4 ms·

The myth of big salaries (it's all marketing)

55 points by peter123 18y ago

garply 18y ago
I've noticed that Seth Godin seems to think everything boils down to marketing. Sometimes it feels like a bit of a stretch.
- sgk284 18y ago
  I don't know... the more business experiences I have the more I realize how significantly more important marketing is than any other aspect of business. Same thing with selling yourself. It feels like a stretch, and it's hard to swallow considering that I'm an engineer through and through, but most data that I've seen fits that conclusion.
  - helveticaman 18y ago
    I have very little business experience, but I would guess this is less the case with engineers. Nerds care a little more about substance because that's what their job entails. Meanwhile, business guys care about how one sells oneself because that's their trade and they enjoy seeing it done well.
    - jd 18y ago
      Good marketing gets you hired. Good networking gives you job opportunities around the globe. Good marketing gets you promotions and bonuses. Good marketing keeps your group's product from getting the axe. 0 errors, 0 warnings isn't all that important.
      - sketerpot 18y ago
        0 errors, 0 warnings keeps you from being a leech.
      - nostrademons 18y ago
        Eventually the fakes get found out. You have to be able to back up your marketing with something real. Most good organizations will be suspicious of pure marketing claims unless they can be backed up with hard evidence. So yeah, they'll interview you based on that referral, but you still have to ace the interview. They'll hire you based on the interview, but they'll fire you if you don't perform well on the job.
        benmathes 18y ago
        > Eventually the fakes get found out. You have to be able to back up your marketing with something real. How long is "eventually"? You only need a handful of years marketing crazy financial products to walk away with a fortune. The people who get found out aren't the ones who get hurt.
      - dinkumthinkum 18y ago
        That's fine but marketing doesn't build bridges or cure diseases.
        jpwagner 18y ago
        Lack of marketing could prevent your cure/service/product from being noticed...
        dinkumthinkum 18y ago
        Not really. This is a myth that marketing schysters try to peddle. A lot of naive people like this view though. These people would have you believe that nothing survives without marketing. When's the last time you saw a commercial for heroin or cocaine? It seems sales are pretty good for those products. And yet, again, all the marketing in the world couldn't build one bridge. It just inherently cannot. Sorry.
        jpwagner 18y ago
        Drugs are sooo marketed. Celebrities use drugs. Drugs are used in "cool" movies. You are even informed of the euphoric feeling drugs give you in elementary school. The fact that "cool" kids in high school end up experimenting with drugs first is a form of marketing (even if it is organic.) I have three words for your stupid "bridge" argument: BRIDGE TO NOWHERE (http://en.wikipedia.org/wiki/Gravina_Island_Bridge http://en.wikipedia.org/wiki/Gravina_Island_Bridge)
        dinkumthinkum 18y ago
        Your argument is that celebrities use drugs? Really? Celebrities also eat food, breath air, and sleep. Maybe you should spend more time evaluating your arguments and less time on OK Magazine. Homeless people, business people, house wives, blue collar workers, people of every walk of life use drugs. Big deal.And the products are all sold without marketing propaganda. How many crack dealers do you really think read Seth Godin? Or "How to Win Friends and Influece?" What is stupid exactly about my "bridge" argument? What does the "bridge to nowhere" have to do with anything? That is just a Red Herring. All the marketing in the world will never produce any non-trivial feat of engineering. Sorry. Part of the issue is that you and people of your view want to point to marketing for the success of any idea; you have no demarcation criterion.
- newt0311 18y ago
  A hammer and nail situation all over again?
- run4yourlives 18y ago
  Of course it is. I say this as I sit in my Herman Miller chair that is truly more comfortable that that wooden one, typing on my Macbook pro that makes me miles more productive than my old pc, while sipping my Starbucks latte that is a much better coffee than what I can make at home. Oh yeah, and did you hear that new band at SXSW this year? Much better than the one I heard the other day on the radio.
- alandunne 18y ago
  When all you have is a hammer, everything looks like a nail
time_management 18y ago
You also need to consider the role of blind, brainless optimism. People overestimate their chances of making it to the CEO level in large corporations, unaware of just how much the game is rigged against them, especially if they didn't inherit a network of connections. Since people-- especially the talented young people who are the workhorses of most companies-- tend to make career decisions based on future income, this is a way to inflate peoples' anticipated future income with no intention of delivering on the promise.
- stcredzero 18y ago
  inflate peoples' anticipated future income with no intention of delivering on the promise Not only that, but without having made explicit promises in the first place!
- yters 18y ago
  Success is a Ponzi scheme: Everyone thinks that to be Successful Guy they have to work really hard. Successful Guy takes responsibility for their work and becomes more successful. Everyone works harder since Successful Guy is even further beyond their reach. Successful Guy works even less since everyone else is working even harder. Rinse and repeat. Eventually, Successful Guy appears magical and has the ability to rise to the top of any organization.
stcredzero 18y ago
There was an issue of Lone Wolf and Cub that mentioned a Japanese aphorism about this: One bowl of rice, two bowls of rice. One mat, two mats. What it means: No matter how rich you are, you're not going to be able to eat much more than two bowls of rice and you can't sleep on more than a few tatami mats at a time. But I would love the ability to do whatever I wanted, live wherever I wanted, and have a foundation to save the world.
- stevejalim 18y ago
  Very true, and I reckon the 'foundation to save the world' thing is a pretty commmon wish. (It's on my list, and on the list of a fair few people I know, but that could just be the circles I'm in). <naive> Perhaps we should all just club together (n% of profits from m successful startups) and give the Gates Foundation a run for its money... </naive>
- charltones 18y ago
  ...two bowls of rice, three bowls of coke? It mounts up when you're living that life.
jwb119 18y ago
So, he basically assumes that Wall Street has settled into an absurd equilibrium point where any one firm would have a massive incentive to break with the pack, yet they all refuse to do so because not one person at Goldman/Morgan/Barclay's etc understands marketing as well as Seth Godin? Convenient..
- time_management 18y ago
  No. It's more like this: there's a massive prestige cost in paying lower than "market", and a benefit to paying more. It's actually much cheaper to overpay executives and at-pay or slightly underpay junior people, which is what most "prestige" firms do.
- 3pt14159 18y ago
  Just because 1000 people want the job and are "qualified" doesn't mean they would do as good a job. Consider this example: Company A has 1000 employees that they pay 100 dollars a day, totaling $100,000. They can hire Joe to be COO for $1000 a day or Zach for $5000 a day. Based on both mens track record the company estimates that Joe will increase efficiency 1% while Zach will increase efficiency 10%. Since a 10% increase in efficiency will likely gross them $10,000 a week and only cost them $5000 (Zach's salary) they hire him instead of Joe. The same thing happens all over the place. Someone that can make a 10% change company wide is worth FAR more than someone that can only make a 1% change.
pwk 18y ago
From the article: Aside: should the guys who drive an armored car that carries millions of dollars in bonds get paid more than the guys that drive an armored car that only carries thousands of dollars in cash? Does the amount of money handled change the difficult of the work? The amount of money handled does change the cost of failure. It also changes the amount of risk the drivers face.
- anamax 18y ago
  Armored car drivers do make more than most employees who do cash drops for small biz. "Armored cars" that schlep records are typically driven by folks who make less than those who transport money. In short, there are at least some situations where the amount of cash handled affects compensation.
- helveticaman 18y ago
  Agreed. Seth Godin is assuming the only factor that should affect pay is the difficulty of the work.
  - jpwagner 18y ago
    I pay my blind limo-driver a ton...
- yters 18y ago
  Success is a Ponzi scheme: Everyone thinks that to be Successful Guy they have to work really hard. Successful Guy takes responsibility for their work and becomes more successful. Everyone works harder since Successful Guy is even further beyond their reach. Successful Guy works even less since everyone else is working even harder. Rinse and repeat. Eventually, Successful Guy appears magical and has the ability to rise to the top of any organization.
andrewbadera 18y ago
Wall Street has generated (perhaps manipulatively) trillions in revenue -- hundreds of percent increase -- since the 70s. Shouldn't firms be paying salaries and bonuses reflective of the profit generated? Seth doesn't know his stuff on this one. Fluff piece. Boring.
lpgauth 18y ago
I really don't agree with this: "After a million dollars or so in salary, the absolute amount that a person is paid has no real impact on their life." This might be true for an average person, but "big" CEO's live a certain lifestyle (especially in big cities) and it's not a cheap one. You'd be surprised to know how many of them end up with debt even thought they make 10+ millions a year.
- m_eiman 18y ago
  I'd say that the main problem then isn't the income - it's just that the person receiving it can't manage his or her own money. It's also funny that the same person is considered the best person to manage a big corporation... If people like that are the best available for the job, it's just scary.
  - yummyfajitas 18y ago
    They can't manage it? Or do they simply choose to go into debt with the hope of paying it off later?
    - prewett 18y ago
      What's the difference? Sounds like poor management of money to me. Especially the "hope" part.
  - tlb 18y ago
    Oh, no, living the lifestyle you need to live to be a successful investment banker is incredibly expensive. You really do need a big impressive house (or penthouse in Manhattan) to impress clients with. You have to stay at the same resorts where your clients stay. You have to do a thousand little things that say "money is no object" in order for people to trust you with their money. Irrational but true. It probably is rational for them to spend into debt in the early part of their career to build up credibility.
    - m_eiman 18y ago
jwb119 18y ago
This is also a fairly egregious application of Signaling Theory.. http://en.wikipedia.org/wiki/Signalling_(economics) http://en.wikipedia.org/wiki/Signalling_(economics)
mdasen 18y ago
should the guys who drive an armored car that carries millions of dollars in bonds get paid more than the guys that drive an armored car that only carries thousands of dollars in cash? Does the amount of money handled change the difficult of the work? I think this is an interesting aside in the article. Seth seems to be arguing that it's the same work, but it really isn't. The amount of money handled does change the difficulty. First, it's going to require more trips to move the money and that is increased labor. More importantly, the risk goes up the more money you're transporting. Maybe those changes are small. OK. The real difference comes in the value to the firm hiring you. If you're being entrusted with $1M vs $100K, the firm has a greater interest in making sure you're good at your job. Loosing $1M because you hired a poor driver is worse than loosing $100K because you hired a poor driver. Likewise, when we're talking about hiring for a CEO, a firm will want the best since they're entrusting that person with the livelihood of the firm. His or her job may be no more difficult than anyone else's job, but the firm has a high interest in making sure the CEO is competent. An incompetent person in an entry-level position is unlikely to be in a position to do the damage that an incompetent CEO could do to the firm. So, by paying high salaries, firms hope to be able to take their pick of managers and get the most competent. However, firms have yet to show that they are able to determine the competent from the incompetent. So, at the moment, most firms are simply paying high salaries to whomever is good at politicking and showing themselves in a good light regardless of actual competence. There is a theory behind it and it's not just marketing. However, the fact that firms have proven unable to filter the competent from the incompetent limits the applicability of that theory.
- time_management 18y ago
  So, by paying high salaries, firms hope to be able to take their pick of managers and get the most competent. However, firms have yet to show that they are able to determine the competent from the incompetent. So, at the moment, most firms are simply paying high salaries to whomever is good at politicking and showing themselves in a good light regardless of actual competence. Correct. I would go further and argue that paying stratospheric salaries for executives actually reduces the quality of people selected. The number of competitors increases, but the nature of the competition changes dramatically and therefore the selection process becomes a nasty pile of fail. Short-sighted narcissists instead of leaders rise. They elevate like people, and so on, until their worldview completely dominates the corporate sphere. High-ranking political positions pay a middle-class salary (although the social access these positions offer corrupt this intention) for a reason: people who attain them should be those who want the job and to do the work (in this case, to lead) rather than those seeking the material perks.
biohacker42 18y ago
Law firms tend to be partnerships, so if partners want to give a new guy a ton of their own cash, good for them. Wall street transformed itself from mostly partnerships, where partners invested their own money along with their customer's money, to corporations where professionals invest other people's money. Apart from that, we have the system of deciding compensation for CEOs. The CEO picks people to sit on a compensation board, and they then recommend/decide what the CEO should get paid. Warren Buffet in all his years of being an investor has been asked to sit on a compensation committee exactly once. In conclusion, it's the system stupid. Obviously CEO's salaries are going to go as high as can be in the current system. Obviously people investing OTHER people's money are going to take more risk then people investing their own money.
dejb 18y ago
One good alternative explanation of CEO salaries is by analogue to sports stars. Most people can see the impact of hiring a standout player for a team. There may a huge pool of competent players but a team full of mediocre players will most likely lose. Paying the big bucks for the best players can make sense. In a free market the amount paid to stars will be close to the perceived increase in profits that having them will provide. I'm surprised I haven't heard this argument made. Of course running a company is a lot less transparent than sports so people can't really judge if these CEOs where ever talented enough to justify these wages. Certainly the performance of their 'teams' has lead to doubt of the value of their talent. The suspicion is of course that instead of a a free market there is essentially collusion at the top levels of these companies where all the decision makers vote to pay each other more.
- plinkplonk 18y ago
  I agree about the collusion bit but for another viewpoint "Measurement alone is not enough. An example of a job with measurement but not leverage is doing piecework in a sweatshop. Your performance is measured and you get paid accordingly, but you have no scope for decisions. The only decision you get to make is how fast you work, and that can probably only increase your earnings by a factor of two or three. An example of a job with both measurement and leverage would be lead actor in a movie. Your performance can be measured in the gross of the movie. And you have leverage in the sense that your performance can make or break it. CEOs also have both measurement and leverage. They're measured, in that the performance of the company is their performance. And they have leverage in that their decisions set the whole company moving in one direction or another " PG in the essay "How to make wealth". "Measurement and leverage" is a good way to judge if a job is worth being paid very highly for imo.
deleted 18y ago
[deleted]
natmaster 18y ago
"Aside: should the guys who drive an armored car that carries millions of dollars in bonds get paid more than the guys that drive an armored car that only carries thousands of dollars in cash? Does the amount of money handled change the difficult of the work?" Potentially yes. I disagree that a person should be paid by the difficulty of their work. Who decides that? One job might be more difficult to one person than another. I think programming is pretty easy, and construction work is a lot of effort - should I get paid less for programming than a construction worker? So what SHOULD one's pay be based on? The value of their labor - the value their labor provides. This is very similar to how businesses work, which is why is it sound from a game theoretic sense. Businesses (typically) charge an amount that is based on what their product is worth. You buy the item because it provides more value than the cost of giving them that money. This way, both the business is incented to charge somewhere around that amount (because they get value from the sale) and the consumer gets value as well (cost - value to them).

55 points by peter123 18y ago

I've noticed that Seth Godin seems to think everything boils down to marketing. Sometimes it feels like a bit of a stretch.

sgk284 18y ago
I don't know... the more business experiences I have the more I realize how significantly more important marketing is than any other aspect of business. Same thing with selling yourself. It feels like a stretch, and it's hard to swallow considering that I'm an engineer through and through, but most data that I've seen fits that conclusion.
- helveticaman 18y ago
  I have very little business experience, but I would guess this is less the case with engineers. Nerds care a little more about substance because that's what their job entails. Meanwhile, business guys care about how one sells oneself because that's their trade and they enjoy seeing it done well.
  - jd 18y ago
    Good marketing gets you hired. Good networking gives you job opportunities around the globe. Good marketing gets you promotions and bonuses. Good marketing keeps your group's product from getting the axe. 0 errors, 0 warnings isn't all that important.
    - sketerpot 18y ago
      0 errors, 0 warnings keeps you from being a leech.
    - nostrademons 18y ago
      Eventually the fakes get found out. You have to be able to back up your marketing with something real. Most good organizations will be suspicious of pure marketing claims unless they can be backed up with hard evidence. So yeah, they'll interview you based on that referral, but you still have to ace the interview. They'll hire you based on the interview, but they'll fire you if you don't perform well on the job.
      - benmathes 18y ago
        > Eventually the fakes get found out. You have to be able to back up your marketing with something real. How long is "eventually"? You only need a handful of years marketing crazy financial products to walk away with a fortune. The people who get found out aren't the ones who get hurt.
    - dinkumthinkum 18y ago
      That's fine but marketing doesn't build bridges or cure diseases.
      - jpwagner 18y ago
        Lack of marketing could prevent your cure/service/product from being noticed...
        dinkumthinkum 18y ago
        Not really. This is a myth that marketing schysters try to peddle. A lot of naive people like this view though. These people would have you believe that nothing survives without marketing. When's the last time you saw a commercial for heroin or cocaine? It seems sales are pretty good for those products. And yet, again, all the marketing in the world couldn't build one bridge. It just inherently cannot. Sorry.
        jpwagner 18y ago
        Drugs are sooo marketed. Celebrities use drugs. Drugs are used in "cool" movies. You are even informed of the euphoric feeling drugs give you in elementary school. The fact that "cool" kids in high school end up experimenting with drugs first is a form of marketing (even if it is organic.) I have three words for your stupid "bridge" argument: BRIDGE TO NOWHERE (http://en.wikipedia.org/wiki/Gravina_Island_Bridge http://en.wikipedia.org/wiki/Gravina_Island_Bridge)
        dinkumthinkum 18y ago
        Your argument is that celebrities use drugs? Really? Celebrities also eat food, breath air, and sleep. Maybe you should spend more time evaluating your arguments and less time on OK Magazine. Homeless people, business people, house wives, blue collar workers, people of every walk of life use drugs. Big deal.And the products are all sold without marketing propaganda. How many crack dealers do you really think read Seth Godin? Or "How to Win Friends and Influece?" What is stupid exactly about my "bridge" argument? What does the "bridge to nowhere" have to do with anything? That is just a Red Herring. All the marketing in the world will never produce any non-trivial feat of engineering. Sorry. Part of the issue is that you and people of your view want to point to marketing for the success of any idea; you have no demarcation criterion.
newt0311 18y ago
A hammer and nail situation all over again?
run4yourlives 18y ago
Of course it is. I say this as I sit in my Herman Miller chair that is truly more comfortable that that wooden one, typing on my Macbook pro that makes me miles more productive than my old pc, while sipping my Starbucks latte that is a much better coffee than what I can make at home. Oh yeah, and did you hear that new band at SXSW this year? Much better than the one I heard the other day on the radio.
alandunne 18y ago
When all you have is a hammer, everything looks like a nail

time_management 18y ago

You also need to consider the role of blind, brainless optimism. People overestimate their chances of making it to the CEO level in large corporations, unaware of just how much the game is rigged against them, especially if they didn't inherit a network of connections. Since people-- especially the talented young people who are the workhorses of most companies-- tend to make career decisions based on future income, this is a way to inflate peoples' anticipated future income with no intention of delivering on the promise.

stcredzero 18y ago
inflate peoples' anticipated future income with no intention of delivering on the promise Not only that, but without having made explicit promises in the first place!
yters 18y ago
Success is a Ponzi scheme: Everyone thinks that to be Successful Guy they have to work really hard. Successful Guy takes responsibility for their work and becomes more successful. Everyone works harder since Successful Guy is even further beyond their reach. Successful Guy works even less since everyone else is working even harder. Rinse and repeat. Eventually, Successful Guy appears magical and has the ability to rise to the top of any organization.

stcredzero 18y ago

There was an issue of Lone Wolf and Cub that mentioned a Japanese aphorism about this: One bowl of rice, two bowls of rice. One mat, two mats. What it means: No matter how rich you are, you're not going to be able to eat much more than two bowls of rice and you can't sleep on more than a few tatami mats at a time. But I would love the ability to do whatever I wanted, live wherever I wanted, and have a foundation to save the world.

stevejalim 18y ago
Very true, and I reckon the 'foundation to save the world' thing is a pretty commmon wish. (It's on my list, and on the list of a fair few people I know, but that could just be the circles I'm in). <naive> Perhaps we should all just club together (n% of profits from m successful startups) and give the Gates Foundation a run for its money... </naive>
charltones 18y ago
...two bowls of rice, three bowls of coke? It mounts up when you're living that life.

jwb119 18y ago

So, he basically assumes that Wall Street has settled into an absurd equilibrium point where any one firm would have a massive incentive to break with the pack, yet they all refuse to do so because not one person at Goldman/Morgan/Barclay's etc understands marketing as well as Seth Godin? Convenient..

time_management 18y ago
No. It's more like this: there's a massive prestige cost in paying lower than "market", and a benefit to paying more. It's actually much cheaper to overpay executives and at-pay or slightly underpay junior people, which is what most "prestige" firms do.
3pt14159 18y ago
Just because 1000 people want the job and are "qualified" doesn't mean they would do as good a job. Consider this example: Company A has 1000 employees that they pay 100 dollars a day, totaling $100,000. They can hire Joe to be COO for $1000 a day or Zach for $5000 a day. Based on both mens track record the company estimates that Joe will increase efficiency 1% while Zach will increase efficiency 10%. Since a 10% increase in efficiency will likely gross them $10,000 a week and only cost them $5000 (Zach's salary) they hire him instead of Joe. The same thing happens all over the place. Someone that can make a 10% change company wide is worth FAR more than someone that can only make a 1% change.

pwk 18y ago

From the article: Aside: should the guys who drive an armored car that carries millions of dollars in bonds get paid more than the guys that drive an armored car that only carries thousands of dollars in cash? Does the amount of money handled change the difficult of the work? The amount of money handled does change the cost of failure. It also changes the amount of risk the drivers face.

anamax 18y ago
Armored car drivers do make more than most employees who do cash drops for small biz. "Armored cars" that schlep records are typically driven by folks who make less than those who transport money. In short, there are at least some situations where the amount of cash handled affects compensation.
helveticaman 18y ago
Agreed. Seth Godin is assuming the only factor that should affect pay is the difficulty of the work.
- jpwagner 18y ago
  I pay my blind limo-driver a ton...
yters 18y ago
Success is a Ponzi scheme: Everyone thinks that to be Successful Guy they have to work really hard. Successful Guy takes responsibility for their work and becomes more successful. Everyone works harder since Successful Guy is even further beyond their reach. Successful Guy works even less since everyone else is working even harder. Rinse and repeat. Eventually, Successful Guy appears magical and has the ability to rise to the top of any organization.

andrewbadera 18y ago

Wall Street has generated (perhaps manipulatively) trillions in revenue -- hundreds of percent increase -- since the 70s. Shouldn't firms be paying salaries and bonuses reflective of the profit generated? Seth doesn't know his stuff on this one. Fluff piece. Boring.

lpgauth 18y ago

I really don't agree with this: "After a million dollars or so in salary, the absolute amount that a person is paid has no real impact on their life." This might be true for an average person, but "big" CEO's live a certain lifestyle (especially in big cities) and it's not a cheap one. You'd be surprised to know how many of them end up with debt even thought they make 10+ millions a year.

m_eiman 18y ago
I'd say that the main problem then isn't the income - it's just that the person receiving it can't manage his or her own money. It's also funny that the same person is considered the best person to manage a big corporation... If people like that are the best available for the job, it's just scary.
- yummyfajitas 18y ago
  They can't manage it? Or do they simply choose to go into debt with the hope of paying it off later?
  - prewett 18y ago
    What's the difference? Sounds like poor management of money to me. Especially the "hope" part.
- tlb 18y ago
  Oh, no, living the lifestyle you need to live to be a successful investment banker is incredibly expensive. You really do need a big impressive house (or penthouse in Manhattan) to impress clients with. You have to stay at the same resorts where your clients stay. You have to do a thousand little things that say "money is no object" in order for people to trust you with their money. Irrational but true. It probably is rational for them to spend into debt in the early part of their career to build up credibility.
  - m_eiman 18y ago

jwb119 18y ago

This is also a fairly egregious application of Signaling Theory.. http://en.wikipedia.org/wiki/Signalling_(economics) http://en.wikipedia.org/wiki/Signalling_(economics)

mdasen 18y ago

should the guys who drive an armored car that carries millions of dollars in bonds get paid more than the guys that drive an armored car that only carries thousands of dollars in cash? Does the amount of money handled change the difficult of the work? I think this is an interesting aside in the article. Seth seems to be arguing that it's the same work, but it really isn't. The amount of money handled does change the difficulty. First, it's going to require more trips to move the money and that is increased labor. More importantly, the risk goes up the more money you're transporting. Maybe those changes are small. OK. The real difference comes in the value to the firm hiring you. If you're being entrusted with $1M vs $100K, the firm has a greater interest in making sure you're good at your job. Loosing $1M because you hired a poor driver is worse than loosing $100K because you hired a poor driver. Likewise, when we're talking about hiring for a CEO, a firm will want the best since they're entrusting that person with the livelihood of the firm. His or her job may be no more difficult than anyone else's job, but the firm has a high interest in making sure the CEO is competent. An incompetent person in an entry-level position is unlikely to be in a position to do the damage that an incompetent CEO could do to the firm. So, by paying high salaries, firms hope to be able to take their pick of managers and get the most competent. However, firms have yet to show that they are able to determine the competent from the incompetent. So, at the moment, most firms are simply paying high salaries to whomever is good at politicking and showing themselves in a good light regardless of actual competence. There is a theory behind it and it's not just marketing. However, the fact that firms have proven unable to filter the competent from the incompetent limits the applicability of that theory.

time_management 18y ago
So, by paying high salaries, firms hope to be able to take their pick of managers and get the most competent. However, firms have yet to show that they are able to determine the competent from the incompetent. So, at the moment, most firms are simply paying high salaries to whomever is good at politicking and showing themselves in a good light regardless of actual competence. Correct. I would go further and argue that paying stratospheric salaries for executives actually reduces the quality of people selected. The number of competitors increases, but the nature of the competition changes dramatically and therefore the selection process becomes a nasty pile of fail. Short-sighted narcissists instead of leaders rise. They elevate like people, and so on, until their worldview completely dominates the corporate sphere. High-ranking political positions pay a middle-class salary (although the social access these positions offer corrupt this intention) for a reason: people who attain them should be those who want the job and to do the work (in this case, to lead) rather than those seeking the material perks.

biohacker42 18y ago

Law firms tend to be partnerships, so if partners want to give a new guy a ton of their own cash, good for them. Wall street transformed itself from mostly partnerships, where partners invested their own money along with their customer's money, to corporations where professionals invest other people's money. Apart from that, we have the system of deciding compensation for CEOs. The CEO picks people to sit on a compensation board, and they then recommend/decide what the CEO should get paid. Warren Buffet in all his years of being an investor has been asked to sit on a compensation committee exactly once. In conclusion, it's the system stupid. Obviously CEO's salaries are going to go as high as can be in the current system. Obviously people investing OTHER people's money are going to take more risk then people investing their own money.

dejb 18y ago

One good alternative explanation of CEO salaries is by analogue to sports stars. Most people can see the impact of hiring a standout player for a team. There may a huge pool of competent players but a team full of mediocre players will most likely lose. Paying the big bucks for the best players can make sense. In a free market the amount paid to stars will be close to the perceived increase in profits that having them will provide. I'm surprised I haven't heard this argument made. Of course running a company is a lot less transparent than sports so people can't really judge if these CEOs where ever talented enough to justify these wages. Certainly the performance of their 'teams' has lead to doubt of the value of their talent. The suspicion is of course that instead of a a free market there is essentially collusion at the top levels of these companies where all the decision makers vote to pay each other more.

plinkplonk 18y ago
I agree about the collusion bit but for another viewpoint "Measurement alone is not enough. An example of a job with measurement but not leverage is doing piecework in a sweatshop. Your performance is measured and you get paid accordingly, but you have no scope for decisions. The only decision you get to make is how fast you work, and that can probably only increase your earnings by a factor of two or three. An example of a job with both measurement and leverage would be lead actor in a movie. Your performance can be measured in the gross of the movie. And you have leverage in the sense that your performance can make or break it. CEOs also have both measurement and leverage. They're measured, in that the performance of the company is their performance. And they have leverage in that their decisions set the whole company moving in one direction or another " PG in the essay "How to make wealth". "Measurement and leverage" is a good way to judge if a job is worth being paid very highly for imo.

deleted 18y ago

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natmaster 18y ago

"Aside: should the guys who drive an armored car that carries millions of dollars in bonds get paid more than the guys that drive an armored car that only carries thousands of dollars in cash? Does the amount of money handled change the difficult of the work?" Potentially yes. I disagree that a person should be paid by the difficulty of their work. Who decides that? One job might be more difficult to one person than another. I think programming is pretty easy, and construction work is a lot of effort - should I get paid less for programming than a construction worker? So what SHOULD one's pay be based on? The value of their labor - the value their labor provides. This is very similar to how businesses work, which is why is it sound from a game theoretic sense. Businesses (typically) charge an amount that is based on what their product is worth. You buy the item because it provides more value than the cost of giving them that money. This way, both the business is incented to charge somewhere around that amount (because they get value from the sale) and the consumer gets value as well (cost - value to them).