How does CEO pay go Through the Roof without price increases in products?

[Rshermr]

Closed Caption, do you take into consideration that since the 1970's, countless companies have merged (to form supercompanies), and have expanded globally resulting in LESS CEOS, resulting in MORE PAY per CEO?

If there are four food companies in 1970 with four CEOs and $100 (total in the market's pot) to pay the CEOs, than each CEO gets $25. However in 2013, when those companies merge, the single CEO now makes $100.

Uh, that would make a little sense, except: CEO PAY IS ONLY AS HIGH AS IT IS IN THE US. IN NO OTHER NATION IS IT ANY WHERE CLOSE.

Hmm, you need to put on your critical thinking hat, lol.

Let's compare the United States with France. Which country do you think is home to more of the top 500 largest companies in the world?

If the US has 50 companies that make over $10 billion in revenue every year, and France has only 1, obviously CEO pay for US companies (on average) will be MUCH higher.

Again, critical thinking!

Right. Not correct, but I get your drift. So, you are saying that companies in other countries are smaller on average than those of the us. Any proof of that??
Relative to your $10B sized companies, I am not sure how many France has, nor do I care. However, a quick look will tell you that there are over 35 French companies over $20B in annual revenue. So, did you have a point?

The US has over 131 such companies. Dow we need a discussion of numerators and denominators to help you understand how the figures are based?? Because, me boy, the US has many, many more corporations under $10B than France, also. So are you saying that for that reason the US CEO should make less on average??

 

[Rshermr]

There you go. You just showed your problem. You have absolutely no idea what the ceo OR the plant manager does. Makes it really hard for you to say something that makes sense. Which is obvious.

But on the good side, your post was humorous.

I explicitly said that the factory worker's job in both 1970 and 2013 was to check packages for rips, and said the CEOs job was to oversee a smaller company in 1970 and a vastly larger and more complex one in 2013.

That is what both of the people "do", lol.

Rshermr... I'm not following you.

No, obviously not.
So, you are saying that the ceo today does not oversee companies of the size that they were in prior years??? And that his staff has not grown to help him supervise a larger company?? And that companies in other countries do not have ceo's overseeing companies of the same size as the US companies today??? If so, you are wrong in all cases.

You see, what you fail to understand is that as companies grow, so does their staff. The attempt is always to have just enough staff to do the job. So, what was your issue again???

 

[KevinWestern]

Uh, that would make a little sense, except: CEO PAY IS ONLY AS HIGH AS IT IS IN THE US. IN NO OTHER NATION IS IT ANY WHERE CLOSE.

Hmm, you need to put on your critical thinking hat, lol.

Let's compare the United States with France. Which country do you think is home to more of the top 500 largest companies in the world?

If the US has 50 companies that make over $10 billion in revenue every year, and France has only 1, obviously CEO pay for US companies (on average) will be MUCH higher.

Again, critical thinking!

Right. Not correct, but I get your drift. So, you are saying that companies in other countries are smaller on average than those of the us. Any proof of that??
Relative to your $10B sized companies, I am not sure how many France has, nor do I care. However, a quick look will tell you that there are over 35 French companies over $20B in annual revenue. So, did you have a point?

The US has over 131 such companies. Dow we need a discussion of numerators and denominators to help you understand how the figures are based?? Because, me boy, the US has many, many more corporations under $10B than France, also. So are you saying that for that reason the US CEO should make less on average??

There's an incredible amount of factors we would need to discuss, but at the end of the day the US is home to a great deal more of the 500 largest companies in the world than any other country and therefore it's not surprising that the overall CEO pay (on average) is much higher.

 

[Rshermr]

Wait, wait, wait......I remeber the people's party lamenting about how the Bush tax cuts ONLY benefited the rich and hurt the little guy. Why was it when they were about to expire, the people's party fought like hell to keep them when supposedly they only benefited the 1%. Were they perhaps lying partisan hacks?

You remember incorrectly. Or said another way, you are lying. It was never that the middle class got nothing, me boy. It was that the primary beneficiaries were the wealthy, while the middle class got little.

But, my poor ignorant con, after a few years of the policy, it seemed only fair that the middle class got something out of the deal while the wealthy stopped raising the deficit for no reason.

The other issue was a simple one, though probably too complex for you to understand. As the cbo has stated, and as the crs has stated, both based on their studies, taxes on the wealthy do not hurt the economy. For obvious reasons. But they do decrease the deficit, also for obvious reasons.

But then, you have to have a brain to actually understand.

Unlike you, I wasn't in diapers back in 2003 or dependent on MSNBC for my opinions..

Democrats.com Archive: Tax Cut 2003

Damn. I wish I was as young as you think. But then, it is just more of your opinion. And WAY OFF, me boy. I was over 30 years out of college by then. And by the way, I do not watch msnbc. Really, stating your opinion without facts is a waste of everyone's time.
So, thanks for your post, which said nothing, and your link, which said nothing, about my post. I guess you are just agreeing with me???

 

[KevinWestern]

There you go. You just showed your problem. You have absolutely no idea what the ceo OR the plant manager does. Makes it really hard for you to say something that makes sense. Which is obvious.

But on the good side, your post was humorous.

I explicitly said that the factory worker's job in both 1970 and 2013 was to check packages for rips, and said the CEOs job was to oversee a smaller company in 1970 and a vastly larger and more complex one in 2013.

That is what both of the people "do", lol.

Rshermr... I'm not following you.

No, obviously not.
So, you are saying that the ceo today does not oversee companies of the size that they were in prior years??? And that his staff has not grown to help him supervise a larger company?? And that companies in other countries do not have ceo's overseeing companies of the same size as the US companies today??? If so, you are wrong in all cases.

You see, what you fail to understand is that as companies grow, so does their staff. The attempt is always to have just enough staff to do the job. So, what was your issue again???

Yes, you have more staff obviously but regardless the guy running the show and keeping everything together and moving in a good direction will have a more difficult time when the company spans 30 nations vs 2 states. Complexity snowballs, and running a company with 800,000 employees is always going to be more difficult than running one with 800, period.

Secondly, I mentioned size and dollars on the line. When a company is worth $70 billion dollars investors obviously will be willing to dish more dollars to ensure their chosen CEO is the cream of the crop than if the company is only worth $10 million.

Point is, when the size of a company grows so does the pay of the CEO.

 

[BillyV]

Considering increasing everyone's wages to $15 an hour who currently makes below that would cost Mcdonalds alone $8 billion

Link?

Here's one: The Real Change In The Cost Of A Big Mac If McDonald's Workers Were Paid $15 An Hour: Nothing <Forbes

This Forbes article strikes me as a little dishonest; the argument made is that if only McDonald's workers were required to make $15 an hour, the prices wouldn't change, on the theory that as a capitalist they are already pricing at the optimum to maximize profits and market share. This is true, though their reduction of profit might make them choose another line of business. However, even the author admits that it would make a big difference if all of its competitors also had a raise in workers pay; then a natural increase to a new equilibrium price would result. As he states in the comments section:

It does indeed matter whether the pay raise is at Maccy D only or across the board. If it’s only at McDonald’s then it’s as above. They can’t raise their prices because no one else is and thus prices don’t rise.

If all wages move to $15 an hour then there will be some mixture of job losses (ie, more automation) and price rises.

But the original question was, what happens to Big Mac prices of McDonald’s pays $15 an hour: which is the question I’ve answered.

 

[Rshermr]

Hmm, you need to put on your critical thinking hat, lol.

Let's compare the United States with France. Which country do you think is home to more of the top 500 largest companies in the world?

If the US has 50 companies that make over $10 billion in revenue every year, and France has only 1, obviously CEO pay for US companies (on average) will be MUCH higher.

Again, critical thinking!

Right. Not correct, but I get your drift. So, you are saying that companies in other countries are smaller on average than those of the us. Any proof of that??

Relative to your $10B sized companies, I am not sure how many France has, nor do I care. However, a quick look will tell you that there are over 35 French companies over $20B in annual revenue. So, did you have a point?

The US has over 131 such companies. Dow we need a discussion of numerators and denominators to help you understand how the figures are based?? Because, me boy, the US has many, many more corporations under $10B than France, also. So are you saying that for that reason the US CEO should make less on average??

There's an incredible amount of factors we would need to discuss, but at the end of the day the US is home to a great deal more of the 500 largest companies in the world than any other country and therefore it's not surprising that the overall CEO pay (on average) is much higher.

So, we have your opinion. Which is that because there are fewer companies in france with over some value of revenue than in the US, then the french ceo should earn less if his company is of similar size. I am sure that makes sense to you. But not to a rational person.

Maybe this will help you understand the exact issue:


Here is the thing, me boy, it is not that US CEO pay is just greater than any other nation as compared to the average worker within his company, but that it is MUCH, MUCH, MUCH greater.
And, unlike what you may believe, the stockholders of a company generally have no say in executive compensation. That is between the CEO and the Board of Directors.

 

[Rshermr]

I explicitly said that the factory worker's job in both 1970 and 2013 was to check packages for rips, and said the CEOs job was to oversee a smaller company in 1970 and a vastly larger and more complex one in 2013.

That is what both of the people "do", lol.

Rshermr... I'm not following you.

No, obviously not.
So, you are saying that the ceo today does not oversee companies of the size that they were in prior years??? And that his staff has not grown to help him supervise a larger company?? And that companies in other countries do not have ceo's overseeing companies of the same size as the US companies today??? If so, you are wrong in all cases.

You see, what you fail to understand is that as companies grow, so does their staff. The attempt is always to have just enough staff to do the job. So, what was your issue again???

Yes, you have more staff obviously but regardless the guy running the show and keeping everything together and moving in a good direction will have a more difficult time when the company spans 30 nations vs 2 states. Complexity snowballs, and running a company with 800,000 employees is always going to be more difficult than running one with 800, period.

Secondly, I mentioned size and dollars on the line. When a company is worth $70 billion dollars investors obviously will be willing to dish more dollars to ensure their chosen CEO is the cream of the crop than if the company is only worth $10 million.

Point is, when the size of a company grows so does the pay of the CEO.

Maybe. But the point, me boy, is that those huge companies exist in many countries, not just the US. And the fact that globalization is ocuring is NOT unique to the US. It is happening in all nations. And your argument that the average us company is larger than those of other countries is a totally vacuous argument. Sorry, you make no sense.

 

[KevinWestern]

No, obviously not.
So, you are saying that the ceo today does not oversee companies of the size that they were in prior years??? And that his staff has not grown to help him supervise a larger company?? And that companies in other countries do not have ceo's overseeing companies of the same size as the US companies today??? If so, you are wrong in all cases.

You see, what you fail to understand is that as companies grow, so does their staff. The attempt is always to have just enough staff to do the job. So, what was your issue again???

Yes, you have more staff obviously but regardless the guy running the show and keeping everything together and moving in a good direction will have a more difficult time when the company spans 30 nations vs 2 states. Complexity snowballs, and running a company with 800,000 employees is always going to be more difficult than running one with 800, period.

Secondly, I mentioned size and dollars on the line. When a company is worth $70 billion dollars investors obviously will be willing to dish more dollars to ensure their chosen CEO is the cream of the crop than if the company is only worth $10 million.

Point is, when the size of a company grows so does the pay of the CEO.

Maybe. But the point, me boy, is that those huge companies exist in many countries, not just the US. And the fact that globalization is ocuring is NOT unique to the US. It is happening in all nations. Sorry, you make no sense.

"Me boy", lol? I thought this was two adults having a conversation. If you want to take this down to a child's level let me know and I'll duck out.

I understand globalization is occurring everywhere (I never disputed that), my claim was that the US is currently home to more of the largest 500 companies in the world than any other country. And, the larger the company, the greater disparity between CEO and worker.

 

[Rshermr]

Yes, you have more staff obviously but regardless the guy running the show and keeping everything together and moving in a good direction will have a more difficult time when the company spans 30 nations vs 2 states. Complexity snowballs, and running a company with 800,000 employees is always going to be more difficult than running one with 800, period.

Secondly, I mentioned size and dollars on the line. When a company is worth $70 billion dollars investors obviously will be willing to dish more dollars to ensure their chosen CEO is the cream of the crop than if the company is only worth $10 million.

Point is, when the size of a company grows so does the pay of the CEO.

Maybe. But the point, me boy, is that those huge companies exist in many countries, not just the US. And the fact that globalization is ocuring is NOT unique to the US. It is happening in all nations. Sorry, you make no sense.

"Me boy", lol? I thought this was two adults having a conversation. If you want to take this down to a child's level let me know and I'll duck out.

I understand globalization is occurring everywhere (I never disputed that), my claim was that the US is currently home to more of the largest 500 companies in the world than any other country. And, the larger the company, the greater disparity between CEO and worker.

You already ducked out. Your argument is spacious. Go back to the comment I made about numerators and denominators. Makes no difference how many are larger than whatever. If you cared to look, you would find that other countries are all well represented in the fortune 500 international list. Sorry you have such a problem with this. The US has 132 companies in the global 500. That leaves 368 in other nations. Try Japan on for size, and explain why the ceo pay there is only 11 times higher than average worker compensation, while the us ceo makes over 400 times more. And why the pay in Venezuela is 50 times workers, ranking number two, while japan is at 11 times workers pay. Get the problem with your argument???

 

[oldfart]

This Forbes article strikes me as a little dishonest; the argument made is that if only McDonald's workers were required to make $15 an hour, the prices wouldn't change, on the theory that as a capitalist they are already pricing at the optimum to maximize profits and market share. This is true, though their reduction of profit might make them choose another line of business. However, even the author admits that it would make a big difference if all of its competitors also had a raise in workers pay; then a natural increase to a new equilibrium price would result. As he states in the comments section:

It does indeed matter whether the pay raise is at Maccy D only or across the board. If it’s only at McDonald’s then it’s as above. They can’t raise their prices because no one else is and thus prices don’t rise.

If all wages move to $15 an hour then there will be some mixture of job losses (ie, more automation) and price rises.

But the original question was, what happens to Big Mac prices of McDonald’s pays $15 an hour: which is the question I’ve answered.

The problem is that the Forbes article is applying a perfect competition micromodel to a price-leader oligopoly industry. Apparently I was in the last generation that taught monopoly and oligopoly theory in micro.

McDonald's is the price leader in fast food burgers so it would look at the market as if it were a monopoly, the price point it chooses would be followed by the rest of the industry (or at least that portion that wanted to stay in business or keep profit margins). In the fast food industry labor costs behave in the short run much more like fixed costs than variable costs, so increases in labor cost don't translate into much change in marginal costs, leaving the price point much the same. Of course the average cost increases, profit decreases, and level of production stays about the same.

The real impact on a firm like McDonald's comes from two other mechanisms. First, workers who make more tend to spend more, and if the wage increase is economy wide, that could be significant depending on the income-elasticity of demand for burgers (yes children, elasticity of demand can be for something other than prices!). My guess is that income elasticity of demand for fast food among minimum wage workers is pretty high. So at any given price, quantity demanded will be higher. I think it's fair to say that price-elasticity of demand in fast food is pretty high, so the marginal revenue curve is pretty steep. In a monopoly/price-leader oligopoly model it's probably discontinuous, so price changes very little as quantity goes up.

Since the American economy is dominated by this kind of industry (price-leader oligopoly) the results will be pretty much the same for any cost increase where fixed costs are high. The price and output effects really depend on the income-elasticity of demand.

Let me make a side note here to defend my comment that fast food industry labor costs behave like fixed costs rather than variable costs in the short run. Food service costs are dominated by the costs of meeting peak period demand each market day. It drives the size of the kitchen, seating area, and parking lot as well as the staffing. You measure efficiency in wait times. In off-peak periods, staff get breaks, go home because they have split shifts, or roll silverware. The industry might be labor intensive overall, but at the start of each shift you have to go with the staff you scheduled. Therefore the wage bill for that staff is a sunk cost; either the kitchen is open or it isn't; regardless if it is raining and no customers show up or if the coupon in the paper really works. In other labor intensive industries like construction, labor does act like a variable cost. A framing carpenter shows up and ill do about the same amount of work the first hour as they do the last hour. Tomorrow they start where they left off today. You can't look at the wage bill and treat it automatically as a variable expense.

The second mechanism is substitution for labor. Theoretically this could be a major factor, but I just don't see it. Substitute for labor with what? And if there is a good substitute, don't you think these large firms would have availed themselves of it anyway? I they could use less labor by better training or work organization, they don't need an increase in wages to prompt them to make such changes.

A couple of comments in closing. The literature for the last 50 years has been unable to make any convincing argument that a higher minimum wage results in less employment and bunches of think tanks have thrown billions of dollars into the effort to produce such a result. It's a damnable lie. Not even a myth. Drive a stake in it's heart; it's been dead a really long time. In fact anyone who opines that minimum wage increases drive unemployment has just proven they have read nothing about labor economics (or get paid a lot of money to ignore what they know to be true if they are economists).

Second, the average wage in the USA is about $24 an hour. It's half that in the hotel and restaurant industry. The minimum wage is $7.25 an hour and as low as $2.15 for tipped employees. I it had kept up with inflation since 1969 it would be a bit over $10 an hour. There is some pretty good economic evidence that the failure of the minimum wage to keep up with inflation is a major cause (probably THE major cause) of both poverty and increasing income inequality over the last forty years.

 

[flacaltenn]

Right. Not correct, but I get your drift. So, you are saying that companies in other countries are smaller on average than those of the us. Any proof of that??

Relative to your $10B sized companies, I am not sure how many France has, nor do I care. However, a quick look will tell you that there are over 35 French companies over $20B in annual revenue. So, did you have a point?

The US has over 131 such companies. Dow we need a discussion of numerators and denominators to help you understand how the figures are based?? Because, me boy, the US has many, many more corporations under $10B than France, also. So are you saying that for that reason the US CEO should make less on average??

There's an incredible amount of factors we would need to discuss, but at the end of the day the US is home to a great deal more of the 500 largest companies in the world than any other country and therefore it's not surprising that the overall CEO pay (on average) is much higher.

So, we have your opinion. Which is that because there are fewer companies in france with over some value of revenue than in the US, then the french ceo should earn less if his company is of similar size. I am sure that makes sense to you. But not to a rational person.

Maybe this will help you understand the exact issue:
View attachment 28306

Here is the thing, me boy, it is not that US CEO pay is just greater than any other nation as compared to the average worker within his company, but that it is MUCH, MUCH, MUCH greater.
And, unlike what you may believe, the stockholders of a company generally have no say in executive compensation. That is between the CEO and the Board of Directors.

Where did those numbers come from? How were they derived? Is that avg ceo to avg worker or wtf are they?

 

[Toro]

I was having a discussion in another thread where the Repubs (usually) would say you cant pay more than what the current Minimum is because product prices would increase.

According to some estimates CEO pay has increased 800% since the 70's. Where is the $34 Big Mac?

How can we increase CEO pay so much and never see an huge increase? How can CEO's get paid so much and no one worries about product price increases?

Now, why does that all change when you talk about Employees pay? Suddenly if you give employees more money explosions, death and famine will ensue?

Because labor costs are the biggest single cost in production. And despite CEO's egregious pay increases, in aggregate, they are very small.

Also, much of CEO compensation comes through the granting of stock options, which takes the bite out of shareholder capital, not production costs.

FTR, there is zero correlation between CEO performance and CEO compensation. It's a joke. And liberals are partly responsible. They passed compensation transparency laws under the theory that shareholders would revolt against CEO pay if they knew. It, in fact, had the opposite effect. Once CEOs saw what other CEOs were making, they all demanded to be paid more, since they all think they are above average. And since corporate governance in this country is very weak, and large institutional shareholders for the most part don't really care, CEO compensation soared way above any reasonable level of performance.

Conservatives reflexively defend this, but I think most don't really understand the dynamic. Business groups primarily represent top management of companies, not the owners of the companies. And top management first represents their own interests, not the shareholders. In business, it's called "the agency problem." This happens because laws regarding corporate governance are very weak, and give shareholders little say in the running of companies.

 

[expat_panama]

... CEO's egregious pay increases...

Wait a sec, other people running their own businesses have agreed to pay their employees an agreed compensation, and out of nowhere you've suddenly taken it upon yourself to proclaim that the amounts are outrageously bad and offensive. So who asked you? I mean, why is it any business of yours what others are happy with and since when did you get to be in charge of the pay reduction police?

 

[KevinWestern]

Maybe. But the point, me boy, is that those huge companies exist in many countries, not just the US. And the fact that globalization is ocuring is NOT unique to the US. It is happening in all nations. Sorry, you make no sense.

"Me boy", lol? I thought this was two adults having a conversation. If you want to take this down to a child's level let me know and I'll duck out.

I understand globalization is occurring everywhere (I never disputed that), my claim was that the US is currently home to more of the largest 500 companies in the world than any other country. And, the larger the company, the greater disparity between CEO and worker.

You already ducked out. Your argument is spacious. Go back to the comment I made about numerators and denominators. Makes no difference how many are larger than whatever. If you cared to look, you would find that other countries are all well represented in the fortune 500 international list. Sorry you have such a problem with this. The US has 132 companies in the global 500. That leaves 368 in other nations. Try Japan on for size, and explain why the ceo pay there is only 11 times higher than average worker compensation, while the us ceo makes over 400 times more. And why the pay in Venezuela is 50 times workers, ranking number two, while japan is at 11 times workers pay. Get the problem with your argument???

The US has 132 companies in the global 500 - 26%. There's maybe 190 countries in the world and ONE is home to nearly a quarter of all of the world's largest companies.

You're damn right that's going to skew things.

Let's start by figuring out the % of country #2 and go from there. Do you know it?

 

[Toro]

... CEO's egregious pay increases...

Wait a sec, other people running their own businesses have agreed to pay their employees an agreed compensation, and out of nowhere you've suddenly taken it upon yourself to proclaim that the amounts are outrageously bad and offensive. So who asked you? I mean, why is it any business of yours what others are happy with and since when did you get to be in charge of the pay reduction police?

Who asked me? My institution owns a piece of almost every publicly traded company in the US. I have worked on issues of corporate governance, and have been part of campaigns to increase shareholder rights and effectuate change that benefits the owners of companies.

But thanks for demonstrating what I said about reflex. I knew at least one of you wouldn't disappoint me.

 

[flacaltenn]

I was having a discussion in another thread where the Repubs (usually) would say you cant pay more than what the current Minimum is because product prices would increase.

According to some estimates CEO pay has increased 800% since the 70's. Where is the $34 Big Mac?

How can we increase CEO pay so much and never see an huge increase? How can CEO's get paid so much and no one worries about product price increases?

Now, why does that all change when you talk about Employees pay? Suddenly if you give employees more money explosions, death and famine will ensue?

Because labor costs are the biggest single cost in production. And despite CEO's egregious pay increases, in aggregate, they are very small.

Also, much of CEO compensation comes through the granting of stock options, which takes the bite out of shareholder capital, not production costs.

FTR, there is zero correlation between CEO performance and CEO compensation. It's a joke. And liberals are partly responsible. They passed compensation transparency laws under the theory that shareholders would revolt against CEO pay if they knew. It, in fact, had the opposite effect. Once CEOs saw what other CEOs were making, they all demanded to be paid more, since they all think they are above average. And since corporate governance in this country is very weak, and large institutional shareholders for the most part don't really care, CEO compensation soared way above any reasonable level of performance.

Conservatives reflexively defend this, but I think most don't really understand the dynamic. Business groups primarily represent top management of companies, not the owners of the companies. And top management first represents their own interests, not the shareholders. In business, it's called "the agency problem." This happens because laws regarding corporate governance are very weak, and give shareholders little say in the running of companies.

Shareholders dont WANT very much say in the running of the company. Not even as much as football fans that might blame the coaching decisions. Exec compensation being mostly equity reassignment is no skin off their backs ----- unless so much stock is going to execs that it affects current value.

There are very few and rare failures of the major ceos. So "performance ratios" are not only hard to measure ---- at that level they are pretty meaningless mathwise. How many failures of veteran NBA players do we witness?

What I want to know is why all this leftist angst over business execs whose cash salaries are often less than actors, atheletes, authors? How come we dont see whining over the comp pkg that sandra bullock pulls on her latest work being compared to ticket takers pittance at your local theatre?

 

[Toro]

I was having a discussion in another thread where the Repubs (usually) would say you cant pay more than what the current Minimum is because product prices would increase.

According to some estimates CEO pay has increased 800% since the 70's. Where is the $34 Big Mac?

How can we increase CEO pay so much and never see an huge increase? How can CEO's get paid so much and no one worries about product price increases?

Now, why does that all change when you talk about Employees pay? Suddenly if you give employees more money explosions, death and famine will ensue?

Because labor costs are the biggest single cost in production. And despite CEO's egregious pay increases, in aggregate, they are very small.

Also, much of CEO compensation comes through the granting of stock options, which takes the bite out of shareholder capital, not production costs.

FTR, there is zero correlation between CEO performance and CEO compensation. It's a joke. And liberals are partly responsible. They passed compensation transparency laws under the theory that shareholders would revolt against CEO pay if they knew. It, in fact, had the opposite effect. Once CEOs saw what other CEOs were making, they all demanded to be paid more, since they all think they are above average. And since corporate governance in this country is very weak, and large institutional shareholders for the most part don't really care, CEO compensation soared way above any reasonable level of performance.

Conservatives reflexively defend this, but I think most don't really understand the dynamic. Business groups primarily represent top management of companies, not the owners of the companies. And top management first represents their own interests, not the shareholders. In business, it's called "the agency problem." This happens because laws regarding corporate governance are very weak, and give shareholders little say in the running of companies.

Shareholders dont WANT very much say in the running of the company. Not even as much as football fans that might blame the coaching decisions. Exec compensation being mostly equity reassignment is no skin off their backs ----- unless so much stock is going to execs that it affects current value.

There are very few and rare failures of the major ceos. So "performance ratios" are not only hard to measure ---- at that level they are pretty meaningless mathwise. How many failures of veteran NBA players do we witness?

What I want to know is why all this leftist angst over business execs whose cash salaries are often less than actors, atheletes, authors? How come we dont see whining over the comp pkg that sandra bullock pulls on her latest work being compared to ticket takers pittance at your local theatre?

First, if you're a capitalist, you should support the owners of companies having more control of their own companies. That we have laws where the CEO can be the Chairman of the Board - you know, the board that oversees the CEO - is bad enough. Executives consistently oppose reforms that give shareholders more say over how their companies are run. From proxy access to say on pay, managements consistently lobby the government - using shareholders' money, not their own - to stop these reforms which benefit the owners. There are hardly any big shareholders on the boards of the largest 1000 companies in America. Large mutual funds would rather dump their shares than spend resources fighting managements, not to mention risk losing out running the company's 401k assets.

Again, broadly, there is zero correlation between CEO compensation and corporate performance, whether that be on ROE, margin expansion, stock price, etc. In fact, there is empirical evidence that suggests boards that hire star CEOs and pay higher compensation do worse than those that promote from within.

Like I said, its not surprising that conservatives reflexively defend management. It's this confusion which allows for poor corporate governance in this country.

 

[expat_panama]

...My institution owns a piece of almost every publicly traded company in the US...

--and you have personally purchased on behalf of your institution shares in companies that are being run in a manner you consider outrageously bad and offensive, and now you are participating willingly and intentionally in this deplorable activity. OK, if your institution is aware of and is happy with what you're doing, then I'll assume that they've made their choice and it's none of my business; but at least we're all clear on what we're doing.

The reason I asked is because just I own a few hundred of the 10K companies listed on U.S. exchanges, but since I'm dealing with my own money I can only afford to buy up those companies with a competent management team.

 

[flacaltenn]

Because labor costs are the biggest single cost in production. And despite CEO's egregious pay increases, in aggregate, they are very small.

Also, much of CEO compensation comes through the granting of stock options, which takes the bite out of shareholder capital, not production costs.

FTR, there is zero correlation between CEO performance and CEO compensation. It's a joke. And liberals are partly responsible. They passed compensation transparency laws under the theory that shareholders would revolt against CEO pay if they knew. It, in fact, had the opposite effect. Once CEOs saw what other CEOs were making, they all demanded to be paid more, since they all think they are above average. And since corporate governance in this country is very weak, and large institutional shareholders for the most part don't really care, CEO compensation soared way above any reasonable level of performance.

Conservatives reflexively defend this, but I think most don't really understand the dynamic. Business groups primarily represent top management of companies, not the owners of the companies. And top management first represents their own interests, not the shareholders. In business, it's called "the agency problem." This happens because laws regarding corporate governance are very weak, and give shareholders little say in the running of companies.

Shareholders dont WANT very much say in the running of the company. Not even as much as football fans that might blame the coaching decisions. Exec compensation being mostly equity reassignment is no skin off their backs ----- unless so much stock is going to execs that it affects current value.

There are very few and rare failures of the major ceos. So "performance ratios" are not only hard to measure ---- at that level they are pretty meaningless mathwise. How many failures of veteran NBA players do we witness?

What I want to know is why all this leftist angst over business execs whose cash salaries are often less than actors, atheletes, authors? How come we dont see whining over the comp pkg that sandra bullock pulls on her latest work being compared to ticket takers pittance at your local theatre?

First, if you're a capitalist, you should support the owners of companies having more control of their own companies. That we have laws where the CEO can be the Chairman of the Board - you know, the board that oversees the CEO - is bad enough. Executives consistently oppose reforms that give shareholders more say over how their companies are run. From proxy access to say on pay, managements consistently lobby the government - using shareholders' money, not their own - to stop these reforms which benefit the owners. There are hardly any big shareholders on the boards of the largest 1000 companies in America. Large mutual funds would rather dump their shares than spend resources fighting managements, not to mention risk losing out running the company's 401k assets.

Again, broadly, there is zero correlation between CEO compensation and corporate performance, whether that be on ROE, margin expansion, stock price, etc. In fact, there is empirical evidence that suggests boards that hire star CEOs and pay higher compensation do worse than those that promote from within.

Like I said, its not surprising that conservatives reflexively defend management. It's this confusion which allows for poor corporate governance in this country.

I realize ive stepped into your turf and your work. But there are ral and tangible args for having the CEO actively hold a board seat. Those professional board members jet in for acouple hours a month and jet out. They are there to assess info that only top daily mgt would be prepared to present. Ive sat on a couple boards od Silicon Valley start ups and information is your friend. I personally think mgt presence ---- NOT DOMINATION --- is agreat idea. Just like I love those rqrd appearances of the brit prime minister before Parliarment. More honest work gets done, then by seaparating the functions like our pres and Congress.

As for those stats on CEO performance, again theres the political analogy of blaming the Prez
or honoring the Prez for economic variables that he didnt influence. The metrics you quoted dont do the job. I dont really NEed a rock star ceo when the venture is going well and roi is rocking. I need the closer type when those metrics are waaaay south of where they should be.