CEO's pay -- 300 times regular folks'!

[Whack-a-Mole]

@Chronos

It certainly isn’t true that CEO compensation at large companies is proportional to their worth to the company. It might be correlated, but it isn’t proportional. If it were proportional, then a CEO who caused the company to lose money would also lose money. Not just get rich slower, but have to actually pay money back. If that were the case, if CEOs actually had a stake in the game, then I for one wouldn’t see any grounds to complain about how much they’re paid.

This is kind of the crux of it.

At the highest levels, the Jamie Dimon/Jon Corzine/Richard Fuld/etc, there is no accountability.

Sitting at the top should carry great risk and commensurately great rewards. These guys have offloaded all the risk but reap all the rewards.

As I mentioned before the fix is to sort out the incestuous boards of directors and to institute clawbacks.

Off the top of my head I am not sure what structure would be ideal to hire a BoD but pretty sure there are some ideas about how to improve corporate governance floating around.

For the latter part clawbacks help give CEOs that stake in the game. It is a proposal the Brits are seriously considering right now along with some other measures.

I doubt we will see it here though since this elite class has almost wholly captured our government and regulatory bodies.

[Whack-a-Mole]

@John_Mace

At this point I’m just going to bow out of this thread. I don’t see that people are interested in reasoned debate, but just want to score gotcha points and vent about evil CEOs. You’re not the worst offender, but yours is the last post I saw.

I responded to you point for point (or near enough) with citations making my case.

I have not made empty claims. I have backed them up and engaged in reasoned debate.

You are the one trying to hand wave it all away as a mere witch hunt. Probably because you’ve got nothing.

You are defending the indefensible and got called on it.

[Bone]

@John_Mace

Are you saying that no CEO is worth that? If not, why not?

@Whack-a-Mole

Yes I am.

I work in financial media and it is fascinating that when anything goes wrong at a company the problem is anything BUT the person at the top. If the company makes money then it is all because of their brilliant leadership and they earned every dime.

If we cloned Warren Buffet and populated the earth with him would they all be billionaires because they are all equally brilliant?

Can you pick the CEO of any company and say, if they quit the job tomorrow, that the company would falter? If yes then, maybe, they deserve their salary.

When you look how most of these companies make money it is in finance, inflating share prices through stock buybacks, mergers, layoffs and lobbying for protection. Rarely are they innovating and producing.

Disney recently fired a bunch of tech workers from their jobs, hired foreign workers and had the laid off workers train their replacements. They are using the H-1B visa program which allows foreign workers. Funny how congress ties itself in knot over immigration reform but this kind of immigrant worker is just peachy with them.

Yet Disney’s profits surged 22% in fiscal 2014.

So you assertion is that no CEO’s pay is worth 300x the lowest paid in the company. Do you think you’ve supported that claim? I don’t.

I think you have to define how you are determining worth. Some days, I think a Venti Mocha Frappachino is worth the $5 it costs. Other days I think it’s a rip off. What criteria do you use to determine if 300x is worth it or not?

You cite a Disney example, but then say that profits surged. Isn’t that a counterexample to the claim you’re making?

If some companies succeed like Apple, Google, or Facebook, why don’t all companies enjoy the same level of success? Do you think it has nothing to do with leadership? Could Microsoft have succeeded without Gates at the helm? It seems silly to think that if the CEO of every company left their position that no company would falter.

[DMC]

@Bone

If some companies succeed like Apple, Google, or Facebook, why don’t all companies enjoy the same level of success? Do you think it has nothing to do with leadership? Could Microsoft have succeeded without Gates at the helm? It seems silly to think that if the CEO of every company left their position that no company would falter.

I think the founder/CEO of successful companies is a completely different beast than the typical CEO who has little skin in the game. When nurturing your baby, long term success is far more important than what happens tomorrow. The typical hired CEO, on the other hand, is far more likely to focus on short term success, as that is far more likely to have a positive impact on his/her pocketbook.

As an example, back in the heavy stock option days, CEOs would typically reduce things such as R&D spending in years when their options vested.

[Bone]

Okay - but that wasn’t Whack’s assertion. He said no CEO is with 300x. None. Federal min wage is 7.25/hr. That puts the cap of any CEO whose company has federal min wage workers at just north of 4.5M. I’m looking to see how Whack support that claim.

[Starving_Artist]

@Little_Nemo

Honestly, that did appear to be what you were saying. Dibbs said CEOs and you answered Steve Jobs and said that ended the discussion. That does seem to imply that Jobs stands for all CEOs.

If you meant something else, I missed it.

Well, then, let me take a shot at it. Steve Jobs was a CEO whose tenure most people are familiar with and it’s obvious the success he achieved at Apple did not occur as the result of simply looking at data that had been collected by someone else while knocking down martinis and throwing dice.

So the answer to whether or not Steve Jobs can stand in for all CEOs is both yes and no. He was one of a kind in a great many ways, but he was like most high level CEOs in that he had to apply a great deal of effort, analysis, intelligence, intuition, experience, discipline, cunning, savvy and force of personality to run his company effectively. Not all CEOs possess all of these qualities, but I’d wager that all of those whose boards pay them tens of millions (let alone hundreds of millions) per year do, and so similar to Jobs they too do not earn their money simply by gazing at data compiled by someone else, downing martinis, and then tossing some dice and hoping for the best.

And finally, apart from their boards and their company’s shareholders, it isn’t anyone’s business how much a CEO gets paid. Their income isn’t depriving anyone of anything.

[Bricker]

@Dibbs

But the “factors” need to be scrutinized and then tossed. Can’t we all agree that the current system, if not seriously broken, is unfair to a huge number of hard-working people that are worthy of a larger slice of the pie?

No.

Unless you agree it’s “unfair,” that I never had a chance to play football for the NFL. I love football.

[Ruken]

@septimus

It is often proposed that salaries as a corporate income tax deduction be allowed only up to some per-individual threshold. To have bite, this approach would depend on a higher corporate tax rate.

Isn’t this already the case?

Instructions for Form 1125-E (10/2018) | Internal Revenue Service

[puddleglum]

@Ruken

Isn’t this already the case?
Instructions for Form 1125-E (10/2018) | Internal Revenue Service

This is one of the reasons stock options became a part of some executives compensation. What happened was some people were whining about how much CEOs get paid, so the government decided to make huge salaries not tax deductible. The competition for CEOs was still intense so companies started offering stock options. The stock market boomed and these options were worth much more than the salaries would have been. So by trying to limit how much CEOs were paid, congress passed laws that resulting in some CEOs getting paid much more than ever.

[puddleglum]

@Whack-a-Mole

This is kind of the crux of it.

At the highest levels, the Jamie Dimon/Jon Corzine/Richard Fuld/etc, there is no accountability.

Sitting at the top should carry great risk and commensurately great rewards. These guys have offloaded all the risk but reap all the rewards.

As I mentioned before the fix is to sort out the incestuous boards of directors and to institute clawbacks.

Off the top of my head I am not sure what structure would be ideal to hire a BoD but pretty sure there are some ideas about how to improve corporate governance floating around.

For the latter part clawbacks help give CEOs that stake in the game. It is a proposal the Brits are seriously considering right now along with some other measures.

I doubt we will see it here though since this elite class has almost wholly captured our government and regulatory bodies.

Here is a sports analogy because the outcomes are much more clear cut than the business world. Lebron James is a free agent this year, one team offers him 50 million dollars if the team wins the championship and 10 million dollars if they do not. The other team’s owner wants him to have “stake in the game” and their offer is 50 million dollars if the team wins the championship and if they do not win the championship they will pay him nothing. Which team should he sign with? If he has a brain in his head he will take the first offer. Which means in order to sign him the second team will have to offer him 75 million if they want to sign him over the first team.
The same would be true for executives, if the market is competitive then companies will have to offer a higher incentive package in exchange for not offering a downside guarantee. This will serve to funnel more money to executives, not less.

[Amateur_Barbarian]

@Bone

Okay - but that wasn’t Whack’s assertion. He said no CEO is with 300x. None. Federal min wage is 7.25/hr. That puts the cap of any CEO whose company has federal min wage workers at just north of 4.5M. I’m looking to see how Whack support that claim.

Just a point of sensibility - there probably isn’t a company on earth that doesn’t have an absolute bottom tier of employees making minimum or close to it. I don’t think it’s reasonable to find the lowest-paid employees and use them for comparison.

Something like the modal pay rate - which for something like Walmart, might indeed be close to that minimum - or the average pay of all employees up to the supervisory level might make a more sensible comparison.

Unless, of course, the intent is to go for pure shock value numbers, in which case don’t forget the “interns” in the graphics department.

[Mr_Smashy]

@DMC

The bulk of their pay doesn’t come from stock options. Additionally, the correlation between compensation and stock returns is almost non-existent.

Other than your entire post, everything else you claimed is of course spot on.

Oooh, snark-boy is IN DA HOUSE!

Seriously, should read your links. yes the fact that options have gone from 78% to 25% usage over the last couple of decades means that options themselves are in decline, but when comp is replaced by restricted stock instead, the effect is the same.

The money comes from the balance sheet not the income statement. Meaning that it doesn’t affect the OP’s salary at all.

[Little_Nemo]

@Bone

FWIW, what John is saying is pretty clear to me and it seems like you’d have to purposley misunderstand to not get it, but I take you at face value that you are interpreting it in the way you say.

Dibbs made an outlandish comment about what CEOs do, John responded by asking if Dibbs thought Jobs did that too. If he thought that, then John could reasonably conclude that Dibbs wasn’t prepared to have a discussion at the level John is accustomed (John works in Silicon Valley dontchaknow). This doesn’t mean Jobs is a typical CEO - this is later reinforced since John exhalted the skills of Jobs to save Apple and stated that very few people could have done what he did.

That is why it’s odd that you would infer John believes that Jobs was typical. It’s not a reasonable interpretation of John’s statements. That’s why he responded so incredulously - because in his mind - and mine btw - your inference is absurd.

I’m not John, but that’s my take. Like I said, I take you at face value.

I’m not disputing that what John said is factually correct. It was. It was actually more factually correct than what Dibbs had said.

I was responding to what John said as a response to Dibbs’ post however. And as a response, I felt John’s post was poor.

Here is the line of argument that was presented:

Dibbs: This is the behavior of a typical CEO.
John: Steve Jobs doesn’t behave that way.
Nemo: Steve Jobs is not a typical CEO.

I suppose one could say that Dibbs had made a blanket statement and all John had to do to disprove it was offer a single counter-example. But I disagree that this is the case. If it is, then the following equivalent argument is equally valid:

CEOs make high salaries because they increase their company’s profits.
Jon Corzine made a high salary after his company went bankrupt.

But I think that both of these arguments are weak. You cannot counter an argument about the behavior of CEOs in general but citing a single example of what one atypical CEO like Jobs or Corzine did.

My apologies if it seems I am belaboring the point. But as I raised the issue of miscommunication, I want to make sure my intent was clear.

[Bone]

@Amateur_Barbarian

Just a point of sensibility - there probably isn’t a company on earth that doesn’t have an absolute bottom tier of employees making minimum or close to it. I don’t think it’s reasonable to find the lowest-paid employees and use them for comparison.

Something like the modal pay rate - which for something like Walmart, might indeed be close to that minimum - or the average pay of all employees up to the supervisory level might make a more sensible comparison.

Unless, of course, the intent is to go for pure shock value numbers, in which case don’t forget the “interns” in the graphics department.

I’m actually not sure what the baseline comparison figure is in this comic book hypothetical. Minimum wage at $7.25 yields $15K/year working 2080 hours. If you escalate that to the average wage, which I think is about $27K/year, then using the 300x multiplier then the maximum CEO pay would be about $8.1M. Yes, $8.1M is significantly higher than $4.5M, but with respect to large companies, it’s almost a rounding difference. The point I was making is unchanged - Whack is saying that that rate is higher than ANY CEO is worth.

[Bone]

@Little_Nemo

I’m not disputing that what John said is factually correct. It was. It was actually more factually correct than what Dibbs had said.

I was responding to what John said as a response to Dibbs’ post however. And as a response, I felt John’s post was poor.

Here is the line of argument that was presented:

Dibbs: This is the behavior of a typical CEO.
John: Steve Jobs doesn’t behave that way.
Nemo: Steve Jobs is not a typical CEO.

You’re adding meaning/nuance to Dibbs’s post, interpreting it charitably, and scrutinizing John’s post, interpreting in negatively, IMO.

**Dibbs **said, “But isn’t it true that CEOs merely get data from someone that collected it and then, after pondering it (with a couple of martinis in the belly), they throoow the dice?”

He’s not talking about typical CEOs, if such a thing exists. He’s talking about all of them. It is true that all John has to do is offer one counter example and Dibbs’s point is undone. And while other arguments could have been made, they were not. In judging the quality of posts, you are giving more credibility to the person who thinks CEOs are some fat cat group of mustache twirling martini drinking evil doers whose first order of business is to screw over janitors, over the person who consistently demonstrates reasoned approaches to any multitude of issues, and has presented real world examples to illustrate the point being made. It’s your assessment to make, I just think it’s lopsided.

[Amateur_Barbarian]

@Bone

The point I was making is unchanged - Whack is saying that that rate is higher than ANY CEO is worth.

I wouldn’t disagree either way. My concern, as it is so often, is that the whole argument proceeds on data and assumptions that are close to nonsense.

The very real, conservative, grounded facts are disturbing enough. Using every trick to multiply the factors and exaggerate the differences is… well, just waving bloody economic shirt, IMVHO. Unless your intent is immediate, mindless mob revolution, it’s counterproductive to both sides.

Carry on.

[Shalmanese]

@Little_Nemo

CEOs make high salaries because they increase their company’s profits.
Jon Corzine made a high salary after his company went bankrupt.

But I think that both of these arguments are weak. You cannot counter an argument about the behavior of CEOs in general but citing a single example of what one atypical CEO like Jobs or Corzine did.

I think this largely comes down to the mismatch between what the general public thinks a CEO is promising and what a CEO is actually promising to a hiring board. No CEO believes they can completely insulate a company from risk or guarantee they won’t lose money, the same way that no poker player, no matter how talented can promise they will win a tournament. So when they fail at doing so, it’s not viewed as a bad thing because it was an expected possible outcome.

Being a CEO necessarily involves taking on big, bold risks where nobody knows the results ahead of time. We forget the times where the CEO is successful because all of those risks now look obvious in hindsight but we remember when the CEO fails because we can Monday morning quarterback all we want about how they failed to account for X factor.

What CEOs promise is that, on average, they will do better than the next best candidate at the job in some slight way. But expecting a failure rate of 0 from a CEO is unrealistic and also counter-productive because it doesn’t give CEOs the freedom to make those bold leaps.

[Algher]

@septimus

It is often proposed that salaries as a corporate income tax deduction be allowed only up to some per-individual threshold. To have bite, this approach would depend on a higher corporate tax rate.

That already exists. In 1993 the US capped the tax deduction on salaries at $1 million. Now, the deduction cap only applied to SALARY. Anything that was pay-for-performance was still a deduction after all. So this triggered a great explosion in the profession of compensation consulting (Hay Group, Towers Perrin, Watson Wyatt, Sibson & Co and many others).

Salary - the cash you get for fogging a mirror
Cash bonus - write some sort of a plan that pays a bonus based on a variety of measurable factors.
LTIP - Long Term Incentive Plan. This is the 3 year cash plan based on hitting longer run targets such as market share, ROA, ROI, gross profit or net income measures.

Now those were all nice, but more companies started playing with stock:
Options - the right to purchase at a certain price. If the stock goes up, the different between the strike price and today’s price is the money you make. This means if the stock price does not go up, you make nothing. The problem is that if your price goes up, but at a lower rate than your peers, you STILL make money. It was pay for performance, but the rising tide would still lift all boats.
Restricted Stock - worse than options in my opinion. That has value even if the price goes DOWN.

Options and Restricted stock both have a vesting schedule. Typically 25% after the first year, then month to month after that until you are fully vested after 4 years. For a long time, putting in performance based vesting was a BAD tax decision for companies - having performance based vesting triggered a negative tax impact on the company. That has changed with recent reforms that forced companies to deduct all shares granted. Sadly, that law made it more expensive for companies to be able to grant options to the lower levels.

Finally, the other big shift in executive compensation came with the requirement to more clearly state what the executives make in the proxy / def14A SEC filing. Also in the early 90s, companies had to post the information in an easy to ready table. That made it easier for those compensation consultants to tell execs how their pay compared to their peer CEOs. That created a comparison game, which does not exist at the lower levels. Most people don’t know what their peers make - whereas a CEO and the rest of the top 5 officers can look up and do their own peer comparison, and they want to be treated the same.

The big jump in exec comp has been stock based compensation.

Is Bob Iger worth his pay at Disney?
http://secfilings.nyse.com/filing.php?doc=1&attach=ON&ipage=10003873&rid=23#comptab

He did not create Disney, but his decisions to buy Marvel and Lucas certainly are helping the top and bottom lines, plus their share price. As a shareholder, are you happy to pay him $46 million annually Realize that Disney’s Total Return to shareholders has been double that of peer companies:

http://secfilings.nyse.com/filing.php?doc=1&attach=ON&ipage=10059801&rid=23

[Dibbs]

@Bone

This is cartoon land. You were a janitor. The company decided your services weren’t worth what they were paying. You got fired. It’s unfortunate on a personal level, but your assessment of the skill set and motivations of various CEOs is laughably bad. The world that you describe is the one where your assessments are reasonable. In reality, your assessments are very poor.

Perhaps you have the shoe on the wrong foot. Your tactic of trying to throw the whole kitchen sink at me in order to cover up the fact that you dropped the ball with your unfounded claim is counterproductive, as my spot-on comments pertaining to the issue at hand simply don’t equate to me “describing the world.”

Your last two sentences have given me brain cramps, thanks.:smack:

[Bone]

@Dibbs

Perhaps you have the shoe on the wrong foot. Your tactic of trying to throw the whole kitchen sink at me in order to cover up the fact that you dropped the ball with your unfounded claim is counterproductive, as my spot-on comments pertaining to the issue at hand simply don’t equate to me “describing the world.”

Your last two sentences have given me brain cramps, thanks.:smack:

Cool story, bro. Good luck tilting at those windmills.