Why are executives paid so highly

Discussion in 'Business & Economics' started by Xelasnave.1947, Nov 25, 2016.

  1. Xelasnave.1947 Valued Senior Member

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    Why do company executives get paid so highly?
    Without out naming companies or specific instances it seems executive reward has become higher than ever in history.
    Yet the lower wage earners are told to do better, work harder, be more efficient etc all so those at the top take more and more.
    Is the political mood of the wage class starting to revolt against those at the top when they promote free trade which must seem to those lossing jobs to be for the benefit of the executives who show no concern when jobs disappear.
    It must be a bitter experience to be laid off and hear the exec. of your former employer gets more in a year than everyone in your appsrtment block will earn in their collective life times.

    The top rewards are many times greater than any time in history.

    Could this inequity be behind the events in UK and USA.
    Why is attention fixed on racial matters, sex equality and other things that divert attention from the greatest inequity.

    Why does this not make the headlines on s daily basis.

    Alex
     
    Last edited: Nov 25, 2016
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  3. Seattle Valued Senior Member

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    Why are NFL (American football) players paid so highly? Many quarterbacks are paid in the vicinity of $20 million/year while jobs go to China. Lower wage earners are told to work harder, be more efficient and yet quarterbacks make more money than ever.

    There is really little connection between the two other than appearances. The average football fan isn't getting a pay raise, ticket prices are going up and quarterbacks make more money than ever.

    Doctors make more money than ever and ditch diggers probably make less money when adjusted for inflation. Yet, no matter who is elected President of the U.S. the plight of ditch diggers will continue to go down and that of doctors will continue to go up.

    Those with currently marketable skills will make more than those with less marketable skills.
     
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  5. Xelasnave.1947 Valued Senior Member

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    Why indeed?
    I doubt if there would be a shortage of players if their salary was capped at $1mill.
    My point is why are these inequities totally acceptable?
    I interpret Trumps election partly to a mentality of "we don't care if we burn it down we are sick of getting left out when the pie gets cut"

    I detect a mood from the few folk I run into.

    Those who have a job are unhappy because they are being screwed and those without feel they have been thrown out so someone at the top can claim a bonus because of increased efficiency.

    I listen to people and I think there is a change of mood maybe due to folk being able to google how much others are paid, how much the rich really have.

    I don't know but I guess if you are doing well you really don't care about anyone else.

    I think one of the reasons Rome went down was the disengagement between the classes ...when the end was in site those at the top were only interested in themselves and not the empire.


    Maybe its just the way civilizations die the roots are not nourished and the plant dies.

    Alex
     
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  7. Seattle Valued Senior Member

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    The NFL players have a union and the competitive bargaining agreement currently in place specifies the percentage of revenue that go to the owners and that goes to the players. It's roughly 50%/50% as I recall.

    If one team won't pay a quarterback $20 million and another team will then that player will switch teams. The revenue either goes to the owners (billionaires) or it goes to the players (millionaires) so the logic goes.

    You can't cap everyone at 1 million if you want the best at each position. Otherwise we would just follow high school football.

    There aren't many people in the entire country who have that particular high level of football skills. Conversely there aren't that many people capable of running a large corporation as effectively as those few who do so.

    It also doesn't make much difference to the average worker if the top guy makes less than he does currently. They still are going to be out of a job when the market changes.

    You could envision a system where CEO's made less and football players made less but it would change the whole system and not necessarily for the better. That's not to say that the current system is perfect or that it shouldn't be open to change or oversight.

    The shareholders do, in theory, have oversight on CEO pay. After all it's their money that is providing capital for the company in the first place.

    You are right about what happened in the U.S. Presidential elections. It was similar to Brexit. It was those who might be less educated and frustrated wanting change even when they don't understand the system or what the change might mean.

    Many people who voted for Brexit are now sorry and much the same can be said for some who voted for Trump. Trump wants to cancel TPP but the biggest beneficiary of that won't be workers in the U.S.. It will be China.

    Being frustrated doesn't mean that it's now OK to be stupid or ill informed. Ignorance, in all its forms, is still the greatest impediment to peace, prosperity, health, economics just as it has always been.
     
  8. Xelasnave.1947 Valued Senior Member

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    I knew it you are with the Government.
    Its ironic how what seems like the right thing to do can have an opposite effect.
    We have a debate starting here re negative gearing, where you can claim a loss on real estate against other income.
    Those who want it dropped believe it works against those at the bottom but the reality without negative gearing housing rental supply will drop driving rents up hurting tenants.
    Of course there are those who think I am wrong but that is simply not the case.
    But your have appointed yourself as an apologist for the current system so any complaints can now be addressed to you.
    I wonder how they do things on other planets, all for one or none for all...
    Alex
     
  9. joepistole Deacon Blues Valued Senior Member

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    That's more than a little overly simplistic, and your analogy isn't apropos. An NFL quarterback cannot write his own paycheck; a CEO can and often does. All the transactions between an NFL player and owner are arms length transactions. That's often not the case with CEO compensation. This gets back to corporate governance which has been widely discussed over the years. Many CEOs control their board of directors, and it is the board which sets CEO compensation. That said, a good CEO is worth his weight in gold. But not all CEOs are good CEOs. History is replete with examples of overpaid incompetent CEOs.

    The truth is for the most part no single shareholder owns enough shares to exert any control over the board of directors. It is the the board which selects who will be nominated for board seats. It is the board which determines who and what will appear on shareholder ballots, and it is the board which selects and pays CEOs. It's a nice little incestuous thing they've got going. And if you are a board member the incentive is to go along to get along. Being a part-time board member is a good gig, if you can get one. The job pays very well. Corporate directors earn 5 times the median pay and it's a part-time job - maybe working for 4 to 6 weeks a year. It's a lucrative gig. CEOs aren't the only ones raking in the big bucks.

    http://www.investopedia.com/terms/a/armslength.asp?lgl=no-infinite

    https://www.thestreet.com/story/130...s-running-multi-billion-dollar-companies.html

    http://fortune.com/2016/02/24/sandp-500-nonexecutive-directors-pay/

    Physicians earn more than ditch diggers because physicians have skills that are more highly valued, but also because physicians have created barriers to entry into their profession and in doing so limited the number of people with those skills. As a group, physicians have and continue to use their political influence to create barriers to entry into their profession, thereby giving them monopolistic pricing powers. That's why it takes 2 years longer to educate a physican in the United States. If ditch diggers had a professional organization which limited the number of ditch diggers, ditch diggers would earn more money too, regardless of their skill sets.
     
    Last edited: Nov 25, 2016
  10. sculptor Valued Senior Member

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  11. DaveC426913 Valued Senior Member

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    Who would enforce the caps? The government?
    This is a Capitalist society.

    Why would a company willingly cap its own exec salaries? It's a competitive industry and you attract the best by offering them more money (and perks) than the other guys.
    If they couldn't compete using salaries as bait, then companies that could be successful won't be able to be, because they have no way of attracting the best.
     
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  12. joepistole Deacon Blues Valued Senior Member

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    And what makes you think someone has suggested caps? And what makes you think higher compensation is synonymous with better performance?
     
  13. DaveC426913 Valued Senior Member

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    Seattle did in post 3.

    And because - if there were no artificial cap - there would be no reason (and no way) for salaries not to naturally be subject from inflation.


    Not synonymous - correlated.

    Performance is the cause, compensation is the effect.
    Better performers will be in more demand. In a competitive industry, corps can, and will, woo the best-performers away from each other by offering more money.
     
  14. iceaura Valued Senior Member

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    Invalid comparison, probably originally an intentional deception (it's part of the common delusion now).

    Quarterbacks: Supply and demand.

    They were, in the past, prevented by legal exception from negotiating their compensation as other such hires normally do - as soon as that legal exception was eliminated, their wages boomed.

    Likewise left tackles, on football teams - as soon as supply and demand was allowed to function, immediately that same year, their compensation increased greatly - they now get paid more than guards, right tackles, etc.

    That is not what has driven executive salaries. They have had no change in their negotiating ability, to explain their compensation boom in a world in which demand has not increased, and supply has not diminished.

    The notion that today's CEOs are comparatively fifteen or twenty times more valuable than the CEOs of thirty years ago, as a consequence of supply and demand for their performance, is ludicrous.

    One factor: In the past the government taxed higher incomes progressively. That created a situation in which great wealth was accumulated via increased value of one's business and investments, rather than gutting them for windfall income.

    Another factor: in the past the return to speculation - stock market bets and commodity market gambles and financial plays of one kind or another - was limited by the opportunity cost of investing for interest and dividend and other such returns. That opportunity cost is very low now.

    And so forth.
     
    Last edited: Nov 25, 2016
  15. iceaura Valued Senior Member

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  16. DaveC426913 Valued Senior Member

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    Hang on, you're comparing over time? So, you must factor in the base inflation rate.

    Even at a moment in time, the relationship between value and compensation is not necessarily a linear one. It can easily be geometric for example. Hypothetically, to lure a CEO that can add 10% to your annual growth might cost five times as much as one who can add only 5%. There's no yardstick; it is simply what they can and will pay. It doesn't even have to make financial sense. Sometimes they do hire partly due to the star power some CEO might bring.
     
  17. Seattle Valued Senior Member

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    How am I "with the Government" in the quote that you've used?
     
  18. Seattle Valued Senior Member

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    I don't disagree with any of that either. Other than taking literally your statement of CEO writing their own checks.

    None of that changes what I wrote however.
     
  19. Xelasnave.1947 Valued Senior Member

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    My attempt at humour and I wont make it worse trying to explain it.
    Alex
     
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  20. Seattle Valued Senior Member

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    Seattle didn't suggest caps. Xelasnave did in the OP.
     
  21. iceaura Valued Senior Member

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    Go right ahead. Personally, I prefer to compare their share of gross company revenue, but you can use absolute dollars corrected for inflation if you want to.

    The inflation in CEO compensation has been nothing short of spectacular, in the US. Don't forget the bonus and buyout packages - they count.

    You can also try comparing US CEO compensation with that of any other country's - in particular, countries in which the companies involved have been better run (did not, for example, crash the entire economy through complete and unforgiveable fuckup).
     

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