Do companies need to pay CEOs etc. so much?

Austria!

CEO pay is very high. But does it need to be? Could a company not get another CEO just as good for a much more reasonable amount?

Here is a nice overview article

http://www.irishtimes.com/business/personal-finance/perils-of-paying-ceos-too-much-when-shareholders-say-no-1.2623950


1. Are CEOs really paid for performance?

Look at the variation between countries

https://img.washingtonpost.com/wp-apps/imrs.php?src=https://img.washingtonpost.com/blogs/wonkblog/files/2014/09/It-pays-to-be-a-CEO-in-the-U-S-The-ratio-between-CEO-and-average-worker-pay_chartbuilder.png&w=480

Look at the variation over time.

http://4.bp.blogspot.com/-wIifnRPip2E/UkHA0IIXaYI/AAAAAAAAAS0/bNOHx-cFOFo/s1600/1239554_10151840591376668_467263772_n.png

Are CEOs really 10 times more hard working or effective now than they were in the 70s. Are US CEOs really that much better than CEOs from all other countries? Or does this suggest that CEO is not tied to ability and performance but instead to a culture of remuneration?

If you look at that second graph again, you see that CEO pay went high coming up to recession, then went down during the recession and then rose again. Could you honestly think that CEOs started working harder or more effectively coming up to a recession, and then when the recession hit they started working poorly but then as things got better they began to work hard once more?
While CEO pay is tied to stock markets and stock market success is tied to prevailing economic conditions and market sentiment, is this really reflection of the work CEOs do?


2. Who even decides what to pay CEOs?

Not shareholders, but other board members, who all benefit from a culture of high managerial pay.

http://www.reuters.com/article/us-renault-shareholders-idUSKCN0XQ211
https://www.theguardian.com/business/2016/apr/14/bp-pledge-shareholder-anger-ceo-bob-dudleypay-deal


3. Even if paying the right people was worth it, are businesses any good at finding the right people?

This article is a good overview of the entire topic of CEO pay, and says no to the idea that business hiring practices are any good for CEOs.

http://d1c25a6gwz7q5e.cloudfront.net/reports/2014-02-2-Armstrong-paper.pdf

From the same article, that negative correlation between pay and performance is quite surprising.

4. Let's now distinguish between what something is worth and what you should pay.

If you're dying of thirst a big bottle of water has almost infinite value for you. You'd pay everything you had to get it. Is it worth €50,000 to you? Sure.
But if you're dying of thirst in a town centre full of shops selling water for around a euro, then you'd be a fool to pay more than a euro and crazy to spend €50,000.

So I'm not questioning if CEOs can have big impacts and bring in a lot of value (or lose a lot), but if there are equally good people out there willing to work for more modest money.

One_Of_Shanks

How long is a piece of string? They could be paid anything from pittance to billions.

Who cares? Companies can do what they like if the shareholders are fine with it.

Stigura

Just wondering where this, way over my head / interest level, discussion might go the moment we lob in " CEO's of Charities " ? What say do Their shareholders have?

Have at it, AH!

Enjoy.

Atari Jaguar

It's rising pay scales.. there's no company I can think of that doesn't have them. If the lower tier front end workers got paid the same amount as the executives why would anyone strive to be higher up?

DO YOU WANT TO BE ON THE BOARD OF EXECUTIVES SON


gee wiz mister what's the benefits


YOU WEAR A SUIT TO WORK AND GET SHOUTED AT BY SHAREHOLDERS


Wow! Is there a pay rise too?


No...


Pass.

Second Yellow

A private company can pay their CEO whatever they please.

We can speculate as to what they should and shouldn't pay them, but at the end of the day, no company is likely to be swayed in the least by what the general public thinks.

darkpagandeath

Being top of the tree does not equal top performing. They have layers under them. Don't we see in Ireland the same failed lads going from gig to gig trashing companies then move on. The old peanuts and Monkeys does not work. We have seen what happens in banks all over the world and the financial institutions. More pay does not equal better performance after a certain level.

jimmycrackcorm

Austria! wrote:

CEO pay is very high. But does it need to be? Could a company not get another CEO just as good for a much more reasonable amount?

Apple kicked Steve Jobs out then when things went badly for them, begged him to come back. He made it one of the top ten most successful companies in the world.

gramar

CEO's and the people at the top set the remuneration policy.
Not voting to have a big salary, share options, perks etc is like ordering
salad in a steakhouse.

Winterlong

Pay peanuts, get monkeys.

VinLieger

Heres how this would go.

Company - "hey come work for us, your the best we will pay you this much"

Best CEO - "but that other crowd will pay me 3 times as much and better benefits"

Company - "yeah we arent gonna do that cus you know....... reasons"

Best CEO " yeah im gonna go to the other crowd"


Rinse and repeat for 2nd-50th best candidate

GreenFolder2

Share holders need to be lot more observant and hold some of the executives accountable. It's all fine and well being paid huge money, if you're adding value.

There are plenty of cases of enormous bonuses paid to CEOs of banks that had to be bailed out and so on.

VinLieger

GreenFolder2 wrote: »

There are plenty of cases of enormous bonuses paid to CEOs of banks that had to be bailed out and so on.

in probably about 90% of cases those bonuses are due to contracts the companies agreed to when hiring that person, not paying them would be illegal.

A Dub in Glasgo

Do companies need to pay CEOs etc. so much?

No

machiavellianme

jimmycrackcorm wrote: »

Apple kicked Steve Jobs out then when things went badly for them, begged him to come back. He made it one of the top ten most successful companies in the world.

None of that is true. Jobs resigned from Apple the first time (after 2 attempts to do so and an attempted coup to oust him after he messed up overspending on the development of an expensive white elephant, the macintosh).
He then setup Next which was an even more spectacular failure at first.
His return to Apple was because Apple bought Next.

Austria!

Stigura wrote: »

Just wondering where this, way over my head / interest level, discussion might go the moment we lob in " CEO's of Charities " ? What say do Their shareholders have?

I made this thread after a thread about charities where I questioned donating to a charity where the CEO was on £150k and didn't want to derail.

Atari Jaguar wrote: »

It's rising pay scales.. there's no company I can think of that doesn't have them.

I'm talking about the magnitude of the rise, where there is a lot of variation between companies.

Second Yellow wrote: »

A private company can pay their CEO whatever they please.

We can speculate as to what they should and shouldn't pay them

Yes, I made this thread up to do just that.

VinLieger wrote: »

Best CEO - "but that other crowd will pay me 3 times as much and better benefits"

Yes, that would be a winning argument, if we agree that you can identify the best CEO and there aren't absolutely loads of people who could realistically expected to do the job just as well.

These are two things I am sceptical of, extremely so in the latter case.

Dohnjoe

Austria! wrote: »

So I'm not questioning if CEOs can have big impacts and bring in a lot of value (or lose a lot), but if there are equally good people out there willing to work for more modest money.

The premise of your post seems to be equal skill for less money - what is this based on?

In reality it doesn't seem to be the case, look at any sport, the top talent is paid accordingly

Yes they are obscene amounts - but that's what they are worth in a free market

Likewise the same for companies and corporations - if they want top talent, they need to pay top dollar. You want Ronaldo? you have to pay for him

sbsquarepants

Who cares. I couldn't give a toss if a private company pays it's CEO minimum wage or a gazillion dollars an hour. It's their money they can do whatever they hell they want with it. If I could talk my company into paying me 100m a year, I'd gladly accept it - problem is the fúckers just won't give it to me (They actually said I was being ridiculous at my last pay review - fúcking nerve of them:mad:)
State owned companies - that's a different matter.

Austria!

Dohnjoe wrote: »

The premise of your post seems to be equal skill for less money - what is this based on?

In reality it doesn't seem to be the case, look at any sport, the top talent is paid accordingly

Yes they are obscene amounts - but that's what they are worth in a free market

Likewise the same for companies and corporations - if they want top talent, they need to pay top dollar. You want Ronaldo? you have to pay for him

Yes, equally good candidates for less money. I don't think the burden of proof had been met for the alternative hypothesis i.e. that you have to pay top money to get the best CEO (though obviously you ave to pay a lo of money to get the most in demand one). In fact if you read the links I gave in the OP, you see one study showed the higher paid CEOs underperformed compared to the rest.

Sport is a great contrast, in that you can identify the top talent, with varying but impressive degrees of success. Bolt is the best sprinter, and you have that to decimal places. Baseball is another sport with lots of statistical analysis. Soccer is sometimes hit or miss with the transfer records, but I think it's very good at rewarding the best players.

I don't see how being a CEO can be measured in the same way athletic performance can, there are way too many variables.

Austria!

sbsquarepants wrote: »

Who cares. I couldn't give a toss if a private company pays it's CEO minimum wage or a gazillion dollars an hour. It's their money they can do whatever they hell they want with it.

I care for two reasons.

1. As a potential investor in the case of private enterprise, or taxpayer in the case of public companies or giver in the case of charity
2. Generally I'm opposed to inequality for the negative effects it has on society

Also, I find it an interesting topic.

KyussBeeshop

The relationship between CEO pay and their performance on the job, is very low - high CEO pay is not about getting the best person for the job.

It's pretty easy to fix this problem too: Legislate that CEO's be paid a maximum of e.g. 20x the salary, of the companies lowest paid worker.

This would slow-down/stop the gravy train though, so good luck getting that done.


The public grants companies the great privilege, of having Limited Liability - that's a two-way deal, it means the public and legislature, get to determine the rules those companies have to operate within.

If we judge that their excessive salaries cause harm to society, through massively accelerating inequality, we have all the means we need to stamp down on that - just a near-complete lack of political will for actually implementing it.

Water John

Some studies have been done on this. Don't have them to hand. But Forbes had a study that showed paying any manager extra above $75K, believe it or not, brought no extra benefits in terms of productivity.

Very few companies require exceptional CEOs, mainly competent ones.

One guy in America has gone and given every one in the company, incl himself, the same salary. Some of those on that salary already were not happy.
Is that strange?

frozenfrozen

if you don't pay them enough they'll just fiddle money away for themselves to supplement it. pay them enough that it's not worth the effort/risk of doing that.

their suppliers would all change to mr ceo LTD. over night if they were on 55k yer year rather than 400k

sbsquarepants

Austria! wrote: »

I don't see how being a CEO can be measured in the same way athletic performance can, there are way too many variables.

There's a fairly simple way of measuring it - profits or losses.
Are things getting better or are they getting worse - pay the driver accordingly!

KyussBeeshop wrote: »

The relationship between CEO pay and their performance on the job, is very low - high CEO pay is not about getting the best person for the job.

It's pretty easy to fix this problem too: Legislate that CEO's be paid a maximum of e.g. 20x the salary, of the companies lowest paid worker.

If it's not about that, what is it about?
I've noticed that very few private companies just feel like they have too much money and therefore want to adopt a CEO to spoil.

The 20x pay cap would just be fiddled anyway, management of the corporation would be outsourced to management inc, an independent company which consists of 20 people and has a minimum wage of €2m a year or some such fudge.
These are PRIVATE companies - they can pay their staff whatever they want. It's a matter for them, their staff and their shareholders - it's none of Joe Publics business, no matter how outrageous the figures seem.

If KFC decided to pay their cashiers €1000 / hour there would be ten mile ques to join up, not a rush to condem the wages as immoral because poor Becky from McDonalds only gets a tenner! What McDonalds do doesn't impact on KFC, why should It?
Why therefore should it impact on Intel, or Apple?

GreenFolder2

VinLieger wrote: »

in probably about 90% of cases those bonuses are due to contracts the companies agreed to when hiring that person, not paying them would be illegal.

In which case the contacts need to be written with far more focus on performance.

KyussBeeshop

sbsquarepants wrote: »

If it's not about that, what is it about?

I don't have to explain what it is about, to explain what it's not about...

sbsquarepants wrote: »

The 20x pay cap would just be fiddled anyway, management of the corporation would be outsourced to management inc, an independent company which consists of 20 people and has a minimum wage of €2m a year or some such fudge.
These are PRIVATE companies - they can pay their staff whatever they want. It's a matter for them, their staff and their shareholders - it's none of Joe Publics business, no matter how outrageous the figures seem.

None of this is a credible reason for not implementing a pay cap. If companies want to break the spirit of the law (while maintaining the letter of the law), then the law should adjust to clamp down on their avoidance tactics.


Private companies are only granted Limited Liability out of the generosity of the public and legislature - if they want to keep that, we get to put limits on their salaries in exchange, if we want - in fact, we can put whatever kind of restrictions we like on them, given how enormous a privilege Limited Liability is.

Of course the rules that companies run by, are the publics business...companies aren't free to break the law, they have to work within it and do what they are legally told to, just like the rest of us.
That's inherently the publics business. Companies already have large numbers of restrictions on what they can/can't do with their money.

Or perhaps we should do away with limited liability instead, and make those highly paid CEO's personally liable, for the actions of the company? Then I'm sure they'd be worth their pay...Would you prefer that?

A Dub in Glasgo

frozenfrozen wrote: »

if you don't pay them enough they'll just fiddle money away for themselves to supplement it. pay them enough that it's not worth the effort/risk of doing that.

Does that work for all employees also?

A Dub in Glasgo

sbsquarepants wrote: »

There's a fairly simple way of measuring it - profits or losses.
Are things getting better or are they getting worse - pay the driver accordingly!

When things are good, it is all down to the master of the universe in charge and when things go bad or not as good as expected, it is a mix of global instability and market uncertainty, nothing to do with the master of the universe in charge

Global stability and market certainty does not apply

m5ex9oqjawdg2i

Austria! wrote: »

I care for two reasons.

1. As a potential investor in the case of private enterprise, or taxpayer in the case of public companies or giver in the case of charity
2. Generally I'm opposed to inequality for the negative effects it has on society

Also, I find it an interesting topic.

1. Don't invest in companies that pay their CEO's what you deem unacceptable.
2. What's the alternative?

BrokenArrows

They dont need to be paid that much.
But its very hard to reduce pay once it goes up.

Imagine you in whatever your job is, and someone comes along and says we're not paying you that much anymore. You would just leave and go somewhere else.

And thats what CEO's will do, unless you get a world wide decision by all companies to standardize ceo payments.

andekwarhola

Simple enough premise. When there's only X amount of qualified people, the rate is proportional to the extent that companies bid against each other. It's not a question of set value for set worth.

Winterlong

Bring in world wide communism. That'll solve it OP.

ScumLord

CEOs come with a certain amount of celebrity and contacts that would make them worthwhile. Getting a well known individual to manage your company may put certain lenders or shareholders at ease for example. The new CEO may have contacts that could reduce costs over all or allow them to enter new markets. They often have objectives set that might suit their expertise as well and once those goals have been met they get a different type of CEO. You can be guaranteed one thing though. It's unlikely a private company would pay out big bucks if they could avoid it. So by that criteria I'd say they're probably worth the money.

steddyeddy

I have no idea. How does CEO pay correlate with their performance?

KyussBeeshop

steddyeddy wrote: »

I have no idea. How does CEO pay correlate with their performance?

The OP has some links in the OP, which show that no - CEO pay generally doesn't mean better performance, the link between pay and performance is low - so that link/myth that keeps being brought back from the dead here, seems to be wrong.

A Dub in Glasgo

steddyeddy wrote: »

How does CEO pay correlate with their performance?

It generally does not

ScumLord

A Dub in Glasgo wrote: »

It generally does not

Depends on what the expectations are. Maybe they don't expect the CEO to improve sales but improve the efficiency of the company, upgrading production lines, bringing new technology online, Breaking into a particular market.

KyussBeeshop

No you're just repeating the same myth in different form.

ScumLord

KyussBeeshop wrote: »

No you're just repeating the same myth in different form.

How is it a myth? If a company wants to start doing something new it won't have the necessary skill base in it's employ, it probably won't even know how to hire the right people. It makes sense to bring in someone who knows what they're doing through experience. That happens all the time in businesses all over the world.

KyussBeeshop

You're talking about a business hiring a competent CEO. You are associating this with the type of high CEO pay which the thread is talking about. That is the myth - the association between high pay and performance - that you are repeating, in various different forms, despite other posters having debunked it.

Your current post is making the exact same assumptions - that a company "won't have the necessary skill base in it's employ, it probably won't even know how to hire the right people", that a company won't have "someone who knows what they're doing through experience" - unless they shell out for this type of high CEO pay.

So yes, you're just repeating the same myths others have presented evidence against in the thread - you're not even being subtle in how you reword your presentation of the same myth.

ScumLord

KyussBeeshop wrote: »

You're talking about a business hiring a competent CEO. You are associating this with the type of high CEO pay which the thread is talking about. That is the myth - the association between high pay and performance

CEOs are hired for specific reasons, they have contracts with specific stipulations, they do have to perform, their wage is often based on their previous experience with other companies.

What's mythical about all that?

So yes, you're just repeating the same myths others have presented evidence against in the thread - you're not even being subtle in how you reword your presentation of the same myth.

I still don't see what you see as mythical.


What are you saying is happening? That companies pick CEOs out of a hat? That they just hire people they knew in school? That CEOs don't actually have to do anything after they get hired?

KyussBeeshop

I don't think other posters will believe you failed to see, that I'm describing as mythical, the link between high CEO pay and performance - given that I don't believe you, and I feel you're on a wind-up, I'm not going to bother responding to you further.

ScumLord

KyussBeeshop wrote: »

I don't think other posters will believe you failed to see, that I'm describing as mythical, the link between high CEO pay and performance - given that I don't believe you, and I feel you're on a wind-up, I'm not going to bother responding to you further.

No your bowing out because your not making any sense. I'm saying companies hire CEOs for rational reasons to improve their business. I don't know what you're saying. You won't explain what you mean by mythical.

Overheal

They'll pay what they want to, a company does what it needs to make a profit, keep shareholders happy, and be productive.

You know, if workers en masse refused to work for companies based on CEO to worker pay ratios, companies might change their behavior but theres no guarantee of that. They can do as they like, and employees can come and go as they please. Fact is, employees often undervalue themselves, and so do employers.

Sleepy

The biggest problem I see with private sector companies overpaying their CEO's is senior management in the public sector expecting to be similarly overpaid.

Water John

I believe that the two who won the Nobel prize for Economics in 2015, work was on the premise that a high risk job should have a set salary whilst a low risk job should have performance based criteria. All contrary to perceived thinking.

Austria!

Keenan Melted Snap wrote: »

1. Don't invest in companies that pay their CEO's what you deem unacceptable.
2. What's the alternative (to high inequality)?

1. That's a policy I have already. But this discussion is about determining what is acceptable
3. Generally the alternative to high inequality is low inequality achieved through progressive taxation. In this instance lower remuneration for CEOs has a similar effect.

BrokenArrows wrote: »

You would just leave and go somewhere else.

And thats what CEO's will do, unless you get a world wide decision by all companies to standardize ceo payments.

andekwarhola wrote: »

Simple enough premise. When there's only X amount of qualified people, the rate is proportional to the extent that companies bid against each other. It's not a question of set value for set worth.

You're saying that as if the amount of people you could appoint CEO doesn't massively outnumber the positions available, which would be really decisive in this discussion if you could show it to be true.

ScumLord wrote: »

CEOs come with a certain amount of celebrity and contacts that would make them worthwhile. Getting a well known individual to manage your company may put certain lenders or shareholders at ease for example.

Lenders and shareholder confidence could be based on how well paid or in demand the CEO is. I'll conceded that, and given that people here think remuneration is based on merit, shareholders and lenders might have the same idea. I'll concede that. Of course shareholders and lenders could think more like me and be unsettled by high CEO wages.

The new CEO may have contacts that could reduce costs over all or allow them to enter new markets.

I'm struggling to see how that would work, outside of maybe political lobbying. If you had a way to reduce costs, wouldn't it depend on you finding a new supplier or having some ideas about streamlining the business. Where would contacts come into that?

It's unlikely a private company would pay out big bucks if they could avoid it. So by that criteria I'd say they're probably worth the money.

One thing raised in the Irish Times article in the OP, is that payment is set by a board of directors, who all benefit from the culture of high managerial payouts.
This article in the economist makes the same case
http://www.economist.com/node/2119378

Also, you have to remember that some of these companies are so big that the huge payouts to CEOs can look insignificant, so they're not s concerned with getting value in this area.

Finally, while I admire the ability of private companies to jeep costs down, this is by no means a perfect process, and it's inadequate to find value in an expense by saying a private company is willing to pay.

Winterlong wrote: »

Bring in world wide communism. That'll solve it OP.

Ssssshhhhhh! Patience, comrade. First I'm softening the ground by having a discussion of boardroom pay.

CINCLANTFLT

sbsquarepants wrote: »

State owned companies - that's a different matter.

That is where it gets interesting...

Water John

Look at the Irish Farmers Association (IFA). Big kick up about CEO and President salaries. New ones are accepting a near halving of the previous.

Certainly don't think CEO of any charity or association should be above €100K.
If the money is that important to you, we don't want you, should be the motto.

Earthhorse

Deleted User wrote: »

Who cares? Companies can do what they like if the shareholders are fine with it.

sbsquarepants wrote: »

Who cares. I couldn't give a toss if a private company pays it's CEO minimum wage or a gazillion dollars an hour. It's their money they can do whatever they hell they want with it. If I could talk my company into paying me 100m a year, I'd gladly accept it - problem is the fúckers just won't give it to me (They actually said I was being ridiculous at my last pay review - fúcking nerve of them:mad:)
State owned companies - that's a different matter.

Who cares? Who cares if there's growing inequality in the economy? Who cares if there a golden circle in business propping each other up? Who cares if we don't actually live in a meritocracy whilst insisting we do? Jesus Christ, have you seriously so little interest in the world around you?

sbsquarepants wrote: »

There's a fairly simple way of measuring it - profits or losses.
Are things getting better or are they getting worse - pay the driver accordingly!

That is a very simple way to measure it alright which is why it mostly tells you sweet f*ck all. CEOs can engage in short term practices that inflate profits in the short run, such as slashing costs, but leave the business bankrupt in the long run. Similarly a company may be restructured in the short run and incur losses in the short run even though that ensure its long term health.

=Sleepy;102036531]The biggest problem I see with private sector companies overpaying their CEO's is senior management in the public sector expecting to be similarly overpaid.

Even when the problem is in the private sector the problem is really in the public sector; Jesus wept.

TimeToShine

The CEO is responsible for the companies vision and awareness as well as propelling it forward in the market.

Look what happened to Sears/Radioshack. CEO's who couldn't adapt to the environment and ended up running them into the ground. Now more than ever CEO's are earning their pay as they have to work in an incredibly fast-paced and dynamic environment. The tech world has exploded and one wrong move will bury you.

CEO's deserve what they get. Just because people at the bottom of the ant hill can't see what they do it doesn't mean they don't earn it. The real waste, especially in public companies, is the amount of money spent on useless middle and senior management roles.