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> The problem is that by definition, if the CEO is making 100x what you do then you're not being paid fairly Really, "by definition"? You can't think of a poss

> The problem is that by definition, if the CEO is making 100x what you do then you're not being paid fairly Really, "by definition"? You can't think of a possible universe where a CEO draws on all their skill to make a crucial decision, that most other possible people in that role probably wouldn't have made, that saves a company billions of dollars, and that this is 100x more valuable than what you or I have contributed or are likely capable of ever contributing? That's a lack of imagination, to say the least.

amrocha 4y ago
Sure, maybe the CEO makes great business decisions, but I don't see how that entitles them to 100x the compensation of the people around them. I don't think researching and making decisions is 100x harder than engineering or HR or law etc.
- hackerlight 4y ago
  This misunderstand markets. It's not about some abstract and subjective notion of difficulty. It's about how much value you bring to the table in the context of labor market supply and demand. You are 10x more valuable to your company than a cleaner, so you get 10x the pay. Why? Because your skills are more scarce than a cleaner, and because you can have a bigger impact on the company's profitability by writing code than cleaning toilets. The CEO is 100x more valuable to your company than you are, so they get 100x your pay. Why? Because their skills are even more scarce than yours, and they can have an even bigger impact than writing code. That's it.
  - danaris 4y ago
    Was a CEO only 6x more valuable to the company than a regular worker 70 years ago? We know that CEO pay has increased vastly out of proportion to any other related changes in our economic system over the last several decades. We also know that the makeup of boards (who choose CEOs, and determine how much they will be paid) is significantly slanted toward CEOs of other corporations. There is a clear financial interest there both to choose people who will be favorable to you, and to raise their compensation, so that when they are on a board they will be more likely to choose you, and when that board is considering your compensation, they can look at the "average CEO compensation" and see that it's high...because you've kept it there. Furthermore, I would posit that most CEOs do not actually have skills that managers and leaders at other levels don't have. What they have is the accident of birth, and a habit of authority. If you replaced most CEOs with any reasonably thoughtful and educated person, you wouldn't see much change overall in the average performance of businesses. (You might see an increase, actually, given the number of CEOs who govern primarily based on their own egos, rather than what would help the business.)
    - hackerlight 4y ago
      Those statistics about CEO pay growth are often deceptive. If you sample the top N firms over time, where N is fixed, the mean market cap of those N firms will be growing, given that the economy has grown over the time window. That the average compensation of the CEO of these sampled firms is also growing is unsurprising. The omitted variable that causes this statistical illusion is GDP growth itself. Now, even with a non-flawed methodology, I don't doubt that we'd still find that CEO pay has gone up a lot more than other job types. But that should be true for knowledge work in general, especially high-demand + low-supply roles. There has been large structural changes in the economic system that causes this. Mainly, China has come online, meaning the non-knowledge workers in wealthy countries must compete with a billion extra people, which depresses their compensation in the labor market, which increases the ratio of a CEO's pay divided by the pay of non-CEOs. A non-market based explanation is highly suspect and should not be the default explanation. You are basically claiming that shareholders are willingly giving away their own money for no good reason. Why would shareholders do this? They are not running a charity. The simplest and least nefarious explanation is the most likely: Shareholders believe the CEOs are worth that much in the context of current (2023, not the 1970s) supply and demand dynamics in the labor market for highly niche highly impactful CEO positions. If I own an asset worth $2 trillion, I do not care about paying $100 million for someone to not ruin it. > If you replaced most CEOs with any reasonably thoughtful and educated person, you wouldn't see much change overall in the average performance of businesses. At least recognize this is a speculative claim made without evidence. More of a hunch. A hunch that I disagree with.
      - danaris 4y ago
        That's a lot of words to try and justify CEO/worker pay discrepancies of a factor of over 300. All that bullshit about statistical illusions doesn't change the fact that the median worker in America has barely seen any real wage growth for 50 years, and all that extra wealth went straight to the wealthiest people in the country. Many of those are the CEOs we're discussing. Income and wealth inequality of this level are genuinely harmful to the economy and to the political system, and every bit of effort you put into justifying them, rather than admitting that it is wrong and harmful, is effort being put into actively making the world a worse place.
  - amrocha 4y ago
    I'm not misunderstanding anything, I just disagree with you. On one hand you say pay is based on value brought to the company, on the other hand you say it's based on scarcity. If it's value then how come the same engineer, bringing the same value, would receive different pay based on the country they live in? Clearly that's not it. So maybe it's scarcity? That drives up pay, but it's not enough by itself. Markets forces are a factor, but they're not the only factor, or even the most important factor, in compensation. No, the CEO is not 100x more valuable than the engineer. The decisions taken don't matter if you can't build well. Building well doesn't matter if you don't build the right thing. They're dependent on each other. Neither has impact by themselves. Also disagreed on 'scarcity' of CEO skills. There's a scarcity of CEOs because there's only 1 per company, but the "skills" are pretty common imo. Any C level exec or director level person has the skills to do the job.
    - hackerlight 4y ago
      > On one hand you say pay is based on value brought to the company, on the other hand you say it's based on scarcity. These things aren't separate unless you're using a colloquial definition of "value" which would be inappropriate. If water was more scarce, it would be more valuable and the market would price it more than $0.005/L or whatever it is. My wording implied these things are linked: "it's about how much value you bring to the table in the context of labor market supply and demand." Which, I admit, wasn't the most precise or clear way to word that. Things hold $ value for two reasons: (1) the thing has perceived utility (we need water to survive, this is the demand side), and (2) the thing is scarce (this is the supply side). The CEO ticks both boxes. There is high demand for a competent CEO because a bad one will cause Apple's market cap to go down by billions, and a good one the opposite. There is short supply (scarcity) because less people can run Apple well than can write code well. You may disagree personally, but the market, that is the people in charge of hiring the CEO, doesn't. And the market is what sets the price of labor.
6gvONxR4sf7o 4y ago
We generally talk about risk and probability when discussing this. You get 50% when it's just an idea with a 99.9% chance of failure, and below 0.1% when it's a rocket ship. So we have to apply that to your question too, and apply "market for lemons" thinking. So while it's possible that they can save a zillion dollars by making amazing decisions nobody else would have made, the odds of them doing so are empirically not that great, so the "fair" value is a zillion dollars times a very small number. So it seems like that's not a big factor in their comp. It's just a big factor in how they justify it.
- hackerlight 4y ago
  That's not the expected value thinking anyone would go through when deciding who to hire as a CEO. I mean, firstly, it's ignoring the large downside of hiring the wrong CEO. There's steps of difference between hiring someone good (Steve Jobs is worth a hundred million dollars a year if you can get him to run Apple, because he will improve Apple's market cap by more than a hundred million dollars), hiring someone average (worth negative if it means rivals eat market share and market cap declines), and hiring someone who will commit fraud and ruin the company (worth negative 2.43 trillion). The large asymmetric possibility of downside from a mediocre to bad CEO skews the expected value calculations. > You get 50% when it's just an idea with a 99.9% chance of failure, and below 0.1% when it's a rocket ship. So we have to apply that to your question too, and apply "market for lemons" thinking. Apples and oranges. You're comparing different markets. CEO compensation is in the context of labor markets. It should be compared with other labor market activity such as the compensation of software engineers or surgeons. But here you're talking about capital markets.
  - 6gvONxR4sf7o 4y ago
    In your last paragraph, you're definitely misunderstanding me, but I can't figure out what you think I meant.
hnfong 4y ago
Another way to look at your story is that the CEO is just doing their job. Perhaps they had a specific talent, perhaps they had a stroke of insight, or perhaps they just randomly made the right decision. But at the end a cynic could say they were just being at the right place at the right time. On the other hand, you can also say that the board should be paid 100x because they somehow picked the right CEO. But why stop there? Shouldn't the CEO's parents get a bonus for the upbringing of such a brilliant person? Or should the CEO's teachers get paid as well? The possibilities are endless... why attribute success to one single person? PS: I'm not seriously saying this is what we should do. I'm just trying to illustrate how the concept of fairness looks a bit funny if you think hard about it.
- hackerlight 4y ago
  > The possibilities are endless... why attribute success to one single person? I don't disagree, but this same critique can be applied to anyone, yet it disproportionately gets applied to CEOs. How can a SWE justify their $300k compensation? After all, the fact they hold that job can all be explained by circumstance, parenting, genes, being born in the right country, etc.
  - hnfong 4y ago
    Indeed. That's kind of my gut reaction to highly paid big tech employees asking for "fair" pay. Seems a bit "hypocritical"(?) to only consider fairness within the industry and not society as a whole.

amrocha 4y ago

Sure, maybe the CEO makes great business decisions, but I don't see how that entitles them to 100x the compensation of the people around them. I don't think researching and making decisions is 100x harder than engineering or HR or law etc.

hackerlight 4y ago
This misunderstand markets. It's not about some abstract and subjective notion of difficulty. It's about how much value you bring to the table in the context of labor market supply and demand. You are 10x more valuable to your company than a cleaner, so you get 10x the pay. Why? Because your skills are more scarce than a cleaner, and because you can have a bigger impact on the company's profitability by writing code than cleaning toilets. The CEO is 100x more valuable to your company than you are, so they get 100x your pay. Why? Because their skills are even more scarce than yours, and they can have an even bigger impact than writing code. That's it.
- danaris 4y ago
  Was a CEO only 6x more valuable to the company than a regular worker 70 years ago? We know that CEO pay has increased vastly out of proportion to any other related changes in our economic system over the last several decades. We also know that the makeup of boards (who choose CEOs, and determine how much they will be paid) is significantly slanted toward CEOs of other corporations. There is a clear financial interest there both to choose people who will be favorable to you, and to raise their compensation, so that when they are on a board they will be more likely to choose you, and when that board is considering your compensation, they can look at the "average CEO compensation" and see that it's high...because you've kept it there. Furthermore, I would posit that most CEOs do not actually have skills that managers and leaders at other levels don't have. What they have is the accident of birth, and a habit of authority. If you replaced most CEOs with any reasonably thoughtful and educated person, you wouldn't see much change overall in the average performance of businesses. (You might see an increase, actually, given the number of CEOs who govern primarily based on their own egos, rather than what would help the business.)
  - hackerlight 4y ago
    Those statistics about CEO pay growth are often deceptive. If you sample the top N firms over time, where N is fixed, the mean market cap of those N firms will be growing, given that the economy has grown over the time window. That the average compensation of the CEO of these sampled firms is also growing is unsurprising. The omitted variable that causes this statistical illusion is GDP growth itself. Now, even with a non-flawed methodology, I don't doubt that we'd still find that CEO pay has gone up a lot more than other job types. But that should be true for knowledge work in general, especially high-demand + low-supply roles. There has been large structural changes in the economic system that causes this. Mainly, China has come online, meaning the non-knowledge workers in wealthy countries must compete with a billion extra people, which depresses their compensation in the labor market, which increases the ratio of a CEO's pay divided by the pay of non-CEOs. A non-market based explanation is highly suspect and should not be the default explanation. You are basically claiming that shareholders are willingly giving away their own money for no good reason. Why would shareholders do this? They are not running a charity. The simplest and least nefarious explanation is the most likely: Shareholders believe the CEOs are worth that much in the context of current (2023, not the 1970s) supply and demand dynamics in the labor market for highly niche highly impactful CEO positions. If I own an asset worth $2 trillion, I do not care about paying $100 million for someone to not ruin it. > If you replaced most CEOs with any reasonably thoughtful and educated person, you wouldn't see much change overall in the average performance of businesses. At least recognize this is a speculative claim made without evidence. More of a hunch. A hunch that I disagree with.
    - danaris 4y ago
      That's a lot of words to try and justify CEO/worker pay discrepancies of a factor of over 300. All that bullshit about statistical illusions doesn't change the fact that the median worker in America has barely seen any real wage growth for 50 years, and all that extra wealth went straight to the wealthiest people in the country. Many of those are the CEOs we're discussing. Income and wealth inequality of this level are genuinely harmful to the economy and to the political system, and every bit of effort you put into justifying them, rather than admitting that it is wrong and harmful, is effort being put into actively making the world a worse place.
- amrocha 4y ago
  I'm not misunderstanding anything, I just disagree with you. On one hand you say pay is based on value brought to the company, on the other hand you say it's based on scarcity. If it's value then how come the same engineer, bringing the same value, would receive different pay based on the country they live in? Clearly that's not it. So maybe it's scarcity? That drives up pay, but it's not enough by itself. Markets forces are a factor, but they're not the only factor, or even the most important factor, in compensation. No, the CEO is not 100x more valuable than the engineer. The decisions taken don't matter if you can't build well. Building well doesn't matter if you don't build the right thing. They're dependent on each other. Neither has impact by themselves. Also disagreed on 'scarcity' of CEO skills. There's a scarcity of CEOs because there's only 1 per company, but the "skills" are pretty common imo. Any C level exec or director level person has the skills to do the job.
  - hackerlight 4y ago
    > On one hand you say pay is based on value brought to the company, on the other hand you say it's based on scarcity. These things aren't separate unless you're using a colloquial definition of "value" which would be inappropriate. If water was more scarce, it would be more valuable and the market would price it more than $0.005/L or whatever it is. My wording implied these things are linked: "it's about how much value you bring to the table in the context of labor market supply and demand." Which, I admit, wasn't the most precise or clear way to word that. Things hold $ value for two reasons: (1) the thing has perceived utility (we need water to survive, this is the demand side), and (2) the thing is scarce (this is the supply side). The CEO ticks both boxes. There is high demand for a competent CEO because a bad one will cause Apple's market cap to go down by billions, and a good one the opposite. There is short supply (scarcity) because less people can run Apple well than can write code well. You may disagree personally, but the market, that is the people in charge of hiring the CEO, doesn't. And the market is what sets the price of labor.

6gvONxR4sf7o 4y ago

We generally talk about risk and probability when discussing this. You get 50% when it's just an idea with a 99.9% chance of failure, and below 0.1% when it's a rocket ship. So we have to apply that to your question too, and apply "market for lemons" thinking. So while it's possible that they can save a zillion dollars by making amazing decisions nobody else would have made, the odds of them doing so are empirically not that great, so the "fair" value is a zillion dollars times a very small number. So it seems like that's not a big factor in their comp. It's just a big factor in how they justify it.

hackerlight 4y ago
That's not the expected value thinking anyone would go through when deciding who to hire as a CEO. I mean, firstly, it's ignoring the large downside of hiring the wrong CEO. There's steps of difference between hiring someone good (Steve Jobs is worth a hundred million dollars a year if you can get him to run Apple, because he will improve Apple's market cap by more than a hundred million dollars), hiring someone average (worth negative if it means rivals eat market share and market cap declines), and hiring someone who will commit fraud and ruin the company (worth negative 2.43 trillion). The large asymmetric possibility of downside from a mediocre to bad CEO skews the expected value calculations. > You get 50% when it's just an idea with a 99.9% chance of failure, and below 0.1% when it's a rocket ship. So we have to apply that to your question too, and apply "market for lemons" thinking. Apples and oranges. You're comparing different markets. CEO compensation is in the context of labor markets. It should be compared with other labor market activity such as the compensation of software engineers or surgeons. But here you're talking about capital markets.
- 6gvONxR4sf7o 4y ago
  In your last paragraph, you're definitely misunderstanding me, but I can't figure out what you think I meant.

hnfong 4y ago

Another way to look at your story is that the CEO is just doing their job. Perhaps they had a specific talent, perhaps they had a stroke of insight, or perhaps they just randomly made the right decision. But at the end a cynic could say they were just being at the right place at the right time. On the other hand, you can also say that the board should be paid 100x because they somehow picked the right CEO. But why stop there? Shouldn't the CEO's parents get a bonus for the upbringing of such a brilliant person? Or should the CEO's teachers get paid as well? The possibilities are endless... why attribute success to one single person? PS: I'm not seriously saying this is what we should do. I'm just trying to illustrate how the concept of fairness looks a bit funny if you think hard about it.

hackerlight 4y ago
> The possibilities are endless... why attribute success to one single person? I don't disagree, but this same critique can be applied to anyone, yet it disproportionately gets applied to CEOs. How can a SWE justify their $300k compensation? After all, the fact they hold that job can all be explained by circumstance, parenting, genes, being born in the right country, etc.
- hnfong 4y ago
  Indeed. That's kind of my gut reaction to highly paid big tech employees asking for "fair" pay. Seems a bit "hypocritical"(?) to only consider fairness within the industry and not society as a whole.