5 ms·

Are top CEOs underpaid? (2019)

61 points by delichon 1y ago

figassis 1y ago
Almost every average to high performance employee captures less than the value they bring. Companies are not going to pay you 100% of your value as that is always seen as bad deal by the company. They want to feel like they're saving. Why else would you need to negotiate comp?
- estearum 1y ago
  Isn't that the subtext? IMO 70%+ seems really really high, especially for larger firms which, by definition, provide a massive amount of leverage to senior leaderships' decision-making.
  - lostlogin 1y ago
    It’s interesting to do the calculation for one’s own work. It’s obviously going to be flawed unless it’s a very basic job. The peripheral costs are the devil. Eg: Stationary, payroll costs, uniform, software licences, swipe cards, coffee, water, rent. However mine is an awful lot higher than the CEOs (as a percentage, not in dollars).
    - estearum 1y ago
      I don't think the peripheral costs are even the bulk of it. The real value of the company is problem selection, brand recognition, coordination, hiring, and elimination of non-value add problems (e.g. an early stage CEO spends a huge amount of their time managing government registrations, which is later managed elsewhere in the company but not by 99.999% of employees)
      - BobaFloutist 1y ago
        Yeah as far as product (people that do/make the thing being sold) is concerned, marketing/sales is a cost center and they should be making most of the money, since they're providing the actual value. As far as marketing/sales is concerned, the product is fungible and is a cost center, and they should be making most of the money since they're the only thing differentiating their org from competitors and making actual money come in. As far as accounting is concerned, the company doesn't make any money until they actually invoice and chase down and collect invoices, and if they don't pay invoices neither marketing nor product will have the infrastructure they need to do their job. Without HR/hiring, the other departments don't exist since they all need to be staffed. Without management, nobody knows what to do. Without facilities/IT/building manager, nobody has internet or water or desks or chairs. And so on and so forth. Everyone is essential, and everyone also has an overinflated idea of their own importance and an underinflated idea of the importance of others.
- pkcsecurity 1y ago
  It’s not just “seen as a bad deal by the company” - a business can’t give 100% of the value back to the employee because it has this pesky thing called “profits” it has to worry about :)
  - lostlogin 1y ago
    That’s exactly the point you’re replying to.
- andsoitis 1y ago
  > Companies are not going to pay you 100% of your value Tell us more…
  - wnc3141 1y ago
    If at your ceramics firm, you make and sell a mug with a ten dollar margin, if you then require ten dollars of wages for that time, then why did the company bother putting the capital at risk? Not sure if I'm missing a facetious tone
duxup 1y ago
Long time ago I was just an IC at some company, 5k employees. Once a quarter or so the local director would buy pizza for our team. Maybe 12 pizzas altogether from a national chain pizza place. Later on "to save money" they said they wouldn't do that. Once a quarter... cost cutting. So on the appointed day I just bought pizza and told the team to come on down to the break room and enjoy. Maybe $200 in pizza or such, we were going to have our little break as far as I was concerned. Later some crappy manager complained that I did that, the director was reportedly not pleased. Fortunately nothing came of it, like bro of all the people to complain about ...
- b_e_n_t_o_n 1y ago
  Cost cutting like that is purely performative, so buying the pizzas yourself just makes them look bad.
- andsoitis 1y ago
  That amounts to just over $300,000 per year for all 5,000 employees. $200/12 x 5000 x 4 = $333,333.33 Depending on how long ago (inflation) and what other expenses got cut, the cost savings might actually be meaningful.
  - mb7733 1y ago
    Your calculations are off unless it's assumed each employee eats an entire pizza. Not to mention bulk discount.
    - andsoitis 1y ago
      They said they spend $200 to throw a party for the team of 12. It doesn’t matter whether or not everyone ate it. They spent the money. You can also further assume bulk discounts are irrelevant because not all teams will have parties at the same time.
      - mikestew 1y ago
        Read the original comment slowly this time, and notice what the “12” refers to. There’s only one “12”, should be easy.
downrightmike 1y ago
Time to automate them with AI and dramatically boost profits! Just like how WAymo is building the single best AI brain at driving, we need the same for CEOs. One CEO mind to run it all!
- delichon 1y ago
  https://www.anthropic.com/research/project-vend-1 https://www.anthropic.com/research/project-vend-1
ionwake 1y ago
doubt
- derbOac 1y ago
  Yeah this is the sort of thing I'd want to read the primary studies of, and they'd better be rigorous. I doubt they are.
scaramanga 1y ago
CEOs: the real victims of capitalism.
- deleted 1y ago
  [deleted]
- lostlogin 1y ago
  Can down voters explain? The article states that workers take home a higher portion of the value they create.
chao- 1y ago
This is from 2019. It is a very short excerpt from a 2019 book, which is mentioned at the end, but oddly the link is not to the book itself: https://tylercowen.com/dd-product/big-business/ https://tylercowen.com/dd-product/big-business/ The two papers referenced appear to be: Taylor 2013: https://www.sciencedirect.com/science/article/abs/pii/S0304405X12002437 https://www.sciencedirect.com/science/article/abs/pii/S03044... Taylor 2013 (an appendix diving into the math): https://finance-faculty.wharton.upenn.edu/luket/wp-content/uploads/sites/10/2015/03/ceo_wage_dynamics_appendix.pdf https://finance-faculty.wharton.upenn.edu/luket/wp-content/u... Nguyen and Nielsen 2014: http://www.kaspermeisnernielsen.com/WDT_MS.pdf http://www.kaspermeisnernielsen.com/WDT_MS.pdf I was not able to immediately identify the reference to the worker compensation statistic referred to as "Isen 2012".
- mellosouls 1y ago
  I was not able to immediately identify the reference the worker compensation statistic referred to as "Isen 2012". It's "Dying to Know: Are Workers Paid Their Marginal Product?" a working paper by Adam Isen.
mellosouls 1y ago
By "value" this means a function of the stock value that is lost when a CEO dies. Original report: https://www.jstor.org/stable/24550350 https://www.jstor.org/stable/24550350 Direct link to pdf h/t @chao-: http://www.kaspermeisnernielsen.com/WDT_MS.pdf http://www.kaspermeisnernielsen.com/WDT_MS.pdf
refurb 1y ago
Whoever can measure accurately how much value a CEO brings to their firm deserves a Nobel Prize.
- digitalPhonix 1y ago
  Because it requires the invention of new techniques for measuring infinitesimally small quantities? (Sorry)
  - soraminazuki 1y ago
    Mathematicians have your back. \lim_{v\to+0}v Or if we're talking about long term impacts to society: \lim_{v\to-\infinity}v

61 points by delichon 1y ago

Almost every average to high performance employee captures less than the value they bring. Companies are not going to pay you 100% of your value as that is always seen as bad deal by the company. They want to feel like they're saving. Why else would you need to negotiate comp?

estearum 1y ago
Isn't that the subtext? IMO 70%+ seems really really high, especially for larger firms which, by definition, provide a massive amount of leverage to senior leaderships' decision-making.
- lostlogin 1y ago
  It’s interesting to do the calculation for one’s own work. It’s obviously going to be flawed unless it’s a very basic job. The peripheral costs are the devil. Eg: Stationary, payroll costs, uniform, software licences, swipe cards, coffee, water, rent. However mine is an awful lot higher than the CEOs (as a percentage, not in dollars).
  - estearum 1y ago
    I don't think the peripheral costs are even the bulk of it. The real value of the company is problem selection, brand recognition, coordination, hiring, and elimination of non-value add problems (e.g. an early stage CEO spends a huge amount of their time managing government registrations, which is later managed elsewhere in the company but not by 99.999% of employees)
    - BobaFloutist 1y ago
      Yeah as far as product (people that do/make the thing being sold) is concerned, marketing/sales is a cost center and they should be making most of the money, since they're providing the actual value. As far as marketing/sales is concerned, the product is fungible and is a cost center, and they should be making most of the money since they're the only thing differentiating their org from competitors and making actual money come in. As far as accounting is concerned, the company doesn't make any money until they actually invoice and chase down and collect invoices, and if they don't pay invoices neither marketing nor product will have the infrastructure they need to do their job. Without HR/hiring, the other departments don't exist since they all need to be staffed. Without management, nobody knows what to do. Without facilities/IT/building manager, nobody has internet or water or desks or chairs. And so on and so forth. Everyone is essential, and everyone also has an overinflated idea of their own importance and an underinflated idea of the importance of others.
pkcsecurity 1y ago
It’s not just “seen as a bad deal by the company” - a business can’t give 100% of the value back to the employee because it has this pesky thing called “profits” it has to worry about :)
- lostlogin 1y ago
  That’s exactly the point you’re replying to.
andsoitis 1y ago
> Companies are not going to pay you 100% of your value Tell us more…
- wnc3141 1y ago
  If at your ceramics firm, you make and sell a mug with a ten dollar margin, if you then require ten dollars of wages for that time, then why did the company bother putting the capital at risk? Not sure if I'm missing a facetious tone

duxup 1y ago

Long time ago I was just an IC at some company, 5k employees. Once a quarter or so the local director would buy pizza for our team. Maybe 12 pizzas altogether from a national chain pizza place. Later on "to save money" they said they wouldn't do that. Once a quarter... cost cutting. So on the appointed day I just bought pizza and told the team to come on down to the break room and enjoy. Maybe $200 in pizza or such, we were going to have our little break as far as I was concerned. Later some crappy manager complained that I did that, the director was reportedly not pleased. Fortunately nothing came of it, like bro of all the people to complain about ...

b_e_n_t_o_n 1y ago
Cost cutting like that is purely performative, so buying the pizzas yourself just makes them look bad.
andsoitis 1y ago
That amounts to just over $300,000 per year for all 5,000 employees. $200/12 x 5000 x 4 = $333,333.33 Depending on how long ago (inflation) and what other expenses got cut, the cost savings might actually be meaningful.
- mb7733 1y ago
  Your calculations are off unless it's assumed each employee eats an entire pizza. Not to mention bulk discount.
  - andsoitis 1y ago
    They said they spend $200 to throw a party for the team of 12. It doesn’t matter whether or not everyone ate it. They spent the money. You can also further assume bulk discounts are irrelevant because not all teams will have parties at the same time.
    - mikestew 1y ago
      Read the original comment slowly this time, and notice what the “12” refers to. There’s only one “12”, should be easy.

downrightmike 1y ago

Time to automate them with AI and dramatically boost profits! Just like how WAymo is building the single best AI brain at driving, we need the same for CEOs. One CEO mind to run it all!

delichon 1y ago
https://www.anthropic.com/research/project-vend-1 https://www.anthropic.com/research/project-vend-1

ionwake 1y ago

doubt

derbOac 1y ago
Yeah this is the sort of thing I'd want to read the primary studies of, and they'd better be rigorous. I doubt they are.

scaramanga 1y ago

CEOs: the real victims of capitalism.

deleted 1y ago
[deleted]
lostlogin 1y ago
Can down voters explain? The article states that workers take home a higher portion of the value they create.

chao- 1y ago

This is from 2019. It is a very short excerpt from a 2019 book, which is mentioned at the end, but oddly the link is not to the book itself: https://tylercowen.com/dd-product/big-business/ https://tylercowen.com/dd-product/big-business/ The two papers referenced appear to be: Taylor 2013: https://www.sciencedirect.com/science/article/abs/pii/S0304405X12002437 https://www.sciencedirect.com/science/article/abs/pii/S03044... Taylor 2013 (an appendix diving into the math): https://finance-faculty.wharton.upenn.edu/luket/wp-content/uploads/sites/10/2015/03/ceo_wage_dynamics_appendix.pdf https://finance-faculty.wharton.upenn.edu/luket/wp-content/u... Nguyen and Nielsen 2014: http://www.kaspermeisnernielsen.com/WDT_MS.pdf http://www.kaspermeisnernielsen.com/WDT_MS.pdf I was not able to immediately identify the reference to the worker compensation statistic referred to as "Isen 2012".

mellosouls 1y ago
I was not able to immediately identify the reference the worker compensation statistic referred to as "Isen 2012". It's "Dying to Know: Are Workers Paid Their Marginal Product?" a working paper by Adam Isen.

mellosouls 1y ago

By "value" this means a function of the stock value that is lost when a CEO dies. Original report: https://www.jstor.org/stable/24550350 https://www.jstor.org/stable/24550350 Direct link to pdf h/t @chao-: http://www.kaspermeisnernielsen.com/WDT_MS.pdf http://www.kaspermeisnernielsen.com/WDT_MS.pdf

refurb 1y ago

Whoever can measure accurately how much value a CEO brings to their firm deserves a Nobel Prize.

digitalPhonix 1y ago
Because it requires the invention of new techniques for measuring infinitesimally small quantities? (Sorry)
- soraminazuki 1y ago
  Mathematicians have your back. \lim_{v\to+0}v Or if we're talking about long term impacts to society: \lim_{v\to-\infinity}v