# Why CEOs and executives are paid more than workers? **URL:** \ **Category:** Great Debates\ **Created:** [July 2, 2003, 5:58pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826 "2003-07-02T17:58:39Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![lucwarm](https://avatars.discourse-cdn.com/v4/letter/l/e19adc/32.png) [@lucwarm](https://boards.straightdope.com/u/lucwarm)\ **Post date:** [July 7, 2003, 12:49am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/81 "2003-07-07T00:49:48Z")
> [@](#): > > \*Originally posted by Sam Stone \* > \*\*So it’s your opinion that CEOs write their own salaries? \*\* I wouldn’t go that far, but they are in a position to exercise influence over the board of directors. ---
**Author:** ![lucwarm](https://avatars.discourse-cdn.com/v4/letter/l/e19adc/32.png) [@lucwarm](https://boards.straightdope.com/u/lucwarm)\ **Post date:** [July 7, 2003, 12:59am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/82 "2003-07-07T00:59:41Z")
> [@](#): > > \*Originally posted by Bill H. \* > \*\*But that doesn’t change the fact that everybody from top to bottom has a boss, with the top boss being the shareholders. \*\* The trouble is that in many corporation, particularly large, publicly-held corporations, the shares are widely and diffusely held. So the shareholders face a collective action problem. This gives management, as a group, the opportunity to enrich itself at the expense of shareholders. ---
**Author:** ![JThunder](https://avatars.discourse-cdn.com/v4/letter/j/e95f7d/32.png) [@JThunder](https://boards.straightdope.com/u/JThunder)\ **Post date:** [July 7, 2003, 1:19am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/83 "2003-07-07T01:19:48Z")
> [@](#): > > \*Originally posted by Blalron \* > \*\*Get me a job as CEO with a huge multinational corporation, and I could do the same shit that 99% of CEOs are doing now. \*\* Yeah, right. I’m sure that a lot of other people would like to think that. Look, I’m not the kind of guy who puts CEOs on a pedestal. Far from it. However, I’m not about to assume that I could do the same work as 99% of the CEOs out there. Such an extravagant claim strikes me as woefully naive, and a bit presumptuous. ---
**Author:** ![Blalron](https://avatars.discourse-cdn.com/v4/letter/b/35a633/32.png) [@Blalron](https://boards.straightdope.com/u/Blalron)\ **Post date:** [July 7, 2003, 1:52am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/84 "2003-07-07T01:52:13Z")
> [@](#): > > \*Originally posted by JThunder \* > \*\*Yeah, right. I’m sure that a lot of other people would like to think that. > > Look, I’m not the kind of guy who puts CEOs on a pedestal. Far from it. However, I’m not about to assume that I could do the same work as 99% of the CEOs out there. Such an extravagant claim strikes me as woefully naive, and a bit presumptuous. \*\* Pretend that I was the CEO of McDonalds. What kind of tough decisions would I have to make? Underling: Sir, we’re thinking about making a new burger, the Big and Tasty. Me: Send it over to Product Research and Testing, see how the consumer focus groups like it. One week later… Underling: The focus groups responded positively. Me: Ok. Send it to a few test markets and see how they like it. Three months later… Underling: The test markets love it. Me: Ok, so let’s make it a part of our franchise then. Underling: Ok, sir. Me: Aren’t I clever? Underling: You’re a genius, sir. ---
**Author:** ![tomndebb](https://avatars.discourse-cdn.com/v4/letter/t/b9e5f3/32.png) [@tomndebb](https://boards.straightdope.com/u/tomndebb)\ **Post date:** [July 7, 2003, 2:32am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/85 "2003-07-07T02:32:21Z")
I dunno, **Blalron**. I really hope you were being facetious. Based on that example, I wouldn’t even hire you as a regional stupidvisor, much less a corporate executive. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 7, 2003, 2:47am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/86 "2003-07-07T02:47:41Z")
> [@](#): > > Pretend that I was the CEO of McDonalds. What kind of tough decisions would I have to make? > > Underling: Sir, we’re thinking about making a new burger, the Big and Tasty. > > Me: Send it over to Product Research and Testing, see how the consumer focus groups like it. > > One week later… You guys are embarassing yourselves. If you think this is what CEO’s do, then you’ve been getting your information from too many cartoons. No wonder you guys are so down on them - you don’t have a bleeming clue what they do. How about this for the CEO of McDonalds - Handling labor disputes. Determining whether to move into Asia. Hiring and overseeing marketing managers throughout the world. Lighting fires under the divisions that are not meeting their numbers. Leading the planning sessions for the next year, three years, and five years. Listening to subordinates present estimates for how much market share growth they can manage - and knowing whether those numbers are realistic, optimistic, or pessimistic. Massaging contracts with new suppliers of hardware - when you’re buying for 15,000 outlets, it doesn’t take much of a mistake to cost millions. Then there’s quality. Quality, quality, quality. It’s the mantra of business these days. Six sigma, ISO certification, etc. Internal audits, external audits. Lawsuits. Then there’s government relations. CEOs of large companies are constantly being called on to testify about the internal operations of their companies. They have to be on the ball. A mistake here can result in a regulation that favors the competition or costs the company millions of dollars. Then there’s the ability to groom and pick senior management. Do you replace the head of European operations, because sales are down 5%? Is it his fault? He says no. You have to do some digging. Make bad choices, and you can sour the whole executive of the corporation and make it dysfunctional. The new Ford at Ford Motor Company did that, and Ford still hasn’t recovered. Much of the blame for Ford’s woes fall directly at his feet. Then there’s the oversight work. The CEO of a company is expected to ‘make the rounds’ and show up at various branch offices. And when he shows up, he’d damned well better be able to show that he’s up on their operations. That means tons of study. They have to be able to grasp the essence of the operation they are visiting, and the ability to spot problems and ‘flag’ them for more oversight is key to running a smooth operation. Then there are mergers, the legal minefields they create, integration with new business units, the sales of assets, etc. We haven’t even touched on the financial management of the company. Whether to take loans or offer stock to finance new operations. Whether to invest profits in expansion or release dividends. In the real world, a single person can’t manage all this. So the best skill a CEO can have is knowing how to surround himself with people who can do the job. And to know how much to trust them. Sometimes, a CEO is valuable because he tends to drag a very successful team with him. An auto exec may be able to bring over the star designers he groomed at the old outfit. All of this decisions scale up with the size of the job. At the lower levels, say the CEO of a branch office, picking the wrong PR firm might cost a few tens of thousands in sales, or offering too low a bonus package may result in the loss of a handful of employees. But if the CEO picks the wrong firm, or sets the wrong bonus structure for the entire organization, it can cost millions. Hundreds of millions. These guys have to make decisions like this daily. But you go right ahead and keep believing that CEOs are nothing but figureheads who right around in limousine and collect huge salaries because they are connected to the old boys’ network. That will allow you to continue feeding your prejudices. ---
**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:** [July 7, 2003, 3:29am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/87 "2003-07-07T03:29:31Z")
> [@](#): > > _Originally posted by Bill H. \* > [B}In this case, what exactly did “cooking the books to make himself look good” mean, and how are you certain that this is why he was let go?_\* It means getting the CFO to alter the books so that it appeared that the company was making profits when it fact it was losing money. The guy was doscovered because the CFO reported it to the megacorp because he was afraid he’d get accused of being responsible for it. I heard it from the Asst. Communications Director, who heard it from the Communications Director, who was told about it along with all the other top execs after the guy was dumped. I learned about him moving to the pet retailer a couple of years later from a friend in the biz. **Also, I’m not denying that there are many lousy CEOs who end up getting peachy jobs after driving a company into the ground.** To be fair Home Depot was driving us out of biz well before the guy came along, and continued to do so after – the place went out of biz some time after I left – but the guy sure didn’t help. Point is, his ignominious departure not only didn’t end his career, it seems to have actually helped. I’m betting he had a convincing counter-story to offer if not an outright lie. So it IS possible. \*\*And in profit-oriented corporations as well, CEOs are very influential in bringing in board members, as well as other employees. But that doesn’t change the fact that everybody from top to bottom has a boss, with the top boss being the shareholders. \*\* Yeah, but in most cases their boss isn’t somebody who’s being made rich by their “employee” and given all sorts of useful and lucrative business contacts. It makes a difference. In fact, it’s very obvious the system is unfair and serves everyone except the self-serving CEOs and their boardmembers badly, and needs to change. Here’s a case where strong government regulation, vigorously enforced with fines and maybe in jail time, would do our economy and our society some definite good. ---
**Author:** ![system](https://global.discourse-cdn.com/straightdope/original/2X/e/e489c3b7d8fce19c4b355dd4fc3f88cc39c34b87.png) [@system](https://boards.straightdope.com/u/system)\ **Post date:** [July 7, 2003, 6:26am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/88 "2003-07-07T06:26:57Z")
> [@](#): > > \*Originally posted by Gaudere \* > \*\*[Moderator Hat ON] > > Collounsbury, you’re stepping close to the line again. I will strongly advise you to eschew personal comments about posters in GD, lest you lose your posting priviledges again. And don’t post full text of copyrighted articles, you know better than that. > > [Moderator Hat OFF] \*\* On the first, your admonition is well taken and I will endeavor to follow. On the second, that **was not** the full text and there was absolutely no reason to edit it down. I am a very careful quoter, the quote was roughly a third of the article or slightly less, well within standard limitations of fair use. I’d be very happy if it was restored. Now, as to the substance of the debate, we have devolved to pointless bickering about whether CEOs add value – of course they do, and to think the argument is otherwise is a straw man. The issue, which seemed to have actually emerged on the first page, before being distracted by straw man arguments and inane anectdotal recounting, is one of specific market failures in specific segments of the market, as I noted on the bloody first page. As to addressing the issue, in essence one of corporate governance, one has to be careful not to do more harm than good. Returning to The Economist and it’s capitalism overview for a very fair and informed discussion, they address this very issue in “CAPITALISM AND DEMOCRACY: Beyond shareholder value” 26 Jun 2003. (And for those concerned, these are selections from a very long article indeed and do not in any way approach the entire article). > [@](#): > > “Owners” is perhaps the most misleading word in Anglo-American capitalism, for there are not many true owners. Most are, as Rupert Pennant-Rea wrote in a survey in The Economist in 1990, “punters, not proprietors”. The vast majority of shareholders are either small retail investors, or huge pension funds, mutual funds and insurance firms that manage diversified holdings through investment managers—and those managers face conflicts of interest, for they live off mandates from companies to manage corporate pension funds and provide insurance. The only large shareholders free of such conflicts are public-sector pension funds. They, though, share a general inhibition with other large investors: the benefits of active involvement in steering corporate boards are low whereas the costs are high. It has made much more economic sense to be passive not active, a punter not a proprietor. Essentially what I have argued previously, and I can say in contradistinction to someone living in a Venture Capital driven corporate governance situation – where as I can say from now being on the other side of the table, active investing is the by word, but it comes at a price, it has appeared until recently that being an active owner-shareholder simply wasn’t worth the effort. This is questioned by some emperical research, cited to in the article that was cited prior: > [@](#): > > …because it pays > > For years, investors have had a good reason to ignore good governance. Academic research found no clear causal link with financial performance. New research, however, threatens to change that. Paul Gompers of Harvard Business School and two colleagues looked at 1,500 firms in the 1990s and found those that were most responsive to shareholders would have enjoyed returns 8.5% a year higher than those run as management dictatorships [“Corporate Governance and Equity Prices”, by Paul Gompers, Joy Ishii and Andrew Metrick, in the _Quarterly Journal of Economics_] Returning to the present article, somewhat further on: > [@](#): > > That pressure [to recover losses] may produce some change, inducing more institutions to be active rather than passive owners. In Britain in particular, there has been a spate of shareholder revolts over bosses’ pay (an annual “advisory” vote on which has become a legal requirement this year), culminating in the rejection on May 19th of GlaxoSmithKline’s ridiculously over-generous contract terms for its chief executive in the event of severance (he stands to receive up to £22m, or $36m). > > … Professor Jensen himself, along with other experts, has suggested better ways to tie executive pay to long-term performance: through “restricted stock” that cannot be sold for many years or, Professor Jensen’s preference, special share options that require price appreciation to exceed a firm’s cost of capital and are exercisable only after a long delay. I draw your attention to the fact that Jensen, in a sense the founder of shareholder value, sees upper management pay as having become distorted and delinked from performance by certain perverse incentives, it is then harldy some wooly liberal and anti-capitalist idea that has been advanced here (although certainly a few arguments have that characteristic). Elsewhere in the present article there are citations to Jensens research on this. Now the problematic as the Economist notes is > [@](#): > > Such ideas are clever, no doubt, and might even work if implemented, making profits higher and more sustainable while bosses’ pay becomes less outrageous. But they run up against two strong objections. One could be called simple complacency: although Anglo-American capitalism has become wayward in recent years, it has still fared quite well. … Scandal, in other words, will deal with the worst abuses, after which things can carry on pretty much as before. The other objection is that clever ideas are not enough: corporate boards will change their ways, particularly on pay, only if they are forced to. They can already design their own special options—ones that pay out a lot, and quickly—and will continue to do so. Now they also recommend an alternative path on reforming Corporate Governance: > [@](#): > > How could it be done? Mainly by government and by self-regulatory agencies such as the big stock exchanges but also, to a degree, by shareholders themselves. The best analysis of what needs doing has been provided by Mr Monks, the active American investor, and Allen Sykes, a former senior British executive. In a paper last year for the Centre for the Study of Financial Innovation, a London-based think-tank, called “Capitalism Without Owners Will Fail”, they identified the crucial issue as the vacuum of ownership, and argued that only governments can induce investing institutions to fill that vacuum by taking on some of the obligations of ownership. … Indeed this is partly what we discussed above. > [@](#): > > Essentially, Messrs Monks and Sykes want governments to enforce existing trust law, which already requires fund managers and other fiduciaries to act solely in the interests of their beneficiaries. The difficult question is how. … **suggested by Messrs Monks and Sykes, is for governments to make it a legal requirement that institutions with holdings above a large minimum, say $15m, should vote on company business. Such votes should be disclosed, so that beneficiaries can decide whether voting is being exercised in their sole interest. Further, Messrs Monks and Sykes want shareholders to have the right and obligation to nominate at least three independent directors for all big quoted companies.** Again, the issue revolves around ending passivity by incentives and a few carrots, as well as adding tools. Of further note, the Economist also notes > [@](#): > > • Independent directors should be genuinely independent. Friendships cannot be legislated against, but business ties, such as consultancy fees or supplier relationships, could be barred, either by law or by stock-exchange requirements. > > • Boards combine a strategic purpose and a monitoring role. But shareholders are neglecting their duty to their beneficiaries if they allow the first to negate the second. They will be doing so if they allow non-independent directors to control executive remuneration or auditing, for example. Boards often complain that having stronger independent directors risks harming the unity of boards and weakening the authority of the chief executive or chairman. Just so: that should be the aim. Again in regard to Boards and their independence, for as we can see from the general analyses of the issue, few the CEO in the dominant form of CEO-Chair has no small degree of leverage and the relationship is hardly one of Boss-Employee with shareholders. ---
**Author:** ![Bill\_H](https://avatars.discourse-cdn.com/v4/letter/b/a5b964/32.png) [@Bill\_H](https://boards.straightdope.com/u/Bill_H)\ **Post date:** [July 7, 2003, 7:45am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/89 "2003-07-07T07:45:43Z")
**Collounsbury** wrote > [@](#): > > (…) before being distracted by straw man arguments and inane anectdotal recounting Just so I’m clear: Should I be responding to this insult? Or was it directed elsewhere? Please be clearer in your name-calling. ---
**Author:** ![system](https://global.discourse-cdn.com/straightdope/original/2X/e/e489c3b7d8fce19c4b355dd4fc3f88cc39c34b87.png) [@system](https://boards.straightdope.com/u/system)\ **Post date:** [July 7, 2003, 7:52am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/90 "2003-07-07T07:52:49Z")
The comment is general to the fact we have, on both sides of the conversation, straw men and inane anectdotes in the place of data and reasonably informed analysis. Highly regretable as the conversation began rather better. ---
**Author:** ![litost](https://avatars.discourse-cdn.com/v4/letter/l/c4cdca/32.png) [@litost](https://boards.straightdope.com/u/litost)\ **Post date:** [July 7, 2003, 8:08am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/91 "2003-07-07T08:08:04Z")
> [@](#): > > \*Originally posted by Sam Stone \* > You guys are embarassing yourselves. If you think this is what CEO’s do, then you’ve been getting your information from too many cartoons. No wonder you guys are so down on them - you don’t have a bleeming clue what they do. Blalron said that, not the whole bunch of guys you been debating with. Must be fun to create a strawman and puff it down. ---
**Author:** ![lucwarm](https://avatars.discourse-cdn.com/v4/letter/l/e19adc/32.png) [@lucwarm](https://boards.straightdope.com/u/lucwarm)\ **Post date:** [July 7, 2003, 1:19pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/92 "2003-07-07T13:19:15Z")
> [@](#): > > \*Originally posted by Sam Stone \* > **You guys are embarassing yourselves. If you think this is what CEO’s do, then you’ve been getting your information from too many cartoons. No wonder you guys are so down on them - you don’t have a bleeming clue what they do.** Based upon my knowledge of human nature and my limited experience in the business world, I feel reasonably confident in saying that some CEO’s are great, while others suck. Some work their asses off, and some play golf and eat fancy lunches. But the question is why CEO’s get paid so much. Based upon your responses to our earlier exchange, I gather that you now concede that (1) the mere fact that CEO’s are paid a lot does not establish that they are worth a lot; and (2) CEO’s are in a position to extract extra pay from the companies they run. Given that people are frequently greedy, and given that CEO’s are typically aggressive, ambitious people, it seems reasonable to conclude that a significant part of the reason that CEO’s are paid so much is that they are extracting extra pay from the companies they run. \*\* > [@](#): > > But you go right ahead and keep believing that CEOs are nothing but figureheads who right around in limousine and collect huge salaries because they are connected to the old boys’ network. That will allow you to continue feeding your prejudices. \*\* Honestly, I believe that in many cases there’s some truth to this stereotype. But it’s not essential to the argument. It’s possible for a CEO to be (1) hard-working; (2) smart; and (3) overpaid. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 7, 2003, 2:28pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/93 "2003-07-07T14:28:58Z")
> [@](#): > > But the question is why CEO’s get paid so much. Based upon your responses to our earlier exchange, I gather that you now concede that (1) the mere fact that CEO’s are paid a lot does not establish that they are worth a lot; _As a group_, CEOs are paid what they are worth. What they are worth is determined by supply and demand. Are there distortions? No doubt. Are there some CEOs who suck? No doubt. Some of them even get fired because of it. A good analogy might be to look at sports superstars. Is a single baseball player worth 100 million dollars? As a group, the superstars in a sport bring in the fans, promote the game, and the best ones can make the difference between making the playoffs and missing. Each playoff game brings in millions in revenue. So yes, they are valuable. But sometimes, an outrageous contract is signed because the General Manager was on crack that day or whatever, and somebody gets way too much money. It happens - individual negotiations can go lots of ways, and don’t always wind up optimal. Likewise, I’m sure there are some excellent players who aren’t making what they could, because their agents have poor negotiating skills, or because they had the bad luck of having their contracts come up at a time when purses are tight. > [@](#): > > and (2) CEO’s are in a position to extract extra pay from the companies they run. CEOs are in a position to bargain for better salaries based on past performance, the difficulty of replacement, etc. I’m sure sometimes CEOs wind up in strong bargaining positions due to temporary issues, and play it to their advantage (for instance a big merger coming up where the CEO is necessary or has special connections). And some of them are crooks and game the system. No doubt. I was never trying to argue that all CEOs are angels who get paid what they are worth. I was trying to dispel the myth that CEOs as a group get way too much money, that anyone could do their job, they are largely figureheads or PR men, they’re all members of the old boys’ network, etc. In fact, CEOs as a group are highly talented, and highly valuable. And by and large, that’s why they get paid what they do. ---
**Author:** ![lucwarm](https://avatars.discourse-cdn.com/v4/letter/l/e19adc/32.png) [@lucwarm](https://boards.straightdope.com/u/lucwarm)\ **Post date:** [July 7, 2003, 2:51pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/94 "2003-07-07T14:51:59Z")
> [@](#): > > \*Originally posted by Sam Stone \* > \*\*_As a group_, CEOs are paid what they are worth. What they are worth is determined by supply and demand. \*\* Do you have any evidence or arguments to support this beyond an assumption that the market works efficiently? \*\* > [@](#): > > [an analogy to sports superstars] > > \*\* IMHO, CEO’s are systematically overpaid. I have no idea if this is true for sports players. \*\* > [@](#): > > CEOs are in a position to bargain for better salaries based on past performance, the difficulty of replacement, etc.\*\* They are also in a position to get higher salaries based upon their relationships with board members. Do you dispute this? ---
**Author:** ![system](https://global.discourse-cdn.com/straightdope/original/2X/e/e489c3b7d8fce19c4b355dd4fc3f88cc39c34b87.png) [@system](https://boards.straightdope.com/u/system)\ **Post date:** [July 7, 2003, 3:06pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/95 "2003-07-07T15:06:07Z")
How very nice, we’re back to tautologies and assertions. > [@](#): > > \*Originally posted by Sam Stone \* > _As a group_, CEOs are paid what they are worth. Tautology, we get nowhere from this an examination of whether the markets are judging the worth properly. It’s precisely this sort of babe in the wood non-analysis that got people thinking stocks were really worth 50 times earnings, etc. > [@](#): > > What they are worth is determined by supply and demand. Are there distortions? No doubt. And on the last we get to the nub of the matter. The distortions. > [@](#): > > A good analogy might be to look at sports superstars. Well, I rather believe I demonstrated that that this is fucking piss poor analogy as the markets for the two are rather different on key points. Blithely ignore as you like. > [@](#): > > CEOs are in a position to bargain for better salaries based on past performance, the difficulty of replacement, etc. I’m sure sometimes CEOs wind up in strong bargaining positions due to temporary issues, and play it to their advantage (for instance a big merger coming up where the CEO is necessary or has special connections). And some of them are crooks and game the system. No doubt. You keep recasting this in moral terms, and utterly ignoring the economics. It’s not a fucking morality play, it’s simply an issue of agency issues and poor corporate governance. > [@](#): > > I was never trying to argue that all CEOs are angels who get paid what they are worth. I was trying to dispel the myth that CEOs as a group get way too much money, that anyone could do their job, they are largely figureheads or PR men, they’re all members of the old boys’ network, etc. As far as I can tell you’re trying to argue by straw men and limp analogies with little logical or analytical value. First, it is not at all clear that upper level management rent extraction - that is delinkage of pay and performance - for a range of companies is in any way a myth - indeed serious economists and business school academics such as Jensen consider this to be a serious issue. Insofar as a certain benchmarking occurs via this group - publicly reported companies, that has a wider influence. Your assertions re the myth are just assertions. Second, one comment re the PR role – which for some kinds of CEOs is quite important harldy makes a substantial feature of the conversation, although you did make some nice straw of it. I don’t recall any old boys network statements, but perhaps I missed those. Certainly not the dominant feature of the debate. > [@](#): > > In fact, CEOs as a group are highly talented, and highly valuable. And by and large, that’s why they get paid what they do. Fine assertions, but they are assertions, and not terribly relevant at that insofar as one of the key features. Again, anectdotes and poorly concieved analogies only get one so far, some rather more analytical fare might be called for. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [July 7, 2003, 8:09pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/96 "2003-07-07T20:09:57Z")
> [@](#): > > They are also in a position to get higher salaries based upon their relationships with board members. Do you dispute this? I’ll dispute this. As someone with a few minor shareholdings, now and then I get invites to Annual General Meetings and voting forms and a set of accounts. And as a shareholder I can demand much more information. And I can vote against the directors’ remunerations. I can call for a motion of No Confidence in any or all of them. Of course, I’m in the U.K, so things might be slightly different. ---
**Author:** ![lucwarm](https://avatars.discourse-cdn.com/v4/letter/l/e19adc/32.png) [@lucwarm](https://boards.straightdope.com/u/lucwarm)\ **Post date:** [July 7, 2003, 9:10pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/97 "2003-07-07T21:10:55Z")
> [@](#): > > \*Originally posted by qts \* > \*\*I’ll dispute this. As someone with a few minor shareholdings, now and then I get invites to Annual General Meetings and voting forms and a set of accounts. And as a shareholder I can demand much more information. And I can vote against the directors’ remunerations. I can call for a motion of No Confidence in any or all of them. > > Of course, I’m in the U.K, so things might be slightly different. \*\* I’m not sure why you bring up the subject of directors’ remunerations, since we are talking about CEO pay. But let me ask you a few things: How much information have you demanded? How many meetings have you gone to? How many no-confidence votes have you organized and succeeded at? How much time have you spent doing these things? And what is the total value of your stakes in these companies? ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [July 7, 2003, 9:25pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/98 "2003-07-07T21:25:57Z")
Because the issue of an incestuous relationship between CEO and directors was brought up. Further, in the UK, the CEO is a director. The equivalent here is Managing Director. As to value, I’m not going to elaborate beyond ‘a few minor shareholdings’. The rest is flamebait. ---
**Author:** ![lucwarm](https://avatars.discourse-cdn.com/v4/letter/l/e19adc/32.png) [@lucwarm](https://boards.straightdope.com/u/lucwarm)\ **Post date:** [July 7, 2003, 10:32pm UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/99 "2003-07-07T22:32:48Z")
> [@](#): > > \*Originally posted by qts \* > \*\*Because the issue of an incestuous relationship between CEO and directors was brought up. Further, in the UK, the CEO is a director. The equivalent here is Managing Director. As to value, I’m not going to elaborate beyond ‘a few minor shareholdings’. The rest is flamebait. \*\* No need to share. My basic point is this: Your holdings are way too small to make it worth your while to study company information; organize shareholders to vote; etc. etc. Probably it’s not even worth your while to go to shareholders’ meetings and you just did it for the novelty value. And your situation is not unique. And that’s the basic problem: Ownership of many corporations is widespread and diffuse. There’s a collective action problem. And that’s why the remedy you describe is (IMHO) ineffective. ---
**Author:** ![litost](https://avatars.discourse-cdn.com/v4/letter/l/c4cdca/32.png) [@litost](https://boards.straightdope.com/u/litost)\ **Post date:** [July 8, 2003, 3:53am UTC](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826/100 "2003-07-08T03:53:55Z")
> [@](#): > > \*Originally posted by Collounsbury \* > > I don’t recall any old boys network statements, but perhaps I missed those. Certainly not the dominant feature of the debate. As far as I can tell, it has been one of the dominant themes in your posts and in the analytical studies you have excerpted from -the fact that board members have mutual interests and relationships with CEOs which hinder their objectivity. Of course, these need not necessarily arise as a result of an old-boys-network but the _effect_, that is, the relationship between the board and the CEO which inspires covert deals etc, is pretty much the same. In regards to the above point, I am left wondering who takes the hit. If the Board is scratching the CEO’s back and there is a de-linkage between the CEO’s pay and performance (for whatever reasons, information distortion, nepotism…) who pays for the company’s poor performance? As a small investor, I might sell my shares. The large investment firms might suggest that their customers change their portfolios. The company goes deeper in the red. Who pays? At some point, the market (the abstract notion) ought to kick in, right? The second point mentioned in the analytical studies is the issue of metrics and its time sensitivity. For e.g., stock options motivate CEO policies that promote short-term gains. I really wonder how much of the CEO salary explosion is linked to the 90s boom. If much of it is, I think with the bust, we should be seeing a lot of the salary distortion due to CEO greediness/myopic policies filter out. [Previous page](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826.md?page=4) [Next page](https://boards.straightdope.com/t/why-ceos-and-executives-are-paid-more-than-workers/185826.md?page=6)