> Redistributing 100% of these 5 executives' salary to all 2.2m workers would be a raise of... $32/year.
But that's besides the point. What on earth do they need to get paid that much for? Even if you assume they're contributing 100x what line workers are doing, they'll do just fine earning under $1M/year.
Plus, you then pinpoint the bigger issue. Yeah, the investor class exists because, you know, someone shaved $32 off of everyone's salary so 5 people could get paid a total of ~$70M/year.
The problem is actually a bit more subtle than that. Practically speaking they don't add that much value over the next candidate. My estimate is any large company has 10s of people who could be an effective CEO. The competition at that level is absurd. With that sort of supply it doesn't make sense to pay them so much; especially considering how many of them turn out to be not particularly good at the job and just buffeted by luck and coincidence.
So with that in mind, the inequality between CEOs and general management suggest that the process of picking the CEOs is corrupted. It is possible (imho, likely) that the most competent people aren't being appointed to the role. That is bad for investors, workers and the public. The company law around appointing CEOs probably needs to be changed.
There have been many examples of a CEO retiring and the replacement running the company into the ground. Thus if you find a good CEO they are well worth a much larger salary (if that is what it takes to get them) to ensure they stay on the job working for you. A good CEO is well worth the price because of how well the company does. Luck is a factor in how much a company grows, but bad management is the largest factor in how fast the company fails.
Of course why you would pay such high salaries to a CEO who is untried and might turn out to destroy the company is a valid question.
I draw a parallel between that argument and the one that comes up sometimes that farmers should be paid big bucks because their output is critical to society in a way that, eg, a soccer player's is not.
The issue isn't that good CEOs add a lot of value - clearly true. The issue is why are they being allowed to capture that value despite fierce competition? Nobody else is allowed to do that. If there are 10 willing & hypercompetent people paid <$1,000,000 available to do your job, it shouldn't be feasible for you to earn >$2,000,000 unless there is something very strange happening. Like a very effective guild system and control of the corporate budget.
Exactly as you say, it isn't like we can differentiate between these people in advance. Why do we think paying them more will help? In any other field you can get exceptional talent for far less than a CEOs salary.
> Thus if you find a good CEO they are well worth a much larger salary
Of course. And to be clear I'm not quibbling about CEO pay being higher than the minimum wage.
The question that I've an issue with is how much larger. Back in the 1950s the answer seemed to be 20x the minimum wage or whereabouts. Nowadays it's more like 360x. [0]
CEOs were doing the same kind of job at the time.
And just think about it: it means the typical large company CEO earns in one day what his baseline employees earn in a whole year. That's just a recipe for a French or Russia style Revolution to erupt.
Plus, who actually needs $1M/year? I've earned fairly good money for years -- but still a fraction of that -- and I'd have no idea how to spend that much without investing up the wazoo. And in case you're thinking "I'd know how", sure, the answer is yes, everyone does -- for a few months. As a salary, $1M/year is ludicrous. And $10+M/year is sociopathic. No one is worth that much.
When you live that lifestyle you learn to spend it. A friend of mind used to rent an apartment to someone making $40k/month - the renter was often late paying her monthly $500 rent because she was out of money until next payday (the apartment was a third home used only to visit her kid who was going to school nearby). When you can afford to buy any neat car you see after a while it no longer occurs to you that maybe you shouldn't buy it anyway.
Michael Lewis has a great episode about this in his podcast "Against the Rules". He actually gets a consultant to try to explain why CEOs are paid so much. The answers are pretty telling.
I don't think it's that one, I think it's "The Hand of Leonardo". It convincingly links what happens in the art world with what happen with CEO compensation.
This is what the job is worth, if you want someone competent and responsible for thousands of employees and billions in revenue. Nobody is doing that for $1m/year when one wrong decision could end up costing 1000x more than their salary and hurting livelihoods of the workers.
Focusing on a single number is irrelevant, you must account for everything in the organization and the results.
Also nobody is stopping anyone from creating corporations with different compensation, but clearly there's a certain price required when you get to these levels.
>This is what the job is worth, if you want someone competent and responsible for thousands of employees and billions in revenue. Nobody is doing that for $1m/year when one wrong decision could end up costing 1000x more than their salary
I'll do it.
It's not like that one wrong decision ends up affecting them. Even if they get fired (which they often don't), they can exercise golden parachutes that will pay out many multiples of how much an average earner gets in a lifetime.
It's a job that gets paid a lot of money because the people who do it come from a fairly tight knit community that looks out for each other, not because of merit (CEO pay actually correlates slightly negatively with performance). Being an alumnus of McKinsey is actually one of the ways to enter that community.
You are totally right about the "golden parachute".
The nice thing about being in upper management is that none of your decisions has any negative consequences for yourself and in the end you will just have more money and some more enemies who will probably not even attack you.
It is always about "vitamin b" because that is how certain networks like (financial) elites work.
I always wonder how average people try to defend the rich and argue that it is totally justified that they earn something like one year of salary in a month or even more.
Think about all the big issues we have and how we could tackle them with all the money that now is inherited and shoved around to make more money out of nothing just to be even wealthier.
It is just absurd to me and that people are actually kind of ok with this takes away most of the hope I have for our global future because if these people prevail it might as well look like the "hunger games" here some day.
>I always wonder how average people try to defend the rich and argue that it is totally justified that they earn something like one year of salary in a month or even more.
I'm one of those "average" people. CEOs are paid that much because they found some other people willing to pay them that much, and I'm not arrogant enough to presume my preferences for how the people paying them should spend their money are superior to their own preferences.
Look at it as empathy. Would I like it if somebody came and started telling me how to spend my money? Hell no! Then why should I wish that upon whomever's paying CEOs?
> Would I like it if somebody came and started telling me how to spend my money? Hell no!
You and a bunch of others are going to think I am totally crazy for saying it, but I think you might be too possessive of "your" money.
Maybe you think you got it because you are totally that awesome and really deserve it more than somebody else. But surely you were supported throughout your lifetime to end up making that money. It's a collaborative effort.
Sometimes I get approached by homeless types on the sidewalk and I give them a $20 or something. Occasionally it's been larger than that, often it's been smaller. One might call that being generous. I am surely in a position of privilege being able to do that without it hurting much. But really all I am doing is giving them a piece of paper. Particles of the universe just like any other matter. I don't feel it's mine any more than it's theirs. So it moves from my wallet to their hand. No big deal.
I will admit that this attitude has its limits. You can go broke doing it too much. But there is room for it in our lives.
I think it's both things. Very meaningful for the value that we all put in it, and at the same time, it's nothing at all.
In an ideal world maybe everyone would be provided for and we wouldn't obsess over paper. But the system is a sort of lesser approximation of fairness. "Worst one except for all the others", as the saying goes.
>Maybe you think you got it because you are totally that awesome and really deserve it more than somebody else. But surely you were supported throughout your lifetime to end up making that money. It's a collaborative effort.
My response would be that everybody who supported me was paid to do so, so they already got their fair share. Except for my parents, but personally I don't think children owe their parents because the parents are the ones who make the decision to have a child, so they should bear responsibility for the children's existence, not the child (i.e. they're obligated to provide for the child they created).
>Sometimes I get approached by homeless types on the sidewalk and I give them a $20 or something. Occasionally it's been larger than that, often it's been smaller. One might call that being generous.
There's a big difference (or at least there is in my eyes) between voluntarily giving someone something, and being forced by somebody else to do so. People who oppose punitive taxation doesn't necessarily oppose it because they oppose charitable giving, they oppose it because they don't think people have a right to decide how other people spend their money. For the record, it seems that in the US conservatives give more to charity than liberals: https://www.nytimes.com/2018/11/03/your-money/republicans-de... .
> My response would be that everybody who supported me was paid to do so,
That strikes me as a cynical read on the situation. Could it be that some of those people liked you, believed in you, wanted you to thrive for selfless reasons that were not economic?
> People who oppose punitive taxation ... oppose it because they don't think people have a right to decide how other people spend their money.
That's the thing, the "their money" part is sort of a fiction. Additionally it is totally fungible, not earmarked or put conditions upon, it doesn't go into a little pile marked "asveikau's taxes" for only the parts of government I approve of. We pool it, and it's all or nothing, take the good with the bad. We have elections for any disagreements that may arise from there.
>That strikes me as a cynical read on the situation. Could it be that some of those people liked you, believed in you, wanted you to thrive for selfless reasons that were not economic?
Maybe that did, but it doesn't change that they did whatever they did without asking for anything in return. At least to me the idea of a system in which you owe somebody more for something they did (either something they did out of generosity or because you paid for it) than what you explicitly agreed upon is quite unpleasant. Like if somebody came to my house, asked "could I mow your lawn", and I was like "uh okay sure, I suppose so", then afterwards they were like "ah-hah, now you have to pay me $200!" or "ah-hah, now you have to clean my kitchen!", I wouldn't consider that very fair. Ideally an agreement/contract is only valid when both parties understand and agree to it.
>That's the thing, the "their money" part is sort of a fiction. Additionally it is totally fungible, not earmarked or put conditions upon, it doesn't go into a little pile marked "asveikau's taxes" for only the parts of government I approve of.
Well then that's where the disagreement comes from. For people who believe in property rights, money isn't a fiction, it's a proxy for the claim people have over the value of the product of their labour. For many of the American founders, it was a consequence of https://en.wikipedia.org/wiki/Natural_law . For economically conservative Christians, it was a product of the argument that commandment "Thou shalt not steal" is not waived merely because enough people have voted for you to steal. If someone believes for whatever reason in an inherent moral right to their property, they won't believe it's acceptable for that right to be violated just because other people voted to do so.
I think it's hard to justify some of this with Christianity in particular. Remember what Jesus said about the poor and related topics. I don't see him as being particularly possessive or hoarding of currency or property. Also, "render unto Caesar".
Majority of the world's richest people are self-made. [1] I know many millionaires and met a few of these billionaire CEOs who have come from nothing and worked their way up.
It's called the American Dream. Freedom and opportunity to achieve your own goals, something people seem to take for granted until they go somewhere that doesn't have it.
> "Defend the ultra-rich because you think you will be one some day. You will not."
You shouldn't assume, but even if I never become a billionaire, I sure don't need to hate them for it. I defend their ability to attain success, not their wealth.
Creating better conditions for everyone >>>> playing a game with a set success rate of 0.01 % and f*ck the rest. Also, the game is not fair to begin with. It's called a Dream for a reason. Feels like going bankrupt trying to win the lottery.
I am pretty sure they did not as most wealth is inherited AFAIK.
Here a snippet of an interesting article on this[0]:
"Yet the opportunity to live the American dream is much less widely shared today than it was several decades ago. While 90% of the children born in 1940 ended up in higher ranks of the income distribution than their parents, only 40% of those born in 1980 have done so."
This correlates to the fact that wealth concentrates in few and fewer people around the world (the 1% for whom laws, governments, borders etc. do not exist).
It is not about a comparison with the people who are at their worst (and it will probably not be Chinese farmers but that is another topic). It is about fairness and an average level we can ALL agree to.
I want all people to have a meaningful existence and a life that they think is worth living because in my frame of mind this is fairness.
As long as people starve and children cannot afford to got to school and women are being used, sold and shipped like some goods etc. I cannot stand to see people who get so much more than they need just to spend all the money on stupid things (please take a look at some of their instagram profiles and youtube videos if you don't know what I refer to).
The best of behavior I saw is people like Musk who puts his money into businesses which hope to (really) "make the world a better place" - at least if this is true and not some sales pitch (we can discuss about this in a few years when there is more results I think).
Others like to frame themselves as "benevolent" super-humans who are giving away money to charities. This is "green washing" most of the times to improve their PR. The money they give is a joke and these charities do not change the world as you can see.
Why does someone need or even deserve to own 50 cars and 7 houses? No one contributes that much to the world that he would deserve that and especially not while others are dying because they cannot afford to buy food.
This "hard work" that is needed to become rich is using others and ignoring all moral implications in many times. I had two opportunities in my lifetime to become (kind of) rich and both where at least dubious in one way or the other. It is about cheating governments to not pay any or too much taxes and it is about customers who are willing to pay a huge amount of money for someone to "take responsibility" he does not really take in the end. Also you can cheat consumers like "big tobacco", sugar etc. do.
Staying in this position only took them some money to pay scientists, politicians and others to be legally sold or even recommended and advertised.
These systems are built by generations of people without moral (maybe they are raised like that) and inherited to alumni who are at least as numb and asocial.
=> No one deserves to be that rich no matter what they do.
=> They become rich by using people like you and me without moral implication or hesitation.
=> They try to uphold the "American Dream" so we stay quiet until we are as poor as the people on the bottom. (look at Warren Buffet who talked about the "War of the Rich against the Poor")
What's your track record for handling that kind of position? It's not the money, it's the competence, knowledge and experience that matters. And if you actually have all that then you wouldn't be asking for $1m/year.
It's a tight knit community because there are only a few individuals who get to that level of management and can be selected from to lead (and are even open to a new position in the first place).
The golden parachutes are to offset a bad tenure from hurting their future prospects. There are several CEOs who aren't hired anymore (or anywhere near that level) because of their past performance and they lose their earning potential.
> Nobody is doing that for $1m/year when one wrong decision could end up costing 1000x more than their salary and hurting livelihoods of the workers.
You make it sound like they'll somehow lose out personally by losing the company 1000x their salary and hurting the livelihoods of workers, like they're somehow being compensated for personal risk.
What you cited represents no personal risk to the CEO. They already made their millions. Now maybe if CEOs were actually liable for the damage they could do to the company and economy, would it be more justified.
You'll never find a qualified candidate for running a huge multinational corporation for only $1M/year. You simply won't be able to hire for the role and the company will have to go without a leader. If you try to promote someone internally whom you think would do a good job and then underpay them, they'll simply leave shortly after because someone else will snatch them up and pay them more than you. If you do find someone who stays for that amount, it'll be a bottom-of-the-barrel candidate that everyone else passed on already.
This is like wanting to find a top-tier senior staff engineer for $30k/year in San Francisco. At the end of the day, the people who can do the job can also perform other roles, and those other roles already pay more than $1M/year. You have to convince them to take on an unprecedented amount of stress and responsibility and effectively act as a public figure with all the baggage that comes along with that. You also have to retain them and prevent competitors from hiring them and deploying them against you. That means you have to pay them more -- sometimes a lot more.
There is personal risk. If the CEO does a poor job they might not be hired again or have other career impacts. There are numerous Fortune 500 CEOs that have a negative reputation that impacts their future earnings.
Also corporations partly exist to shield liability so CEOs are not going to be personally held responsible outside of gross negligence or criminal acts, the same way you wouldn't be held responsible if you caused a major outage in your company that lost customers. There is an general move towards more performance-based compensation though, which I think you would agree is a good thing.
> There is personal risk. If the CEO does a poor job they might not be hired again or have other career impacts. There are numerous Fortune 500 CEOs that have a negative reputation that impacts their future earnings.
And if I do a shit job I might have trouble getting hired too, but I'm not paid millions for it.
Perhaps, but extremely unlikely. Who would know? I'm sure you can see there's a massive difference from a major CEO who is known publicly vs you switching jobs and not getting a reference callback at worst.
> There is personal risk. If the CEO does a poor job they might not be hired again or have other career impacts. There are numerous Fortune 500 CEOs that have a negative reputation that impacts their future earnings.
Your work performance is absolutely reviewed by managers and peers. Of course not to the extent of a CEO, but you're not getting paid what a CEO is and don't have the same impact so that's not surprising either. The point is all jobs have risks for performing badly, as they should.
Not to mention sometimes CEO's performing badly results in a golden parachute... quite a far cry from your grunt worker getting laid off with no pension or benefits.
If you go to a new job, who is telling them how bad you were at the last one? At most you might get a recommendation if you're good but it's rare to have anything follow you around unless it's major public news.
Golden parachutes are not about performance, it's about change of control like a company takeover or merger. It's very common and happens to many startup founders that get acquired. It's also not much different than severance which is offered to employees at large corporations.
If you get a new job is key. Serious jobs will contact past employers and look at gaps in your resume. If you are being laid off and have bad references it will absolutely negatively affect you. Sure you could get some job, but so could an EX CEO...
Golden parachutes are extra insulation for CEOs and their performance can definitely cause them to exit a company with a parachute that otherwise would keep them. It is like severance except wildly higher and more often than not there is no severance for average workwrs, especially nowadays.
Either way, originally you made a statement about a CEO having negative impacts from their performance, but the exact same thing is true of everyone. A public story of a CEO performing badly is just as ethereal as a recommendation from a past job. Neither is a death sentence or a golden ticket, it's just a job and if you do it poorly you will have negative consequences. Publicity could serve an exiting CEO regardless of performance, that is not hard to conceive. It's just a different level of job people aren't blind to that. But to say they take greater personal risk by being a CEO, I don't buy that, they take the same risk as everyone else. If you do well you get rewarded, if you do poorly you're future is negatively affected. There's really nothing to support it's so different for a CEO.
What Elon Musk tweets out in his personal time absolutely affects Tesla. If Elon decides to drive a Toyota Prius tomorrow.. well, guess what that does?
Being a CEO is not a 9-5. Everything and anything a CEO does is monitored by a cadre of people.
> Nobody is doing that for $1m/year when one wrong decision could end up costing 1000x more than their salary and hurting livelihoods of the workers.
Exactly. The wrong decision costs _the company_ a billion, it hurts the livelihoods of _the workers_. Incompetent, even criminal, managers more often than not pay for their mistakes with early retirement and severance packages.
Winterkorn got a 10+m bonus when he stepped back and receives over one million in additional pension payments each year. That's the guy who is at fault for the Emssions Fraud Scandal.
John Cryan, who oversaw the further demise of Deutsche Bank, was kicked with a 10m severance package. During his time as CEO, the Deutsche Bank share went from 30€ to 15€.
So that brings us to the next question: Why on earth are we putting the entirety of those (business) life and death decisionsinto the hands of essentially a single person? Why is the effort not spread out over a broad swath of management-capable people at all levels of the company, when we're against monarchy in so many other aspects of life?
we're not against monarchy because it's inefficient, or because kings are always bad. We're against it because when a king is bad, they're really really bad for their subjects.
That doesn't have a lot to do with a public company.
The data[0] show that there is an inverse correlation between performance and CEO compensation, so I'm not sure how you come to "that is what the job is worth". Let's not pretend that the CEO market is some idealistic pure marketplace. In reality it's a good ole boys club between boards and top execs. I would wager that limiting CEO pay would have no negative effect on the supply of candidates.
> But that's besides the point. What on earth do they need to get paid that much for?
Companies decide. It is their prerogative. If you dont like it nothing prevents you from having your own billion dollar company where everyone earns the same.
There have been a number of shareholder fights over executive pay (it is their money, after all, so it's only natural they should try to claim it). They often end up losing thanks to the trend of passive investors and fund managers (principal/agent problem) with unhealthily close relationships with executives.
Yet it is also a legitimate target for outside regulation, if there are indicators of market failure (monopoly, externalities, asymmetric information, etc.).
> What on earth do they need to get paid that much for? Even if you assume they're contributing 100x what line workers are doing, they'll do just fine earning under $1M/year.
No one needs to get paid anything. Calvin Coolidge's[1] son died of an infected blister he got playing tennis. Do we need antibiotics? No. People lived without them and if we're unlucky we will too as antibiotic resistance spreads.
It's not about what people need. Americans don't need such huge houses or so many cars. Swedes don't need their winter holiday to the sun. Chinese peasants don't need to go from eating meat once a year to every day of the week. It's about what people are worth paying, whether they produce more than it costs to employ them.
The news that Steve Ballmer was retiring as CEO caused MSFT stock to rise $1 billion. Ballmer was worth -$1,000,000 as CEO. Since Satya Nadella became CEO its market capitalisation has quintupled. He is very easily worth paying $100 million a year.
On your final point, the investor class is the reason we can have nice things. People who have money and invest it instead of consuming it are where investment comes from. Without investment our private stock of capital will rapidly run down due to depreciation and there will be no economic growth, no research and development.
We've seen the alternative to capitalism. It failed to promote economic growth, freedom or human flourishing. For countries starting from almost everyone being peasants it has its plus points[2], see Branko Milanovic's new book. For
[1] A US President
[2] Communism probably led to faster investments in education and healthcare than would otherwise have occurred in countries like Romania and Bulgaria. In countries that were already developed before the Soviet conquest like East Germany or Czechoslovakia it had basically no redeeming features
We're also in late-stage capitalism and on the cusp of something new (either fascism/feudalism or democratic socialism). The AI/automation juggernaut will displace millions of jobs. Climate change is coming fast and is going to challenge our survival. Free markets are a wonderful thing but we're well past Adam Smith territory now.
> Communism probably led to faster investments in education and healthcare than would otherwise have occurred in countries like Romania and Bulgaria.
I think much more than healthcare and education, investment in infrastructure, industry and research were somewhat "redeeming" features of the brutal totalitarian regimes in Romania at least.
More to the point, most ground-breaking research, especially computing and rocketry, has actually come from the state in the capitalist USA, with private capital only serving with mass-marketing of those technologies once proven out and gifted from the public to the private space.
Also, a non-capitalist society would not be investor-less. It would instead spread investment opportunities to vastly more people, and would encourage them to band together and pool their investment in worker-owned enterprises. This is in stark contrast to the totalitarian state capitalism of the so-called "communist countries".
> I think much more than healthcare and education, investment in infrastructure, industry and research were somewhat "redeeming" features of the brutal totalitarian regimes in Romania at least.
Investment in industry, infrastructure and research are not lacking in capitalist countries with the relatively minimal conditions of security of property, freedom to contract and rule of law. The Communist investment in education is just unparalleled at the same level of output per capita. Ditto for healthcare. The CCP killed more Chinese people during the Cultural Revolution than the Japanese did during their invasion of China and they still look good in terms of lives saved by virtue of bringing very basic healthcare everywhere.
> More to the point, most ground-breaking research, especially computing and rocketry, has actually come from the state in the capitalist USA, with private capital only serving with mass-marketing of those technologies once proven out and gifted from the public to the private space.
Basic research is definitely a strength of government. Development isn't. You need the R and the D and private industry is much, much better at the latter than any government ever has been.
> Also, a non-capitalist society would not be investor-less. It would instead spread investment opportunities to vastly more people, and would encourage them to band together and pool their investment in worker-owned enterprises. This is in stark contrast to the totalitarian state capitalism of the so-called "communist countries".
There's nothing to stop workers forming cooperatives under capitalism. Worker-owned enterprises abound in law and accounting and used to be common in banking. The cooperative movement is going on 200 years old. We even have a reasonable explanation for its failure in that employee owned businesses have a disincentive to expand as they maximise profit per employee not total profit.
>There's nothing to stop workers forming cooperatives under capitalism.
That's true, but it misses the point of the anti-capitalist critique, which is a critique of capitalism, the unconscious structuring of society for particular ends. When anti-capitalists criticize capitalism, they do not criticize individual capitalists, but the system in which there is predominant waged labour, alienation, commodity fetishism, and exploitation. Forming a cooperative is an admirable thing to do, but to suggest it alone is by no means a response to criticism of capitalism, a particular social formation, because the suggestion is an individualized one. It would be impossible to bring everyone on earth under cooperatives in a capitalist society.
Analogy: "Just live in a safe neighborhood" is no solution to murder, or its structural causes. Just one individual being murdered is sufficient to show the problems of the system and the individualized solution.
I still feel it is important to raise the awareness of the idea of worker cooperatives as a viable alternative to capital-owned corporations, since a lot of people think anti-capitalism implies something like larger state involvement and being anti-market.
But you are absolutely right, forming cooperatives under the current system will never be a viable path to removing the entrenched from power. It is simply a vision of what a working alternative to capitalism could look like.
My question to you is why do you choose to prioritize that problem?
Yes, $70 million to the execs while many earn minimum wage sure does sound awful. But like OP says, even if you achieved resounding success in eliminating this inequality, it translates to a $32/yr raise. That rounds down to zero in terms of improvement in prosperity.
Isn't prosperity of the rest what we really ought to care about? It seems an awfully lot like focusing on the cosmetically ugliest problem that doesn't really move the needle.
Its not beside the point. It directly refutes the other commenters point. You don't get to jump in to a discussion between others and retroactively decide what the point was. How rude.
But that's besides the point. What on earth do they need to get paid that much for? Even if you assume they're contributing 100x what line workers are doing, they'll do just fine earning under $1M/year.
Plus, you then pinpoint the bigger issue. Yeah, the investor class exists because, you know, someone shaved $32 off of everyone's salary so 5 people could get paid a total of ~$70M/year.