Hacker News new | past | comments | ask | show | jobs | submit login
Overpaid CEOs 2019 (asyousow.org)
111 points by Flott on Feb 23, 2019 | hide | past | favorite | 195 comments

The CEO (and upper management in general) pay scale is total BS when viewed through normal compensation lenses, unlike normal people who are paid for their time, upper management is usually compensated on performance -but- they are compensated on the performance of their company (or division) and they get all the pie. Since nobody else's pay is scaling with performance (outside of bonuses which in my experience usually don't exceed 5% annual salary) their salaries end up inappropriate scaled into the stratosphere because the company's performance justifies increasing compensation to employees to retain them and sustain that performance. In actuality employee retention is bottoming out in the modern era (compare it to the 60s) and people are the top make f-u money that is so out of step with the people doing work at a company that it isn't even comparable.

Wealth and earnings inequality is a serious issue in this modern world and it's ridiculous, some people are more efficient than other people, nobody is 100x more efficient than anyone else. Take an arbitrary dude off the street and give them the experience of a CEO and I bet you that substituting him in would at most lose the company 40% of growth/whatever.

Part of OP's point though is that CEO pay is apparently not tied to performance because CEOs still get astronomical pay really regardless of whether or not their company/division performs well.

So CEOs just get paid more period. And there's this funny set of myths as to why that is the case. In reality, I think it just boils down to the fact that humans sort of instinctively (or maybe culturally?) like the idea of royalty. And so we're okay with some people just getting more for no good reason other than the fact that they're somehow anointed or divine.

You’re exactly right. Senior leadership (including CEOs) have the best of both worlds: they get the upside when the company succeeds, but none of the downside when the company fails. The worst that happens is they get fired and go make more millions as CEO of some other company. In fact, they often get upside when the company fails (what was Marissa Mayer’s exit package?)

It’s a helluva deal they got going.

In fact, they often get upside when the company fails (what was Marissa Mayer’s exit package?)

Marissa Mayer got a nice compensation package because she did well by Yahoo investors: she managed to trick Verizon into paying real money to buy the hulking wreck of Yahoo.

If you start out thinking that Yahoo could ever possibly have been saved in any alternate universe, you can get all-kinds of angry or disappointed in Mayer's performance. But if you see Yahoo for what it was, you realize she really did arrange the best possible deal that Yahoo shareholders could have hoped for.

I'm not saying that's illogical or irrelevant given how the market works, but... how is this sane when considered from the benefit of society. A failing company managed to recoup some funds investors were expecting to lose by ripping off a healthy sustainable company. Why should we care about reimbursing investors like this when the whole value they add to the free market is an ability to accurately predict (and assist) in a company's growth. If that company tanks they failed at their job and shouldn't get a subsidy to continue doing their job by handicapping a healthy company.

A better example might be Carly Fiorina.

I was at HP during the Platt, Fiorina and part of Hurd years. Prior to that experience I was as skeptical as anyone about CEO compensation, impact and contribution. How much difference can one person make?

Well, clearly a huge difference. Under Platt HP had good consistent growth, and we enjoyed record profit sharing and bonuses. Fiorina joined and managed to cut the company's value by 50% in three years. Hurd joined and the company's value went right back up. The difference in execution and competence was startling.

IDK, but the real story must surely be the board of directors (which hires, fires and sets the salary for the CEO). How can a board be so incompetent that it negotiates a severance package whereby Fiorina receives $42 Million to leave after loosing half of the company's value.

When you look at the following graph, keep in mind the Great Recession in 2008.


Fiorina's compensation was arranged by a board that everyone acknowledged was hopelessly dysfunctional (see Mark Hurd and the spy scandal).

There's this claim that CEO compensation doesn't correlate well performance. I could see your Carly Fiorina and raise you Steve Jobs or Jack Welch or any other number of anecdotes. What's the real statistical correlation in the S&P 500?

I think any connection to "royalty" or anointed status is secondary and completely tied to individual executives and their performance (or at least reputation).

What is true is the myth of individual efficacy. That a good CEO will have a successful company, and that a successful company is a sign of a great CEO. The reality is obviously that there are countless factors that affect company performance.

It's not that people think they are special, it's that we are very bad at correctly apportioning responsibility, especially when there is also a power imbalance that extends to determining that apportionment itself. We don't instinctively seek royalty (as in we assume leaders are special as a rule, though obviously in some contexts/positions we do), we seek simplicity (and pinning everything on a single leader is about as simple as it gets).

Yet the historical fortunes of many companies are clearly dependent on their CEOs. See Apple and Microsoft, for example.

It's much like how military battle outcomes are clearly dependent on the decision the general makes, for better or worse.

Well, yeah. Obviously they are important.

Correct. They get paid what they do because they set their own compensation. Performance has nothing to do with it, unless things get so bad they are removed.

CEO's dont set their own comp unless it's a small private company, and those are unlikely to be paying millions.

True, but also a myopic understanding of what actually goes on. Who do you think actually serve on the boards? The answer is other executives. And so there's the all too common situation where pay raises and golden parachutes are essentially quid pro quos.

That situation would require 2 people to have alternate roles at the same companies which is incredibly rare, if not already prevented in the corporate bylaws.

Many board members are in entirely different industries and sectors and some only serve exclusively on boards. Many others are investors whose money is being used to pay those executives. There's also a layer of shareholders above the board and voting is required for all major decisions.

It's not as simple as you make it out to be.

CEOs of publicly traded companies don’t set their comp, the board does.

Board members have a portfolio of firms they are on, so they are less exposed to any single firm than staff. They are also part of the group that might be named CEO if a new one is needed, so it's in their interest to keep compensation high.

The board and the CEO are people who have known each other for years.

On the other hand, I don't think that is the only source of problem. Companies have gotten way too big and the experience of running global conglomerates is simply not common. Add risk aversion to it and the same people, whether succeeding or failing, end up getting hired over and over. It's a lack of supply and lack of competition.

The board approves the plan and I usually let my friends have what they want.

> I think it just boils down to the fact that humans sort of instinctively (or maybe culturally?) like the idea of royalty.

Until they don't: https://en.wikipedia.org/wiki/French_Revolution

The history of France right after the revolution invalidates this. Napoleon happened. And there was a restoration of the monarchy for a while.

And after the restoration of the monarchy, there was a short republic, then another autocrat, Napoleon III with the second empire.

I just want to point out a mathematical error in your post.

You said, "nobody is 100x more efficient than anyone else". This is a reasonable (though not strictly true) statement by itself. But the implication is wrong - nobody needs to be 100x more efficient/effective to justify a 100x pay differential.

Consider an example:

* Company earns 1 billion per year.

* Normal-Person will increase profits 5%.

* Super-Exec will increase profits 10%.

--> Note that Super-Exec is only 2x more effective at increasing profits than Normal-Person.

Let's imagine we can hire Normal-Person for $100k. How much does Super-Exec have to charge to no longer be economical?

The difference in company earnings between the two is $50 million. So Super-Exec can charge up to $49,899,999 and it'll still be economical for the board to hire him. They'd be throwing away money if they hired Normal-Person when Super-Exec is willing to work for only $45 million.

These numbers are made up but in the same scale as how a big company really operates. The critical fact is that when the base amount of money being managed is huge, tiny differentials in performance translate to huge dollar values and boards are willing to rationally trade a large chunk of those values to execs in exchange for that performance.

That should only affect Super-Exec's base pay if they can prove up front that choosing them can be expected to increase profits by 10%. Otherwise the "10% of profits" expected value figure needs to be diminished according to uncertainty -- which will send it straight back down out of the stratosphere. Yet that doesn't happen. Which suggests a different game is being played.

When a company increases in value by tens of billions and then the CEO takes home hundreds of millions, it seems like there could still be a big discount happening.

My point is that hiring someone more effective for that position may increase revenues but there is nothing inherent in that effective person that is yielding an additional 50$ million in profits that a normal person couldn't come out with a yield of 40 or 45 million.

This is a conflation between an important position (being able to resolve disputes and push decisions and direction) and being an important person. CEOs have skills, and have invested heavily in training those skills (if they aren't terrible) but those skills are not skills unattainable to the normal person, society just doesn't need very many people with those skills and the apparent value those skills create via business decisions appear to pay off handsomely. But that $50 million the exec's decision has made for the company isn't solely due to their work, if the company didn't have programmers and labourers and marketing and manufacturing to support the decision and deliver on the decision then that $50 million wouldn't have been earned.

Their decision is important, but their involvement isn't worth the full value the company receives based on making that decision, because without the supporting labour their decision may have been genius, but it would have netted no profit to the company. I think this sort of highlights what I consider to be a real issue with how we evaluate personal value in the modern world and why assets are becoming so concentrated in the hands of so few.

> CEOs have skills, and have invested heavily in training those skills (if they aren't terrible) but those skills are not skills unattainable to the normal person

This is an understatement. I'd wager that the average fresh graduate of a decent two-year MBA program has all the raw knowledge and business skills required to be the CEO of 90% of companies out there. What they do is not rocket science. The reason all of us are not CEOs is not that it's impossibly challenging or specialized, it's simply that there is only one per company and there are more people than companies. It's a small tent and not everyone can fit under it.

I've met senior executives who I considered brilliant and wise beyond belief, and I've met senior executives who I'm surprised could even tie their own shoes or back out of their driveway without running over their mailbox. There's no correlation with pay or prestige. They're all rich and beyond the point where career failure is possible, purely due to the rung of the ladder they happened to land on.

> Their decision is important, but their involvement isn't worth the full value the company receives based on making that decision

CEO's don't get anywhere near the full value the company receives based on the decisions they make.

The average S&P 500 corporation is worth $45B and grows earnings by 10% each year. The average S&P CEO gets paid $13.5 million dollars.

The fundamental wrong assumption at the heart of your approach here is: The idea that people "should" be paid according to some measure of their moral worth or moral deservingness.

But when people meet to voluntarily make economic exchanges, they don't look at each others' moral deservingness; they look at where they can benefit economically.

This is true, but it misses a very important problem.


Super exec might increase profits by more than normal exec, sure. How are you going to identify them? There's actually no way. All the ordinary selection criteria cannot be sensitive enough to sort the wheat from the chaff. Prior experience? They probably only had the job once. Recommendations? Passing the buck. Whiteboarding? LOL.

Chances are you will end up randomly picking out of a group that's mixed super and normal, and chances are you will end up with normal.

If you pay for super you will almost surely be overpaying.

It may even be that:

* Normal-Person will increase profits by 5% and will dutifully inform the media of those gains

* Super-Exec will increase profits by 5% and will give a charismatic interview leading the market to believe that profits may increase by 10% the next year, which is reflected in an outsized 30% rise in the price of company stock

The board will hire Super-Exec for $50mm/yr because they all hold stock in the company and are thus more interested in the stock price than in the company fundamentals.

Upper management pay, oof. I am at a company that went public. I was a very early employee working on the core product as a developer for the better part of a decade. I got a very nice payout (a bit over 1 million before taxes). The head of HR joined several months prior to our IPO and made over 8x what I did in equity. Like, wtf.... I can't complain as I won some start up lotto money, but, man, this head of HR _really_ lucked the f*ck out.

Any more details (that you're willing to share) on this? You mentioned they're only the "Head of HR", but you say you were a core product dev (senior by the timeline you give). Did you accept underpay because you were early? I'm having a hard time wrapping my head around an 8-month "Head of HR" making out significantly better than a (first 20?) Sr Product dev (not questioning your story though).

I'm thinking the number of options just weren't there.

Yes, what about vesting?

many companies have instant acceleration on change of control, with regard to the vesting point.

never ever heard of this for IPO

This is at least pretty common in Canada, options are set to vest on a schedule but all future agreed upon options will vest if the company is sold/goes public/what have you.

You share the company's wealth by offering stock as part of compensation. This works well for the high earning tech employees, who can pay their bills with their first 100k and save the rest or invest it. It doesn't work as well for middle/lower class employees who need immediate cash instead of stocks that they can't always hold until it's worth more. Imagine working for Amazon back in the day for $30k, and come time for a raise, you're offered an extra $2k bonus or 10 shares. I'd wager most lower income folks would take the money, since that's food on the table.

I've always wondered what it would look like if were were paid in multipliers instead of salaries. The lowest would get 1x, middle folks 5x, and CEO maybe 20x. The usual "a rising tide lifts all boats" mindset.

This is how pay on whaling ships worked, so you have historical precedent


"I've always wondered what it would look like if were were paid in multipliers instead of salaries. The lowest would get 1x, middle folks 5x, and CEO maybe 20x. The usual "a rising tide lifts all boats" mindset."

I like that idea!

Then you would get small companies and lose a lot of economies of scale. Would you rather be a CEO of a retailer of 100 employees or 1000000 employees? Your pay is going to be the same because cashiers in both companies will be paid roughly the same, meaning that maximum CEO pay will be the same.

I guess it would be neat to see an immense amount of small companies though.

I too think it would be neat to see how it plays out.

I'd also like to propose in this scenario that the ownership of such companies could also apportioned out to staff, and that the government should create an environment where access to startup capital is cheaply available in all regions.

Consider how much more tax and local spending might occur. The problem with a lot of those economies of scale is that the companies and extremely wealthy individuals get quite good at reducing their tax burdens in inventive ways, especially once large enough to leverage international org structures.

And as you rightly point out upper management, are good at taking small cuts of profit from a much larger number of people, and the political leverage imbalance that this creates also really affects things (surely not one person believes an honest billionaire who gives frequent large donations to a party expects nothing in return).

Also a good chunk of that efficiency turns into lobbying and marketing budget.

I'm sure that there will still be companies that find a way to make extreme profit without large staff, and there would likely be other problems. But it's hard to believe it would be dramatically worse than the current state of extreme wealth imbalance.

I think that's exactly the problem today. Companies have gotten too large and too centralized. It's not clear whether they are still getting economies of scale (they're usually highly inefficient -- lots of places to hide), or rather "succeeding" as monopolies.

We know from behavioral economics that tying salary to performance for mentally engaging pursuits typically leads to poorer outcomes

Oh pooh, I as a lower/middle class employee got a lot of stock options. They were worthless because the company stock sank, but I liked getting the options, and if the company had been managed better I would have made much bank.

> I'd wager most lower income folks would take the money, since that's food on the table.

Instant gratification is a large reason why lower income folks stay poor. (As for "food on the table", lower income people "invest" in lottery tickets. They clearly do have discretionary income.)

>(As for "food on the table", lower income people "invest" in lottery tickets. They clearly do have discretionary income.)

Low income people are desperate to get out of their situation because in a lot of cases, it's barely livable.

The information in the article shows that they're largely correct; A disproportionate amount of compensation goes to a small number of people - and that amount is so skewed that it can't possibly be based on performance.

If the system they're in appears illogical, you can't fault them for acting illogically.

It's not so much about performance, but their impact (responsibility). If the CEO of a small mom and pop shop says something racist online then few people will care, but when the CEO of Papa John's said something racist 11% of the valuation of the company disappeared. That's on the order of $100 million. People might've been laid off because of this or more likely, people didn't get hired because of this.

> that amount is so skewed that it can't possibly be based on performance.

Of course it can be. I'll give another example - Microsoft under Gates/Ballmer/Nadella. As an MSFT shareholder, I am very, very happy with Nadella's results and he's worth whatever he's paid.

Passing up a salary increase for stock options will occasionally pay off big, and if you have good confidence in the company go for it... but a lot of companies fail and those options become worthless.

You got no money out of your options, if you were asked about the options and could have declined them for a modest wage you would have made more.

(Also, your post needlessly and illogically attacks lower income folks, just give it a rest. Rich people buy fancy cars that are equally worthless instead of responsibly investing their money.)

> upper management is usually compensated on performance -but- they are compensated on the performance of their company

No? Thats one of the problems. Over the larger industry pool, and controlling for volatility, executive pay doesnt actually reflect company performance. Theyre closer fund managers hyping beta and past hits, but underperforming the averages.

>> Take an arbitrary dude off the street and give them the experience of a CEO

That experience takes decades of results to earn which is precisely why they're worth so much. Of course it's meaningless if you can magically train anyone else that easily.

>> at most lose the company 40% of growth/whatever

That would put most companies out of business. Would you like your employer to lose 40% of their staff?

>> nobody is 100x more efficient than anyone else

Yes they are, you just haven't worked with them. The networks and wisdom the top people build up is what helps them lead companies and make decisions for 1000s of employees with billions at stake. What they can do with a few phone calls can easily surpass the output of 100 startups.

This article is also talking about the TOP companies which obviously requires top talent. This is nowhere near the average and these salaries reflect the immense stress and responsibility that comes with the job. If you think you can lead a company this large that easily then you really do not understand what the position entails.

> Take an arbitrary dude off the street and give them the experience of a CEO and I bet you that substituting him in would at most lose the company 40% of growth/whatever.

Most arbitrary people will crumble under pressure if they are given the experience of a CEO.

This is perhaps the central point of contention in the CEO pay debate.

Let's take a scientific perspective of performance, ie using evidence to decide which hypotheses to believe.

If we have a situation that's repeatable, say in professional sports, we have a pretty useful basis for deciding who is better. For example a pro soccer player has his entire career recorded by the second. Every touch, tackle, sprint, shot, and so forth is recorded. On top of that the conditions are similar across matches: the point is to win. This is highly repeatable, noise can be removed by having many experiments.

What does a CEO do? Well they mostly do things that aren't replicable. If your company launches the iPhone, they aren't going to do it more than once. If they miss the boat, catching up is a different condition to leading. If the economic cycles turn, the CEO's time at the helm will certainly not last enough cycles to tell whether they are good at weathering such storms. In fact decisions that CEOs make tend to be rare and unrepeatable. Did Marissa Mayer have to be skilled to sell Yahoo? Well nobody else has been allowed to try, so we don't have a lot to compare with. Did she get a good price? Well she only did it once, so we don't know.

In fact it is a lot easier to ascertain that LeBron James and Cristiano Ronaldo are at the tops of their games than any CEO. Do they score a lot? Yes, and many other dudes have tried. Are they effective compared to opportunities? Yes, and the stats say so.

Coming back to the CEO vs man on the street, I get the feeling a lot of CEOs are quite replaceable. Their firm is in some business, and there's a few strategic decisions to make. If you have multiple parallel universes, it's possible the CEOs would make the best choice more than the man on the street. But you'd certainly find men on the street who'd also launch the iPhone if given the chance. Now consider people who are reasonably close to senior management but not yet there. Would they make similar decisions? They certainly cost less.

By contrast it is glaringly obvious when a man on the street tries to play a sport. It's even obvious when a pro who is less good tries to play against a superstar.

I understand the point you're making: CEOs can't be easily shown to be 10x at their jobs the same way that athletes can be.

But then you're expecting all CEO's to be 10x and are making a hypothesis that many are probably not. Maybe.

Look at it from the point of the Board. They don't care about the details. They just want to appoint people who will handle it. They don't have the time to supervise every company they're the board members of (possibly a problem of corporate governance to be sure).

So CEO's tend to be the folks who: 1. Get things done and 2. Accept responsibility

As long as they execute on these goals, the Board doesn't care. In fact, they will pay the CEO more if they take such good care of the company that they don't need to be involved at all.

If it's just a question of doing things and taking the fall if it goes wrong, why pay for that?

There are armies of middle managers that could do that at any firm. By the time you're middle management, you know what the firm does. Just pick one of them, pay them a little bit more, and pick another one if it goes wrong.

You won't know the difference.

> There are armies of middle managers that could do that at any firm. By the time you're middle management, you know what the firm does. Just pick one of them, pay them a little bit more, and pick another one if it goes wrong.

If only that were the case. Most middle managers are folks who have reached their zenith; they are good enough for their roles but not good enough for the next level. Usually its due to some variation of ego/communication issues.

Despite this though, I kinda agree with you that this should be tried more often. From personal observation, it appears that many companies don't have the flexibility of experimenting with this approach.

nobody is 100x more efficient than anyone else

The stockholders of Kodak, Blockbuster, Toys R Us, Radio Shack, Payless, Lehman Brothers, Bear Stearns, Enron, Worldcom, Tyco, DeLorean, TWA, Pan Am, and Arthur Anderson might beg to differ.

Only if you believe these companies’ demises can be primarily attributed to poor CEO ability, and that a different CEO could have shown better results.

I believe that in many cases a bad leader can cruise on the success and momentum of an already smooth-sailing company, and similarly a good leader can fail to turn around a sinking ship. Who knows to what extent company performance can be linked with CEO ability or efficiency?

I don't like the word "efficient" in contexts like this, I prefer "effective".

Yes, some people are simply 100x more effective than others.

In three days you can accomplish what someone else (assuming they had training on par with what you received) would take a year to do?

Assuming you step in and out of the office four times a day, do you think it's reasonable to hire someone solely to open and hand you an umbrella when you leave the office and take it from you when you return as a fair trade to the minute you might spend fiddling with the umbrella cover?

I would say that people that seem _much_ more efficient than other people are about 2.5x more efficient than them. Being able to do in a day or two what would take someone else a week, and most of this efficiency comes from experience not innate skills. The CEO market is limited in such a way that not everyone who acquires the skill and training to be a CEO can acquire a job that pays out 50 million.

In three days you can accomplish what someone else ... would take a year to do?

Sure, why is this surprising? There's no hard limit to incompetence. A bad CEO can sink the ship; a bad manager can destroy the team; a bad product manager can make the product useless; a bad engineer might never deliver on any timescale. Hell, even a bad janitor could burn down the building.

"Training" is just not a very good metric of skill or value. If it were, they'd hire CEOs straight out of college.

"assuming they had training on par with what you received" feels unfair: Generally, what makes someone a 10x engineer is exactly that most people lack that level of training, experience, and skill. It's not about innate talent, but it's still a valuable, rare, and therefore marketable skill.

Achieving 100x results isn't something you can guarantee, and it doesn't even involve writing a lot of code. It comes from blocking off a week to automate a task, and never having to deal with it again. It comes from having the experience and political capital to veto a project that would have wasted a year, because you've seen it go wrong before. It comes from improving some tools for the customer service reps, so that they're 5% more efficient (which then adds up to hundreds of hours a day if you're large enough).

Anyone CAN do this, but the people who have the insight, motivation, and skill to actually DO it are rare, and a smart organization should desire to keep them around for years just in case they do it a second time.

If it's a question of experience then lets briefly discard the bottom 80% of earners, of the 20% left how different do you think their levels of experience could be when they retire?

Do you think the senior devops guy who can single handedly debug a network issue while enjoying a day on the beach is lacking in experience compared to a CEO or did they just get a different type of experience because companies only need one CEO but they need a bunch of devops guys.

I believe a good group in upper management does improve company performance but 100x is unreasonable. There is a talent to being able to respond correctly to different scenarios but you also need to be lucky enough to be in a scenario where wild success is possible and your response is only made possible by the team of people that drive the engine beneath you.

> (assuming they had training on par with what you received)

Sure, if the board were running a karate-kid-style boot camp where they trained people to be CEOs, those kids market wages wouldn’t be that high. But in fact they are hiring CEOs who already have training and experience. There is no need to get into a nature vs. nurture debate, CEOs are being paid for both.

The whole 10x, 100x engineer thing is a bust. If a company hires a bunch of squabs who don’t know jack, a reasonably talented engineer comes on board and might legit be 10x, or more. The problem is we have no legit baseline to build factors on, and we already know most company’s hiring practices are awful.

As a matter of fact, it is established that the larger your organization becomes, the greater the gap in true productivity will tend to become.

>their salaries end up inappropriate scaled into the stratosphere because the company's performance justifies increasing compensation to employees to retain them and sustain that performance.

You're looking at the compensation for CEOs at top firms. If a CEO does poorly then the company stops being a top firm and falls out of this consideration. Meanwhile every large company has good and bad average employees. Them doing poorly doesn't sink the company.

>Take an arbitrary dude off the street and give them the experience of a CEO and I bet you that substituting him in would at most lose the company 40% of growth/whatever.

And then you replace the rest of upper management in the same way and you won't have a company left. Also, 40% for these companies is a hell of a lot more than what these CEOs are paid.

And yet, if you took Blizzard CEO's total pay (from the article, I think around $28 mil) and spread that over the nearly 10k employees, everyone gets an extra $3k, which wouldn't do diddly squat for retention.

Also, losing 40% of growth would be pretty awful for anyone who has company stock (employees, 401ks, investors) especially if that's year over year.

The extra $3k might not mean a lot, but knowing your CEO gave $28m back to the workers at his or her own expense? I'd argue that kind of thing is great for retention.

The challenge, obviously, is that CEO pay is a market and the current, insane pay scale has emerged from it. The only way for it to change would be a) regulation (good luck to the enforcers), b) a global moral awakening among CEOs that causes a sufficient majority of them to abandon their salaries willingly (ha), or c) labor unions, where extortion over pay becomes bidirectional (rather than the traditional CEO->Worker shit flow).

In any case, people tend not to care much about CEO pay until the company stops paying workers' bills and keeps padding leadership's massive fortunes. People will accept insane wealth inequality so long as it doesn't come at the cost of their personal livelihood. Easiest way for CEOs to keep making idiot money without political costs: lead well enough to keep your workforce employed and reasonably paid. Literally the bare minimum expected of the title.

If I’m being paid about 150% of market average, that’s a win for me, regardless of what the CEO is paying himself.

If I’m paid below average, any cent he makes more than me will build resentment.

"CEO pay" is only a market if you believe that having been paid an astronomical amount of money as the CEO of an unrelated company is a prerequisite to being the CEO of, say, Activision. In the past, companies promoted CEOs from within their own longterm management, instead of CEO being some kind of mystical profession unto itself.

That's very much a market, and you've pointed out exactly what's wrong with it

> knowing your CEO gave $28m back to the workers at his or her own expense? I'd argue that kind of thing is great for retention.

If Tim Cook gave his entire comp back to the company, it wouldn’t be barely a blip on the paycheck. Cook leads over 130k employees and indirectly is responsible for several million more employees of suppliers; his comp has nothing to do with what people get paid. His salary is not even a rounding error compared to Apple and supplier revenues and the value of the company. They could double his pay and it wouldn’t even show up on the radar. Interesting, he doesn’t even have the top compensation at the company.

> is great for retention.

So move to a company that meets your standards. I don't really understand the complaining.

Just as a note, $3k a year raise for a QA tester making 42k is going to do quite a bit for retention. If 3k seems like nothing then I have a bathroom renovation that I'd love for you to bankroll with your pocket change.

Oh I know, I was making less than that when I started my career. My point was I'd be willing to be that for most people, a single raise isn't the straw that breaks the camels back when it comes to whether or not they'd stay at Activision Blizzard. From what I've heard from people who worked there (specifically the Activision side) is that it isn't a place I would want to work myself, and $3k wouldn't be enough to convince me otherwise.

A single raise? Doesn't the CEO make $28MM every year?

His math is correct, shifting the annual salary of $28M to lower employees would be a one time raise, if the CEO is getting a raise of $28M every year then it'd equal an annual salary increase of $3k

You of course are correct. My mistake!

The $3k doesn't have to be spent on salaries. In fact, unless Blizzard is having a retention problem (they may be... but I'd guess it's not due to salaries), there's better places to spend that money.

Some estimates say their failed game, Titan, cost about $50mil to develop. If their CEO dropped his salary to a modest $1mil/yr, he could essentially fund a new game every 2 years.

This is of course an over-simplification of the value of money... dollars don't magically turn into hit video games. But they do help.

Put in perspective, a CEO pay check can eg. be that of 100 engineers (Volvo Cars CEO).

Lets say the CEO instead got compensated 10x engineers. That would leave 90 extra engineers for different projects. Given how resource constraned everything usually is, that would have a huge impact.

I would say the most important thing with the CEO is that he is not extremely bad. The extra value provided for the 10x to 100x is probably not worth it for the owners compared to risk with less engineers.

A better question, and one that gets to the heart of why Blizzard's CEO is overpaid, is why do they need 10k people to make, distribute, and support a few video games?

There are far, far more effecient video game studios/publishers out there.

Nintendo manufactures and ships millions of hardware units in addition to producing/publishing games and they have fewer employees.

That is, in fact, why blizzard just laid off 800 people- they were from underperforming sections of the business or, iirc, business they wanted to get out of.

"Underperforming sections"? Customer Support rep which gave it his all got fired. Due to such people getting fired there's going to be a gap between community and company. How can that possibly be an "underperforming section"?

Because it takes a ton of people to offer support on video games. If you have millions of monthly players then you need a lot of employees to manage the community.

> Nintendo manufactures and ships millions of hardware units

I'd expect Nintento to have some ODM/CM like Foxconn deal with all that.

$28 mil is in the order of a year's development on a large AAA title. That's quite some opportunity cost.

Consider the inverse.

Imagine trying to convince your employees you should appoint a boss, at the top of the company. Everyone will give up $3k, and this one person will make $28 milion a year.

I think losing $3k and gaining $3k are the same - but obviously the perception is different for something you 'have' vs something you might get.

That's not Blizzard's CEO, that's Activision-Blizzard's CEO. Blizzard's CEO is J. Allen Brack. Activision-Blizzard just fired 800 of those 10k employees, including employees who were long-time employee. Why? Because Activision-Blizzard didn't reach its full potential even though they made a record profit, and the CEO stays. Something about captains leaving the sinking ship last. Very bad for morale, except it seems to be regarded as "normal" these days (it is not).

Or it could be spent on the top 10% and make a huge difference in talent retention.

I don't think you're groking the economic value of large corporations. CEO's don't get all the pie or anywhere near the full value the company receives based on the decisions they make.

The average S&P 500 corporation is worth $45B and grows earnings by 10% each year. The average S&P CEO gets paid $13.5 million dollars.

It's reasonable to expect a great CEO to grow earnings by 1% more than their average counterpart. If so, they are responsible for $450M/yr of value creation. $13.5M is a small fraction of $450M.

Performance, as in options with strike prices that result in voodoo accounting and stock buybacks to artificially trigger an inflation in the stock price so they can strike and get out?

I'd believe in such thing if they were on long-term 10 year schedules and other mechanisms to avoid such manipulations.

bonuses in C-suite and senior leadership of large companies are usually much greater than 5%. Same goes for "VP"s in finance

> nobody is 100x more efficient than anyone else

Steve Jobs was. Apple was sinking into the muck with a series of CEOs, then put Jobs in the role. Jobs turned the same company around with the same resources and the same employees from a nearly bankrupt company to the biggest company in the world.

That's leadership of ONE man.

I feel like CEO pay is one of these emergent problems with our current system. We have this group of people whose salaries are just astronomical compared to the average person in the company, and whilst it's true their job could technically make more of a difference these payouts are totally asymmetrical and completely independent of how effective a CEO is.

It is highly suggestive that CEOs are the ones who determine the pay of CEOs, in practice. If the shareholders actually had to negotiate the remuneration packages I bet the CEOs wouldn't be able to command the salaries that they do. There isn't enough evidence that paying more for a CEO increases profits.

The upper middle management strata is stuffed with exceptional people and the skillset to be a good CEO isn't actually that rare; it probably isn't a supply issue.

Isn't CEO compensation generally determined by the compensation committee of the board?

at a large enough company with an independent enough board, sure. but these committees are largely driven by ceremony and politics under the guise of having to do with objectivity.

I wonder if it really is asymmetrical to value they bring.

I've worked in companies where the market and the stage of the company put the pool of possible CEO candidates at a number that could be counted on one hand.

I don't know anything about the video game industry or these CEOs, but I can't immediately assume they are overpaid. There are a lot of questions I'd need answered.

A good CEO can create massive value, but the present value of any particular choice of CEO -- which should be an upper bound to the performance-independent pay they are able to negotiate -- needs to be diminished according to the uncertainty in the evaluation. That's where the leverage excuse falls apart: uncertainty is through the roof. Everybody's throwing darts at a dart board and everybody knows it, so if the story about rational value estimation and leverage were the whole truth we would not expect to see CEOs reliably paid stratospheric salaries for mediocre or failing performance, yet that's exactly what we see. We should therefore consider alternative explanations.

I’ve always wondered: if CEO pay was truly tied to their “creating value” then shouldn’t they lose money if they destroy value? If the answer is yes, then why aren’t bad CEOs losing money? If the answer is no, then why do we pretend they are paid in proportion to the value they create?

I’ve always wondered: if CEO pay was truly tied to their “creating value” then shouldn’t they lose money if they destroy value?

Not necessarily. They'd be plain-old investors then. CEOs are like options traders who pay for their call options by working 60 hour weeks.

In many cases, the lion's share of C-level pay is not straight up cash, but equity. They might still make money if they destroy value, but the better they do for the company, the better they do for themselves. That's what you're looking for, right?

Better still, that stock compensation isn't really paid for by the company. The costs of paying with equity accrue to shareholders in the form of dilution.

That's why I was careful to scope my complaint to performance-independent pay.

The CEO is the only person in the company who can really negotiate for what they're worth (instead of the commodity price for their labor) because business people don't usually have specialized irreplaceable positions and technical people are not usually negotiation experts.

CEO pay is often set by compensation subcommittees of the board. On the board are typically people who have familiarity with high-level management, often, suprise!, CEOs of other companies. By bias or intent this leads to excessive CEO pay.

And when their pay is tied to some degree to "effectiveness," it's tied to performance of the stock price, instead of the actual performance of the company. It's much more difficult to quantify the latter, but short term increases of company stock can be brought about by sacrificing the long term outcomes of the company as a whole.

Agreed. The fact that pay is often still astronomical in the case of the worst possible outcomes strongly suggests that leverage is just an excuse. I'm pretty sure that the real answer is that CEO pay is just the Rules for Rulers [1], capitalism style.

[1] Rules for Rulers: https://www.youtube.com/watch?v=rStL7niR7gs

Apparently the CEO of Renault Nissan while compensated fairly compared to Hapanese counterparts, was unhappy that compared to NA and EU auto companies he wasn’t so set out to set up another unofficial compensation mechanism to bring him closer to the global pay scale.

poor Carlos, his friends were probably giving him shit about the size of his yacht.

But pay is part of politics, and corporate government is less stingy than public government. Pay hikes are part of the game of alliance building that is played whenever the board elects a new CEO. Corporate government is plutocracy in practice.

> emergent problem

How exactly is it a problem? Surely we'd rather overvalue CEOs than under-serve them?

> these payouts are totally asymmetrical and completely independent of how effective a CEO is

What are good metrics for this claim? How should we measure effectiveness-salary ratio? Why should they not be asymmetrical?

Just curious and trying to clarify the points being made.

CEO pay comes out of stockholders' pockets. If you believe corporate money is wasted on them, don't buy their stock.

> completely independent of how effective a CEO is.

It's not for you to judge that, it's for the shareholders to.

Salaries are determined by market forces. Board pays CEO as much as they value her or him. "Pay gap" between CEOs and proletariat is a meme and as such should not be considered seriously.

Software engineer unions are coming, and it will start with the games industry. Attitudes within our field are changing! Used to be you couldn't mention the U-word without a dozen engineers jumping down your throat bellowing about "efficiency" (for whom and what?) but engineers are smart and you can only fool them with the same old anti-union propaganda for so long.

> Software engineer unions are coming, and it will start with the games industry.

And it will end there.

Video games are more like movies than they are like other kinds of software, and the labor to produce them should resemble the movie business - not the software business.

That means a bunch of union members get hired for the production itself, for the duration of the production - not "indefinitely" for the distributor like they are now - and when the game is done, the production company for that individual game and all its labor is disbanded, and then everyone finds another production - possibly from a completely different distributor - to work on.

Except they'll all know this upfront and they'll be unionized, which mitigates the downside (ex: they'll get their health insurance from the union, not from Sony or EA or whoever.)

Except that's not how software works anymore. Everything is moving to long-term SaaS and subscription. Production never ends until the lights turn off.

I think that if unions actually do make inroads into the software development world, the gaming industry will likely be the last to unionize. The reason that the gaming industry is worse off for developers is not because the game development shops are inherently greedy. They have horrible conditions for those workers because they can. So many people want to develop games rather than do any other kind of software development, and so the game dev shops know that most/all inhumane treatment will be accepted by the next person who will gladly endure it to be working in the industry.

Fields that have cachet like show business and gaming will always be the last to have workplace issues of all sorts.

Uh, you are aware that game developers are actively talking about unionizing, while most software developers aren’t? The shitty conditions are what’s making them decide to start talking about banding together to demand a bigger piece of the profits.

Every discussion of game unions I see here tends to have a lot of people talking about how they are quite happy with their financial compensation at their non-game job, and how they don’t want to unionize because what if it was a shitty union?!?

Also, Hollywood is kind of one of the major bastions of strong unions in the US. There’s a lot of entertainment unions in show business.

(My favorite example: compare the conditions of folks at union 3d animation gigs with the condition of folks in the non-unionized VFX world; better pay and more stable jobs for pretty much the exact same skills.)

> you are aware that game developers are actively talking about unionizing

Not as much as you’d think. PolyTaku and r/games want the games industry to unionize. People actually in the industry not so much.

At the end of the day, I'd love for any solution to game development working conditions, which will likely be unionization. I will certainly be surprised when it happens, though.

Note, when I brought up Hollywood, I wasn't referring to unionization, I was talking about workplace issues. There's a lot of workplace issues in show business despite a lot of entertainment unions.

except there's VO and mocap talent that are already unionized, so games engineers have wider exposure to unionized peers. For example, I would assume that Norman Reedus is in SAG-AFTRA since Scott Wilson (his costar on Walking Dead) was on the board of SAG-AFTRA.

https://en.wikipedia.org/wiki/2016%E2%80%9317_video_game_voi... <-- there's no equivalent in the startup/web industry.

Besides working conditions and pay, one symbolic issue that's come up from game devs being exposed to these unionized parts of the industry (especially voice talent) is that the unionized people seem to have fairer rules around credits. For example, if you do a voiceover for a game that ends up in the shipped game, you're going to end up in the credits, full stop. For programmers, by contrast, companies have done shady things like leaving people out of credits as some kind of "punishment". For example, if you leave before the game ships, you sometimes get retroactively taken out of the credits even if you objectively contributed large amounts to the final shipped product, because there are no binding rules around credits, except for the actors.

"so the game dev shops know that most/all inhumane treatment will be accepted by the next person who will gladly endure it to be working in the industry."

This is precisely the environment where unions emerged. If individual workers had a lot of leverage, there would never be a need for unions.

Yes, but the workers in those original unionization events didn't have as many options as the workers who are doing game development. People weren't working in factories and coal mines because they loved it, turning down other, less inhumane and more lucrative positions to do so. The options were the horrible companies or unionization.

For a game developer, the options are horrible companies, unionization, or a development job in any other field.

Eh, I would disagree based on what you see within the various entertainment unions/guilds in movies and TV. I think there's a path there.

I know back when I was in the industry I would have killed for a organization like what was available in film.

For actors/staffers of the entertainment industry, that's the largest and nearly only outlet for those workers to have gainful employment. For people working in the games industry, they have other options and choose to go in those positions despite known horrible conditions.

On the topic of unions in the entertainment industry, is there a union for computer graphics engineers in the entertainment industry? I couldn't find one, but I'm genuinely curious.

If you work in code, sure.

If you're on the Art side you have the movie/animation space(even more of a meatgrider).

If you're on the design side, the options are pretty slim.

If you're on QA, it isn't the straightest path to other QA domains(with much of gamedev being manual testing).

Having gamedev on the resume usually isn't seen as a large plus, aside from shops that are already filled with ex-gamedev people.

Hollywood is not an example supporting your point (SAG - Screen Actors Guild).

There's certainly a union there, yes. Though, what are the working conditions in the entertainment industry, exactly?

"please jump through these assorted hoops while I move the goalpost and ignore your points"

isn’t all of hollywood unionized tho? They’re freelancers and they all belong to a guild/union that sets the wages from what I’ve heard

Yes, though I think the key word that was keeping people from realizing software developers needed unions was "meritocracy". Developers were sold on the idea that people wanting union protection were replaceable, and that they, being the fantastic coders they were, were not.

Developers are finally realizing the following have nothing to do with "meritocracy":

- Non-compete agreements

- Forced arbitration

- Wage fixing (such as Google, Apple, etc. used to do)

- IP ownership agreements (even when not using company equipment or time)

- H1B visa abuse

- And many more

Maybe it's also a marketing problem, don't call it a union, call it a guild or association.

> I think the key word that was keeping people from realizing software developers needed unions was "meritocracy"

Anyone who spent a couple of years in a corporation will know that meritocracy does not dictate career advancement or compensation. I think the tide has turned in the past years and the 'veterans' are starting to feel the ageism and the new fantastic coders aren't as thirsty drinking the kool-aid.

No, the bigger reason why unions are never going to happen in the tech industry (thankfully), is that many unions and guilds intentionally create huge barriers to entry, in order to keep out people from non-traditional backgrounds, in order to reduce competition.

IE, to keep out immigrants, newbies, and people without degrees.

But over the last 10 years or so, there has been a huge influx of new people into the tech industry, and we are starting to outnumber those from traditional backgrounds who would have tried to prevent us from getting a job in the industry.

A bootcamper isn't going to join a union that would have outlawed their ability to get a job. An immigrant isn't going to join a union that would have them deported.

Instead, we will defect and sabotage those efforts, every step of the way. And there really are quite a lot of us in the tech industry, from non-traditional backgrounds these days. And we are smart enough to fight efforts that would have us fired, or that would pull up the ladder behind us.

Another thing you can't fool is the market. And the market will adapt, as it always does, and unlike say, the labor performed by employees of movie studios, software development doesn't necessarily require physical presence to successfully complete the tasks, and thus I suspect plenty of jobs will be outsourced to other places with cheaper and more flexible labor forces. Perhaps we will see new game studios popping up in other countries.

And although still considerable, the U.S. doesn't have the same competitive advantage in software anymore. The market is now global - e.g. in 2018 38.5% of StackOverflow traffic for top 30 countries came from Asia-Pacific, while only 32.9% from North America.

Union will never come, how do you unionize different studios in different countries ( different law ).

> Software engineer unions are coming

I will absolutely and unequivocally reject them, in almost any form. I would not be here today if software jobs were broadly unionized, and I will not allow myself to become that hypocritical.

The pay is pretty good, use it to buy insurance and investments. If your part of the industry is seasonal or project-oriented, line up other work in advance.

I believe CEOs are compensated what they are in order to get them thinking like “owners” which many “professional” CEOs are not ultimately. Mark Zuckerberg, Steve Ballmer, Gates, Jobs don’t/didn’t need large salaries because their identities were tied to their companies.

Owners eat sleep and breath their company in a way the average salaried employee plucked at random from +10,000 employee company will not. To the points made by other comments, the CEO is entrusted to make decisions that can ripple through thousands instantly. The amount of value they can create or destroy in an instant is probably roughly in line with the multiple they are paid over the average employee. Thus their negotiating leverage is high and equity holders are happy to pay the price.

Said differently, if you owned all the equity of Google, how much would you be willing to pay to ensure that equity is protected? I think that number is more than 10x the salary of the average Google developer.

This is subject to the laws of supply and demand like any other system and it is pretty rational.

This is actually pretty insightful, and it leads to an interesting question:

If CEO pay is a rational outcome of protecting the equity in a company, and CEO pay is too high, does that mean there's "too much" equity?

There's some evidence that income inequality is bad for society in some ways, which I tend to agree with if it means inefficient/uneven distribution of resources/opportunities/community investments. In this sense, and considering the previous question of "too much equity," is it possible that a company's market value can be too high?

Too high in what sense? Just too high in absolute dollars? Equity is not the same as cash; its a gamble: you're willing to pay a certain amount of money for something that you're betting will increase (or at least hold) value.

You really should not be a CEO if you’re mostly in it for the money. That’s not leadership.

If EA Board could snatch a CEO they like for $5M/year, they would. So why don't they? I'm sure there are thousands of professional managers with solid game industry experience who'd be ecstatic to be offered a CEO position in either company at $5M / year or less. The Board clearly think they are not good enough, and limit their candidate search to people with very special credentials (e.g., those who've served as top executives in large companies, etc.). Such a high bar limits the candidate supply a lot, and then the competition for those candidates between companies drive up the pay (quite similar to NBA or NFL).

Why is Board so obsessed with credentials? Is it because they want to play it safe (kinda like dumb execs choose Oracle over open source solutions because they want to protect themselves from criticism by going with a famous brand)? Or is it because those credentials are truly imporant for the success of EA?

I don't know for certain but I suspect the answer is kinda in between. The quality of a CEO candidate is really hard to judge. So the Boards think like this:

> We'll screen for all the obvious things (experience, references, track record, culture fit, etc.). Hundreds of people will pass that screen. We have no clue of how to choose among them, so we might as well go for someone who's done it before. Perhaps we don't need to be so restrictive. But there's a chance it actually does matter, say maybe 10% chance that a person who's been a top exec before will do better than candidates without such credentials. A good CEO can increase corporate value by billions of dollars over a few years, so even a 10% chance is worth a lot. So let's go bid for one of those bigshot ex-CEOs, even if that means we have to pay an extra $20M/year.

So in some sense, high CEO pay is due to the "religious" belief that whoever made it to the top is super good.

Maybe this religious belief is actually rational, maybe not. I kinda suspect the latter, since other countries seem to pay CEOs a lot less; I find it unlikely that the US CEOs have such unusually high skill compared to the rest of the world. But I don't have high confidence in my opinion.

This is pretty much the right answer in a sea of nonsense and angry comments here. CEO pay is where it is because those boards believe it’s necessary. If they thought they could pay 5mm instead of 20mm they would in a heartbeat.

Activision Blizzard googles 4k employees and.. Last year managed to re-make Crash Bandicoot & Spyro - and a CoD. That's it. https://en.wikipedia.org/wiki/List_of_Activision_video_games

That boggles my mind.. That CEO salary seems rather on the high side. I could have told them to "do another CoD" and rummage in the vault.

They also supported a large number of ongoing games-as-a-service games. I suspect they have more employees working on released games than working on non-released ones.

EA seems to be doing better - there's a few new things in there once you strip out Battlefield, Sims and the Sports stuff - but still.. ..For some reason I'd still thought the big publishers were some massive force of nature, crushing all in their path. We could stand on the side-lines booing their latest monetization strategy, but I'd still considered them to be invincible monsters. I'd imagined I'd see a list of a load of games I'd never heard of. Games they'd taken a punt on that hadn't paid off - as that's what I imagined you did as a corporate monster. 80% would vanish breaking even if lucky, and 20% would make 80% of your income. That's how you stay big. Instead their entire output appears to be just rubber-stamping iterations of past glories. I genuinely feel a bit sad now I've looked into it. They're still monsters, but of the dinosaur variety.

> We could stand on the side-lines booing their latest monetization strategy, but I'd still considered them to be invincible monsters.

I think that's been falling apart for a while now due to fan backlash. Activision has never been very popular, now Blizzard fans have finally gotten the message that they are one and the same, reacting in overblown ways to mobile announcements.

EA struggles from the same reputation issue as Activision. The latest Battlefield was met with quite some hostility and afaik hasn't been doing very well commercially, while the last Mass Effect received luke-warm reception killing the franchise for good.

If it wasn't for that very smart PR move of keeping Apex Legends under wraps, until release, EA would also be in quite some trouble now. Particularly with Anthem underwhelming people everywhere, confirming the notion that whatever made Bioware special, is by now long gone.

Doesn't look that much better at Bethesda with their Fallout 76, after years of taking the fan-goodwill for granted, they've now managed to really piss people off.

Take2 and Ubisoft have mostly managed to pull through unscathed so far, but imho overall this is the result of indie development and publishing having gotten as strong as they are now. Nowadays consumers can choose from a wide selection of very high-quality games, often sold below the usual full-retail price and they've become very aware of it.

If the established big players want to keep their dominance they need to change their course heavily, show actual goodwill instead of constant willingness to exploit every commercial angle available.

The big guys got addicted to the “stamp” AAA games over the last 15 years and their competitors are eating their lunch in terms of gameplay. They have tons of resources and could pivot to making just plain great games but probably not sustain the sheer buckets of guaranteed money their investors priced into their stock ticker. Monetizaion strategy is all Wall Street wants to hear about during product announcements, and players are listening for it so they know not to go.

Of course, massive amounts of games are still being sold. Just competition is taking a big bite out of them.

This is the actual report: https://www.asyousow.org/report/the-100-most-overpaid-ceos-2...

The methodology "lists the 25 most overpaid CEOs, identifying the company, the CEO and his pay as reported at the annual shareholder meeting, and the pay of the company’s median employee."

Activision Blizzard's Kotick's $25M comes in at 306:1; Electronic Arts' Andrew Wilson's $35M is 371:1 .

Ronald F. Clarke of Fleetcor Technologies Inc is a generous 1517:1.

For reminder, Activision Blizzard laid off 800 people last week.

Reed Hastings founded Netflix and built it into what it is now, a dominant player in the entertainment industry. He did it through a long history of crafty, well planned technology and entertainment decisions. Not only this but he was able to build it up from so little and in such a small amount of time.

The average salary also seems to be $180,000 which is pretty good.

Not really a relevant metric imo

> computes excess CEO pay assuming such pay is related to total shareholder return (TSR)

Is this a reasonable assumption?

Somehow related, but what defines a fair salary? Are higher up employees actually bringing more value to their company or somehow extracting it from others?

If your pay doesn't match the value of your work, I guess someone logically profits from it?

As a data point:

”U.S. CEOs earn from 400 to 500 times the median salary for workers. For CEOs in the U.K., the ratio is 22; in France, it's 15; and in Germany it's 12.”


Why would anyone care about how much CEOs make? It is private industry, if the board or owner wants to pay, CEOs get paid. It is not like they are stealing tax payer's money to pay these people. When the CEOs expire, they are also replaced. It is called business.

People care because overpaid CEOs destroy value for shareholders and, in theory, may be taking money that was rightfully earned by workers.

People care about a fair society, and rewarding poor performance (or over-rewarding mediocre performance) is obviously not fair.

Note also that many of these CEOs will fire subordinates for failure while they themselves are rewarded for it with golden parachutes.

What’s behind the growing ceo to employee income ratio?

Just some causes that I think are mostly good:

1. Complexity - a change in exchange rates can hurt Netflix's / Google's / Apple's profit, even if all underlying numbers are correct. Guessing exchange rates is a terrifyingly difficult task, and it is just one of many complications 2019 CEOs have over 1969, let alone 1919.

2. Globalisation - rather ironically, if a company employs an extra 10% of people - no one loses their job they just add an extra 10% - the ratio likely gets larger. How is that a BAD thing that more people are employed? Mattel is the most telling in this context ($6,271 average worker salary). IMHO it's a GOOD thing that Mattel directly employs workers, rather than using a, say, Foxconn. But it makes the ratio a lot worse. Obfuscating real worker wages is bad for workers, but good for avoiding ending up on these sorts of reports.

3. Market size - a follow on from 2, if Google makes 50% of it's revenue outside of the USA, what should the ratio relate to? US workers to CEO? Or South African? A lot of these CEOs are multi-country CEOs, and that is a level of difficulty beyond what existed a quarter century ago.

4. Market forces - a law to make CEO pay public means it is signaling something negative when a CEO makes a low ratio, which drives it up. Having public records of salary makes negotiating easier for workers, and CEOs are no different, so it has had a double upwards pressure.

Just some things that have made it grow over time.

These kinds of articles like to play tricks to paint a narrative. Take this paragraph for example:

>Yet overall CEO pay continues to increase. According to Institutional Shareholder Services (ISS) the average pay for a CEO in the S&P 500 grew from $11.5 million in 2013 to $13.6 million in 2017.

Notice how it says "overall CEO pay" but then goes on to cite statistics for the average CEO of an S&P 500 company? It's a very common tactic whenever CEO compensation is discussed.

CEO pay is increasing for these companies though and one reason for it is that these companies are becoming bigger and bigger. This means that a CEO is responsible for more people and companies want more qualified candidates for that. Meanwhile the median employee usually doesn't have additional responsibility compared to the past.

Let's look at Walmart and a corner store. The clerk working at Walmart and the clerk working at a corner store roughly have the same responsibilities. On the other hand, the CEO of the corner store is responsible for 5 employees, but the CEO of Walmart is responsible for 2 million employees and this responsibility is growing.

Edit: I'm not saying that this explains the entire difference, but it's definitely one part of it.

Shareholders care what the company they have invested in spends its money on.

Because America is very unequal and CEO pay is both high historically and high relative to countries like Japan. Excessive CEO pay is neither socially desirable or inevitable.

Actually, aren't they literally stealing tax payer money? Inflated salary = lower profits = less net income = less tax?

The CEO is paying higher taxes than the corporation. (You limited it to salary.)

So in your example no, more taxes actually.

Wouldn't that depend on the actual compensation? If it's mostly stock there are all kinds of capital gain games that can be played, no?

Yes, long term capital gains tax is lower than corporate tax. But you limited it to salary not compensation.

When we talk about compensation we need to start talking about things like golden handcuffs or parachute. Things linked to performance etc.

But corporate taxes also need to be kept in context. If I'm not "allowed" to pay my CEO a lot (which means he/she may leave) then I'll spend the money otherwise to reinvest etc. (A la Amazon). Is that "wrong" as well?

They're not private. They're public companies and we care because we're shareholders.

Public doesn't mean they don't own the company.

Sure, but it often also means we (the shareholders) get a voice and so "Why would anyone care about how much CEOs make?" Is "because we are partly the owners and we care about what we own"

This is the source cited in the article here https://news.ycombinator.com/item?id=19229502

I think the article is interesting enough to have it's own discussion.

You're right that that should be the URL. "Please submit the original source. If a post reports on something found on another site, submit the latter." (https://news.ycombinator.com/newsguidelines.html)

But it doesn't make sense to have two threads about this on the front page, so we'll merge them. I guess I'll merge the comments from that one into this one as a crude form of karma sharing.

Relevant book: The CEO Pay Machine @ https://www.amazon.co.uk/dp/0735212392

Technical comment: the table in the article is not scrollable nor zoomable on my Galaxy s6, I can see only the leftmost digit of the CEO salary. Quite a bummer in 2019.

This list appears to be missing the CEOs of banks. People like Jamie Dimon who profited from the financial crisis should probably be on this list for life.

large corporations seem more like corporate aristocratic states. the ceos are frequently so thoroughly divorced from the common plebs in the trenches doing the actual work that enables the company to actually exist. this divorce also seems to show up in how compensation and performance apparently has so limited correlation.

TIL I need to work @ netflix

how can mattel's median pay be 6k?

They mostly make plastic toys, I guess the brunt of their workforce is made up of low-paid foreign manufacturing?


Netflix's median employee salary is ~$180,000? Seems really high. Do they have a non-traditional org chart?

and to be one of those CEOs, you have to be a special kind of crook...

I think it's hard to find a more flagrant exploitation of overcompensation than that of Angela Ahrendts at Apple: given something like $70 million to join, quitting 4 years to the week after starting, as if just used Tim Cook's good will to profit, disgusted many of us hardcore engineers when hired that compensation saw someone with no technical history so rewarded.

Everyone is free to be a CEO. If salaries are really too high it should be easy to get a CEO position by undercutting everyone else.

It’s easy to sit on the sidelines and complain other people are making too much money. Remember that CEOs making less wont result in employees making more.

Maybe it’s just me, but HN lately seems dominated by whiny/complaining articles that don’t really contribute any knowledge or enhance our lives.

Wouldn’t it be better to focus on how one could become a CEO rather than knee jerk reactions to people making lots of money?

People are also free to vote for people like Ocasio-Cortez, who are more than willing to take it from the top as it continues to spiral out of whack. You can only displace the bottom for so long, until they get fed up enough and vote for radical change, or worse. That's probably not what most want, myself included, but here we are going from 20:1 in the 70's to 300:1. How far do you think that can reasonably keep tilting until people force a correction? There is a tipping point, and it's not infinite.

It's not a knee jerk reaction to people making a lot of money. It's an honest reaction to watching the people at the top continue to grow and grow and grow over the last 40 years while the rest are basically paid the same (adjusted for inflation) as they were making 20 years ago.

It's not me you need to convince. It's the tens of millions of people who are barely making it, watching others get tax breaks while they truly struggle with the basics of life. We're not at a reasonable balance any longer, and haven't been. We can continue the status quo, and change will eventually be forced. Something reasonable needs to give here, and the answer isn't everybody becoming a CEO.

> but here we are going from 20:1 in the 70's to 300:1

It's worth mentioning that the 20:1 from the 70s only covers cash compensation. In the "good old days", execs would also get non-cash compensation: Expense accounts, company cars, executive apartments, country club memberships, etc.

Tax law changes disadvantaged those forms of compensation and are partially responsible for some of that difference.

>People are also free to vote for people like Ocasio-Cortez

She got elected because of the primary. She isn't exactly a vote magnet.

>That's probably not what most want, myself included, but here we are going from 20:1 in the 70's to 300:1.

You are fed a narrative. There are people actively working against capitalism that will try to craft a narrative at every turn. Think critically about what you just said:

CEO-to-worker pay ratio has gone from 20:1 to 300:1 in top firms in the US. That last part is very important. The evaluation of those companies has increased as has the average number of employees. The CEO of Walmart needs much better skills compared to the CEO of a corner store. Walmart has over 2 million employees nowadays and they have a revenue of $500 billion. On the other hand, the skills and responsibility required from a clerk at Walmart are similar to the responsibilities and skills of a clerk at the corner store.

>Something reasonable needs to give here,

People need to stop buying into a narrative.

>and the answer isn't everybody becoming a CEO.

The reason he brought up everybody becoming a CEO is because the job of a CEO of these top companies is very difficult. You need very skilled people that are also very positive towards the company, because even the smallest mistakes by them can make the company suffer a lot of losses.

> Remember that CEOs making less wont result in employees making more

As long as employees making less (and being made to mean less) mean CEOs making more, you are right. But it doesn't have to be that way. It really doesn't, but it requires realigning incentives among many other things.

> Everyone is free to be a CEO.

this is such a thoroughly trivial and simplistic observation, that it contains basically zero useful information.

He's saying that everybody can run their own business. If it's so easy as people try to make it out to be, then why doesn't everybody do it? The answer is that it is too difficult. He's trying to make people realize why these top CEOs are paid so much.

given how poor the correlation is between ceo pay and performance, this isn't clear.

Guidelines | FAQ | Lists | API | Security | Legal | Apply to YC | Contact