6 ms·

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 expec

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.
- specialist 6y ago
  That's the trillion dollar question. Preferential attachment (winner-takes-all) seems something like a natural law. The pink elephant in the living room, which no one dares mention for fear of catching the attention of the elephant.
- gruez 6y ago
  Because CEOs aren't a commodity. As the board, you don't want a CEO for the cheapest price, you want the best CEO you can get your hands on. That's the same reason why athletes/actors are paid millions despite literally billions of other people willing to take the job for less.
  - lordnacho 6y ago
    Athletes and actors have very direct performance stats. For one, they only compete with other people doing the same job. Athletes have literally every footstep of their on field career recorded, the stats sliced and diced. Every movie is its own project with a PnL. CEOs are working in much more vague competitive environments.
    - WalterBright 6y ago
      CEOs have very direct performance stats. It's the quarterly financial statement release.
      - lordnacho 6y ago
        That doesn't come close to sports. - Sports is 11 people. Business is thousands. - Sports people are literally recorded for every step they take. CEOs not so much. - Attribution is whole different issue when you've got a years long strategy. By contrast in sports there's rarely a player left from the team of 10 years ago. - Sports are made to be repeatable. Business evolves.
        WalterBright 6y ago
        Every decision CEOs make is recorded. And attribution on sports success is also related to the other team members, the coach, the support given to the team, the infrastructure of the sport, the team doctors, etc. Sports teams definitely have years long strategies. I'm just not buying your claim that sports stars can justify their extraordinary salaries while CEOs cannot.
- justin66 6y ago
  > And why doesn't the added competition from the billions of extra population from which CEOs are drawn push salaries down? For that matter, the larger the company, the more viable CEO replacements exist among middle and upper management.
- zachrose 6y ago
  Because CEO recruiting is insanely irrational. https://press.princeton.edu/books/paperback/9780691120393/searching-for-a-corporate-savior https://press.princeton.edu/books/paperback/9780691120393/se...
  - dwaltrip 6y ago
    Hmmm. This may sound a bit crazy but I wonder if some sort of "moneyball"-type strategy would work for CEO development and recruitment... I'm not sure who would be the general manager, how to replicate the functions of high school ball and the minor leagues, or how you could acquire the necessary data / stats... but I feel like there is some potential here!
    - _dps 6y ago
      An acquaintance of mine was working on an accounting PhD on basically this subject (trying to quantify CEO contribution to revenues and profits, all else held equal). He said that after years studying it, he thought it's too noisy with too little data over too long a timeframe to do a good quantitative analysis. He also pointed out there is a big "apples to oranges" problem even with the limited data available. In sports (but not business) you have lots of reliably tracked micro metrics in addition to final metrics (wins/revenue). The micro metrics are generated regularly (stats for each player for each game) and those metrics are portable across players (everyone is going for points, runs, blocks, whatever). In comparison, for CEOs you mainly have quarterly reporting of coarse financials (but nothing like employee morale, number of offices opened, etc.).
      - dwaltrip 6y ago
        Oh wow, very interesting. That all makes sense. The lack of consistent, comparable data is a huge issue. The complexity space that CEOs operate in is many orders of magnitude larger than in sports, and it also far more dynamic and chaotic. It seems pretty intractable.
specialist 6y ago
1.1 - Correct 1.2 - Why? 2 - The New Deal's Capital's accommodation to Labor was to share the boon of increasing productivity (surplus). Neoliberalism (Reaganonmics) ended that foolishness. 3 - CEO compensation is merit based? 4.1 - aka Glut of labor. 4.2 - I'm curious what our future leaders will do to remedy today's glut of capital, the by product of decades of labor glut without the benefit of appropriate profit sharing.
- atlgator 6y ago
  4.1 - Glut of labor, but combined with outsourcing to lower cost of living nations/cities/etc.
  - specialist 6y ago
    Yes, and: Migrating operations to immature jurisdictions more willing to eat the externalities.
- 1cvmask 6y ago
  Neoliberalism (and original neoconservative movement) was started by Jimmy Carter. https://zacharytoillion.medium.com/how-neoliberalism-destroyed-the-democratic-party-ee99be30323a https://zacharytoillion.medium.com/how-neoliberalism-destroy...
  - specialist 6y ago
    But Reagan gets the credit. And Gov Reagan and others had agency too. "Reaganomics" is just short hand for when that agenda became the dominate policy.
ergocoder 6y ago
Also, thanks to the compensation transparency.
Salgat 6y ago
So what you're saying is globalization is concentrating wealth at the top and policies are required to counter this.
- mandelbrotwurst 6y ago
  They said the former, you’re saying the latter.
- GuB-42 6y ago
  No, he is just making a hypothesis that could explain the observation, and he is suggesting a way to test them. As in... science. What we should do about it (if there is something we should do) is politics, an entirely different topic.
- adam_arthur 6y ago
  My post was meant to be factual rather than advocating specific policy positions. It's important to consider absolute quality of life in addition to inequality. "Equality" is a relative measure, but what matters in the end is how well each individual is doing. I'm in favor of policies that would help the less fortunate, though we need to be careful to implement them in an effective way. I do think manufacturing will shift from globalization to localization once enough of the process can be automated. Once shipping costs start to exceed production costs, manufacturing will move back home. Of course, if the manufacturing is automated, it means those jobs aren't coming back. This also depends on whether it's cheaper to ship the raw materials vs the finished product, and where those materials can be sourced from. That being said, a lot of the recent rise in inequality has been driven by government policy. Some things like housing are becoming prohibitively expensive to most due to short term focused policy by the Fed and perhaps congress as well. The policy reaction we've seen has been quite effective, but is creating many potential asset bubbles that can cause bigger problems down the line. These bubbles obviously inflate the wealth of the rich and lead to much greater inequality (often described as the k shaped recovery). Hyper targeted policy, and letting things reach equilibrium through mostly free market forces often produces healthier outcomes in the long run.
- deleted 6y ago
  [deleted]
williamsmj 6y ago
All of those points apply equally if not more to the US military, in which the ratio of the salary of the highest to lowed paid employee is ... 8.
- RhysU 6y ago
  Right, the military leadership is underpaid. Not winning a war stinks. Why risk it on second tier leaders because the first tier hit the private sector?
LorenPechtel 6y ago
Exactly. #1 is a big factor--the proper comparison is of CEOs of equal-sized companies. That data is very hard to find because it doesn't support the notion that CEO salary has run away.
deleted 6y ago
[deleted]
pumaontheprowl 6y ago
Yup, compensation ratio is a false narrative. My CEO makes 100x more than me (roughly $30M). But he is not 100x better at being a CEO than I would be; he may only be 2x better than me. The reason why he is paid 100x is because his decisions have the ability to affect billions of dollars in revenue, so having him as CEO instead of me could mean the company brings in an additional $300M in revenue next year. If you assume that he's bringing in $300M more than I would bring in, paying him $29.7M more than me does not seem unreasonable. Overall, the CEO:worker pay ratio is a pretty meaningless statistic. At most companies, even if you were to entirely redistribute the CEO's salary to the employees, the employees still wouldn't see significant wage increases. For example, dividing Bob Iger's $47M salary amongst Disney's 155k employees would only result in a $300/year pay raise for each employee. People hoping to solve poverty by slashing CEO compensation are going to be sorely disappointed.
- extra88 6y ago
  Yes, Disney is very large but CEO pay isn't proportional to employee count. If Elon Musk's compensation (almost $600m in 2019) was divided amongst Tesla's 70,000 employees, that would be ~$8,500/employee. If Sumit Singh's compensation (~$108m in 2019) was distributed amongst Chewy.com's employees (9,800 in 2019), it would be ~$11,000/employee. No one thinks bringing CEO pay back to Earth will solve poverty by itself.

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.
specialist 6y ago
That's the trillion dollar question. Preferential attachment (winner-takes-all) seems something like a natural law. The pink elephant in the living room, which no one dares mention for fear of catching the attention of the elephant.
gruez 6y ago
Because CEOs aren't a commodity. As the board, you don't want a CEO for the cheapest price, you want the best CEO you can get your hands on. That's the same reason why athletes/actors are paid millions despite literally billions of other people willing to take the job for less.
- lordnacho 6y ago
  Athletes and actors have very direct performance stats. For one, they only compete with other people doing the same job. Athletes have literally every footstep of their on field career recorded, the stats sliced and diced. Every movie is its own project with a PnL. CEOs are working in much more vague competitive environments.
  - WalterBright 6y ago
    CEOs have very direct performance stats. It's the quarterly financial statement release.
    - lordnacho 6y ago
      That doesn't come close to sports. - Sports is 11 people. Business is thousands. - Sports people are literally recorded for every step they take. CEOs not so much. - Attribution is whole different issue when you've got a years long strategy. By contrast in sports there's rarely a player left from the team of 10 years ago. - Sports are made to be repeatable. Business evolves.
      - WalterBright 6y ago
        Every decision CEOs make is recorded. And attribution on sports success is also related to the other team members, the coach, the support given to the team, the infrastructure of the sport, the team doctors, etc. Sports teams definitely have years long strategies. I'm just not buying your claim that sports stars can justify their extraordinary salaries while CEOs cannot.
justin66 6y ago
> And why doesn't the added competition from the billions of extra population from which CEOs are drawn push salaries down? For that matter, the larger the company, the more viable CEO replacements exist among middle and upper management.
zachrose 6y ago
Because CEO recruiting is insanely irrational. https://press.princeton.edu/books/paperback/9780691120393/searching-for-a-corporate-savior https://press.princeton.edu/books/paperback/9780691120393/se...
- dwaltrip 6y ago
  Hmmm. This may sound a bit crazy but I wonder if some sort of "moneyball"-type strategy would work for CEO development and recruitment... I'm not sure who would be the general manager, how to replicate the functions of high school ball and the minor leagues, or how you could acquire the necessary data / stats... but I feel like there is some potential here!
  - _dps 6y ago
    An acquaintance of mine was working on an accounting PhD on basically this subject (trying to quantify CEO contribution to revenues and profits, all else held equal). He said that after years studying it, he thought it's too noisy with too little data over too long a timeframe to do a good quantitative analysis. He also pointed out there is a big "apples to oranges" problem even with the limited data available. In sports (but not business) you have lots of reliably tracked micro metrics in addition to final metrics (wins/revenue). The micro metrics are generated regularly (stats for each player for each game) and those metrics are portable across players (everyone is going for points, runs, blocks, whatever). In comparison, for CEOs you mainly have quarterly reporting of coarse financials (but nothing like employee morale, number of offices opened, etc.).
    - dwaltrip 6y ago
      Oh wow, very interesting. That all makes sense. The lack of consistent, comparable data is a huge issue. The complexity space that CEOs operate in is many orders of magnitude larger than in sports, and it also far more dynamic and chaotic. It seems pretty intractable.

specialist 6y ago

1.1 - Correct 1.2 - Why? 2 - The New Deal's Capital's accommodation to Labor was to share the boon of increasing productivity (surplus). Neoliberalism (Reaganonmics) ended that foolishness. 3 - CEO compensation is merit based? 4.1 - aka Glut of labor. 4.2 - I'm curious what our future leaders will do to remedy today's glut of capital, the by product of decades of labor glut without the benefit of appropriate profit sharing.

atlgator 6y ago
4.1 - Glut of labor, but combined with outsourcing to lower cost of living nations/cities/etc.
- specialist 6y ago
  Yes, and: Migrating operations to immature jurisdictions more willing to eat the externalities.
1cvmask 6y ago
Neoliberalism (and original neoconservative movement) was started by Jimmy Carter. https://zacharytoillion.medium.com/how-neoliberalism-destroyed-the-democratic-party-ee99be30323a https://zacharytoillion.medium.com/how-neoliberalism-destroy...
- specialist 6y ago
  But Reagan gets the credit. And Gov Reagan and others had agency too. "Reaganomics" is just short hand for when that agenda became the dominate policy.

ergocoder 6y ago

Also, thanks to the compensation transparency.

Salgat 6y ago

So what you're saying is globalization is concentrating wealth at the top and policies are required to counter this.

mandelbrotwurst 6y ago
They said the former, you’re saying the latter.
GuB-42 6y ago
No, he is just making a hypothesis that could explain the observation, and he is suggesting a way to test them. As in... science. What we should do about it (if there is something we should do) is politics, an entirely different topic.
adam_arthur 6y ago
My post was meant to be factual rather than advocating specific policy positions. It's important to consider absolute quality of life in addition to inequality. "Equality" is a relative measure, but what matters in the end is how well each individual is doing. I'm in favor of policies that would help the less fortunate, though we need to be careful to implement them in an effective way. I do think manufacturing will shift from globalization to localization once enough of the process can be automated. Once shipping costs start to exceed production costs, manufacturing will move back home. Of course, if the manufacturing is automated, it means those jobs aren't coming back. This also depends on whether it's cheaper to ship the raw materials vs the finished product, and where those materials can be sourced from. That being said, a lot of the recent rise in inequality has been driven by government policy. Some things like housing are becoming prohibitively expensive to most due to short term focused policy by the Fed and perhaps congress as well. The policy reaction we've seen has been quite effective, but is creating many potential asset bubbles that can cause bigger problems down the line. These bubbles obviously inflate the wealth of the rich and lead to much greater inequality (often described as the k shaped recovery). Hyper targeted policy, and letting things reach equilibrium through mostly free market forces often produces healthier outcomes in the long run.
deleted 6y ago
[deleted]

williamsmj 6y ago

All of those points apply equally if not more to the US military, in which the ratio of the salary of the highest to lowed paid employee is ... 8.

RhysU 6y ago
Right, the military leadership is underpaid. Not winning a war stinks. Why risk it on second tier leaders because the first tier hit the private sector?

LorenPechtel 6y ago

Exactly. #1 is a big factor--the proper comparison is of CEOs of equal-sized companies. That data is very hard to find because it doesn't support the notion that CEO salary has run away.

deleted 6y ago

[deleted]

pumaontheprowl 6y ago

Yup, compensation ratio is a false narrative. My CEO makes 100x more than me (roughly $30M). But he is not 100x better at being a CEO than I would be; he may only be 2x better than me. The reason why he is paid 100x is because his decisions have the ability to affect billions of dollars in revenue, so having him as CEO instead of me could mean the company brings in an additional $300M in revenue next year. If you assume that he's bringing in $300M more than I would bring in, paying him $29.7M more than me does not seem unreasonable. Overall, the CEO:worker pay ratio is a pretty meaningless statistic. At most companies, even if you were to entirely redistribute the CEO's salary to the employees, the employees still wouldn't see significant wage increases. For example, dividing Bob Iger's $47M salary amongst Disney's 155k employees would only result in a $300/year pay raise for each employee. People hoping to solve poverty by slashing CEO compensation are going to be sorely disappointed.

extra88 6y ago
Yes, Disney is very large but CEO pay isn't proportional to employee count. If Elon Musk's compensation (almost $600m in 2019) was divided amongst Tesla's 70,000 employees, that would be ~$8,500/employee. If Sumit Singh's compensation (~$108m in 2019) was distributed amongst Chewy.com's employees (9,800 in 2019), it would be ~$11,000/employee. No one thinks bringing CEO pay back to Earth will solve poverty by itself.