
CEO compensation has grown 940% since 1978 - howard941
https://www.epi.org/publication/ceo-compensation-2018/
======
RcouF1uZ4gsC
I would actually be OK, with the CEO/worker pay discrepancy if the CEO was
held criminally responsible for company wide illegal behavior.

I would like a rule that the CEO is criminally responsible for any company-
wide illegal behavior. Even if they claim that they did not know, at their pay
scale, it was their responsibility to know and thus they are criminally
negligent. Under this rule, the WellsFargo CEO would be a convicted felon and
had a prison sentence.

This rule would do wonders to clean up illegal activity. Right now, it is in
the CEO's interest to put incentives in place that can only be achieved via
illegal behavior and then turn a blind eye to the behavior as long as the
stock price goes up. This would change that and force them to actively try to
keep illegal behavior from happening, since they now face prison time if it
occurs.

~~~
mulmen
Would that make the average person’s life better than if their income had just
grown at a reasonable rate?

It’s unreasonable to expect one person to actually have the kind of
accountability you seem to think CEOs are simply choosing not to exercise.

I would rather workers just got paid a reasonable wage.

~~~
travisfischer
Completely sincere question, how would you personally define a reasonable
wage?

~~~
ginko
40 hours of work, any work, a week should be enough to pay for a decent life
that allows you to raise a family, build a home, and go on vacation every now
and then.

~~~
sprafa
Which is exactly what it did around the 50s and 60s. But back then the world
was a different place - that’s essentially when equality maxed out.

~~~
RcouF1uZ4gsC
Equality maxed out with respect to the United States, and that with respect to
white males. However, there was much more global inequality. Western Europe,
Soviet Union, China, and Japan had all been devastated by having WWII fought
on their land. Their cities had been bombed out, and large percentages of
their population killed or maimed. India had just gained independence from
Great Britain and trying to get it bearings as well as navigate a bitter
rivalry with Pakistan.

In the 50's and 60's, the US was basically the only developed country that
hadn't had its homeland destroyed by the war. This meant that there was very
little competition for US companies.

In addition, the labor markets were tight. Remember, half of the population
(women) were not expected to be in the job market long term, but rather to get
married and stay at home. There was outright discrimination against people of
color. Thus you had very little outside competition for US companies, with
tight labor markets in the US, this resulted in generally good pay and
benefits for US workers.

------
tabtab
What really chaps my hide is that failing CEO's still get large benefits of
one form or another. If a regular Joe fails, they usually get the boot and
little else.

If money is incentive to make people more productive, why pay them to fail? Is
meritocracy only for the poor?

Some co's wised up to this and pay mostly in company stock. But CEO's then
initiate buy-back programs to jack up the stock price.

~~~
harryh
I CEO of a large public company who fails is likely to end up with a ruined
career. Exit packages compensate for that risk.

~~~
rootusrootus
Does that really happen? The CEO of my company left his last company in
disgrace. His 'ruined career' means he makes 15M a year instead of 20M. I need
that kind of 'ruined career'

~~~
scruple
Same here. In fact, the very Googleable person that I call CEO today took > $5
million in severance from the last 2 companies he fucked up. I've been hearing
this story my entire life, now I have the privilege to be old enough to see it
first hand. What a treat.

------
xutopia
Typical workers increased by about 10% in the same time and minimum wage
workers decreased by 5.5%.

Something is rigged.

[https://memepoliceman.com/misleading-with-inflation-
since-19...](https://memepoliceman.com/misleading-with-inflation-since-1978/)

~~~
harryh
Globalization simultaneously brought competition for many workers and allowed
for large multinational companies with the ability to pay their CEOs more.

Is that rigged or is that just change?

~~~
ajross
Changes to minimum wage levels are policy, not competition. The majority of
these positions are things like service jobs not subject to global workforces.

Basically: you can reasonably argue that a US textile job might pay less today
because of competition from abroad. You can't say that about burger flipping
or fruit picking. Those jobs are payed less because we deliberately dropped
(in real money terms) the legally mandated floor on the salary.

~~~
twblalock
> The majority of these positions are things like service jobs not subject to
> global workforces.

They are subject to automation. If you make service labor more expensive than
robots, you'll be buying your Big Macs from robots instead of human cashiers.

~~~
freehunter
So by keeping minimum wage below the poverty line, not only are we not
realizing efficiencies the market _could_ be providing, but we're also
subsidizing the lack of market efficiency in social welfare benefits. All
while the companies increase their profits on the backs of every taxpayer who
subsidizes the employees those companies are not paying appropriately.

If replacing humans with robots is so easy, we should do it. We're already
giving those humans taxpayer money to survive anyway. It's not like we're
saving money with the current system, we're just funneling taxpayer money
straight into the pockets of Walmart, McDonalds, etc.

------
nv-vn
>Stock options make up a big part of CEO pay packages, and the conservative
measure values the options when granted, versus when cashed in, or “realized.”

The "conservative" measure is the only correct way to measure here. Using
realized gains makes no sense because that's not the value the company paid
out. That's like saying you invested your salary and the gains are part of
your compensation package.

~~~
pembrook
This is true, but the overall reason CEO pay has ballooned is a dramatic
cultural shift in Corporate America during 1980s towards stock options/grants
for executives. Meanwhile corporate earnings have not grown 940% faster than
they did in the 80s. Funny story, for a while, corporate America actually
believed that equity pay was "free" and didn't realize that shareholders were
paying for it.

The reason worker pay hasn't kept up has a lot to do with simple stock market
compounding. The stock market goes up 9.8% a year on average--regardless of
executive skill. Even if worker salaries keep pace with inflation (which they
don't), they would only go up 2-3% per year.

Further reading, this article from II:
[https://www.institutionalinvestor.com/article/b1db3jy3201d38...](https://www.institutionalinvestor.com/article/b1db3jy3201d38/The-
MBA-Myth-and-the-Cult-of-the-CEO)

Also, highly recommend this newsletter:
[https://eomail1.com/preview?p=d9e18eae-6673-11e9-9307-06b469...](https://eomail1.com/preview?p=d9e18eae-6673-11e9-9307-06b4694bee2a&pt=campaign&t=1556101007&s=fad440ca5338bc1a92a229534c3562917c431f245224f98024e530365a4868e5)

This planet money episode:
[https://www.npr.org/sections/money/2018/06/22/622646316/epis...](https://www.npr.org/sections/money/2018/06/22/622646316/episode-682-when-
ceo-pay-exploded)

~~~
sokoloff
> Even if worker salaries keep pace with inflation (which they don't), they
> would only go up 2-3% per year.

It seems to me that they do slightly better than keep pace:
[https://www.pewresearch.org/fact-tank/2018/08/07/for-most-
us...](https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-
real-wages-have-barely-budged-for-decades/)

Or do better than that (albeit over a shorter timeframe):
[https://fred.stlouisfed.org/series/MEHOINUSA672N](https://fred.stlouisfed.org/series/MEHOINUSA672N)

------
vxxzy
I've read that since CEOs are appointed by a board, and since CEO pay is
public knowledge, that Boards don't want to "look bad", that they've "picked
the right person for the job". They only put in "winners" \- and you don't pay
a winner less than the "known market rate". This has the affect of the
"average" moving up. Is this really a legitimate reason for the increase in
CEO compensation?

~~~
devoply
Does any person deserve a 1000% more just because of their position?

~~~
charlesdm
The short answer to that question is yes. A good CEO will invest $200 million
in a good asset (i.e. factory), resulting in a great return for the
organisation. A bad CEO will invest $200 million in a bad asset (i.e. Tumblr,
$1.1bn -> $3m) and lose their shirt.

Say the decision of the good CEO makes the company $100m. How much is he
worth? A lot.

~~~
Falling3
The question wasn't what pay was deserved for a _good CEO_. It was whether a a
raise was deserved simply by being a CEO. And the fact you're pointing out -
such a large difference in results between a good and bad CEO - points to the
answer being "no", not "yes".

~~~
devcpp
As with all things, it's a matter of demand and offer. If a potential CEO has
a choice between a company that pays well no matter what, and a gamble which
could leave him out of a job and without money, he'll choose the sure outcome.
On the other hand, a good CEO is such an important thing that companies will
bend over backwards to meet their demands. So they do that. A few million
bucks is cheap change for _potentially_ higher earnings.

You might argue that incentivizing CEOs should be more important than getting
a good one, but you'll have to ask shareholders at major companies why they
don't insist on that instead.

Whether this is "deserved" or not is irrelevant. What matters is
profitability, not fairness.

------
cperciva
Fine print: The compensation of CEOs at _the largest 350 (publicly traded?)
companies_ is 940% higher than the compensation of CEOs at _the largest 350
companies_ 40 years ago.

Guess what? The largest 350 companies are much bigger than the largest 350
companies were 40 years ago. This is an apples-to-oranges comparison.

~~~
twoodfin
To emphasize your point, the first $1M/year sports contract in the U.S. was in
1978 for an MLB player[1].

That's about $4M after inflation, for the highest contract in the nation.

Today, the top end of MLB contracts are around $30M/year[2], NFL top end
contracts are at similar values. That's right around the same growth.

[1] [https://www.firmex.com/thedealroom/when-did-athletes-
start-g...](https://www.firmex.com/thedealroom/when-did-athletes-start-
getting-rich/)

[2] [https://www.mlb.com/news/largest-contracts-in-mlb-
history-c3...](https://www.mlb.com/news/largest-contracts-in-mlb-
history-c300060780)

------
liquidise
Cumulative inflation rates over the same period[1]: 293.5%

Nominal GDP growth over same period[2]: 875%

This study appears to focus on CEO compensation instead of CEO salary, which
is an important distinction as it means large CEO compensation packages are
often based on stock increase and not on paychecks.

I'm all for people being paid more, so the issue to me is less about CEO
compensation and more about worker compensation. Many of us in tech have seen
considerable wage growth in the last decade. Unskilled workers less so. Which
is honestly the real concern: as automation gets more mature and as unskilled
labor gets more expensive, we could see a stark displacement of workers in
america and abroad. I don't know that modern society is arranged in a way that
can deal with these shifts effectively.

1\.
[https://www.usinflationcalculator.com/](https://www.usinflationcalculator.com/)

2\. [https://www.thebalance.com/us-gdp-by-
year-3305543](https://www.thebalance.com/us-gdp-by-year-3305543)

------
Glyptodon
I think the paradox is that having a very good CEO hypothetically is worth a
premium for businesses with massive revenues: Where even the square root of a
profit delta relative to a 1% less effective CEO is huge, it makes sense that
it's worth a nonlinear increase in pay to get someone who's 1% better.

But simultaneously people are very unlikely to correctly identify which person
of a group of competent candidates actually is the best. It's just that
marketing and confirmation bias are good enough to cover it up.

~~~
JustSomeNobody
Except it has been shown that CEO pay doesn't correlate to better performance.

~~~
Glyptodon
I'm not saying it does correlates, I'm saying that the idea that it would be
worth it to pay a lot more for small % increases in performance makes sense,
so people pay like they can pick winners regardless.

------
chiasson
I am not agreeing or disagreeing with the conclusions, but I find the
statistics as used in the article to be weak. They had a whole article to
convince me and I still don't have confidence in whether there is a problem or
not. A few immediate thoughts:

Comparing the top 350 firms in 1978 and 2019 is not a fair comparison. There
are more and bigger firms today. It is like comparing the ten fastest
sprinters at a school of 10,000 and a school of 100. No one will be surprised
to find that a bigger pool produces bigger numbers.

Average is not a statistically robust metric. A couple of crazy outliers could
skew the statistic dramatically, and may not actually give us a clear idea of
the typical case.

It is not clear exactly what metric the author uses for "reasonableness" of
CEO compensation. Is it reasonable for the compensation to be proportional to
the size of the organization? Was the 30-1 ratio reasonable to begin with?
Should everybody have exactly the same salary? Without some kind of standard
or reasoning here, you can't claim that any salary is too high.

There are many ways they could rehash their data in a way that I would find
more convincing, and it makes me suspicious that I am being fed an inflated
story. I would like to see what the median salary-to-market-cap ratio of CEOs
in the largest %5 of companies is. Maybe a hard statistic to measure, but we
could get a whole lot closer.

Disclaimer: I have almost no background knowledge of CEO compensation or
wealth inequality, this may indeed be a serious issue that needs to be
addressed. However, as a casual observer I find this article unconvincing.

------
AcerbicZero
CEO pay, as a metric, is somewhere between a misunderstanding of the problem,
and a red-herring. Taking the top "350" companies makes this particular
example lean towards the red-herring column. Companies are larger than ever,
have access to financial instruments that are more capable than most small
nation states, and "grow" by eating their competition left and right. There
are numerous other factors in play, many of which I likely don't know.

All that combines to create an environment where CEO pay out paces
"reasonable" metrics, and each of those items needs to have its own nuanced
discussion to even begin to make changes. I believe we legislated our way into
this situation, and the current political landscape leaves little hope for
legislating (or de-legislating) our way out of it.

------
chapium
What is limiting the supply of CEOs? I know some like to point out CEO pay as
a problem, but isn't this just basic economics?

------
goatlover
So either CEOs are 78 times more valuable today than average workers compared
to 1978, or the game has been rigged in their favor.

~~~
refurb
I'm not sure why you think a person's compensation is related to the value
they add. It's supply and demand - you can add very little value, but be an
extremely scarce commodity and command a high wage. Same with the inverse -
adding a lot of value, but there are too many of you, so your wage is low.

~~~
MiroF
Yes, but supply and demand still doesn't permit your wage to outstrip your
value.

No reason to get a CEO at the margin if they are not valuable (even if CEOs
are in very short supply)

------
lordnacho
One thing you always hear is "if the CEO makes a 1% difference, that's another
100M in the bank".

What people never mention is that it is very hard to separate skill from
noise. How do you know what would have happened if some average guy had held
the seat?

The other one is risk. How do you judge whether the CEO was taking a good
tradeoff between risk and reward?

------
outlace
I wonder if there is a market explanation for this rather than "CEOs are more
evil and greedy now" that seems to be the dominant talking point. Perhaps
running a company now requires more skills than it did the 1970s and before
and yet there are not proportionally more skilled people. Just like software
engineers are paid a lot because it's a high skilled job and the proportion of
people with the talent and skill to be a software engineer probably hasn't
increased correspondingly.

------
Areading314
Shareholders are ridiculously beholden to management during this era, and it
almost defeats the purpose of public markets. There is a lot of evidence that
shows that paying ungodly amounts of money to a CEO does little for company
performance, but boards still allow it to happen.

I almost think there needs to be a way for shareholders to have a bigger say,
perhaps a social network for shareholders, where opinions can form on best
steps for keeping management accountable, and not wasting money on executive
comp.

------
georgeecollins
Interesting point: The market cap of the S&P 500 has grown by 3100% since
1978. Maybe through growth and consolidation (there are fewer public companies
in general, but obviously the S&P is always the 500 top ones) the average CEO
is in charge of a larger company?

[https://www.multpl.com/s-p-500-historical-prices/table/by-
ye...](https://www.multpl.com/s-p-500-historical-prices/table/by-year)

------
JustSomeNobody
The reason I think this is not good is that CEOs are out of touch with what
losing a job would feel like to most of their employees. They can afford to
take risks or just become complacent. What happens, though, is that employees
lose their jobs and struggle because we all know that's the first tool in the
CEO belt; cut jobs. I think if wages weren't so inflated companies might be
better run because even the CEO has skin in the game.

~~~
ryanmercer
>The reason I think this is not good is that CEOs are out of touch with what
losing a job would feel like to most of their employees.

A million times this. My CEO took 16.6 million in compensation last year, I
can retire 20-24x with that (if it were net not gross, hard telling how much
in taxes he paid)

------
notSupplied
At the very least, this needs to control for consolidation. Are companies much
bigger today that three decades ago due to M&A? Due to winner take all nature
of new industries? If a person is at the helm of a company with 10x the market
cap, wouldn't the difference between the right and wrong decision be 10x
greater? Wouldn't you want to pay much more to find the right person in this
case?

------
amai
Meanwhile in Germany the relation between highest and lowest salary in a
company is on average at 1:50. The maximum is 1:97,see
[https://m.spiegel.de/wirtschaft/unternehmen/volkswagen-wo-
vo...](https://m.spiegel.de/wirtschaft/unternehmen/volkswagen-wo-vorstaende-
das-97-fache-ihrer-mitarbeiter-verdienen-a-1271793.html)

------
zerd
NPR Planet Money has a good episode on this:
[https://www.npr.org/sections/money/2018/06/22/622646316/epis...](https://www.npr.org/sections/money/2018/06/22/622646316/episode-682-when-
ceo-pay-exploded?t=1565899867325)

------
nothrabannosir
Planet Money has a relevant episode on this:

[https://www.npr.org/sections/money/2016/02/05/465747726/-682...](https://www.npr.org/sections/money/2016/02/05/465747726/-682-when-
ceo-pay-exploded?t=1565891255639)

Recommended, Planet Money is great.

------
hackeraccount
How much has compensation grown for professional basketball players - or any
sort of professional sport - over the time period?

Or Doctors?

~~~
Medicalidiot
Physicians are grossly underpaid for the level of education they have to go
through, the amount of work that is done weekly, and the high stakes nature of
their job. I'm biased as a medical student though.

Fun fact: ~5% of health care costs come from physician salaries, 8% is from
nurses.

~~~
hackeraccount
Compare a Doctor to an Airline pilot - especially a regional carrier. A Doctor
screws up and they can kill maybe 1 person?

~~~
lliamander
Ah yes, but doctors usually survive their own screw ups.

------
londons_explore
Supply and demand suggests that either there must be a very limited supply of
CEO's, or there is a huge demand for them.

Which is it?

------
chrisco255
I've got a problem with how these figures are calculated. For example "CEO-to-
worker" compensation is a relative figure that is individual to each company.
A company like Google, that operates a high margin, high revenue business, can
afford to pay its employees $200K+ a year on average, whereas a company like
Wal-Mart, which has a low margin, high revenue business with millions of
employees, CAN NOT ever match Google's compensation. Even though they are both
complex businesses with multi-national operations and high revenue in the
hundreds of billions of dollars.

There's other compounding factors. The business landscape has changed in many
ways since 1978. The late 70s and 80s were a time when global trade was
rapidly expanding. International corporations outsourced a lot of labor to
China, India, and many other lower cost labor centers during this time. As as
result, total manufacturing employment has declined: from a high of nearly 20
million employees in 1979 to just 12.8 million in 2019 [1]. In 1978, the U.S.
labor force was about 100 million and today it's 163 million. So not only have
the absolute number of manufacturing jobs decreased (as offshoring increased),
but the relative percentage has dropped dramatically for U.S. workers...from
nearly 20% in 1978 to just 7.8% [2].

So I would rather look at CEO pay relative to profit-per-employee figures or
something else that's far more relevant.

Further compounding factors are the tax code and how that has changed
dramatically since the 1986 Tax Reform Act. The act lowered tax rates but
completely eliminated tax shelters and restricted personal expenses (which
executives used to take egregious advantage of). The number of write offs an
individual and a corporation could claim prior to 1986 was dramatic. Consumer
credit card interest was deductible! Auto interest? Deductible. Empty
commercial office buildings? Could be deducted over a 15 year accelerated
depreciation schedule [4][5]. Caused all sorts of bad signals in the economy
and contributed to the Savings & Loan crisis.

At any rate, it is very, very dubious to compare businesses of 2019 to
businesses of 1978. The variables in all vectors have shifted dramatically,
and an over-simplified look at complex multi-variable systems is
unfortunately, rather rampant today.

[1]
[https://fred.stlouisfed.org/series/MANEMP](https://fred.stlouisfed.org/series/MANEMP)
[2]
[http://www.dlt.ri.gov/lmi/laus/us/usadj.htm](http://www.dlt.ri.gov/lmi/laus/us/usadj.htm)
[3]
[https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986](https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986)
[4]
[https://www.fdic.gov/bank/historical/history/137_165.pdf](https://www.fdic.gov/bank/historical/history/137_165.pdf)
[5]
[https://library.cqpress.com/cqalmanac/document.php?id=cqal86...](https://library.cqpress.com/cqalmanac/document.php?id=cqal86-1149342)

------
avocado4
Sounds like a good time to start a company.

~~~
kevstev
You hear a lot about successful companies, and the numerous quantities of
startups that don't make it, but you don't really hear much about founders of
companies that don't make it. Do they typically get "regular" jobs? It would
be interesting to see where they end up a few years after the failure.

------
vernie
"Actually this is good."

~~~
vernie
[https://news.ycombinator.com/item?id=20707758](https://news.ycombinator.com/item?id=20707758)

------
ryanmercer
I mean it's only fair that the Chairman and CEO of my parent company made 16.6
million in compensation in 2018, 474x (four hundred and seventy four) what I
made.

I'd just hate to be our new President and COO, he only has a base salary of
955 thousand.

And for some reason people wonder why I'm always asking if it's time to go
home, if it's time to die, and why several people in the office several times
a week mention how many years or weeks they have left until they 'get paroled'
(can retire and go find another job). It couldn't possibly be because my CEO
made 20-23x what I need to retire last year.

