Steve Jobs took over Apple when it was 90 days from bankruptcy and turned it into the most valuable company in the world. Apple had a series of CEOs before Jobs that didn't.
Essentially, the CEO decides which hill to climb. The right hill, the company makes $$$. The wrong hill, the company languishes. That's worth a heckuva lot of money. Nobody else in the company has that kind of influence over its fortunes.
I'm talking about a lot smaller. Most mid-sized companies (nor the larger ones, but I specifically am not talking about those) are not this binary; they are just steady growth, not hockeysticks and for years/decades.
But it's really not that simple. Some CEOs are that valuable. Some are not. You need to figure out if they're a Boeing CEO or a Steve Jobs and compensate them accordingly.
The question isn't "are they valuable" though. The question was "how much should they be paid". There are people in labs, technical committees and various other key institiutions who create untold billions of dollars in value far in excess of what Jobs did. I doubt Alexander Fleming made money in proportion to the value of his contribution.
I don't necessarily disagree with how CEOs are paid. But I do disagree with the idea that value factors into the conversation somehow. Nobody is paid based on their value except by accident.
The reason is pretty simple - supply & demand.
Some leaders are worth it. This is why blanket statements like “no CEO should make 200x another employee” or (in the same vein) “nobody should have $1B” are silly.
Constructive conversations don’t start with highly subjective absolutes.
In fact, Boeing's case proves that a good CEO is worth 200x, because look what a bad one costs.
Ofcourse the large enterprises have (ISO etc) processes in place to make everything as process-driven as possible, but you can see that even in teams within MS / Google / Facebook there are superstars who are simply very hard to replace (and in these companies they are well compensated; but outside tech that might not be the case). Obviously it never happens that they leave all at the same time, so that's why it looks redundant.
If you are the CEO and your company does terribly, you should probably get paid 0 that year.
Imagine you are an amazing developer, and a company with a terrible codebase and a high risk of technical problems wants to hire you, precisely because it is aware it has problems and needs you. Then the company says "oh, and if we have any technical problems your pay will be zero." You would be extremely unlikely to take that role, regardless of the salary they were promising in the event of technical success. Every hire, including CEO's who work for the board of directors, is subject to that same calculus. If a company is at risk of doing terribly, it will often seek to bring in a new CEO or retain an existing CEO. If that CEO knows they will receive no compensation in the not-unlikely to expected scenario of the company doing poorly, they will walk away from the offer, even if they are the best candidate to potentially solve the company's woes, precisely because anyone who is the best candidate to solve the company's woes is good enough to obtain another better offer that doesn't contain a punitive no salary for you clause.
Most CEOs in the USA can demand contracts that give them a massive golden umbrella, fail or not. Why would any CEO accept less than that?
But to answer the harder question, I don't think anyone should get paid at that rate. No one is worth that much once you take into account negative externalities. As an extreme example, Exxon executives might be worth a negative number to society at this point.
Getting more nuanced, huge wage gaps are highly correlated with lots of costly things like increased crimes rates, and less costly but important things like happiness.
I think the world is increasingly becoming aware that the USA is nowhere near #1 in many measures, and that a handful of other countries have managed to make a measurably better society. And in all those countries you see far smaller wage gaps. Could be correlation, but I think with enough time we will see that it is causation. Humans instinctively know that kings are not God-like and CEOs are not worth 200x more than the thousands of employees who work just as hard. Leaders with benefits are fine. Leaders with excessive benefits have never ended well in all of human history. The fact that it is happening now due to "market forces" instead of royal lineage. perhaps makes it a bit more tolerable temporarily. But I think those huge wage gaps are increasingly becoming less tolerable even to Americans. Other countries have already arrived.
The shareholders disagree and the CEO compensation comes out of the shareholders' pockets.
> who work just as hard
It's not about working hard. It's about making the right decisions.
> Other countries have already arrived.
On the other hand, US companies are the most prosperous in the world, and contribute enormously to the US economy. All the FAANG companies are in the US, for example.
The average employee makes decisions all the time.
And yes, the companies are prosperous. A few benefit. Society at large not so much. The US is behind by many measures.
They can sell their shares if they don't accept it. Presumably whoever buys it accepts it.
> Society at large not so much
Nobody has been able to connect high CEO pay with detriments to society at large.
You are wrong about detriments to society, and a simple search would have saved you. Just as one example, large income gaps are highly correlated with higher crime rates [1]. This has been shown in many studies, and across cultures. There are other negative effects as well, including both the rich and the poor being less happy. I suggest you do the work of trying to prove yourself wrong and you'll find even more.
[1] https://www.economist.com/graphic-detail/2018/06/07/the-star...
Amazon employs 50,000 highly paid people in Seattle alone, but only 1 CEO. Bezos' CEO pay is hardly responsible for income inequality in Seattle.
The SF law like most of these laws includes all forms of compensation, not just salary. Bezos total compensation over the years including bonuses and stock options is indeed responsible for the huge wage gap of almost a million Amazon employees, along with the other people Bezos encounters in his life.
And he is just one CEO. Pretty easy to see where this would lead. CEOs are indeed responsible for many of the daily wage gaps most workers experience.
What risks do they or should they take to deserve higher salaries?
These people typically have golden parachutes from which they'll make out rather well if the company does poorly, and they typically have no problem finding other jobs should they get fired.
That's not the case for low-level employees, for whom losing a job can be absolutely catastrophic. Low-level employees are the ones who typically live paycheck to paycheck and risk everything every day they go to work, for should they fail to perform they and their families may go hungry, and may struggle for a long time to find another job, especially in this economy.
On the other hand, many CEOs don't need to work another day in their life, so getting fired from their job would actually have absolutely no impact on them whatsoever.
You bought a house for $100k in SF in 2000.
You hire a maid to clean it every week. The maid basically upkeep your asset.
It's 2020 now. You sold the house for $2m.
Should you pay your maid much more since your didn't do much and you earned profit?
Should you give equity to your maid?
I'm not saying these ideas aren't worth anything. Are these ideas really worth a continual system where someone else is always getting 200 times the extracted benefit than you?
The problem is that at that rate of pay they can rapidly accumulate a financial engine that moves that multiplier externally from say 200-1000 while you can only move your multiplier from 1 to maybe 1.1. How often do you get a 10% raise and how much utility did Bezos get out of his recent billions stock windfall?
Really? How many people with a steady job you know who want to be CEO? Of a company with more than 10 people that is and that's even a bit pretentious to call that a CEO, but let's say; 10+ company. How many people do you personally know that would say; 'hell yeah, that sounds great'. I know 0 who are not CEO's already; the rest do not want the responsibility, the insecurity, the vagueness, the long hours, the decision making. They like to make 100k/year following whatever their manager says 9-5.
Maybe you move in different circles, but I find that very unlikely. Most people definitely do not want to lead.
> Even if CEOs had the same salary as fast food workers, people would overwhelmingly prefer to be CEOs
Yes, I think most people would prefer to be CEOs if all things except salary were unchanged. Being a fast food worker is not something people enjoy to do 5 day in a week and it's a boring, low status, manual job.
I do see why CEO's (and all c-level if they are founders, have board seats, are early investors, have a high amount of %) should be compensated well over employees; they take the risks. Or rather; they should take the risks. If times are bad, I am looking to work with people who cut their own salary or reinvest to keep the employees and not just throw everyone out and take the bonus and then close up shop (which seems to happen a lot with startups right now).
200x is over the top I guess; I cannot see how you bring that much more value than your employees. Like said; no idea how it works at real enterprises, but in companies I see with few 100 to few 1000 people; I can walk around and remove a few dozen people (employees) and the entire company will grind to a halt. There are always vital things that are governed by a few (early?) employees which, if removed, are extremely hard to replace. This means that at least those employees cannot earn 200x less than the CEO, not 100x less either.
I saw a post on Twitter a few days ago about those kind of employees of these kind of companies starting a company together, resigning and then having the new company acqui-hired by the old company for many millions. That's how you should handle that situation if you have a CEO that is that greedy indeed.