I know this is off topic from this thread, but I’m honestly curious as to why you think this. What evidence exists to support your statement?
Normally, I would just assume this type of comment is simply trolling, but I looked at your profile and it seems you are a real person with generally intelligent comments so now I’m curious.
I didn't read the budget, and likely you didn't read it too. We can't do all things at the same time, so we have experts to take care of things. (Say, you get a CT scan, you are not going to view it and interpret it, your radiologist will.) The same with the budget: I trust the president and the Republicans, as I take their word for it.
Nobody does blindly anything. We make choices, and that is my choice. I trust the Republicans in Congress, and I am happy with their legislative agenda. Let's respect each other choices, and not denigrate anyone for being politically blind. We all have brains, personalities, education, and we all deserve respect.
Did you do any reading about the budget? I haven't read the whole thing but it seems pretty obvious to me that main benefits will go to the highest incomes and corporations and only a small percentage to the middle class. Unless you define middle class as people with net worth in the millions.
You claim there is a lord/serf dynamic. Let's take that a step further. Let's free the "serfs" by removing every lord from power today. Now, we have just lost all of our experts in managing large companies, and global competitors come in and take over the markets our own companies used to control. Now you work for them, instead of for our own companies, because you still have to make money. Do you think that your Chinese or Israeli lords are better than the American ones?
And the only reason those thousands of people are able to support the enterprise is because of the top level executives making sure the business stays on track
Say I start building a house. I realize I can't do it all by myself, so I get other people to do all the labor involved in building it. All the while providing all the details, instructions, and architectural guidelines to get a good finished product. Not to mention sourcing the materials required, getting the plans approved by the city, and making sure that on-sight construction passes inspection by the city.
Who "owes" most of the success in building the house? The labor, or the person employing the labor productively?
Edit: Just to clarify. I genuinely don't know who should get credit for the success of building a house. Both are almost equally as important. However I can say that it seems, maybe, possibly that labor collectively is as important as the single person making all the decision. That is no single laborer is as important as the person trying to get the building made.
That's not really a good analogy for a CEO's job, though.
A CEO's job would be someone who makes a small number of very broad, directional choices (should the home be Victorian, or Brutalist?) then hires and manages a team of people to hire and manage teams of people to hire and manage teams of people to build a house.
Given that the only decision they made was "Victorian vs Brutalist" and then hiring some decent managers, should they still receive that much compensation just for (in this case!) happening to have made the right choice?
Typically high level executives are required to buy a certain number of shares in the company. That's not including the options earned, but actual shares they have to buy. Now yes, much of the time, the shares they have to buy are options they have to exercise, but in the end, the stakeholders always want to see the decision makers have skin in the game.
To add to that: Would the house ever be built at all if not for the person employing the labor to build it?
Great analogy for a company too. Whether it's a start up or growing a large company to be even larger. There is no automatic force that just makes a company grow, innovate, grab market share. Things don't just happen without the leadership and direction from the top.
Comparisons like this inevitably break down at some point. I'm not at all convinced that the Aetna CEO does whatever the equivalent of sourcing materials does in their business. Architectural guidelines? Sure. "All details"? Almost definitely not.
Even taking your example at face value, I don't agree with it. The house wouldn't exist without either labourers or the planner. They are both vital. But in the Aetna situation, only one is rewarded.
A CEO is responsible for the products that they make. In the case of any company really you have to deal with various professionals, the City, and laborers to make a product.
I think it's fair to say that no single laborer, it seems, is as important in the process of production than the person making all the decisions to employ labor to some final product.
But the CEO doesn't make all the decisions. Like I said, the comparison doesn't really work. Aetna isn't one CEO and 50,000 labourers, it has an entire corporate chain of command.
Building a house isn't just one person ordeal either. It's a simplistic model in either case. A CEO for all intents and purposes does make all the decision in the same sense that any leader in most any circumstance makes "all the decisions". Even a company Commander in the military doesn't "make all the decisions", however they are most definitely responsible for all the decision they make for themselves and for their company.
Hell even at the very top the Commander in Chief doesn't make "all the decision".
I'm all for taxing the rich and compensating workers fairly.
But:
- Had the company declined, the CEO would have gotten all the blame and been crucified. Can't give blame if you can't also give credit.
- The CEO negotiated this deal, the employees did not.
- A good portion of this $500M is from the value of his stock, which is part of his compensation. I don't know the percentage of this payout that comes from stock (WSJ paywall...), but we certainly can't take stock AWAY from him to reduce his payout.
- Employees who have cashed in their options will also make money from this deal. Other stockholders will make money too.
Again -- I am NOT condoning our American trend of over-paid CEOs. More money in the working class is good for the economy. But this event specifically is not ridiculous.
You need exactly 1 in the organization. No more, no less. Can you deduce why a collective or cluster hasn't replaced the role? I'd imagine the answer is blame, but I'd like to know what you think.
Something I find curious is the degree to which HN seems to want to break out the torches and pitchforks when a CEO profits handsomely by increasing shareholder value. There doesn't seem to be the same animus towards ordinary developers becoming millionaires in a few short years by getting lucky and landing at the right unicorn startup pre-IPO.
CEOs interests are aligned perfectly in this situation: increase shareholder value. The vast bulk of CEO pay is derived from the stock that's granted to them and vested over time just like it would be for any employee that received RSUs or stock options.
I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk.
A big part of my compensation is commission and another big part is RSUs. If I don't deliver results and if I don't align my goals with that of the major shareholders and the market, I don't make as much money. I don't see how this contravenes the startup/get-rich zeitgeist here in HN.
I'm not particularly animated by the issue but I'm also not convinced the compensation has much to do with relative ability and performance. It's based on lucky positioning and risk averse ass covering (the board thinks it is more defensible to pay lots for a star than take a risk paying less).
Who gets to decide this? As I understand it, it's the board of directors that put together a compensation committee. It's not like they are spending your money. They're spending the shareholder's money.
If only you owned stock in CVS or Aetna you'd be able to make your voice heard.
My post questions the ability of the market to price CEO value a lot more than it expresses outrage.
Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention. A more rational species would substitute cheaper entertainment.
> Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention.
And a Fortune 500 CEO's pay is a natural consequence of being a Fortune 500 CEO. There are only 500 of them. This is the top of the game, just like pro athletes.
> A more rational species would substitute cheaper entertainment.
You're right, partially. The thing about free markets is that the average value across all data points will converge to the free market value, and there are outliers on both sides. There are lots of CEOs that are under-paid for their abilities as well as lots of CEOs that are over-paid for their abilities. If you were to look at all CEO salaries averaged over all companies in an industry, you probably would get a pretty fair view of what the average CEO is worth, but of course an N=1 can deviate greatly from the average.
A company's performance may be strongly correlated to a CEO's ability and performance, or not. These salaries aren't set algorithmically and there's no way to predict ahead of time exactly what the impact of a given person on an organization will be. Past performance is not a guarantee of future returns, but there's really nothing else to determine CEO salary by except for experience, fit, and past performance. The salaries are set by whatever the board and shareholders are willing to pay, which is influenced by all the data (objective and subjective alike) -- a central tenet of free markets.
The truth is there's really no other way to do it.
All free and competitive markets are taken to be efficient. In a market where a million wannabe-CEOs are vying for one of the top 500 spots, you get tough competition and the compensation is commensurate with the level of competition.
Willing, but not able. There are lots of people willing to be astronauts and NFL players too. The small pool represents the top performers, and that's where the competition is.
> CEOs interests are aligned perfectly in this situation: increase shareholder value.
That is wrong. The CEO's risk is asymmetric. Huge upside with limited downside, which encourages reckless risk taking. It is also shorter term (until his grants vest), encouraging short term profit over long term value.
> I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk.
Is the CEO not an employee? Why would he be owed a share of the capital gain, and other workers not?
His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO.
I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't.
I'd also suggest you try the job of leading people and groups of that size. There are very few who can do this sort of work effectively.
Also consider that a CEO has to consider the types of challenges he or she would like to tackle. A Board of Directors is shopping for talent and trying to get the right fit. Why does a CEO not get the same opportunity to negotiate a pay package?
"His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO."
But what actual risk is the CEO taking? Sure, the board might decide to let them go. But that usually comes with a multi-million dollar severance package. They're not hurting. There is no practical downside. On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own.
"I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't."
They land on their feet more often than not. And, again, they're not hurting for money. If they don't find another job, their children are not going to go hungry.
If you got fired from a job that had a potential $500M payday attached to it and only got a $25M severance package at the end of it, trust me, you'd be pretty bummed about it. Go looking for CEOs that got fired and see where they landed. it's one and done for a lot of them.
Again, there is no room for socialist populism here. He negotiated a package and he delivered results. His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. They trust the board and the CEO to increase the value of their investment.
Why is this controversial? Why does it matter if he's rich before or after he does the job? All of these guys are already wealthy before they even sign up. They don't need to do this work to survive.
Somehow the notion seems to go around that anyone who makes a boatload of money suddenly has to kowtow to the public on whether or not they deserve that money. That's not how this works.
"If you got fired from a job that had a potential $500M payday attached to it and only got a $25M severance package at the end of it, trust me, you'd be pretty bummed about it."
I'd be bummed. That's it. I wouldn't be wondering if I was going to lose my house, or if I'd still be able to eat.
" His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. "
But not with the interests of the employees who risk their human capital.
"Why is this controversial?"
Because those who do the majority of the work making the company successful are not rewarded for it.
Well, in this great country, you're perfectly welcome to start your own company and distribute 95% of the shares to your first 1000 employees.
Tell them they need to work for free for 4 years (or for far below market wages) in order to account for the capital contribution of their labor, comrade, and see how far that gets you.
Ben and Jerry's tried to cap CEO pay at 7x their lowest paid worker and soon realized that nobody wanted the job (or at least nobody that was qualified). Now their current CEO is taking home a whole lot more than that and he's not being paid in Chubby Hubby.
"I'm talking about Ben Cohen and Jerry Greenfield and their iconoclastic Ben & Jerry's ice cream company.
But it's neither Cherry Garcia nor Phish Food that's on my mind right now—well, maybe just a little—as much as it is the social pact that Messrs. Cohen and Greenfield made with their employees at the start of their venture: From top to bottom, the pay ratio between the highest salaried executive and lowest-earning-worker would be no greater than 5 to 1.
To their credit, the ice cream kings kept to their pay scale deal for 16 years. At that point, Cohen was set to retire and no successor who was willing to accept B&J's compensation compact could be found.
End of an Era
So the bar was raised to 7 to 1 to attract new talent, and ultimately to 17 to 1 over the course of a half dozen years more. The company was then acquired by Unilever USA in 2000, after which the corporate cone of silence descended on what was once a very transparent practice."
"Well, in this great country, you're perfectly welcome to start your own company and distribute 95% of the shares to your first 1000 employees."
That is a cop-out answer that shows that you're not interested in discussing the issue. If you don't see an issue with corporate greed in the world today, that's your prerogative, but don't make it to seem like those who do are the ones who don't know what they're talking about.
That's not how I read their answer. In fact, they spent a lot of time explaining what they meant, while you seem to be the one trying to shut down discussion.
> If you got fired from a job that had a potential $500M payday attached to it and only got a $25M severance package at the end of it, trust me, you'd be pretty bummed about it.
Trust me, I wouldn't be. I pity the person who is bummed to have only $25M.
> He negotiated a package and he delivered results. His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. They trust the board and the CEO to increase the value of their investment.
Ever tried getting a CEO's compensation reduced as a shareholder? Warren Buffett describes it as follows: "the deck is stacked against investors when it comes to the CEO’s pay" [1].
Not much financial risk, no. But they are accountable in many other ways. Personally, I'd never want to be the CEO of a Fortune 500 company, even with a $10M salary.
> usually comes with a multi-million dollar severance package
Only at the top of the game at the largest companies.
> On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own.
This is of course true, but you're only looking at financial hurt.
> If they don't find another job, their children are not going to go hungry.
For many CEOs, this _was also true_ at some point earlier in their careers.
From your perspective, sure, especially if you're only considering financial downside. There are huge non-financial downside risks, like staking your personal reputation on the performance of the 50,000 person company that you're running. Maybe you don't personally care about those other risks, but CEOs in that position do.
> encourages reckless risk taking
Not all CEOs take reckless risks.
> encouraging short term profit over long term value
This is a function of shareholders, not of CEOs.
> Is the CEO not an employee?
No, the CEO is an Officer of the Corporation and is literally held accountable for the performance of the company. An employee is not. The CEO and CFO of public companies can go to jail for misleading investors, insider trading, falsifying financial reports, etc. There is no such law that holds employees accountable for those things.
> Why would he be owed a share of the capital gain, and other workers not?
Because he owns stock. Anyone is free to buy shares of a public company. Any employee can buy stock and therefore take a share of the capital gain. There are lots of companies that give workers options and even stock grants. CEO compensation packages are designed to be heavy on stock so that the incentive to increase shareholder value becomes personal.
"There are huge non-financial downside risks, like staking your personal reputation on the performance of the 50,000 person company that you're running."
That doesn't actually happen. CEOs get golden parachutes and move on to high paid jobs somewhere else when their company does poorly.
- $230m from "already-vested stock-appreciation rights"
- $190m from "Aetna common stock he currently owns"
- "Between $60 million and $85 million" as part of a "change-in-control package" which is paid out if he's terminated as a result of the sale.
One of my biggest pet peeves regarding reporting of executive compensation is when the headlines pretend that CEOs are being paid hundreds of millions of dollars in cash, when it's mostly coming from stock-based compensation, which is arguably the most fair way to pay a CEO (if they do poorly leading the company, they make much less money).
> - Had the company declined, the CEO would have gotten all the blame and been crucified. Can't give blame if you can't also give credit.
He was making 10+ million dollars a year already [1], which he would have been able to keep. The worst that could have happened to him if he was underperforming was being fired. Calling it being crucified is ridiculous hyperbole.
"- Had the company declined, the CEO would have gotten all the blame and been crucified. Can't give blame if you can't also give credit."
And he would have been given a golden parachute worth far more than most of us will see in our lifetimes. His family wouldn't go hungry or homeless. At the same time, many employees will get laid off, and their families will have a very real chance of going hungry or homeless.
Yes, that's true. When a pro NFL player gets injured in game 1 and has to sit out the rest of the season, they still get paid. If I get injured and can't code, I'm screwed. If we're talking about Fortune 500 CEOs, we're talking about pros at the top of the game where the economics are totally different. If you want a golden parachute like the Fortune 500 CEOs get, you also have to be one of the 500 -- just like I'd have to be a pro NFL player in order to get paid millions of dollars while sitting on an injury.
If you want a golden parachute like that, then you also need to be one of the top 500 or 1000 sought-after CEOs in the country. Just like if you want a pro footballer's (NFL) salary, you need to be one of the top 1500 players. Software engineers like me and (probably) you don't get golden parachutes because we're not one in 500, we're one in a million.
They do get golden parachutes. If you're a pro football player and you get benched in game 1 with a season-ending injury, you still get paid. If you get cut for poor performance before your contract's guaranteed payout is paid, you still get that money. That is the golden parachute.
I respectfully disagree with the way you are positioning this.
The relative impact of a CEO, whose job is to set strategic direction and direct human (tens of thousands of employees) and financial capital (billions of dollars) at scale, dwarfs that of any of its individual employees and the vast swath of them combined.
Most relevant to you, the majority of the benefit of this 7x increase in value in 7 years is actually accruing to the the shareholders, not the CEO. And guess who are the top shareholders of Aetna?
All of these above are money managers of "the people's" 401k's and retirements funds. So you can rest assured that the majority of the benefit is going to the people for whom Aetna owes its success.
I don't think anyone is arguing that he has a more than average impact on the direction of the company. But, like any humble CEO would say, it's all about the people, the people below them, the people throughout the organization. So, while he deserves a decent bonus, fine, why does it need to be roughly thirty-three thousand times minimum wage. And this is just the bonus, he probably still has a very happy salary as well.
> The relative impact of a CEO, whose job is to set strategic direction and direct human (tens of thousands of employees) and financial capital (billions of dollars) at scale
Or - according to my anecdotal experience - get out of the way and stop interfering with employees that know what they’re doing? I can think of several asinine “big plans” that just ended up burning huge stashes of capital and costing even more in opportunities that were heralded as the new Advent of Christ, “and don’t you dare be the naysayer!”
Are you advocating for a flat org structure and if so have you seen any examples of that succeeding at scale?
I think many people who argue against the value of great management have just never worked at a company with great management. Great managers are as awesome and empowering as bad managers are terrible and soul-destroying.
> All of these above are money managers of "the people's" 401k's and retirements funds.
Numbers matter though. Most people don't own much capital and it's getting worse year by year. In other words, if I have a small 401k, I'd prefer the cheaper healthcare to a small bump in my meager savings (many don't have a 401k at all).
No it doesn't. If the company was tanking, the employees would get laid off whereas the CEO would be launched with a golden parachute, often one that's worth more than any employee will make in their entire life.
Wow, $500 million bonus sounded ridiculous. But under the context that the company valuation went up by ~$59 billion, it doesn't sound too crazy at all.$500k bonus for increasing the value of company by ~50mil is stuff I've heard of before. But brain refused to compute it in terms of millions.
Can't say if he deserves it or not the the initial shock is definitely blunted in the context.
Whatever your politics that $500 million comes from profit in healthcare. Aetna has an economic incentive to denvy as much care as they can. That $500 million to one person is part of the overall cost of healthcare in the U.S. Is this really money well spent on healthcare?
Part of that is from the value of his stock increasing but nonetheless even if it was all from the exit why not if they think they got value for their money?
Yes, which is why insurance for something that's non-optional - health - is so sucky, and sucky enough that the rest of the developed world has decided to largely cut out the middleman.
This is wrong. Most countries still have the "middleman". The NHS is the only European system (that I know of) that is completely government operated. Germany, France, Switzerland all leverage private and public health insurance plans.
Furthermore, we can look at our own country (the US) and see how the different European systems play out. The VA (NHS-like) is a poorly run mess. Medicare (like Switzerland) runs decently.
In France the health insurance companies are non-profit. I'm guessing that insurance CEOs in other countries don't get $500 million bonuses so I'm thinking there must be some sort of regulation controlling profit levels and pay.
Not necessarily... If we pretend the $500m is "profit", that $500m could have been created by Aetna offering better preventative care or it could have been created by letting people die in the name of corporate greed.
Aetna's valuation has grown out of the passage of the ACA. I find it unlikely that the second is true. The first certainly has happened but its unlikely that it accounts for all of the profit.
I put profit in quotes because the $500m is a bonus from the sale of the company, not an "income - expenses" profit.
The ACA attempted to make things more fair in terms of appealing denials and mandating certain coverages. It's not reasonable to believe that Aetna's profit comes from offer better preventative care. I'd need to see some evidence to believe that. Certainly before ACA health insurance companies let people die in the name of corporate greed. They have an economic incentive to deny care. Evidence of this is in the fact that the CEO is getting a $500 million bonus.
Yes the $500 million comes from stock price increase. But that comes from profit and the profit, at least partly, comes from denying care.
> profit, at least partly, comes from denying care.
This is the same as saying Dole makes part of their profit by selling rotten bananas. A factual statement but the implication of it is incorrect. The bulk of Aetna's business is to sell health insurance to healthy people. Its cheaper to never provide service than to deny payouts.
> Yes the $500 million comes from stock price increase. But that comes from profit
Stock prices rise and fall without any consideration to profit. See Amazon. Aetna's valuation can be based on a thousand different factors. The fact that an offer has been made to purchase Aetna can increase its stock price.
Revenue comes from selling policies. The company has a financial incentive to deny care because that increases the profit. It's one way they try to control expenses and thereby increase profit. After Katrina State Farm famously denied coverage to many people on the grounds that it wasn't storm damage but rather flood damage. Companies that have an incentive to get out of spending money generally try to do so. Health insurance companies hire people for the express purpose of looking for loopholes and ways to deny coverage. This is well documented.
You have in the comment above and in other comments spoken in terms of what could be. Do you have evidence that Aetna's valuation was not based on profitability? Do you deny that Aetna has a financial incentive to deny coverage or to look for ways to get out of paying for coverage? Do you believe that the $500 million for one person is money well spent in the U.S. healthcare system?
> Do you have evidence that Aetna's valuation was not based on profitability?
No. But if you read the comment of the person I originally responded to, you'll see that this discussion is irrelevant to the overall point. Any clarification of Aetna's valuation has been for your understanding of stock valuations in general. Not to pursue some point about Aetna's ethical or unethical valuation.
> The company has a financial incentive to deny care because that increases the profit.
> Do you deny that Aetna has a financial incentive to deny coverage or to look for ways to get out of paying for coverage?
Yes, categorically. If Aetna signs an agreement to pay health expenses and fails to follow through they face three major consequences:
- They can be sued for breach of contract.
- They can lose market power as their brand loses public trust.
- They can face fines from government regulators.
If Aetna is denying claims that they were never contractually obligated to pay in the first place, then I see that as fraud prevention.
> Do you believe that the $500 million for one person is money well spent in the U.S. healthcare system?
Why should I even have an opinion on the subject? I have never given Aetna or CVS my business. It's not my money they're swapping.
CVS is in a highly competitive market segment. If they were ripping off their customers they would have never acquired the market power to pay this CEO a bonus of $500m.
Yes, categorically. If Aetna signs an agreement to pay health expenses and fails to follow through they face three major consequences:
- They can be sued for breach of contract.
- They can lose market power as their brand loses public trust.
- They can face fines from government regulators.
I think you are ignorant about how things work in the U.S. There haven't been strong regulators for quite some time. The average person has neither the money, time, or willpower to fight an insurance company. The legal costs can be quite high. The time required to get a favorable ruling that actually gets enforced is often times quite long. Witness Exxon and the time required to get them to pay for the Valdez accident.
In an ideal world your point would be relevant. We do not live in a truly free market. We live in an environment of regulatory capture. An era of force arbitration which is well known to favor the corporation. We do not live in an environment where corporate malfeasance is properly punished. Look at the fines banks had to pay for knowingly laundering drug money. It was far less than the profit. BP famously has leaky oil pipelines in Nigeria because it can get away with it. Comcast has virtually no public trust and yet it continues to profit greatly. Your view is not justified by reality.
It is well documented that health insurance companies hire people to look for loopholes. To delay and ultimately try to deny coverage. This is not disputable.
> It is well documented that health insurance companies hire people to look for loopholes. To delay and ultimately try to deny coverage. This is not disputable.
Everything you said before this point is irrelevant.
It's trivial to find the list of lawsuits lost and fines paid[1].
Read this excerpt:
> In 1999 a California jury awarded $116 million in punitive damages to the widow of a man whose death from stomach cancer was alleged to have been caused by the refusal of an Aetna subsidiary to approve treatment approved by its own doctors.
$116 million for failing to pay what would have been $100k max for treatment. Aetna certainly has a financial interest in upholding their agreements. They would have to deny 1160 identical cases before breaking even. Assuming that none of those 1160 sued for damages.
The case was then settled out of court for an undisclosed amount that was reported to be around $20 million.
I know a medical malpractice attorney. He only takes cases he is absolutely sure to win. The gray areas he leaves alone. It is in these gray areas that insurance companies mostly try to get away with paying claims.
What I wrote prior was not irrelevant. You have a naive view of how markets work in the U.S.
It is irrelevant. You're talking about oil spills in Nigeria. I'm talking about one specific health-care company in America. I don't care to hear your opinions on the market and how it operates. I also don't care to hear anecdotal testimony about your friend's business practices.
It is a matter of public record when Aetna has been fined and when Aetna has been sued. It is trivial to research the subject.
I'm not sure why we're still having this conversation. Aetna's P/E ratio is 50% higher than the market average which means its price (and therefore CEO bonus) are driven by future growth potential. Not profit "extracted" in the here and now.
Isn't this 500m being paid from the value of the stock being sold? Therefore paid by CVS who is buying the stock? In that case, CVS is primarily a pharmacy company, which makes their money by directly selling drugs which heal the sick. So I believe your comment is entirely backwards, the 500m comes directly from healing the sick.
The $500 million comes from CVS's belief in the profitability of Aetna and the future returns it sees. Aetna would not be worth as much money as CVS believes it is worth if Aetna did not profit so much. And part of its enormous profit comes from denying care to people.
Sort of. It's clearly stated that some of it is from growth in the value of stock that he has been compensated with, that value (the growth of the stock) isn't literal profit from healthcare, it's market pricing of the future ability of Aetna to profit on healthcare.
And then there is some reason to consider how much delivered value the profit is associated with. If patients reaped similarly large amounts of value from the care they received, the profit isn't necessarily problematic.
This money would not have paid a single claim, ever.
That is the essence of my point and we agree on this. Yes, if the CEO did not get this $500 million it would have gone elsewhere but certainly not to paying claims or enhancing healthcare for anyone. We agree on this point.
Oligarchy at its best: Aetna/CVS workers mostly making minimum wage and doing all the work while the CEOs earning insane paychecks. Would this guy really be worse off if he only made 50M and the other 450M would go to the employees?
Aetna has ~50,000 people so this is 450m/50k = 9,000$ each for them not exactly nothing. CVS has more workers but they are paid less so 1,900$ means ~1.5 months of pay to someone making 7.25$ an hour before taxes.
I don't mean to suggest this is a significant issue on it's own, but high level executive compensation really does add up to a significant cost at large corporations. And really, this is just stock compensation he received other pay and benefits.
because that bonus is based on how much he saved or made for that company. he/she must have saved/made the company at least 3 times as much and was promised the bonus by that same board if he achieves the goal. board does not gift him the bonus, board owes him.
That's not really a valid comparison. The real-world difference between $50 and $500 is much greater than the real-world difference between $50,000,000 and $500,000,000.
$450 to most of the population is a meaningful amount that could help pay rent/mortgate, buy food, pay for daycare, etc. $450,000,000 to someone who already has $50,000,000 just means stepping up to a megayacht.
Perhaps a more apt analogy would be the following:
Would you be happy if you Product Manager at work got a bonus of 10,000 times your salary for managing a wildly successful and profitable project to completion when you and your coworkers did most of the grunt work?
Do you really think the employees making minimum wage are doing "all the work?" If that's true, this guy did literally nothing. Which I doubt. Anyway, it seems like he's done a decent job of trying to spread the wealth around (no idea if the claims are true, of course). FTA:
"He is one of the highest-profile leaders in managed care, known partly for sharing his personal health-care experiences after a severe ski accident years ago, and he is well-regarded by investors. He drew attention outside the industry for boosting the incomes of Aetna’s lowest-paid workers by as much as one-third a few years ago; he asked Aetna executives at the time to read economist Thomas Piketty’s book on wealth inequality."
These are just sort of nitpicky comments, but I think in this case they matter:
* most of this is due to appreciation of stock appreciation rights (an instrument similar to a stock option) he already owns that is already vested ($230M)
* $190M is from common stock he currently owns
* he gets $60-85M as part of a change of control package, which is triggered if he is fired after CVS takes over. this is a standard clause in most contracts
* overall, his package is worth so much because his equity became more valuable over the course of his tenure. any employees who got options at the same time as he did would benefit from most of this as well
so these gains did not come from profits, rather appreciation in the equity of the company during his tenure. it would be hypocritical to praise startup founders from reaping capital gains while admonishing this ceo
> so these gains did not come from profits, rather appreciation in the equity of the company during his tenure. it would be hypocritical to praise startup founders from reaping capital gains while admonishing this ceo
Why do you think the equity went up in value? It’s because of profit driven - valuations and profitability usually go hand in hand. The difference between Aetna and most startups is the business of Aetna adds no value to the economy/society, it’s a value suck.
* from 2014-2016, aetna's revenue has increased by 9%, its net income by 10%, and its stock price by 82%. i didnt check all the way back to the beginning of the current ceo's tenure, but id imagine it is a similar trend. stock prices and profitability are not as well correlated as wed like to think
* why do you say aetna adds no economic value to society? i understand if you have a high deductible plan with high premiums, it seems like health insurance is evil, but insurance companeis are required to pay out like 80% of the premium revenue they receive as medical benefits. so aetna pays something like $50B a year to pay for people's surgeries, child birth, medications, hospital stays, etc
if you dont think health insurance is valuable youve never been really sick
Health care is valuable. Health insurance is mostly a scam in the US, a way for insurance companies to take a cut without adding any value.
Talk to someone who has lived in countries with socialized medicine (as I have): other countries systems' aren't perfect, but they deliver better results, with less money, and without insurance companies taking massive profits for doing nothing but denying claims.
Full disclosure: health insurance company once repeatedly refused to pay $5000 bill to lab. When I finally said "I'd like to file a grievance" they magically discovered a "coding error" and the bill was paid.
health insurance companies are not perfect, but id argue they are more a product of the imperfections of the us healthcare system than a cause of the imperfections
private health insurance is needed as we do not have public insurance for everyone. even in countries like the UK, which tend to have better outcomes and lower cost, private health insurance exists. it gives people more options if they are willing to pay and can afford it
health insurance companies are easy to scapegoat, but in reality they are not usually price gouging, but usually only responding to cost increases by hospitals and health systems. health insurance companies under the ACA must pay out 80% of premium revenues as medical claims. when you add administrative costs, health insurance companies have a structural profit ceiling of like 5%. however increasingly consolidated providers are getting more pricing power and charging more, so the insurance companies have to increase premiums or lower costs (claim denials) to protect their structurally thin margins
insurance companies certainly do terrible things like not paying things and literally inventing coding errors to deny payment. however, in many cases this is mitigated by the healthcare provider taking assignment of insurance and dealing with all this on your behalf. although insurance companies can and do make life harder for docs and influence behavior. but even in countries with "socialised medicine" doctors are influenced (perhaps more strongly) by payers.
Ask yourself this question - how do insurance companies in general add value? Forget payout for a moment. Their value is added in deciding what rates to charge people, and determining if a claim is valid, that's it. Anything else they do is value subtraction. Their profit drivers come from raising premiums and denying more claims, both things kill value. You make a good point about providers consolidating, and the same point should be made about health insurance companies consolidating.
Health insurance companies recruit providers (hospitals and physicians), negotiate prices for services, manage patient records and billing, detect, prevent, and prosecute provider fraud, determine market prices based on their predicted population of insured live, and other random tasks. It's a stretch to call this no value add, in my opinion. We can, and should, compare the efficiency of medicare administration to private insurance administration, and study the best practices of each system. Even in countries with state-sponsored universal healthcare, like the UK, there are robust private health insurance systems, which indicates to me that they offer value to consumers and fill some market need.
Insurance companies negotiate much lower payment amounts with providers than individuals could achieve otherwise. They do this through scale, which, as you mention, can be bad when scale gets too big, but also through risk pooling. Risk pooling allows you to eliminate idiosyncratic risk and thus lower the cost of healthcare on average.
If you are a sick person with no insurance and average income, you won't be able to afford health care. But if you join a group of healthy people and pool some to pay for emergencies, you can. That's health insurance
I use increasing athlete salary as an easy analogy to help ppl understand wealth disparity in this country. Micheal Jordan once made $4 million dollars in the prime of his career. Today Steph Curry can sign a $200 million deal in 2017 because that amount is nothing to his owner. Russell Westbrook signed a $200 million NBA extension to go with his $200 million sneaker endorsement this summer. Sounds crazy if you've been following sports. Their salaries aren't out of control though, it just seems that way because our wages are stagnant due to having none of the leverage athletes have via unions/skillset. Athlete salary has grown in proportion to the wealth they help generate, most of our salaries have not.
I don't begrudge athletes high salaries - they are in the entertainment industry and they are part of the product, like actors/directors. It's only in the last few decades that they got close to their actual value due to collective bargaining or that they got (in some sports) the ability to move from team to team of their own free will. Most athletes don't end up ridiculously wealthy and in contact sports will have short careers, additionally boxers and football players with longish careers will have a much lower quality of life after retirement from sport due to TBI/injuries. The only problem I have with pro sports is the collegiate scam in the US where colleges reap all the benefits and student athletes can't earn money.
It helps to understand the breakdown of how he got to this level of benefit. My guess: it doesn't sound like he just gets a $0.5B payout at close, but instead its the value of his Aetna holdings after close + his termination contract. To break it down, say he gets option for 300,000 shares at $30/share ($9mm) each year over the last 7 yrs, and the company stock price has gone from $30 to $207 per share, with steep ramp in price at the end of his reign, he is left with 2.1mm shares worth $177 more per share than he paid for them, netting him $370,000,000. His change in control contract is worth $85mm, bringing him to $450mm. Right or wrong, it makes more sense when broken down.
Disclaimer: I know very little about whats normal in stock options and executive pay, but a $10mm/yr salary for a man serving as CEO and chairman of a $70B company doesn't seem as far fetched as the $500mm total comp makes it sound
I’m genuinely confused by this response. All that URL does is have you click from Facebook, which makes FB the referrer, which WSJ has anointed a paywall free zone.
I wonder if there's a reasonable way to normalize the value of stock incentive packages, such that they only become worth outsized amounts if you actually outperform the other companies in your sector. That way, they can't just ride a bull market to a massive payday, and similarly, a bear market doesn't automatically destroy their compensation.
Not sure if people know, but corporate compensation is rigged in the US. It is mostly determined by a compensation committee appointed by the board, and consisting of members of the same oligarchy. By contrast, CEOs in other countries don't make such obscene numbers
> By contrast, CEOs in other countries don't make such obscene numbers
By contrast, companies in other countries don't make such obscene numbers. Don't forget that our economy eclipses everyone else's. Our economy is on par with the entire EU's, and is still larger than China's which has several times our population.
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[ 1.8 ms ] story [ 190 ms ] threadNormally, I would just assume this type of comment is simply trolling, but I looked at your profile and it seems you are a real person with generally intelligent comments so now I’m curious.
That's a bad strategy for a citizen in a democracy. If you blindly believe a party or politician you can't make educated choices.
Even if they are taxed as income, the top rate is (probably) changing from 39.6% to 38.5%, so he'd saving less than 1% on $499 million of this.
So where is he getting a big tax cut?
http://archive.is/MsLTJ
Aetna employees almost 50,000 people.
Aetna owes some success to their CEO. They owe most of their success to their employees.
And, yes: Non-C-level execs make directional decisions all the time. Especially in a company the size of Aetna.
If you get the big decisions incorrect, then your company will not survive even if all the small decisions are correct.
Who "owes" most of the success in building the house? The labor, or the person employing the labor productively?
Edit: Just to clarify. I genuinely don't know who should get credit for the success of building a house. Both are almost equally as important. However I can say that it seems, maybe, possibly that labor collectively is as important as the single person making all the decision. That is no single laborer is as important as the person trying to get the building made.
A CEO's job would be someone who makes a small number of very broad, directional choices (should the home be Victorian, or Brutalist?) then hires and manages a team of people to hire and manage teams of people to hire and manage teams of people to build a house.
Given that the only decision they made was "Victorian vs Brutalist" and then hiring some decent managers, should they still receive that much compensation just for (in this case!) happening to have made the right choice?
So yes, the CEO is an owner as well.
Great analogy for a company too. Whether it's a start up or growing a large company to be even larger. There is no automatic force that just makes a company grow, innovate, grab market share. Things don't just happen without the leadership and direction from the top.
Even taking your example at face value, I don't agree with it. The house wouldn't exist without either labourers or the planner. They are both vital. But in the Aetna situation, only one is rewarded.
I think it's fair to say that no single laborer, it seems, is as important in the process of production than the person making all the decisions to employ labor to some final product.
Hell even at the very top the Commander in Chief doesn't make "all the decision".
But:
- Had the company declined, the CEO would have gotten all the blame and been crucified. Can't give blame if you can't also give credit.
- The CEO negotiated this deal, the employees did not.
- A good portion of this $500M is from the value of his stock, which is part of his compensation. I don't know the percentage of this payout that comes from stock (WSJ paywall...), but we certainly can't take stock AWAY from him to reduce his payout.
- Employees who have cashed in their options will also make money from this deal. Other stockholders will make money too.
Again -- I am NOT condoning our American trend of over-paid CEOs. More money in the working class is good for the economy. But this event specifically is not ridiculous.
CEOs interests are aligned perfectly in this situation: increase shareholder value. The vast bulk of CEO pay is derived from the stock that's granted to them and vested over time just like it would be for any employee that received RSUs or stock options.
I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk.
A big part of my compensation is commission and another big part is RSUs. If I don't deliver results and if I don't align my goals with that of the major shareholders and the market, I don't make as much money. I don't see how this contravenes the startup/get-rich zeitgeist here in HN.
Capitalism for me but not for thee?
If only you owned stock in CVS or Aetna you'd be able to make your voice heard.
You think I should keep my opinion to myself or something?
If anyone could do what they do, they'd be paid accordingly.
The market (via the shareholders) sets the rate of pay. Why the general public cares about one and not the other is beyond me.
Athletes and celebrities are different, their pay is a natural consequence of gathering lots of attention. A more rational species would substitute cheaper entertainment.
And a Fortune 500 CEO's pay is a natural consequence of being a Fortune 500 CEO. There are only 500 of them. This is the top of the game, just like pro athletes.
> A more rational species would substitute cheaper entertainment.
But we aren't, and we don't.
This is not at all self evident. There is a lot of reporting suggesting CEO compensation is not really tied to the best interests of share holders.
As cited elsewhere in this thread:
http://www.berkshirehathaway.com/letters/2005ltr.pdf
A company's performance may be strongly correlated to a CEO's ability and performance, or not. These salaries aren't set algorithmically and there's no way to predict ahead of time exactly what the impact of a given person on an organization will be. Past performance is not a guarantee of future returns, but there's really nothing else to determine CEO salary by except for experience, fit, and past performance. The salaries are set by whatever the board and shareholders are willing to pay, which is influenced by all the data (objective and subjective alike) -- a central tenet of free markets.
The truth is there's really no other way to do it.
First you have to prove that the CEO market is efficient. Then you can praise the free hand.
High compensation is partly a result of businesses choosing from a small pool of candidates...
That is wrong. The CEO's risk is asymmetric. Huge upside with limited downside, which encourages reckless risk taking. It is also shorter term (until his grants vest), encouraging short term profit over long term value.
> I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of the capital gain when they've got no capital of their own at risk.
Is the CEO not an employee? Why would he be owed a share of the capital gain, and other workers not?
I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't.
I'd also suggest you try the job of leading people and groups of that size. There are very few who can do this sort of work effectively.
Also consider that a CEO has to consider the types of challenges he or she would like to tackle. A Board of Directors is shopping for talent and trying to get the right fit. Why does a CEO not get the same opportunity to negotiate a pay package?
But what actual risk is the CEO taking? Sure, the board might decide to let them go. But that usually comes with a multi-million dollar severance package. They're not hurting. There is no practical downside. On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own.
"I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't."
They land on their feet more often than not. And, again, they're not hurting for money. If they don't find another job, their children are not going to go hungry.
Again, there is no room for socialist populism here. He negotiated a package and he delivered results. His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. They trust the board and the CEO to increase the value of their investment.
Why is this controversial? Why does it matter if he's rich before or after he does the job? All of these guys are already wealthy before they even sign up. They don't need to do this work to survive.
Somehow the notion seems to go around that anyone who makes a boatload of money suddenly has to kowtow to the public on whether or not they deserve that money. That's not how this works.
I'd be bummed. That's it. I wouldn't be wondering if I was going to lose my house, or if I'd still be able to eat.
" His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. "
But not with the interests of the employees who risk their human capital.
"Why is this controversial?"
Because those who do the majority of the work making the company successful are not rewarded for it.
Tell them they need to work for free for 4 years (or for far below market wages) in order to account for the capital contribution of their labor, comrade, and see how far that gets you.
Ben and Jerry's tried to cap CEO pay at 7x their lowest paid worker and soon realized that nobody wanted the job (or at least nobody that was qualified). Now their current CEO is taking home a whole lot more than that and he's not being paid in Chubby Hubby.
http://abcnews.go.com/Business/companies-follow-ben-jerrys-l...
"I'm talking about Ben Cohen and Jerry Greenfield and their iconoclastic Ben & Jerry's ice cream company.
But it's neither Cherry Garcia nor Phish Food that's on my mind right now—well, maybe just a little—as much as it is the social pact that Messrs. Cohen and Greenfield made with their employees at the start of their venture: From top to bottom, the pay ratio between the highest salaried executive and lowest-earning-worker would be no greater than 5 to 1.
To their credit, the ice cream kings kept to their pay scale deal for 16 years. At that point, Cohen was set to retire and no successor who was willing to accept B&J's compensation compact could be found.
End of an Era
So the bar was raised to 7 to 1 to attract new talent, and ultimately to 17 to 1 over the course of a half dozen years more. The company was then acquired by Unilever USA in 2000, after which the corporate cone of silence descended on what was once a very transparent practice."
That is a cop-out answer that shows that you're not interested in discussing the issue. If you don't see an issue with corporate greed in the world today, that's your prerogative, but don't make it to seem like those who do are the ones who don't know what they're talking about.
Trust me, I wouldn't be. I pity the person who is bummed to have only $25M.
> He negotiated a package and he delivered results. His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. They trust the board and the CEO to increase the value of their investment.
Ever tried getting a CEO's compensation reduced as a shareholder? Warren Buffett describes it as follows: "the deck is stacked against investors when it comes to the CEO’s pay" [1].
[1] http://www.berkshirehathaway.com/letters/2005ltr.pdf
"Though I have served as a director of twenty public companies, only one CEO has put me on his comp committee. Hmmmm . . ."
Everyone in this thread claiming CEOs usually "earn" their compensation needs to read this and explain why Buffet's arguments are wrong.
(Not because it's Buffett, because his arguments are well thought out and reflect a lot of personal experience with the topic.)
Not much financial risk, no. But they are accountable in many other ways. Personally, I'd never want to be the CEO of a Fortune 500 company, even with a $10M salary.
> usually comes with a multi-million dollar severance package
Only at the top of the game at the largest companies.
> On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own.
This is of course true, but you're only looking at financial hurt.
> If they don't find another job, their children are not going to go hungry.
For many CEOs, this _was also true_ at some point earlier in their careers.
From your perspective, sure, especially if you're only considering financial downside. There are huge non-financial downside risks, like staking your personal reputation on the performance of the 50,000 person company that you're running. Maybe you don't personally care about those other risks, but CEOs in that position do.
> encourages reckless risk taking
Not all CEOs take reckless risks.
> encouraging short term profit over long term value
This is a function of shareholders, not of CEOs.
> Is the CEO not an employee?
No, the CEO is an Officer of the Corporation and is literally held accountable for the performance of the company. An employee is not. The CEO and CFO of public companies can go to jail for misleading investors, insider trading, falsifying financial reports, etc. There is no such law that holds employees accountable for those things.
> Why would he be owed a share of the capital gain, and other workers not?
Because he owns stock. Anyone is free to buy shares of a public company. Any employee can buy stock and therefore take a share of the capital gain. There are lots of companies that give workers options and even stock grants. CEO compensation packages are designed to be heavy on stock so that the incentive to increase shareholder value becomes personal.
That doesn't actually happen. CEOs get golden parachutes and move on to high paid jobs somewhere else when their company does poorly.
- $230m from "already-vested stock-appreciation rights"
- $190m from "Aetna common stock he currently owns"
- "Between $60 million and $85 million" as part of a "change-in-control package" which is paid out if he's terminated as a result of the sale.
One of my biggest pet peeves regarding reporting of executive compensation is when the headlines pretend that CEOs are being paid hundreds of millions of dollars in cash, when it's mostly coming from stock-based compensation, which is arguably the most fair way to pay a CEO (if they do poorly leading the company, they make much less money).
He was making 10+ million dollars a year already [1], which he would have been able to keep. The worst that could have happened to him if he was underperforming was being fired. Calling it being crucified is ridiculous hyperbole.
[1] https://en.wikipedia.org/wiki/Mark_Bertolini
And he would have been given a golden parachute worth far more than most of us will see in our lifetimes. His family wouldn't go hungry or homeless. At the same time, many employees will get laid off, and their families will have a very real chance of going hungry or homeless.
Hahaha, that's a good one.
The CEO would get a golden parachute payout and move onto another highly paid position.
The relative impact of a CEO, whose job is to set strategic direction and direct human (tens of thousands of employees) and financial capital (billions of dollars) at scale, dwarfs that of any of its individual employees and the vast swath of them combined.
Most relevant to you, the majority of the benefit of this 7x increase in value in 7 years is actually accruing to the the shareholders, not the CEO. And guess who are the top shareholders of Aetna?
#1 Blackrock #2 Capital World Investors #3 Vanguard #4 T Rowe #5 State Street Source: https://whalewisdom.com/stock/aet
All of these above are money managers of "the people's" 401k's and retirements funds. So you can rest assured that the majority of the benefit is going to the people for whom Aetna owes its success.
Because that's what he negotiated with his employers.
Or - according to my anecdotal experience - get out of the way and stop interfering with employees that know what they’re doing? I can think of several asinine “big plans” that just ended up burning huge stashes of capital and costing even more in opportunities that were heralded as the new Advent of Christ, “and don’t you dare be the naysayer!”
I think many people who argue against the value of great management have just never worked at a company with great management. Great managers are as awesome and empowering as bad managers are terrible and soul-destroying.
Numbers matter though. Most people don't own much capital and it's getting worse year by year. In other words, if I have a small 401k, I'd prefer the cheaper healthcare to a small bump in my meager savings (many don't have a 401k at all).
Or getting laid off.
Can't say if he deserves it or not the the initial shock is definitely blunted in the context.
Part of that is from the value of his stock increasing but nonetheless even if it was all from the exit why not if they think they got value for their money?
Yes, which is why insurance for something that's non-optional - health - is so sucky, and sucky enough that the rest of the developed world has decided to largely cut out the middleman.
Furthermore, we can look at our own country (the US) and see how the different European systems play out. The VA (NHS-like) is a poorly run mess. Medicare (like Switzerland) runs decently.
Aetna's valuation has grown out of the passage of the ACA. I find it unlikely that the second is true. The first certainly has happened but its unlikely that it accounts for all of the profit.
I put profit in quotes because the $500m is a bonus from the sale of the company, not an "income - expenses" profit.
https://health.usnews.com/health-news/articles/2008/08/25/ho...
Here's one from after ACA passed and was implemented:
https://www.cbsnews.com/news/mental-illness-health-care-insu...
The ACA attempted to make things more fair in terms of appealing denials and mandating certain coverages. It's not reasonable to believe that Aetna's profit comes from offer better preventative care. I'd need to see some evidence to believe that. Certainly before ACA health insurance companies let people die in the name of corporate greed. They have an economic incentive to deny care. Evidence of this is in the fact that the CEO is getting a $500 million bonus.
Yes the $500 million comes from stock price increase. But that comes from profit and the profit, at least partly, comes from denying care.
EDIT:
https://twitter.com/RoseAnnDeMoro/status/922627477553397761/...
It happens often enough that there is a market for lawyers to help out when insurance claims are denied.
https://scottglovsky.com/practice-areas/health-insurance-den...
This is the same as saying Dole makes part of their profit by selling rotten bananas. A factual statement but the implication of it is incorrect. The bulk of Aetna's business is to sell health insurance to healthy people. Its cheaper to never provide service than to deny payouts.
> Yes the $500 million comes from stock price increase. But that comes from profit
Stock prices rise and fall without any consideration to profit. See Amazon. Aetna's valuation can be based on a thousand different factors. The fact that an offer has been made to purchase Aetna can increase its stock price.
You have in the comment above and in other comments spoken in terms of what could be. Do you have evidence that Aetna's valuation was not based on profitability? Do you deny that Aetna has a financial incentive to deny coverage or to look for ways to get out of paying for coverage? Do you believe that the $500 million for one person is money well spent in the U.S. healthcare system?
No. But if you read the comment of the person I originally responded to, you'll see that this discussion is irrelevant to the overall point. Any clarification of Aetna's valuation has been for your understanding of stock valuations in general. Not to pursue some point about Aetna's ethical or unethical valuation.
> The company has a financial incentive to deny care because that increases the profit.
> Do you deny that Aetna has a financial incentive to deny coverage or to look for ways to get out of paying for coverage?
Yes, categorically. If Aetna signs an agreement to pay health expenses and fails to follow through they face three major consequences:
- They can be sued for breach of contract.
- They can lose market power as their brand loses public trust.
- They can face fines from government regulators.
If Aetna is denying claims that they were never contractually obligated to pay in the first place, then I see that as fraud prevention.
> Do you believe that the $500 million for one person is money well spent in the U.S. healthcare system?
Why should I even have an opinion on the subject? I have never given Aetna or CVS my business. It's not my money they're swapping.
CVS is in a highly competitive market segment. If they were ripping off their customers they would have never acquired the market power to pay this CEO a bonus of $500m.
I think you are ignorant about how things work in the U.S. There haven't been strong regulators for quite some time. The average person has neither the money, time, or willpower to fight an insurance company. The legal costs can be quite high. The time required to get a favorable ruling that actually gets enforced is often times quite long. Witness Exxon and the time required to get them to pay for the Valdez accident.
In an ideal world your point would be relevant. We do not live in a truly free market. We live in an environment of regulatory capture. An era of force arbitration which is well known to favor the corporation. We do not live in an environment where corporate malfeasance is properly punished. Look at the fines banks had to pay for knowingly laundering drug money. It was far less than the profit. BP famously has leaky oil pipelines in Nigeria because it can get away with it. Comcast has virtually no public trust and yet it continues to profit greatly. Your view is not justified by reality.
It is well documented that health insurance companies hire people to look for loopholes. To delay and ultimately try to deny coverage. This is not disputable.
Everything you said before this point is irrelevant.
It's trivial to find the list of lawsuits lost and fines paid[1].
Read this excerpt:
> In 1999 a California jury awarded $116 million in punitive damages to the widow of a man whose death from stomach cancer was alleged to have been caused by the refusal of an Aetna subsidiary to approve treatment approved by its own doctors.
$116 million for failing to pay what would have been $100k max for treatment. Aetna certainly has a financial interest in upholding their agreements. They would have to deny 1160 identical cases before breaking even. Assuming that none of those 1160 sued for damages.
1. https://www.corp-research.org/aetna
I know a medical malpractice attorney. He only takes cases he is absolutely sure to win. The gray areas he leaves alone. It is in these gray areas that insurance companies mostly try to get away with paying claims.
What I wrote prior was not irrelevant. You have a naive view of how markets work in the U.S.
It is a matter of public record when Aetna has been fined and when Aetna has been sued. It is trivial to research the subject.
I'm not sure why we're still having this conversation. Aetna's P/E ratio is 50% higher than the market average which means its price (and therefore CEO bonus) are driven by future growth potential. Not profit "extracted" in the here and now.
And then there is some reason to consider how much delivered value the profit is associated with. If patients reaped similarly large amounts of value from the care they received, the profit isn't necessarily problematic.
You haven't been following Wall Street very long, have you?
The stock price gain is something like 8-9x the profit gain for Aetna. This money would not have paid a single claim, ever.
That is the essence of my point and we agree on this. Yes, if the CEO did not get this $500 million it would have gone elsewhere but certainly not to paying claims or enhancing healthcare for anyone. We agree on this point.
edit: As commenters below pointed out correct number is $9,000 per employee, which would have made for a pretty awesome Christmas bonus.
If we also include CVS employees (240k) the bonus drops to $1,552 which is still pretty good.
[1] https://en.m.wikipedia.org/wiki/CVS_Pharmacy
I don't mean to suggest this is a significant issue on it's own, but high level executive compensation really does add up to a significant cost at large corporations. And really, this is just stock compensation he received other pay and benefits.
Would you accept $50 (million dollar)? Hell yeah.
What would you choose between $50 and $500. Maybe $500, not sure if I could live with myself, but I can see how some people would.
But why is $500 even on the table? Why isn't someone (a board, a shareholders' meeting) telling this guy: $50 (million) should be enough.
$450 to most of the population is a meaningful amount that could help pay rent/mortgate, buy food, pay for daycare, etc. $450,000,000 to someone who already has $50,000,000 just means stepping up to a megayacht.
Perhaps a more apt analogy would be the following:
Would you be happy if you Product Manager at work got a bonus of 10,000 times your salary for managing a wildly successful and profitable project to completion when you and your coworkers did most of the grunt work?
"He is one of the highest-profile leaders in managed care, known partly for sharing his personal health-care experiences after a severe ski accident years ago, and he is well-regarded by investors. He drew attention outside the industry for boosting the incomes of Aetna’s lowest-paid workers by as much as one-third a few years ago; he asked Aetna executives at the time to read economist Thomas Piketty’s book on wealth inequality."
https://news.ycombinator.com/newsguidelines.html
edit: feel free to join the conversation silent downvoting cowards
* most of this is due to appreciation of stock appreciation rights (an instrument similar to a stock option) he already owns that is already vested ($230M)
* $190M is from common stock he currently owns
* he gets $60-85M as part of a change of control package, which is triggered if he is fired after CVS takes over. this is a standard clause in most contracts
* overall, his package is worth so much because his equity became more valuable over the course of his tenure. any employees who got options at the same time as he did would benefit from most of this as well
so these gains did not come from profits, rather appreciation in the equity of the company during his tenure. it would be hypocritical to praise startup founders from reaping capital gains while admonishing this ceo
edit: formatting
Why do you think the equity went up in value? It’s because of profit driven - valuations and profitability usually go hand in hand. The difference between Aetna and most startups is the business of Aetna adds no value to the economy/society, it’s a value suck.
* from 2014-2016, aetna's revenue has increased by 9%, its net income by 10%, and its stock price by 82%. i didnt check all the way back to the beginning of the current ceo's tenure, but id imagine it is a similar trend. stock prices and profitability are not as well correlated as wed like to think
* why do you say aetna adds no economic value to society? i understand if you have a high deductible plan with high premiums, it seems like health insurance is evil, but insurance companeis are required to pay out like 80% of the premium revenue they receive as medical benefits. so aetna pays something like $50B a year to pay for people's surgeries, child birth, medications, hospital stays, etc
if you dont think health insurance is valuable youve never been really sick
Talk to someone who has lived in countries with socialized medicine (as I have): other countries systems' aren't perfect, but they deliver better results, with less money, and without insurance companies taking massive profits for doing nothing but denying claims.
Full disclosure: health insurance company once repeatedly refused to pay $5000 bill to lab. When I finally said "I'd like to file a grievance" they magically discovered a "coding error" and the bill was paid.
private health insurance is needed as we do not have public insurance for everyone. even in countries like the UK, which tend to have better outcomes and lower cost, private health insurance exists. it gives people more options if they are willing to pay and can afford it
health insurance companies are easy to scapegoat, but in reality they are not usually price gouging, but usually only responding to cost increases by hospitals and health systems. health insurance companies under the ACA must pay out 80% of premium revenues as medical claims. when you add administrative costs, health insurance companies have a structural profit ceiling of like 5%. however increasingly consolidated providers are getting more pricing power and charging more, so the insurance companies have to increase premiums or lower costs (claim denials) to protect their structurally thin margins
insurance companies certainly do terrible things like not paying things and literally inventing coding errors to deny payment. however, in many cases this is mitigated by the healthcare provider taking assignment of insurance and dealing with all this on your behalf. although insurance companies can and do make life harder for docs and influence behavior. but even in countries with "socialised medicine" doctors are influenced (perhaps more strongly) by payers.
tldr, dont hate the player hate the game
If you are a sick person with no insurance and average income, you won't be able to afford health care. But if you join a group of healthy people and pool some to pay for emergencies, you can. That's health insurance
Athletes used to make tens of millions of dollars. Nowadays some retire with over a billion dollars of lifetime earnings.
CEOs used to make what? It was common to hear 20-25MM a year, today that number seems ridiculously low.
I know staff on professional sports teams, low men on the totem pole, who make quarter million dollar bonuses.
I realize these are one off examples that aren't common, but they make the gap seem so large.
Sure they are. After this season, $30m is going to be the starting salary for even a mediocre quarterback in the NFL
Disclaimer: I know very little about whats normal in stock options and executive pay, but a $10mm/yr salary for a man serving as CEO and chairman of a $70B company doesn't seem as far fetched as the $500mm total comp makes it sound
https://m.facebook.com/flx/warn/?u=https%3A%2F%2Fwww.wsj.com...
What am I missing?
By contrast, companies in other countries don't make such obscene numbers. Don't forget that our economy eclipses everyone else's. Our economy is on par with the entire EU's, and is still larger than China's which has several times our population.