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US bosses now earn 312 times the average worker's wage, figures show (2018)

98 points by greatgib 6y ago

sunnyvermaz 6y ago
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nojito 6y ago
This is due to the increase of stock based compensation and an accounting change. https://www.npr.org/sections/money/2016/02/05/465747726/-682-when-ceo-pay-exploded https://www.npr.org/sections/money/2016/02/05/465747726/-682...
- bluescrn 6y ago
  And ever-increasing selfishness and greed.
  - nojito 6y ago
    Not really no...Companies typically don't want to lose their CEOs so with the accounting change they are incentivized to give out larger and larger stock comps. Combine that with the rocketship of the market these past 20 years....
  - saas_sam 6y ago
    If you were a CEO and your board & investors thought you were worth $50M a year, presumably you would decline that out of selflessness and insist upon a much more reasonable living wage?
    - lgierth 6y ago
      Many people would, but I assume they wouldn't be considered CEO material.
    - ordinaryradical 6y ago
      The real question is why the board continued to increase executive compensation to such staggering ratios.... until you realize that boards are made up of networks of other executives, and there is a large "upward current" to reward one another and thereby boost ones own salary. But your question is really inane. It's not about the individual choice to accept compensation, it's about a system for corporate advancement that creates such pressure for outsized wages at the top.
      - 6y ago
mensetmanusman 6y ago
At least it’s not an order of magnitude worse /s
gbronner 6y ago
CEOs used to get more explicit perks. I've seen an entire airport devoted to getting the mail so that the CEO could work from a company owned lodge in the mountains in the summer. This was not compensation.
- cma 6y ago
  I remember something about Google founders/CEOs getting an entire NASA airship hangar for their private carbon-neutral 747 party plane or something, but maybe that is mixing up stories.
  - someguydave 6y ago
    yeah look up Moffett federal airfield
  - jedberg 6y ago
    NASA/Air Force was decommissioning the hangar at the base, and Google happens to be their next door neighbor. They rented to hangar to Google, and Google used it to park their corporate jet (and maybe a few private jets of some pre-IPO employees). It was actually a good thing, it brought money in for NASA.
mdorazio 6y ago
This is a fun counterpart to the pg post that made the front page today also. CEO-to-worker compensation ratio is an interesting data point showing that there's more to "how people get rich today" than just "tech startups are easy money".
- LanceH 6y ago
  How is this a counterpoint? It's just a couple numbers thrown around to fan the flames. There is no effort to analyze the numbers, and deliberate effort in the opposite direction: "Last year, McDonald’s boss Steve Easterbrook earned $21.7m while the McDonald’s workers earned a median wage of just $7,017 – a CEO to worker pay ratio of 3,101 to one. The average Walmart worker earned $19,177 in 2017 while CEO Doug McMillon took home $22.8m – a ratio of 1,188 to one." Comparing ratios of yearly earnings between a CEO and part time workers can only be deliberate manipulation of numbers. This article is garbage designed to outrage and that's all it is.
  - effingwewt 6y ago
    >How is this a counterpoint? It's just a couple numbers thrown around to fan the flames. There is no effort to analyze the numbers, and deliberate effort in the opposite direction As opposed to the garbage PG pulled out of his ass for his blog? Also comparing CEO pay with hourly part time pay is completely on-point, as CEO's famously do very little work unless you count networking at the golf course as billable hours. As someone here said just days ago 'Jesus Christ himself isn't worth 500x' I would add especially since the low wage hourly workers are almost always the ones making the actual money for the business.
taurath 6y ago
Meritocracy for me, cold hard capitalism for thee
lazzlazzlazz 6y ago
Do we think that the amount of leverage a CEO has over the operations and output of a company has increased or decreased since 1989, as a result of tech? My wager is that this has increased significantly more than 6x.
- t-writescode 6y ago
  I'm curious what you mean. Could you expound upon this?
- asdff 6y ago
  Probably decreased quite a bit. CEOs are more beholden to shareholders than ever. They aren't even appointed from within: typically shareholders will just hire some mercenary from outside to do the job for a few years, perhaps even solely to absorb public flak and draw blame from the wider company, before being tossed aside for another disposable mercenary CEO.
  - bombcar 6y ago
    When you hear "CEO" most people think of Steve Jobs, Bill Gates - famous CEOs that are the face of their company. The vast VAST majority are not famous nor even the face of the company.
varispeed 6y ago
Is it net pay? If not then the gap is even higher as workers pay more tax than CEOs (if your salary is beyond certain threshold, you can use various "tricks" to make your tax bill go away, whereas workers have to typically pay something in the area of 40% or more). It's a scandal. Each party tells us that they will tax the rich, but what they really mean is taxing your specialists, developers, doctors, lawyers. People who worked hard all their life to get a great job and some to also lift themselves and their family out of poverty.
- t-writescode 6y ago
  40% in taxes? Where are you getting this from? I know that California has very high sales tax and very high state-level income tax and those can add to federal income tax; but, federal income taxes aren't anywhere near 40% for people that make an average income.
  - varispeed 6y ago
    I am paying in the area of 40-45% in the UK. I talked with someone from the US about this and they said they pay similar in the US. I checked for New York and got 37% which is quite in the ballpark. Is it much different in other states?
    - t-writescode 6y ago
      I think they need to look at their own taxes a bit more closely, if I'm honest. https://www.bankrate.com/finance/taxes/tax-brackets.aspx https://www.bankrate.com/finance/taxes/tax-brackets.aspx And each tax bracket is a tax on the money made above that (edit: tier), meaning $1 is taxed at 37% if they made $518,402. New York's tax rates are here: http://www.tax-rates.org/new_york/income-tax http://www.tax-rates.org/new_york/income-tax New York City's sales tax is 4.5% https://www1.nyc.gov/site/finance/taxes/business-nys-sales-tax.page https://www1.nyc.gov/site/finance/taxes/business-nys-sales-t... edit: wow. I'm being downvoted quite a bit here. What am I saying wrong? Where am I wrong? Clearly I must have some misunderstanding of how taxes work, can someone clarify it for me?
spamizbad 6y ago
Are workers getting worse? CEOs getting better? Both?
- efficax 6y ago
  Worker productivity goes up year over year: https://www.epi.org/productivity-pay-gap/ https://www.epi.org/productivity-pay-gap/ Nobody even knows what makes a good CEO
  - Kranar 6y ago
    That's taking total productivity and dividing it by workers and then calling it "worker productivity". What's pertinent is whether increases in productivity are directly attributable to the workers in the denominator, or whether there are other reasons for that growth. Furthermore the denominator in that graph is not actually the total workers involved in the productive output of an economy... for example, the billions of workers added to the work force but who work in developing countries for slave wages aren't factored in to the denominator of total workers, but their output does contribute to the numerator.
- 13of40 6y ago
  I don't see why we care about CEO pay vs. worker pay at all. Being a CEO isn't part of the deal you get from the company as a normal person. What you get is a salary, benefits, security, and a growth path in your career. Have those things changed significantly during that time period?
adam_arthur 6y ago
Not to say the discrepancy is justified, but a few points: 1) Globalization has led to larger companies. The larger the company, the higher the pay you'd expect for the CEO (value of each decision is greater). 2) Technology has allowed margins to improve via cheaper cost to scale... economies of scale etc. 3) As another commenter noted, the impact of a CEO is relatively more than in the past, due to advancing technology. More social media presence, more effective means of communication across the company and so on, meaning their decisions are able to effect change more quickly. 4) Globalization has led to reduced wages at the bottom. Unskilled labor is paid less than ever due to that work being outsourced to China, Mexico etc. Some of the change may be more of a story of effective wages falling for the lowest worker. 5) Public CEOs are compensated mostly in stock, and interest rates continue to get lower and lower. Government has been much more aggressive with stimulus than in the past. This has juiced stock valuations. I'd be interested in seeing how the gap has changed in "like-for-like" businesses. e.g. a 10 person construction company in 1989 vs today.
- lordnacho 6y ago
  And why doesn't the added competition from the billions of extra population from which CEOs are drawn push salaries down?
  - t-writescode 6y ago
    It possibly has, at least at an effective rate (by not raising salaries while inflation increases, for example). The CEO, though, is just one person and it's easy to pay a single person a lot of money. In a company of 100,000 people, an extra $5,000,000 would only increase their salaries by 50 each; but, it could all go to the CEO and look gigantic.
    - superjan 6y ago
      I heard that argument before, but we don’t know what the layers in between look like. The higher you are, the more growth you can claim responsibility for, and demand a piece of the pie accordingly.
john_moscow 6y ago
The compensation is a function of supply and demand. A CEO is hard to replace and their experience is vital to the company's performance. Corporate drones are easy to replace with minimal training, so it's the lowest bidder market. There used to be a cycle. Companies would grow huge, eventually becoming overbureaucratized inefficient behemoths where personal competence is replaced by carefully designed corporate manuals. And in the next economic turn they would crash, opening the market to the next wave of lean founder-driven companies. We broke this cycle in 2008 with bailouts and we are printing money ever since to keep the party going [0]. So yes, CEOs and shareholders now have considerably bigger leverage than workers. The companies are tactically inefficient (good luck getting a competent person anywhere), but strategically unbeatable due to scaling. Competing with them is practically impossible because offering services below cost is now a widely accepted practice, and if by some magic you managed, they will just buy you off. People who didn't get the foot in the door before 2008 are miserable and walking around with pitchforks looking for the next target. But thanks to what the media does, they only end up stabbing each other over made-up differences. [0] https://tradingeconomics.com/united-states/money-supply-m0 https://tradingeconomics.com/united-states/money-supply-m0
- hogFeast 6y ago
  "Corporate drones" aren't replacable. CEOs are, you can find almost anyone willing to a sub-standard job for $1m/year...the supply is really infinite. The issue with high employee turnover is they are producing your product. As an investor, high employee turnover is almost always very bad. CEO turnover is usually totally fine (it depends, if a new CEO comes in and attempts to do anything bold...it is usually curtains).
  - john_moscow 6y ago
    It doesn't work this way. Unless you have a union or some large economic event, people will make resignation decisions independently. This means that the number of resignations on a typical day will follow a normal distribution a.k.a. bell curve. Say, you have 3650 employees with an average tenure of 1 year. It means that on 90% of the days you will have between 0 and 10 resignations, averaging at 1 per day. You also know that out of 10 applications, 1 leads to a hire, so you have an HR team with a target of reviewing 10 applications per day and hiring 10% of them. Due to scaling, you can redistribute the same amount of work between 3650, 3550 or 3750 employees without any difference in output. If a single employee comes demanding a raise, they have 0 leverage over you. If you fire them, you will have 3659 employees for a day or two (until more candidates get hired) with your business designed to handle fluctuations between 3660 and 3750. It costs you zero, literally ZERO. High turnover for low-wage jobs actually makes it better for the business. It's like if you already have a leaky basement with a sump pump in place, you won't even notice if you spill a single bucket of water there. For a smaller business of 10 employees, replacing one could be harder. Sharing their workload over 9 people is harder. The owner will have to spend their own time searching for a replacement, remembering the things that the departed person knew and trying to teach them to the replacement, etc. That's why smaller companies treat people better. As for the CEO, you can find people willing to do the job, but there's a big difference between willing and being able to. The main role of CEO besides giving a good public image is to keep the internal corruption and infighting at a level where it doesn't kill the company's business. Despite the fake smiles and positivity, it's a pretty dirty backstabbing environment and you need to know certain unwritten rules to play that game.
Aunche 6y ago
CEO pay is a red herring in respect to income inequality. Companies today are over 6x bigger today than they were in 1989. Even if they got paid 6x more, CEOs as a whole aren't taking any more wealth from the company than they used to. Wealth inequality primarily comes from the concentration of equity. The richest CEOs all make negligible compensation. Bezo's salary is roughly $80k and Zuckerberg's is $1.
- MuffinFlavored 6y ago
  Isn't salary a "red herring" in CEO compensation? I know that you know this but I'll remind you. It's mainly stock options/shares, not the $1 or $80k salary lol
  - Aunche 6y ago
    Zuckerberg and Bezos aren't receiving new equity grants either.
- jandrese 6y ago
  Looking only at the base pay completely misses the picture for CEO compensation as you have noted. Obviously Bezos didn't make $13B in a single day from his $80k/year salary. Imagine if he took that 13 Billion Dollar single day income and spread it across every employee at Amazon. That would be a life changing amount of money for almost every warehouse worker. Roughly $22,500 each. And that's just one day for Bezos. https://www.cnbc.com/2020/07/21/bezos-record-multibillion-dollar-net-worth-gain-bloomberg.html https://www.cnbc.com/2020/07/21/bezos-record-multibillion-do...
  - valuearb 6y ago
    He never made $13B in a day. It's just a stock price fluctuation that can be given back tomorrow. He doesn't get to spend it. And even if you count stock fluctuations as income, he never earned it in one day, he earned it over 25 years of work.
  - turbinerneiter 6y ago
xiphias2 6y ago
Maybe this is a wrong thinking, but sometimes I feel like big tech companies would be able to grow their profit faster by not increasing the amount of engineers so aggressively instead of the salary of great engineers (and kicking out engineers who are just good). At Google I felt that over time it was harder to make any change because of the huge overcomplicated code base for example (the scary part though is that I'm more a good engineer, I had seen much better SWEs around myself).
- kache_ 6y ago
  I've seen some companies hire more engineers simply to become "IPO ready". Seems like aggressive hiring is a result of a maladaptive goal.
- setr 6y ago
  The problem I think is that at a certain point, it stops being an engineering problem and starts becoming an organization/communication/coordination problem. You could have all the best engineers but if they’re not coordinated correctly, it still becomes a mess. And that’s ignoring the problem that messes are inevitable, because programs must eventually deal with the real world, and the real world is a shitshow. Changing requirements, abominable external interfaces, business logic generally, etc. The main draw for unnecessarily messy codebase however is putting novices in charge, but you don’t need to overpay to avoid this (and you don’t really need the best of the best) — you need better selection practices, and I’m not sure anyone’s ever found a good way to select new resources (hiring interviews have at best a very spotty record, and a very shallow filter)
- didibus 6y ago
  Lean teams of A+ engineers deliver great results, but they still do so at a slower pace, though more consistently. And contrary to popular belief, it is quite difficult to maintain such a team, attrition will happen naturally and cause problems for it over time. For a big tech company, it is thus faster for them to just grow the number of teams and engineers, and give them each smaller and smaller chunk of an overall more and more complicated set. Basically, it's like throwing money at the problem, but it works. You bootstrap some new product, program or feature quickly, the effort could be led by a single or a handful of A+ engineer and some PMs. And then you create a whole team to forever maintain it composed mostly of junior and mid with high attrition rates.
rajivjain 6y ago
Compare and contrast the executive compensation to the weakening power of employee unions. In the past executives needed to be diligent about how executive compensation would affect union negotiations. It would be very hard to squeeze unions while dramatically increasing executive compensation. With weakened labor unions, there is no need to maintain the curtain of equity of treatment of labor vs executives.
lordnacho 6y ago
My pet theory: - To make it to the top, you need an aura around your persona. How often do you see an anointed one or two, among thousands? It's corporate religion essentially, the politics reduces the field unnecessarily to the level where there's just a handful of crown princes. - Similar to sports, people try to split hairs about who is good enough and who isn't. Nobody's ever heard of randomness and serendipity. Add to that a total lack of controllable evidence, and you get stories about just how amazing this it that prince is. - Most CEOs don't get a lot of chances as captain. It's like running for president, once you've lost your aura suffers. Someone did a study of this, I forget where. - Since it's magic the cards are in the hands of the candidate who is chosen. They can really push up the price, and they need to before it wears off. - Why has this happened more and more in recent decades? Generation of people who've grown up believing in magic. More TV news, more credit given to the boss, more people believe in magic. - The boards-are-friends theory is not bad either, but boards have always been a bunch of business people who knew each other. More likely globalisation has provided a excuses for higher compensation: market is bigger and more complex, we're making more money. - These are excuses, we can tell because how often does comp go up when perf is down? How often is perf relative to the index? How often is risk taken into account? - Other things that don't make sense in the naive model of compensation: big business is like oil tankers, next quarter has already happened. Why would you pay a guy for the previous guy's performance? Why do you pay mega severance?
- Hermel 6y ago
  Another important point is that the top 350 US companies today are much larger than the top 350 US companies of 1989. To have an accurate comparison, the authors should have compared the compansation ratio of similarly sized firms, maybe the top 50 of 1989 to the 100th to 150th largest company of today.
  - jxramos 6y ago
    yah, seems like the premise is flawed, same like how countries are compared to each other regardless of their respective sizes.
- therealdrag0 6y ago
temeritatis 6y ago
As AI and machines enables the same output with less work, if the men at the top fires the people that are subsequently "not needed" and put that money in their own pockets, we're on the way to a very bad place. Ideally, the extra income that AI and machines enable, would end up in everyone's pockets, and the extra free time as well. I don't think the latter is what is happening though, hence the 312-to-1 ratio.
k2enemy 6y ago
http://economics.mit.edu/files/1769 http://economics.mit.edu/files/1769 [pdf] Abstract: This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO’s pay depends on both the size of his firm, and the aggregate firm size. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance. We find a very small dispersion in CEO talent, which nonetheless justifies large pay differences. In recent decades at least, the size of large firms explains many of the patterns in CEO pay, across firms, over time, and between countries. In particular, in the baseline specification of the model’s parameters, the six-fold increase of U.S. CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large companies during that period.
cletus 6y ago
I'm surprised the Guardian doesn't seem to raise this but the ever-increasing CEO pay packet I think is of less importance than this: real wages have essentially been flat for 40 years [1]. At the same time we have: 1. Corporations are paying less tax, largely due to tax avoidance schemes that mostly revolve around transfer pricing, particularly of so-called "IP"; 2. Wealthy individuals pay less taxes. And here the tax rate they pay is a bit of a red herring. You see for most people they pay tax on their entire income. For the wealthiest individuals, they only pay taxes on what they (choose to) realize, which is significantly less than income. The counterargument is that this is simply deferring tax liabilities but if you can defer something essentially forever, it's basically the same thing as not paying it; 3. Zero interest rates mean that both wealthy individuals and companies can borrow money at little to no cost instead of realizing income or profits to gain disposable capital. You need $50m? Well, you can realize $100m and pay taxes on that or you can simply borrow $50m at 0.5% interest rate and not pay any taxes. Here's an accounting change we need: borrowing money is treated as distributing a profit (for a company) or realizing income (for an individual). So, back to CEO pay. Here's the problem: a lot of very mediocre CEOs earn astronomical pay packets because of justifications about "market rates", "large companies" and the like. Their impact is overstated due to outliers like Steve Jobs. Here's a comparison. Steve Jobs earned roughly $2.1 billion from his comeback to Apple CEO [2]. Considering the transformation and the value returned to Apple shareholders, paying him 10x that would've been a bargain. Compare that to... Sundar Pichai, who seems to earn ~$250m/year as Alphabet CEO... for what exactly? I mean what has Google done since 2015 (when Pichai become CEO) other than extract more from the ad golden goose? Here's the problem: boards set CEO compensation. Who sits on boards? Other CEOs of course. How is that compensation determined? In part by what other CEOs earn. It's almost like the top 0.001% have been put in charge of setting their own compensation. [1]: https://fas.org/sgp/crs/misc/R45090.pdf https://fas.org/sgp/crs/misc/R45090.pdf [2]: https://www.cheatsheet.com/entertainment/what-was-steve-jobs-net-worth.html/ https://www.cheatsheet.com/entertainment/what-was-steve-jobs...
- LorenPechtel 6y ago
  Wages of hourly manufacturing workers have been basically flat. Duh--those jobs are fewer and fewer. The good jobs are building the machines, not running them.
LatteLazy 6y ago
That's about 6% annual growth. Hardly astounding at a time when worker wages have been stagnant, companies have seen big growth is average size, CEOs have become much more important and educated, oh and investors have seen vastly better outcomes.
wonnage 6y ago
IMO the reason is still stock-based compensation. Companies are run lean these days, and it's simply inefficient to reserve a pile of cash for paying people vs. using it for business purposes. Why do that when you can pay with stock? But at the same time you (as an exec) want to maintain control of the company. So you only give it to people who aren't going to just turn around and sell it on the public market. This excludes all of your low-level workers, who have bills to pay. There are a bunch of business realities that get in the way if you want to pay a huge cash salary. For example, you may be a recently IPO-ed tech unicorn who doesn't actually make money, and the investors aren't too keen on the CEO paying themselves with their cash. But take all your comp in stock and all of a sudden you're a selfless hero aligned with business success.
williamsmj 6y ago
Anyone with a pet theory that says this increase is inevitable because of cause $foo (or even that this situation this is justified because of reason $bar) needs to account for the fact that the equivalent ratio of compensation in the US military is around 8. The US military of course has a budget many times that of most (any?) private companies, and it's generally agreed to be a better run institution than a lot of them.
- Asdrubalini 6y ago
  The US military is a public institution and its purpose is not to make profit, how is this related to private companies and compensations based on private money?
  - williamsmj 6y ago
    [I assume you mean "for-profit" rather than "private". These companies aren't generally private and neither is their money, but...] Exactly?! People in this thread and elsewhere say this is inevitable because of "globalization" or "automation" or "increasing scale of operations" or "increasing concentration of authority" or similar things that apply equally to the US military. The actual reason for this compensation disparity, which exists in large for-profit companies, and doesn't exist in one of the biggest organizations on earth, measured by budget, is capitalism and the market. The fact that the US military is not a for-profit company is the point. If you view this disparity as a bad thing, then you have to accept that the corollary: you might, just maybe, have a problem with free market capitalism. Welcome to the club! :)
    - Asdrubalini 6y ago
      I don't see disparity of compensation an issue, especially if companies are enormous like these and for profit. The job of a CEO in a company with 20 employees is quite different than the job of a CEO in a company with 100000 employees. On the other hand, the job of those employees is often the same (especially for low pay jobs), this is why you see this discrepancy. The only issue I see is when salaries are too low for the job, or when companies tries to prevent workers from unionizing.
ianai 6y ago
Many of these ratios got significantly higher after the 80s

98 points by greatgib 6y ago

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nojito 6y ago

This is due to the increase of stock based compensation and an accounting change. https://www.npr.org/sections/money/2016/02/05/465747726/-682-when-ceo-pay-exploded https://www.npr.org/sections/money/2016/02/05/465747726/-682...

bluescrn 6y ago
And ever-increasing selfishness and greed.
- nojito 6y ago
  Not really no...Companies typically don't want to lose their CEOs so with the accounting change they are incentivized to give out larger and larger stock comps. Combine that with the rocketship of the market these past 20 years....
- saas_sam 6y ago
  If you were a CEO and your board & investors thought you were worth $50M a year, presumably you would decline that out of selflessness and insist upon a much more reasonable living wage?
  - lgierth 6y ago
    Many people would, but I assume they wouldn't be considered CEO material.
  - ordinaryradical 6y ago
    The real question is why the board continued to increase executive compensation to such staggering ratios.... until you realize that boards are made up of networks of other executives, and there is a large "upward current" to reward one another and thereby boost ones own salary. But your question is really inane. It's not about the individual choice to accept compensation, it's about a system for corporate advancement that creates such pressure for outsized wages at the top.
    - 6y ago

mensetmanusman 6y ago

At least it’s not an order of magnitude worse /s

gbronner 6y ago

CEOs used to get more explicit perks. I've seen an entire airport devoted to getting the mail so that the CEO could work from a company owned lodge in the mountains in the summer. This was not compensation.

cma 6y ago
I remember something about Google founders/CEOs getting an entire NASA airship hangar for their private carbon-neutral 747 party plane or something, but maybe that is mixing up stories.
- someguydave 6y ago
  yeah look up Moffett federal airfield
- jedberg 6y ago
  NASA/Air Force was decommissioning the hangar at the base, and Google happens to be their next door neighbor. They rented to hangar to Google, and Google used it to park their corporate jet (and maybe a few private jets of some pre-IPO employees). It was actually a good thing, it brought money in for NASA.

mdorazio 6y ago

This is a fun counterpart to the pg post that made the front page today also. CEO-to-worker compensation ratio is an interesting data point showing that there's more to "how people get rich today" than just "tech startups are easy money".

LanceH 6y ago
How is this a counterpoint? It's just a couple numbers thrown around to fan the flames. There is no effort to analyze the numbers, and deliberate effort in the opposite direction: "Last year, McDonald’s boss Steve Easterbrook earned $21.7m while the McDonald’s workers earned a median wage of just $7,017 – a CEO to worker pay ratio of 3,101 to one. The average Walmart worker earned $19,177 in 2017 while CEO Doug McMillon took home $22.8m – a ratio of 1,188 to one." Comparing ratios of yearly earnings between a CEO and part time workers can only be deliberate manipulation of numbers. This article is garbage designed to outrage and that's all it is.
- effingwewt 6y ago
  >How is this a counterpoint? It's just a couple numbers thrown around to fan the flames. There is no effort to analyze the numbers, and deliberate effort in the opposite direction As opposed to the garbage PG pulled out of his ass for his blog? Also comparing CEO pay with hourly part time pay is completely on-point, as CEO's famously do very little work unless you count networking at the golf course as billable hours. As someone here said just days ago 'Jesus Christ himself isn't worth 500x' I would add especially since the low wage hourly workers are almost always the ones making the actual money for the business.

taurath 6y ago

Meritocracy for me, cold hard capitalism for thee

lazzlazzlazz 6y ago

Do we think that the amount of leverage a CEO has over the operations and output of a company has increased or decreased since 1989, as a result of tech? My wager is that this has increased significantly more than 6x.

t-writescode 6y ago
I'm curious what you mean. Could you expound upon this?
asdff 6y ago
Probably decreased quite a bit. CEOs are more beholden to shareholders than ever. They aren't even appointed from within: typically shareholders will just hire some mercenary from outside to do the job for a few years, perhaps even solely to absorb public flak and draw blame from the wider company, before being tossed aside for another disposable mercenary CEO.
- bombcar 6y ago
  When you hear "CEO" most people think of Steve Jobs, Bill Gates - famous CEOs that are the face of their company. The vast VAST majority are not famous nor even the face of the company.

varispeed 6y ago

Is it net pay? If not then the gap is even higher as workers pay more tax than CEOs (if your salary is beyond certain threshold, you can use various "tricks" to make your tax bill go away, whereas workers have to typically pay something in the area of 40% or more). It's a scandal. Each party tells us that they will tax the rich, but what they really mean is taxing your specialists, developers, doctors, lawyers. People who worked hard all their life to get a great job and some to also lift themselves and their family out of poverty.

t-writescode 6y ago
40% in taxes? Where are you getting this from? I know that California has very high sales tax and very high state-level income tax and those can add to federal income tax; but, federal income taxes aren't anywhere near 40% for people that make an average income.
- varispeed 6y ago
  I am paying in the area of 40-45% in the UK. I talked with someone from the US about this and they said they pay similar in the US. I checked for New York and got 37% which is quite in the ballpark. Is it much different in other states?
  - t-writescode 6y ago
    I think they need to look at their own taxes a bit more closely, if I'm honest. https://www.bankrate.com/finance/taxes/tax-brackets.aspx https://www.bankrate.com/finance/taxes/tax-brackets.aspx And each tax bracket is a tax on the money made above that (edit: tier), meaning $1 is taxed at 37% if they made $518,402. New York's tax rates are here: http://www.tax-rates.org/new_york/income-tax http://www.tax-rates.org/new_york/income-tax New York City's sales tax is 4.5% https://www1.nyc.gov/site/finance/taxes/business-nys-sales-tax.page https://www1.nyc.gov/site/finance/taxes/business-nys-sales-t... edit: wow. I'm being downvoted quite a bit here. What am I saying wrong? Where am I wrong? Clearly I must have some misunderstanding of how taxes work, can someone clarify it for me?

spamizbad 6y ago

Are workers getting worse? CEOs getting better? Both?

efficax 6y ago
Worker productivity goes up year over year: https://www.epi.org/productivity-pay-gap/ https://www.epi.org/productivity-pay-gap/ Nobody even knows what makes a good CEO
- Kranar 6y ago
  That's taking total productivity and dividing it by workers and then calling it "worker productivity". What's pertinent is whether increases in productivity are directly attributable to the workers in the denominator, or whether there are other reasons for that growth. Furthermore the denominator in that graph is not actually the total workers involved in the productive output of an economy... for example, the billions of workers added to the work force but who work in developing countries for slave wages aren't factored in to the denominator of total workers, but their output does contribute to the numerator.
13of40 6y ago
I don't see why we care about CEO pay vs. worker pay at all. Being a CEO isn't part of the deal you get from the company as a normal person. What you get is a salary, benefits, security, and a growth path in your career. Have those things changed significantly during that time period?

adam_arthur 6y ago

Not to say the discrepancy is justified, but a few points: 1) Globalization has led to larger companies. The larger the company, the higher the pay you'd expect for the CEO (value of each decision is greater). 2) Technology has allowed margins to improve via cheaper cost to scale... economies of scale etc. 3) As another commenter noted, the impact of a CEO is relatively more than in the past, due to advancing technology. More social media presence, more effective means of communication across the company and so on, meaning their decisions are able to effect change more quickly. 4) Globalization has led to reduced wages at the bottom. Unskilled labor is paid less than ever due to that work being outsourced to China, Mexico etc. Some of the change may be more of a story of effective wages falling for the lowest worker. 5) Public CEOs are compensated mostly in stock, and interest rates continue to get lower and lower. Government has been much more aggressive with stimulus than in the past. This has juiced stock valuations. I'd be interested in seeing how the gap has changed in "like-for-like" businesses. e.g. a 10 person construction company in 1989 vs today.

lordnacho 6y ago
And why doesn't the added competition from the billions of extra population from which CEOs are drawn push salaries down?
- t-writescode 6y ago
  It possibly has, at least at an effective rate (by not raising salaries while inflation increases, for example). The CEO, though, is just one person and it's easy to pay a single person a lot of money. In a company of 100,000 people, an extra $5,000,000 would only increase their salaries by 50 each; but, it could all go to the CEO and look gigantic.
  - superjan 6y ago
    I heard that argument before, but we don’t know what the layers in between look like. The higher you are, the more growth you can claim responsibility for, and demand a piece of the pie accordingly.

john_moscow 6y ago

The compensation is a function of supply and demand. A CEO is hard to replace and their experience is vital to the company's performance. Corporate drones are easy to replace with minimal training, so it's the lowest bidder market. There used to be a cycle. Companies would grow huge, eventually becoming overbureaucratized inefficient behemoths where personal competence is replaced by carefully designed corporate manuals. And in the next economic turn they would crash, opening the market to the next wave of lean founder-driven companies. We broke this cycle in 2008 with bailouts and we are printing money ever since to keep the party going [0]. So yes, CEOs and shareholders now have considerably bigger leverage than workers. The companies are tactically inefficient (good luck getting a competent person anywhere), but strategically unbeatable due to scaling. Competing with them is practically impossible because offering services below cost is now a widely accepted practice, and if by some magic you managed, they will just buy you off. People who didn't get the foot in the door before 2008 are miserable and walking around with pitchforks looking for the next target. But thanks to what the media does, they only end up stabbing each other over made-up differences. [0] https://tradingeconomics.com/united-states/money-supply-m0 https://tradingeconomics.com/united-states/money-supply-m0

hogFeast 6y ago
"Corporate drones" aren't replacable. CEOs are, you can find almost anyone willing to a sub-standard job for $1m/year...the supply is really infinite. The issue with high employee turnover is they are producing your product. As an investor, high employee turnover is almost always very bad. CEO turnover is usually totally fine (it depends, if a new CEO comes in and attempts to do anything bold...it is usually curtains).
- john_moscow 6y ago
  It doesn't work this way. Unless you have a union or some large economic event, people will make resignation decisions independently. This means that the number of resignations on a typical day will follow a normal distribution a.k.a. bell curve. Say, you have 3650 employees with an average tenure of 1 year. It means that on 90% of the days you will have between 0 and 10 resignations, averaging at 1 per day. You also know that out of 10 applications, 1 leads to a hire, so you have an HR team with a target of reviewing 10 applications per day and hiring 10% of them. Due to scaling, you can redistribute the same amount of work between 3650, 3550 or 3750 employees without any difference in output. If a single employee comes demanding a raise, they have 0 leverage over you. If you fire them, you will have 3659 employees for a day or two (until more candidates get hired) with your business designed to handle fluctuations between 3660 and 3750. It costs you zero, literally ZERO. High turnover for low-wage jobs actually makes it better for the business. It's like if you already have a leaky basement with a sump pump in place, you won't even notice if you spill a single bucket of water there. For a smaller business of 10 employees, replacing one could be harder. Sharing their workload over 9 people is harder. The owner will have to spend their own time searching for a replacement, remembering the things that the departed person knew and trying to teach them to the replacement, etc. That's why smaller companies treat people better. As for the CEO, you can find people willing to do the job, but there's a big difference between willing and being able to. The main role of CEO besides giving a good public image is to keep the internal corruption and infighting at a level where it doesn't kill the company's business. Despite the fake smiles and positivity, it's a pretty dirty backstabbing environment and you need to know certain unwritten rules to play that game.

Aunche 6y ago

CEO pay is a red herring in respect to income inequality. Companies today are over 6x bigger today than they were in 1989. Even if they got paid 6x more, CEOs as a whole aren't taking any more wealth from the company than they used to. Wealth inequality primarily comes from the concentration of equity. The richest CEOs all make negligible compensation. Bezo's salary is roughly $80k and Zuckerberg's is $1.

MuffinFlavored 6y ago
Isn't salary a "red herring" in CEO compensation? I know that you know this but I'll remind you. It's mainly stock options/shares, not the $1 or $80k salary lol
- Aunche 6y ago
  Zuckerberg and Bezos aren't receiving new equity grants either.
jandrese 6y ago
Looking only at the base pay completely misses the picture for CEO compensation as you have noted. Obviously Bezos didn't make $13B in a single day from his $80k/year salary. Imagine if he took that 13 Billion Dollar single day income and spread it across every employee at Amazon. That would be a life changing amount of money for almost every warehouse worker. Roughly $22,500 each. And that's just one day for Bezos. https://www.cnbc.com/2020/07/21/bezos-record-multibillion-dollar-net-worth-gain-bloomberg.html https://www.cnbc.com/2020/07/21/bezos-record-multibillion-do...
- valuearb 6y ago
  He never made $13B in a day. It's just a stock price fluctuation that can be given back tomorrow. He doesn't get to spend it. And even if you count stock fluctuations as income, he never earned it in one day, he earned it over 25 years of work.
- turbinerneiter 6y ago

xiphias2 6y ago

Maybe this is a wrong thinking, but sometimes I feel like big tech companies would be able to grow their profit faster by not increasing the amount of engineers so aggressively instead of the salary of great engineers (and kicking out engineers who are just good). At Google I felt that over time it was harder to make any change because of the huge overcomplicated code base for example (the scary part though is that I'm more a good engineer, I had seen much better SWEs around myself).

kache_ 6y ago
I've seen some companies hire more engineers simply to become "IPO ready". Seems like aggressive hiring is a result of a maladaptive goal.
setr 6y ago
The problem I think is that at a certain point, it stops being an engineering problem and starts becoming an organization/communication/coordination problem. You could have all the best engineers but if they’re not coordinated correctly, it still becomes a mess. And that’s ignoring the problem that messes are inevitable, because programs must eventually deal with the real world, and the real world is a shitshow. Changing requirements, abominable external interfaces, business logic generally, etc. The main draw for unnecessarily messy codebase however is putting novices in charge, but you don’t need to overpay to avoid this (and you don’t really need the best of the best) — you need better selection practices, and I’m not sure anyone’s ever found a good way to select new resources (hiring interviews have at best a very spotty record, and a very shallow filter)
didibus 6y ago
Lean teams of A+ engineers deliver great results, but they still do so at a slower pace, though more consistently. And contrary to popular belief, it is quite difficult to maintain such a team, attrition will happen naturally and cause problems for it over time. For a big tech company, it is thus faster for them to just grow the number of teams and engineers, and give them each smaller and smaller chunk of an overall more and more complicated set. Basically, it's like throwing money at the problem, but it works. You bootstrap some new product, program or feature quickly, the effort could be led by a single or a handful of A+ engineer and some PMs. And then you create a whole team to forever maintain it composed mostly of junior and mid with high attrition rates.

rajivjain 6y ago

Compare and contrast the executive compensation to the weakening power of employee unions. In the past executives needed to be diligent about how executive compensation would affect union negotiations. It would be very hard to squeeze unions while dramatically increasing executive compensation. With weakened labor unions, there is no need to maintain the curtain of equity of treatment of labor vs executives.

lordnacho 6y ago

My pet theory: - To make it to the top, you need an aura around your persona. How often do you see an anointed one or two, among thousands? It's corporate religion essentially, the politics reduces the field unnecessarily to the level where there's just a handful of crown princes. - Similar to sports, people try to split hairs about who is good enough and who isn't. Nobody's ever heard of randomness and serendipity. Add to that a total lack of controllable evidence, and you get stories about just how amazing this it that prince is. - Most CEOs don't get a lot of chances as captain. It's like running for president, once you've lost your aura suffers. Someone did a study of this, I forget where. - Since it's magic the cards are in the hands of the candidate who is chosen. They can really push up the price, and they need to before it wears off. - Why has this happened more and more in recent decades? Generation of people who've grown up believing in magic. More TV news, more credit given to the boss, more people believe in magic. - The boards-are-friends theory is not bad either, but boards have always been a bunch of business people who knew each other. More likely globalisation has provided a excuses for higher compensation: market is bigger and more complex, we're making more money. - These are excuses, we can tell because how often does comp go up when perf is down? How often is perf relative to the index? How often is risk taken into account? - Other things that don't make sense in the naive model of compensation: big business is like oil tankers, next quarter has already happened. Why would you pay a guy for the previous guy's performance? Why do you pay mega severance?

Hermel 6y ago
Another important point is that the top 350 US companies today are much larger than the top 350 US companies of 1989. To have an accurate comparison, the authors should have compared the compansation ratio of similarly sized firms, maybe the top 50 of 1989 to the 100th to 150th largest company of today.
- jxramos 6y ago
  yah, seems like the premise is flawed, same like how countries are compared to each other regardless of their respective sizes.
therealdrag0 6y ago

temeritatis 6y ago

As AI and machines enables the same output with less work, if the men at the top fires the people that are subsequently "not needed" and put that money in their own pockets, we're on the way to a very bad place. Ideally, the extra income that AI and machines enable, would end up in everyone's pockets, and the extra free time as well. I don't think the latter is what is happening though, hence the 312-to-1 ratio.

k2enemy 6y ago

http://economics.mit.edu/files/1769 http://economics.mit.edu/files/1769 [pdf] Abstract: This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO’s pay depends on both the size of his firm, and the aggregate firm size. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance. We find a very small dispersion in CEO talent, which nonetheless justifies large pay differences. In recent decades at least, the size of large firms explains many of the patterns in CEO pay, across firms, over time, and between countries. In particular, in the baseline specification of the model’s parameters, the six-fold increase of U.S. CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large companies during that period.

cletus 6y ago

I'm surprised the Guardian doesn't seem to raise this but the ever-increasing CEO pay packet I think is of less importance than this: real wages have essentially been flat for 40 years [1]. At the same time we have: 1. Corporations are paying less tax, largely due to tax avoidance schemes that mostly revolve around transfer pricing, particularly of so-called "IP"; 2. Wealthy individuals pay less taxes. And here the tax rate they pay is a bit of a red herring. You see for most people they pay tax on their entire income. For the wealthiest individuals, they only pay taxes on what they (choose to) realize, which is significantly less than income. The counterargument is that this is simply deferring tax liabilities but if you can defer something essentially forever, it's basically the same thing as not paying it; 3. Zero interest rates mean that both wealthy individuals and companies can borrow money at little to no cost instead of realizing income or profits to gain disposable capital. You need $50m? Well, you can realize $100m and pay taxes on that or you can simply borrow $50m at 0.5% interest rate and not pay any taxes. Here's an accounting change we need: borrowing money is treated as distributing a profit (for a company) or realizing income (for an individual). So, back to CEO pay. Here's the problem: a lot of very mediocre CEOs earn astronomical pay packets because of justifications about "market rates", "large companies" and the like. Their impact is overstated due to outliers like Steve Jobs. Here's a comparison. Steve Jobs earned roughly $2.1 billion from his comeback to Apple CEO [2]. Considering the transformation and the value returned to Apple shareholders, paying him 10x that would've been a bargain. Compare that to... Sundar Pichai, who seems to earn ~$250m/year as Alphabet CEO... for what exactly? I mean what has Google done since 2015 (when Pichai become CEO) other than extract more from the ad golden goose? Here's the problem: boards set CEO compensation. Who sits on boards? Other CEOs of course. How is that compensation determined? In part by what other CEOs earn. It's almost like the top 0.001% have been put in charge of setting their own compensation. [1]: https://fas.org/sgp/crs/misc/R45090.pdf https://fas.org/sgp/crs/misc/R45090.pdf [2]: https://www.cheatsheet.com/entertainment/what-was-steve-jobs-net-worth.html/ https://www.cheatsheet.com/entertainment/what-was-steve-jobs...

LorenPechtel 6y ago
Wages of hourly manufacturing workers have been basically flat. Duh--those jobs are fewer and fewer. The good jobs are building the machines, not running them.

LatteLazy 6y ago

That's about 6% annual growth. Hardly astounding at a time when worker wages have been stagnant, companies have seen big growth is average size, CEOs have become much more important and educated, oh and investors have seen vastly better outcomes.

wonnage 6y ago

IMO the reason is still stock-based compensation. Companies are run lean these days, and it's simply inefficient to reserve a pile of cash for paying people vs. using it for business purposes. Why do that when you can pay with stock? But at the same time you (as an exec) want to maintain control of the company. So you only give it to people who aren't going to just turn around and sell it on the public market. This excludes all of your low-level workers, who have bills to pay. There are a bunch of business realities that get in the way if you want to pay a huge cash salary. For example, you may be a recently IPO-ed tech unicorn who doesn't actually make money, and the investors aren't too keen on the CEO paying themselves with their cash. But take all your comp in stock and all of a sudden you're a selfless hero aligned with business success.

williamsmj 6y ago

Anyone with a pet theory that says this increase is inevitable because of cause $foo (or even that this situation this is justified because of reason $bar) needs to account for the fact that the equivalent ratio of compensation in the US military is around 8. The US military of course has a budget many times that of most (any?) private companies, and it's generally agreed to be a better run institution than a lot of them.

Asdrubalini 6y ago
The US military is a public institution and its purpose is not to make profit, how is this related to private companies and compensations based on private money?
- williamsmj 6y ago
  [I assume you mean "for-profit" rather than "private". These companies aren't generally private and neither is their money, but...] Exactly?! People in this thread and elsewhere say this is inevitable because of "globalization" or "automation" or "increasing scale of operations" or "increasing concentration of authority" or similar things that apply equally to the US military. The actual reason for this compensation disparity, which exists in large for-profit companies, and doesn't exist in one of the biggest organizations on earth, measured by budget, is capitalism and the market. The fact that the US military is not a for-profit company is the point. If you view this disparity as a bad thing, then you have to accept that the corollary: you might, just maybe, have a problem with free market capitalism. Welcome to the club! :)
  - Asdrubalini 6y ago
    I don't see disparity of compensation an issue, especially if companies are enormous like these and for profit. The job of a CEO in a company with 20 employees is quite different than the job of a CEO in a company with 100000 employees. On the other hand, the job of those employees is often the same (especially for low pay jobs), this is why you see this discrepancy. The only issue I see is when salaries are too low for the job, or when companies tries to prevent workers from unionizing.

ianai 6y ago

Many of these ratios got significantly higher after the 80s