This misunderstand markets. It's not about some abstract and subjective notion of difficulty. It's about how much value you bring to the table in the context of labor market supply and demand.
You are 10x more valuable to your company than a cleaner, so you get 10x the pay. Why? Because your skills are more scarce than a cleaner, and because you can have a bigger impact on the company's profitability by writing code than cleaning toilets.
The CEO is 100x more valuable to your company than you are, so they get 100x your pay. Why? Because their skills are even more scarce than yours, and they can have an even bigger impact than writing code. That's it.
Was a CEO only 6x more valuable to the company than a regular worker 70 years ago?
We know that CEO pay has increased vastly out of proportion to any other related changes in our economic system over the last several decades. We also know that the makeup of boards (who choose CEOs, and determine how much they will be paid) is significantly slanted toward CEOs of other corporations. There is a clear financial interest there both to choose people who will be favorable to you, and to raise their compensation, so that when they are on a board they will be more likely to choose you, and when that board is considering your compensation, they can look at the "average CEO compensation" and see that it's high...because you've kept it there.
Furthermore, I would posit that most CEOs do not actually have skills that managers and leaders at other levels don't have. What they have is the accident of birth, and a habit of authority. If you replaced most CEOs with any reasonably thoughtful and educated person, you wouldn't see much change overall in the average performance of businesses. (You might see an increase, actually, given the number of CEOs who govern primarily based on their own egos, rather than what would help the business.)
Those statistics about CEO pay growth are often deceptive. If you sample the top N firms over time, where N is fixed, the mean market cap of those N firms will be growing, given that the economy has grown over the time window. That the average compensation of the CEO of these sampled firms is also growing is unsurprising. The omitted variable that causes this statistical illusion is GDP growth itself.
Now, even with a non-flawed methodology, I don't doubt that we'd still find that CEO pay has gone up a lot more than other job types. But that should be true for knowledge work in general, especially high-demand + low-supply roles. There has been large structural changes in the economic system that causes this. Mainly, China has come online, meaning the non-knowledge workers in wealthy countries must compete with a billion extra people, which depresses their compensation in the labor market, which increases the ratio of a CEO's pay divided by the pay of non-CEOs.
A non-market based explanation is highly suspect and should not be the default explanation. You are basically claiming that shareholders are willingly giving away their own money for no good reason. Why would shareholders do this? They are not running a charity. The simplest and least nefarious explanation is the most likely: Shareholders believe the CEOs are worth that much in the context of current (2023, not the 1970s) supply and demand dynamics in the labor market for highly niche highly impactful CEO positions. If I own an asset worth $2 trillion, I do not care about paying $100 million for someone to not ruin it.
> If you replaced most CEOs with any reasonably thoughtful and educated person, you wouldn't see much change overall in the average performance of businesses.
At least recognize this is a speculative claim made without evidence. More of a hunch. A hunch that I disagree with.
That's a lot of words to try and justify CEO/worker pay discrepancies of a factor of over 300.
All that bullshit about statistical illusions doesn't change the fact that the median worker in America has barely seen any real wage growth for 50 years, and all that extra wealth went straight to the wealthiest people in the country. Many of those are the CEOs we're discussing.
Income and wealth inequality of this level are genuinely harmful to the economy and to the political system, and every bit of effort you put into justifying them, rather than admitting that it is wrong and harmful, is effort being put into actively making the world a worse place.
It was a lot of words because you made a lot of factually false claims, so that's to be expected as per Brandolini's Law.
I appreciate that you brought moral certainty into this discussion, but that doesn't make your understanding of reality or factual premise correct, even if your moral conclusion may be correct by accident.
> doesn't change the fact that the median worker in America has barely seen any real wage growth for 50 years, and all that extra wealth went straight to the wealthiest people in the country.
Fist in the air != explanation. Depressed wage growth has little to do with managerial compensation. If you want an explanation based in fact rather than anger, you have to look at the labor market economics of the situation, which you aren't.
If you want an explanation based in fact rather than blind faith in market theory, you have to look at the capitalist labor relations side of it too, which you aren't.
I'm not misunderstanding anything, I just disagree with you.
On one hand you say pay is based on value brought to the company, on the other hand you say it's based on scarcity.
If it's value then how come the same engineer, bringing the same value, would receive different pay based on the country they live in?
Clearly that's not it.
So maybe it's scarcity? That drives up pay, but it's not enough by itself.
Markets forces are a factor, but they're not the only factor, or even the most important factor, in compensation.
No, the CEO is not 100x more valuable than the engineer. The decisions taken don't matter if you can't build well. Building well doesn't matter if you don't build the right thing. They're dependent on each other. Neither has impact by themselves.
Also disagreed on 'scarcity' of CEO skills. There's a scarcity of CEOs because there's only 1 per company, but the "skills" are pretty common imo. Any C level exec or director level person has the skills to do the job.
> On one hand you say pay is based on value brought to the company, on the other hand you say it's based on scarcity.
These things aren't separate unless you're using a colloquial definition of "value" which would be inappropriate. If water was more scarce, it would be more valuable and the market would price it more than $0.005/L or whatever it is. My wording implied these things are linked: "it's about how much value you bring to the table in the context of labor market supply and demand." Which, I admit, wasn't the most precise or clear way to word that.
Things hold $ value for two reasons: (1) the thing has perceived utility (we need water to survive, this is the demand side), and (2) the thing is scarce (this is the supply side).
The CEO ticks both boxes. There is high demand for a competent CEO because a bad one will cause Apple's market cap to go down by billions, and a good one the opposite. There is short supply (scarcity) because less people can run Apple well than can write code well. You may disagree personally, but the market, that is the people in charge of hiring the CEO, doesn't. And the market is what sets the price of labor.
You are 10x more valuable to your company than a cleaner, so you get 10x the pay. Why? Because your skills are more scarce than a cleaner, and because you can have a bigger impact on the company's profitability by writing code than cleaning toilets.
The CEO is 100x more valuable to your company than you are, so they get 100x your pay. Why? Because their skills are even more scarce than yours, and they can have an even bigger impact than writing code. That's it.