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I am extremely skeptical that at the higher levels of CEO pay there is any marginal utility. I just don’t think the improved management quality you get from an

I am extremely skeptical that at the higher levels of CEO pay there is any marginal utility. I just don’t think the improved management quality you get from an additional $1M is actually making the company more than $1M in profits. Seems like a failure of markets

vouaobrasil 3y ago
That might be true if the goal were to maximize the profits and long-term health of companies to deliver value to society. It's more as though the goal is to maximize shareholder wealth and minimize the dependence on expensive employees by encouraging a bitter atmosphere that in turn results in high turnover, which is in turn good for profits because it uses up the best 5-10 years of a young person's life in generating new ideas before they wake up and realize that they are not in any way contributing to the good of society.
JJMcJ 3y ago
When Ford went public around 1956, the man who ran that got $250,000, about $2.8 million today, with much higher taxes than today. But he also got a thank you letter from Henry Ford II, so he had that going for him. That was the largest IPO at the time, very complicated. I believe all the shares offered publicly were held by the Ford Foundation, for complicated tax and dynastic reasons. But the main point here is how little the manager of the offering received. Imagine that today. $2.8 million would be nothing.
- geraldhh 3y ago
  are you saying that it was not proportional and thus unfair or that it was too much because he likely was just doing his job as an accountant?
  - JJMcJ 3y ago
    That these kinds of financial activity were not as massively rewarded as they are today.
- ztrww 3y ago
  I’m not that sure that a higher proportion of profits going to the shareholders would be a better outcome. Sure the money saved by paying the CEO less might result in lower prices or go to lower ranked employees but it’s not obvious to me that that’s necessarily what would happen.
opportune 3y ago
$1mm/year is such a drop in the bucket for a company making $100,00mm/year it almost doesn’t matter. It’s not about the marginal benefits of paying the same guy just a tiny bit more anyhow, it’s about paying that guy enough that he doesn’t just decide to retire, or run a competing company, or start his own. Imagine if you think some guy is the most qualified person in the world to run your company, even if they only do a 1% better job growing revenue than the second best or “average”, when your revenue is measured in the hundreds of billions it’s easy to justify paying them such huge quantities of money.
- whimsicalism 3y ago
  Right, I understand the justifications for CEO pay. I am just saying that I absolutely do not believe that for large public companies he is 1% better than the second choice.
  - opportune 3y ago
    Google as it grew basically had two tiers of outcomes for insiders. The inner circle of insiders like Sundar and Susan had Google grow “under” them so they stayed near the top. A lot of this inner circle has either retired or left, isn’t fit to run the company (some of the purely technical folks) because of their skills, or was forced out because they did bad controversial things (there’s a joke that Sundar won by default because he was the only one that didn’t try to dip his pen in company ink). The other early employees and insiders got layered with outside middle management as Google grew. Since Google is basically controlled by the founders still there are actually very few people left who are qualified on paper to run the company, already work at Google, and have the trust of founders. Now I’m not saying that means nobody could do better than Sundar, but I do think the founders earnestly believe he is 1% better than any second choice.
    - whimsicalism 3y ago
      I agree, but I think this reveals how dual class voting structures lead to market failures which is already well studied. The founders believe he is 1% better, but what do the markets believe?
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vouaobrasil 3y ago

That might be true if the goal were to maximize the profits and long-term health of companies to deliver value to society. It's more as though the goal is to maximize shareholder wealth and minimize the dependence on expensive employees by encouraging a bitter atmosphere that in turn results in high turnover, which is in turn good for profits because it uses up the best 5-10 years of a young person's life in generating new ideas before they wake up and realize that they are not in any way contributing to the good of society.

JJMcJ 3y ago

When Ford went public around 1956, the man who ran that got $250,000, about $2.8 million today, with much higher taxes than today. But he also got a thank you letter from Henry Ford II, so he had that going for him. That was the largest IPO at the time, very complicated. I believe all the shares offered publicly were held by the Ford Foundation, for complicated tax and dynastic reasons. But the main point here is how little the manager of the offering received. Imagine that today. $2.8 million would be nothing.

geraldhh 3y ago
are you saying that it was not proportional and thus unfair or that it was too much because he likely was just doing his job as an accountant?
- JJMcJ 3y ago
  That these kinds of financial activity were not as massively rewarded as they are today.
ztrww 3y ago
I’m not that sure that a higher proportion of profits going to the shareholders would be a better outcome. Sure the money saved by paying the CEO less might result in lower prices or go to lower ranked employees but it’s not obvious to me that that’s necessarily what would happen.

opportune 3y ago

$1mm/year is such a drop in the bucket for a company making $100,00mm/year it almost doesn’t matter. It’s not about the marginal benefits of paying the same guy just a tiny bit more anyhow, it’s about paying that guy enough that he doesn’t just decide to retire, or run a competing company, or start his own. Imagine if you think some guy is the most qualified person in the world to run your company, even if they only do a 1% better job growing revenue than the second best or “average”, when your revenue is measured in the hundreds of billions it’s easy to justify paying them such huge quantities of money.

whimsicalism 3y ago
Right, I understand the justifications for CEO pay. I am just saying that I absolutely do not believe that for large public companies he is 1% better than the second choice.
- opportune 3y ago
  Google as it grew basically had two tiers of outcomes for insiders. The inner circle of insiders like Sundar and Susan had Google grow “under” them so they stayed near the top. A lot of this inner circle has either retired or left, isn’t fit to run the company (some of the purely technical folks) because of their skills, or was forced out because they did bad controversial things (there’s a joke that Sundar won by default because he was the only one that didn’t try to dip his pen in company ink). The other early employees and insiders got layered with outside middle management as Google grew. Since Google is basically controlled by the founders still there are actually very few people left who are qualified on paper to run the company, already work at Google, and have the trust of founders. Now I’m not saying that means nobody could do better than Sundar, but I do think the founders earnestly believe he is 1% better than any second choice.
  - whimsicalism 3y ago
    I agree, but I think this reveals how dual class voting structures lead to market failures which is already well studied. The founders believe he is 1% better, but what do the markets believe?

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