number of reports.

deleted 7y ago

[deleted]