4 ms·
But think of the labor costs. Can you get a 20% better CEO with 3 million dollars? Probably. Can you get 10,000 line workers 20% better with 3 million dollars?
by sirclueless 14y ago
But think of the labor costs. Can you get a 20% better CEO with 3 million dollars? Probably. Can you get 10,000 line workers 20% better with 3 million dollars? Probably not. So even if the line workers are more important, a large CEO bonus may provide better value.
- rayiner 14y agoI'm not arguing that the CEO is overpaid. I'm pointing out that the amount the CEO is paid is not determined by value to the company, it's determined by supply and demand in the labor market.
- twoodfin 14y agoBut, and I shouldn't have to say this it's so obvious, there wouldn't be demand in the labor market for CEOs if boards/shareholders didn't think elite CEOs provided value. There has to be a strong correlation there or the inefficient company paying a low value CEO too much will be out-competed by another company with more sense.
- rayiner 14y agoThis can be refuted by a simple counter example. Say CEO X provides V units of value to the company. What should CEO X be paid (P)? It has nothing to do with Y, except in the degenerate case where P > V. P is going to be determined by the supply of CEO's with credentials similar to X. P can vary dramatically depending on that supply, but obviously V doesn't change.
- Evbn 14y agoIn US midcaps and big caps, CEOs a great basically unionized. They artificially constrain supply by being part of an old boys network, complicit with thr Boards.