I feel like it's a little disingenuous to list unexercised stock and option grants as part of the overall compensation, since these are directly related to the future performance of the company itself (as led by the listed CEO, presumably). I would have liked to see the option to differentiate between total compensation more granularly, including by exercised grants.
I understand that that "2.3 billion" number makes for shocking value and therefore a great headline, supporting the narrative that they're looking to construct, but the way the raw data is presented actively obfuscates readers from exploring the data and forming their own interpretations.
When I see a dataset with a 4 million percent increase YOY, I would probably classify that as an outlier, not as the representative value I report for the whole dataset.
Edit: That's not to say their narrative is wrong (that is, CEOs may absolutely be overpaid), just that the way they presented it feels misleading to me.
On a similar note, I bring thing this kind of thing up whenever people talk about how much money Jeff Bezos has.
While Bezos has a lot of cash for sure, he doesn't have $160B like news headlines make it out to be. Most of his "money" is tied up in stocks, and if he were to try to cash out all of it, it would tank the stock prices pretty hard, and he'd only get a fraction of it.
No one is saying Bezos has $160B in cash. At that level liquid cash doesn't really matter anyways, since there's no way you could even spend that much.
What he does have, though, is $160B worth of influence, a large part of which comes from the money tied up in stocks.
The difference here is realized vs. realizable pay: http://www.execcomp.org/Issues/Issue/pay-for-performance/rea.... The realizable number is more often used when comparing to peer companies. The reason is not generally to get larger numbers for headlines. But indeed, as you say: "One drawback of realizable pay is that because it combines actual pay with a current snapshot of future incentive pay, it may differ significantly from the comparison of pay actually received at the end of the performance period to the performance over that period."
CEOs should be able to get paid how much ever the company/the board/the stock holders are ok with paying them. No limit.
BUT that pay should be linked to the pay of everyone else in the company: the average pay or the minimum pay or whatever have you.
I think the point gets lost in the fairness. It’s fair to pay them more for their hard work. But it’s not fair to pay the CEO enormous sums while the employees struggle.
I've seen a lot of talk about hard limits online recently, I don't like it. A very high tax rate for the extremely rich I am much more OK with.
75 to 95 percent of income above 10 million seems fine. I wouldn't even tax stock holding. Let people sell 10 million in stock each year and avoid the high tax, nobody will struggle on 10 million a year. And if their money is still growing like crazy in the stock market, fine, tax it when it comes out.
I have literally read of a conversation between the wives of two high income individuals, where one said, "The thing about 40 [million dollars a year income] is that, after taxes, it's only 20".
Sure, nobody will struggle on 10 million a year. They won't go hungry. They won't have to worry about an unexpected car repair bill. But they will struggle to live the lifestyle that they've come to expect to be able to live. That will feel like struggling to them. And they will complain bitterly about having to struggle, and the rest of us will mock them for it, and say "You have no idea what struggling is."
This has a kind of weird, not necessarily bad effect. Since the main way this changes the CEOs life is their relationship to capital.
With income "caps," you no longer own a private jet, but you still fly on one.
The company hires your chauffeur, owns your vacation home, owns your private jet, hires your personal assistant, hires your other, more personal assistant, pays for your chef and maid, etc.
CEOs still live a life of luxury, but they are unable to acquire massive capital. If software engineers are labor aristocrats, CEOs become labor space emperors.
It definitely is more of an "east-coast" style of wealth, the kind of thing that shocked the "Traitorus Eight" when they were working with east coast finance to found Fairchild (if I'm remembering my history correctly.) But high marginal tax rates on the super rich were in effect at that time and they didn't understand the alternative either.
This is a "sounds good but is actually terrible" idea.
Outsourcing would skyrocket and millions of low paying jobs would be lost and sent abroad and to sub-contractors because you've just created a strong incentive for the CEO to fire the lowest-paid workers in their company.
all jobs including outsourced ones should be pegged. It should be something like you're allowed to earn 200x the average worker including bonuses, including outsourced employees, contractors, freelancers both foreign and domestic.
Maybe also have a bonus structure that's add/subtract 10% to that # for jobs created/lost, so if you added 1% (USA based) increase in jobs you can get a 10% bonus, so if you earned 10 million, you can get 11 million. If your company had to lay off 1% (USA based) of workforce, then you have to take 10% less as a penalty. The idea is to encourage a healthy economy locally in America, while keeping wages up across the board.
Then there are only 2 ways for the CEO to rise above current pay: 1. raise wages. 2. hire more people. Both of which stimulate the economy.
You assemble cars. The radios are made by a company making radios in China for $1 a day.
Okay so you include those. Now miners. The metal that goes in the radio is mined by a guy for $2 a day.
This link CEO pay to worker pay thing sounds really good on paper, but I don't think you could actually do it in a way that would not encourage very bad events (like lay off half your staff)
those are totally separate companies w/ their own ceo and own pay structure to worry about and outside of scope/beyond control.
I also tied it to % increase/decrease of employees. So if you increase by 1% your employees, you would be allowed a 10% increase bonus, so if you earn 10 mill, you now earned 11 mill if you hire 1% more staff this year over last year. However if you lay off 1% you lose 1 million because it's also a penalty. So laying off half your staff obviously does NOT help in this situation.
Suppliers would be subject to the same rules. They'd have to raise their prices to compensate or take a hit on their own personal income from the top -- just as this first corporation will have to do.
Why should it be tied to other employees’ compensation? Fairness and capitalism-based business generally don’t go together. That kind of thinking leads to all kinds of problems. For example, is it fair for an employee to jump ship for a higher salary offer elsewhere and leave their coworkers to pick up the pieces? Is it fair for some employees to make more than others just because they're better at negotiating? Is it fair that software engineers make several times as much as teachers just because the thing they're good at happens to be in high demand right now? I would say no.
Isn’t that the mantra? Yoi are assuming that once you leave, the company doesn’t hire your replacement. You are supposed to leave your first few employments if you want to make big gains in your salary and not be stuck with the annual set amount of raise? Hell, I did that and doubled my income. The last work hired someone else and paid them what I got paid.
Tying the CEO salary to employee compensation wouldn’t change that. CEOs get raises because the company is doing better. Isn’t the company doing better because the employees are doing better work? So why does just the CEO get paid more? Who not the employees with him?
The argument here is that the value of a company is actually in the imaginations of the Important People who make Big Deals with it. This value may be related to the stuff done by workers but the CEO's personal relationship with other CEOs carries as much weight as "observed reality". This is one of the major reasons that so much totally shitty "enterprise" software is made
> Why should it be tied to other employees’ compensation?
Because the employer cannot exist without his employees, and if the employer is getting billions while the employees are only getting thousands, then those employees are certainly getting undercharged.
It's a way to force wages to scale to productivity and value, something that (if you have not remained ignorant of the current political dialogue), has been shown again and again to not be happening anymore.
Not just that but, why should the employer make more? What added value does the CEO bring that other people cannot already do? Most CEOs can be replaced without employees, consumers, and shareholders noticing. The 'personnel value' that a CEO brings is clearly very marginal in most businesses, as opposed to bringing in more engineers or HR workers or temps. And the CEO's salary can pay for a lot more of those.
> Is it fair that software engineers make several times as much as teachers just because the thing they're good at happens to be in high demand right now? I would say no.
I disagree. Nobody forced anyone to be a teacher: people have chosen that job knowing full well they’d make less money than an engineer. People aren’t assigned careers like they were in a the Soviet Union: they pick what they want to do. I used to be a photojournalist. The pay sucked so I ended up doing software. Nothing is stopping a teacher from making similar choices. People complain about the pay, but they keep joining lower paid professions. It’s supply and demand.
yeah maybe it would be better if everyone were just paid the same regardless of job, as long as they put in a 30 or 40 hour week. Why is one person more valuable because they went to school isn't all life valuable? how mad would you be if you went to starbucks and had to make your own coffee?
Shouldn't everyone at least have enough for the basic necessities in life if they're willing to work (at anything not just professional jobs).
So while nobody is forcing people to work x job for shitty pay, I don't see how just because someone is famous or a CEO that warrants being paid 500x anyone else. There's a lot of shitty CEO's who definitely aren't worth 500x a software a developer, yet there they are making it regardless because the rich lookout for the rich.
Do you think it's actually okay for the person teaching your kids algebra to be making barely more money than the cashier ringing up your groceries at the store, while having to pay for supplies for their class out of their own pocket?
> Why should it be tied to other employees’ compensation?
If a company is doing exceeding well, why should only the CEO see the benefit, and not the people doing the grunt work of actually building the products that lead to the company's success?
> Fairness and capitalism-based business generally don’t go together.
They don't, but they can.
> That kind of thinking leads to all kinds of problems. For example, is it fair for an employee to jump ship for a higher salary offer elsewhere and leave their coworkers to pick up the pieces? I would say no.
I would say yes. People jump to new jobs for a higher salary all the time.
I agree with this but have to add, not everyone CAN jump ship, because we don't have single-payer or universal healthcare, some people HAVE to keep working their shitty job no matter what or risk losing healthcare, so in that essence they're slaves.
Ideas of gbi, employee-pegged ceo pay, and universal healthcare all benefit worker mobility which will also keep corporations in check even more and 'temper' capitalism, it's not socialism --it's tempered capitalism instead of runaway crony capitalism that we'd like to see implemented.
Well just like that whole paul graham vs the founder of cloudflare last week, where PG said that the founders of airbnb were broke and that's why they started, and the cloudflare guy called him out on it mentioning they didn't have totally no support and most founders have some support backup in case things get super hard that it's really hard to be 1 paycheck from the curb and start anything, or live on the street and start a software business. A lot of people went to backup PG, but then there were a lot to side w/ Matthew Prince as well.
I think it's both ways, I mean there's both sides of the political spectrum on HN, you've got your progressives and Trump supporters, and everything in between. A lot of people aspire to be CEO here, and would like to know they can set their own rates and feel that someday they'll be the next Elon Musk though for 90% reading this that's highly unlikely they might make it to 1% of his success if they're super lucky.
Equality of outcome is a dark place to go. Every single time it has been attempted it has resulted in mass death. Is capitalism fair? Maybe not, but you'll see less body bags than the alternatives.
Absolute equality of outcome is definitely not a good idea.
But workers should have some sort of compensation for success of the company. If the company releases a new product and it triples the value of the company, the workers should see some sort of bonus for the value they created. Leadership is a tough job, and CEOs take on risk, but without the grunt workers the company has nothing.
To be clear, I'm not expecting equality, but the wealth gap shouldn't be as gaping as it is.
Can you articulate why it’s not a good idea? There’s a few workers coops that pay equal salaries without occurrences of mass death.
To me at least the vast majority of pay structure in traditional companies seems to be hierarchical rather than actually being structured around ‘merit’. And for many businesses I’d wager it’s really hard to actually determine individual merit over the lifetime of a business. As such a flat pay structure might be better. Particularly if there is a profit sharing scheme?
I totally agree, some cashiers at Winco are millionaires and STILL working as Cashiers...and who wouldn't when the company treats you right and you are part owner?
Some jobs are harder than others, with the definition of "hard" varying from job to job (ie, physically, mentally, or emotionally draining, dangerous, or requiring a rare skill). Harder jobs should be paid more, otherwise, what incentive is there to take on hard jobs?
The "mass death" thing the other commenter brought up is just plain silly, IMO. Communism failed (and will always fail) due to corruption and greed, and in the past has always been implemented by malicious dictators.
The hierarchical pay structure makes some sense because the higher you go, the more risk you bring to the company. A low-level manager may make a bad hiring choice that costs the company tens of thousands in wasted wages after hiring someone unproductive. Middle management may mismanage their teams and create working environments that lower morale. Upper management and CEOs may make bad decisions on what new products to green light and can cost the company millions or tank it completely.
So, it makes sense IMO to pay the higher ups more, but there should be a profit sharing scheme of some sort to reward people of all levels for their contribution to the success of the company.
I don’t think we do a good job of paying well for hard jobs at all so I don’t really see the idea that people won’t do them if we don’t pay well as being very well supported.
Further I can definitely see the argument that having more responsibility could be incentivised with higher pay if the risk to the individual actually increased. But I also see no compelling evidence that is actually the case. But usually in structures with flatter pay like coops individuals have more say anyway.
Corruption and greed also seem like good explanations for the status quo TBH.
If you are the type of worker who can enable a company to triple it's value you likely are well compensated already, if you aren't paid well I'd suggest checking with your employers competitors to see if they too would like to triple their value and just how much it's worth to them.
If after that search you find no one willing to pay you more perhaps consider if you really are so pivotal to the companies success.
No single person will triple the value of a company. Not even the CEO. The CEO may make a major decision, but it's still the people at the very bottom doing the grunt work that implement it, and they should see some of the fruit of their labor.
In my circle of friends the tradesmen are doing much better financially than the college educated. Even though my friends who chose the trades are from poorer backgrounds. I myself am a high school drop out who is able to single handedly support a family and own my own home. (The great thing about compliers is they don't care how educated you are) As far as I can tell meritocracy is working. It would seem to me having the state try and make things "more fair" will very likely result in the opposite.
If it's never been easier to be a CEO, perhaps the author should consider it. It's the easiest job title to legitimately acquire. You just need to pay a few hundred bucks to incorporate in Delaware, and boom, you're a CEO.
I detected a note of sarcasm in your response, but I don't have sufficient context to decipher its meaning myself. Given that you were a founder for two YC companies as it says in your HN profile, could you please explain what you are implying?
I skimmed the article: it gives pretty good details on the arguments that it is trying to make. The one thing I would change would be the headline to read "It’s Never Been Easier to Be a Fortune 500 / Unicorn C.E.O., and the Pay Keeps Rising" to reflect the specific kind of CEO that the article author talks about.
I'd like to see a little balance in this piece. Author includes no input from the CEOs and no evidence of the ease of the job. It's essentially a listing of the compensation of a variety of high-paid CEOs.
Moreover, the median CEO pay in the US is $160k [0]. Perhaps there's a little confirmation bias in this article.
Before jumping to the conclusion that the author is hoping you jump to, question: is it possible that he, you, and I don’t have a full view of the rare personality traits and skills that are required to be an effective Fortune 50 CEO?
I assume most of us here are in favor for exchanging money for value (versus time contributed)? Correct? Otherwise, how is a $200k SW engineer’s salary justifiable compared to a $30k fast food worker’s? In the same 40 hour work week?
I do take issue with non-founding CEOs [sometimes] having no skin in the game. I saw this when I was at BlackBerry. Win or lose, the CEO that replaced the founders would win. BlackBerry lost, he didn’t. This seems like a misalignment of incentives, but that’s up to the company to address, not me, and hopefully not the government. If the company gets the incentives wrong, they lose, and hopefully we learn.
Back to the point: if a company has an impact on billions of dollars and millions of lives, I’d prefer their leader be paid well. But my preference is irrelevant here because a company can and should decide how to value that person’s role. In contrast, I certainly wouldn’t want a government policy (and it’s guaranteed slew of unintended consequences) regulating how much a chief executive is paid.
Being an effective CEO is anything but easy. And the combination of an effective CEO’s skills and experience are extraordinarily rare. It’s not a surprise that the market prices their value accordingly.
Once you get to a certain level of success in the business world, you can't fail. CEOs who run a business into the ground easily find work leading other companies. CEOs who commit crimes almost never get punished. There's a serious issue with "moral hazard" because they can't fail or be punished.
> Once you get to a certain level of success in the business world, you can't fail. CEOs who run a business into the ground easily find work leading other companies.
There are other paths too, like going on to lead countries.
.. and even if they are punished the fine is usually so small that they can commit the same crime a few hundred times and still won't run out of money.
Not to mention a presidential campaign where she peaked at 15% at the polls. While a low number for sure, it's still a significant figure when there were so many candidates at the time.
Since the topic is "CEOs who run a business into the ground easily find work leading other companies.", what is your point? Bringing up their wealth contributes nothing of relevance to this discussion.
Because it was already taxed at the same rate as income when it was earned as profit by the company. Taxing it again when its realized means it was taxed once when the corporation earned it, and then again when the individual stock holder realized it. Now you may think that's how it should, but that issue of double taxation is why capital gains tax is less than income tax.
An alternative is to 'flip' the tax. Tax companies at the rate of capital gains, and investors at their tax bracket 'normal' rate. This also leaves more capital for companies to reinvest.
"In terms of CEO compensation based on realized stock options, CEOs of major U.S. companies earned 20 times more than a typical worker in 1965; this ratio grew to 30-to-1 in 1978 and 59-to-1 by 1989, and then it surged in the 1990s, hitting 376-to-1 by the end of the 1990s recovery, in 2000. The fall in the stock market after 2000 reduced CEO stock-related pay (e.g., realized stock options) and caused CEO compensation to tumble in 2002, to 192 times typical worker pay, before beginning to rise again in 2003. CEO compensation recovered to a level of 347 times worker pay by 2007, almost back to its 2000 level. The financial crisis of 2008 and accompanying stock market decline reduced CEO compensation between 2007 and 2009, as discussed above, and the CEO-to-worker compensation ratio fell in tandem. By 2014, the stock market had recouped all of the value it had lost following the financial crisis and the CEO-to-worker compensation ratio in 2014 had recovered to 299-to-1. The fall in CEO compensation since 2014 has caused the CEO-to-worker pay ratio to fall to 271-to-1 in 2016. Though the CEO-to-worker compensation ratio remains below the peak values achieved earlier in the 2000s, it is far higher than what prevailed through the 1960s, 1970s, 1980s, and 1990s."
I'd say it's regular employees that are getting fleeced the most. We are in the middle of perhaps the greatest economic boom the country has seen, and yet wages have been flat for decades.
They don't get the pay because they're better, they get the pay so everyone with a realistic shot at becoming CEO works really hard for the tournament prize.
Well, consider a company like Amazon, with a revenue like $232.9 billion. Say the best CEO, relative to the second best, can eek an extra 1/10 of 1% of that as profit. That's $232 million.
I mean, I don't think "deserve" has anything to do with it. The leverage of the decisions and the market do. A company won't leave profit on the table because of the notion that one guy doesn't "deserve" to get paid some percentage of the value generated by his decisions. They'll want the best CEO possible at "any price", and market dynamics and rational self-interest will drive compensation into the hundreds of millions, with no notion of not incidentally disproportionately awarding one random person on the planet.
Consider this has to not only compete with itself but other ways of generating profit. Narrow mindedly: what if you invested the same dollar amount in middle management instead? More broadly: how much does $232 million in R&D generate?
Once you consider other portions of the business are actually capable of generating revenue as well the original question of "how much value can the CEO actually generate" still stands.
Thats the point of it all though isn't it? The value of the CEO is in knowing where to prioritize reinvestment. The CEO is the one responsible for making the decisions you are suggesting be made.
The CEO job is hard. To get to the position they're in they need to be expert "fleecers." Not just anyone can convince shareholders that one person has the work output of 20 engineers and therefore deserves equivalent pay. You need to have skills that no one else has: the ability to manipulate.
While I kind of agree to a degree, work output =\= value. Great managers have less work output than a single engineer, but can easily provide far more value as a whole in terms of removing roadblocks, protecting time, keeping work focused on concrete goals, etc. The same can be true at the senior leadership level as well where setting the company on the right path, executing large deals, securing new markets, etc. can easily create more overall value for the company than any one or even ten engineers.
An engineer's pay is bounded by, but not determined by, the value of what they produce. That is why even when an engineer produces a million dollar breakthrough, they don't get a million dollar bonus.
Instead, their pay is determined based on their replacement value -- how much the company would have to pay to get another engineer of comparable skill, if the first one should leave. If it is hard to find a comparable replacement, then their pay is also determined by the absolute value increase they bring relative to a less-skilled replacement. This isn't strictly true at all times but it's the guiding principle.
A CEO can likewise make decisions with billion dollar impact. But their pay should not be determined by the value of their decision-making, but rather by the price at which others would step up to take on that role, and by how much more valuable the current CEO's decisions than those that a replacement would make.
I don't personally understand why there isn't a huge pool of skilled would-be CEOs willing to run companies for a fraction of the pay of current CEOs. Probably because CEO experience is so hard to come by. The rewards are so high though that you'd think there would be more CEO boot camps. But I guess the risk of a bad CEO (whose bad decisions could sink the whole company) are considered high enough that a real track record is considered nearly priceless, and it also has huge barriers to entry.
Why is CEO pay the business of anyone except the Board of Directors?
Why don’t we critique successful actors or athletes for their high pay? The cast of Friends made a million dollars per episode. And they didn’t even make decisions, they literally read lines and made facial expressions at appropriate moments. Certainly the editor and camera operators worked “harder.”
It's the business of the shareholders first and foremost. The board of directors and CEO have ZERO reason to think anything related to executive compensation won't be made public.
If the company is public, then the company has the obligation to truthfully and accurately represent itself to prospective shareholders (who can be anyone, i.e. "the public").
CEO is a very different role than athlete or actor, from responsibility to elasticity of demand for their labor and I think comparing the two is a false-dichotomy.
Edit: What you're bringing up is actually one of the cruxes of our problems here in America, management no longer owns any significant portion of the company they manage. There is almost zero incentive to behave in a way that promotes long-term success; instead, it's better to optimize for quarterly returns so you hit your bonuses and eventually move on leaving all the shit to the next person.
When ownership of a business has no power over its management, bad things happen.
It's certainly the business of investors, who vote to approve executive compensation (so-called "Say-on-Pay" votes) each year. While the vote is non-binding, it helps provide a signal to companies when investors are displeased with executive performance.
I understand that that "2.3 billion" number makes for shocking value and therefore a great headline, supporting the narrative that they're looking to construct, but the way the raw data is presented actively obfuscates readers from exploring the data and forming their own interpretations.
When I see a dataset with a 4 million percent increase YOY, I would probably classify that as an outlier, not as the representative value I report for the whole dataset.
Edit: That's not to say their narrative is wrong (that is, CEOs may absolutely be overpaid), just that the way they presented it feels misleading to me.