some ideas about how to offer "founder incentives" in workers cooperatives."
From a recent HN comment: https://news.ycombinator.com/item?id=37304911
But worker cooperatives is known as "one worker, one vote" and anarcho syndicalists like Richard Wolff wouldn't consider that a worker cooperative anymore.
But also, Kasmir seems to be faulting co-op members for some lack of ideological purity, and frankly, for failing to live up to the aspirations that others have built around them, which aren't their responsibility.
> Many academics and social justice activists alike — maintain that co-ops promise a more democratic and just form of capitalism and even sow the seeds of socialism within capitalist society.
> Co-op members voted to pursue an international strategy to open these firms, and, thus, to employ low-wage laborers. Hence, we are confronted with a complicated permutation of a familiar state of affairs whereby the privilege of one strata of workers depends upon the exploitation of another.
> Compared with workers in the standard firm, co-op members were less involved in and showed less solidarity with the Basque labor movement, which at the time was part of an active leftist coalition for socialism and independence for the Basque country.
But the point of a co-op is not to further the goals of academics and activists, nor is it the responsibility of any co-op to maintain allegiance to whatever movements or institutions that the author admires. If Richard Wolff wants people to vote in the workplace, and wants those votes to mean something, doesn't that power and autonomy also necessarily mean they have the power to disagree with his views and pursue their own success and flourishing? And its success should be measured by the degree to which co-op members benefit, not by the extent that they're an ideological tool for outsiders.
Yes, one might have wanted Mondragon co-ops to create other worker-run co-ops in other countries, rather than subsidiaries. But it's hard to see how that would have actually worked. Frankly, starting factories in China by talking to workers about how important democracy is could have gotten people hurt. And these firms do still need to be able to compete and succeed in a global marketplace in which most of their peers are operating from a purely capitalist playbook. If you draw your ultra-orthodox definition of what a co-op too narrowly, you risk adopting a definition which excludes successful firms of any significant scale.
I've been in and started several worker cooperative businesses. I don't try to do it anymore because of what I perceive as a fundamental issue: the people that are the most explicitly attracted to worker co-ops are also the least business saavy or willing to put the business's existence ahead of ideological values. In my experience, it is a recipe for almost certain failure.
In the same way that anarchists point to Revolutionary Catalonia, workplace socialists point toward Mondragon, ignoring that these are both statistical aberrations rather than the normal state of affairs. The normal state of affairs is a bunch of naive ideologues that hand-wave away planning critical details. This isn't unique to worker co-ops; founders do it all the time, but the difference is that new ventures require flexibility and leanness, but worker-co-ops are exceptionally rigid and fragile.
Generally if worker co-ops "succeed" it's directly because they are being subsidized by similar ideologues rather than business efficiency. The actual product they sell is good feelings rather than products or services.
It's a little weird that tech-folk are generally ok with the idea that groups can yield good predictions in the context of a non-owner community that is harnessed to improve a product, or in the context of a prediction-market, where people placing bets in disagreement can lead to a more accurate outcome than the participants taken separately would produce -- but somehow think this mechanism will fall apart if workers who have an interest in a firm's ongoing revenue are able to vote.
> On September 14, the contract between the United Auto Workers and the Big Three carmakers (GM, Ford and Stellantis) is expiring — and the possibility of a strike is real. This comes at a delicate time for multiple reasons. The labor market is tight, which means workers have other options. Inflation is high. And the auto industry is undergoing a major shift to the electric vehicle market, which may change the composition and pay of the labor force. The stakes are high. So what does the union want and how does it fit into the goals of the broader labor market? To understand more, we speak with Dan Vicente, the director of UAW Region 9, as well as Alex Press, a labor reporter at Jacobin magazine.
There were some items that the unions conceded in 2008 when the US automakers were going bankrupt that have still have not been restored.
When they get it - right now every reports that they are asking for 40%
TFA conveniently points out to you that 20% has been offered to them and was rejected.
Also they are asking for more than pay raises and shortened work week. They're also demanding health benefits for retirees and defined benefit pensions among other things.
The only defined benefit plan left is social security , which is fast going into insolvency in exactly a decade, and where it will automatically be cut 25% once that happens!
My point remains, to be in support of defined benefits, you must not be OK with unilaterally changing the de-facto definion of defined-benefit for SS?
How is it OK to literally pull the rug under people that paid - all their lifes - with the promise to get X on retirement, and will now get X-Y instead ?
The exact figure is 77.5%
Are they? When concessions are given they should also be removed: there are some elements in the contracts that date back to the hard times of 2008 that the unions are still putting up with.
40% is table stakes.
Why has the supply of CEOs not kept up with the demand for them? Surely, with the improvement in education and in increase in MBA programs, there must be far more CEOs today than in 1978. Why has the ratio of CEOs to Companies fallen by 14x for their wages to rise this much? /s
As many argue, wages are only set by supply and demand. And if workers are underpaid, then it is because they are replaceable. Use the same framework to explain CEO pay.
Most of the time that I see people invoke "Econ 101" concepts, they are wrong. Supply and demand does not account for the power imbalance between workers and leadership, which unions specifically attempt to address. It does not account for the class differences between workers trying to make ends meet and the board of directors who believe they deserve much higher pay than workers. We are free to change the perceived value of workers through the power of worker solidarity - ensuring that individual workers are not so easily replaced to keep wages suppressed. You can simply say "it's supply and demand" and do nothing to support the workers whose labor is so clearly needed for our economy to function, or we can support collective bargaining rights to make sure that individual workers are not crushed under the power of company leadership. How you view this is up to you, and not a simple fact of natural laws of economics.
Demand isn't the same thing as value. When we create an economy where a few people have all of the disposable income then we also create one where the only business interests represented are theirs. We should let value dictate demand, which only happens when we spread the money around.
It's not that supply and demand is wrong. It's that supply and demand is not the whole story. It is an open question whether workers should change the market forces at play by unionizing and demanding collective bargaining of their wages. This does not subvert supply and demand, it simply alters the pressures the company leadership experiences in the market. I said that the original comment was "wrong" because the comment stated clearly that "wages are only set by supply and demand". This seemed to me to imply that nothing could be done about low worker wages, which is clearly wrong. What workers can do, and apparently in this situation have done, is unionize and strike for better wages.
If supply and demand worked as theorized in the labor market then there would necessarily be a loss of employment when the minimum wage is raised, but that is not always the case .
Some studies find effects and some don't, which is a good indication that the labor market is more complicated than Econ 101 principles.
It seems to me that what the union is asking for is that the corporation act more like a benevolent force than one that is restricted by market pressures. Of course, you could use the power of government as one poster mentioned to force this issue, but those violent delights have violent ends.
I disagree. The union is simply changing the market pressures that the corporation experiences. There is no benevolence required when you are faced with a strike. You either negotiate acceptable terms, or you have to deal with the consequences.
Do you feel this to be illegitimate? If so, why?
If someone's selling you a simple explanation, they're likely wrong.
Wouldn’t that be simply favouritism/cronyism rather than a free market?
See "A Principled Approach to Executive Pay", Chapter 1.F in The Essays of Warren Buffet, arranged by Cunningham.
The issue I take with your line of reasoning is that executive compensation is often at odds with investor interests in more ways than just its amount. Buffet describes "heads I win, tails you lose" executive compensation plans in an essay from the 80s/90s. He describes how they do things at Berkshire Hathaway - they're doing very well and I doubt have any issue recruiting good executives.
Despite this, and decades later, we see terrible compensation plans being approved by boards. We see executives exiting failed businesses with enormous paychecks. We see boards offering those same executives new management positions with terrible (for investors) compensation plans. What gives?
It certainly looks like cronyism to me, but maybe I ought to be applying Hanlon's Razor.
The farther actors are from perfect information, the more asymmetry in the system there is, the slower the system is to react, the more the relationship between supply and demand breaks down.
Yes, it does, in each scenario you presented.
> We are free to change the perceived value of workers through the power of worker solidarity
It's more like using the power of government to ensure the company has no alternative to the union.
Company leaders have no actual power over the workers. They cannot force anyone to come to work. They cannot have you arrested. They cannot confiscate your property. They cannot beat you. They cannot prevent you from accepting a job at another company. They cannot prevent you from leaving. They cannot extort, libel, slander, blackmail, or threaten you. They cannot put a hit on you.
All they can do is offer you money in exchange for your labor. That's it.
They can totally do that with a non-compete clause. Just not in California.
In some states, and in some circumstances, they may be able to prevent you from accepting a job at a competitive company.
Unions absolutely do not need the government to exist. It is only through government attempts to control and curtail unions that the government has involved itself in unions.
See for example the Taft-Hartley act:
That's absolutely correct. But in America, the unions use the government to tilt the balance heavily in their favor.
You’re both right. Power dynamics and supply and demand are interrelated.
Most forms of human organization involve hierarchy. Even co-ops have a CEO and that CEO makes a multiple of base worker pay.
What that multiple is and how it gets decided is a fair question: in co-ops, voting rights are built-in, but for private corporations you need collective bargaining
This is a description of the status quo of capitalist competition, but is not a fact of nature. We can arrange our economies to work in cooperation with one another, rather than in competition. Competition is used specifically to depress all worker wages for the benefit of the ownership class, and we do not have to accept that at face value.
It's not that they're wrong. Worse, they're thought-stopping.
They're mantras we all know and we are trained to "accept their wisdom" and stop questioning.
Supply and demand is the imbalance. The workers, individually have no control over supply. The whole point of a union is to control the supply of labour and shift the balance of power.
There was an example in Money Stuff this week where a CEO got a pay package "worth $110 million". It's actually made of stock options that vest if the share price went above $150, but the expected value was $110 million so that's what was reported.
…But the share price only reached $66. So in fact he was paid zero, and he quit. (Well, $1.5 million in cash.)
> paid $1.5 million in cash
These are two wildly different things.
If its $1.5M in a single year, I have absolutely no tears to shed.
If that was 5 years, that's $300k/yr in compensation. A very comfortable salary in just about every place in the country. Once again, I probably have no tears.
If that was 10 years, that's $150k/yr. Ok, if you're expected to live in Manhattan or whatever, I'll agree that's pretty tight. Still though, that's a couple times the average household income in the US. Congratulations on being a bit closer to a plebeian. Boo hoo, guy who could have had generational wealth just had to live like the rest of us. What a tragedy. Truly zero income, being more than twice the average household income for a single earner without even thinking of other compensation he might have received.
I can't imagine this was some kind of performance pay over 15-20 years, so his pay has to be in this. I don't have a WSJ subscription, so I can't comment further on it.
It gets a little weirder than that I suppose since you might have a great deal of shares in a company, which you never exercise so you could say that money doesn't really exist until exercised.
You can however use those shares as collateral for a mortgage or other line of credit which is a pretty common tactic for wealthy people to avoid paying income tax that they otherwise would if they were to sell said shares.
> You can however use those shares as collateral
Only shares that you own, not have an option to buy. And only a portion of the shares, and if your shares become worth less than the loan, you still owe the money, and they'll come after any other assets you have.
> you might have a great deal of shares in a company, which you never exercise
You're confusing owning shares with having an option to buy shares. They're very different. You'll also owe income tax on the difference between the exercise price and the current price of the shares. (A friend of mine didn't know that, and consequently lost his house.)
I'm fairly sure I could achieve the same results for considerably less.
Moreover making compensation dependent on stock price movement encourages corruption and fraud - look at the numerous Enrons and other financial claims. All of which left the majority of those responsible enriched while destroying the lives of others.
I'm highly skeptical of that. Not driving the company value to zero is worth a significant amount of money; anyone who has worked under a bad executive or CEO can tell the difference between one that didn't accomplish aggressive goals and one that's objectively bad. If you have a bunch of executive experience, maybe you'd be able to replicate that CEO's performance, but absent that it's more likely you'd cause more harm than just not making the goal.
I doubt this is true. Organisations have inertia, and getting one to change direction or do something different is remarkably difficult. (source: I have been hired as a CEO to change the direction of an organisation. It was difficult).
I strongly suspect that an average person being put into the CEO role would do fine as long as the organisation was basically OK. They'd make mistakes, sure, but everyone makes mistakes. The organisation has ways of limiting the damage of mistakes.
The hard bit about being CEO is taking full responsibility for your decisions with no feedback. You can deal with this in a wide variety of ways; arrogance, narcissism, authoritarianism, or humility, honesty, and teamwork. We tend to see the first three because those kinds of personalities cope well with this kind of difficulty. But that doesn't mean this is the best way to deal with it.
Performance based bonuses exist at virtually all levels of skill in companies. What you see as a catalyst for fraud could also be framed as a catalyst for incentivizing an outcome most likely achieved via hard/smart work.
$1.5M is not nothing, but it's less than 1% of the CEOs potential compensation.
Home Depot? UPS? Amazon's 1.6M, not just those in Seattle making well into the six figures? Kroger? Albertsons? Target? Starbucks? You really think a bagger or cart grabber or barista is getting a performance-based bonus? These are some of the largest employers in the US.
The vast majority of the US workforce probably has less than 10% of their income (probably close to 0%) directly tied to performance. A massive chunk is entirely how many hours they get on the clock, that's it.
> Performance based bonuses exist at virtually all levels of skill in companies
This really sounds like the perspective from someone who's never punched a clock.
lol. Any data on that? In tech maybe, but I'm fairly confident(also an unsourced opinion) that the vast majority of workers in the US receive zero bonus, skill based or otherwise
How many companies really break that relationship in their market sector?
So tldr, ceo pay is based on the economic cycle rather than how the company does.
On average, 50/50 is a pretty decent benchmark here.
Steve Jobs, Bill Gates, Elon Musk, Satya Nadella, etc.
> ceo pay is based on the economic cycle rather than how the company does
You can always start your own corporation, name yourself CEO (all you gotta do is file some paperwork and pay an annual fee) and rake in the dough for doing nothing!!
I've seen this in my career, the closer I get to "SRE" or "platform engineer" the more decoupled my salary has become from my actual measurable value.
I'd articulate the thinking as, roughly:
We know this role is important. We know that having a bad SRE team (or CEO or platform team) is expensive, it could cost us the 100% of the business. And we don't know how to measure the value a good one provides. Therefore we are willing to spend as much as we can afford to make sure we get a good one.
The elite/ownership/"capitalism winner" class are playing on an entirely different level with their power and influence. Don't kid yourself into drawing comparisons with your situation and miniscule in comparison compensation. It's always heads they win, tails you lose.
There are two ways to read my comment.
One as explaining CEO salaries.
The other as actionable career advice for negotiating your own salary.
I've used this insight to nearly 5x my salary.
That salary was not minuscule to me.
This is pretty much it. Everyone wants to avoid hiring a bad CEO so it’s a bidding war for executives with track records at large companies.
And when you’re making billions a year the CEO compensation is a drop in the bucket.
And who are "we" in this train-of-thought? If it's shareholders, that's where the root of any problem lies. If shareholders are real businessmen and entrepreneurs who built up the company or similar companies, they will have a clue as to what is a good CEO. If the shareholders are real workers who believe in the company they're working for, they will have a clue as to what is a good CEO.
Today, shareholders are no longer real businessmen or real workers, but retirees represented by bureaucratic investors. That's why they have no clue as to what is a good CEO.
Worker pay is set by the leadership, leadership pay is set by the leadership.
Public unions seem more undesirable. There we have the gov negotiating with itself with no external accountability, unlike your example.
Funny thing, I own a vast number of stocks through various means, either directly or via ETFs, and yet never in my life have I had an opportunity to weigh in on the salaries of anyone in the companies I hold equity in.
> Public unions seem more undesirable. There we have the gov negotiating with itself with no external accountability, unlike your example.
The government is negotiating with unions, not itself. However, if we're going to take a crack at public sector unions, let's start with the police unions.
Really? I get shareholder meeting notices for voting on compensation packages all the time. I admit that the chances of me personally shutting down the pay package of AIG's executive team is pretty much nil, but that's also because I personally own pretty much nil in terms of voting stock, and most people like me probably either don't vote at all, or vote with the board recommendations. Still, it's always within my power to try to start a shareholder movement on this front.
Because obviously what you call "vast" is actually a minuscule percentage of the company.
This is also beside the main point, which is that management shares a class interest with shareholders, even if they aren't literally the same people at some particular point in time. Capital and management are obviously on the same side, and labor isn't part of the club.
Not that my votes "no" were ever successful in curbing the growth of executive pay. Hard to vote against the executives who probably own a decent chunk of the voting shares themselves.
None of them do the "say-on-pay" thing where stockholders get to vote on whether they're happy with the pay packages for named officers?
This is completely untrue. The board of directors sets leadership pay, and often the BoD is appointed by leadership anyway so it's essentially leadership setting their own pay.
Correct. But unlike private businesses, I can not vote by taking my business elsewhere.
> The external accountability comes from you...
Sure. It does via voting. Fair point.
> regardless if your elected official is dealing with a union or a private company
These are two separate things. The gov only affects private companies by regulating. It cannot negotiate benefits with the union or the private company. It is the neutral third party.
With public unions, the gov is both sides of the discussion and the mediator. There is no unbiased party in the negotiation, and seemingly no incentive to vote out pro union officials. I cannot understand why.
1. The gov doesn't haven't to turn a profit, so there is no alternative if prices are driven too high by union negotiations.
2. The union members get to vote on both sides of the table: both for their union wages and for the elected "neutral" party, that is obviously not so neutral.
That said, the CEO pay is easily explainable:
> Profits at the struck auto companies increased 92% from 2013 to 2022, totaling $250 billion, according to EPI
> CEO pay at the Big Three has grown 40% in the last decade, according to EPI
If you're the CEO of a company and you increased profits by 92%, I don't know seems pretty fair to me. There's a lot of other businesses that suck and haven't raised their profits in the meanwhile.
I think talking about the CEO pay is the wrong path (though I do admit it's marketable in the mainstream news). Just ask for what you think you deserve and don't work if you don't get it. It's as simple as that.
Did you? Attributing all the success a company achieves to the CEO feels shortsighted.
Aside from anything else: if all these companies saw their profits grow by so much surely there’s an external commonality there? “The CEO did it all” would be slightly more plausible if only one company experienced that success.
Particularly at early stage startups engineers are often responsible for a ton of innovation. It’s rarely exclusively top down instruction. Same goes for pretty much every company I’ve ever worked at. The CEO is not making every decision and coming up with every idea.
This assumes that the increase in profit is attributable primarily to the CEO. Well, that at least 43% (40/92) of it is.
> Just ask for what you think you deserve and don't work if you don't get it. It's as simple as that.
This only really works with unions. Fortunately, these workers have one.
This is the most wildly privileged take possible on the issue.
If that were true, the pay of every non-union employee would be minimum wage.
The CEO's didn't get 100 billion extra pay, they just got 40% more than before not 40% of all the profits.
Imagine a chocolate bar factory, making chocolate bars for 50 cents and selling them for $1... 1mio per month, 500k profits per month.
Then a new ceo comes, sees that all the ingredients are vegan, there are nuts inside, making the bars "healthy", slaps on vegan logos, superfood logos, changes the ads to make the chocolate bar seem more high end and raises the price to $2 each... due to new logos, superfood text and ads, even with a price increase, 1mio of chocolate bars are sold, and the profits rise from 500k to 1.5mio per month.
Did the workers make the chocolates that brought in 500k? sure. Did the same workers make the same chocolates that brought in 1.5mio? sure. Did the workers do anything differently than the month before? Change anything? No. Did the ceo make a single chocolate bar? Nope. If the workers did the same as they did the month before, and if the CEO didn't make a single chocolate bar, who 'created' the extra 1mio of profits?
Sure, it sounds intuitive to put dollar values to each person, but reality is more complex than that. In the end, workers want to get the as much as possible money for least work done, and owners want to pay as little as possible for as much as possible work done... and that applies to everything, from workers and owners in a company to average joe buying apples (most apples for least amount of money)
Was there an entire marketing department that was needed for this to be successful? Why aren't we quantifying that?
Why aren't we quantifying the new QA processes to make sure the packaging is correct?
Why aren't we factoring in workers downstream contributing to the success by being able to pivot and be malleable in the job making this possible in the first place?
Why is it so anathema to people that everyone can share in the profits? Its not like we're saying only pay CEOs 100K per year or something. 1:25 ratio pegged to the lowest paid worker use to be the norm, for decades, and CEOs were plenty happy with that too.
If they earn so much more, should they pay contractors more too? Does your plumber ask how much do you earn before he fixes your toilet?
What about other supplies? Should they pay more for cocoa? For sugar? Do you pay more for bread in your local store than someone who earns minimal wage?
You do none of that... you try to get the lowest price when you're paying (even if the plumber has 8 kids to feed at home) and get as much as possible when you're the one getting paid. Same with workers.. you pay enough to have them stay and they do as little as work as possible to stay employed.
I agree that some workers should be paid more, and that's why they're striking and hopefully they'll succeed... but taking out a calculator and saying that someone made X more so someone else should get paid more too by the same ratio is stupid. In my country, there's a huge shortage of contractors (electricians, plumbers, painters, tile-layers etc.) and the good ones earn as much as doctors... and due to a shortage, large companies have problems getting eg. electricians (because contracting pays more and gives more freedom), so their pay is going up... does that mean that accountants pay should go up too? (there's no shortage of accountants)
Then why assign the cause of the increase to the CEO?
Literally used to be called profit sharing.
If it's a company of one than I agree. In any other scenario the CEO led the company to a 92% increase. The CEO didn't do this alone. They maybe managed that increase and had a part in it but others most likely did the vast majority of all the work.
Now, how do you feel if the CEO fired 50% of the workers and maybe the remaining work twice as much to make up the slack. This leads to a 92% increase in profits and the CEO deserves the vast rewards?
https://techcrunch.com/2018/04/13/elon-musk-says-humans-are-... (“Elon Musk says ‘humans are underrated,’ calls Tesla’s ‘excessive automation’ a ‘mistake’”)
If profits went from $5 per year to 10, they increased by 100%, but that doesn't mean that you have room for a 100% increase in everybody's salaries.
A much better way to have this discussion would be to look at the dollar value increase in profits versus salaries.
Profits are forecast to be about $32b in 2023, up from about $19b in 2013. At about 240k total employees, and an average union pay of about $30/hr - call that about $90k year fully burdened per employee - a 40% increase would cost the company about $8.6B, or about 2/3 of the growth in profits. That may be overestimating the costs, as there are only 146k workers in the union, in which case the $5.2b increase in employee costs is... 40% of the profit growth, which seems like an entirely reasonable split of employee vs shareholder gains.
Who's to say that the various attempts to "chart a new course" and change business strategy for the shareholder's benefit during that time didn't actually make these corporations underperform vs locking the executives in the boardroom and cutting off all their decision making ability for the same time period?
If a ceo grew front line employ pay and also profits at the same rate, the ceo pay should naturally follow that rate.
On the other hand, if they grow profits by suppressing wages, then they should eat the same pudding they served everyone else.
YOU, the CEO, didn't single-handedly increase profits by even a single percentage point. One employee out of 1 million, take your millionth of a cut of the profits, that's still $150K.
From 2013 to 2023 GM was beat in innovation by both Tesla (Model s,X , Y, and 3) and Ford (aluminum f150 and electric f150, mustang mach e) and has only recently been producing vehicles that look like their 2030 lineup - on the competitor's charging network technologies.
GM was even particularly slow on ice adoption of things like independent rear suspension. Or, the Corvette - where they basically pulled a Nissan and bought the competitor's engine.
Slow to innovate, early to fail (Volt/bolt), purchase from the competition is not what we should define as a good CEO.
And that's not even touching the fact that the workers are clearly valuable and irreplaceable enough that they can halt production like this.
look at tiny barely profitable companies, the gap between median wage and CEO is sometimes less than 2X.
all these takes on CEO pay when the reality is simple - CEOs are paid a lot because they the cost of being wrong is more than their pay. this results in companies that have a lot of money competing, driving up the price. the end. it's the same reason lebron james is paid 10X more than NBA average.
This is a statement that there is low quantity demanded by the market. It's actually a great example of how the naive supply-and-demand argument doesn't make a lot of sense.
I invite everyone here to raise their hand if they're just as hard-pressed as me to think of any job that they wouldn't do for a million per year.
No-one is managing thousands of people.
You might have ~10 direct reports as CEO (common incident command theory says that number should be between 3 and 7, optimal around 5, because after that, you start to lose connectivity between what each report is doing).
Do I wish I could make that sort of money and run a world changing company? Sure do. But I'm self aware enough to know how badly that would likely go for both me and the people I'd be responsible to.
Instead, the board has approved that compensation based on very real business needs: growing the company, acquiring competitors, changing business models, etc. It's actually hard to find a leader who has experience doing that thing and is also the right fit. Hiring the wrong CEO is a quick way to kill the whole company. On the flip side, to the board, a CEO that can drive meaningful growth is worth the risk, even if they have to fire with a golden parachute two years later.
I'm not trying to justify pay disparity (in fact I think there should be minimum AND maximum FT salaries when currently there are neither), but that's what's going through the board's mind when they set CEO compensation.
What separates the good CEOs from the poor CEOs isn't something you can readily teach. Some of the best ones have a preternatural ability for the role in the same sense that Lionel Messi has a preternatural ability at his sport, and are equally rare. The majority of CEOs are journeymen with the skills to do the job but not to be great at it. This doesn't mean that average employees are fit to be CEOs; you don't have to look further than startup CEOs, which are pulled from an above average pool of semi-random people, to discredit that notion. It is a highly specialized skill set that is difficult to acquire and most people aren't mentally cut out for what is required to be good at it. The experiment of promoting rando employees to CEO has been tried on occasion across industry with almost universally poor results.
This is true of most professions that command a high wage. Thinking that anyone could be a CEO is like thinking any dev can be Fabrice Bellard. Even if that turned out to be the case in a specific instance, no one should expect it to generalize.
If you ignore Pelé, the top soccer player had a similar increase in the same period. https://www.expensivity.com/soccer-salary-inflation/ Compared with the median income, they went from 10x in 1979 to 1300x in 2020. Why has the supply of Messis not kept up with the demand for them?
"Star" pay has exploded across all industries (entertainment, sports, and yes, business) and it's not hard to see why. Technology has vastly grown the size of markets, and the "winner take all/most" dynamics of these star-driven occupations means the winners are able to take an outsize chunk of the revenue.
I think there are some other things going on with CEO pay (CEO salaries are basically set by other CEOs, for example), but the parent comment absolutely gets it wrong when they say "the supply of potential CEOs has increased". In the competitive market for CEOs (as well as actors, musicians, sports stars, etc.), people are not interchangeable commodities. Someone who is only slightly better can be responsible for their corporation completely "winning" in some industry, and thus companies are willing to pay top dollar for this chance at getting the brass ring.
What they need to do is to publicly disclose the performance of their CEO. Have CEOs rated by staff and publicly distribute this info worldwide. They also need to implement clawback dating as far as a decade depending whatever products they in charge during their tenure. And lastly, always put full jail offenses directly on CEO without any plea bargain. Not doable? Then workers need to get retrenched as they rightly deserve it when they didnt bother to hop away.
If you expand your horizon somewhat to C-suite in general, it seems that demand for C-suite has tended to increase over time. If you also consider that C-suite is to some degree a Veblen good (demand increases as price goes up) , that makes sense under economic laws. Worker pay, unlike executive pay, is going to be considered a significant cost center, and business will higher fewer workers if individual pay is growing too quickly, making worker pay act like regular goods and not Veblen goods.
 The framework for setting CEO salaries tends to be "take the median CEO pay, add a little extra because our CEO's clearly better than average..."
Sure. It's the same framework that explains the pay of Lebron James. The NBA became a massively popular global game during the era of fast growth globalization, in which billions of consumers entered into the active global economy.
Now you've got like 50 players earning $30m or more per year in the NBA. To play a game in just the US market.
~450 active players earning around $5 billion per year in just league salary (not counting endorsements).
Now do it for global football, NFL football, Nascar, Major League Baseball, Hockey, F1, and so on.
Who knows the insane total compensation figure. $30 billion?
The economic force producing that comically massive figure, is the exact same reason Tim Cook is worth every dollar he's getting paid to operate the juggernaut that is Apple. The same goes for Nadella at Microsoft.
The top 450 NBA players earn more in salary every year than the CEOs of the S&P 500. Why shouldn't a CEO get paid extraordinarily well, as well as an NBA all-star, for operating a $10 or $20 billion market cap corporation? Obviously they should.
The only time I see arguments against high CEO pay (speaking generally), it's from people that know absolutely nothing about what a CEO does or how exceptionally difficult it is to operate a very big company.
And should mediocre CEOs that fail or otherwise perform poorly get golden parachutes? No, of course not. Exceptional CEOs should get properly exceptional pay. They deserve to earn drastically more than the average worker.
The common Redditor railing against CEO pay, looks at a Tim Cook and thinks they can maybe do what Cook does (he just sits in his chair in a big office while other people do all the work, dur dur dur), or what Nadella does, or a random S&P 500 CEO does. In reality they can barely do their own basic job, much less one ten tiers above them. The average Redditor is further away from being able to do Tim Cook's job than they are being able to do the job of Lebron James. The issue is the average person doesn't know anything about what a CEO does at all, they're entirely ignorant of it. However they can watch Lebron James play basketball and immediately understand they can't do anything like what James can do, because they get the physical visual display immediately, meanwhile they know zip about the job of a CEO at a big company. As usual the issue is extreme ignorance and mediocre education.
The most common argument I see is that the ceo pay has increased relative to the common or average employee salary. I doubt being a ceo has become that much more difficult over the same time period though.
So what? The fact that you think this is an argument and not a meaningless talking point further supports the idea that you cannot even comprehend what a CEO does.
The best response I can hope for to my comment is one that tries to explain the mechanism and whether or not it makes society more productive or not and maybe other associated costs if there are any.
> The only time I see arguments against high CEO pay (speaking generally), it's from people that know absolutely nothing about what a CEO does or how exceptionally difficult it is to operate a very big company.
Which links ceo pay via complaints to "how exceptionally difficult" it is to do the job of a ceo. The implication is if people understood how hard the ceo job is that they would not complain about the pay. That implication does not make sense if there is no link between difficulty and pay.
Does this mean that I have been missing the CEO tournaments? surely they must compete with one another after all how else can you compare who is better without a direct face off?. It seems like the big companies always get the best CEOs so they must have scouts all over the place on the lookout for that great undiscovered CEO talent.
Or could it be that big companies always produce "great" CEO because its a lot harder to fail and a lot easier to win when you are stearing the biggest ships.
CEO wage negotiations have nothing in common with employee wage setting.
The NBA compensates workers based on the value they bring to the team. Isn't that what the UAW is arguing for?
The UAW has skilled workers, and they are compensated well in general. Perhaps they should earn, more or less, I'm not sure. But the relative value is exactly the point.
The top 450? There's only 450 players. 30 teams, 15 players on the roster.
> earn more in salary every year than the CEOs of the S&P 500.
No, they don't.
There are 30 teams, with a salary cap of $136M, i.e. $4.08B.
I'm looking at the top CEO salaries and I'm already at $2.6B and I'm only at number 20.
I appreciate how many of you immediately jump to make such egregiously bad displays of business logic in response to someone asserting that you cannot even comprehend the job of a top CEO.
Yet somehow, bundling in endorsements and book deals and other extracurriculars when referring to NBA player salaries? Totally reasonable, apparently.
"Steve Jobs only took a $1 salary from Apple!"
So start there instead of making it seem like your few specific examples speak for the entire population of CEOs. Talk about the CEOs who fumbled completely during COVID despite having a great position, demanded benefits despite their huge reserves and are now crying about having to pay it back while their profits are up.
Talk about the CEOs dumping their toxic waste straight into the rivers to avoid having to pay costs. And the CEOs who push for every trick in the book to pay a close to zero net tax. And the ones who will lobby and keep almost any potential upstart from ever becoming a threat. And those who have solidified themselves in their branch thanks to first mover advantage, and can do whatever they want and still succeed despite our 'competitive free market' (yeah right).
>They deserve to earn drastically more than the average worker.
They already did in absolute terms. Percentages compound. How about explaining why CEOs need an even bigger advantage in both absolute and relative terms than they had before? Did the workers not contribute to their success?
And why are the workers the first to feel the headwind whereas the CEOs are the first to feel the tailwind?
Oh but they do! That’s the rub. Also it’s very hand wavy to say “the CEO’s job is exceptionally difficult”. But that person has a whole bunch of people bringing him ideas and trying to improve the company. In fact, that’s how you even get promoted. So they pick a bunch of things to do. If it doesn’t go well and the stock tanks, the first person to leave are the workers and not the CEO. In fact, in almost every case the CEO is the last to get affected. Win or lose for the company, the CEOs only win.
Is that performance related pay?
Or is it Crony Capitalism?
We should remember that CEO pay is often equity linked, and thus can vary. Not sure if workers want large portions of pay equity linked. I remember I was once in discussion with a hedge fund for a job and they offerred a sliding scale of pay that was cash vs equity. The more equity I opted for, the greater the pay, since of course there was risk involved.
CEOs are much different. A bad CEO can cost a large company 10s of billions in stock valuation. If you have a decent CEO, and you fire and replace him with a poor replacement, the damage to the company will be tremendous, so the board won't want to risk it. This gives good CEOs the leverage to demand massive compensation. A CEO can basically hold the company hostage by saying "I want a $10 million raise this year, and if I don't get it I'll quit. Have fun rolling the dice with my replacement!" (Though they would never actually say it that way) And the company will basically have to choose to pay an extra $10 million or roll the dice on potentially losing billions. This is why they almost always pay CEOs a massive amount.
Don't hate the player, hate the game (seriously, the system is screwed up horribly)
There is more going on with people and work and money than most people seem to acknowledge when speaking in general.
I know it’s probably multifaceted, but my first thought was that increasing inflation since the 70s has meant that there is an incentive to have as much debt as possible, the hope being that it will be inflated away
1. Friedman, Milton. "The Social Responsibility of Business Is to Increase Its Profits." The New York Times, 13 September 1970, https://web.archive.org/web/20230913104415/https://www.nytim...
2. Carstens, Delphi. "HYPERSTITION." Xenopraxis, n.d., http://xenopraxis.net/readings/carstens_hyperstition.pdf.
I say it is fair to hare the player unless they are working to change/improve the "screwed up" game they are playing.
If Steve Jobs—who first created and then basically rescued Apple and started it on the path to where it is today—can be 'replaced' then any other leader can be replaced.
Similarly there are plenty of CEOs that are paid oodles of money that were or are absolute garbage: see Boeing for the last 15+ years as Exhibit A.
I wasn't try to show that they don't matter, but that they are replaceable. And few companies need to have "the greatest mind in Operations that history has ever known" to function well.
Does Eli Lilly, Unitedheath, Johnson & Johnson, Procter & Gamble, Home Depot, Pepsico, Walmart, Coca Cola, Accenture, Intuit, Caterpillar, Lowes, Nike?
Heaven knows that the last few CEOs of Boeing mattered as they have completely screwed the pooch and basically wrecked that company—all the while making a whole lot of money.
Everyone is replaceable, but some people are simply better suited for their role than others.
I do think a lot of CEOs are way overpaid. That said, if a couple hundred million package means the difference between a company folding and firing everyone, or being a multi-billion dollar business with thousands of employees, the math works out.
Yes, I explicitly mentioned that: without Jobs AAPL would not be where it was today. But he was replaced.
If someone as instrumental as Jobs can be replaced then so can any CEO that is/was less instrumental.
And what other CEOs are / were as instrumental as Jobs? What other major companies need to have someone of that calibre?
> That said, if a couple hundred million package means the difference between a company folding and firing everyone, or being a multi-billion dollar business with thousands of employees, the math works out.
Now do the example of packages that cost millions of dollars and the CEOs wrecked the companies, like Boeing, or Enron, or WorldCom. Or Jack Welch's financial shenanigans at GE.
AirPods launched 5 years after he died. It's highly unlikely he was involved at all. That's now also a multi-billion dollar business.
Apple Vision is about to come out. I wouldn't be surprised if that turns into a mult-billion dollar business after a few years.
Yes, Tim Cook does not have the charisma of Steve Jobs, and probably doesn't have the design sense either. But he's awfully good at putting the right people in the right places to steer the ship with him and have quite a strong vision of the future.
That's the entire process of creating the professional corporate managerial class - you have reliably shown that you care more about the financial success of the company, and yourself, than you care for your employees and coworkers.
I mean how many movies and characters have we made that are precisely calling out this exact behavior:
Mr "Coffee is for closers" Blake
Richard Chesler (Fight Club boss)
Like...we've been roasting this precise kind of corporate myopic psychopathic forever as what precisely not to be yet it's like an entire generation used them as pathfinders
Why would it?
If you want to hire a CEO, you either usually are looking either at A) A CEO of another company with experiences relevant the current situation, at a size similar to the current company's size. Or B) A senior exec (CFO, COO, etc ...) at the same company, or more rarely an involved board member.
These are self-limiting pools.