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The extraordinary evidence is that businesses have historically paid those compensations and boards have approved them. That’s pretty good evidence.

foldr 4y ago
We don't have any way of knowing if those businesses are making bad choices. Lots of people would happily take a job as CEO of Google for less than Sundar Pichai gets paid. That won't happen because Google wouldn't want to hire any of those people. But who's to say that they'd do a bad job if they were hired?
- ajhurliman 4y ago
  You introduced a value word there: “bad”. Your subjective interpretation of their decisions is irrelevant, their value is what the market is willing to bear, independent of your opinion. The market is composed of the aggregate opinions of all the businesses and the reality of the situation is that number is very high.
  - foldr 4y ago
    Are you saying that everyone who has a job is worth exactly what they’re currently paid? Or that everyone is worth what, in the limit, ‘the market’ would be willing to pay them? The first statement is obviously nonsense. (No-one is over- or under-paid? Dennis Muilenburg was worth $4 million a year to Boeing?) The second statement might be true in theory, but as we can’t know what the market will be ‘willing to bear’ in the limit, it doesn’t tell us anything about whether or not Google is overspending on its CEO. Eventually, in a perfect market, people will be paid what they’re worth (if what they’re worth is defined circularly as what they’d be paid in a perfect market). However, ‘eventually’ can be a long time, and real markets are far from perfect. As for subjectivity and value judgments, my point is that we don’t know if Google’s choice of CEO is optimal given what Google itself values as a company. My subjective judgments have nothing to do with it. I didn’t make any subjective judgments about anyone’s job performance in my comment.
    - ajhurliman 4y ago
      I think you're focused on the theory and ignoring the hard facts. Theoretically, an employee might be getting N today, then they find a new job and get 2N tomorrow, so were they underpaid before, overpaid now, maybe both? It's an interesting question in its own right, but it's a little irrelevant because the _definition_ of what they're worth is what somebody is willing to pay (assuming an efficient market, or at least something close to it). So these observed pay rates are ground-truth data points. If there's a difference between that and what you think someone should make, the error is with the opinion, not with the actual pay.
      - foldr 4y ago
        You say that you are ‘assuming an efficient market, or at least something close to it’. So I’d suggest that it’s you who is focusing on the theory. I do not make that assumption as it is not close to reality. > the _definition_ of what they're worth is what somebody is willing to pay Even theoretically this can’t be the right definition because it means that no-one can be overpaid (as at least one person is willing to pay them what they’re currently getting). As I said above, you must mean something like ‘what the market as a whole would be willing to pay on average eventually in the limit’ – which is an unknowable quantity. It’s entirely possible that Google and its shareholders might be happier and richer if they’d chosen one of the people who’d be willing to do the job of CEO for a tenth of the price. The market can’t test that hypothesis because Google hasn’t tried doing it. But if that hypothesis should happen to be true, it would be hard to argue that the current incumbent is worth what they pay him. This point would be considered obvious in the boardroom if we were talking about less exalted persons than CEOs. Imagine if it turned out, for example, that recent coding bootcamp graduates performed just as well as experienced senior software engineers. (I don’t think this is actually true.) Then no-one would argue that the senior software engineers at Google were not overpaid merely because...Google was currently overpaying them. Only CEOs would have the sheer cheek to use this ‘you pay me X so I must be worth X’ logic to explain why their pay shouldn’t be cut while continually wangling pay rises out of their boards. (Being overpaid is impossible in principle because the market can’t be wrong; and yet being underpaid strangely isn’t.)

foldr 4y ago

We don't have any way of knowing if those businesses are making bad choices. Lots of people would happily take a job as CEO of Google for less than Sundar Pichai gets paid. That won't happen because Google wouldn't want to hire any of those people. But who's to say that they'd do a bad job if they were hired?

ajhurliman 4y ago
You introduced a value word there: “bad”. Your subjective interpretation of their decisions is irrelevant, their value is what the market is willing to bear, independent of your opinion. The market is composed of the aggregate opinions of all the businesses and the reality of the situation is that number is very high.
- foldr 4y ago
  Are you saying that everyone who has a job is worth exactly what they’re currently paid? Or that everyone is worth what, in the limit, ‘the market’ would be willing to pay them? The first statement is obviously nonsense. (No-one is over- or under-paid? Dennis Muilenburg was worth $4 million a year to Boeing?) The second statement might be true in theory, but as we can’t know what the market will be ‘willing to bear’ in the limit, it doesn’t tell us anything about whether or not Google is overspending on its CEO. Eventually, in a perfect market, people will be paid what they’re worth (if what they’re worth is defined circularly as what they’d be paid in a perfect market). However, ‘eventually’ can be a long time, and real markets are far from perfect. As for subjectivity and value judgments, my point is that we don’t know if Google’s choice of CEO is optimal given what Google itself values as a company. My subjective judgments have nothing to do with it. I didn’t make any subjective judgments about anyone’s job performance in my comment.
  - ajhurliman 4y ago
    I think you're focused on the theory and ignoring the hard facts. Theoretically, an employee might be getting N today, then they find a new job and get 2N tomorrow, so were they underpaid before, overpaid now, maybe both? It's an interesting question in its own right, but it's a little irrelevant because the _definition_ of what they're worth is what somebody is willing to pay (assuming an efficient market, or at least something close to it). So these observed pay rates are ground-truth data points. If there's a difference between that and what you think someone should make, the error is with the opinion, not with the actual pay.
    - foldr 4y ago
      You say that you are ‘assuming an efficient market, or at least something close to it’. So I’d suggest that it’s you who is focusing on the theory. I do not make that assumption as it is not close to reality. > the _definition_ of what they're worth is what somebody is willing to pay Even theoretically this can’t be the right definition because it means that no-one can be overpaid (as at least one person is willing to pay them what they’re currently getting). As I said above, you must mean something like ‘what the market as a whole would be willing to pay on average eventually in the limit’ – which is an unknowable quantity. It’s entirely possible that Google and its shareholders might be happier and richer if they’d chosen one of the people who’d be willing to do the job of CEO for a tenth of the price. The market can’t test that hypothesis because Google hasn’t tried doing it. But if that hypothesis should happen to be true, it would be hard to argue that the current incumbent is worth what they pay him. This point would be considered obvious in the boardroom if we were talking about less exalted persons than CEOs. Imagine if it turned out, for example, that recent coding bootcamp graduates performed just as well as experienced senior software engineers. (I don’t think this is actually true.) Then no-one would argue that the senior software engineers at Google were not overpaid merely because...Google was currently overpaying them. Only CEOs would have the sheer cheek to use this ‘you pay me X so I must be worth X’ logic to explain why their pay shouldn’t be cut while continually wangling pay rises out of their boards. (Being overpaid is impossible in principle because the market can’t be wrong; and yet being underpaid strangely isn’t.)