My gut feeling is that we can trust the Bureau of Labor Statistics to take care of that sort of thing even if the blurb on InfoPlease.com didn’t reproduce the exact data/methodology. Source data may take some more digging. I found all kinds of stuff from earlier years(like pervert’s cite) but current first-tier source material was harder to find. I’ve only had a few minutes today to hit the SDMB and I don’t see that improving in the near future(baby due in three weeks, tons of stuff to take care of in the office and home before that time). Still I’ll re-visit this thread when I get a chance as well as get into some more analysis of risk/reward scenarios in another thread pervert and I were both in.
After all that on teachers, consider this: librarianship, another female profession, and one that (unlike teaching) requires a masters’ degree, pays on average (according to an ALA committee for pay raises) 12% less than teaching. Think about that.
Oh, and we work 40 hour weeks and don’t get the summer off. We have a bad habit of working for free or for little because we think it’s important, though. Nasty thing, that altruism.
I have to disagree with this statement. I think the primary task of a CEO (and the rest of the exec team) is to cultivate, build, and maintain business relationships - whether those relationships are with customers, partners, vendors, aquistion targets, or aquistion sources. In fact, a fundamental asset that an exec has is the contacts and relationships he adds to the company. For example, when a company hires an executive VP of Latin American sales, the candidate needs to have tons of contacts with companies in South and Central America.
True, a CEO does have to persuade analysts and the market in general that the company is on the right track, but I don’t think this is his primary task.
And finally, these statements are IMO, but I think that is fair since most of the responses have been IMO.
Forgive my intrusion, CaveMike but it seems to me you listed several ways in which a CEO is the face of his company. I don’t think that msmith537 meant that they only appear on TV.
But in the real world, there’s hardly any such thing as a “free market” that’s “free from outside intervention”. (As others have pointed out, for example, having CEO compensation determined by a board of directors picked by the CEO in question is hardly an instance of free-market price-setting.)
Lots of salary markets, not only government “monopolies”, are distorted by similar market failures. Many libertarians and other market advocates don’t realize it, but almost all real-world markets are riddled with distortions and inefficiencies; they can’t be counted on to operate in accordance with simplistic supply-and-demand models.
Ok, this has gone on long enough. This allegation is not an example of a market failure. If the CEO selects a board, it is because he controls a majority of the stock in that corporation. That is, the owners select the Board and the CEO. If the CEO happens to be a majority stockholder, it changes nothing about the nature or effectiveness of the free market.
The fact of the matter is that the vast majority of corporations are, in fact, controlled by the owners of that corporation. There may be problems with our current crop of corporate CEOs, but the idea that there is an insestuous relationship between CEOs and Boards of directors, and that this represents a failing of capitalism is not credible.
I don’t see how the free market, in the case of setting executive salary, can fail to be distorted by conflicts of interest such as members of executive compensation committees being influenced by their relationship to the CEOs whose salary they’re setting. As this article notes:
Now, how is that not an example of distorting the market in executive compensation?
Hmm, the notorious “few bad apples” theory?
Cite? Quite a few respected economists and business analysts seem to think otherwise, as the above link indicates.
Because the actors and the actees are both investors in the company. Again, the CEO is the board’s choice. As is his compensation package. Meanwhile, the board is the choice of the shareholders.
No, that is not what I meant. There are structural problems with the corporate culture of the last couple decades. But they are cultural or fashioable aberations. Not systematic failures of capitalism. Specifically, they are failures of the ability of boards and shareholders to measure CEO productivity in ways which are always in line with shareholder interests. Also, they are failures of the system to adjust to the current culture of mobile CEOs. Not that the system cannot or will not adjust, just that it has not done so completely yet. There are similar problems in many other fields.
Actually I don’t think it does.
That is, the CEO packages will have to become more sophisticated so that they can be tied more directly to shareholder interests. Hardly a repudiation of capitalism.
Look. We may be talking at cross purposes. The fact that the market does not in each and every case allot exactly the correct amount of resources to a given operation, is not an example of a market failure. Indeed, even large numbers of such misallocation might not be an example of such a failure. A market failure is when the market forces by thier nature cannot allocate the appropriate resources to a given type of operation. The problem of polution may be such a case. Inequality in CEO compensation is not. Can you find a cite where a respected economist sugests that CEO compensation are market failures?
No, it’s not a market failure (and I see where I did mistakenly suggest that in my first post, sorry), but it definitely seems to be a distortion of the operation of the market.
Who has suggested that these problems require, or are producing, any “repudiation of capitalism”? Not me. All I was doing was pointing out to Bone that his categorical, sketchy description of how free markets work to set salaries doesn’t apply very closely to markets in the real world, and using the example of rent-seeking CEOs to illustrate that.
Well I’ll certainly entertain the idea when someone comes up with proof of that methodology, but I wouldn’t assume anything. I’ve seen far too many bogus studies with poor methodology to ever just assume they did it right. I’m not saying the data wasn’t normalized, but I certainly wouldn’t just assume it was. And actually, pervert’s link suggests that the wage gap is attributable to these factors, although it’s written in a rather confusing way, so I’m not sure.
This time, I lumped you in with a few other posters and over reacted to the phrase market failure. My appologies.
For the record, I agree that there is a problem with CEO compensation packages. I feel that the primary problem has more to do with short term thinking on the parts of CEOs, Boards of directors, coupled with a disassociation of shareholders from the running of many companies. What I mean by this is that many stockholders of public companies are speculators and do not partake in the day to day management of the company. Even at the level that they are allowed/supposed to.
This problem, I think can also be explained partly by the some of the changes happening in the world economy. These sorts of pressures are laid out in the article you linked to. The problem of how to link compensation to shareholder value or even better Return on Investment is a very complicated problem. I am more familiar with it from the point of view of software engineering management. That is, how do you measure the amount of value created by a particular amount of work done by a particular programmer. It is a difficult problem. Given that lots of lines of code can be written which do not produce many functional features, we cannot reliably use the lines of code measure. Every measure so far devised has similar problems.
They all fail to achieve the basic goal of linking worker effort to stockholder value. The methods devised to measure CEO performance have similar, although vastly more complicated, problems. Many of the solutions which have been tried have proved inadequate. As long as we don’t get overly excited and start legislating the sorts of compensation packages allowed, it will all work out in the wash. So to speak.
I guess this is why I over react to the use of market failure in relation to this problem. It starts me panicing about the possibilities of government corrections. Again, my appologies if I misconstrued your comments.
I have my own list of overpaid and underpaid, but it is not important, but the concept behind it is.
When the free market is interfered with overpayment or underpayment can result. Gov’t is a big interference in the free market system. Also high barriors to entry into a market can create over/underpay.
But the free market system is not w/o it’s own problems. At the high end you have natural monolopies which can control pricing. Also you have the same things with cartels (illegal inside the US, but internationally OK), which act as a monolopy. At the low end you have trade guilds (unions) which also raise prices as it prevents others from entering that trade, creating a overpayment situation by limiting supply.
I would cite athletes in major league sports and actors in hit television shows as being overpaid. The reason is a widespread, basic dishonesty when it comes to contracts that greatly favors players.
A player signs a long-term contract for a moderate wage, then goes on to have an outstanding year, let’s say a rookie basball player signs a five year contract, then hits .350. Does the player honor the contract? Of course not, the player “renegotiates” his contract, which is code for he refusing to play rather than do what you agreed to do. This routinely results in another long-term contract at a much higher salary. Let’s say the player then returns to mediocrity. Does his contract get renegotiated? Nope, he continues to collect an inflated salary based on one good year.
This also has the effect of pushing overall salaries higher much faster than they otherwise would go. If Bob Smith is making 10 million a year and hitting .275, then Tim Jones can argue that his .275 average is worth 10 million a year based on complarison with Bob, despite Bob’s salary actually having resulted from his .300 season three years ago.
In certain areas at the top of the entertainment industry, the same basic dishonesty by the talent causes a very few to get inordinately high salaries. An actor whose first year television show is a hit knows he doesn’t have to honor the five-year contract he signed, and he’ll be getting a big raise. But that salary won’t be coming down commenserately with the ratings if the show doesn’t keep its big ratings.
We don’t live in an economy. We live in a society. People aren’t rational. Markets aren’t perfect.
You are assuming perfect market conditions, conditions that bear little similarity to the setup of the education system and that are far from desirable for an education system.
Firstly - and while this probably does not have much of an impact on teacher salaries, it should still be pointed out - a true free market relies on uninihibited access. In real life, this is just not going to happen. If a high school in Milwaukee decides that it will attract the best teachers in the country by paying all teachers $300 000 a year, and hence become the best high school in the country, there is no way it is going to attract very many students from Florida, no matter how poor the schools in Florida may be. Indeed, most students wouldn’t cross to the other side of a city to go to school.
Secondly, there is an important difference between a school and an ordinary business. Most of the time, a business will gain its income from its customers. A school, however, will quite often receive its income from people who aren’t customers, and many of its customers will be people who do not provide the school with income. This is because schools receive there revenue from taxes, rather than fees. Many of the people who pay taxes but aren’t customers of the school do not feel great pressure to improve the school they are funding, because the positive effects of universal education tend to be long term. People tend to focus on the immediate.
Of course, the solution to this would be to privatize all education, subjecting it to market forces. This, I’m sure, would be a libertarian’s wet dream, but it isn’t practical. Most libertarian wet dreams aren’t. It would create the circumstance where a quality education was available only to those who could pay for it (though this already happens to some extent), which is hardly just, and would deny society the potential benefits of a universal education system. Remember, I’ve already explained that “a society benefits from an educated workforce; if there are substandard teachers, the next generation will have less highly educated people, which would negatively affect a nation’s economy.”
So what happens? Those responsible for budgeting for the education system notice a shortage of teachers. They can either raise salaries to entice better teachers, or they can lower the qualifications required to become a teacher. (Or they can ignore the problem, which is what also happens a whole lot). Risking the wrath of the taxpayer, they naturally choose to lower the qualifications required. Since the customers are not necessarily providing the income, they can’t as easily signal their displeasure at the decreased quality of their education system. They could in libertarian-world, but I’ve explained why schools should not be subjected to user-pays market forces.
Also, voting can be a clumsy way of influencing government action. If both parties in a two party system have the same policy, there is little option for a voter who wishes to effectively show they are displeased with that policy. Voters also vote on a broad range of issues, not just one. If someone is getting most things right, chances are they won’t get kicked out of office over something they aren’t. Of course, it goes without saying that democracy is better than any alternative so far.
And on the subject of teacher-qualifications, teaching is a job that requires specialist knowledge. It is not impossible for teachers to retrain, but their qualifications do not enable them to have a wide range of jobs to choose from. Further, teachers may feel compelled to teach, in spite of a lower salary out of a sense of civic duty. Sure, we could say that is their choice. I don’t feel that it is right to punish selflessness.
We do in fact live in an economy. Markets aren’t perfect and people aren’t rational but that does not mean that market forces do not exist and that people don’t make rational choices. The board of ed couldn’t pay $100 a week and expect to get teachers of any quality.
As a former high school English teacher in Japan, the salary is all relative. People become teachers in Japan because of the benefits, not because of the salary which is very average.
It depends very much on the cost of living - I’m not knowledgeable about Michigan, but I would wager that the cost of living is way cheaper than in Japan (judging by how much it cost me to fill up my car and eat out whilst in the states).
Also, is there not an inverse relationship between CEOs salaries and profits from their organisation?
You know, I checked all through my post to try to remove any way it could be read in a black and white fashion. Well, congratulations. You found a glib intro that could be taken, if you had a really monchromatic view of the world, as denying market forces.
Well thanks for your very insightful post msmith537. Although I am too stupid to understand that market forces do have an impact, you cleared it all up for me. Maybe next you could explain something really complicated, like, why we can’t just print more money to pay teachers a million dollars a year.
I will clarify my sentence for you. We live in more of a society than an economy. Since much social interaction is also economic, saying that we live in a society means that other factors are important as well as economic ones.
Market forces do explain a lot. But they don’t explain everything. Sometimes other forces play a part. The rest of my post discusses those other forces. I notice that you didn’t comment on the rest of my post, but rather chose to nitpick one sentence. Well, never mind. You may not have actually responded to any of the points I raised, but you still made a really useful post.
