A question, CEO pay versus regular worker pay ?

[Mdlerth]

I'll take one for the team

...As a non-stockholder, I don't care how much the CEO makes, nor should I have a say.

No one forces me to own stock in a company whose policies I don't agree with...

+1

This echoes one of my (sadly too few) principles: whether I agree or disagree with something is relevant only to the extent that it's any of my beeswax.

I'm a senior engineer, not a CEO, nor do I hold equity positions significant enough to influence the compensation any executive receives.

Of course, there is a major conflict in that the remuneration of the highest-paid person in the company is determined by a Board of Directors, many of whom owe their seats to that person. Obviously the only solution is to put some senior engineer in charge of determining pay scales throughout the company. I, reluctantly, volunteer for the job.

 

[6miths]

Personally I don't see the point of threads such as this as it seems that few will be swayed from their positions. I think that on balance there is fairly good evidence that the wider the extremes of income and wealth in a society the more 'unhappy' and prone to crime and upheaval it tends to be. It is pretty certain that being rewarded for one's work and innovation is very important to overall progress but taking the principle to extremes is potentially dangerous. And of course, the current system does not guarantee that the 'rewards' are being fairly distributed as certain segments have clear advantages.

 

[copyright1997reloaded]

You are obviously not an indexer, nor an MF shareholder.

A large percentage of my equity allocation is in individual stocks, but I still have quite a bit in ETFs.

And I will admit that I do not know all the things that are going on at the corporations that I own, although the infamous CEOs that I do not care for, I stay clear of their stocks. Have not shorted any, but maybe sometimes...

If you have a pension, you do not have a say in how the pension manager invests. That's why Bogle pushed for activism by institutional investors.

About 1/3 of my net wealth is in individual equities. I won't invest in companies that have non equal voting shares, such as Facebook. Others may choose to disagree with my philosophy and thus invest in these types of enterprises.

In terms of mutual funds, if I think that it is important, I could always offset the passive mutual fund investment in a company whose policies I disagree with with a short of equal amount (to my share of the passive fund investment).

In terms of a pension, in reality I don't own anything but the income stream provided by the defined benefit plan. It is up to the company providing that income stream to determine what investments best fulfill the amount, and I should have no say in how that do that.

If one is 'bothered' by index mutual funds investing in certain companies, they shouldn't buy the index. Frankly, I very much dislike the current trend to weaponize economics, e.g. boycott companies, pester fund companies (like Black Rock), and so on. I think it is dangerous for our economy and dangerous for our country in that it just ratchet's up the "us vs. them" mentality.

 

[Texas Proud]

/snip/



And the point isn't that they shouldn't be paid more, but rather that the jump from the 20-to-1 ratio in 1965 to the 59-to-1 ratio in 1989 to the 286-to-1 ratio in 2015 was both unjustifiable and harmful to society. Again, short term analytics leads to myopic conclusions; to understand the problem requires higher-order considerations, such as the mature judgement that values people more than numbers, and integrates compassion and justice into conclusions.

But things have changed over the years.... I will give one example... banking...


Back in the early 80s there were over 14,000 banks... now there are less than 5,000... what happened? Well, mergers.... back then the largest banks had total assets in the $100 billion range... today that is over $2.5 trillion... it is much harder to run a bank that is 25X larger, but there is only one CEO.... the person down at the retail level is roughly doing the same job, doing deposit, making loans etc. etc.... sure, there is more skill needed today for that person, but not as much as the CEO...


I would also say that this is happening to many industries... the number of high level CEOs have been reduced....




BTW, if you are in a mid to small company that ratio is not as far out of line as these top companies...

https://ycharts.com/indicators/us_number_of_commercial_banks

 

[Mr._Graybeard]

A factor in the jump in CEO pay, I believe, is the rise of the investment fund. They tend to be very passive shareholders when it comes to the management of the businesses they invest in; fund administrators tend to be more concerned about the bottom line than how the company gets results. And that relates only to actively managed funds -- the indexers have no interest in a company other than its place on a list.

Many large corporations are mostly owned by institutions. MMM, for instance, has 66% institutional ownership. The biggest shareholder is Vanguard.

 

[Rustward]

All this debate aside, isn't this compensation issue (compensation across all levels) just free enterprise in action? I don't think employers want to or will pay one cent more than they have to to get the employee they need.

 

[bUU]

Instead you are making an emotional argument.

Not at all. I'm making a moral argument, as is always the case with regard to matters of humane consideration and Justice.

 

[bUU]

...but it doesn't pay the bills.

As my grandfather once told me "you want to make nice and feel good, go to church. This is a business; people come here to make money so they can eat".

This isn't just a matter of running a business. It is also a matter of how businesses should be *allowed* to run themselves.

 

[bUU]

Personally I don't see the point of threads such as this as it seems that few will be swayed from their positions.

That's generally the case for all threads where people disagree. The point of such threads is with regard to people reading the thread not those posting to it.

 

[Montecfo]

Not at all. I'm making a moral argument, as is always the case with regard to matters of humane consideration and Justice.

You can do more to exercise your moral values than post on a message board. You could do something about it by using some of your resources to help those who make less income than you do. That would include most of the world I suspect.

And a good place to start in my opinion would be internationally, among agrarian cultures where there is real poverty, as opposed to among employees of large corporations.

Otherwise, you are simply stating a view as opposed to voting your conscience with your dollars.

Just another view.

 

[bUU]

You can do more to exercise your moral values than post on a message board.

And I do, but this thread isn't about me, so please don't make it about me or any one person. (For example, I won't ask you whether you allow profit or moral values to prevail in your life, because this thread isn't about you just like it isn't about me.) This thread is about a society within which CEO pay is so drastically higher than regular worker pay, and continuing to skyrocket, and my point questions whether that should be allowed to continue, whether the change since 1965 should be reversed, whether allowing the profit motive to prevail over humane considerations and justice should be condemned, etc.

And as mentioned earlier this morning, it really isn't about getting anyone posting to the thread to post, "Oh gosh I've been completely wrong. Reverse everything I've ever posted about this topic." Rather, it's about getting people who are not so beholden to one perspective or another to consider what they want to allow drive their behaviors and actions more, profit or moral values.

 

[joeea]

It's simple supply and demand. The demand for people to carry out such roles has increased while the supply of people willing to take them, and deemed qualified to be in them, has not.

You are saying that there are a lot more companies that need CEOs than there used to be 10 or 20 years ago?

And somehow the supply of MBAs and others capable of being CEOs hasn't increased in that same time period?

 

[joeea]

Back in the early 80s there were over 14,000 banks... now there are less than 5,000...

I would also say that this is happening to many industries... the number of high level CEOs have been reduced....

Hmm.

But if supply and demand was really in play more, wouldn't this depress the salary of CEOs? After all, you had 14,000 banking CEOs. And now less than 5,000 banking CEO positions.

 

[Montecfo]

And I do, but this thread isn't about me, so please don't make it about me or any one person. (For example, I won't ask you whether you allow profit or moral values to prevail in your life, because this thread isn't about you just like it isn't about me.) This thread is about a society within which CEO pay is so drastically higher than regular worker pay, and continuing to skyrocket, and my point questions whether that should be allowed to continue, whether the change since 1965 should be reversed, whether allowing the profit motive to prevail over humane considerations and justice should be condemned, etc.

And as mentioned earlier this morning, it really isn't about getting anyone posting to the thread to post, "Oh gosh I've been completely wrong. Reverse everything I've ever posted about this topic." Rather, it's about getting people who are not so beholden to one perspective or another to consider what they want to allow drive their behaviors and actions more, profit or moral values.

Well, I am glad that you do. Taking actions is a better way to make a difference about causes you believe in than posting on message board.

I do not see worker and CEO pay as linked. But I strongly believe in self-help, and I believe people who wish to be paid more should take the initiative to seek training and qualify themselves for higher paying jobs. I also believe no one should feel obligated to stay in a job that is paying less than market for their skills. If they are correct in that assessment, they should find higher paying opportunities easily.

 

[youbet]

How is COL in Mass? Can I live on $80k there? I'll start packing tonight! Now to just learn to like kids... J/K

MIMH

You might want to check that data point........ Pay for experienced elementary teachers in Massachusetts is significantly below that. Marko's DIL may be in some sort of special situation.

Average Teaching Salary in Massachusetts | TeachingDegree

Elementary School Teachers Except Special Education $68,360

Note that $68k number is a mean which includes experienced teachers far along on the pay scale. Teachers early in their career would be significantly less. It's also the average for all parts of the state and there is significant variation from place to place in most states.

BTW, during your interview, you might want to fib a bit about your motivation being to have summers off and that you don't like kids......... just sayin' ! Competition for teaching jobs in a high paying state like Mass might be tough.

 

[marko]

Rather, it's about getting people who are not so beholden to one perspective or another to consider what they want to allow drive their behaviors and actions more, profit or moral values.

Seems to me, arguing the shortcomings of capitalism on a forum largely inhabited by self-made millionaires (and hopefuls) is going to be a hard sell.

 

[marko]

You might want to check that data point........ Pay for experienced elementary teachers in Massachusetts is significantly below that. Marko's DIL may be in some sort of special situation.
.

Not that I'm aware of. She's 27 years old and in her second year of public elementary school teaching 3rd grade. Once she gets her Masters (required to teach in Mass) she's supposed to get a raise. Right now, as long as she is going to school for her Masters she's good.

It seems to vary town to town and she works in one of the most expensive towns in Mass; folks with a lot of interest in school quality.

 

[Texas Proud]

Hmm.

But if supply and demand was really in play more, wouldn't this depress the salary of CEOs? After all, you had 14,000 banking CEOs. And now less than 5,000 banking CEO positions.

Yes, but back then a CEO could be someone who was not qualified to run an institution that has more than 100 billion in assets... back then there was only 1 bank that had over 100 billion.... now there are 39... so the need for competent bank CEOs have increased significantly.... with 2 over 2 trillion dollars (think the size of a small country)....





And those small banks that still have a CEO are not paid a huge amount over their lowest employee... it is only the large mega banks.... and I would say the same for small tech firms compared to mega tech firms...




In the end we are talking about maybe 500 to 1000 people and their total compensation is not going to move the needle on the US economy...




I had also pointed out that making a bad decision can be devastating to the company, even the big banks... look at Wells now and most of the big banks back in 06 to 08...

 

[copyright1997reloaded]

And I do, but this thread isn't about me, so please don't make it about me or any one person. (For example, I won't ask you whether you allow profit or moral values to prevail in your life, because this thread isn't about you just like it isn't about me.) This thread is about a society within which CEO pay is so drastically higher than regular worker pay, and continuing to skyrocket, and my point questions whether that should be allowed to continue, whether the change since 1965 should be reversed, whether allowing the profit motive to prevail over humane considerations and justice should be condemned, etc.

And as mentioned earlier this morning, it really isn't about getting anyone posting to the thread to post, "Oh gosh I've been completely wrong. Reverse everything I've ever posted about this topic." Rather, it's about getting people who are not so beholden to one perspective or another to consider what they want to allow drive their behaviors and actions more, profit or moral values.

Allowed? By whom? The stockholders of a company allow it or don't allow it. Period. They are the owners of the company, not you, nor the government.

Or maybe I will look at your wealth, your income, your lifestyle, and maybe I will allow you to have what you have. Is this the society you want?

 

[youbet]

Not that I'm aware of. She's 27 years old and in her second year of public elementary school teaching 3rd grade. Once she gets her Masters (required to teach in Mass) she's supposed to get a raise. Right now, as long as she is going to school for her Masters she's good.

It seems to vary town to town and she works in one of the most expensive towns in Mass; folks with a lot of interest in school quality.

Seems like she's the benefactor of regional pay variation within the state. The average for all elementary teachers (omitting special ed) in Mass is about $68k. This would include those with years of experience who are far up the salary chart.

So, good for her! At $80k, she's making far more than the average elementary teacher in the state, a favorable scenario for sure! She apparently got into a high paying region and is reaping the benefits.

 

[joeea]

I had also pointed out that making a bad decision can be devastating to the company, even the big banks... look at Wells now and most of the big banks back in 06 to 08...

So they need to pay huge bucks to the CEOs, so they can be sure to select candidates who will avoid costly bad decisions?

 

[Mdlerth]

The buck stops nowhere

All this debate aside, isn't this compensation issue (compensation across all levels) just free enterprise in action? I don't think employers want to or will pay one cent more than they have to to get the employee they need.

Excellent point!

Of course, the answer might actually be "No." Not so much "free enterprise" as "collective irresponsibility".

Maybe the issue of CEO compensation has nothing to do with whether executives work hard or take risks or bear responsibility or make wise decisions or contribute more than ordinary workers.

Similarly, the skewed (I'm using this as a statistical descriptor, not a judgemental one) distribution of the corporate payroll may have nothing to do with ethics or social justice or the moral duty of shareholders.

Unlike ordinary employees, who are hired into highly structured pay levels and comp groups and seniority steps, an entirely different set of rules is applied to top corporate officers.

Consider that perhaps nobody is really in charge of executive pay. For decades, Megacorps have been delegating this task to byzantine structures carefully crafted to prevent conflicts of interest by compartmentalizing responsibility. The result is that nobody is responsible.

When authority is sufficiently dispersed, there isn't anybody who can control anything. Any number of individuals - large shareholders, Board members, appointees to the Committee on Compensation, the CEO, the Chairman (who may NOT be same as the CEO) - all may have influence, but influence isn't the same as control.

If you think the natural inclination of any of those folks is to suppress how much of the company's money goes to their fellow insiders, think again. They're all Members of the Club, you see. Even when a rebellious board ousts a misbehaving CEO, it will soften the blow with a comfy golden parachute.

It's human nature to think that we deserve a raise each year, whether we mop the floor or run the whole show. So with a constant pressure to boost the boss's pay, and no genuine responsibility or authority on anybody's part to rein it in, The Man's take will just naturally keep growing indefinitely. Probably the only mechanism that ever will limit it is when the money runs out.

That's my 2¢. Try getting anything from a CEO for that much!

 

[bUU]

But I strongly believe in self-help, and I believe people who wish to be paid more should take the initiative to seek training and qualify themselves for higher paying jobs.

I think that that's missing the point, though. My concern isn't about any specific people getting paid more but rather with regard to how the society within which we live treats its most vulnerable members.

Seems to me, arguing the shortcomings of capitalism on a forum largely inhabited by self-made millionaires (and hopefuls) is going to be a hard sell.

I don't think being a millionaire means that one must necessarily abhor humane consideration and justice. Bill Gates comes to mind as someone who acknowledges a responsibility to parlay affluence into a force for positive change in places where our world has grievously failed with regard to humane consideration and justice. Warren Buffet has directed millions to advancing the rights of and protection of girls and women. They both were motivated by an understanding of the suffering that was still left behind despite civilization's best efforts and an appreciation for the fact that it is the strong who are responsible for addressing such failures, not the weak. Yet despite their efforts, economic injustice continues to get worse. Clearly, self-motivated people are making things worse faster than generous people are doing good work, so more change is needed - more change in the direction of humane consideration and justice.

Allowed? By whom?

By society. Every bit of our affluence comes from our leveraging the opportunities afforded to us by society, the monetary system, the courts, policing, etc. Whether we're paying a fair share is a question that needs to be asked continually as long as injustice is so pervasive. But no one should be expected to shoulder such burdens alone. We're all leveraging these opportunities for our benefit; we're all responsible for the failings of the system with regard to its most vulnerable members.

Tangentially related to this topic ...

The Starbucks racial-bias education day will be an interesting case study. Here we have a profitable enterprise. While they still pay their CEO an obscene amount of money compared to their regular workers, they're closing their stores for a day and paying their staff to attend training which, even if there could be a cost-benefit analysis made that shows a positive return from this specific decision, all evidence points to the fact that they didn't even bother. On the basis of humane considerations and justice they decided this course of action, because it was the right thing to do. There are still many things that many businesses do because it is the right thing to do - less than in the past, perhaps, but still.

 

[exnavynuke]

And I do, but this thread isn't about me, so please don't make it about me or any one person. (For example, I won't ask you whether you allow profit or moral values to prevail in your life, because this thread isn't about you just like it isn't about me.)

This thread is about a society within which CEO pay is so drastically higher than regular worker pay, and continuing to skyrocket,
A. and my point questions whether that should be allowed to continue,

B. whether the change since 1965 should be reversed,

C. whether allowing the profit motive to prevail over humane considerations and justice should be condemned, etc.

And as mentioned earlier this morning, it really isn't about getting anyone posting to the thread to post, "Oh gosh I've been completely wrong. Reverse everything I've ever posted about this topic." Rather, it's about getting people who are not so beholden to one perspective or another to consider what they want to allow drive their behaviors and actions more, profit or moral values.

A. I see no problem with it existing or widening, thus I see how reason to not allow it to continue.

B. I see no problem with the change, thus I see no reason to try and reverse it.

C. I see no humane or justice consideration in the discussion at all, thus see nothing to address.

A CEO getting paid 1,000x or 10x my salary does not prevent me from living with the freedoms of this country, from earning money equivalent to what the market deems my particular skills/experience/education work, or in any other manner significantly impact me or my ability to buy products (their pay isn't vastly inflating the costs of the products I buy for instance). Since I can't think of anyone that is unable to afford the basics due to CEO compensation, nor have I heard of anyone that is unable to achieve their reasonable goals in life because a CEO is paix $X more than the lowest paid worker, I find the whole discussion to be one of irrelevance. The two pays have nothing to do with each other and the CEO's pay has effectively no substantial impact on anyone.

As no one has yet to explain to me why it's "bad" for a CEO to make a lot more than the lowest level worker (other than threats of low paid people deciding violence is the answer to this non-problem), I see no problem at all.

 

[pb4uski]

.... Oh gosh I've been completely wrong. Reverse everything I've ever posted about this topic. ....

Noted. Thanks for the update.