No, this can't be said for every other employee. The best warehouse worker is not adding $1B or anything close to it to the bottom line.
It can be said for some programmers and these programmers do tend to make lots of money. (Though in many cases they are given titles other than "programmer", e.g. "managing director" of a team of 0.) See also top traders - at many firms they can make more than the CEO.
The fact that not all CEOs are perfect doesn't contradict this claim. In fact, if you are attributing JC Penny's 32% loss to the CEO you are supporting the claim of gizi.
Here is an article that shows that higher pay only increases performance until a point, then performance drops: http://eganassociates.com.au/high-ceo-pay-inspires-better-pe... These results came from data that compared CEO remuneration to average employee remuneration. This directly contradicts what Gizi was proposing, because the real world data shows a negative correlation between CEO pay and performance after a point. The full paper is available here http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2529112 if anyone is interested in it.
Consider the GFC, it shows how well upper management really stuffed things up at the largest companies and still got away with it, no problems, still getting huge payouts for sub par leadership. Yet when things go well, the CEO gets bonuses for things that may have had nothing to do with them. Random fluctuations are wrongfully attributed to CEOs, and they get hefty bonuses for it as well. Here is a study that shows this http://www.sciencedaily.com/releases/2015/10/151022192337.ht... , unfortunately the original source is behind a paywall so I am not linking it.
What it shows is that the marginal effect of a CEO is large - multiple percentage points of the company's value. Therefore, the difference in value between a good and bad CEO is equally large.
Gizi: "If the right guy manages the joint, it will do $11 billion. Are you willing to pay 10 million a year for this person?"
Repeat the math with $10B and $7B, and you'll still see that $20M or $50M is a very reasonable pay package to get the guy who is less likely to screw things up. Of course, if you truly believe CEOs have an insignificant effect, I encourage you to invest in companies with CEOs who are perceived as being terrible.
These results came from data that compared CEO remuneration to average employee remuneration.
Your linked study provides very weak support of these claims. It's restricted to bank holding companies and thrifts during the financial crisis. In fact, there is a pretty obvious alternate explanation of it's results - banks with a high pay ratio consist of a CEO + lots of tellers, mortgage officers, etc (e.g., Citi, Countrywide). In contrast, banks with a lower pay ratio consist of CEO + quants, traders, etc (e.g., Goldman, Morgan Stanley).
Can you think of another reason why banks with lots of mortgage officers might have performed worse during the crisis?
The support of having is stronger than you suggest. The study showed a significant negative association between firm performance and pay disparity in the Korean companies as well, from a separate study where more financial information is required to be disclosed.
I will also say that the CEO compensation is reasonable in most companies, it is just that after about the 8th decile performance starts decreasing and risk increases. The real problem seems to be the more extreme CEO to average employee pay ratios.
Can you think of another reason why banks with lots of mortgage officers might have performed worse during the crisis?
A larger pay gap in the executive ranks promotes greater risk-taking.
By the way, there was the highest CEO compensation compared to employee compensation just before the GFC hit.
...I encourage you to invest in companies with CEOs who are perceived as being terrible.
I would say that is terrible advice that has nothing to do with the conversation, as we were discussing pay ratios.
Some programmers, maybe, but very few could move large company's revenue by 10%. And almost certainly no one moving physical stuff around in a warehouse could.
Sure they could. They're the feet on the ground, so to say, and so they have the best insight into inefficiencies which are occurring on a day-to-day basis. You can bet it wasn't a CEO who discovered UPS' "only make right turns" trick. Or Bezos who optimized Amazon's warehouses.
A 10% reduction in costs is very realistic for these kinds of finds, and those reduction in costs are worth more than a 10% increase in revenue.
Does the employee get near what they make the company? I doubt it.
Does the company need to pay the employee near what they make the company? No.
So a company does not need to pay the CEO the difference that they supposedly make the company. They just need to pay what someone will accept to do a similar job (I am not saying worse in any way), just like other employees.
This is what options/share-based compensation seeks to do in large part.
Still, when those packages pay off, people get all kinds of jealous butt-hurt over that as well...
From what I see, finding the right guy to manage a company is very hit and miss in the real world. Just look at Ron Johnson. He was previously senior vice president of retail operations at Apple, and then hired as CEO of J.C. Penny. He was fired as CEO from J.C. Penny in 2013, after retail sales were down by 32% and stock prices fell steeply. This was despite him having a very successful tenure at Apple. The pricing should factor in the uncertainty and risk of the performance of someone in the position of CEO.
I have probably have not touched most of things that could be issues here, such as corruption, and that some CEOs are just extremely incompetent. I remember a CEO that was given 250 million dollars to leave because he had that much negative impact on the company he was running. This was someone that the board thought was a great hire.
Anyway, I find the post I am replying to is way too simplistic and looks at CEOs with extremely rose coloured glasses. There is a lot more to consider.