The issue with CEO pay, as well as pay for fund managers, is basically the same. It's clearly understood as a principal/agent problem, to use economics jargon.[0]
Here's how it works:
1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified and the decisions are made by people responsible for managing money.
2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management led by the CEO.
3) What actually happens is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that.
Everyone involved will concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations campaigns and fund business schools and business publications to rationalize and create a sheen of reasonableness about why this is all the natural order of things.
But, at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it.
Because they want to, and because the system lets them.
> at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it
Here's how it works:
1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified and the decisions are made by people responsible for managing money.
2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management led by the CEO.
3) What actually happens is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that.
Everyone involved will concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations campaigns and fund business schools and business publications to rationalize and create a sheen of reasonableness about why this is all the natural order of things.
But, at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it.
Because they want to, and because the system lets them.
[0] https://en.wikipedia.org/wiki/Principal–agent_problem