More accurately, a tendency of Capitalism to undermine free markets
Well, sort of, yes. But it took something to get into the position in the first place.
How do they “appropriate” the money? Are you suggesting that the money was stolen?
Not according to the cite I provided earlier. AFAICT, most millionaires are small business owners who are successful.
Regards,
Shodan
By deciding to burden the company or organization with a huge salary expense way out of proportion with the interests of said organization and in violation of their fiduciary duty (etc.etc.). I fully realize that “stolen” is too strong a term for this situation. To “appropriate” (in the negative sense) sounds about right.
I hope you’re right. I’m clearly not enamored of Dick Grasso Syndrome. Eminem Effect and small business owners are OK. Slightly lower on the scale, but still mostly OK in my book, would be inherited wealth and the Warren Buffett Phenomenon.
I don’t have time to do more than dip a toe into this thread right now but do you have a cite that this is the norm in large corporation…i.e. that CEO’s are a ‘burden’ to their companies and are paided huge salaries ‘way out of proportion with the interests of said organization’? Because CEO’s salaries are part of market forces too…i.e. they are (mostly) paid exactly what they are worth to a corporation…just like janitors are (mostly) paid exactly what THEY are worth to a company or corporation. If they fail to justify that pay they are sacked. True, the sacking might go easier on the CEO (‘golden parachutes’ and all that) than the janitor…but there ARE reasons for that you know?
-XT
I didn’t say that CEO’s are a ‘burden’ (in the sense that we should get rid of CEOs altogether). I said that their salaries (and perks, combined) are out of proportion to their worth to the company, to the point of damaging the interests of the company.
OK, when looking at CEO compensation as a percentage of total expenses, that would be uncommon. Although I heard that this was in fact the case at the NYSE. It is certainly not unheard of, although these cases tend to border on fraud, e.g. in companies moving toward bankruptcy (this still supports my thesis).
What I was thinking of was e.g. the spat at Delta Airlines, where top management gave themselves giant raises and perks (including bankruptcy-proof pensions) while hardballing all other workers into painful concessions. And they had to keep it carefully secret, too. Until the day after the workers had agreed. Surprise! Ha-ha, fooled you! (I found an American Airlines cite but it stopped working. But surely you know these cases.)
I reject the argument that what they’re getting are fair market salaries - essentially saying, they’re worth it, because their cronies are letting them get away with it.
The reasons for their exorbitant salaries is that they are abusing the system, and the system is letting them. Why else do they go to great lengths to hide their salaries and perks, doing the bare minimum of disclosure that the regulations let them get away with, and always looking for loopholes and creative ways to circumvent disclosure and get extra hidden perks? If it were a free market, why would they have to do that?
Forgive me, but this is because you have a fundamental misunderstanding of what fair market means. It means simply that the employer and employee agree on the salary. In order that such a salary be “worth it” requires a level of rational behavior on both parties parts which can often be missing.
For balance, good news, too. Delta workers handed 10 percent pay cut… and…
So, do you conclude that the CEO is worth nothing to the company for the rest of the year?
Rhetorical question, of course. What’s happening is that the free market is starting to push back against the past excesses. Shareholders are starting to frown, too. Sometimes even winning votes against exec pay packages. I take this as further data in support of my thesis (of execs formerly getting paid beyond their free market worth).
Or, alternatively, perhaps they are worth it because they bring more money into the company? Or did that thought never occur to you. You can reject all you want but the bottom line…is the company profitable? If so then obviously the CEO’s salary is justified because the company is making money (or did you think companies made money by magic? This is a serious question…just how DO you think companies make money and are able to remain competetive in the future?)…i.e. I have no problem paying a CEO 10 million or even 100 million IF he/she is producing profits consumate with that level of salary. If not then the CEO is gone and someone else is brought in who can…and I’m willing to pay THAT person said salary instead.
Certainly there have been abuses…name a human endeavor where there AREN’T such abuses. However, the market will correct them (in this case)…i.e. if a top executive or staff is being paid ‘exorbitant salaries’ but isn’t producing then they will be sacked. Why would you think otherwise? It might not happen instantly, but if the company is a publicly traded company and is consistently showing a loss (or even showing below expected profits) then you will certainly see the axes being sharpened. Only in a communist (or other economically government controlled environments) set up could you have perennially incompetent managers who continue on year after year at the top spot reguardless of whether they make a profit or not…in a free market if you don’t produce you are gone, no matter what your cronies might wish or want.
Huh? HOW are they abusing the system?? These are public/private companies…there is no ‘system’ to abuse. They can pay anything they want to anyone they want with one proviso…that they MAKE MONEY. That the company is profitable. That the company is competetive. Why is that so hard to understand??
As to them disclosing their salaries why do you suppose they HAVE to do that (except to the stockholders perhaps who actually have some vested interest in it) any more than is strictly required??? Do you disclose YOUR salary information more than is required?? Again, the bottom line is…is the CEO productive? Is the company competetive? Is it making the expected profits? If the answers to these are yes, then thats all that matters as far as the CEO’s salary goes.
-XT
But again, this is a misunderstanding of the market. If I am willing to pay you $10 an hour today, but only willing to pay $20 tomorrow, which is the true market value? The answer, of course, is both. For their time. The point is that the market changes very rapidly. On the order of billions of times per second. This is the main reason that command economies are doomed to fail. They simply cannot keep up.
Actually, yes, because that is what they agreed on.
What would you call it, if the employer and employee “agree” on the salary - after heavy-handed pressure tactics bordering on intimidation by the prospective employee? Or if the employer holds an irrational (and incorrect) belief that there is a lack of other candidates? What if the employer fails to follow due process out of irrational stubbornness? What if the employee and employer are both secret former Skull&Bones-buddies and this unconsciously (ha!) influences the outcome? I’m just asking your opinion on terminology.
It did occur to me. I read the WSJ too, you know 
Besides, I use this argument against lefties when they rail to me about exorbitant (in these parts, that means about $80,000/yr) salaries. Call me a flip-flopper
Trying to pinpoint exactly where I am disagreeing with you.
(1)"I have no problem paying a CEO 10 million or even 100 million IF he/she is producing profits consumate with that level of salary. "
(2)“If not then the CEO is gone”
(3)“in a free market if you don’t produce you are gone”
No real disagreement there. My beef is precisely when this is not what’s happening. Although I imagine we are going to disagree on our interpretations as to whether or not, in any given case, that is in fact the case.
Secondary:
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if a company is producing $1bn profit, does that mean the CEO is producing $1bn profit?
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let’s assume that a CEO is producing $1bn profit. Does that mean he’s worth $500million salary? Suppose somebody else would produce $1bn profit but demand only $100million salary, wouldn’t you rather hire them? Assume that in this situation, the company hires the $500million guy. Seems to me he meets your formal criteria, but this isn’t the optimum outcome for the company. I would say, yes, the guy is profitable; no, the guy isn’t worth $500million.
If the tactics were illegal, then I’d call them illegal and prosecute the employer. If they were legal, then I’d say BFD, or the employee should look elsewhere or start his own business That last option, btw, is ALWAYS open to everyone.
I’d say “lucky employee”.
xt: They can pay anything they want to anyone they want with one proviso…that they MAKE MONEY. That the company is profitable. That the company is competetive.
pervert: f I am willing to pay you $10 an hour today, but only willing to pay $20 tomorrow, which is the true market value? The answer, of course, is both. For their time.
This sounds like a pretty naive view of markets, though. Just because a company chooses to pay a certain salary doesn’t necessarily mean that’s The Free Market At Work ™. Sometimes, on the contrary, it’s avoidance of market forces through anti-market influences such as cronyism and managerial power.
Recent economic research has begun to examine some of these issues beyond the naive level of “well-if-the-company’s-willing-to-pay-it-then-it-must-be-the-fair-market-price”:
Yep, good choice. Lucky we don’t have a free market, so we have that option.
Thanks, Kimstu, great post
Yeah. Free market = no government. I forgot. :rolleyes:
Did I mention what a great post that was by Kimstu?
Link to PDF file (100 pages, 776k) here
It’s all there. Those 100’s of familiar ways to “abuse the system”, plus 100’s more you never thought of.
Nope. Just no government intereference in the marketplace, which means no government interference in labor negotiations. But nice try at bullshitting your way out of that one. Really, very convincing strawman.
Sorry, but the straw is all on your side. I specidically spoke of actions that were ILLEGAL. Get it? Illegal means agains the law.
In a discussion about a free market, wherein those laws wouldn’t exist. Hence my comment that it’s lucky we don’t have a free market which would lead to the elimination of the laws underlying your course of action.
Get it? A free market is not regulated. You see, that’s what the free means. It doesn’t mean you are free, it means the market is free of interference from government. The laws you are talking about would not exist in a free market. Thus the actions would not be illegal. Thus your remedy would not exist.