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CEO pay is getting larger because the companies are getting larger. Just run a simple thought experiment: you have two CEO's Alex and Bob. Bob will increase th

by curt 15y ago

CEO pay is getting larger because the companies are getting larger. Just run a simple thought experiment: you have two CEO's Alex and Bob. Bob will increase the companies growth 1% more than Alex. If the company is $100 billion, Bob will create $1 billion more a year than Alex. Over time with compounding it's a much greater effect. $10-$50 million a year doesn't really seem like a lot when you actually figure out the added benefit. People attack Wall Street, specifically Hedge Funds but they make the system efficient (look up arbitrage). The problem with Hedge Funds is a ridiculous loop hole that lets them only pay their income at the capital gains rate. Another problem is that the government through legislation has taken away the risk while leaving the reward. With minimal regulations Wall Street profits are balanced by the risk they incur.

locopati 15y ago
Does Bob create $1b of wealth or do the workers of the company create that wealth?
- curt 15y ago
  That's like saying Scipio Africanus, Charles Martel, or Alexander the Great were nothing because their soldiers did the fighting. The leader manages and leads the troops, they follow his vision. Take a modern example, Steve Jobs, the man is the creative visionary behind most products. He envisioned the wealth and then set the workers upon creating it. Without him it wouldn't have existed.
  - locopati 15y ago
    And yet, it's the workers/soldiers who often are the ones on the line. We see CEOs walk away with big payouts, even when their strategies have been disastrous (for the company, for the workers, for the stockholders).
    - curt 15y ago
      That's not the CEO that's the board selecting the wrong person and creating the wrong compensation package. Just like a basketball player getting hurt after signing a huge contract. EDIT: Look at PG's response above. same thing.
- pg 15y ago
  The CEO is one of the employees of the company, so the two are not exclusive. The answer is that all the employees contribute, but in varying degrees. The contribution of a good CEO is usually the largest of all the employees, which is one of the reasons even clearly non-captive boards are willing to pay them so much.
  - locopati 15y ago
    I'm not arguing that they don't have a great deal of power and control over the direction and focus of the company. However, it does seem, especially these days, that their pay is not actually connected to their actions, as we see CEO after CEO destroy value while collected big rewards.
    - pg 15y ago
      This seems like a completely different point from your previous comment. The answer is that CEOs can be good or bad just like other types of employees, but (just like other employees) you have to pay market rate to hire one, even if they turn out to be bad.
jshen 15y ago
"CEO pay is getting larger because the companies are getting larger" Like Borders? The increase in pay doesn't appear to be based on anything sane.
- curt 15y ago
  You also have corporate governance problems where the CEO gets to pick far too many of his friends that leads to some distortion. Are movie stars salaries sane? Basketball players? The market pays what it sees fit, I'd say a $20 million/yr CEO creates far more than a $20 million/yr athlete or movie star.
  - jshen 15y ago
    "The market pays what it sees fit" There is no such thing as "The Market", there are markets, all of which are composed of arbitrary rules created by people. They are all corruptible, and the question here is if ours is being corrupted and is in need of some systemic changes.
    - curt 15y ago
      Yes it is corrupted by government regulations and interference that have distorted the pricing effect that makes markets work. These are basic economic principles. The problem is people don't understand the pricing effect. When you do it's obvious why problems such as health care exist or why increasing tax rate doesn't increase revenue (Hauser's Law, tax revenue is 18% of GDP no matter what tax rates are).
      - jshen 15y ago
        "tax revenue is 18% of GDP no matter what tax rates are" Not really. http://www.angrybearblog.com/2010/11/hausers-law-is-extremely-misleading.html http://www.angrybearblog.com/2010/11/hausers-law-is-extremel... "it is corrupted by government regulation" It is corrupted by people. If we had no government it would still be corruptible. "These are basic economic principles." Like if I have a bigger gun than you, I get the rewards? Oh, you mean principles that we agree to in the form of government? Principles which are arbitrary and chosen by humans and vary from market to market! Yes, those "principles".

by curt 15y ago

locopati 15y ago

Does Bob create $1b of wealth or do the workers of the company create that wealth?

curt 15y ago
That's like saying Scipio Africanus, Charles Martel, or Alexander the Great were nothing because their soldiers did the fighting. The leader manages and leads the troops, they follow his vision. Take a modern example, Steve Jobs, the man is the creative visionary behind most products. He envisioned the wealth and then set the workers upon creating it. Without him it wouldn't have existed.
- locopati 15y ago
  And yet, it's the workers/soldiers who often are the ones on the line. We see CEOs walk away with big payouts, even when their strategies have been disastrous (for the company, for the workers, for the stockholders).
  - curt 15y ago
    That's not the CEO that's the board selecting the wrong person and creating the wrong compensation package. Just like a basketball player getting hurt after signing a huge contract. EDIT: Look at PG's response above. same thing.
pg 15y ago
The CEO is one of the employees of the company, so the two are not exclusive. The answer is that all the employees contribute, but in varying degrees. The contribution of a good CEO is usually the largest of all the employees, which is one of the reasons even clearly non-captive boards are willing to pay them so much.
- locopati 15y ago
  I'm not arguing that they don't have a great deal of power and control over the direction and focus of the company. However, it does seem, especially these days, that their pay is not actually connected to their actions, as we see CEO after CEO destroy value while collected big rewards.
  - pg 15y ago
    This seems like a completely different point from your previous comment. The answer is that CEOs can be good or bad just like other types of employees, but (just like other employees) you have to pay market rate to hire one, even if they turn out to be bad.

jshen 15y ago

"CEO pay is getting larger because the companies are getting larger" Like Borders? The increase in pay doesn't appear to be based on anything sane.

curt 15y ago
You also have corporate governance problems where the CEO gets to pick far too many of his friends that leads to some distortion. Are movie stars salaries sane? Basketball players? The market pays what it sees fit, I'd say a $20 million/yr CEO creates far more than a $20 million/yr athlete or movie star.
- jshen 15y ago
  "The market pays what it sees fit" There is no such thing as "The Market", there are markets, all of which are composed of arbitrary rules created by people. They are all corruptible, and the question here is if ours is being corrupted and is in need of some systemic changes.
  - curt 15y ago
    Yes it is corrupted by government regulations and interference that have distorted the pricing effect that makes markets work. These are basic economic principles. The problem is people don't understand the pricing effect. When you do it's obvious why problems such as health care exist or why increasing tax rate doesn't increase revenue (Hauser's Law, tax revenue is 18% of GDP no matter what tax rates are).
    - jshen 15y ago
      "tax revenue is 18% of GDP no matter what tax rates are" Not really. http://www.angrybearblog.com/2010/11/hausers-law-is-extremely-misleading.html http://www.angrybearblog.com/2010/11/hausers-law-is-extremel... "it is corrupted by government regulation" It is corrupted by people. If we had no government it would still be corruptible. "These are basic economic principles." Like if I have a bigger gun than you, I get the rewards? Oh, you mean principles that we agree to in the form of government? Principles which are arbitrary and chosen by humans and vary from market to market! Yes, those "principles".