- Who could American society more easily do without? If all the country's personal home health aids, and its top paid CEOs — folks like Elon Musk (Tesla), Bob Iger (Walt Disney Co.), Tim Cook (Apple), and Stephen Schwarzman (the investment firm Blackstone) — all disappeared tomorrow, who would we miss more? Whose absence would throw our daily economic interactions and the social fabric of our lives into greater turmoil?
Defenders of the capitalist order will point out that anyone can be a farmworker or a dishwasher. These jobs are easily replaceable, which is why they are paid poorly. Not everyone can be CEO of Apple, thus the position pays more. It's just a consequence of supply and demand. But that is not the question. A better thing to ask ourselves is: Does anyone need to be CEO of Apple? That company is staffed by thousands of workers and software engineers and more. They're all perfectly intelligent people. Under a different arrangement, a form of worker-elected committee could run the company just fine. (Some oddball worker co-ops already operate this way.) Does anyone really think that Apple could not possibly function without Tim Cook, or some other individual of similar oligarchical baring, at its head?
Personally, I broadly agree with this article. I don't have any particular comments on it. However, I have comments on a few things you guys have said in the comments. I'll reply to multiple people in this single post. First of all, I guess I should disclose that I'm European, so many of your American views are very foreign to me, and many (most?) other Europeans. A lot of the things you guys take for granted we view as patently false. You probably will feel similarly alienated by many of the things I will say. Therefore, I hope you can try to give my points the benefit of the doubt, rather than dismiss them out of hand simply because they don't agree with your established worldview. Now, to the specific points: katakowsj On this point, I almost could not disagree more. People are not paid solely according to how useful they are. If they were, scientific researchers would be paid more than stock brokers, not to mention nurses or teachers. A major determinant of someone's salary is POWER. CEOs have a lot of power, and they know powerful people. They run in circles with people who can give them high paying jobs, and they can heavily influence how much their salary will be, simply by being in the right position. I'm not saying that someone's performance isn't linked to their salary, of course it is. But nobody performs 300 times better than an average person. mk Maybe so. But I would argue the opposite in many, many cases. The fact is that a single person cannot possibly understand everything that's going on in a large organisation. Therefore, they can easily end up making poor decisions simply because they have imperfect information. Beyond purely business decisions, they can easily overlook their employees wellbeing because nobody from the lower rung has any possibility to give any feedback to anybody in power. This is not only bad for the employees, it's bad for business. Having unhappy employees will obviously lead them to being less productive. I'm an engineer. Over my career I have seen ABSOLUTELY TERRIBLE decisions be made by top executives. In some cases, the reason is that they just don't understand what we're doing at a deep enough level (nor could any human being presiding over a large enough organisation), and they don't understand what we need to more effectively do our work. To better deal with such problems, I truly believe it would be better to have more executive power be distributed across the organisation, rather than have a pyramidal hierarchical structure as most companies have now. goobster Do you think Apple's employees are being given money as a charitable act by Tim Cook? Apple is making FAR more out of their employees' work than they are paying back to their employees. If they weren't they wouldn't be one of the richest companies in the world. This is the case with pretty much all salaried work in the private sector. People are hired because the company believes that it can earn more money for itself by hiring that person. Not as a favour (except, I would point out, in high paying cushy jobs, where powerful people sometimes hire their powerful friends because they believe they can get something out of it later, maybe a favour back). This is clearly false. Compare these graphs. Source: http://www.hamiltonproject.org/charts/the_share_of_economic_output_that_workers_receive_has_fallen Source: http://fortune.com/2017/07/20/ceo-pay-ratio-2016/ CEO pay correlates negatively with employees' share of the companies' profits. I think this is a bit too obvious to be a coincidence. To quote an Englishman, whom I think reflects the views of many a European; '[Some say] the cream cannot help but always rise up to the top. Well I say, "Shit floats" ' - Jarvis CockerThis system just works. If it didn't, they wouldn't receive the pay they do.
Committees are not efficient or effective forms of leadership for many types of organizations.
Second, Apple has 132,000 employees. Is it worth $1/month to each of them to have their job? Yes? Ok, then Tim Cook is worth at least $1.5m/year.
It's not pie; if the CEO gets more, the entry-level clerk does not get less.
Thanks for your thoughts! I like getting the European thinking in here, as well. (FYI - I lived in Budapest for 7 years, only a decade after the Berlin Wall came down. So I watched as Eastern Europe awoke from Communism, and moved into parliamentary democracies. It was an eye-opening time.) There are several issues you are glossing over, to make easy points. But they all stem from the core underlying element of everything I have said in this conversation: CEO's are not properly incentivized by their Boards of Directors and shareholders. They are doing EXACTLY the job they are hired to do, and hitting their targets, so they are getting the bid paydays. The reason, as you say, "CEO pay correlates negatively with employees' share of the companies' profits" is because of the short-term profit focus of American corporate governance. It has nothing to do with the CEO. They are given targets to hit, and incentives for hitting those targets. Blame them for doing their job well...? Ok. But it misses the entire point. If a company incentivized their CEO to build a business with a strong Triple Bottom Line, that doesn't externalize their cost of operations onto government and charity aid programs, and still makes a solid profit for the company, then I don't care if that CEO gets a BILLION dollars a year in compensation. Being upset about CEO pay is myopic and ultimately a waste of time. "Too much" is a sliding scale that has infinite settings; none of which will make everyone happy. Shareholders and Boards need to be held to a higher standard of performance than just quarterly earnings or EBIT. If a company is hurting because the public won't buy their products, they will change the way they do business. They will change how they measure the success of their CEO. If a board incentivized a CEO to make the entire company carbon-neutral in a year, and promised them a $500m bonus for doing so, they'd make it happen. Period. The incentives are set wrong. Not the pay scales.
Um... So if I understand you correctly, you're saying that the problem isn't that CEOs are paid too much, but rather that they're asked to do the wrong thing. First of all, I don't really think the CEO is the problem either, per se. The deeper problem is the way companies are structured, and how the profit motive is seen as the only reason for a company's existence. In the US, it's even part of the law that a company must maximise shareholder profit, which I think it's absolute lunacy. On this point it sounds like we agree. However, if CEOs continue to receive their outlandish salaries at the expense of the remaining employees of the company, how is that not a problem? It get the impression that you don't think there's any correlation between top executive salaries and those of the remaining employees, but I don't see how you can think that. Within a corporation, the amount of profit quite clearly IS a pie, out of which salaries must be divided. You used the example of McDonald's earning several billions, while "only" paying their CEO $21m. This is indeed the case for McDonald's, but clearly a certain amount of their budget is allocated to salaries, and if CEOs receive a disproportionate amount of that budget, it has a real effect on their other employees' wages. Furthermore the CEO is NOT the only executive receiving a much higher wage than the lower employees. The average McDonald's executive compensation is $235,641 a year. Accepting ludicrous salaries for executives as a fact of life merely propagates this inequality. Of course it would be better if companies spontaneously decided to make a better world, and stop focusing exclusively on profits, but what makes you think there's any chance that would ever happen all on its own? And don't you think people in power (i.e. in part CEOs) have any influence on whether or not that happens? Maybe, for example, limiting executive pay to a certain multiple of the salary of their lowest paid employees is an imperfect solution, and certainly it does nothing to fix the deeper problem of company structure, but it would probably have the effect of raising the lowest salaries. How is this not important in its own right? You don't like the solutions proposed in this article, I take it. So far, I don't think I've seen any proposed solutions coming from you, so what would you prefer? I think you're also missing a rather important point of the article; that billionaires also end up with POLITICAL power due to their massive wealth. I personally think that's the most important aspect; these people have enormous power and influence, which is completely democratically illegitimate.
This is nonsense. Committees are not efficient or effective forms of leadership for many types of organizations. Armies have generals, states have governors, companies have CEOs, etc for good reason. In many critical cases, someone needs to be able to be able to make swift decisions, resolve or override disagreements, and set strategy. Also, why is the position of CEO even in question here? I don't think Tim Cook has a billion dollars. Maybe Spross is confusing founders with CEOs.They're all perfectly intelligent people. Under a different arrangement, a form of worker-elected committee could run the company just fine.
I agree. Board of directors or no, roles like CEOs and CFOs and such exist for a reason. I think Spross might be conflating the two terms, which is understandable. A lot of high profile billionaires either are or were at one time CEOs at their respected companies.This is nonsense. Committees are not efficient or effective forms of leadership for many types of organizations. Armies have generals, states have governors, companies have CEOs, etc for good reason. In many critical cases, someone needs to be able to be able to make swift decisions, resolve or override disagreements, and set strategy.
Also, why is the position of CEO even in question here? I don't think Tim Cook has a billion dollars. Maybe Spross is confusing founders with CEOs.
Yeah. Spross is bordering on facetious here. CEO's and CFO's are paid as they are because shareholders and boards of directors see that they need these folks to keep the profits flowing and make the tough decisions that "design by committee" will jack up so many times before getting it right. This system just works. If it didn't, they wouldn't receive the pay they do. I expect that he's poking around at the fact that Joe Blow assembling widgets for Mr. Fat Cat CEO is working his 50 hours a week and can barely keep his family of four fed. This issue is not likely at the top of any shareholder, board, or CEO concerns.I agree. Board of directors or no, roles like CEOs and CFOs and such exist for a reason.
Hmm. In general I'm pretty wary of the argument that because a system exists, that means it exists on its merits. Just look at American land based broadband internet or our healthcare system for example. They exist, sure, but boy howdy I'd doubt many people would say they exist on their own merits.This system just works. If it didn't, they wouldn't receive the pay they do.
Except a good CEO can absolutely drive a company to more revenue and better services, while a bad CEO can bankrupt a company. The CEO guides a company, otherwise Apple would never have built the iPhone or iPad. If Stephen wasn't an important cog in blackstone than what made his firm worth billions and what made the others fail? If I remember correctly blackstone was build up completely by Stephen, down to the first hires and customers. After a lifetime of him building the company you want to just toss him out because you don't think he's contributing enough? But imagine if what the author says is true, and someone had a new economic system that was even more effective at allocating wealth than a free market/capitalist society. Why would we try it in the richest nation on earth first? To be in the global 1% you need to make 34k a year, something that's easy to do here. Things we regard almost as human rights are luxuries most of the world will never experience. If this person has an answer they shouldn't' start in the US they should be going to some poorer country and trying to implement it there, if it works then we can bring it over here. The idea that we should throw out such a successful economy because someone wants to try what they perceive as a better system (with no data to show for it) seems borderline dangerous
Indeed. The questions are though, are the people who take CEO positions so uniquely qualified to justify the disparity in wealth and power they hold in comparison to the average worker? Additionally, why is the pay gap in American companies so much larger than in many other countries? Japan, for example, gets thrown around a lot as an example, where they make about a fifth as much as American CEOs. In companies where CEOs hold pretty much veto power over anything the boards of directors or shareholders want, Facebook for example, doesn't that lack of checks and balances open up the company to more risk than one that is more equitably run? Jeff Spross is actually quite the insightful opinionist. I don't always agree with everything he says, but he often has some very interesting things to say. That said, he's not promoting upending the American Economy with a new system, just that we give our disparity in wealth the scrutiny it deserves. Additionally, other countries and communities are constantly trying new things and getting interesting results. America's economy, while monolithic, isn't the be all and end all in economic systems. Even here, we are surprisingly diverse in how our companies organize themselves and as a country we constantly try new things and learn learn from successes and failures. For individuals, there's more than one way to live our lives. For companies, there's more than one way to do business. The questions we always need to ask though as we navigate through society, individuals and organizations alike, are the ones where healthy decisions are the ultimate goal.Except a good CEO can absolutely drive a company to more revenue and better services, while a bad CEO can bankrupt a company.
If this person has an answer they shouldn't' start in the US they should be going to some poorer country and trying to implement it there, if it works then we can bring it over here. The idea that we should throw out such a successful economy because someone wants to try what they perceive as a better system (with no data to show for it) seems borderline dangerous
I have Issues with this piece. First, the term "billion" is chosen for shock value. Insert any other number - thousand. million. $936.12 - and the argument of whether someone "deserves" it changes. That's a big red flag, right there. He's preying on us proles and our fantasy number of "a billion dollars" to get a knee-jerk reaction. Second, Apple has 132,000 employees. Is it worth $1/month to each of them to have their job? Yes? Ok, then Tim Cook is worth at least $1.5m/year. What about $10/month? Then $15m/year. I'd be happy to pay $100/month to have a job at Apple again. That means I'm happy with Tim Cook being paid $158m/year, to continue providing me and my coworkers with jobs we love at Apple. Are there problems with externalizing costs by manufacturers? Absolutely. The real cost of an item needs to be paid - including dealing with the detritus of its manufacture and eventual disposal - as well as the public services (power, roads, police, water, etc.) that allow the factory/office to exist in the first place. But choosing "a billion dollars" is a cynical emotional ploy. Go back 25 years and it'd be "$100m". Go back 50 years, and it'd be "$10m". Go back 100 years and it'd be "$10,000". The number is irrelevant, if the expenses are paid, and the value is mutually agreed upon.
So what would you think about the idea, if exact dollar amounts were ignored, and the sole focus was on the gap in pay disparity and whether or not those pay gaps could be justified as fair, productive, socially healthy, etc.? I'm not saying you're wrong or anything, and I'm not trying to start an argument, I'd just like to hear your philosophy on the issue.
In principle, I have no problem with pay disparity. I see no equivalency between the amount paid to a CEO, and their entry-level employees (with the assumption that the entry-level employee is making a livable wage). They have different jobs with different responsibilities and therefore different compensation packages. It's not pie; if the CEO gets more, the entry-level clerk does not get less. The ONLY context within which pay disparity is an issue, is in publicly-traded companies and their quarterly earnings reports. For example, there is absolutely no reason why every McDonald's worker couldn't be paid $15/hr. McDonald's makes plenty of money to support that. The reason they don't, is because shareholders are conditioned to expect their investment portfolios to constantly increase. So if McDonald's only made $1000 last quarter, instead of $250m, they would get hammered by their investors. The fact is that BOTH numbers show a profit, and therefore should be fine. I'll say it again: It's Not Pie. McDonald's CEO famously makes $21 million dollars a year but his salary is only $1.1m of that. Everything else is bonuses for hitting short-sighted goals. The company made a PROFIT of $5.9bn last year. That is equal to two hundred and eighty times the entire compensation package for the CEO. Trying to construct some sort of class warfare between the CEO and the entry-level employee is a diversionary tactic by the institutional investors who have a nice simple formula that they are very invested in. Change that valuation formula, and now investors have to do actual work for their money. And they don't want that. (Side note: This is also why it is critically important to make sure any product or service is not being allowed to externalize any of its costs. No tax cuts. No breaks. No lobbying for less strict environmental regulations, so they can pollute the water table, and give people downstream cancer, that is then paid for with Government programs to clean up the waste, and deal with the sick people. Every company must pay their FULL BILL for all of their costs, including externalized ones, and that needs to reflect in the cost of the product. A $15 Happy Meal is a very different thing from a $3.95 one.)
I feel you for the most part, especially on the role of investors and externalizing costs. McDonald's, the way it's run as a franchise is a bit sticky, but let's pretend it's like a more conventional company as we understand them. If the CEO got the additional $19 million through bonuses and the average worker got $0, would you consider that to be fair? I don't think however it's sliced, I could. Without the people making the food, running the registers, keeping the stores clean, McDonald's as a successful business wouldn't exist and the CEOs and shareholders would not be able to make any wealth. Additionally, while they're different facets of the same dice and they play different roles, I don't think that CEOs and other corporate leaders are immune from the same temptations shareholders have to make decisions that have an overall deleterious effect of workers and the companies they're a part of in pursuit of wealth and personal gain.
I hear ya... And without the enormous real estate management operation, supply chain, relationships with farmers and trucking companies and regulatory agencies and FDA and and and... none of those workers would have a job. That's the core of it, really... the attempt to correlate different types of "work". Without the CFO assessing different ERP platforms, and deciding on the tech infrastructure that will be used to run the company, the Accounting Department can't produce a quarter of a million paychecks, which means nobody gets paid. Of course, without someone wearing a headset and running a register and taking orders at the drive-thru window, there's no income. But there is no equivalency between these roles. Each requires the individual to have a certain set of skills and experience, which can be measured and quantified (somewhat), but you can debate every variable used in that calculation. How valuable is an MBA? Or previous experience with enormous ERP system installations? Or being a short-order cook? Or being able to work quickly and under extreme pressure during the lunch rush? Etc... We like to be all up in arms over $26m pay packages. But the fact is that this is a publicly traded company, with a board of directors, and shareholders, who have all approved that compensation package. They have weighed the responsibilities of the role, put a number on each aspect of it, and set awards for achieving a specific set of goals. If he hits X profits in the first quarter, he gets $Y bonus amount, etc. His bonuses have been vetted by people whose SOLE RESPONSIBILITY is to make the company money... and they have decided that number is commensurate with the responsibility, and good for the business overall. Neither of us have the information or right to question that, until we are sitting on that board, or a shareholder who is disgruntled with our stock performance. And again, the problem is not the CEO's pay. It is what his board and shareholders have placed THEIR values on. They want short-term growth. Not long-term employee retention and benefits. If they were incentivized to make a business that was Good For The World, they would have different measurements that they would give the CEO to meet, so he could get his awards. Looking at the money is easy. The actual problem is the way we value business, as a whole, and Wall Street's skewing of all measurements to be towards profitability, rather than a Triple Bottom Line type of structure. "...without the people making the food, running the registers, keeping the stores clean, McDonald's as a successful business wouldn't exist and the CEOs and shareholders would not be able to make any wealth..."