4 ms·

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.
        lordnacho 6y ago
        > Every decision CEOs make is recorded No it isn't? You're comparing a literal where-was-Ronaldo-at-frame-768 with what the CEO does in his office all day. There's no way he's recorded in the same detail. With sports you can say "this guy is the fastest, he will outrun everyone and that's useful". Or "this guy provided x assists". Or "this guy saved x number of shots". Players take shots many many times, so you can separate the good ones from the bad ones, due to high n. There's no comparably clear measurement you can make on a CEO, because there aren't that many strategic decisions to make, and they aren't repeated. Once you've decided to buy that VR goggle startup, it won't be there anymore to tell you what would have happened otherwise. All you can have is a relatively small number of facts from which you can build a story. > 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. High number of observations and low number of team members in sports allows you to at least guess at replacement value. Eg LeBron really is better than the next guy, because we can see what happens when he's not there. And every game is comparable because it's set up that way. With business the landscape changes from the outcomes of the decisions, so it's pretty hard to figure out the counterfactuals.
- WalterBright 6y ago
  Elizabeth Taylor famously demanded and got a million dollars to star in "Cleopatra", the biggest contract ever at the time. But it was darn well worth it. The movie was a huge hit, and a big reason for that was Taylor's star power. I'm sure they could have gotten an endless supply of starlets who would have done it for free, or even paid to play the role. But that wouldn't have been a good business decision for the producers.
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.

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.
      - lordnacho 6y ago
        > Every decision CEOs make is recorded No it isn't? You're comparing a literal where-was-Ronaldo-at-frame-768 with what the CEO does in his office all day. There's no way he's recorded in the same detail. With sports you can say "this guy is the fastest, he will outrun everyone and that's useful". Or "this guy provided x assists". Or "this guy saved x number of shots". Players take shots many many times, so you can separate the good ones from the bad ones, due to high n. There's no comparably clear measurement you can make on a CEO, because there aren't that many strategic decisions to make, and they aren't repeated. Once you've decided to buy that VR goggle startup, it won't be there anymore to tell you what would have happened otherwise. All you can have is a relatively small number of facts from which you can build a story. > 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. High number of observations and low number of team members in sports allows you to at least guess at replacement value. Eg LeBron really is better than the next guy, because we can see what happens when he's not there. And every game is comparable because it's set up that way. With business the landscape changes from the outcomes of the decisions, so it's pretty hard to figure out the counterfactuals.
WalterBright 6y ago
Elizabeth Taylor famously demanded and got a million dollars to star in "Cleopatra", the biggest contract ever at the time. But it was darn well worth it. The movie was a huge hit, and a big reason for that was Taylor's star power. I'm sure they could have gotten an endless supply of starlets who would have done it for free, or even paid to play the role. But that wouldn't have been a good business decision for the producers.

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.