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Like most people I think that this is ludicrous, but could someone give a shot at playing devil's advocate and justifying this? Are competent CEOs so much harde

Like most people I think that this is ludicrous, but could someone give a shot at playing devil's advocate and justifying this? Are competent CEOs so much harder to get, do they really produce a 1,460% more value compared to '78, etc.?

squaredot 4y ago
The scale linking cost to quality of a good is not linear. People often pay twice as much for something that is only 10 percent better. Prices are a matter of allocation, not value.
wpasc 4y ago
My devil's advocate take is that this is downstream of corporate consolidation. Corporate consolidation IMO has become easier with greater economies of scale achievable with far better communication, shipping networks, and generally global connectivity. If CEO's of today on average leading companies that are orders of magnitude larger than in the 70's (CEO has 100-1000 people in the company in 70's vs 1,000-100,000 today), then the jump in pay isn't surprising. If the CEO is driving the direction of a company and those decisions affect orders of magnitude more workers and orders of magnitude more revenue, then it follows that they can get a higher salary. They might not be any better, but the stakes of their decisions are bigger.
- hotpotamus 4y ago
  Corporate consolidation may be easier now, but monopolies are nothing new. Theodore Roosevelt was famous for being a "trust buster". Some part of the story has to be regulatory.
paulgb 4y ago
I’m partial to the Lake Wobegon explanation, which gets a mention in the article: > Alluding to the fictional town in the radio program A Prairie Home Companion, Clifford (2017) describes the Lake Wobegon world of setting CEO compensation that fuels its growth: Every firm wants to believe its CEO is above average and therefore needs to be correspondingly remunerated. In other words, CEO pay isn’t just a way of attracting CEO talent, it’s also a way of signaling to investors that you have a good CEO. After all, who wants to invest in a company whose CEO (by the compensation committee’s own reckoning) is worse than average! This is rational for an individual company, but has the aggregate effect of inflating CEO compensation for everyone.
- cbsmith 4y ago
  As opposed to employees, where companies think their employees are average or below average?
  - paulgb 4y ago
    Employee pay is also a signal, but a much more expensive one, because total payroll at a large company is usually orders of magnitude larger than the CEO’s compensation.
    - cbsmith 4y ago
      Yet oddly, it isn't seen as a much stronger signal...
christophilus 4y ago
I’m not playing devil’s advocate, as I think the pay is indefensible. But I think the reason for the gap is that C-level executive salaries are public info. So, C-level employees have a lot of negotiating leverage. In addition to this, they generally have the ability to give themselves a raise (given that most boards are just yes-men).
suzzer99 4y ago
I imagine connections are pretty important.
deltree7 4y ago
Yes. 1) Technology has always helped Top Performers. So, it is natural that the impact of high performers will grow faster than average performers. 2) American CEOs now also increasingly service the rest of the world. So, naturally their Total-Addressable-Impact have grown significantly. US Management Innovation are adapted / copied quickly unlike the rest of the world 3) Musk, Jobs, Bezos, Nadella have demonstrably added Trillions of Dollars of value to their firms. So, it make sense to award a %age of value they create
- cbsmith 4y ago
  > Musk, Jobs, Bezos, Nadella have demonstrably added Trillions of Dollars of value to their firms. So, it make sense to award a %age of value they create Unlike CEO's of yore who contributed a tenth of the value to their companies?
  - deltree7 4y ago
    It's Math 101. CEOs compensation is typically tied to Market Caps of firms, while employees have fixed/sticky wages. In the 'Yore' It took a great deal of time for any firm to add $1 Billion value to their Market Cap. So, naturally CEOs compensation grew slowly. In the modern era, companies can add a Trillion Market Cap in a year. So, naturally CEO's growth rate will rapidly grow. A lot of phenomenon in this world can be explained if you apply Mathematical concepts and natural laws instead of resorting to conspiracy, billionaire-hate and anything lately pushed by mainstream media
    - cbsmith 4y ago
      > It's Math 101. CEOs compensation is typically tied to Market Caps of firms, while employees have fixed/sticky wages. It NOT Math 101. You're making some assertions that really don't stand up to even basic Econ 101 theory of markets. Why shouldn't other employee compensation be tied to market cap of firms (relative to the number of employees) and CEO compensation be fixed/sticky wages? The forces driving CEO wages should be no different than other employee wages. They should be driven by the net value they can provide for a company. (Seriously, if you're going to tie anything to the market cap of a firm, it should be more CFO/comptroller type roles, not CEO... but you don't see the accounting team being compensated more just because the company has a bigger budget.) It's not unreasonable that companies might think that CEOs provide more value than their other employees (not always true, but not an unsurprising perspective), but you'd have a hell of a time convincing me that CEO performance has improved 1460% in the last 50 years. Indeed, for the most part the job hasn't become harder, nor have the criteria become more stringent. You go back 50+ years ago, and you actually had a more difficult job because a company needed to manage far more employees to achieve the same economic value. If you can get so much more economic value out of fewer employees, it should follow that the individual employees should be valued, if anything, more relative to the CEO. Sure, absent other factors, if a company is able to produce more economic value with fewer employees, that increases the value of the CEO... but it also increases the value of most, if not all, of the employees as well, and arguably it increases their value proportionately more than the CEO's. > while employees have fixed/sticky wages. You have to ask yourself why it works that way. If employee productivity increases (as measured by ARPE), it stands to reason that employee compensation would grow proportionately (or at least near proportionately... you would expect some of the increased productivity to be siphoned off into profits) with it. Instead, the CW is that CEO pay should increase disproportionately to employee productivity increases, and employee wages should stay stagnant... because against all reason, we attribute any productivity growth to the CEOs. > A lot of phenomenon in this world can be explained if you apply Mathematical concepts and natural laws instead of resorting to conspiracy, billionaire-hate and anything lately pushed by mainstream media. You can rationalize anything with; mathematical models are abstract, so it's all about how you map those models to the real world. I'm not trying to suggest there's any kind of conspiracy, nor am I engaging in "billionaire-hate" (and let's be real, billionaire CEOs are, for the most part, owner-CEOs, not your typical hired-gun CEO). What I am trying to suggest is that there might be flaws in the systemic structures we have for compensation and attribution. No conspiracy necessary.
etempleton 4y ago
The growth in C suite pay since 1978 is largely attributed to salaries of executives at public and non profit companies becoming public. However, yes, a fantastic CEO can potentially provide incredible value to a company. But it is incredibly hard to tell who will succeed and who will fail. It is a complex job. Some of it comes down to gut instincts and intangibles.

squaredot 4y ago

The scale linking cost to quality of a good is not linear. People often pay twice as much for something that is only 10 percent better. Prices are a matter of allocation, not value.

wpasc 4y ago

My devil's advocate take is that this is downstream of corporate consolidation. Corporate consolidation IMO has become easier with greater economies of scale achievable with far better communication, shipping networks, and generally global connectivity. If CEO's of today on average leading companies that are orders of magnitude larger than in the 70's (CEO has 100-1000 people in the company in 70's vs 1,000-100,000 today), then the jump in pay isn't surprising. If the CEO is driving the direction of a company and those decisions affect orders of magnitude more workers and orders of magnitude more revenue, then it follows that they can get a higher salary. They might not be any better, but the stakes of their decisions are bigger.

hotpotamus 4y ago
Corporate consolidation may be easier now, but monopolies are nothing new. Theodore Roosevelt was famous for being a "trust buster". Some part of the story has to be regulatory.

paulgb 4y ago

I’m partial to the Lake Wobegon explanation, which gets a mention in the article: > Alluding to the fictional town in the radio program A Prairie Home Companion, Clifford (2017) describes the Lake Wobegon world of setting CEO compensation that fuels its growth: Every firm wants to believe its CEO is above average and therefore needs to be correspondingly remunerated. In other words, CEO pay isn’t just a way of attracting CEO talent, it’s also a way of signaling to investors that you have a good CEO. After all, who wants to invest in a company whose CEO (by the compensation committee’s own reckoning) is worse than average! This is rational for an individual company, but has the aggregate effect of inflating CEO compensation for everyone.

cbsmith 4y ago
As opposed to employees, where companies think their employees are average or below average?
- paulgb 4y ago
  Employee pay is also a signal, but a much more expensive one, because total payroll at a large company is usually orders of magnitude larger than the CEO’s compensation.
  - cbsmith 4y ago
    Yet oddly, it isn't seen as a much stronger signal...

christophilus 4y ago

I’m not playing devil’s advocate, as I think the pay is indefensible. But I think the reason for the gap is that C-level executive salaries are public info. So, C-level employees have a lot of negotiating leverage. In addition to this, they generally have the ability to give themselves a raise (given that most boards are just yes-men).

suzzer99 4y ago

I imagine connections are pretty important.

deltree7 4y ago

Yes. 1) Technology has always helped Top Performers. So, it is natural that the impact of high performers will grow faster than average performers. 2) American CEOs now also increasingly service the rest of the world. So, naturally their Total-Addressable-Impact have grown significantly. US Management Innovation are adapted / copied quickly unlike the rest of the world 3) Musk, Jobs, Bezos, Nadella have demonstrably added Trillions of Dollars of value to their firms. So, it make sense to award a %age of value they create

cbsmith 4y ago
> Musk, Jobs, Bezos, Nadella have demonstrably added Trillions of Dollars of value to their firms. So, it make sense to award a %age of value they create Unlike CEO's of yore who contributed a tenth of the value to their companies?
- deltree7 4y ago
  It's Math 101. CEOs compensation is typically tied to Market Caps of firms, while employees have fixed/sticky wages. In the 'Yore' It took a great deal of time for any firm to add $1 Billion value to their Market Cap. So, naturally CEOs compensation grew slowly. In the modern era, companies can add a Trillion Market Cap in a year. So, naturally CEO's growth rate will rapidly grow. A lot of phenomenon in this world can be explained if you apply Mathematical concepts and natural laws instead of resorting to conspiracy, billionaire-hate and anything lately pushed by mainstream media
  - cbsmith 4y ago
    > It's Math 101. CEOs compensation is typically tied to Market Caps of firms, while employees have fixed/sticky wages. It NOT Math 101. You're making some assertions that really don't stand up to even basic Econ 101 theory of markets. Why shouldn't other employee compensation be tied to market cap of firms (relative to the number of employees) and CEO compensation be fixed/sticky wages? The forces driving CEO wages should be no different than other employee wages. They should be driven by the net value they can provide for a company. (Seriously, if you're going to tie anything to the market cap of a firm, it should be more CFO/comptroller type roles, not CEO... but you don't see the accounting team being compensated more just because the company has a bigger budget.) It's not unreasonable that companies might think that CEOs provide more value than their other employees (not always true, but not an unsurprising perspective), but you'd have a hell of a time convincing me that CEO performance has improved 1460% in the last 50 years. Indeed, for the most part the job hasn't become harder, nor have the criteria become more stringent. You go back 50+ years ago, and you actually had a more difficult job because a company needed to manage far more employees to achieve the same economic value. If you can get so much more economic value out of fewer employees, it should follow that the individual employees should be valued, if anything, more relative to the CEO. Sure, absent other factors, if a company is able to produce more economic value with fewer employees, that increases the value of the CEO... but it also increases the value of most, if not all, of the employees as well, and arguably it increases their value proportionately more than the CEO's. > while employees have fixed/sticky wages. You have to ask yourself why it works that way. If employee productivity increases (as measured by ARPE), it stands to reason that employee compensation would grow proportionately (or at least near proportionately... you would expect some of the increased productivity to be siphoned off into profits) with it. Instead, the CW is that CEO pay should increase disproportionately to employee productivity increases, and employee wages should stay stagnant... because against all reason, we attribute any productivity growth to the CEOs. > A lot of phenomenon in this world can be explained if you apply Mathematical concepts and natural laws instead of resorting to conspiracy, billionaire-hate and anything lately pushed by mainstream media. You can rationalize anything with; mathematical models are abstract, so it's all about how you map those models to the real world. I'm not trying to suggest there's any kind of conspiracy, nor am I engaging in "billionaire-hate" (and let's be real, billionaire CEOs are, for the most part, owner-CEOs, not your typical hired-gun CEO). What I am trying to suggest is that there might be flaws in the systemic structures we have for compensation and attribution. No conspiracy necessary.

etempleton 4y ago

The growth in C suite pay since 1978 is largely attributed to salaries of executives at public and non profit companies becoming public. However, yes, a fantastic CEO can potentially provide incredible value to a company. But it is incredibly hard to tell who will succeed and who will fail. It is a complex job. Some of it comes down to gut instincts and intangibles.