# Unintended consquences of restricting exective pay? **URL:** \ **Category:** Great Debates\ **Created:** [January 30, 2006, 12:10am UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139 "2006-01-30T00:10:11Z")\ **Posts on this page:** 9\ **Page:** 2
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 3, 2006, 4:08pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/21 "2006-02-03T16:08:42Z")
> [@msmith](#): > > "It made me think about the possibility of a law enforcing such a limitation (say 50x?). " Oops yer right, I missed that remark in the OP. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [February 3, 2006, 5:03pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/22 "2006-02-03T17:03:42Z")
> [@Voyager](#): > > What amuses me, under certain definitions of amuse, is that the same people who want to eliminate the minimum wage to allow companies to cut workers salaries by a buck or two an hour see nothing wrong with handpicked compensation committees inflating loser CEO salaries by tens of millions of bucks. Yeah, but didn’t you get the memo? CEOs only respond to carrots; workers only respond to sticks. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [February 3, 2006, 5:57pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/23 "2006-02-03T17:57:37Z")
> [@Aeschines](#): > > 1. CEO 2 is asked to join. He needs to be “incented” to take on a tough job like leading a company in difficult times. CEO 2 is given a good salary and stock options. Plus, he might be tainted forever if the company fails despite his best efforts, so he gets a Golden Parachute Package right from the start. The problem: No matter what CEO 2 does, he’s going to come out of this OK: This is the thing, how do you attract a new CEO? Let’s say I’m the asst manager at a successful Starbucks, making a fabulous salary, and kicking ass at the job. The struggling Barstucks across the street wants to hire me as their manager in a desperate attempt to keep the business afloat. Am I going to quit my safe and well paying job to take on a risky venture? Perhaps, but only if the risk was going to be well rewarded. I’d also bargain for more security in my finances, the golden parachute. CEO 2 isn’t sitting in his mom’s basement loading resumes to Monster, he’s already got a corner office and a fat paycheck every week. He doesn’t need to take a risk, so you won’t get him without making him secure. That’s the issue I see with limiting CEO compensation. WRT carrot and stick. You’re not going to attract a new CEO by telling him how hard you’re willing to hit him when he screws up. ---
**Author:** ![Bricker](https://avatars.discourse-cdn.com/v4/letter/b/977dab/32.png) [@Bricker](https://boards.straightdope.com/u/Bricker)\ **Post date:** [February 3, 2006, 6:14pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/24 "2006-02-03T18:14:18Z")
> [@Voyager](#): > > What amuses me, under certain definitions of amuse, is that the same people who want to eliminate the minimum wage to allow companies to cut workers salaries by a buck or two an hour see nothing wrong with handpicked compensation committees inflating loser CEO salaries by tens of millions of bucks. > > Me, I’m not rich, but I’m closer to rich than I am to poor. That’s exactly right. Because it’s tied to to quaint notions like freedom. When you impose a minimum wage by law, you are taking away the freedom of an employer to pay what the market will bear, and forcing the market to set a value for labor higher than it actually is. The owners of a company, through their elected representatives, the board, should be perfectly free to pay their CEOs - and their workers - whatever they wish. If the CEO, or the worker, feels he is being compensated poorly, he can leave. That’s freedom. No one is compelled to do anything. It’s the best. ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [February 3, 2006, 6:34pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/25 "2006-02-03T18:34:33Z")
> [@Bricker](#): > > That’s exactly right. Because it’s tied to to quaint notions like freedom. > > When you impose a minimum wage by law, you are taking away the freedom of an employer to pay what the market will bear, and forcing the market to set a value for labor higher than it actually is. > > The owners of a company, through their elected representatives, the board, should be perfectly free to pay their CEOs - and their workers - whatever they wish. If the CEO, or the worker, feels he is being compensated poorly, he can leave. > > That’s freedom. No one is compelled to do anything. > > It’s the best. Workers are entitled to the freedom to be hit with sticks, to starve, to go broke, etc. ---
**Author:** ![Neurotik](https://avatars.discourse-cdn.com/v4/letter/n/91b2a8/32.png) [@Neurotik](https://boards.straightdope.com/u/Neurotik)\ **Post date:** [February 3, 2006, 6:36pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/26 "2006-02-03T18:36:30Z")
> [@Shagnasty](#): > > I am close friends with a CEO that accepted an offer with a small office supply chain about 18 years ago. He agreed to be paid mainly in stock options and relatively little pay. He did his job extremely well and Staples exploded onto the national scene under his leadership. Other founders of the company were livid that his stock options were worth in the hundreds of millions. He told them to screw and walked away with the cash. Even the other management in the business didn’t know that they were about to receive a windfall. :dubious: Tom Stemberg co-founded Staples with Leo Kahn and remained its CEO until 2002. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 3, 2006, 6:48pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/27 "2006-02-03T18:48:54Z")
> [@Bricker](#): > > When you impose a minimum wage by law, you are taking away the freedom of an employer to pay what the market will bear, and forcing the market to set a value for labor higher than it actually is. When you inflate an executive salary by anticompetitive collusion between executives and board members, you are taking away the freedom of an employer to pay what the market will bear, and forcing the market to set a value for CEO services higher than it actually is. > [@Bricker](#): > > The owners of a company, through their elected representatives, the board, should be perfectly free to pay their CEOs - and their workers - whatever they wish. The economic argument for allowing employers to pay “whatever they wish” is that competitive pressures will force them to offer compensation at levels set by market forces, thus maximizing economic efficiency. If employers are gaming the system and interfering with markets so that the salaries they’re offering **don’t** correspond to this “market price”, then this argument no longer holds. ---
**Author:** ![Shagnasty](https://avatars.discourse-cdn.com/v4/letter/s/9dc877/32.png) [@Shagnasty](https://boards.straightdope.com/u/Shagnasty)\ **Post date:** [February 3, 2006, 7:20pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/28 "2006-02-03T19:20:32Z")
> [@Neurotik](#): > > :dubious: > > Tom Stemberg co-founded Staples with Leo Kahn and remained its CEO until 2002. I know that. I know them all although the two you named are more enemies than friends. I don’t want to get into personal relationships here. Stemberg ceded operational control for a while the same way that Bill Gates has done. That was to my wife’s godfather and the person that mentored me in my earlier years. The gains from stock options were extremely lucrative and very unexpected even to Tom and Leo. ---
**Author:** ![gazpacho](https://avatars.discourse-cdn.com/v4/letter/g/6f9a4e/32.png) [@gazpacho](https://boards.straightdope.com/u/gazpacho)\ **Post date:** [February 3, 2006, 8:11pm UTC](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139/29 "2006-02-03T20:11:19Z")
> [@iamthewalrus(:3=](#): > > Options for publically traded companies are traded on the open market. Why couldn’t the price of the option on the date issued be the value? > > Obviously, this won’t work for companies that aren’t publicly traded, but the government has less interest in standardizing their business. The options I get are not public traded. I not seen any listing for an option that cannot be exercised until date X but must be exercised by date Y. With X tending to vary form 6 months to 5 years from the date of grant and Y being 10 years from data of grant. There are other options that are traded but not those. That is a very standard silicon valley style of option granted to people. I have never seen this kind of option publically traded. [Previous page](https://boards.straightdope.com/t/unintended-consquences-of-restricting-exective-pay/342139.md?page=1)