I’ve answered the question(s) more than once; if you are unwilling or unable to comprehend the answers, I refer you to H.L. Mencken.
“Mutually beneficial” is so vague as to be meaningless, though. Any non-violent human interaction short of slavery is mutually beneficial (and some jokers would even argue that slavery is/was since it involves room, board and the Uplifting Proximity of Proper Civilization :rolleyes:).
It’s also, which your comment implies, subject to more than the evaluation of the two “mutually benefited” parties, which some here seem to utterly dismiss.
If I sell you a fine, strong young slave buck with years of hard labor in him for CSA$200, and I only have CSA$25 invested in him, we’re likely to walk away from our ‘voluntary exchange’ feeling pretty damn mutually benefited. Good thing that entire transaction begins and ends with us, neh?
It goes beyond that. The Ultimatum game shows that we are hard-wired to not accept the mathematical meaning of mutually beneficial. That game has no outside third party, but it has an internal third party, our sense of fairness.
To put it in concrete terms, that’s why it is somewhat inhuman to say that we should have no minimum wage, because even if people are forced to work for only a dollar an hour because of the race to the bottom, it is okay since they are still benefiting.
CEO Dan Price is one GREAT Man – AND HE BUILT HIS COMPANY (NOT a walk-in CEO)!!!
This sounds backwards. If management’s interests are aligned with stockholders over workers, then they may manipulate stock prices at the expense of what’s good for the company and workers over the longer term.
The game shows that our sense of fairness can be irrational to the point of self-harm. Although hardly always. It’s variable; for example, the irrational behavior of rejecting the perceived unfair distribution is more prevalent in brain-damaged subjects (10.1523/JNEUROSCI.4606-06.2007).
While the game has no external third party, there is a an external third party in the case of the company and the plumber and the CEO as presented by the OP. Both workers are trading with the owners, separately and willingly, to their own benefit, and to the owners’ benefit. But it’s the knowledge of the third party that leads to the sense of unfairness.
They of course are not trading the same goods. One service is not the same as another, as much as buying a diamond is not the same as buying graphite. The buyer values the product differently.
I would call the *result *inhumane rather than the practice. The wealthy unemployed spouse who volunteers his time would be fine making $1/hour for that same time. The 25 year old single father of 4 is still going to be fucked at $7.25/hr. I see a minimum wage as a means of realizing some social outcome. Assuming we could agree on what that outcome is, it’s probably an imperfect means of realizing it. It’s not the only way to do it, but I’ve not seen a convincing analysis that some other method is better. It’s certainly worth discussing.
If you’re tired of the OP’s debate here, you might wish to see his melt-down in progress over in The BBQ Pit.
Well shit. I was going to hijack this into an aid policy discussion. Maybe I should just go read the guaranteed minimum income thread, which I keep forgetting to do.
My point was, when a CEO is hired, the board is the entity who decides on who they hire, and the compensation that’s offered. If they make it ludicrous, you can’t really blame the CEO for that.
And I realize nothing’s certain, but for the vast majority of workers, the expectations and success criteria are relatively well defined, and within the ability of the worker to materially influence one way or the other. For CEOs, the emphasis on stock price instead of things that are less loosey-goosey, like say profitability, or cash flow, or the like, means that they’re in an inherently less stable position than say your average worker-bee.
Now where I have a problem with all the CEO stuff is the idea in the business world that once you’re an executive, you’re always an executive, and that no matter how incompetent you may prove, someone will always hire you or appoint you to their boards of directors, it seems. It’s doubly perplexing for public company CEOs where your poor performance is hanging out for everyone to see.
It’s almost like if you get to that level, they put you out to pasture as a board member for a couple of boards and you get a nice cushy salary and no real responsibility.
First, I apologize for all the typos in the post you responded to.
You are correct for the few new CEOs. But most CEOs have been in office for a while, and after their initial pay package the raises that they get they do have something to do with. New CEO pay is clearly set to be competitive with existing CEO pay, so them getting raises increases initial pay also.
For normal people in my field, which is decently paid, new hires get competitive salaries, which in good times go up very quickly. However the salaries of current workers go up nowhere near as fast. That’s because they have no influence in the setting of salaries, unlike CEOs. If they did, raise budgets would get bigger.
True, mostly, for raises and promotions and not screwing up so badly that you get fired. But if you are working on a big project which gets canceled, it is very unlikely that good work will save you. Doubly true for factory workers. One or two superstars might get saved, but that is rare.
That Carly has never had a real job since she got booted at HP pretty much says it all. She’s the exception which proves the rule.
As has been mentioned boards of directors tend to be an incestuous bunch and often the CEOs have them under control instead of the other way around.
I have a hard time blaming someone for maximizing their own earnings, as long as they’re not explicitly fucking someone else over in the process.
However, I don’t have a problem blaming boards of directors for not keeping a tighter lid on this shit.
I think it’s a bigger issue in the business world than just CEOs. There seems to be a certain degree of once someone has a job title, they’re forever-more getting jobs at that level, and worse, a lot of the time if you don’t already HAVE some job title, it’s unlikely that you’ll get a promotion as part of a job move.
So if someone’s an executive, they’re kind of always an executive, regardless of how clueless they may be. I can think of two douchey knuckleheads who looked and sounded the part at my company, but flat-out didn’t actually understand our business and what it was that we were being paid for. They thought we were being paid to provide medical care. In reality, we were being paid to provide medical care that saved our clients money through lower insurance costs and better employee health overall. Our deliverables weren’t successful office visits and prescriptions, but rather the suite of reports that we sent the client each quarter.
These dumb-shits didn’t get that, and it’s what eventually got them fired. What floors me is that some other companies hired these boneheads with the same freaking titles that they already had. So rather than have these fuckers get a de-facto demotion and go back to middle management, and let some other people have a shot, they remain executives and continue to fuck stuff up.
Similar stuff happens with people labeled “managers”- rarely do they revert back to being analysts or technicians or developers, no matter how good they may be at that, and shitty at being a manager.
It’s that same incestuous thing, but it extends lower than just CEOs and boards of directors.
I have trouble imaging a corporate director maximizing his/the company’s/the management pyramidion’s earnings without fucking pretty much everyone below. Even the most “ethical” companies rely on fostered extraction of wealth that is very unlikely to be 100% beneficial to those doing the extracting or being extracted from.
The truly ethical thing would be to accept far lower company profits to provide the product, service or commodity at lower price. But all the Econ majors’ heads just exploded, so I’ll stop there.
A businessman of my acquaintance maximized his business’ profits by relocating from a high-crime part of town to another part where crime was much lower. Partially as a result, the business expanded, and he wound up more than tripling the number of people he employed.
Could you explain briefly how that was fucking over everyone below him in the company?
Regards,
Shodan
Because it’s as irrelevant as most of your posts. How your uncle the flower seller treats his customers has nothing to do with a structure where five or six old and probably white guys get wealthier by eight figures a year from ten million customers.
To start with, a business small enough for the owner to know everyone’s name operates at a completely different set of levels from a corp or megacorp where a board director might not even be able to list all the component companies. (F’rex, oh-so-ethical Apple’s profits absolutely depend on something pretty close to third world slave labor, no matter how much they tidied up the FoxConn situation.)
And if you want something at that scale - how about the idea that there is an ethical cap on profits and just because people *will *pay some amount that multiplies the owner’s profit doesn’t mean his foreskin doesn’t stink.
Did you have any substantive response? You claimed that corporate decisions necessarily fucked over everyone below. I gave a quick counter-example. What does the race of the corporate officers or the number of customers have to do with it?
Please explain how corporate expansion necessarily fucks over everyone in a company except the CEO.
Regards,
Shodan
Sorry, this is going to be a long post.
There are a lot of things to consider here, but it seems to me there are too many generalizations, assumptions or impositions being thrown around here.
Let’s start off with the basics:
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CEO pay is not 300:1. It is about 5:1 on average in the US.
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The 300:1 ratio comes from the top ~300 firms in the S&P 500. Do you think…maybe…that’s why they are paid so much? Because they actually run very large and very successful firms in the first place?
I.e., this is in essence reverse causality. -
The arguments about " I don’t think CEOs should be paid this much", or “I don’t think they create so much value” are ultimately irrelevant. Your opinion doesn’t matter because you’re not the one paying them out of your pocket. And you don’t know what the BOD and shareholders of the company know. Hence, it’s like me saying “I don’t think you should be paid that much. You ain’t all that you know!”
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Even if you got rid of every CEO’s pay and gave it to the “workers”, you’d get virtually nothing out of it. Lets look at Boeing, for example. $11 million + per year compensation for the CEO. If that $11 million were “redistributed” among the employees, each one would get 3 cents raise per hour. What cost do you think that will impose on the firm, on the flip side, if good CEOs than say “screw this, I ain’t working for free”? Probably more than 3 cents per hour.
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CEO pay, like everyone else’s pay…is a function of the supply and demand in the labor market. How many people are there that can do the sort of work, that have the experience, that have the ability to shoulder that much risk? How many people are demanded by the market for it?
Hell! There’s soccer players out there making more money. And for the same reasons.
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CEO pay doesn’t impact workers. CEO pay is mostly in stock option. So they are paid directly in the value they create for shareholders, out of shareholder’s pockets. Not employees.
Now to the more technical stuff… -
CEOs are hired for a number of reasons. Trying to argue that “new CEOs” aren’t as valuable than “founders” or whatever is pointless. A CEO is hired for a reason.
The reasons can range from the firm being in a different life-cycle stage than the current CEO is capable of handling, to wanting to implement a strategic shift which the current CEO might not be able to do, to turning a poor performing firm around etc.
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CEOs therefore specialize, to some degree, on having experience and capabilities on particular firm life-cycles. Some CEOs specialize in “turn-arounds”, and hence jump from firm to firm when they are needed to turn something around. Others specialize in growth. Others specialize in a particular strategy. Etc. These are the sort of CEOs that move around a lot, and firms only need them for a particular task. Obviously, this isn’t the majority of CEOs. But for these, track-record matters. Because they won’t get hired again elsewhere if they don’t have the track-record.
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Comparing the performance of the firm with the CEO’s pay is misleading. The airplane analogy is good here:
You can be a good airplane with tail wind (i.e. the industry your firm is in is also doing good).
You can be a bad airplane with tail wind (in which case the firm can still do well, even if the CEO is pretty poor)
Or you can be a good airplane with head wind (in which case the firm can do poorly, but not because of the CEO. And with a worst CEO, it could have done even worst).
Or you can be a bad airplane with headwind.
Saying the firm did badly and yet the CEO got compensated a lot, may simply reflect how the BOD and shareholders view the performance of the CEO compared to a next best case scenario…which could be even worst.
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Obviously there’s also quite a bit of ex-ante contracts which allow even bad CEOs to get paid a lot, despite performing poorly. But that’s the price the shareholders have to pay for getting someone in that position in the first place. I.e., given the very big uncertainty of how the firm will perform, a CEO knowing that their tenure in the firm is already pretty likely to be low (most CEOs don’t last past 5 years), then the only way for anyone to agree to take that job is if they are given an ex-ante guarantee at a certain compensation, before the results are delivered. I.e., it’s risk premium.
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CEO risk-bearing, however, has been increasing consistently over the last few decades precisely because shareholders are putting more pressure on CEO to perform. And this is due to factors such as higher % of institutional ownership in firms, so you get more consolidated shareholder pressures, and more powerful shareholders which can easily fire you. Knowing that lots of things are in fact outside of your control (industry and economic factors for example), and being asked to carry more firm idiosyncratic risk, means CEOs also want more ex-ante guarantees of compensation for even taking the job. Would you take a job that had a huge uncertainty, without some guarantee? Nope.
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So are CEOs paid “too much”? No, because that’s not what the actual people who pay them, are saying. Since they keep paying them as much, and increasingly so. Because finding good people to take these jobs…is worth the relatively small pay they get compared to the importance of getting a “good airplane”.
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Someone here said that CEOs don’t really do that much anyway, because they don’t know how to design a fuel injection system in a car, so who needs them anyway? Well, a CEO doesn’t know how to do that. Correct. But does Ford compete on the features on its car? Is that all it takes? Who decides…WHAT markets to go into…WHAT products to do…WHO to sell to? I.e., who determines the strategy for Ford? Not the engineer designing the fuel injection system.
What creates more competitive advantage for a firm? The fuel injection system in its cars, or the actual strategy it uses to compete? At the end of the day, the fuel injection system is a function of the strategy chosen. So that answers that question. Now you can say, well the CEO just collects the info someone else gave them and then just picks a decision. Well, how easy is it to make a decision on conflicting info, figuring out if its good info, and then bearing the risk of that outcome? The strategy analyst isn’t going to get fired if the strategy chosen didn’t work out. The CEO will be.
The difference being that there are millions of engineers who can design a fuel injection system. There’s only 5 guys/gals in the world that have the experience to run Ford. So which one are you going to be a lot more worried about picking the right person, if you’re a $200 billion company (like one of those top 300 S&P 500 firms)? And what’s the cost of you paying that person $10 million (out of shareholder’s pockets), if the decisions they make can mean the difference between multiple billions per year?
Wow. We don’t often have major investment firms drop in to explain the facts of Wall Street life to us. And if this were Econ 101, or pretty much any econ think tank in the US, we’d be awed by the degree of mastery of standard economic principles and practices. Which, by and large, could be retitled “Catechism of the Wealthy and Powerful and How They Can Stay That Way.”
Thanks, though.
I’ve given substantive responses, in this thread and others, and I’ve poked holes in your vaporous constructions, and asked some pointed questions you ignore or brush aside.
This is “Great Debates,” where the adults wrassle out the big questions. It is not “High School Debate,” where the aim is to keep dodging points while finding the weakest point in an opponent’s argument and hammering on it until the judges give you the victory. The latter pretty much sums up the bulk of your posts, and it’s a tiresome game even in shorter durations.
You want to “win”? Fine, you’ve “won.” Here’s the trophy. Treasure it. Og knows you’re earned it.
Oh, your answer, for the Bonus Round: If you truly can’t imagine how wealth builds at the top, among those who get to set the rules within a company and most often do so with a weather eye on their own holdings, and that this accumulation of wealth among the few who do little except make serious faces at each other has to come at the expense of pretty much everyone below them - down to the consumers - then I have to come away with the conclusion that you got an A in Econ but have never taken that knowledge out into the real world.
I don’t argue Econ 101 or economic theory in a vacuum, because like all theories outside the hard sciences and nearly all teaching outside the ivy, they are only “true” as far as they go… which in the case of econ, is not nearly as far as its self-satisfied proponents think. I work from observing the real world - what I can of it - and analyzing it as it exists, not as some Econ maven thinks it should.
So can you construct a theoretical company that nonfucks everyone down to the guy who throws away the wrappers after a consumer drops them? Sure. It’s easy at the high school debate level.
Can you find a company of any particular scale - say, 100 employees or more - whose profits don’t come from fucking some level of participants, probably a plurality of them on multiple levels? I’d be against it. In part because I don’t accept the generalities of economic dialectic, such as the workforce that has to put in a bunch of overtime to meet shipping deadlines (created by the upper structure) being nonfucked because they get paid overtime. Not everything - even, and maybe especially in economics - is about money.