> Propping up the good old boys network by overpaying for executive talent is of negative utility to the shareholders
We don't really have evidence executives are overpaid. The fact that even cheapskate private company owners wind up paying their executives well should communicate something about what's going on.
There is a boatload of evidence. It's been studied repeatedly.
Most of it shows that there is a small but real link between CEO pay and stock performance. This works best when CEO pay is tied directly to performance, and it isn't tied to the specific dollar value just the percentage of increase. IE - The $40m CEO doesn't actually outperform the $20m CEO, but a CEO who oversees a big jump in profits will see a big raise regardless of the reason.
CEO pay DOES correlate strongly with luck. IE - They get rewarded with big bonuses when the larger market does well or taxes go down, and they don't tend to get smaller pay when the market does poorly.
The SEC requires companies to disclose the executive pay to median salary.
It 2023 it was 312:1.
Ok, but $500 000/year isnt a median salary. But Ford's CEO is $26.4 million, so 53:1.
Gather up the rest of the C-suit at Ford and you got a couple hundred mechanics.
Do that to Stellantis and GM and you're at about 500 mechanics. 10 per state is not an insignificant number of high paid mechanics.
Add Boeing, Raytheon, Lockheed, GE, and all the other once great industrial American jewels run by idiots and you have financed the training of a large portion of the American workforce.
$20 million if the CEO’s pay is in stock not cash. Unless you want to pay mechanics in stock instead of salary there isn’t nearly enough cash saved to pay mechanics $500k.
Except, now those companies have no leadership at all so just tell the workers to just do whatever seems like a good idea and hope for the best?
Why haven't we seen a bunch of successful companies without any management if management is so useless/harmful? Just ICs self-organizing to run the whole business. Without any execs to pay they'd have a cost advantage running that way.
Oh, yeah, because those companies have really proven that their leadership is so incredibly valuable.
The problem with evaluating leadership is we almost always talk in terms of impact ("this decision saved/made/lost the company $X million/billion per year") as opposed to performance over replacement ("compared to an average person we could have hired to fulfill this role, how'd you do?"). The nature of a capitalist system is that large piles of money tend to get bigger, and companies are giant piles of money. If you are in a position of power, on average you're going to make the company more money. That doesn't make you exceptionally valuable, as pretty much anyone we could have put in that slot was going to make money.
Talent here is very often having friends on the board, through common investments and co-ownership of those private jet/ luxury yacht/luxury hostel rentals that operates 'at a loss' (you only pay consumption taxes on your direct spending, if the company rent you the plane for the cost of kerosene, and you pay yearly through your holdings for fixed costs, you avoid a lot of taxes. Tips from a friend who works at one of those places).
That network of insiders colluding behind the scenes are NOT providing optimal results for the shareholders, or for the market in general. They are instead optimizing their own short term gains at the expense of everyone else.
A bunch of good old boys making handshake deals with their buddies aren't actually choosing the best products and services for the best price, and the companies they helm will eventually suffer for it as the entire market does each time it happens.
Say we pay them 1 million dollars instead of (googled) 25 million dollars.
If we increase the compensation by another 60 thousand dollars a year that gives us room for 400 additional mechanics.
The stock price of Ford might even go up if you could improve the repair situation.
total compensation for Ford CEO is 24.9 million. But obviously it doesn't need to work that it is just taken from his money.
I propose that if the money for mechanics is needed, it can be gotten by redirecting capital from other parts of the system to invest in mechanics, funny that math is the subject here because this redirecting of capital could even be thought of a mathematical process, although really more a number of related processes together, I shall call these processes that control how money will be moved to handle problems in the systems that exist to generate more money "Capitalism".
In the rest of my work I shall discuss how the processes that control circulation of money will lead to its accumulation and conversion to power among a subset of power, allowing them to over time amass more and more power, I will note the problems this will imply but not really offer a solution as my primary interest is in describing the ways that need for a thing will cause the investment in that thing to rise over time, and decrease thereby investment in other things, as though the whole were an impartial and, as noted, nearly mathematical process in its elegance.
Your implied theory only applies to actual free market capitalism.
Most/many CEO's don't get the gig thanks to an efficient market or being the best. There are others equally or better qualified who would do the job for much less.
The typical justification for their high salaries is that it encourages the rest of the executives to buck harder for the role. In practice, far less pay could achieve that goal.
your inferred theory does not seem to match up with the things I was implying, for example you seem to think I was saying something about the Ford CEO deserving the money they make in some way?
So are you out of touch with CEO comp packages, or are you also bad at math? (In case you or someone else needs to hear it, ain't no CEO ain't gonna fuck ya for defending CEO's excessive compensation in the Hacker News comments. What a weird thing to do.)
30,000,000 / 30,000. Hope you can find a calculator to help you with that challenging math. I know it gets hard with such big numbers! (kinda the point, here!)
That's a great idea! We could take the difference from the CEO's pay.