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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 tomor

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

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.)