Why do American CEOs get paid so much?

Discussion in 'Budget & Taxes' started by LafayetteBis, Aug 21, 2018.

  1. LafayetteBis

    LafayetteBis Well-Known Member Donor

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    From here: Why do American CEOs get paid so much?

    Excerpt:
    That "beginning in 1978" was actually Reckless Ronnie's rule that actually devastated upper income taxation, as seen here:
    [​IMG]

    What makes anyone think it is fair that ONLY the top-echelon of businesses merit the humongous amount of Wealth derived from stock-options. They did not achieve the results that merited such rewards all alone.

    Upper income taxation must be revised and drastically upwards to reduce America's Income Disparity that is the worst of any developed country in the world ..
    .
     
    Last edited: Aug 21, 2018
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  2. The Don

    The Don Well-Known Member

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    American CEOs get paid so much because the company boards and shareholders think that this is a reasonable amount to pay to secure their services and skills. UK CEOs and executives have done a similar job of persuading.

    They are private companies and are answerable only to the shareholders. To effect change you would have to get the shareholders to to put pressure on the board to reduce CEO pay - there seems little or no appetite for that.
     
  3. HonestJoe

    HonestJoe Well-Known Member Past Donor

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    There is an obvious reason for that. Most shareholdings are held by other big corporations which are led by people who are paid in exactly the same way. It's in their interests to encourage a steady rise in senior remuneration, on the unspoken understanding that the same kind of shareholders in their companies will support their next pay increase too.
     
  4. Wildjoker5

    Wildjoker5 Well-Known Member

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    Because they earned it.
     
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  5. LafayetteBis

    LafayetteBis Well-Known Member Donor

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    Why? Because you say so? That's never was and is not today sufficient!

    What the company board thinks about pay-rises is EVIDENTLY not the most impartial opinion in the matter.

    In fact, the total responsibility for success is shared with all workers in a company, and not just an "elite group" that, since time immemorial have been running companies and, of lately, skimming the best salaries and stock options.

    There is no law that permits them to do so. It's just historical fact.

    But why just them? Because they have decided that THEIR PRECIOUS COMPETENCE is all that is really necessary to run a company. When anybody who has worked in ones fully that success is combined effort.

    So,EVERYBODY should have the same "method of compensation". Not all the same in final amounts, but all the same in the right to share a company's success to which they contributed ...
     
  6. The Don

    The Don Well-Known Member

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    No, because that's the way that the corporate world currently works in the US. In the UK it's marginally different in that there's often a separate renumeration committee, answerable to the shareholders, which controls executive pay but the result is essentially the same.


    True it's not impartial, but legally it's the one which matters.

    One significant difference is that company directors have a different set of legal responsibilities than run of the mill employees but you are right, the most senior members of companies tend to be the best renumerated.

    There are exceptions, team sports stars are often the best paid, I've known sales people with commission structures that can end up with exceptionally large bonuses but by and large company directors are the best paid.

    You're quite wrong the laws absolutely permit them to do it, what the law does not do is compel them to do it - there's a big difference.

    For the same reason that the star quarterback is paid many times more than the sixth-string rookie defensive lineman - a perception that their skills are more valuable, and in shorter supply. There are very few people who can do an exceptionally good job of running a company. There are a lot of people who can do a mediocre job of whatever the company does. The market allegedly reflects that comparative shortage.

    That said, the demand for executives seems to be so large that some pretty mediocre ones seem to being rewarded as if they were exceptional. It seems to be the same in the Premier League in England - pretty poor footballers are being exceptionally well paid.

    It's a reasonable aspiration and many companies do adopt that model (I'm still reaping the benefits of stock I received working as a Project Manager over 20 years ago from a particularly farsighted employer) but then again the proportionality would likely be different. Executives often work for a comparatively modest salary and a much larger reward in stock. Regular employees cannot wait for years for stock options to exercise to pay their gas bill. There's also the matter that it's quite easy to provide a handful of executives with a lot of shares but shareholders would be unhappy with their holdings being diluted by large numbers of shares being issued to the general employees.
     
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  7. LafayetteBis

    LafayetteBis Well-Known Member Donor

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    But in the UK (and the rest of Europe) executive-level income taxation is not the least bit the same as the US.


    What is law is legal. Change laws regarding a subject is sufficient.

    That takes courage, and in country FIXATED on excessive income that change will be very difficult if not impossible.

    As I've said above, legal responsibilities are a matter of law.

    And in the US, the law governing corporate matters is one of the most lax in the world. Upper-income taxation is a disgrace that leads to the US having about the same Income Disparity as China (when measured by the Gini Coefficient, as shown here.)

    Income Disparity is THE MAJOR FAULT of America's market-economy, allowing most taxable-income to become Wealth and (less Debt) Net Worth:
    [​IMG]


    The unfairness of Net Worth in America is glaringly obvious... and the situation has only worsened since the timeframe shown above. And unless one is blind to the above colours, the fact of the mater is that 35% of the American population has No Net Worth Whatsoever!

    Football is a poor counterpoint for any market-economy.

    I've spent a life-time in upper-management and I know well the animals that inhabit there.

    The American system is a rip-off for that special class of people because Upper-income Taxation is so very low in America at that level. It's indecent.

    The American system is a ripoff that benefits a highly select minority group of families.

    It needs to be changed if the "fruit of our labor" is to be more equitably shared amongst us. Not all equally, but all equitably ...
     
    Last edited: Aug 21, 2018
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  8. The Don

    The Don Well-Known Member

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    I can appreciate your heartfelt sentiments but the attitudes and policies that lead to high degrees of income and wealth inequality and low levels of social and economic mobility seem to be hardcoded into American society.

    Income and wealth inequality is relatively low and social and economic mobility is relatively high when there is highly progressive income and wealth taxation and when labour is strongly organised. This is apparent both when comparing contemporary countries, and looking back at the US's history.

    Both of these seem to run counter to the American core values of independence and looking after oneself and ones family rather than relying on the government. It's notable that the period where the working and middle classes did best in the United States followed two quite exceptional events, the Great Depression and World War II. In both cases, the threats that the US faced were so severe that for once, individuals were prepared to see themselves discomfited for the common good. Once those threats passed, Americans reverted to their more typical independent ways, organised labour fell (further) into disrepute and people clamoured for tax cuts.

    American business simply reflects American society and so asking for anything that smacks of socialism (like punitive tax rates for the highest paid) simply won't get any traction because it's anathema to American societal mores.
     
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  9. LafayetteBis

    LafayetteBis Well-Known Member Donor

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    They were also "hard-coded" into society before 1776. We learned differently afterwards, didn't we?

    A bit later along came Marx and Engels in the 19th century that poised the question differently. That is, openly questioning the mad rush for capital accumulation that the demise of the Agricultural Age and the rise of the Industrial Age brought with it.

    I live in a capitalist market-economy, because it is the only one that functions properly. But, like many others, I recognise the fact that THERE MUST BE A LIMIT TO CAPITAL ACCUMULATION. Why? Because wealth itself is nice, but exorbitant capital worth by a select and disproportionately small group of families provokes dangerous Income Disparity. (Which is at the heart of most societal dysfunction since Roman Times.)

    I am not proselytizing for anther physical revolution, but more one of mentality. The US has become fixated on Wealth Accumulation as if it were some Red Badge of Courage and intelligence.

    It aint ...
     
    Last edited: Aug 22, 2018
  10. The Don

    The Don Well-Known Member

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    I disagree. IMO America was founded on the principles of self-sufficiency, individualism, a distrust of government and low (or no) taxation.

    And Marx and Engels got very little traction for their ideas in the United States.

    You may think that, but it's very much a minority view in the United States. Because of a variety of things in the US creation myth including the Revolution itself, Manifest Destiny and the American Dream, accumulation of wealth is at the core of US society and US values.

    The only time that there has been any significant push-back IMO was during the Great Depression and World War II because the US itself was in danger but even then, the usual pattern reestablished itself pretty quickly.

    Since before its foundation as an independent country, the US has been a magnet for the ambitious and entrepreneurial. Wealth Accumulation is written into the national DNA. This isn't a recent thing, it's at the core of national values IMO.
     
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  11. LafayetteBis

    LafayetteBis Well-Known Member Donor

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    The principles of democracy were ignited as a bonafide rule for mankind in the mid-18th century. Particularly in two countries, France and the American part of England (at the time).

    All they wanted in the first version of democracy was freedom from an autocracy.

    Which is why what is happening in LaLaLand today has a special meaning that is being totally overlooked by mainstream America.

    A lot of ideas get no immediate traction in the US. The country is fixated upon amalgamating wealth for a privileged few. All else is secondary.

    Which is not exactly fertile ground for a more fair Income Disparity. Europeans who watch American television keep telling me of their amazement for the almost unique fixation on "earning money, money, money".

    You hope. American independence at first was also a minority view.

    Time will tell. Till then, my family is benefiting TODAY in a National Healthcare System that costs far far less than yours, and Tertiary Education system that costs about $1200 a year plus room&board.

    And where some countries actually have the courage to test the notion of a guaranteed government subsidized Minimum Wage.

    Times change, and ideas change as well.

    BS. There is no such thing as a national DNA.

    And ultimately, all that matters in any truly Fair Economy is Income Equality, and the US is the most afflicted developed nation - see here. Note in that link that in terms of "Relative Income Poverty" the US is at 16.8% and most European countries between 6 and 11% ...
     
  12. The Don

    The Don Well-Known Member

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    Nevertheless, the founding principles of the United States are:

    - Freedom, both individual and from government interference
    - Individualism, and individual accountability
    - Low (or no) taxation

    Which is why it's so hard to swim against the tide and propose an alternative based on increased government involvement, collectivism and higher taxation. That approach works well in, for example, Scandinavia but that's because it's more in tune with Scandinavian society.

    It's not just that Marx and Engels have gained so little traction over the last 150 years - IMO it's a little late to hope for a turnaround now - it's the fact that the US seems determined to head in the other direction by increasing inequality and reducing mobility.

    You haven't got a clue what you're talking about. A couple of protips:

    Before you start putting words in other people's mouths - you may want to learn about their values and political beliefs and leanings.

    Before you start comparing your country to theirs - you might want to find out where they live.

    True, but the current direction of change in the US is away from the relatively brief period where collectivism was, if not embraced, at least tolerated and organised labour was seen as a good thing to a society based solely around the individual.

    You're absolutely correct, there is no national DNA. There are however attitudes which are very deeply ingrained. Wealth accumulation is one of those things which the US has both aspired towards and indeed celebrated (as opposed to, say, some European countries where overt demonstrations of wealth and success are considered vulgar).

    The United States is a highly unequal country with very low levels of social and economic mobility but that's a feature, not a bug IMO.
     
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  13. LafayetteBis

    LafayetteBis Well-Known Member Donor

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    They are answerable to the will of the people as expressed by a government ...
     
  14. The Don

    The Don Well-Known Member

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    Nope, answerable only to the shareholders. The board have no obligation to the people or the government. The board have no obligation to the baying mob at the door, indeed if they work against the shareholders' interests in favour of the mob they will find themselves facing legal problems for failing their duty.

    The government are free to change the laws, and the board will almost always change how they operate but only because it's also in the best interests of the shareholders. In exceptional circumstances, for example if the government gave itself the power to seize the company's assets, the board would be duty bound to resist.
     
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  15. kazenatsu

    kazenatsu Well-Known Member Donor

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    I suspect a large part of the reason is fewer CEOs per capita. In other words the country is larger so many of the companies are also larger.

    Also the cost of labor is lower in the U.S. which may be having some effect.
     
    Last edited: Aug 23, 2018
  16. Reiver

    Reiver Well-Known Member

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    Ironically it is transparency that feeds CEO wages. Its never been about their worth. After all, they're just top of the pile of an inefficient hierarchy. However, its now about the destruction of any resemblance of social norms. They compete amongst themselves, ensuring that compensation rockets without any performance rationale.
     
  17. drluggit

    drluggit Well-Known Member

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    I see threads like this and wonder, do we not care about how much folks like Lebron or Girappolo, or Tiger, or Madonna, or who ever celebrity is also raking in the dollars? Or how about the folks using their legislated monopolies to amass the wealth they do? Do we care about what the income level of the average regional drug lord makes?

    I'll be brutally honest here. The hypocrisy of the progressive narrative is astounding. Ben Affleck can make $100M in a year, but the person who runs ATT can't make 20M?
     
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  18. Reiver

    Reiver Well-Known Member

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    "There's more than one inequality, so let's ignore inequality" old chestnut? Sorry, won't wash.
     
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  19. drluggit

    drluggit Well-Known Member

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    Nah, it isn't a question of identifying other types of inequality. The conversation is about targeting specific examples, and ignoring others, ie the hypocrisy of it. I was pretty clear on that. So, the only one introducing the spin here is you. The question is why? Why the hypocrisy? And why don't we care that these aren't actually considered as inequities by the left?
     
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  20. Reiver

    Reiver Well-Known Member

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    Referring to CEOs just makes sense. Its indicative of changing inequality, with more extreme forms occurring without economic rationale. That its within the same compensation hierarchy impacting on Joe Pleb makes it doubly interesting. It becomes a means to test the validity of productivity theory.
     
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  21. drluggit

    drluggit Well-Known Member

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    Translation... wall of text... no answer, unsubstantiated assertion. Got it.
     
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  22. Reiver

    Reiver Well-Known Member

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    I appreciate economics is beyond you, but try. At least try!
     
  23. drluggit

    drluggit Well-Known Member

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    Funny. I suspect that you needed to type that to make yourself feel better. Got it. Go ahead. Explain how productivity theory discounts or otherwise ignores celebrity or hero worship. I'll wait.
     
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  24. Reiver

    Reiver Well-Known Member

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    Again, you can't take one inequality and use it to ignore another. That isn't logical.

    Let's simplify it down for you. See the organisation as a pyramid. Workers down the bottom; CEO at the top. Then see an internal labour market within that organisation which sets promotion opportunity and wage increase according to some artifical human resource management technique (e.g. seniority pay). If the top of the pyramid breaks from that system (and, given the growth in CEO pay, it has), then it must be the case that the hierarchy is even further away from productivity criteria. It might also help explain phenomena such as the productivity gap (e.g. steeper compensatory gains higher up the internal labour market, paid for by increased underpayment lower down).

    Now I know I won't get anything sensible back. But finger's crossed just the same!
     
    Last edited: Aug 24, 2018
  25. drluggit

    drluggit Well-Known Member

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    Hmm... the dummy down approach. Sweet. Ok. So, a CEO is the executive head of a global company that has 13 lines of business for which he is responsible for. He has 13 presidents of those lines of business who report to him. They are responsible for their line of business. Under each of those are legions of executive directors/VPs who direct and manage the business components for each line, and my represent as many as 20K employees per business function depending on the organization. The accountability here is staggering. Take the individual worker. Let's say this is manufacturing, and the individual worker who assembles say a widget onto a circuit board. That individual is responsible for the correct placement, affixation, and testing of this. They then pass that along. Worker makes 60K. (union shop). His immediate supervisor is responsible to make sure that this worker, and the other 8 on the team all perform the same task set to the same standards. The supervisor makes 75K. And for that, they take on the responsibility and accountability of the work produced by his team. The supervisor reports to a line manager. The line manager has 7-10 supervisors for whom they are responsible for maintaining the more complex function ensuring the entire sub assembly they manage is built to spec and standard. Manager makes 90-100K. The plant the manager works in has a general manager who is responsible for the 4-7 managers building the sub assemblies his plant if responsible for, as well as making sure that all of his back office, supply chain, and support services all work seamlessly to produce to the plan, and do so efficiently, and meets a target for the financial cost of all of these services. General Manager makes 150-200K.

    That plant manager falls under a regional group manager who is responsible for several 2-4 plants each of which produce a set of sub assemblies that are then assembled in a final assembly facility for which he is the general manager of. He is responsible for the quality, the supply chain, the facilities management, and all of the other ancillary business functions, including growth planning, and future target planning for his group. This manager makes 200-250K. The business line director then manages several regional managers. They are responsible for the planning, direction, and execution of the target for their function. They are responsible now for several thousand employees. This director is making 250-400K. This director reports to a VP along with the 2-5 other directors who own the product lines all of the manufacturing services are producing. This VP is then responsible for ensuring their ability to meet the plan, execute the budgeting and ensure adequate staffing is available, and all necessary resources from supply chain to manufacturing services management to product design implementation are met. This VP makes maybe 500K. There are 8-15 product lines being managed by the VPs and these VPs report back into a line of business President. The CEO if you will for the line of business. They direct and manage the output, and targets for the individual product lines of production within the line of business, as well as ensure all critical business tasks, reporting, compliance etc are being adhered to. This person is making somewhere north of $1M. And depending on the actual PnL for the line, may actually be getting paid significantly more than $1M.

    This leads us to the executive committee. This includes all of the C Level executives who manage all aspects of the far flung entreprises of our global company. These professionals make 500k-1M. It is entirely possible though, that because of some tiering within the C level, that some of these members, (CFOs CTOs, etc) may also be making a lot more, say several $Ms.

    And then, the CEO. This person is ultimately responsible for the multi billion dollar apparatus. Soup to nuts. Is responsible to the board, and the shareholder (if they are public) for the return on investment for all of their lines of business. They manage the C level team, function as the chief marketing person for their respective brands, and ultimately have the responsibility of all of those employees who work for that organization. CEOs compensation packages for public corps is published info. The board is responsible for the salary and compensation packages offered. These professionals are likely long time employees, success stories within these organizations who have work their way through their organizations in ascending levels of responsibility throughout their careers. The make what the boards offer. In my org, they make a lot. in the 10s of $ms. This of course also includes their performance bonus packages that are always associated as ownership, meaning stocks. So say base salary, (real money of $5M), and performance bonuses beyond that. Since this is all public record, We can actually know this.

    Now this one person is responsible for the 10s of thousands of employees who work for the org, and is responsible to the shareholders for the successful production of the billions of dollars in revenue the organization produces.

    I know, it's trite to think that on any given Sunday, the guy from the shop floor might fancy themselves the heir apparent. The reality of the size and scope of the position however, vastly outstrips the ability of the vast majority of folks to accomplish successfully, which is why, globally, there are so few of them. And fewer yet who are consistently successful.

    Now, compare that to Ben Affleck. He mumbles for a couple hours badly destroying prose that frankly wasn't that inspired to begin with. He commands 20M a film. He's maybe responsible for a team of less than 40 people, and might be lucky to gross 100M a year depending on how ambitious his work schedule is.

    Truly, from a productivity perspective, the "value" is actually something that can be compared, even though, clearly, they are not comparable.
     
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