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CEO compensation has grown 940% since 1978 (epi.org)
253 points by howard941 37 days ago | hide | past | web | favorite | 252 comments

I would actually be OK, with the CEO/worker pay discrepancy if the CEO was held criminally responsible for company wide illegal behavior.

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

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

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

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

I would rather workers just got paid a reasonable wage.

One way it would make the average person's life better is that it would reduce the number of times they are forced to choose between illegal activity and their job. Think of the WellsFargo workers. They only way they could make their quota was to engage in fraud. Workers who did not engage in fraud lost their jobs.

Think also about the Boeing engineers who, no doubt, were pressured from higher ups to sign off on faulty designs.

If the higher ups knew that their personal freedom was on the line, they would not pressure workers to do illegal stuff.

Right now, companies come up with incentives that reward illegal behavior which allows the higher ups to profit, while leaving the low-level workers with the criminal liability.

with that kind of compensation and power [1], wouldn’t those laws that hold them criminally liable not last long? i would expect legal lobbying to slowly eat away at it and we would be back where we started...

[1] https://work.chron.com/average-income-ceo-fortune-500-compan...

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

If the CEO was subject to this sort of personal risk, I believe there would be far more systems/processes in place to make sure that there wasn't any sort of illegal activity going on (random external audits/investigations, more protections--or even rewards--for whistleblowers, etc.)

How do those systems and processes make the average persons life better? More red tape + reporting requirements + bureaucracy = ... Profit for the everyday worker and/or everyday consumer?

Criminal activity has a real cost to society. That's why we've decided that certain things should be illegal in the first place. This is a measure that would reduce the number of crimes that are committed by increasing the personal costs for criminal activity (both for the would-be criminal, and for the company's leadership). Because we see criminal activity in corporations today, I would argue that the costs of committing the crime aren't currently high enough.

Taking the VW emissions scandal as an example, there's an estimate that suggests that there will be 1200 premature deaths because of the increased pollution [1]. This has an obvious personal cost to the victims & their families, and there is a larger cost to the overall economy because of the decreased worker output. This doesn't even take into account the growing cost of pollution as a factor in global warming.

[1] http://news.mit.edu/2017/volkswagen-emissions-premature-deat...

Criminal activity CAN have a negative impact on society, but it doesn't always. For that to be true, either every law must be set conservatively (so that things on the edge are clearly negative) or the societal cost of breaking any law, even extremely stupid ones, must be large - large enough to outweigh the advantages of lawbreaking.

Given that most people break the law in minor ways quite often, I'm relatively sure there second is false. And I really wouldn't bet on the first being true either...

We'd all be obviously better off with greater oversight and if CEOs were concerned about their story ending with "and then went to prison". Here's some examples why:

Valve stole from an estimated 20,000 Australians before a judge recognized their former refund policy as being designed to refuse refunds rather than disburse them. Under a system of accountability about 20,000 Australians and maybe several hundred thousand others around the world wouldn't have been stolen from by Valve, who got away with this massive fraud by paying a small fine they contested and changing their refund policy. GOG still enjoys a similarly disingenuous refund policy where you must help them prove the game can open on your computer which is the threshold they invented for denying refunds.


Google realized at some point that they had not coded up a particular kind of refund and let it sit for twenty years, stealing $75 million from their advertising customers persisting long after they knew. Under a system of accountability these companies wouldn't be being stolen from by Google, who got away with this massive fraud by refunding an amount they calculated.


Facebook realized at some point they could steal from children and started both optimizing for more confusing virtual currency purchases and refusing refunds on accounts they identified as children using parents' funds. Under a system of accountability exploiting these children and defrauding their parents wouldn't require a multi-year lawsuit to resolve with a small check.


Then there's the mystery of who's still paying for AOL dialup. Across the internet zombie subscription fraud and free-trial fraud must be in the tens of billions a year, companies optimize around fraud so hard we have to call it dark patterns so they can disassociate from the criminality of what they are doing.

I think the complacency for generalizing corporate bad behavior as opposed to individuals acting within corporations is bad for discourse. These are not abstract entities, and it is wrongful to insinuate teams of bad actors reflect the corporate culture at large. This propels stereotypes and unwarranted distrust.

That reasoning is precisely how corporations get away with these crimes and why we should hold CEOs criminally liable.

I agree, the lack of social responsibility of corporate managers at all levels is terribly anachronistic.

Presumably laws are intended to benefit society as a whole. I think that's a reasonable (if not grossly simplified) approximation of the purpose of society. And if laws benefit society, fewer companies breaking them will benefit society.

The same argument could be used to say that it’s completely unreasonable for a CEO to make x amount more money than their average employee. If you can shoulder being somewhat responsible for 10,000 employees’ work, you get your 8 figure salary. Otherwise, put some of it back into the company.

Why can't we have both?

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

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

That's such a weird metric. Like "build a home", where? Raise a family, how large, how educated, how well provided for? Ditto for leisure goods like vacations.

I think a better base line is targeting an individual. Healthcare, 400sq feet, electricity, water, gas, and UBI to cover food and leisure. From there job compensation can be tied to market rate and people looking for more can choose how they'll get it.

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

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

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

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

Given the absolute lack of context... actual socialism would be a "reasonable" wage. Everyone having everything they needed to live and be better as an individual.

The natural birth right is to compete for such needs and to maim / kill if necessary to obtain them. No safety or protections. Possibly small tribal units to operate beyond the individual.

A rational mind recognizes that the above leads to violence and associated negative outcomes. It also often poorly allocates resources and does not well adapt to the ability to engineer our environment for better outcomes.

Wages are also often conflated with a belief that there isn't a relationship between the average purchasing power over a population and the pricing of goods for said population. Supply and demand curves from econ101 exist to describe why that isn't true.

Thus another way of viewing wages, reasonable or not, is in terms of comparison among workers. The real question would be one of disparity between the have most and have least: how much more is one individual worth than another? Business expenses and such deducted beforehand, I couldn't even see Iron Man (Tony Stark) being "worth" more than about 100X what even the least worthy individual is; let alone a normal CEO. I find it extremely unlikely that normal worker wages have grown 100% since 1978 (or over any other timeframe) to at least keep parity with that measure...

That sounds great, but if a CEO has that level of accountability, you better believe they will want some enforcement powers to ensure no one is doing anything illegal.

"Pardon me, RcouF1uZ4gsC, it's time for your monthly scan of your computer and mobile device. Please provide all passwords to any services you login on those devices. Remember, your contract dictates that failure to comply results in immediate termination. Please take unpaid time off while we perform our scan."

You write this like it's a dystopia, but that has been a standard practice at every decently-sized company I've worked at.

Does this not happen right now? If you have a company issued device you have no expectation of privacy on that device

I do have. I expect my employer not to snoop on the files on my work laptop, nor unnecessarily read any emails I send with my work account.

I'm not from the US so maybe that's grounds for the different expectations. And I'm not sure if my employer would actually be breaking any laws snooping on the laptop; I certainly hope so.

I think that's a little unreasonable -- it's their laptop, and their work email account, not yours.

Here in Norway privacy matters. Just because the laptop and email account belong to the company it doesn't mean that the boss can just rummage around in it.

For instance, many years ago I was Unix sysadmin and needed to get some work done on a machine using information that been emailed to one of my colleagues. Normally I would have just given the work to him but he was on holiday and this was urgent. The information needed was in his email but I couldn't just ransack his email. I had to ask the admin of the email system to open up that account and find the relevant email for me and copy that information. The admin in turn had to notify HR that he was doing this and justify it.

Generally all this works perfectly well.

Yes, but it's me who's using the tools, and it's my privacy that is on the line. Same goes for watercooler chat and papers on my desk, it's not different just because it's done with a computer.

I'm not sure what the situation is in the US, but here email is given the same legal status on secrecy of correspondence as old-school snail mail has. There is a way for employer to legally read emails in case of e.g. espionage suspicions, but that requires a note and follow-up with a public privacy official.

I argue that it's "you-as-employee" whose privacy is on the line, not "you-as-individual". I expect my employer to own the work I do -- that's the contract I agreed to. As they own the work, and the systems used to generate it, it seems reasonable they have unlimited access to what I'm doing.

(I do like the required notifications through HR, but it doesn't sound like that is a prerequisite to ask permission, even in more privacy-stringent places)

I do work for a small company, but no way my company can access any information on my machine. Any kind of company relevant code is submitted to a central git repository by me on a daily basis, but if I'm fired, the data on that machine is gone. It is protected by full disk encryption set up by me, and I know the only password to it. My contract contains no obligations for me to unlock it.

Is this unreasonable on a work computer? Any company with a well calibrated SIEM is already logging everything you do and firing off alerts when suspicious behavior is happening

I would expect compensation to rise substantially under this rule to account for the new risk of the position, from the Fortune 50 all the way down.

I have no intuition for this.

Compensation is already so stupendously high that I just can't imagine marginal dollars one way or the other, uniformly applied to all CEO positions, having any effect on a CEOs willingness to do their job at all. Maybe fewer, or different people would want to be CEOs if it came with this risk, but given that I have no clue what drives current compensation other than a zero-sum competition between companies for scarce abilities (what are you gonna do if the salary is not high enough, not be a CEO at all? Nothing comes close salarywise, so being a CEO at a lower salary should still be your best option), I wouldn't want to speculate about it. If it's just companies bidding over who gets the CEOs, then it's limited by how much they can pay and the size of the pool.

And I just can't see the size of the pool changing if you increase the salary. There can't possibly be any dynamic range left at these levels.

Its like: I'll pay you infinity dollars to do this. Yeah? Well that other guy will pay you infinity plus one! That's how it feels from down here on mean income. Maybe I lack perspective and a bigger yacht is more of an incentive than it seems.

This headline only applies to the largest 350 companies in the US. According to BLS data there are 200,000+ people in the US with the job title CEO and the average salary is around $180,000. EPI is constantly publishing updated versions of this report and beating the "CEOs are paid too much" drum like a wind up monkey.

Look at you for doing homework and having an independent mindset to find your own truths rather than blindly follow others... what's wrong with you? That's not allowed here. This is capitalism bad only allowed rhetoric.

Or maybe we’re cutting down on cognitive overload because we can’t independently dig down into a rabbit hole each and every time we read an article.

Also, none of what was said contradicts the notion that the wage gap is getting wider.

But the conversation makes it seems like all CEOs are the big bad boogey men out to eat your children's cookies when they're asleep. There are lots of cuntbag CEOs out there, don't get me wrong. But profiling is bad. There are plenty of small business c corps out there that have owners who really don't make all that much more than their employees.

I would expect businesses to split up. It's physically impossible to keep 100,000 people from ever committing crimes. (By comparison, that's a mid-sized city. How busy are the police forces in a mid-sized city on a typical day, and how many crimes go uncaught?) You'd likely see one CEO after another go to jail until there's nobody with an ego big enough to take the position, at which point the company splits up until it reaches manageable chunks.

...which may not be a bad thing. Lock up all the sociopaths and narcissists, and improve competition too!

If we are going to start locking up people for not stopping others from committing crimes without their knowledge, why stop with CEO’s? How about parents of kids that commit felonies? Teachers that don’t stop bullying.

Not a society I want to live in.

Those other cases don't generally involve the person incentivizing the other person to engage in illegal behavior and when it does they generally already face penalties under law. While there are some problems with the purposed law, then needs to be penalties for creating the incentives.

Incentives basic as “not getting laid off” cause illegal behavior, so it seems nigh unworkable to me. In any event, it appears to be a rather fundamental change that should not be pursued lightly.

I don´t know what they do in the U.S., but here in Uruguay the parents ARE responsible for kids that commit severe felonies (unless they´re old enough to be judged themselves).

It´s not usually applied though.

The root comment said "company wide illegal behavior". That's not the same as "nobody ever commits a crime".

And then goes on to say "any company wide illegal behavior", and states that even if they did not know about it, it was their responsibility to know, and they would still go to jail for it. Perhaps we're reading it differently, but to me that is the same as "nobody ever commits a crime".

> And then goes on to say "any company wide illegal behavior", and states that even if they did not know about it, it was their responsibility to know, and they would still go to jail for it. Perhaps we're reading it differently, but to me that is the same as "nobody ever commits a crime".

If it's happening company wide that points to an incentive structure (created by internal policy) that may be misaligned. The operative phrase is company wide which indicates a systemic issue.

And/or the scale of companies to shrink dramatically to the point that the CEO is only 2-3 degrees away from any employee instead of 6+.

I think that would be a good outcome. We would be better off with many small companies.

Why? Economies of scale can make things a lot cheaper

Sure. Up to the point where the big guys are stifling progress. I was around when the PC industry wasn’t dominated by MS and Apple and I much preferred having a lot of smaller companies producing innovative stuff. It was more chaotic and less Convenient but much more interesting and fun.

Nothing stopping those smaller companies coming to arrangements to keep those economies of scale.

I've thought a bit about the criminally responsible bit.

I agree that it is important to punish bad actors, but we're missing (legislation/laws needed) to link the punishment to the actual perpetrator and a punishment that is a significant deterrent without putting a bigger cost on society than the crime itself (its expensive to lock people up for example).

One thought was that we could create a punishment which is to 'zero out' someone.

The way this would work is that the government would issue a new form of Treasury bill that had a 20 year maturity date. The duly tried and convicted felon would have all of their assets, foreign and domestic, seized. and converted into cash. That cash would then go into the treasury in exchange these T-bills, coupon value of $100K each, the discount rate being set at the time of sale to match 20 year "regular" T-bills.

The felon would be left with $100K + what ever fraction of $100K was left over after converting their assets into $100K 20-year bonds.

Now, if at any time in the next 20 years the conviction is overturned, the felon can redeem the bonds at their current redemption rate which would match the same rate as the 20 year T-bill. Getting all their money back.

However, if the conviction stands for 20 years, the bonds would "expire" (this is the difference between regular T-bills) and they would lose all value, present or future.

This scheme is an attempt to change the current model of 'spend a few years in a low security federal prison and be released to your millions when you are done'. It seems to me that if someone made $100M in their illegal scheme, and then gets convicted and fined $10M and have to spend 5 years in jail, they might consider that an Okay tradeoff for a $90M payday that is now untouchable.

CEOs can be found criminally responsible currently. Counsel, teams of lawyers and in particular auditors are all there to shield them from that risk. Not sure anything would change.

What I am talking about is not having any shield. If there is widespread illegal behavior in the company, the CEO goes to jail, period. It does not matter what their lawyers said, it does not matter what the auditors said. If it happens, they go to jail end of story. The buck stops with them.

How widespread would the illegal activity have to be for the CEO to be at fault?

Warren Buffett has said (roughly), if you have a city of 300,000 people, you have to expect that some of them will commit crimes, and you need police officers for this reason. You should expect the same thing for a company of 300,000 people.

Maybe it shouldn't be possible to have a single company that with such an enormous number of people that it's larger than every single city and town but the largest 70 in the whole country (with a total of nearly 20k cities and 16k towns).

I say start by getting rid of the corporate veil? Outlaw the institution of the corporation. All company owners are now personally liable for their company's debts. Most societal problems would be fixed. Progress might slow down, but is that a bad thing? We're on a collision course with global warming, so slowing down progress and making people personally liable for the environment might be a good thing.

Anonymity and limited liability exists in all but simplest organisations in some form. It is crucial to organisation is greater than its constituents. For countries, it is the legality; for for-profit organisations, it is the monetary liability.

Economic progress saves human lives. You're trying to throw the baby out with the bathwater.

*So far

You run into evolutionary game theory issues. The reason the world is dominated by corporate states today is because the existence of corporations - formal organizations shielded from legal liability, able to take on projects riskier than any individual would - helped them conquer the rest of the world. Native American tribes didn't have corporations. Pre-colonial India didn't have corporations. Imperial China didn't have corporations. In all cases these civilizations were subjugated through direct corporate influence, oftentimes because the corporate veil allowed institutions like the British East India Corporation or the American Railroads to commit crimes (like genocide) that would've been thoroughly illegal if perpetrated from one individual to another within the society.

You'd likely end up with a temporary utopia within the society which gets shattered once another society (which embraces the competition, risk-taking, and technological progress afforded by corporations) decides that your utopia is looking awfully weak and has some nice goodies.

> formal organizations shielded from legal liability

You described governments. Corporations are formal organisations shielded from monetary liability.

Well you'd have to make that a constitutional amendment in the US at least since it'd run afoul of many basic guaranteed rights. This system sounds like it'd be more likely to create a true social hellscape before it'd solve any problems.

>Well you'd have to make that a constitutional amendment in the US at least since it'd run afoul of many basic guaranteed rights.

Not really. You make it a strict liability crime, so as long as you can proven the criminal behavior in court, the CEO is found guilty. Their state of mind is irrelevant. We already do this with some crimes and it hasn't face any constitutional challenge. It doesn't matter if you were tricked into the crime, lied about the crime, etc. If you did it, you go to prison.

3d printing gun guy was just convicted under such a law.

> since it'd run afoul of many basic guaranteed rights

Such as the guaranteed right to be paid as CEO while not being responsible?

As I understand OP there would still be a right to be heard, rule of law, court proceedings and everything. The only thing that shouldn't work anymore is claiming to be too stupid for the job the moment it becomes inconvenient to act out the responsibility that they're paid for so handsomely.

This defense even has a name: "Good heart, empty head". See for ex https://www.pepperlaw.com/publications/why-a-pure-heart-and-...

My sense is that there are already laws that allow for the criminal prosecution of responsible executives, up to and including the CEO if he or she knew. But there is a lack of enforcement, whether because of political pressure or mis-aligned incentives or some other motives obscured from public view. As a result, white collar criminals of this type are rarely ever prosecuted.

The best example of this is probably the entire Great Financial Crisis from 2008 on. Rampant illegal and criminal fraud but - from what I remember - only one executive went to prison. Mostly the Feds levy billions in endless fines. Money might be the best solution after all: if you make whistle blowing lucrative enough, you will make illegal activities very difficult to scale.

Are you saying CEOs should sent to jail with no trial even if they had no clue about criminal activity? Jailing people without a trial seems extremely dangerous. If we can jail CEOs without due process why stop at CEOs?

maybe they can, but they don't, usually, even if they should.

This is kind of the worst part about the discrepancy. When the proverbial excrement hits the air moving device, the poor guy at the bottom of the chain is the one held accountable even though he makes a fraction of what the CEO makes.

Think about all those 737-MAX MCAS FAA certification documentats submitted by Boeing. I'd bet the vast majority of those are signed by some relatively low level software engineers. Maybe some QA leads and a few project manager types? So when the dust settles and the Feds start digging into who knew what when, guess who's names they're going to come across again, and again, and again. But the upper level guys probably run things so that they never have to personally sign off on anything like that, so they always have that buffer and plausible deniability.

The correct angle might be criminal negligence. It's not one or two actions of subordinates, but a trend that adds up over time or over individuals.

Actual, independent, whistle-blower programs with real protections (possibly including a backing employment guarantee at similar market rate for life as a government worker in the same / similar field) might also help for providing an independent check on the system.

How would this be okay? You can kill the CEO with little repercussion to a large company.

The CEO pay should be something like 2x the pay of an engineer. That's how much effort he actually contributes to the company. The true wealth and power of the company lies in the employees in aggregate.

Also note the way a CEO acts is actually directly influenced by shareholders. They act that way so shareholders don't fire them. If you want to reign criminal behavior you actually have to target majority share holders and board members. Targeting the CEO creates conflicting sources of influence. Attack the source: Board members and shareholders.

I can't say I agree. The old country ( former soviet satellite ) has pretty strong language for CEOs that basically says they are liable with their own fortunes. From your argument, it would flow that companies would be less likely to make.. unethical choices. There is no apparent disparity in that. What did change was an immediate push to ensure that any high execs own almost nothing.. on paper. People adapt so designing a system has to consider that.

Edit: And execs typically design the system and have access to those designing framework. Golden rule applies.

Even if they claim that they did not know, at their pay scale, it was their responsibility to know and thus they are criminally negligent.

So if you had an employee who was secreting breaking the law, you'd put the CEO in jail?

I think we definitely should look at the political situation in that company. Whatever I have read about Wells Fargo and beginning to see at the company I work there is a lot of pressure from the top to the point where the little guy is almost forced to break the rules. Yes there are bad employees but there is also bad culture that coverts good employees to bad employees.

Presumably, an investigation would be done first.

This makes no sense. If you read Matt Levine, you know that literally everything a public company does can be considered securities fraud. It'd be impossible to run a public company if this were the case.

The OP is suggesting that CEO's face harsher penalties when criminal activity, significant enough to be investigated and prosecuted, is discovered. If 'everything is securities fraud', and those frauds are not worthy of an investigation currently, then those companies would not be impacted by the suggestion. But they would have an incentive to be more diligent, as a precautionary measure.

Or it would force people to take draconian steps to hinder any investigation.

Threatening to throw individuals in prison for profitable but undesirable behavior rarely seems to get much done. Consider the war on drugs, if you want. You can make felons out of a lot of people, but if the profit motive is strong enough, that's just going to encourage people to do more to not get caught.

This argument can apply to any means to constrain profit motivation for the benefit of society. Equating punishing why collar criminal to mainly impoverished people selling or using drugs is a massive simplification

It's similar to why tax a corporation? They will just move elsewhere. Also, a dubious assertion. Not all corporation will simply pack up and move out of an economy like the USA.

Or why raise minimum wage? It'll cause an equal rise in inflation. There is no law stating the inflation will be exactly proportional to rise in wages.

Right, it's a pretty general argument. A good regulatory system can't just threaten to throw CEOs in jail whenever a bad thing happens and we think they should've stopped it. You have to keep track of the incentives you're establishing, and make sure they encourage people to do what you want and not do what you don't want.

Agreed. But to say that there shouldn't be more mechanisms to disincentive this behavior because they will simply be skirted is self-defeating. Why have any regulations?

Agreed, but the point is that this particular mechanism doesn't disincentivize the fraud. The CEO of Wells Fargo has pretty much no power to stop an individual sales rep from lying on an account form, and neither that sales rep nor their manager is going to stop lying because we've threatened the CEO with jail time. The only thing the CEO could do to reduce their risk of going to jail is try and stop investigations from turning up evidence of fraud.

No thank you, I don't want to have to choose between the two.

I'd like to see an end to both overpaid CEO's and criminal activity.

I can see this backfiring in the form of intense micromanagement.


This might sound too radical, but how about abolishing the concept of corporate personhood? Companies are more dictatorships than democracies, so the people calling the shots should be directly responsible for knowingly breaking the law.

Granted, this will make forming companies a riskier proposition, but it would also contain the unethical traits of capitalism, as you can't order illegal actions and be shielded against the consequences.

We also should hold parents criminally responsible for their children's illegal behavior, at least until the kids move out. I think teachers must be fired if any of their students cheat or get disciplined. I also vote that every general and the president should get be jailed when a soldier commits a crime.

There are reasons why this isn't a good analogy.

You're talking about controlling human behavior with no alternative. In other words, as a parent or teacher, you do your best to teach and guide and give them direction and rules to follow, but they still might act outside of those boundaries. And these are children, who will try to be creative and go outside the lines, even if (and because!) it's against the rules. But when that happens, you can discipline, teach and talk. But you don't fire the student or your children. (You can, in extreme cases, expel a student from school. But you're even saying that any discipline should land on the teacher's shoulders!)

A CEO is running an organization where everyone involved is in adult, likely vetted (interviews are really common), and if they make mistakes or choose to break the rules, it's perfectly OK to remove them from the organization entirely.

"Criminally responsible". To clarify, my comparison is firmly connected to the request that the CEO is jailed for crimes of employees.

Even a mid-sized company is a complex interconnected system with thousands of actors. The CEO can invest into training programs, external audits, training, and close supervision. But the amount of control the CEO has over an Accounts Payable employee is negligible. If the employee defrauds a customer by routing the payment to a personal account, should the CEO be sentenced? "Criminally responsible".

No company has more control, rules, regulations, checks-and-balances, and power over their staff that the military has over a soldier. If we are not ready to sentence a General for failures of individual solders/actors, then we shouldn't impose higher standard on leaders in weaker positions.

From this-thread OP

> ... company wide illegal behavior.

The behavior has to be systematic and a significant percentage of some subtype of employee (eg. salepersons) must be engaged in it.

I felt sad when reading this comment. You are saying that children are "creative" and think "outside the lines," but once you're an adult you should follow directions or else be disciplined. A bit dystopian is this society you describe.

I suppose we're getting off topic, but this side topic is really interesting to me. I read a lot of Sir Ken Robinson, so of course that colors my opinions. I'm not of the opinion that as an adult you should be disciplined for creativity, and I rebel against rules that don't fit my mental model of the big picture and the things that I value.

But I do believe that in the work place, you are given direction and boundaries, and if you're going outside ethical boundaries or legal ones, then it makes sense that discipline or consequences come into play.

(And I think there's a place to argue whether laws are right or need to be changed!)

I think the principal of the school where there is widespread cheating among students, should get fired. In addition, commanders are disciplined if their is widespread war crimes by the soldiers under their command. In the case of the commander, ignorance would not be a defense.

That's a great discount from "criminally responsible". Also, that is the current practice - managers and executives are judged and disciplined for failures of their staff (fraud, theft, CSR failures etc). These actions are not publicized because of optics, but the consequences are proportional to rank. You just don't see people complaining about this on Twitter, or going to the media with examples of consequences. Different rules.

If a student and teacher, parent and child, or a general/president and solider selfishly conspire for their own benefit, they should be dealt with.

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

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

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

> Is meritocracy only for the poor?

Isn't it obvious that's how our society is structured? The success of the sons and daughters of the hyper-affluent is non-negotiable - they'll get fancy jobs through family friends and continue making bank without being very competent.

Those at the bottom, if they work really really hard, might be able to join them

I'd argue that's how every society ever has been structured. We have an innate desire to see our children succeed.

Seems like a self-imposed version of the Dilbert Principle.

Agreed. There are a lot of great studies out there that show why great-performing CEOs really are worth the money-- GREAT! But then the flip side of it is, in order to attract those great CEOs, you need a comp package that looks generous enough, which includes de-risking their decision to join your company.

I wish there was a good enforcement mechanism to tie their pay to performance -- for good AND bad.

There are also studies that CEO pay doesn't correlate at all as a predictor of their success.


reminder that CEO pay is negatively correlated with company success (https://www.wsj.com/articles/best-paid-ceos-run-some-of-wors...)

If you assume CEOs are basically success signalling devices without active influence on success whose prestige (and thus, the success they signal) is harmed by association with failure, that makes sense: the added pay is compensation for harm to prestige.

Yes that would probably explain the negative correlation.

That said, if good CEOs actually controlled the direction of the company and were compensated higher to attract talent - I would expect that to override the negative effect for a net positive. Since that's not the case, I think as you suggest that CEOs are "without active influence on success"

When hiring for a CEO a company that offers negative reinforcement linked to performance will lose out against a company that'll promise you the moon regardless of the performance. It's the CEOs that have their pick.

Please link to three of those studies.

the bad is not possible, if a CEO make a decision with a chance of 50/50 being a good or bad decision. if it is a good decision CEO makes lots of money, if it is bad they get 0.

that is not a good thing, out of 2 monkeys throwing darts one of them will make money.

Thats not how business or probability works.

it is defiantly how probability works.

if you bet on an event with 50% chance of earning $1 or 0. your bet is worth $0.50

you need the bet to worth $0, and that is only possible by making CEOs financially liable, and that would never happen, nor is realistic, a CEO's decision could cost company billions.

so by this analogy the riskier the CEO's actions the outcome is greater for them.

if the bet pays off, they win big, if it doesn't the shareholders lose.

Even the poor don't have a meritocracy. Plenty of meritorious people have otherwise been screwed by lead paint, abusive landlords, terrible teachers, imbalanced policing, hiring bias, and more.

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

> CEO of a large public company who fails is likely to end up with a ruined career.

Except for the ones that go to prison, that doesn't really seem to happen; people who fail as CEOs tend to turn up in very well compensated executive (not necessarily, but still often, chief executive) positions elsewhere.

The executive class that populates boards and C-suites (and overlaps significantly with the major investor class for whom ultimately boards and C-Suites work) is heavily networked and anyone who fails in a mere job in that class usually had plenty of connections willing to help them get another similar one largely independent of merit.

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

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

Really? When has that happened?


>Anthony Bryan Hayward is a British businessman and former chief executive of oil and energy company BP. His tenure ended on 1 October 2010 when he was replaced by Bob Dudley following the Deepwater Horizon oil spill. He has been chairman of Glencore Xstrata since May 2014.


>John Legere (born June 4, 1958) is an American businessman who is the chief executive officer and former president of T-Mobile US. His leadership at Global Crossing was controversial, which included large executive bonuses and filing for bankruptcy.

>Really? When has that happened?

If you're talking on the scale of a non-founder CEO who is making $15 million per year, it happens all the time. There just aren't that many public companies that pay that much. The headline in this story comes from an analysis of the 350 largest publicly traded companies. A fired CEO can't just go down the street and find another $15+ million dollar salary ruining another company. Two examples would be Melissa Meyer and Ellen Pao. Both of whom are basically unemployable outside of board memberships.

"outside of board memberships", that six-figure sinecure with two annual meetings and a rubber stamp? Heaven forbid they be forced to stoop to THAT level.

But they're not six-figure salaries.According to [1] average base pay is $25,000. Bigger companies do pay more, into the $200,000 range, but it's not like failed CEOs are asked to join boards of huge companies.

1. https://work.chron.com/director-corporate-board-paid-19587.h...

Unemployable with millions of dollars to invest in whatever it is they want. It's not all roses, but it's not as if their lives are over.

But that's not how it works at all?

They almost always get a very good C-suite job after and remain on boards with influence

Average joe getting terminated from a job will not receive references from that employer. References are critical part of most professional interview process.

When we were interviewing CEOs for my company, one of the things that surprised me was the interesting set of backgrounds we encountered. One, for example, had previously pled guilty to a federal indictment. We didn't hire him, and he went on to be CEO of another startup.

I think the CEO career risk, excepting gratuitously bad behavior at the wrong time (see Mark Hurd), is actually quite low and very, very overstated.

Re: "CEO...who fails is likely to end up with a ruined career."

Maybe as a future CEO, but I'm sure they'll have plenty of offers for upper-middle management and still be in the 5% to 1%. They may have to sell half their beemers or something, the horror.

>I CEO of a large public company who fails is likely to end up with a ruined career.

So might Joe worker. Where's his compensation package?

Meritocracy is like race: a myth. It doesn't exist. It's different groups of people split along arbitrary societal boundaries, decided by people with poor ethics and conflicts of interest. After all, nepotism isn't illegal, it takes many forms, and it just so happens to explain a whole lot about the distribution of resources and opportunities.

Back before she fell off the deep end, Roseanne had one of the most insightful lines I had ever come across: "The object of business is to keep your buddies working, even if they’re fuckin’ idiots." Keep this in mind and the world makes a lot more sense.


Well that article is really from a different time.

> The wife is the one who serves. But she is also the one who rules. It’s weird, because you have to stay humble and be strong all at the same time. The husband? He serves, too, only in a different way. And he protects. Just like the LAPD.

Even the reference to the LAPD in what seems to be a (positive?) light

Well it's still Roseanne, but I'm not endorsing the whole thing.

fair re roseanne

Meritocracy is the lie poor people are told so they don't get uppity about where all the wealth is going. So in a way, yes, meritocracy is only for the poor.

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

Something is rigged.


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

Is that rigged or is that just change?

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

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

That argument doesn't really hold unless you assume workers can only do one kind of job. If globalization destroys any blue collar & low-end white collar jobs or depresses wages for them, that's going to depress the entire pool of jobs available to workers who would otherwise have the opportunity to work those jobs instead of minimum wage service jobs.

Put in example form, let's say we have 10 jobs that a group of blue collar and service workers could do in our economy. 3 of them are manufacturing, 5 are service, and 2 are skilled trades. Now 2 of the manufacturing jobs get eaten by globalization. We've still got 10 workers, but now they're competing for 8 jobs, and the 2 that lost their jobs are going to be willing to work for less money because less money is better than being unemployed. We've just depressed wages for the entire group. Meanwhile, of course, the owners of the factory picked up the gain from this entire transaction. Minimum wage doesn't really factor into it because it's an artificial floor that doesn't reflect market supply and demand.

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

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

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

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

Trivially disproven by the handful of high minimum wage metropolitain areas. If New Yorker cooks aren't getting displaced at $15/hour, I think Missisippi or Wyoming employees probably have safe jobs too.

There's always an excuse. Yet real wages continue to drop.

It is not trivial to estimate how many unemployed people would have jobs as cooks in New York if New York's minimum wage were lower. The fact that NY's minimum wage didn't eliminate all the cook jobs does not by itself allow us to make the estimate.

Grandparent talks about robots, but it might also be the case that many cook jobs were displaced by the decision of consumers who would've eaten out if the minimum wage were lower deciding instead to cook at home or brown-bag it.

Make the US minimum wage high enough and the US might become like Spain where in 2014, 57.9% of young people in were unemployed:


Spain had a minimum wage of 752 euros per month in 2014:


Of course, Spain was in the middle of an economic slowdown in 2014, but it is not impossible for a severe slowdown to hit the US, and if it does, the US government probably would not compensate for the slowdown by lowering the minimum wage. (The Spanish government didn't lower its minimum in response to their slowdown.)

> it might also be the case that many cook jobs were displaced by the decision of consumers who would've eaten out if the minimum wage were lower

So... paying people more makes them less likely to eat at a restaurant? That logic doesn't work, you're forgetting the other side of the consumer equation.

Look: you can find all the excuses you want. There will always be excuses.[1] But in real terms wages are declining at the bottom of the income scale, and that's not something you get to brush away as not a problem via some cherry picked data.

Is it genuinely your opinion that there is money in the US economy to give the super elite a 10x raise but none at all for anyone flipping burgers? Just say it if so and argue the moral level instead of all the excuse-making.

[1] Hell, Spain isn't even the only crazy outlier from 2014! Go look at Greece! Gosh, it's like both of those countries had something else going on besides simple market pressure due to wages, but whatever. There will always be an excuse.

> So... paying people more makes them less likely to eat at a restaurant? That logic doesn't work, you're forgetting the other side of the consumer equation.

It is often argued that it does, particularly by opponents of minimum wage increase. If they need to pay their salaries, they'll increase menu item prices, and a la supply and demand, fewer sales. This argument is for a single business only, I imagine the aggregate supply and demand is affected differently if one were to apply a minimum wage law instead of a hypothetical at one restaurant. Basic form of the argument would be if everyone makes more in a region, perhaps increases in prices are cancelled out. I'm not an economist, ymmv.

> If they need to pay their salaries, they'll increase menu item prices, and a la supply and demand, fewer sales.

You whooshed on the point. If their workers are paid higher salaries, they'll turn around and spend that money, and a la supply and demand, more sales! Details matter, making an argument like this without numbers isn't analysis, it's excuse-making.

And the counter point (with numbers!) is that people at the bottom of society are getting poorer. And that this is more important as an immediate issue than a innumerate macroeconomic excuse.

> You whooshed on the point. If their workers are paid higher salaries, they'll turn around and spend that money, and a la supply and demand, more sales!

I did mention it, that's the whole cancel out thing I was trying to hint at.

I do really dislike this type of argumentation and tend to dismiss it because its first order argumentation without empirical evidence. The real world isn't first order, so real data should be used. The sort of stuff journalistic outlets use instead of economic institutes. I disagree that this is excuse-making however, because it is indeed analysis at an approximate level b/c its first order, but I take it you would probably take it that to be an excuse as well :)

Also an banal extension of that line of reasoning leads to a counter point -- The products that they purchase will cost more because of an increase in the cost of manufacturing due to minimum wage laws. However globalisation side steps this by getting third worlds to produce most of the products, so kahbooy to those laws.

> Details matter, making an argument like this without numbers isn't analysis, it's excuse-making.

I agree, but this is kind of a moot point, you are burning the bridge we both stand on and saying standing on it is excuse-making because one person faces north instead of south. It's excuse-making in two directions.

> And the counter point (with numbers!) is that people at the bottom of society are getting poorer.

Objective poverty is decreasing in the world, but in the lenses of America, I do think you are correct and I agree that the bottom of the society are getting poorer in a relative wealth inequality sense.

However as a side topic, there's a larger issue with financial ignorance I think exists too -- something that a higher minimum wage won't really counter. I mean, look at the high average debt, aggressive cash loans, lack of short term liquidity, etc, the poor of society suffer from or are explicitly targeted at. It's a whole system with people actively trying gut you for cash. A lot of it is just plain asymmetric power in terms of negotiating, knowledge, and opportunity. The poor get poorer, and the rich get richer, cycle of poverty 101. I personally believe wages should be legally adjusted for livability in a sense (the term liveable wage rings a bell, but I'm not too familiar) but the root cause of the issue seems to be in the education system and the affordability, proximity, and availability of it. Heck, I even like the idea of later-in-life re-training but I haven't dug into the data on that. Housing is also another can of worms.

believe me, capital will find a way to automate any potentially automatable job: it's just a matter of time and incentives. if you believe in what Andrew Yang has to say, truck driving and even some white collar stuff is on the chopping block, and those people aren't making minimum wage. therefore one must conclude that automation is driven by capital trying to save on labor, and the rest is a matter of intensity and investment/risk/reward tradeoff.

sure, you may turn the dial up on the acceleration by bumping the minimum wage, but if you're arguing that people working full time yet still being relatively poor is worth briefly "saving" these jobs, i think you won't win many people over.

Ya, my point was more about "typical workers" than minimum wage ones.

yeah. it is rigged.

globalization, from the perspective of someone in a so called advanced country, seems to generally turn into a dressed up way of arbitraging less regulated (environmental, workers' rights, etc.) environments in order to increase profits. this is an easy way for capital to defeat labor's hard fought gains in e.g. minimum wage, maximum hours, benefits, "strict" environmental regulations, paying taxes, and so forth. the proof is in the pudding: US mass manufacturing isn't outsourcing to Germany, Denmark or Switzerland, because the arbitrage in differences in regulations aren't there.

capital loves globalization because it can do things like pit a bunch of desperate places against each other then simply up and move to the "winner", sort of like the Amazon HQ search but internationally. labor, you'll find, typically doesn't have quite the same mobility. it then wags "low low prices" in front of the consumers who then find it easy to ignore their now jobless brothers and sisters as they shave a couple bucks off something or other.

the first wave of globalization took goods-producing jobs and moved them into places where the calculus of (labor + environmental regulation + taxes cost savings etc. > additional overhead/compliance + logistics), then shilled the people on the meme of "lower prices" while their communities rotted away back in country.

now the boomerang is on its way back and we're realizing that the loss of revenues, environmental ruin, illnesses of despair/desperation, etc. etc. may not be quite worth the alleged cost savings we were promised.

Globalization might have been tough for certain classes of workers in high cost companies but it was a HUGE HUGE HUGE BOON to workers in the many parts of the rest of the world. Literally billions have been lifted out of poverty because of it.

If it's rigged, it's important to remember that it's rigged in favor of those people too.

> Literally billions have been lifted out of poverty because of it.

i hear this meme a lot. can you point to statistics that indicate global poverty outside of China has materially changed in recent decades?

The share of global population living in extreme poverty excluding China dropped from 29% to 12% from 1981 to 2013.


World population excluding China was about 5.8 billion in 2013 so that 17% change represents right around a billion people outside of China.

thanks, but you cited stats that reference global poverty declining (of which i'm aware); your claim was that global poverty declined because of [globalization]. where is that data?

it's not hard to think about why global poverty has declined in many places. in asia, e.g. india has rural anti government policies, rice prices stabilization in indonesia/bangladesh/nepal, etc.

additionally, african poverty as best i can see hasn't budged much, perhaps indicating that government intervention like the in SE asia has been bearing most of the positive anti-poverty measures.

i'm still not convinced by your claim that globalization has literally lifted billions out of poverty. it may have helped, but you claim seems vastly overstated from what i'm seeing.

edit: just now seeing my original question wasn't too clear, apologies for that.

The fact that lots and lots and lots of people in countries with fast rising GDPs work in factories that export goods to richer nations seems pretty convincing to me.

You note, correctly, that Africa hasn't seen as much improvement. Guess where there hasn't been nearly as much trade driven development?

You're using the word "arbitrage" but you don't seem to know what it means. The simultaneous buying and selling of an asset is intrinsic to it. This is distinct from comparative advantage.

you don't seem to know that there is a non-financial use of the term.


Right, well I think the disclaimer at the top of this page says it all.

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

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

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

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

Further reading, this article from II: https://www.institutionalinvestor.com/article/b1db3jy3201d38...

Also, highly recommend this newsletter: https://eomail1.com/preview?p=d9e18eae-6673-11e9-9307-06b469...

This planet money episode: https://www.npr.org/sections/money/2018/06/22/622646316/epis...

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

It seems to me that they do slightly better than keep pace: https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

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

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

This is sometimes called the Lake Wobegon effect. The idea is that the pay of a CEO compared to their peers is a signal of the quality of a CEO, so everyone wants to pay their CEO above average, creating a vicious cycle of upward CEO salaries.


I'm not sure how true it is, but the game theory makes sense to me. The alternative, that CEOs are correctly priced by the market but that correct price has grown by 10x in half a century, actually seems less believable to me.

> This is sometimes called the Lake Wobegon effect.

Due to a humorous quote from Garrison Keillor's Prairie Home Companion show: "Well, that's the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average."

there's a third alternative: CEOs are currently priced by the market but were underpriced in 1978.

not sure I believe that, but it's a possibility.

It is possible that we now have bigger companies that can afford to pay their CEOs more.

Also note that the board is very often composed of current/past/future CEOs of other companies.

We should require employee representation on Board of Directors. Germany requires half the board to be represented by the company's employees: https://en.wikipedia.org/wiki/Codetermination_in_Germany

I believe German CEOs typically make around 1/3rd of what American CEOs make (having trouble finding the source on that, but that's the number I've seen cited before), possibly in part due to these laws.

Note that there is a difference in corporate management between USA and many european countries, where there is two boards: https://en.wikipedia.org/wiki/Dual_board

The requirement for half representatives for company's employees is for (secondary) supervisory board of directors, not for (primary) management board.

I didn’t realize this. Cool, thank you for the information.

This might be solved by requiring the CEO to not have had any shares. The CEO would focus on continuity of the company, followed by profit of shareholders, both large and small, then.

And generally the shareholder(s).. ?

On the board? Not really unless they're activist investors with some substantial slice of the total shares. The vast majority of shareholders do not actively participate in the compensation decisions of the CEO except perhaps at an essentially superficial approval of the compensation package.

At best one might say a vote against would be to sell the shares, but if public companies broadly all overcompensate their CEOs then it's this tension between leaving most of the market or investing in companies that might make money despite overpaying.

This, while potentially true, is ridiculous. I'm just going to pick a big company, ATT (I have no services or interactions with this company). If they believe in this effect of paying more to get the best, then why not the workers? Would not paying more for better workers ensure better end results? I want my cell towers and fiber being serviced and programmed by the best, after-all. Oh what's that, they don't give two shits about hiring the best, and just want it done cheaply? Seems a one way street to me...

Is this all simply the side effect of having transparent pay for executives? If worker pay was similarly transparent, if companies were required to post pay ranges on all job postings, we would see a similar pattern?

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

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

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

You invest in assets using tools like NPV. CEOs don't have crystal balls. Some might have a gut instinct, but then they are no different than your gambling stock trader... who might be up today and down tomorrow. It's a function of luck, not a function of ability. You have founders like Stuart Butterfield who can claim over 2-3 successes to make products worth billions. I doubt most CEOs could do the same thing.

You're basically saying good investors don't exist and everything is priced to perfection? This could range from investing in equipment, to expanding in a new business line, to acquiring a competitor and realising synergies that someone else would not have noticed. Putting 1 and 1 together in specific business focus areas might result in 3 for the well trained eye or the smart mind.

Plenty of people are good at investing (understanding how it all ties together, and understanding how they take risk) outside of the public markets. And plenty are horrible (i.e. mom and pop investing in the mutual funds of your bank).

> saying good investors don't exist

I am probably misremembering many key details here, but didn't Bogle make a pretty good case for this?

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

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

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

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

So how should a CEO be compensated then, if you're so sure the answer here is no instead of yes?

Sounds like it should be entirely commission based ? I don't think anyone sees an issue if you get a share of the amount you generated, but getting large salary without having achieved anything seems a bit unreasonable.

I think that's the idea behind compensating with equity. The problem with that is it can lead to short-term thinking.

I think a lot of people get hung up on the idea that income is equivalent to dessert. Prices have nothing to do with who "deserves" what. They are merely a way to allow markets to clear supply and demand. This includes salaries, which after all are just the price of labor.

Let's take the human element out of it. Do diamond "deserve" to be a million times more expensive than water? Water's essential for life, whereas diamonds are just decorations. Yet what would happen if we mandated that water must be priced higher than diamonds? It would wreak havoc.

At the end of the day, markets are a social technology. The only one that humans have for effective large-scale coordination of economic activity. It would be great if there was a functional alternative system, but it simply doesn't exist.

The enormous increases in material living standards that humanity has experienced over the past 200 years is only possible because we let markets determine supply and demand. (With a caveat for trained economists to design targeted interventions concerning well-studied and classified examples of market failures.)

If you're concerned about inequality, the correct way to deal with it is with a robust welfare state and economist-designed redistribution schemes. Let markets decide price, and balance supply and demand. Then fix it on the backend with a welfare state. Don't mess with the machinery that literally feeds us.

It's very frustrating that less distortionary, plain old redistribution is so much less politically palatable than corporate welfare and random subsidies and taxes. I want a wealth tax funding a UBI, tuned to whatever level is necessary to stop inequality from growing, and for markets to do the rest. (There are market failures that benefit from government intervention too, but I'm just talking about the plan to address inequality, which has no reason to pick on specific industries or practices)

I go a level deeper, does any person working in the same company deserve 1000x more compensation than average worker?

JK Rowling sold hundreds of millions of books. Like every other author, she made a few dollars a book. It's completely fair that she is a billionaire. You can say the same thing about CEOs. Jeff Bezos had a part of play in every Amazon package shipped. Virtually every phone in the world was inspired by the designs of Steve Jobs.

Logically, shouldn't the compensation for a worker be a function of both leverage and risk?

CEOs have enormous leverage to affect change in their company, with proportionate increase in company returns. An average worker or even an excellent one has fewer opportunities, and even then influence is usually limited to a single team or product.

An example of leverage would be, investing $x million in product line x instead of y. While anyone theoretically can make this decision, the larger $x is the more you want someone owning this who has made these type of decisions before. Which requires someone who has progressively taken more risks in their career and made the right calls.

It is completely possible to be worth 1,000x more than the average worker in your company. Just because many (if not most) CEOs don't deserve this doesn't at all, does not mean that you can definitively say that nobody does.

Really awful rhetoric (from anti-capitalists) I hear is that nobody works 1,000x times as long or as hard as the average worker. Value is not manifested in how long or how hard you work.

I think it's part of a wider worldview that doesn't believe that talent is very impactful, and in favor of cooperation rather than competition.

The question isn't really whether the CEO provides more than 1000x the value of the average worker, though, it more like how much value does he provide compared to someone else in the same position, and how much does skill matter. If I offered a successful senior manager with an MBA, say, $500K to take the CEO role, would he statistically do worse than a CEO I hire from outside at $10M? With such a wide disparity in compensation, it sure feels a lot more like a club than any kind of meritocracy.

Talent is merely applied luck.

I don't know how you can possibly believe this. Do you really believe that Terry Tao got lucky, and just worked way harder than everyone else? Same can be applied to business executives.

Sure. His luck started by being born to a pediatrician and a math/physics teacher, rather than—say a couple of itenerant agricultural workers.

And yet there are so many more people who came from as fortunate or more fortunate means, including those who went into mathematics, but are not as talented as them.

Michael Phelps is not just a product of luck, either. You could train your entire life and not be as good a swimmer as him. You'd have to redefine luck to include genetics.

Genetics are 100% luck. You can't choose your parents.

In business you don't get what you deserve.

You get what you negotiate.

Nobody deserves anything. CEOs get paid because they negotiated the pay and people are willing to pay them that. That’s a fact not an economic theory.

Sort of like if the serfs consent by not revolting, then the aristocrats must have a mandate to rule?

Sort of. I forget where I read it, but some rich guy wrote an article along the lines of "hey other rich guys, we gotta deal with this inequality thing, otherwise the pitchforks are coming for us"

I think certain pragmatic rich people do say that including Warren Buffet and Ray Dalio to name a couple. Those two have their faults, but IMHO are more directly connected and thoughtful about how actual value is made a little more deeply than your average making money via financial engineering.

Nope. Not really. CEOs don’t rule anyone. We elect representatives who vote and make laws.

But you know all this, so the feudal comparison is pretty melodramatic and ridiculous.

You can be a CEO if you want. Give it a try!

And studies have show that the laws that are made in the US correlate to the desires of the economic aristocracy not the broad electorate... this is why I say the representation of the current order as "fact", or a meritocratic, looks a lot like historical justification of aristocratic order as "divine right".

Which study would that be? This one [1] concludes “both the “ideological sorting” and “vote-buying” hypotheses are able to explain the positive correlations observed between PAC contributions and voting behavior.”

In other words, vote buying is not necessarily why votes correlate with contributions along policy lines.

Fact: You can be a CEO.

Fact: You can be elected to vote on laws.

Fact: There is no financial or divine right requirement to run for office or be a CEO.

[1] https://www.ifs.org/wp-content/uploads/2012/11/Bronars-1997-...


"Multivariate analysis indicates that economic elites and organised groups representing business interests have substantial independent impacts on US government policy, while average citizens and mass-based interest groups have little or no independent influence."

And have you seen any discussion of who exactly ends up as CEO of say fortune 500 companies. There is a distinct lack of women, and of the women who are represented there is a slant to those with wealthy family backgrounds.

There is no gender or financial requirement to be a CEO. Everyone can be a CEO.

Here’s some job ads for CEO: https://www.indeed.com/m/jobs?q=CEO

You’ll notice there’s nothing about gender in any of them, or being born to wealthy parents.

Consider that maybe the limiting factor to becoming a CEO is yourself, and not society, men, rich people, discrimination, etc.

Born with a golden spoon into a community willing to pay for their status.

Clearly not someone who thinks in terms of value creation.

If I can add $20m of profit to the bottom line of an organisation, then there is nothing wrong with capturing some of that value, no?

Call it CEO or entrepreneur, at the end of the day, it's the same job, with the same end result.

Over my total career I have probably helped safe guard millions upon millions of dollars.

How much value did that create or protect? How much of that was I allowed to capture compared to the CEO? A fraction.

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

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

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

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

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

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

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

If only the workers at those 'much bigger' 350 companies would also have a compensation increase...

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

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

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

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

1. https://www.usinflationcalculator.com/

2. https://www.thebalance.com/us-gdp-by-year-3305543

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Or they were undervalued in 1978.

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

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

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

Think you meant 10

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

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

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

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

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

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

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

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


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

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

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

Meanwhile in Germany the relation between highest and lowest salary in a company is on average at 1:50. The maximum is 1:97,see https://m.spiegel.de/wirtschaft/unternehmen/volkswagen-wo-vo...

NPR Planet Money has a good episode on this: https://www.npr.org/sections/money/2018/06/22/622646316/epis...

Planet Money has a relevant episode on this:


Recommended, Planet Money is great.

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

Which is it?

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

Or Doctors?

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

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

Do you have any data on how many physicians there are, vs. the number of nurses? According to the Bureau of Labor Statistics, there are nearly 3m [1] nurses, and less than 1m [2] physicians. Physicians still, categorically, are more expensive than nurses.

[1] https://www.bls.gov/oes/current/oes291141.htm [2] https://www.bls.gov/ooh/healthcare/physicians-and-surgeons.h...

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

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

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

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

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

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

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

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

Sounds like a good time to start a company.

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


>the solution is to make rich more poor. Nothing is said about making poor more rich.

uhh... im pretty sure the strawman you're attacking would advocate for better compensation for the poor

Plenty is said about it, you may have not been paying attention.

Take some money from everyone who can afford it, and more from the rich than everyone else. Redistribute it into education, roads, healthcare, food, research, national defense, police, and other things that benefit society as a whole (including the rich).

You might want to do some research on what socialism actually means, because though it includes the above, it is not defined by the above. You can tax and spend that money on social (and other) services, while retaining a capitalist economy. Which is what we and every other developed nation does.

Socialism is state control of the means of production, which though it does happen with certain industries in some countries (usually energy related), it's pretty rare.

I cannot see Trias11's original comment as it has been flagged to death, but based on the reactions to it, I'd like to offer some insight.

Whenever there is a post about CEO pay (or the success of any other wealthy individuals) the reaction from the socialists/progressives always leaves us non-socialists wondering if whether our left-leaning compatriots are motivated more by an envy of the rich than by compassion for the poor.

The truth is, I very much doubt that we actually know what CEO pay "should" be. Nor do we know how much taxes should be. People (especially the rich) are taxed a probably a higher rate than at any other point in history, and yet there are stills calls to make them pay their "fair share". How much is fair? If you don't have a good answer in mind then the escalation continues until the answer becomes "all of it" and then you get the liquidation of the kulaks.

Trias11 37 days ago [flagged]

I lived in socialist society for 30 yrs and I know what it means and what are the consequences for people.

What you learn about it by flipping TV remote and checking your favorite social media is not what you'll actually be getting at the end.

And it's not going to be pretty.

> I lived in socialist society for 30 yrs and I know what it means and what are the consequences for people.

The only organized societies (at a state level) that have called themselves “socialist” are Leninist or descendants of Leninism; Leninism was (viewed generously) an attempt to adapt Marxist Communism to bypass the necessary (in Marx’s view) development through mature capitalism on which the socialist society, the next stage in the evolution to the communist end-state. Part of that adaptation is moving the development of a broad-based educated distributed ruling class from a prerequisite to the socialist transition to something which was to be built afterwards, with a narrow educated and ideologically pure vanguard assuming authoritative direction of the movement in the interim.

Modern Western forms of socialism, whether rooted in or identifying as Marxist or not (and many of them are neither) almost never are ideologically rooted in Leninism—for which there is no need, even if it worked well in its motivating case, in the developed world—or its descendants (with the exception that some of the far fringes are Maoist, but they are just a fragment of the fringes) and tend particularly to strongly reject vanguardism and authoritarianism in favor of more robust development of the democratic institutions of liberal democratic states. Western socialism is a continuation of the long arc of change in developed Western economies since Marx first described capitalism, not a recreation of the Leninists rejection of development through capitalism.

Whether Leninism is genuinely a socialism is a matter of fairly heated debate among self-styled socialists, but it is very clearly a very different thing than modern Western socialism, and it'd outcomes have limited, if any, value in assessing the merits of modern Western socialisms.

So something that has really confused me lately — I thought socialism had a relatively strict definition. AOC for example claims the label socialist, but as far as I can tell she’s not actually taken any socialist policy positions. It feels more like she, and others, are reclaiming the label. Basically attempting to change the meaning to mean nothing more than a liberal welfare state.

Am I on the right track there or not so much?

> I thought socialism had a relatively strict definition.

It does. It is social ownership of the means of production. As a democratic socialist AOC believes in worker ownership and democratically controlled market entities. Accordingly, she is very pro-union and pro government jobs programs. The GND has many aspects of a socialist jobs program. Free trade and higher education is a socialist position as well as a welfare position. Medicare for all is socialized insurance. 70% marginal tax rate is a way to limit the concentration of individual wealth and market/political control and while it is not inherently socialist it is extremely consistent with socialist values.

Most of developed capitalist countries have effectively "medicare for all". Making it about "socialism" is basically redefining socialism to be anyplace which is not USA.

No, it is not. In practice all governments have capitalist and socialist aspects. Having a single socialist program does not define a country as socialist.

The UK has nationalized healthcare- doctors are literally employees of the government. It doesn't really get more socialist than that, but it's still just a single program. The government as a whole, and the country as a whole, leans significantly more towards liberal capitalism.

> So something that has really confused me lately — I thought socialism had a relatively strict definition.

Very few terms that refer to current (as opposed to purely historical) movements or identity groups have single, universally accepted, strict definitions. That's true or “socialism”, it's true of “capitalism”, it's true of “Christianity”.

> AOC for example claims the label socialist, but as far as I can tell she’s not actually taken any socialist policy positions.

AOC is a member of the Democratic Socialists of America, which recently left the Socialist International because it viewed the latter as having slipped too far to the right and abandoned socialism by endorsing what the DSA saw as neoliberal economic policies. So, the DSA is to the left, ideologically, of the main global organization of socialist parties and groups.

Now, the DSA is also very much an incrementalist organization that sees socialism as a long-range goal, favoring what could easily be seen as evolutionary socialism. And AOC is one of I think three socialists between both houses of Congress, so it's not like even if she was an “as fast as possible” socialist ideologically she’d achieve much by, say, tabling a resolution to amend the Constitution to abolish private property in the means of production.

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