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I hate this comparison. Stock based compensation didn't exist in 1965. It's an oranges to apples comparison. CEO salaries today are still about 20-1, depending

I hate this comparison. Stock based compensation didn't exist in 1965. It's an oranges to apples comparison. CEO salaries today are still about 20-1, depending on the business. For instance: - Doug McMillon of Walmart makes $1.2 million in salary. - James Quincy of Coca-Cola makes $1.5 million in salary. - JPMorgan's CEO Jamie Dimon has a $1.5 million salary. - Sundar Pichai of Google makes $2 million in salary. You only get 312-1 by adding in performance based stock and incentive alignment options. But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. Knowing this, the whole thing is way less of an outrage. The comparison is so uneducated. If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does. Carl Icahn for example is wildly against this level of CEO compensation because it dilutes his ownership. John Doe on his forklift stacking pallets in the Coca Cola factory is not made poorer over excessive CEO pay. Carl Icahn is.

JMTQp8lwXL 6y ago
A more useful longterm metric is total compensation CEO:worker ratio. Stating the salary ratios are the same isn't a compelling argument since that's only one factor in the total package.
peter422 6y ago
Why can’t employee compensation also come from diluting Wall Street? Why do they vast majority of those benefits go to top executives?
- missedthecue 6y ago
  Performance and incentive alignment. John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast, and he plays a very minute part in the direction of the business. The CEO on the other hand can have a huge impact, and it's why shareholders choose and vote on certain incentives and bonuses. But more importantly, in other businesses this type of comp is certainly offered. If you work in a small startup in any position, you probably get stock options, because your performance on a 10 or 20 person team probably does have real noticeable and measurable impact on the business's success.
  - alpha_squared 6y ago
    > John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast. A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving. Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
    - djrogers 6y ago
      > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.
      - alpha_squared 6y ago
        > As long as you are still employed by the company that granted you the options I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.
    - drexlspivey 6y ago
      > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
- aerosmile 6y ago
  The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO (eg: what was Apple doing before Steve Jobs came back?). The workers can obviously leave and seek employment elsewhere. So can the CEO. For better or worse, the data presented in the parent post indicate that the market seems to be increasingly siding with the CEO-side of the above argument. I am not really sure that there's a simple regulatory move that would negate that (eg: you can cap salaries, but CEOs make most of their money from stocks. You might be able to cap how much stock a hired CEO can own, but most of the wealthiest people like Bezos and Zuck are founders).
  - coldtea 6y ago
    >The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO And a pragmatism can say that all kinds of CEOs have driven companies to the ground, reducing their valuation even 1/10 what it was, and destroying their market share, and walked away just fine, with golden parachutes and even bonuses... CEOs get more because CEOs get to determine what they get (and the board members and execs rub each other's back when it comes to their collective advantages). It has little to do with performance and "whoever is responsible for the success of the company".
    - tjs8rj 6y ago
      A sharper metric: it tends to do with whoever is responsible for the success of the company at the least cost to shareholders. Imagine a company starting out. If they need you to join or they fail, and they can get you for 1% of the company, that founder is rewarded incredibly for securing you with very minor cost to the company, making them rich and you not, even if you are responsible for the success of the company. The reason being: if you’re so integral why didn’t you start your own company and keep all the equity? Why didn’t you bargain for more? Capitalism doesn’t make any prescriptions about what should happen, it’s just a system where individuals make consensual transactions and the chips fall where they do. In the above scenario, whether the founder “deserved” to be rich or not doesn’t matter, because you “made” them rich with your consensual transaction. As long as we are all free to be the founders or the employees, I don’t see why there should be some moral issue there. If your effort is worth more to others, either you need to haggle harder, start your own company, or you’re lying to yourself. Everyone is a stock in capitalism, that’s all that is true. Everyone sets the value of each other’s labor and capital. If your stock isn’t doing so hot it’s because others aren’t buying it.
- Aunche 6y ago
  A lot of employee compensation does come from diluting Wall Street. Until recently, Tesla was operating at a loss. During that time the workers were paid by diluting equity.
- known 6y ago
  "Heads I Win; Tails You Lose" --Majority Top Executives
khuey 6y ago
I don't think "upper management comp has exploded only because they invented an entirely new way of compensating themselves" is the get-out-of-jail-free card you seem to think it is.
joshuamorton 6y ago
> They come from diluting Wall Street. Yes, until the company offers a stock buyback (which these companies collectively spent more than 50 billion on in 2020)
- missedthecue 6y ago
  ok. But then they're using cash from the business to get the share count back down to prior levels, and it's still a net loss for Icahn. There are only 100 percents. If the management team gets more ownership through dilution, it means Carl Icahn owns less.
  - shkkmo 6y ago
    Yes, and that cash is a part of the revenue that could be used to pay the workers who generated that revenue. Thus CEO pay is absolutely the concern of workers, unions, and union supported politicians.
  - joshuamorton 6y ago
    But the employees don't gain anything. You've modeled this is a fight between wall street and the CEO, entirely forgetting about employees who get no (or trivial) stock compensation. Hypothetically, a company could pay 100M in stock to the CEO, and then issue 100M in stock buybacks to the CEO. This is functionally equivalent to paying the CEO 100M, but it wouldn't count in your salary numbers. And notably, both of these, stock buybacks and CEO pay, dilute wallstreet in the same way. But neither benefits employees. To use the JP morgan example, (and this is roughly equivalent for Google), the company could stop stock buybacks, and instead pay every employee an additional $150,000. That results in the CEO and wall street getting less money, and employees getting more. Walmart and Coke modulate the share price in other ways, so stock buybacks won't tell a particularly interesting story.
alpha_squared 6y ago
You're not wrong, but the perspective feels like missing the forest for the trees. So what if stock-based compensation was uncommon in 1965? The average employee doesn't get to benefit from the very real contributions they've made to the company, while the CEO does benefit. Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs? That's still relevant. Additionally, your comment leaves out the golden parachute CEOs often have, which is orders of magnitude greater than most severance packages, if there's even a severance package in place. Financially, it's pretty hard to fail as a CEO of just about any public company; even in failure, you profit considerably.
- davvolun 6y ago
  Exactly, pensions were considerably more common in the 1960s also, but at the end of the day, I don't really care if my retirement is actually funded by a pension or a 401k or by stuffing dollar bills under my mattress, I want to know when I can retire and how comfortably I can live when I retire. Yes, getting into the weeds is valuable, but here we're talking about the money in your bank at the end of the day, and that CEO salaries haven't changed much doesn't say anything. Yes, a CEO should be making more money than the average employee. The debate is over how much -- why do CEOs get absolutely massive bonuses and golden parachutes and stock options and for employees it's expected that you put in the work in the hope of future recompense in terms of bonuses, promotions, etc.
  - WalterBright 6y ago
    > why Because their decisions can drive a company into bankruptcy or transform it into a trillion dollar company. Your average line employee has no such leverage from their actions.
    - FireBeyond 6y ago
      And when they drive it into bankruptcy, the company will still go to court to argue that these bonuses, compensation, parachutes should be paid, regardless. Win-win game. Except for the employees and shareholders.
efficax 6y ago
stock based compensation exists for C-level employees because it allows them to reduce their tax burden by taking their income via long term capital gains. It's still income!
- systemBuilder 6y ago
  I think that only works for ISOs (incentive stock options), and now the rules on who can get them and how many can be issued are very restrictive.
Florin_Andrei 6y ago
TLDR: CEOs are wildly better paid nowadays, compared to decades ago, via mechanism X, as opposed to mechanism Y. Both X and Y ultimately deliver money.
- missedthecue 6y ago
  And the question is whether that's a problem or not, and if so, who is it a problem for. My comment illustrates that modern CEO pay does not hurt the average employee in any way, only the shareholders. Either you don't think modern CEO pay is a problem, or you think it's a problem because it makes shareholders poorer. It doesn't impact the rest of the employees or reduce their incomes.
  - wavefunction 6y ago
    I find the notion that paying a CEO 321 times the salary of a worker in cash to be problematic for society while paying the CEO 321 the salary of a worker in stock options/grants is not not problematic to society to be completely unconvincing. Both illustrate to me the historic and increasing inequality in distribution of income and wealth. Asking me to ignore that divide and instead sympathize with someone like Carl Icahn is obscene in a humorous way.
    - missedthecue 6y ago
      Why is it a problem then? Your personal intuitions about how much any human should earn in a given year sounds less like a convincing argument to me and more like envy.
      - Florin_Andrei 6y ago
        > Why is it a problem then? I honestly think the Ayn Rand crowd are missing a few circuits. Well, that's a crude way of putting it, but let's just say it's like color blindness but for ethics. No amount of oratory will make a color-blind person see red. And that's just the way it is. Those "circuits" play an important role in regulating how groups behave. Lacking them, you open the door for extremely bad things to happen. This is why libertarianism and related ideologies should be treated with extreme caution at best.
greatgib 6y ago
First, when PG compare wealth of rich persons, he does not just compare salaries but the total wealth that come from the total of incomes. Second, there is something not to forget about the stocks: It is a "right" to the proportional part of all the future financial results of the company. . So, let's forget about inflation and consider equivalent dollars: Imagine you have a 30 employees company, that will generate 1000$ of income. Of these 1000$, there is a 50% margin, so it remains 500$ of benefit. . In 1965: - Boss will have a salary of 200$ - 30 employees total wages of 300$ (so 10$ per person) - Net result of 0$ (total of stocks, going to the boss anyway) . In 2017, same company and conditions: - Boss will have a salary of 50$ - 30 employees total wages of 19,23$ (so 0,64$ per person) - Net result of 430,77$ The net result belongs to Boss + other shareholders. -> boss get: 150$ -> other shareholders get: 280,77$ (So in result 200$ for the boss, 0,64$ per employee, 312-1 ratio) . Some people will say that the stocks value, based on valuation, does not correspond to 1 year of revenue. So, for example a 100$ stocks might correspond to an expectation of 10 years of 10$ benefit. But, on the previous article the 312-1 ratio corresponds to a year compensation, that is repeated every year. So it means that as a boss, you will also get new stocks or bigger capital for your stock every year to have this ratio maintained.
markvdb 6y ago
> If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does. One doesn't have to be a shareholder or even a direct stakeholder in a specific company to claim the right to outrage over this growing inequality in pay.
- missedthecue 6y ago
  The question is whether anyone is worse off because of it, and my comment points out that contrary to popular rhetoric, if anyone is getting hurt by it, it's not the employees. If you think nobody is getting hurt by it, it's not a problem, it's just envy.
  - markvdb 6y ago
    It's certainly possible to view these things from other perspectives than a narrow transactional economic perspective. Can you imagine some of those?
    - missedthecue 6y ago
      Yes, jealousy and envy that other people do in fact make more money than I do. This is not a real societal problem, it's a personal and human nature problem.
jjav 6y ago
> CEO salaries today are still about 20-1 Base salaries are not significant to the discussion. Sometime high profile CEOs make $1 salary. What matters it the total comp, just as with any employee. Some FAANG engineers might make $175K in base salary but total comp is over 1M.
jjav 6y ago
> They come from diluting Wall Street. Knowing this, the whole thing is way less of an outrage. The outrage is why all that dilution goes to the CEO. Options can be granted to all employees more fairly than common these days.
heavyset_go 6y ago
This analysis is about as apt as saying, "Larry Ellison's salary was only $1, so what are you complaining about?"
- missedthecue 6y ago
  The guardian article and the commenter I replied to are pointing out the difference between 1965 and 2020 as if it's a problem. A problem is defined as something that has a negative impact on people. My analysis points out that the only people that modern CEO pay has a negative impact on is the shareholders. I illustrated that it makes literally no difference to your average floor worker whether the CEO gets $0 or $20 million in stock comp.
  - lanstin 6y ago
    If that worker has a pension or 401k, then it does matter. The fleecing isn't directly from him, but aggregate it by "managerial class" and "middle class" and you see the high $ managerial cash flows are directly at the expense of the middle class and retirement of the middle class. Thru in some tax policy, and you can see it is also taking money away from education of young middle class folks, and investment in communal things like roads and public health and so on.
    - missedthecue 6y ago
      Yes, it hurts shareholders. That's what I wrote in my first comment. You agree with me then?
      - lanstin 6y ago
        I agree it's a diversion of wealth from the workers to the management class.
  - CPLX 6y ago
    This argument is fucking ludicrous. Money is money. If the business used to have it and now the CEO has it then the business gave it to him. There's no class of equity that wasn't originally created and owned by the business so that's where the money comes from. And lest there be any confusion, all the companies we're talking about do massive stock buy backs so it's not even hypothetical, they spend billions of dollars to prop up the price of stocks and the executives get it.
fshbbdssbbgdd 6y ago
> But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. This distinction doesn’t make sense. Cash and stock are fungible for a public company.
- diogofranco 6y ago
  This, many companies even make this quite explicit by issuing stock to employees and buying back the same number of shares, in order to pay with cash flow rather than dilution.
bumby 6y ago
And in that context, the article does speak to this point. >the companies themselves are more valuable, because newly founded companies grow faster than they used to. The added reliance on stock-based compensation combined with higher valuations leads to higher CEO salaries. This isn't making a case one way or the other about whether this is a fair or sustainable model, just meant to bolster your point about why greater context is needed when discussing executive salaries as a multiple of the individual employee.
amalcon 6y ago
> But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. How are these different? If the business pays its employees $X more, that money doesn't just appear out of nowhere. It comes out of other areas of the business -- such as capex, M&A, or retained profits. All of these things contribute directly to the value of the shares held by Wall Street, whether directly (in the case of a dividend or share buyback) or indirectly by growing the business. Likewise, dilution means that an existing shareholder benefits less from $X worth of these things, and therefore should demand an increase in X (or a reduced stock price). It's all money either way, and money is fungible.
confidantlake 6y ago
This distinction seems meaningless. At the end of the day, the stockholders own the business. They are paying the salaries of both the CEO and the pallet worker, regardless if it comes in the form of cash or stock. Also wages don't always come from cashflow. Amazon lost money for its first X years. Salaries and everything else were covered by investor cash.
royaltjames 6y ago
Salary isn't How People Get Rich Now, seems like you missedthecue.
WalterBright 6y ago
> Stock based compensation didn't exist in 1965. In 1965 employees also typically got pensions, the value of which is not counted in those figures.
fredophile 6y ago
What does "diluting wall street" mean? How is it different from "taking money from the business owners"? If I'm CEO at a company what difference does it make to me if I'm compensated by salary or shares/bonuses? If I'm an employee at a company what difference does it make to me if the CEO is compensated by salary or shares/bonus3s? If I'm a shareholder in a company what difference does it make to me if the CEO is compensated by salary or shares/bonuses? The distinction between salary and bonus compensation is irrelevant outside of possibly some minor tax impacts.
CPLX 6y ago
This is nonsense. What you clearly have here is a principal/agent problem. The way it works is like this: 1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified by people responsible for managing money. 2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management. 3) What is actually happening is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that. They'll concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations (like the article we're all commenting on) but at the end of the day the people who should be tasked with fairly apportioning resources in a common enterprise are taking more and more of it for themselves. The solution is to stop letting them get away with it.
foobiekr 6y ago
I'm not going to name companies, but I think this is actually not quite right. While I agree with your broader point, in a lot of larger legacy companies the heavy use of buybacks to buoy the stock price, which in turn benefits executing compensation, directly plays into whether that cash is available to use for employee compensation.

JMTQp8lwXL 6y ago

A more useful longterm metric is total compensation CEO:worker ratio. Stating the salary ratios are the same isn't a compelling argument since that's only one factor in the total package.

peter422 6y ago

Why can’t employee compensation also come from diluting Wall Street? Why do they vast majority of those benefits go to top executives?

missedthecue 6y ago
Performance and incentive alignment. John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast, and he plays a very minute part in the direction of the business. The CEO on the other hand can have a huge impact, and it's why shareholders choose and vote on certain incentives and bonuses. But more importantly, in other businesses this type of comp is certainly offered. If you work in a small startup in any position, you probably get stock options, because your performance on a 10 or 20 person team probably does have real noticeable and measurable impact on the business's success.
- alpha_squared 6y ago
  > John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast. A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving. Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
  - djrogers 6y ago
    > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.
    - alpha_squared 6y ago
      > As long as you are still employed by the company that granted you the options I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.
  - drexlspivey 6y ago
    > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
aerosmile 6y ago
The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO (eg: what was Apple doing before Steve Jobs came back?). The workers can obviously leave and seek employment elsewhere. So can the CEO. For better or worse, the data presented in the parent post indicate that the market seems to be increasingly siding with the CEO-side of the above argument. I am not really sure that there's a simple regulatory move that would negate that (eg: you can cap salaries, but CEOs make most of their money from stocks. You might be able to cap how much stock a hired CEO can own, but most of the wealthiest people like Bezos and Zuck are founders).
- coldtea 6y ago
  >The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO And a pragmatism can say that all kinds of CEOs have driven companies to the ground, reducing their valuation even 1/10 what it was, and destroying their market share, and walked away just fine, with golden parachutes and even bonuses... CEOs get more because CEOs get to determine what they get (and the board members and execs rub each other's back when it comes to their collective advantages). It has little to do with performance and "whoever is responsible for the success of the company".
  - tjs8rj 6y ago
    A sharper metric: it tends to do with whoever is responsible for the success of the company at the least cost to shareholders. Imagine a company starting out. If they need you to join or they fail, and they can get you for 1% of the company, that founder is rewarded incredibly for securing you with very minor cost to the company, making them rich and you not, even if you are responsible for the success of the company. The reason being: if you’re so integral why didn’t you start your own company and keep all the equity? Why didn’t you bargain for more? Capitalism doesn’t make any prescriptions about what should happen, it’s just a system where individuals make consensual transactions and the chips fall where they do. In the above scenario, whether the founder “deserved” to be rich or not doesn’t matter, because you “made” them rich with your consensual transaction. As long as we are all free to be the founders or the employees, I don’t see why there should be some moral issue there. If your effort is worth more to others, either you need to haggle harder, start your own company, or you’re lying to yourself. Everyone is a stock in capitalism, that’s all that is true. Everyone sets the value of each other’s labor and capital. If your stock isn’t doing so hot it’s because others aren’t buying it.
Aunche 6y ago
A lot of employee compensation does come from diluting Wall Street. Until recently, Tesla was operating at a loss. During that time the workers were paid by diluting equity.
known 6y ago
"Heads I Win; Tails You Lose" --Majority Top Executives

khuey 6y ago

I don't think "upper management comp has exploded only because they invented an entirely new way of compensating themselves" is the get-out-of-jail-free card you seem to think it is.

joshuamorton 6y ago

> They come from diluting Wall Street. Yes, until the company offers a stock buyback (which these companies collectively spent more than 50 billion on in 2020)

missedthecue 6y ago
ok. But then they're using cash from the business to get the share count back down to prior levels, and it's still a net loss for Icahn. There are only 100 percents. If the management team gets more ownership through dilution, it means Carl Icahn owns less.
- shkkmo 6y ago
  Yes, and that cash is a part of the revenue that could be used to pay the workers who generated that revenue. Thus CEO pay is absolutely the concern of workers, unions, and union supported politicians.
- joshuamorton 6y ago
  But the employees don't gain anything. You've modeled this is a fight between wall street and the CEO, entirely forgetting about employees who get no (or trivial) stock compensation. Hypothetically, a company could pay 100M in stock to the CEO, and then issue 100M in stock buybacks to the CEO. This is functionally equivalent to paying the CEO 100M, but it wouldn't count in your salary numbers. And notably, both of these, stock buybacks and CEO pay, dilute wallstreet in the same way. But neither benefits employees. To use the JP morgan example, (and this is roughly equivalent for Google), the company could stop stock buybacks, and instead pay every employee an additional $150,000. That results in the CEO and wall street getting less money, and employees getting more. Walmart and Coke modulate the share price in other ways, so stock buybacks won't tell a particularly interesting story.

alpha_squared 6y ago

You're not wrong, but the perspective feels like missing the forest for the trees. So what if stock-based compensation was uncommon in 1965? The average employee doesn't get to benefit from the very real contributions they've made to the company, while the CEO does benefit. Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs? That's still relevant. Additionally, your comment leaves out the golden parachute CEOs often have, which is orders of magnitude greater than most severance packages, if there's even a severance package in place. Financially, it's pretty hard to fail as a CEO of just about any public company; even in failure, you profit considerably.

davvolun 6y ago
Exactly, pensions were considerably more common in the 1960s also, but at the end of the day, I don't really care if my retirement is actually funded by a pension or a 401k or by stuffing dollar bills under my mattress, I want to know when I can retire and how comfortably I can live when I retire. Yes, getting into the weeds is valuable, but here we're talking about the money in your bank at the end of the day, and that CEO salaries haven't changed much doesn't say anything. Yes, a CEO should be making more money than the average employee. The debate is over how much -- why do CEOs get absolutely massive bonuses and golden parachutes and stock options and for employees it's expected that you put in the work in the hope of future recompense in terms of bonuses, promotions, etc.
- WalterBright 6y ago
  > why Because their decisions can drive a company into bankruptcy or transform it into a trillion dollar company. Your average line employee has no such leverage from their actions.
  - FireBeyond 6y ago
    And when they drive it into bankruptcy, the company will still go to court to argue that these bonuses, compensation, parachutes should be paid, regardless. Win-win game. Except for the employees and shareholders.

efficax 6y ago

stock based compensation exists for C-level employees because it allows them to reduce their tax burden by taking their income via long term capital gains. It's still income!

systemBuilder 6y ago
I think that only works for ISOs (incentive stock options), and now the rules on who can get them and how many can be issued are very restrictive.

Florin_Andrei 6y ago

TLDR: CEOs are wildly better paid nowadays, compared to decades ago, via mechanism X, as opposed to mechanism Y. Both X and Y ultimately deliver money.

missedthecue 6y ago
And the question is whether that's a problem or not, and if so, who is it a problem for. My comment illustrates that modern CEO pay does not hurt the average employee in any way, only the shareholders. Either you don't think modern CEO pay is a problem, or you think it's a problem because it makes shareholders poorer. It doesn't impact the rest of the employees or reduce their incomes.
- wavefunction 6y ago
  I find the notion that paying a CEO 321 times the salary of a worker in cash to be problematic for society while paying the CEO 321 the salary of a worker in stock options/grants is not not problematic to society to be completely unconvincing. Both illustrate to me the historic and increasing inequality in distribution of income and wealth. Asking me to ignore that divide and instead sympathize with someone like Carl Icahn is obscene in a humorous way.
  - missedthecue 6y ago
    Why is it a problem then? Your personal intuitions about how much any human should earn in a given year sounds less like a convincing argument to me and more like envy.
    - Florin_Andrei 6y ago
      > Why is it a problem then? I honestly think the Ayn Rand crowd are missing a few circuits. Well, that's a crude way of putting it, but let's just say it's like color blindness but for ethics. No amount of oratory will make a color-blind person see red. And that's just the way it is. Those "circuits" play an important role in regulating how groups behave. Lacking them, you open the door for extremely bad things to happen. This is why libertarianism and related ideologies should be treated with extreme caution at best.

greatgib 6y ago

First, when PG compare wealth of rich persons, he does not just compare salaries but the total wealth that come from the total of incomes. Second, there is something not to forget about the stocks: It is a "right" to the proportional part of all the future financial results of the company. . So, let's forget about inflation and consider equivalent dollars: Imagine you have a 30 employees company, that will generate 1000$ of income. Of these 1000$, there is a 50% margin, so it remains 500$ of benefit. . In 1965: - Boss will have a salary of 200$ - 30 employees total wages of 300$ (so 10$ per person) - Net result of 0$ (total of stocks, going to the boss anyway) . In 2017, same company and conditions: - Boss will have a salary of 50$ - 30 employees total wages of 19,23$ (so 0,64$ per person) - Net result of 430,77$ The net result belongs to Boss + other shareholders. -> boss get: 150$ -> other shareholders get: 280,77$ (So in result 200$ for the boss, 0,64$ per employee, 312-1 ratio) . Some people will say that the stocks value, based on valuation, does not correspond to 1 year of revenue. So, for example a 100$ stocks might correspond to an expectation of 10 years of 10$ benefit. But, on the previous article the 312-1 ratio corresponds to a year compensation, that is repeated every year. So it means that as a boss, you will also get new stocks or bigger capital for your stock every year to have this ratio maintained.

markvdb 6y ago

> If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does. One doesn't have to be a shareholder or even a direct stakeholder in a specific company to claim the right to outrage over this growing inequality in pay.

missedthecue 6y ago
The question is whether anyone is worse off because of it, and my comment points out that contrary to popular rhetoric, if anyone is getting hurt by it, it's not the employees. If you think nobody is getting hurt by it, it's not a problem, it's just envy.
- markvdb 6y ago
  It's certainly possible to view these things from other perspectives than a narrow transactional economic perspective. Can you imagine some of those?
  - missedthecue 6y ago
    Yes, jealousy and envy that other people do in fact make more money than I do. This is not a real societal problem, it's a personal and human nature problem.

jjav 6y ago

> CEO salaries today are still about 20-1 Base salaries are not significant to the discussion. Sometime high profile CEOs make $1 salary. What matters it the total comp, just as with any employee. Some FAANG engineers might make $175K in base salary but total comp is over 1M.

jjav 6y ago

> They come from diluting Wall Street. Knowing this, the whole thing is way less of an outrage. The outrage is why all that dilution goes to the CEO. Options can be granted to all employees more fairly than common these days.

heavyset_go 6y ago

This analysis is about as apt as saying, "Larry Ellison's salary was only $1, so what are you complaining about?"

missedthecue 6y ago
The guardian article and the commenter I replied to are pointing out the difference between 1965 and 2020 as if it's a problem. A problem is defined as something that has a negative impact on people. My analysis points out that the only people that modern CEO pay has a negative impact on is the shareholders. I illustrated that it makes literally no difference to your average floor worker whether the CEO gets $0 or $20 million in stock comp.
- lanstin 6y ago
  If that worker has a pension or 401k, then it does matter. The fleecing isn't directly from him, but aggregate it by "managerial class" and "middle class" and you see the high $ managerial cash flows are directly at the expense of the middle class and retirement of the middle class. Thru in some tax policy, and you can see it is also taking money away from education of young middle class folks, and investment in communal things like roads and public health and so on.
  - missedthecue 6y ago
    Yes, it hurts shareholders. That's what I wrote in my first comment. You agree with me then?
    - lanstin 6y ago
      I agree it's a diversion of wealth from the workers to the management class.
- CPLX 6y ago
  This argument is fucking ludicrous. Money is money. If the business used to have it and now the CEO has it then the business gave it to him. There's no class of equity that wasn't originally created and owned by the business so that's where the money comes from. And lest there be any confusion, all the companies we're talking about do massive stock buy backs so it's not even hypothetical, they spend billions of dollars to prop up the price of stocks and the executives get it.

fshbbdssbbgdd 6y ago

> But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. This distinction doesn’t make sense. Cash and stock are fungible for a public company.

diogofranco 6y ago
This, many companies even make this quite explicit by issuing stock to employees and buying back the same number of shares, in order to pay with cash flow rather than dilution.

bumby 6y ago

And in that context, the article does speak to this point. >the companies themselves are more valuable, because newly founded companies grow faster than they used to. The added reliance on stock-based compensation combined with higher valuations leads to higher CEO salaries. This isn't making a case one way or the other about whether this is a fair or sustainable model, just meant to bolster your point about why greater context is needed when discussing executive salaries as a multiple of the individual employee.

amalcon 6y ago

> But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. How are these different? If the business pays its employees $X more, that money doesn't just appear out of nowhere. It comes out of other areas of the business -- such as capex, M&A, or retained profits. All of these things contribute directly to the value of the shares held by Wall Street, whether directly (in the case of a dividend or share buyback) or indirectly by growing the business. Likewise, dilution means that an existing shareholder benefits less from $X worth of these things, and therefore should demand an increase in X (or a reduced stock price). It's all money either way, and money is fungible.

confidantlake 6y ago

This distinction seems meaningless. At the end of the day, the stockholders own the business. They are paying the salaries of both the CEO and the pallet worker, regardless if it comes in the form of cash or stock. Also wages don't always come from cashflow. Amazon lost money for its first X years. Salaries and everything else were covered by investor cash.

royaltjames 6y ago

Salary isn't How People Get Rich Now, seems like you missedthecue.

WalterBright 6y ago

> Stock based compensation didn't exist in 1965. In 1965 employees also typically got pensions, the value of which is not counted in those figures.

fredophile 6y ago

What does "diluting wall street" mean? How is it different from "taking money from the business owners"? If I'm CEO at a company what difference does it make to me if I'm compensated by salary or shares/bonuses? If I'm an employee at a company what difference does it make to me if the CEO is compensated by salary or shares/bonus3s? If I'm a shareholder in a company what difference does it make to me if the CEO is compensated by salary or shares/bonuses? The distinction between salary and bonus compensation is irrelevant outside of possibly some minor tax impacts.

CPLX 6y ago

This is nonsense. What you clearly have here is a principal/agent problem. The way it works is like this: 1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified by people responsible for managing money. 2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management. 3) What is actually happening is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that. They'll concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations (like the article we're all commenting on) but at the end of the day the people who should be tasked with fairly apportioning resources in a common enterprise are taking more and more of it for themselves. The solution is to stop letting them get away with it.

foobiekr 6y ago

I'm not going to name companies, but I think this is actually not quite right. While I agree with your broader point, in a lot of larger legacy companies the heavy use of buybacks to buoy the stock price, which in turn benefits executing compensation, directly plays into whether that cash is available to use for employee compensation.