Hacker News Reader

Comment by csours | Hacker News Reader

I'm not sure how to phrase this, so please be patient and try to understand what I intend to say.

CEO pay relative to median employee pay has soared since the 1970s. That is, a CEO may be paid $10,000,000 vs the median employee at $70,000 (arbitrary numbers), where before 1970 the numbers may have been $150,000 and $20,000

Using only one set of numbers can be deceiving though. For instance, through mergers and acquisitions, there may be One CEO where there were previously 10. So you might be able to see this by comparing Total Executive Pay - ie the whole C-suite to Total Non-Executive Pay.

Also, many companies have become more efficient as measured in revenue per employee over time, so another good set of numbers might be Total Executive Pay vs Gross Revenue.

How does Executive Pay look in these contexts?

I'm sure someone has done the work, but I have not had luck googling it, and I definitely don't trust a LLM to get this one right.

View on HN

As a thought experiment, consider what it would take to make CEO pay gap even BIGGER, in addition to stock-based comp* and buybacks, which are mentioned in headline. Here's what one might do:

- Reduce unions

- Outsource and automate labor

- Slow minimum wage increases

- Consolidate power via M&A (you mentioned this)

- Cut back on benefits like healthcare, pensions and paid leave

- Promote "guru culture": indispensable, iconic leaders like Jack Welch, Steve Jobs etc

- Shift economy towards high-margin industries (tech, finance, pharma) and away from lower-margin ones (retail, manufacturing)

Turns out all of these have been happening since the 70s. So this result should not be surprising.

*Important note that the 1993 Clinton tax bill made it so corporations could no longer deduct the full amount of top executive salaries as a business expense. Only up to $1 million. UNLESS the amount beyond $1 million was performance-based (leading to stock option comp boom).

Sounds like you should start a company, name yourself CEO, and execute this strategy!

None of these issues are specific to CEO wages. This is essentially just a list of reasons why you don't like capitalism. ie if a CEO doesn't do these on their own accord, the shareholders might contact the CEO and tell them to take some of these measures. This mechanism isn't dependent on CEO pay, because the CEO is always beholden to the shareholders, and shareholders always want more money.

The solution to this isn't to get mad (or even do something about) CEO wages, but to make sure there are other good reasons why companies might not use these approaches to maximize shareholder returns (ie stronger government regulation, making these approaches illegal).

> This mechanism isn't dependent on CEO pay, because the CEO is always beholden to the shareholders, and shareholders always want more money

Legally the CEO has a fiduciary duty to the shareholders. In practice, can we honestly say that every CEO of a publicly traded corporation acted in the long term interests of EVERY shareholder and didn't just parasitically extract value from the company for themselves and a handful of LARGE shareholders? Facebook is essentially the personal property of Mark Zuckerberg

> Legally the CEO has a fiduciary duty to the shareholders

The CEO has two fiduciary duties:

1) To act with appropriate information; 2) To avoid usurping corporate opportunities

The duty to make money for the shareholders is distinctly not a thing.

It's no longer a company it's an empire. Got it. But the executive layer didn’t shrink. You don’t just have one CEO now you have the CEO, presidents of divisions, business-unit heads, all pulling down compensation packages that in the 1970s would’ve looked like outliers even for the very top.

Is revenue per employee the best metric? Productivity gains don’t automatically justify higher executive pay. Most of those gains come from technology the CEO didn't invent or personally implement, supply-chain leverage, and cost-cutting at the bottom, not from some surge of genius at the top. Yet the financial rewards are heavily skewed upward, while median wages flatlined. Plus you know the rule about what you measure being what you get more of. All that would happens under your metric is CEOs push to move to 'contractors' to reduce the measured headcount to justify an even higher salary.

Changing the metric just masks things. Society is broken for those at the bottom, and if their numbers grow too large, it will become broken for everyone.

> Changing the metric just masks things.

Using only one metric is THE classic way to misunderstand a system.

> Society is broken for those at the bottom, and if their numbers grow too large, it will become broken for everyone.

It's difficult to capture my intention and perspective in a short comment. In my personal belief, if the future is going to be better than the present, we need to share resources more fairly.

However, money is an imperfect representation of resources. For instance, the extremely wealthy may eat more food or more quality food, but not anywhere near a proportionate excess. They may have a bit more housing, but generally not proportionate to their excess income. Etc etc etc for most things.

This is not excuse, or justification.

What I am saying is that focusing on the excess wealth can become a distraction.

I believe that the majority of harm relating to income inequality does not come from the inequality itself, or even excess resource (food, housing, etc) consumption.

I believe that the majority of harm comes from actions taken while attaining and defending wealth.

It's regulations bent and broken while growing a business.

It's not the housing per se, but the housing must retain value.

It's not the stock portfolio per se, it's the tax loopholes exploited.

----

Excess wealth is a correlation to harm. Beyond that, I feel that care must be taken.

Beware of easy narratives and blame.

Keep in mind that executive compensation is at the expense of the shareholders, not the workers.

Yes and no. Executive compensation, from one perspective, is the mechanism via which shareholders align executive behavior in their favor, to the detriment of workers.

Worker pay is determined by the Law of Supply & Demand, not by the amount of executive pay. I.e. worker pay is determined by the minimum wage the worker will accept and the maximum wage the company is willing to pay. The latter figure is based on the value the worker will provide.

Executive compensation is not part of that equation.

Farmers in poor countries will plant low-yield traditional varietals, even when a high yield option is available.

They might have twice the yield with the new varietal, but if their crop fails: they risk destitution and might even loose their land. So they rationally choose the proven lower-yield varietal. Their risk appetite is proportional to their savings, if they have any. A catch-22.

For low wage workers in America, is it that much different? So many people stay in badly paying jobs because if they loose access to health insurance they could loose their home. Or get sued over a non-compete they cannot afford to fight.

Seems like below some threshold of wealth, supply and demand don't apply anymore. People are forced to choose the least risky option.

In addition to the modern US structural labor concerns sibling highlighted,

> the maximum wage the company is willing to pay

This is the primary method I was thinking of. A company/CEO has a variety of reasons for paying its labor more than the minimum (retention, moral belief, working next to colleagues, etc). Shareholders really only have executive comp (and its structure) to discourage CEOs from paying labor more than the minimum necessary.

Reply on news.ycombinator.com