The simple answer is that people don't hire cheaper CEOs because the people who hire CEOs are the boards of companies and the boards of companies are mainly staffed by CEOs of other companies who unsurprisingly are incentivized to advocate for higher CEO pay.

This is called the Agency Problem and is a fundamental challenge of organizing humans. If you start separating who makes decisions (e.g. the board) from who benefits (theoretically, shareholders), then over time the former will subvert the latter. But there is no simple fix if you want investment returns without managing the company.

This is one of the better reasons to bet on startups in a world where power accumulates advantage. During the growth stage of a startup, the incentives of owners, managers and team members are much more aligned than they will be later in the trajectory.

The average size of the board of a company in the S&P 500 is 10.8 directors. However, only 43% of CEOs serve on any outside boards. The implication is that the vast majority of board directors are not CEOs of large companies.

Data from https://www.briefinggovernance.com/2016/12/board-composition...

It's more appropriate to think of this as a class of "the pool of people who might become CEO". It's CEO, CTO, CIO, board members who also have their compensation decided by similar mechanisms, retired CXOs.

Let's take Intel as an example - Retired CEO of medtronic, CEO of Intel, Sequoia, Senior position at Square, former CEO of a foundation, Professor, EVP and CFO Boeing, former CEO of HP, CEO of EA, Darwin Capital.

So in total, of a board of 10, 6 of them are current or former CXOs, 1 is a professor, 2 are VCs and 1 is a senior CXO style position. Yet most of those wouldn't be counted as "CEOs" because they're "retired".

They why do people who own the companies not oust board members who are wasting their money?

Likely because most public companies are mostly owned by funds of one sort or another which either don't hold the stock long term or own the stock because of indexing. In the former case, the incentive is to select for CEOs who raise the stock price in the short term. In the latter case, there is no incentive for fund managers to influence management at all.

The discussion is why the board does not select cheaper CEOs. In the case of these supposed funds that are not interested in the stock long term, is the claim that a more expensive CEO will deliver them better short term results? If not, why would a fund that cares about short term results want to overpay for a CEO?

Because the people who own companies are either a) disinterested index funds, or b) members of the same plutocrat class as the board members and CEOs.

Why are the people in b) okay with overpaying for something?

Because they're also getting overpayed in a similar situation at a different company. It's in their direct interest to raise the "market rate"

So a significant portion of owners employ each other at each others’ companies?

You're talking about employment as if they're working 9 - 5 in construction. These people are amplified by their networks, they don't work for eachother. The better their networks performs, by connections, or by value, or by whatever metric you want to monitor, the more they perform...

What about private equity firms?

Sounds like a board could make a killing by hiring a competent CEO on the cheap instead of their friends. Or maybe the reality is that the CEO compensation is a drop in bucket compared to the CEOs positive or negative effect on the bottom line and so it doesn’t make sense to cheap out.

Wrong. You hire a cheap CEO, you will get what you pay for. The best people aren’t going to work for cheap, so you’ll get a shitty or mediocre CEO who will wreck the company.

Maybe sometimes you get lucky and get a great CEO for cheap, but that’s not sustainable. You’re fighting the trend.

> Presumably because the market dictates their salary

Ahh yes, when the "market" is primarily made up of other CEOs (i.e. who sit on corporate boards), whose primary vested interested is to ensure CEO salaries stay astronomically high.

Why don't we see more private equity firms snapping up companies and hiring cheaper CEOs then?

isn't the solution, then, to put the workers on the board?

I think part of the problem is that we equate cost to value. Unless I am employing a CEO who previously earned big bucks and has taken a pay cut, someone on $50K simply doesn't seem to be as good as someone on $500K.

Of course, there are people who could do really well on less but then how many of the cheaper CEOs would then ask why they can't be paid more if their companies are making multi-millions and it is a lot to do with the CEOs strategic decisions?

To be fair, a lot of leadership is about confidence in yourself and people who are confident will often ask for a high salary.

To be fair, I don't know what the distribution of salaries in the UK is but there are plenty of company directors and CEOs who are definitely earning below £100K-£200K, even at financial companies. (about $140K-$240K) whereas in the US, I think it is much higher.