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.
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.
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.
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.)
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 . 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.
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...
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 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.
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.
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...
"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."
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.
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.
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 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)
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.
Also, none of what was said contradicts the notion that the wage gap is getting wider.
...which may not be a bad thing. Lock up all the sociopaths and narcissists, and improve competition too!
Not a society I want to live in.
It´s not usually applied though.
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.
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.
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.
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.
You described governments. Corporations are formal organisations shielded from monetary liability.
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.
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.
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.
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.
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.
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.
Edit: And execs typically design the system and have access to those designing framework. Golden rule applies.
So if you had an employee who was secreting breaking the law, you'd put the CEO in jail?
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.
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.
I'd like to see an end to both overpaid CEO's and criminal activity.
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.
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.
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.
> ... 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.
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!)
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.
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 wish there was a good enforcement mechanism to tie their pay to performance -- for good AND bad.
...TL;DR version here:
...and here's another:
reminder that CEO pay is negatively correlated with company success (https://www.wsj.com/articles/best-paid-ceos-run-some-of-wors...)
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"
that is not a good thing, out of 2 monkeys throwing darts one of them will make money.
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.
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.
>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.
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.
They almost always get a very good C-suite job after and remain on boards with influence
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.
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.
So might Joe worker. Where's his compensation package?
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.
> 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
Something is rigged.
Is that rigged or is that just change?
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.
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.
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.
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.
There's always an excuse. Yet real wages continue to drop.
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.)
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. 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.
 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.
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.
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.
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.
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.
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.
If it's rigged, it's important to remember that it's rigged in favor of those people too.
i hear this meme a lot. can you point to statistics that indicate global poverty outside of China has materially changed in recent decades?
World population excluding China was about 5.8 billion in 2013 so that 17% change represents right around a billion people outside of China.
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.
You note, correctly, that Africa hasn't seen as much improvement. Guess where there hasn't been nearly as much trade driven development?
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.
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:
Also, highly recommend this newsletter:
This planet money episode:
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'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.
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."
not sure I believe that, but it's a possibility.
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.
The requirement for half representatives for company's employees is for (secondary) supervisory board of directors, not for (primary) management board.
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.
Say the decision of the good CEO makes the company $100m. How much is he worth? A lot.
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).
I am probably misremembering many key details here, but didn't Bogle make a pretty good case for this?
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.
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.
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.
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.
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.
You get what you negotiate.
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!
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.
"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.
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.
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.
How much value did that create or protect? How much of that was I allowed to capture compared to the CEO? A fraction.
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.
That's about $4M after inflation, for the highest contract in the nation.
Today, the top end of MLB contracts are around $30M/year, NFL top end contracts are at similar values. That's right around the same growth.
Nominal GDP growth over same period: 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.
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.
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.
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.
No reason to get a CEO at the margin if they are not valuable (even if CEOs are in very short supply)
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?
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.
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)
Recommended, Planet Money is great.
Which is it?
Fun fact: ~5% of health care costs come from physician salaries, 8% is from nurses.
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 . 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% .
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 . 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.
uhh... im pretty sure the strawman you're attacking would advocate for better compensation for the poor
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.
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.
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.
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.
Am I on the right track there or not so much?
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.
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.
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.