> Their theory, in a nutshell, was that there was an inherent conflict in business between owners (shareholders) and managers, and that this conflict had to be resolved in favor of the owners, who after all owned the business; and the best way to do that was to find a way to align those interests by linking managerial compensation to owner success.
And all along the real solution is so obvious: make the employees and customers owners.
The co-op ownership model aligns all interests in ways that actually make sense.
I don't know if they need to be full-blown co-ops with voting power, etc. There are many other ways to ensure financial incentives are aligned. RSUs, ESPPs, and other forms of stock options are widely used in our industry to attract talent and align incentives. I once worked at a software startup without these (but generous cash comp), and it was awful. Whenever the sales team closed a huge deal by promising some vaporware features, the engineers were outright angry because it just meant extra work to build the overpromised stuff. If the engineers had equity, we would've been high-fiving the sales team for pushing those gargantuan deals past the finish line.
Then there's also simple profit-sharing. When I worked at a small mortgage company, each employee got a certain number of dollars for every loan that the company closed, based on how many years they'd been with the company. When things got stressful and busy it definitely eased the blow, and it helped tremendously with retention too.
> If the engineers had equity, we would've been high-fiving the sales team for pushing those gargantuan deals past the finish line.
That's a great example of why simple profit sharing or equity compensation is not enough: it corrupts even engineers to economic myopia!
What about the existing customers that need their stability problems fixed? No time for that! Gotta hajj together new features for the next big contract! You should never cheer sales making up vapourware. Any scheme that does has misaligned incentives.
This has been shown before though I don't have a source at hand: focusing on stock market value leads to short-termism which leads to lower stock market value in the long run.
Being an employee and an owner doesn’t align incentives since I have no meaningful influence over the stock price. I don’t care at all about the success of the projects I work on as long as I keep getting paid
Even if all you care about is whether you keep getting paid, being one of the owners of a business (even if it's one of many) suggests to me that you would have much more influence about whether you keep getting paid than you would in any business where you are not an owner.
The world does not, contrary to popular opinion, revolve around stock prices. Ownership is about having equal influence in strategic decisions.
"I don't care about the success as long as I get paid" is typically something you hear from people who have never tried a truly democratic workplace before. It's a transformative experience.
Does it matter? Jobs worth caring about are extremely rare so I don’t actually care about what the company does. I would vote to sell the company and cash out if I worked somewhere democratic.
> This wasn’t a matter of productivity, either: workers were more productive every year, we just stopped being rewarded for it.
In particular, this point is being disputed.
Besides, I object to the use of the word "worker" here; some workers are surely more productive, but I can think of many classes of work that are fundamentally the same as they have been in the 70s; indeed, this kind of thing has been talked about under the heading of "cost disease" already: https://en.wikipedia.org/wiki/Baumol%27s_cost_disease
Note that the article still points out inequality as a problem.
Given this is about shareholder value and the supposed evils that come from maximizing shareholder value, if you believe everything you read here, then you could just never take the company public.
From there, you're not beholden to shareholders to maximize their value by paying employees poorly, etc. You can pay them whatever you want, although you are still beholden to math and accounting to pay wages that keep your company profitable, at least.
I'd be curious to hear what workers think their CEOs compensation should be. I hear a lot of "a CEO doesn't do 100x the work of their workers." Well, what multiple do you think is more appropriate? What is the mechanism for determining that multiple? Direct democratic voting by the employees? Why stop at the CEO?
Maybe everybody should vote on everybody else's comp. I'd love to see how that plays out for a company. Anyone know if it has been tried?
Personally I like the model where the CEO cannot make more than X times the lowest pay worker or X times the median salary. It's not like they take on any extra risk, in fact, more often than not, they can do terrible things and walk away without suffering any real consequences. We rarely see the people at the top take any responsibility for the actions of the company so what are we paying them for? I refuse to accept they are somehow so much smarter than the people actually do the work. That idea has no basis in reality in my experience.
I also am very interested in the co-op model that I've seen a few places (mainly in Europe I think?).
>I refuse to accept they are somehow so much smarter than the people actually do the work.
Is a sales person who can close a deal on client worth a $10M contract "smarter" than a principal software engineer at the same company? The capacity to bring in revenue isn't necessarily based on the "smarter" metric.
And what exactly are they going to sell without the software engineer to build it? I understand the role of sales (even if the vast majority I've had to work with are seedy/liars) and you can flip my statement to say "Well without a sales person it doesn't get sold and the software is effectively useless". I get that, both are needed. That said, the sales position shouldn't bring in multiples of what the engineering position does.
I full understand that's not the way things are done today, I also think we do things pretty terribly today.
Maybe a better way to phrase it is "I refuse to accept that they (CEO) are somehow worth so much more to the company compared to the people that actually do the work", "Smarter" was a bad word to use originally.
Think of it more as supply/demand and marginal revenue.
To simplify - a company should hire more/pay more until the marginal value of that employee < the marginal employee cost.
If the 2nd best option for CEO would result in increased revenue by 1%, and the best option by 3%, then it makes sense to pay up to 2% of revenue to get that better CEO.
Compare that with the best SWE option (in terms of marginal cost vs marginal gain) vs the 2nd best candidate.
Compared to the CEO, the SWE may be far more intelligent, more hardworking, and directly improve the product more. But pay is unfortunately not based on that or any notion of “fairness”
> But pay is unfortunately not based on that or any notion of “fairness”
That’s somewhat the entire purpose of this HN post though.
I understand how we got here, I think it’s stupid and silly. Furthermore I don’t for a second believe that the information exists to actually make the calculations you list. There is literally no way to determine those percentages, it’s all a guess and often a bad guess IMHO.
The fundamental reason why sales people are paid more than the Devs and the CEO more than Sales simply comes out of the difference in the knowledge of how much they know of the product's worth. The Dev never knows that the product would fetch 2000x of how much he is getting paid for creating it, whereas the Sales guy has a better picture. That's why the Dev never asks for that money in return for creating that product and hence he never gets paid that much. The CEO on the other hand, has the complete picture of the cost, profits as well as any changes in market forces that might impact the product, hence taking out 200x the Dev's remuneration, still sparing for the handouts to the other guys.
The model is wrong and outdated. In a healthy model, the sales person and the developer are colleagues and work together for mutual success. This assumes they both have some kind of profit sharing agreement with the company, and clear guidelines on what and how they contribute according to their ability to do so. A cross co-op model can work very very well but usually only in smaller sized companies.
They didn’t say “your” model, they said “the” model.
Presumably they meant “the prevailing model”, that you partly (accurately, in my view) describe. And by wrong, I guess they just mean “bad” and not what they want, because the rest of the comment describes some hopes and dreams.
No but the work from a CEO may have way more than 100x the economic impact of the work from a worker.
For example, the CEO of a car company may decide whether or not to build a new assembly line, on that decision, the company may lose or earn billions. A single assembly line worker can make the company lose or earn thousands depending on whether he messes things up or is particularly productive. The impact is many orders of magnitude different.
As a result, companies will make sure that their CEOs are the best, because what it a few million in pay when a good CEO can make billions. The rest is just supply and demand.
Personally I have absolutely no problem with my CEO being paid 100x, 1000x or more than what I make, if it is worth it. I want the company that hires me to succeed, that's how it can afford to pay me. Sure, that a company is successful doesn't mean their employees are treated well, but it is simply impossible for an unsuccessful company to treat their employees well.
> For example, the CEO of a car company may decide whether or not to build a new assembly line, on that decision, the company may lose or earn billions.
This decision is not made entirely by the CEO, because they aren’t the ones gathering and analyzing the data that would help make an informed decision. And if the CEO was the only person to make that decision then that is only because it is afforded to them by their role, not like a software engineer or sales or w.e are not capable of making a similar decision based on relevant information.. so there is no reason why they should be getting 100x or 1000x what others are making just because they get to sign off on other peoples work.
Of course, and the ones who gather and analyze the data tend to be well paid too, for the same reason. But turning data into strategic decisions is an important skill, and one a CEO is expected to have.
> And if the CEO was the only person to make that decision then that is only because it is afforded to them by their role, not like a software engineer or...
So, why don't you apply as CEO instead of as a software engineer if you want the big fat pay? If you can show the board that you are the best suited for the job, they will hire you.
> so there is no reason why they should be getting 100x or 1000x what others are making
Tell that to the shareholders. Do you really think shareholders want an overpaid CEO to eat their dividends if it is not for a good reason? If they are paying that much, it is because they think that a lesser paid CEO will not bring as much value to the company. If you can convince them that it is not the case, they will definitely cut the CEO budget so they can make more money for themselves.
> Of course, and the ones who gather and analyze the data tend to be well paid too, for the same reason. But turning data into strategic decisions is an important skill, and one a CEO is expected to have.
Only the top layer is well paid.
People produce, collect, and analyse data throughout the organisation. As the data passes up through the hierarchy, management bureaucrats present it as their own to the next level up, thus using people's work to justify their own higher salaries.
That goes on for O(log n) levels and ends with the CEO doing the same.
I think most good decisions I've ever seen a CEO make have already been made inofficially at the lower ends of the organisation. Or at least would have, had the lower ends had access to the relevant information.
Of course, the CEO wants to keep the relevant information to themselves, because again, that's how they justify their salary.
> So, why don't you apply as CEO instead of as a software engineer if you want the big fat pay? If you can show the board that you are the best suited for the job, they will hire you.
My experience is that these jobs generally go to the well-connected and politically affluent in the right circles. It has little to do with suitability or skill.
Doesn't the CEO act as the responsible party at the end of the day however? Meaning if his decisions didn't pan out, he's the one who's going to have to answer to them, not others.
I wonder how he'd answer them. Usually when the things are going in wrong direction, the CEO leaves the company voluntarily or not plus sometimes with a good compensation, and moves to another CEO-like role in another company. No answers/compensations are given to the employees by that CEO.
i think you could do a bit of searching and find your ansewr if you were curious.
“It used to be that in the 1950s, 60s, and 70s, CEOs made 3.3 times what a top 0.1% earner made. Now, it’s more than six times,” says Mishel. “CEOs now are making 351 times that of a typical worker, but back in 1978, it was only 31 times. In 1989, it was 61 times.”
My background is financial services.
So here's a question for you.
If the banks are big on outsourcing, and a Canadian bank CEO makes 10+ Million a year while the CEO of the largest banks in the world earns just $185,000
Would it make sense to remove the $10 million dollar CEO and outsource the position?
Why does the CEO of a bank which is 10x the size earn less?
How many "low level" positions need to be outsourced to equal the CEO's compensation?
It isnt up to the employees to determine CEO compensation, it is the board of directors job. The issue is they all sit on one another boards and it is highly nepotistic. Also, once one CEO gets a hike, everyone knows becaues this is public info and they all want matching hikes.
Lastly, COVID19 resulted in a lot of companies losing a lot of money, many people losing their jobs, buy why was CEO salary up?
I think that highlights a missing factor in daenz's question.
If the highest tax bracket is 100% then there's no reason for a CEO to want a higher income, as it will all go to taxes.
In 1960, the highest tax bracket was 91%, for incomes above $200K (that's $5.6M in Y2022), or filed single or separate) or 300K ($2.9M in Y2022) for married+joint.
A CEO in the highest bracket would have to justify a $10K raise that cost the company $100K.
While the highest bracket now is 37%, for those making $314K or above. Asking for a $100K raise only costs the company $160K.
I think that's an easier sell.
So another way to affect CEO compensation is to raise the income (and wealth) tax rate.
You're assuming the pay is cash. Most CEO (and high level executive) compensation is stock, which is taxed much differently from salaries. The tax brackets have very little effect.
While you are right (salary, bonus and other cash compensation was $4.1 million, while total pay package is $14.7 million), A) I did write "income (and wealth) tax rate", B) capital gains taxes have also decreased, and C) my main point is that if we tax the rich more, then daenz's question effectively disappears.
A CEO's job is to build and maintain relationships with Wall Street, the customers, and the government. Outsourcing makes all of that harder or impossible.
That’s a great question because it made me pause and think about what proper ceo compensation could be, rather than just complaining about it.
An interesting thought experiment is to see what public servants in position of authority and responsibility get paid. Can’t think of anyone higher than a US president. Turns out that the president gets paid 400k a year. Not a lot relative to what corporate ceos make.
I feel a 1.25x to 3x multiple from the next highest paid employee sounds reasonable to me.
I think with CEO I don't understand how the demand and offer works.
Wouldn't there be tons of people willing to do the job for way less? So why is it so high? Is it true that there are very few qualified individuals that can do a good job at CEO?
Programmers are paid so much because their work multiplies out to have huge impacts. CEOs are that on a much larger scale. There are plenty of CEOs who are ok or acceptable, but one that is 1% better means millions or billions extra in profit.
Companies with top tier management like Apple have had a non stop run of success for a while now and it’s not just luck. They pay Tim a $99 million package, and he certainly earns the company all that and more back.
That's really not how programmers are paid though. They're paid high salaries only when working at certain companies in some cities or countries, and mostly because it's hard to hire devs. Programmer pay has nothing to do with multiplier, but purely offer and demand in my opinion.
That's why I'm not sure why it's any different for CEOs. I've rarely seen a CEO repeat success from one place to another, granted I don't pay that much attention. But I doubt if you moved Tim to Microsoft that suddenly he could revive Windows Phone and overthrow Apples smartphone dominance.
I feel the evidence that a CEO has any significant impact on company output seems lacking. Yes they have impact in that they make important decisions, but compared to the decisions being randomly made or made by any other person that could have made them, can you really single out one CEO as being consistently beating others?
And can you ignore the executive staff and everyone else as well? How much is it the CEO or the particular set of people in the executive decision making branch, along with all the consulted employees?
Just watching undercover boss, the CEOs always do a terrible job at the 'no-to-low-skill work'. I'd guess employees, given a chance to evaluate the CEO using their own job as a metric, would probably chose quite a low figure for the CEO's salary.
I would guess but do not know that ESOP corps generally have much lower executive comp for this exact reason? Attempted some limited googling but the (seemingly) best source for this is a lil expensive for me: https://www.nceo.org/data/esop-executive-compensation-survey...
I would think that employee ownership would generally do a good (or at least better, probably depends on the specific structure?) job of balancing employee comp/executive pay/company success/value
If CEO pay rises 78%, so should worker, CEO pay shouldn't be able to rise without worker pay rising an equal amount, because without employees they wouldn't have a company.
Sure, if one company implemented that and the CEO believed they could be earning 78% more but the company can’t afford that given to all employees, the CEO just leave for another company that can pay that amount.
The problem is more core, it’s that people are paid their market rate which is largely based on economic impact and ability to be replaced. Which is massively unequal between roles.
CEOs need to be compensated on business metrics - not all financial. The metrics should account for short- and long-term growth, employee retention, public relations, etc. If you tank the company, you walk away with nothing.
This is already happening more and more, where an increasing percentage of executive compensation is based on employee satisfaction, diversity measures, community relations, environmental accolades, etc. And guess what? These are all a LOT easier to game than stock prices, profits, market share, and other traditional financial measures. CEOs are loving this change.
Sure. There are democratic organisations where your compensation is determined by a board of your peers, following principles universally agreed upon in the organisation; Morning Star is one of them.
https://www.cringely.com/2018/02/26/win-lose-wall-street-scr...