Jobs at that level are about who you know, not what you know.
Think of it as a club of like 30,000 people in the US. 3,000 of those people are geniuses, 3,000 are idiots and trust fund kids. The rest are in the middle.
You don’t want to be the director who screwed over some good old boy.
The MBA was specifically designed to take advantage of hands off capital. Most people that own stock don’t want to manage these companies so the people running the ship get to extract extra value. This extends down the company as the CEO does not want to manage people and is not really spending their own money, and that extends down through management.
Compare things with government where people simply don’t make that much money yet it’s not hard to fill these jobs.
The usual reasoning I see on HN wrt sympathy for these execs is something along the lines of "they are worth more, so they get paid more."
The argument seems to fall apart when they are they very same people who ran the company into the ground. Tax the rich and help the poor- odds are they just got unlucky in a game that makes almost no sense.
Eddie Lampart appears to have run it into the ground on purpose. He propped it up with his own personal money in exchange for the high level of control that allowed him to then pillage it. The shareholders didn't seem to see it coming.
Although, sometimes a company will fail no matter how well it is managed. Chess analogy, if you lost your queen and rooks, even having the best chess computer take over your losing game might have a hard time avoiding a loss.
These implication from these articles is so stupid. This is a restructuring, which means that the company is supposed to emerge from bankruptcy as a viable company. Part of the process before filing should be getting rid of the people who got the company into trouble in the first place. But you need a good team in charge through the bankruptcy and on the other side. The idea that a debtor in possession should face some sort of executive compensation austerity simply means that all the people with options will jump ship.
I see bonuses for meeting financial targets, but not for exiting bankruptcy. And they didn't publish how easy/hard hitting the financial targets would be.
I can answer the latter: it’s much easier to withhold bonuses, legally. This is why many companies will shift a percentage of compensation for non-executives from salaries to bonuses: it makes it much easier to claw that money back during down times.
The unspoken agreement is that that clawback will only be triggered when the other alternative is layoffs.
> 1. If the bonus was tied to "getting out of bankruptcy", the easiest move for an executive would be to quit and work for a non-bankrupt company.
This is also fucked up. In many less-well-paying jobs, fucking up and getting fired can make finding another job in the field much harder. Meanwhile, precipitating a very public bankruptcy doesn’t make you unemployable as an executive? Seems like other posters here are correct. The “risk” taken by C-level executives is actually quite low and does not justify their pay.
1. The amount of personal runway that a c-level exec has is usually much much longer than the average sales clerk working on the floor of Sears.
2. Rewards are typically given for achievements which are aligned to company goals. The number one goal for the company is to exit bankruptcy. I don't know if the $25 million in bonuses are aligned with the company goals.
3. An executive that can get a company out of bankruptcy seems like he/she would be a better executive than one that wanted pay up front just to stick around.
Why has our society organized itself so that company executives win whether or not they do a good job? One of the premises of giving executives high pay is that they are getting it for succeeding at running the business well, but as we see time and time again they still get paid out even when they fail.
How is it this efficient or moral? We've got the worst of both worlds here and it's because the people getting the benefits are the ones making the rules.
It’s not like society is organized this way intentionally. It’s just the reality of Goodhart’s Law [0] in action. We haven’t found a way of measuring success that isn’t gameable.
You've got a point. I suppose my question was more towards the people who argue that this is perfectly ok because these executives take on "risk" by making sure they get paid either way.
It's one thing to say this is how it is because they managed to pull it off. It's another to say it's completely justifiable ethically
Because they take on the risk and burden of carrying a company with 1,000’s of employees and a similar number of shareholders. It’s incredibly stressful whether successful or not.
It’s not like 5pm rolls around and these people get to roll home and forget about things.
You’re an absolute outlier if you even want one of these positions.
(And no, I am not one of these people, I like seeing my kids in the evenings).
They literally are not taking on the risk if they get the high pay whether they succeed or lose.
The not being able to see your kids in the evening is one thing, but the high paid executives also get around that too. For instance Marissa Mayer having an office in the headquarters converted into a daycare for her child. Did her employees who were also on call(and forced to stop working remotely) get the opportunity to use company property for a daycare for their children?
My point is that these arguments about why it's worth it to pay executives these super high salaries no longer hold any water, because we've seen that they've rigged the game to be effectively riskless to them.
Only getting 80% of your expected payout when you run a company into the ground _and_ remove payouts to the other employees is not a risk to justify being paid 100s of times more than an average employee. It's just another case of making the risks public and the gains private
The general public includes these employees who are not getting their bonuses/severance that was promised because executives need to be paid out first. Then we have people who need unemployment to cover their lives that would have been covered by said payments.
It's the same issue with Walmart and McDonald's paying too little to live on and teaching their employees how to sign up for benefits
When a big company goes bust and lays off thousands of workers or even defaults on pension obligations (I know Sears did in Canada I don't know if they did in the US), it's the public who pick up the costs through unemployment benefits and welfare payments.
Your point is well taken when extremes occur (public purse ultimately probably backstops both unemployment and pensions via PBGC) but it’s important for readers to know that’s not the normal case even in a bankruptcy.
Unemployment is structured as an insurance program, not a dole, and in theory an employer has paid in over the years enough to actuarially pay for it. Same thing with pensions.
The system does have some “normal accident” anti-fragility type stuff built in.
But yes, 1. in a catastrophic outcome the public purse will get hit for hard costs and 2. even the “insured” benefits mask lots of externalities that the corporation doesn’t bear but employees and municipalities etc do.
What is needed in a restructuring - access to the right people with capital, long hours to get the deals done, offloading of dead inventory, answering to shareholders, nervous employees, continue making payroll.
It's an outlier job. There's not an average employee that has that pedigree and access to take over the job.
Nor would the average employee ever want the hours nor are they productive enough.
> There's not an average employee that has that pedigree and access to take over the job.
Either this is a tautology or citation needed here. So far the argument for this has been that they bring in the big bucks so of course they deserve high compensation. The empirical evidence so far is that they have the title so they get high compensation, and their performance has little to no affect on that compensation.
Risk is normally commensurate with reward, thus if we are observing that there is little to no difference in reward, there must be no little to no risk.
I would need to see concrete proof that an exec was worth this high pay beyond, "well what if they weren't there, maybe it would be worse!?!?" Before I believed the argument again
Steve Easterbrook earns $21 million, the average worker just $7,000.
But Steve Easterbrook's corporate and branding directives scale across the company and produce 2billion in profit. While local employees service just the customer.
Paying someone $21 million that can decisions that result in 2 billion in profit is solid business.
If you put a random person in his place at average employee price for that firm, would the difference in revenue make up for the difference in compensation? You don't know, so these Re all theoretical questions that's the executive class have decided need an concrete answer in the form of them getting paid tons while everyone else gets little to nothing.
Argue thats how it should be, but don't try and tell me evidence supports it when the only support is conjecture
To the employees, who had their bonuses/severance taken away for paying out the executives. If this was a one time thing I might agree with you, but it's a systemic issue where executives run their companies into the ground and then get paid out still while the employees are left with nothing.
The argument has always been that they are paid so much due to the risk they take, but that risk has shown to be non existent. If you were going to follow that argument then the rank and file employees would be getting the high pay since they are left with nothing due to other people's choices
> The argument has always been that they are paid so much due to the risk they take, but that risk has shown to be non existent.
Not true. For some of them, earning 10mil might be far less than they would otherwise make. It's sad that some people are so much more (monetarily) valuable than other people, and is a function of a lot of things, most of them unfair, like different life circumstances, different IQ/talent, etc. But that's no one person's fault - I may as well be upset that I'm shorter than average. I mean, I am upset - but not at anyone, just at nature or something.
I have no idea. It could be a rise in competence - it could be a rise in the size of businesses, bringing a commensurate rise in productivity (the average worker is also more productive, not sure if their salary reflects that though).
It could be simply "fashion", or everyone making a mistake, or some kind of weird market condition that will fix itself.
I don't think anyone truly knows, just like no one knows if stocks are overpriced right now. Or if compensation for e.g. programmers is also overpriced. It's really, really hard to second-guess the market and get the right answer, and I hesitate to trust people who a) don't know much about the specifics here (not saying that's you), and/or b) don't actually have skin in the game. If the people who are choosing how much to pay executives, and putting their money where their mouth is, are choosing this - well, they could definitely be choosing wrong, but its their money to lose for the most part.
Someone told me that salary transparency of these executives are the reason for high pay. Make it private and execs have less power due to less information.
- I have no idea. It could be a rise in competence - it could be a rise in the size of businesses, bringing a commensurate rise in productivity (the average worker is also more productive, not sure if their salary reflects that though).
Actually median salaries have been relatively flat for the same time period (in the UK and US, at least) [0]. Where do you think the wealth created by the workers' increased productivity is going, since it's clearly not going to the workers?
I'm not sure that people "with skin in the game" are really the best people to ask, since their justifications are likely to be local (as in, "our competitor is offering $X so we must beat that") without much insight into wider economic conditions.
The standard story is that salaries have remained flat. I've seen some people claim to the contrary (e.g. Russ Roberts) but I think that's too complicated for a non-economist like me to get at the truth, so I'll just stick to the general consensus here.
There are some stories that make sense to me about where the increased productivity is going - into healthcare, into more leisure time, etc. But again, I'm not at all qualified to make any judgements here.
> I'm not sure that people "with skin in the game" are really the best people to ask, since their justifications are likely to be local (as in, "our competitor is offering $X so we must beat that") without much insight into wider economic conditions.
Well, kind of the basis for the whole idea of capitalism is that you can trust people to make local decisions that are totally selfish to them, without having to consider wider economic conditions, and that it will end up working out for everyone. The great value of capitalism, in my opinion, is that given appropriate conditions, this is usually true. It's not true in the case of some market failures, like monopolies, etc, but it's usually true.
And in this specific case, again, it's totally in the interest of the people who have money, to give less of it to executives. Sure, there are lots of reasons why it's more complicated and people don't always behave in their best interest, but are you really so sure that this is the case here? Why? Why are people choosing to fork over extra money here, and what makes you think you can improve the economy by changing that?
>The standard story is that salaries have remained flat. I've seen some people claim to the contrary (e.g. Russ Roberts) but I think that's too complicated for a non-economist like me to get at the truth, so I'll just stick to the general consensus here.
No need to bring up this side note if you're not going to use it as an argument or back it up then
>And in this specific case, again, it's totally in the interest of the people who have money, to give less of it to executives.
As another poster stated elsewhere in this thread, the observed behavior of boards and executives negotiating has not been of two independent parties. The executives are now not only socially connected but have a direct incentive to constantly increase pay for their friends, so that their friends return the favor. This is not using the shareholders money well, but just quid pro quo favors that fuck everyone outside of this in group[1]. Capitalism doesn't just work unregulated because parties quickly acquire power and then subvert the rules of capitalism to funnel even more power to themselves. We are directly observing executives of modern corporations doing this via their web of board seats and increasing each other's pay ad infinitum at the expense of shareholders, employees, and society
Well, to turn that around, what makes you sure that capitalism is working correctly here? With respect, you appear very reluctant to commit to any economic observation, yet also seem confident that basic Economics 101 applies to executive remuneration without allowing for other economic considerations (capture etc). For example, see [0] for a brief discussion of how executive pay may not be an efficient market.
My own view is that neoliberal economic policies have led to workers having a lower share of economic output [1], resulting in an increasing share going to shareholders [2] and executives. As you say, it's totally in the interest of the people who have the money to give less of it to their workers.
You're correct that I can't absolutely "know" that to be the cause, but then I don't know what makes you so confident that there is an efficient market for executives.
Thank you for the thoughtful and respectful comments! I'm afraid my answer is a bit long, sorry! :)
> Well, to turn that around, what makes you sure that capitalism is working correctly here?
Well, I don't know that. I tend to assume that economics is usually true, or is at least a good approximation, because it usually is in my experience (or, more importantly, according to most economists).
Or better yet, let me make a more specific claim which I think better reflects my belief - I assume that in most markets, there are problems. No market truly approximates Econ 101 style free markets- because of sticky prices/wages, information asymmetries, human psychology being tricky, etc.
However, I think a) the differences are usually minor and self correcting over the long run, and more importantly, b) it's often hard to interfere in a way that fixes the problems without messing things up more.
In other words, yes, maybe executive compensation is not perfect and is in a bubble or some such thing - however, I hesitate to think anyone on the outside can know if that's true or not, and "fixing" it without messing things up is hard.
Moreover, I think the focus on executive compensation is mostly meaningless anyway. It's not like an executive making a few extra millions is what costs employees their salaries, not usually anyway - in most large companies, where this discussion is relevant, we're talking small amounts of extra money per employee anyway.
Really, the reason most people focus on this is because it's flashy. It makes good headlines and political punchlines to talk about executives making millions - I highly doubt most people have truly done any of the actual work necessary to understand whether they really are "overpaid" or not. (As opposed to shareholders, who I relatively trust because it's in their interest to do the work, and they have no interest in making political points, only in earning more money).
> My own view is that neoliberal economic policies have led to workers having a lower share of economic output [1], resulting in an increasing share going to shareholders [2] and executives. As you say, it's totally in the interest of the people who have the money to give less of it to their workers.
Yeah, that's obviously in their interest. Personally I think if we want to help workers, we should be doing something like UBI or welfare or similar - we shouldn't be forcing companies to make sure that some employees have enough, we should be collectively making sure everyone has enough. I don't think it's morally right, or economically efficient, to force companies to bear that burden (and only for their employees) - I think that's an old school "paternalistic" view of employer/employee relations which is no longer relevant.
I don't find the argument that they are worth more to hold any water, not at these levels. Executive pay did not use to outstrip all other employees this much, and they are getting paid out whether or not they succeed.
Part of it, I believe, is that all these companies are interconnected with executives sitting on boards of multiple other companies. Once you are in the in group it's a bunch of people oking each other's salaries as individuals companies rise and fall.
It's a great system for that group. It's a shit system for everyone outside of it. It's also not a fact of nature so it's something we could prevent if we decided as a society to do so
> It's also not a fact of nature so it's something we could prevent if we decided as a society to do so
If by that you mean "let's convince other people to use their money differently" (convince shareholders to pay executives differently with their own money), then I'm with you - go right ahead and try, though again, I think it's an uphill battle since shareholders already have more info than you, and care more since it's their money.
If you mean let's use the power of government to make laws that change this behaviour, then I'm strongly opposed - it's the shareholder's money to lose if they decide to spend it unwisely, I don't think the government should be any more involved than in deciding programmer compensation.
Btw, I personally think that executive compensation might well make sense in many cases - executives can change the future of a company, including causing it to exist or not exist in 10 years, in a way that just isn't true for the average employee. (As you yourself suggest when you complain of the executives causing the bankruptcy).
If the shareholders were the only ones with money at risk and society wasn't through having to help take care of the employees after the execs walk away with all the cash, I'd be fine leaving it entirely up to them.
I'd want the law to not allow executives to get their massive payouts while at the same time they arent meeting their agreements with other employees such as in Sears case here where the employees aren't getting bonuses/severance while execs are. That's where they are privatising gains in the form of bonuses but making the losses public when society has to come in and help support the safety net for a bunch of employees who just got shafted.
Letting shareholders and execs set up a "tails I win, heads you lose" situation in every single major corporation isn't good for having the economy actually put money towards useful ideas, and degrades the rule of law that binds society together. The biggest issue wasn't just that execs are getting paid more, it's that it was decided that agreements with regular employees can be ignored but we still have to do right by the execs
I believe this situation shows a basic divide between conservative and liberal viewpoints where conservatives look at this situation and believe it's only involving the shareholders and execs making the agreement where liberals look at it and see it as agreement between two people that is affecting everyone around them and society.
We probably won't get much further discussing it if we are looking at the same event and seeing entirely different situations
> I believe this situation shows a basic divide between conservative and liberal viewpoints where conservatives look at this situation and believe it's only involving the shareholders and execs making the agreement where liberals look at it and see it as agreement between two people that is affecting everyone around them and society.
I'd probably call it more a difference between a libertarian viewpoint than a conservative one.
And IMO, as soon as you stipulate that they are "making the losses public when society has to come in and help support the safety net for a bunch of employees who just got shafted.", then you'll probably get agreement from most libertarians that this is a lose lose situation. And I tend to agree - if the government is bailing companies out, it can definitely impose conditions on it.
The bailing the company out here that I see is needing to provide benefits to the regular employees now, because as a society we have decided to not let people just die in the streets. When the executives make choices that require giving more benefits to many people, so that they can keep their high pay in spite of their own mistakes, I see that as making the costs public and profits private.
It does not need to be the government handing out cash as a bailout to companies before the costs are becoming a public cost
Intuition about fairness is not a useful guide to questions like this. It's all about the incentives and the outcomes they'll produce. I agree that the difference in outcome between executive and worker should be smaller, but how you get there matters.
One obviously wrong approach is to print money and hand it to the workers until they are all getting the same millions as the execs. This simply gets you inflation. Prices will reflect that retail clerks can now afford hundred-thousand-dollar t-shirts, and executive compensation will soar accordingly.
A more subtly broken approach is to regulate wages, so that you cannot pay an executive too much or an employee too little. Blocking the transactions that would do so destroys value. In this particular case, if Sears can't get anyone to administer a controlled descent and recovery, it will crash and burn. Then a worker's risk of layoff goes from likely to guaranteed. You could imagine something similar if we heavily penalized layoffs: less risk-taking, fewer positions available in the first place.
An economist would tell you to steepen the progressive tax curve and expand the EITC, or even run a Negative Income Tax that isn't conditional on work. This isn't free either, but it's generally regarded as the "least worse" option that achieves the social goal while minimizing perverse incentives.
The idea of a paternal responsibility from corporation to employee is intuitive and emotionally resonant, but not necessarily useful. You can say we are socializing the costs of business's risk-taking. You can also say we are purchasing flexibility as a public good, and making a profit on the value it creates in the tax base. I'd like to see us go even further into this "corporate welfare" by eliminating the employer's healthcare obligations in favor of a public option.
I'm not 100% sure of what you are trying to argue here and whether you are for or against this sort of inequality.
Either way, I would prefer UBI. If the employees had a backup plan and weren't reliant on their jobs to live, then you'd see the majority of them did out the second the employer tried to renegotiate on bonuses and severant for them like what has happened with Sears.
At that point youd start seeing the company give more money to employees instead of saying that the executives are the only one keeping the company going rather than the people doing the actual work that brings in revenue
> Why has our society organized itself so that company executives win whether or not they do a good job?
It's not like this was specifically planned. Our society is organized as a capitalist society, which means people decide how much and in what conditions to pay others. In this case, the shareholders, via the board, have decided to pay certain compensation. Since it's their money on the line, and they're the ones with far more detailed knowledge of what's actually going on in the company, I don't see why it's any more "moral" for an outsider to second-guess their decision. (Of course, most shareholders aren't in any sense active, but they are supposed to be well represented by the board, and can replace it if need be).
> One of the premises of giving executives high pay is that they are getting it for succeeding at running the business well,
That's sometimes true. Sometimes even a well run company goes bankrupt, e.g. a video rental company when everyone switches to streaming, in which case the management might be doing a good job by extracting as much value as possible before. (Totally theoretical, I have no idea of the details in this case.)
> but as we see time and time again they still get paid out even when they fail.
And sometimes, they get paid far less. Sometimes they get paid to not make a mess. Sometimes they get paid because their contracts, negotiated beforehand, stipulate certain payouts whether or not they succeed, apparently because that's the price of hiring these people who are presumably good.
Put another way - Michael Jordan was paid a lot of money to play basketball for some teams. They made the agreement based on his past performance. If his team had ended up not doing very well, it wouldn't have made his contract suddenly null and void - at most, future contracts would probably be at a lower price.
Why do NFL quarterbacks get paid millions even when they lose? Because they’ll only sign in the first place if their contract gives them that right.
Same with execs. Nobody who’s any good will agree to work for a failing company unless they’re guaranteed a payoff. Why try to work on something that’s probably going to fail when there are so many growing companies out there?
BTW the same is true for other highly-sought talent like engineers. Big companies on the brink of failure will shell out if that’s what it takes. It’s not special treatment for the “rule-makers”.
Why has our society organized itself
so that company executives win whether
or not they do a good job?
If you're interested in this subject, you might enjoy reading [1].
It suggests several reasons, including:
* Many of the conventional mechanisms put in place to prevent this do not work. For example, the observed behaviour of boards does not resemble arms-length negotiation with executives over pay. "Independent" remuneration committees and external consultants likewise do not effectively represent shareholders' interests.
* Shareholders' voting power is very diffuse. If I own one billionth of Google via an index fund in my retirement savings, I ain't exactly got much leverage over them.
* Minority shareholder lawsuits and hostile takeovers are relatively powerless in the current age.
* Outrage costs - i.e. damage to the executives' reputations and future employment prospects - can often be mitigated by camouflaging big payments [2].
* The few large institutional shareholders don't seem inclined to do much about corporate governance. Some such as CalPERS have done things effectively in the past.
[1] https://www.amazon.com/Pay-Without-Performance-Unfulfilled-C...
[2] One example the book gives is a CEO whose pension terms were modified so that it the rate was based on his highest-paid year, with pay defined to include income he made from exercising stock options. A minor change that gave the executive an extra $20 million.
Why is this surprising, or a news story? "Sears" is not some sentient being that decided to do this independent of the execs. "Sears" is literally the execs.
It hasn't been in the S&P 500 since 2012. In fact it's had Q appended to the ticker and been moved to the OTC market. I doubt he owns some fraction of it.
Its probably better to say that “Sears” is literally the board who hires the executive leadership. The execs have a lot of discretion but ultimately they are taking their marching orders from the board.
In turn the board was supposed to serve the shareholders but, oops, on a BK the shareholders are screwed. So basically the creditors now own the thing.
Once you’re in that spot, though, what are you going to do? Fire all levels of management above the store level? It’s not impossible but it would create absurd levels of additional risk and delay.
>The company’s proposal will reportedly offer bonuses to 19 executives amounting to up to $8.4 million over the next six months if the company is successful in hitting certain financial goals. The employees would also be eligible for more money in bonuses if the retailer is in a position to hit those financial targets when sold, an attorney for the company reportedly said at the hearing.
It appears that the bonuses are contingent on the company hitting financial goals. This is a normal practice of a company in bankruptcy trying to retain talent during a wind-down or rebuild.
Maybe! Bear in mind that this is a rather swift process. Finding people who are both capable of and willing to take on this sort of project is not easy. Even if they could be found, they are not likely to have deep knowledge of the internal structure of the company, which is (ironically) critical given that the company is restructuring.
So, perverse as it seems, existing talent with explicitly-performance-linked compensation is often the least worst choice during a wind-down.
It's bankruptcy. It's a failing company. It's ugly. Theoretically these folks are making a lot less than they would have had the company not failed.
I guess then the simplest way to look at the people retained is that they most likely weren't instrumental to the company's downfall and their experience / knowledge / familiarity with said company is absolutely more valuable than their participation in the company's downfall is threatening to future prospects?
It's disappointing how often the knee-jerk "why are they getting paid millions to fail" implication comes around given this is exactly why things happen the way they do. It weaponizes people's desire for fairness.
If everyone was still getting paid it wouldn't be as big a deal. What's happening is that now in the bankruptcy that was either caused or not prevented by this same leadership, they have decided that paying out to employees as per their agreements is something to be axed but they have to keep paying the executives.
They cause the problem and then make others deal with the fallout. Being angry at this isn't weaponizing people's desire for fairness. It's the same as if someone had a factory generating industrial waste that they piped on to your land. They are keeping the profit, and making others pay for it
Why is there anything wrong with this? The value of these people, to this company, is very high.
People complain all the time about not being compensated relative to their value to the company, but when people are compensated relative to their value, people still complain. There's no win.
Fair compensation also requires fair opportunity to increase one's own value. For most of us, there is no path that leads from "valuable employee" to "indispensable executive", which is where I think some frustration is justified.
Using the word "opportunity" is debatable here. Only so many people can be executives. Just because most don't have the abilities to be an executive doesn't mean they don't have the same oppurtunity.
Most executives don’t have the abilities to be an employee.
The main limit to executive entry is having access to an executive vacancy. The short version is that if you are an honest hard working employee that access will never be available to you.
Absolutely not. In no way should an unskilled worker ever be able to elevate to a skilled position other than through becoming skilled.
You're acting like running a large business isn't a skilled position. It very much is.
A janitor at a hospital cannot become head surgeon by continuing to work as a janitor, and while a janitor is critically important to the hospital, the supply of janitors is such that the pay will never compare to that of the head of the surgical staff.
What I am saying, in the terms of your example, is there is no viable path for most janitors, even if they had all of the necessary intelligence and ambition, to become surgeons.
The typical path to surgeon might look something like this:
High school -> Pre-med -> Med school -> etc. -> surgeon
The path from janitor to surgeon might look like this:
High school -> Married -> Janitor -> Family -> Quit job to go back to school -> bankruptcy, divorce -> janitor
To return to the topic at hand, it's entirely fair for top executives (or surgeons, etc.) to be paid their value, but only if it's also possible for others to try to achieve the same value. Path dependence breaks fairness.
The fairness of one act does not depend on the fairness of another act. It is not unfair to pay executives their worth because you don't pay janitors their worth.
Acts do not occur in a vacuum. Especially with regard to economic inequality.
And why the fixation on janitors? I never said janitors should be paid like executives, only that the paths to higher paying positions need to be more widely available.
Need to be? Or else compensation isn't fair? No, that's wrong. The concept that everyone needs to be able to be obscenely wealthy or else obscene wealth is inherently unfair makes sense only if you believe everyone is entitled to everything, which simply isn't true.
Everyone is entitled to some things, but no one is entitled to everything.
If this company owes you money, would you prefer that the core executive team stays around and brings in an extra $200m in revenue during the wind down even though you'll have to pay them $20m to stay? Or just fire everyone, and make nothing?
True, but the effect is to incentivize the type of behavior that the recent Sears management engaged in. It's like having a policy of paying ransom to kidnappers. There's no reason that U.S. bankruptcy law has to allow for this.
So if I am an executive looking for a big bonus, just let the company run down to the brink of bankruptcy then accept a performance bonus when I miraculously save it?
This is all about class distinctions. At a certain level they become indistinguishable from aristocracy.
The entire premise for paying execs high salaries is that they have demanding jobs that few people have the skills to do and the work entails risks which ordinary workers do not take. And this justifies exorbitant pay and lavish bonuses. But the reality is that most of these people have no special talents, and even when they run a company into the ground and hurt people (such as those workers who end up, often, with missing pay, fucked up pensions, and no jobs, etc.) and the businesses they are supposed to be stewarding, they still end up being awarded bonuses.
Skills, yes, and pedigree too to some extent since it's important to the board that shareholders are confident in management. I'm not sure where you're getting "risks which ordinary workers do not take" from though. I don't see that being a part of the equation. It seems particularly strange in the case of oil companies or security or military contractors where workers face actual physical danger on the job.
Not just skills, but connections as well as the willingness to essentially leave their normal life behind. Honestly, the skills are the easy part, which is why a lot of people see what they do and think "Welp, I could do this too!".
I think you'll find most people would take on this level of stress and change in lifestyle for 5 years to garuntee that they would never have to work again. Additionally it's not like the executive leadership doesn't push stress onto their employees. You've never had or seen a boss pulling in 7 figures emailing their employees earning a fraction of that after midnight and being upset at the lack of response?
The executives get this pay because they can. Any argument about it being moral or ethical falls apart when you look at reality
> You've never had or seen a boss pulling in 7 figures emailing their employees earning a fraction of that after midnight and being upset at the lack of response?
Absolutely. Though my experience is that the exec is in the office too when that happens...and on a 5000, 10000 or more employee company, if the employee is being called on to do that every now and then...multipled by the amount of employees being called to do that every now and then...generally said exec is basically never sleeping (probably why they're so grumpy).
And yeah, a lot of people would take the role in a heartbeat when offered.... and cry themselves to death in the bathrooms at every opportunities until they either jump off a bridge or quit.
With that being said, a ton of people would do just fine in any of the categories I listed (skill, connection, willingness). What's rare isn't people with one of those things. It's people with all of those things. Having been part of the loop to hire execs, it's really hard. I've seen a lot of people being promoted to those roles who didn't really want it from lack of candidates.
And then there's things like board members, who usually get the spot simply because they invested in the company: you own it, you get to run it into the ground if you want to (within legal limits, of course. But that's why they get the spot over someone else).
Finally...discrimination aside (and that is certainly a problem when it comes to high positions, and it definitely needs to be fixed), being lucky isn't immoral, IMO.
To my mind, the issue here is not that a bankrupt company payed bonuses to executives who managed the bankruptcy process well. To my mind, the issue is that executives are paid so exorbitantly well relative to non-executive employees, and this issue is not specific to Sears or other trouble companies.
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[ 3.1 ms ] story [ 127 ms ] threadThink of it as a club of like 30,000 people in the US. 3,000 of those people are geniuses, 3,000 are idiots and trust fund kids. The rest are in the middle.
You don’t want to be the director who screwed over some good old boy.
Compare things with government where people simply don’t make that much money yet it’s not hard to fill these jobs.
The argument seems to fall apart when they are they very same people who ran the company into the ground. Tax the rich and help the poor- odds are they just got unlucky in a game that makes almost no sense.
1. Why can't the executive bonuses be tied to getting out of bankruptcy?
2. Why is it a bonus if it's expected compensation?
Edit to add: I am however skeptical of Sears' particular situation. I'm not sure these execs have the company's best interests in mind.
I see bonuses for meeting financial targets, but not for exiting bankruptcy. And they didn't publish how easy/hard hitting the financial targets would be.
The unspoken agreement is that that clawback will only be triggered when the other alternative is layoffs.
1. If the bonus was tied to "getting out of bankruptcy", the easiest move for an executive would be to quit and work for a non-bankrupt company.
2. It is in addition to their regular salary in order to keep them through the bankruptcy.
This is also fucked up. In many less-well-paying jobs, fucking up and getting fired can make finding another job in the field much harder. Meanwhile, precipitating a very public bankruptcy doesn’t make you unemployable as an executive? Seems like other posters here are correct. The “risk” taken by C-level executives is actually quite low and does not justify their pay.
I do however have some observations.
1. The amount of personal runway that a c-level exec has is usually much much longer than the average sales clerk working on the floor of Sears.
2. Rewards are typically given for achievements which are aligned to company goals. The number one goal for the company is to exit bankruptcy. I don't know if the $25 million in bonuses are aligned with the company goals.
3. An executive that can get a company out of bankruptcy seems like he/she would be a better executive than one that wanted pay up front just to stick around.
How is it this efficient or moral? We've got the worst of both worlds here and it's because the people getting the benefits are the ones making the rules.
[0] https://en.m.wikipedia.org/wiki/Goodhart%27s_law
It's one thing to say this is how it is because they managed to pull it off. It's another to say it's completely justifiable ethically
It’s not like 5pm rolls around and these people get to roll home and forget about things.
You’re an absolute outlier if you even want one of these positions.
(And no, I am not one of these people, I like seeing my kids in the evenings).
The not being able to see your kids in the evening is one thing, but the high paid executives also get around that too. For instance Marissa Mayer having an office in the headquarters converted into a daycare for her child. Did her employees who were also on call(and forced to stop working remotely) get the opportunity to use company property for a daycare for their children?
My point is that these arguments about why it's worth it to pay executives these super high salaries no longer hold any water, because we've seen that they've rigged the game to be effectively riskless to them.
Only getting 80% of your expected payout when you run a company into the ground _and_ remove payouts to the other employees is not a risk to justify being paid 100s of times more than an average employee. It's just another case of making the risks public and the gains private
It's the same issue with Walmart and McDonald's paying too little to live on and teaching their employees how to sign up for benefits
Unemployment is structured as an insurance program, not a dole, and in theory an employer has paid in over the years enough to actuarially pay for it. Same thing with pensions.
The system does have some “normal accident” anti-fragility type stuff built in.
But yes, 1. in a catastrophic outcome the public purse will get hit for hard costs and 2. even the “insured” benefits mask lots of externalities that the corporation doesn’t bear but employees and municipalities etc do.
https://www.theguardian.com/business/2018/aug/16/ceo-versus-...
What is needed in a restructuring - access to the right people with capital, long hours to get the deals done, offloading of dead inventory, answering to shareholders, nervous employees, continue making payroll.
It's an outlier job. There's not an average employee that has that pedigree and access to take over the job.
Nor would the average employee ever want the hours nor are they productive enough.
Either this is a tautology or citation needed here. So far the argument for this has been that they bring in the big bucks so of course they deserve high compensation. The empirical evidence so far is that they have the title so they get high compensation, and their performance has little to no affect on that compensation.
Risk is normally commensurate with reward, thus if we are observing that there is little to no difference in reward, there must be no little to no risk.
I would need to see concrete proof that an exec was worth this high pay beyond, "well what if they weren't there, maybe it would be worse!?!?" Before I believed the argument again
But Steve Easterbrook's corporate and branding directives scale across the company and produce 2billion in profit. While local employees service just the customer.
Paying someone $21 million that can decisions that result in 2 billion in profit is solid business.
Argue thats how it should be, but don't try and tell me evidence supports it when the only support is conjecture
How is this unfair?
The argument has always been that they are paid so much due to the risk they take, but that risk has shown to be non existent. If you were going to follow that argument then the rank and file employees would be getting the high pay since they are left with nothing due to other people's choices
Not true. For some of them, earning 10mil might be far less than they would otherwise make. It's sad that some people are so much more (monetarily) valuable than other people, and is a function of a lot of things, most of them unfair, like different life circumstances, different IQ/talent, etc. But that's no one person's fault - I may as well be upset that I'm shorter than average. I mean, I am upset - but not at anyone, just at nature or something.
It could be simply "fashion", or everyone making a mistake, or some kind of weird market condition that will fix itself.
I don't think anyone truly knows, just like no one knows if stocks are overpriced right now. Or if compensation for e.g. programmers is also overpriced. It's really, really hard to second-guess the market and get the right answer, and I hesitate to trust people who a) don't know much about the specifics here (not saying that's you), and/or b) don't actually have skin in the game. If the people who are choosing how much to pay executives, and putting their money where their mouth is, are choosing this - well, they could definitely be choosing wrong, but its their money to lose for the most part.
Actually median salaries have been relatively flat for the same time period (in the UK and US, at least) [0]. Where do you think the wealth created by the workers' increased productivity is going, since it's clearly not going to the workers?
I'm not sure that people "with skin in the game" are really the best people to ask, since their justifications are likely to be local (as in, "our competitor is offering $X so we must beat that") without much insight into wider economic conditions.
0 - http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-...
There are some stories that make sense to me about where the increased productivity is going - into healthcare, into more leisure time, etc. But again, I'm not at all qualified to make any judgements here.
> I'm not sure that people "with skin in the game" are really the best people to ask, since their justifications are likely to be local (as in, "our competitor is offering $X so we must beat that") without much insight into wider economic conditions.
Well, kind of the basis for the whole idea of capitalism is that you can trust people to make local decisions that are totally selfish to them, without having to consider wider economic conditions, and that it will end up working out for everyone. The great value of capitalism, in my opinion, is that given appropriate conditions, this is usually true. It's not true in the case of some market failures, like monopolies, etc, but it's usually true.
And in this specific case, again, it's totally in the interest of the people who have money, to give less of it to executives. Sure, there are lots of reasons why it's more complicated and people don't always behave in their best interest, but are you really so sure that this is the case here? Why? Why are people choosing to fork over extra money here, and what makes you think you can improve the economy by changing that?
No need to bring up this side note if you're not going to use it as an argument or back it up then
>And in this specific case, again, it's totally in the interest of the people who have money, to give less of it to executives.
As another poster stated elsewhere in this thread, the observed behavior of boards and executives negotiating has not been of two independent parties. The executives are now not only socially connected but have a direct incentive to constantly increase pay for their friends, so that their friends return the favor. This is not using the shareholders money well, but just quid pro quo favors that fuck everyone outside of this in group[1]. Capitalism doesn't just work unregulated because parties quickly acquire power and then subvert the rules of capitalism to funnel even more power to themselves. We are directly observing executives of modern corporations doing this via their web of board seats and increasing each other's pay ad infinitum at the expense of shareholders, employees, and society
[1]https://www.wsj.com/articles/who-wins-when-ceos-sit-on-multi...
https://en.m.wikipedia.org/wiki/Interlocking_directorate
My own view is that neoliberal economic policies have led to workers having a lower share of economic output [1], resulting in an increasing share going to shareholders [2] and executives. As you say, it's totally in the interest of the people who have the money to give less of it to their workers.
You're correct that I can't absolutely "know" that to be the cause, but then I don't know what makes you so confident that there is an efficient market for executives.
[0] https://mainlymacro.blogspot.com/2014/01/understanding-ever-...
[1] https://www.bls.gov/opub/mlr/2017/article/estimating-the-us-...
[2] https://www.macrotrends.net/1324/s-p-500-earnings-history
> Well, to turn that around, what makes you sure that capitalism is working correctly here?
Well, I don't know that. I tend to assume that economics is usually true, or is at least a good approximation, because it usually is in my experience (or, more importantly, according to most economists).
Or better yet, let me make a more specific claim which I think better reflects my belief - I assume that in most markets, there are problems. No market truly approximates Econ 101 style free markets- because of sticky prices/wages, information asymmetries, human psychology being tricky, etc.
However, I think a) the differences are usually minor and self correcting over the long run, and more importantly, b) it's often hard to interfere in a way that fixes the problems without messing things up more.
In other words, yes, maybe executive compensation is not perfect and is in a bubble or some such thing - however, I hesitate to think anyone on the outside can know if that's true or not, and "fixing" it without messing things up is hard.
Moreover, I think the focus on executive compensation is mostly meaningless anyway. It's not like an executive making a few extra millions is what costs employees their salaries, not usually anyway - in most large companies, where this discussion is relevant, we're talking small amounts of extra money per employee anyway.
Really, the reason most people focus on this is because it's flashy. It makes good headlines and political punchlines to talk about executives making millions - I highly doubt most people have truly done any of the actual work necessary to understand whether they really are "overpaid" or not. (As opposed to shareholders, who I relatively trust because it's in their interest to do the work, and they have no interest in making political points, only in earning more money).
> My own view is that neoliberal economic policies have led to workers having a lower share of economic output [1], resulting in an increasing share going to shareholders [2] and executives. As you say, it's totally in the interest of the people who have the money to give less of it to their workers.
Yeah, that's obviously in their interest. Personally I think if we want to help workers, we should be doing something like UBI or welfare or similar - we shouldn't be forcing companies to make sure that some employees have enough, we should be collectively making sure everyone has enough. I don't think it's morally right, or economically efficient, to force companies to bear that burden (and only for their employees) - I think that's an old school "paternalistic" view of employer/employee relations which is no longer relevant.
Part of it, I believe, is that all these companies are interconnected with executives sitting on boards of multiple other companies. Once you are in the in group it's a bunch of people oking each other's salaries as individuals companies rise and fall.
It's a great system for that group. It's a shit system for everyone outside of it. It's also not a fact of nature so it's something we could prevent if we decided as a society to do so
If by that you mean "let's convince other people to use their money differently" (convince shareholders to pay executives differently with their own money), then I'm with you - go right ahead and try, though again, I think it's an uphill battle since shareholders already have more info than you, and care more since it's their money.
If you mean let's use the power of government to make laws that change this behaviour, then I'm strongly opposed - it's the shareholder's money to lose if they decide to spend it unwisely, I don't think the government should be any more involved than in deciding programmer compensation.
Btw, I personally think that executive compensation might well make sense in many cases - executives can change the future of a company, including causing it to exist or not exist in 10 years, in a way that just isn't true for the average employee. (As you yourself suggest when you complain of the executives causing the bankruptcy).
I'd want the law to not allow executives to get their massive payouts while at the same time they arent meeting their agreements with other employees such as in Sears case here where the employees aren't getting bonuses/severance while execs are. That's where they are privatising gains in the form of bonuses but making the losses public when society has to come in and help support the safety net for a bunch of employees who just got shafted.
Letting shareholders and execs set up a "tails I win, heads you lose" situation in every single major corporation isn't good for having the economy actually put money towards useful ideas, and degrades the rule of law that binds society together. The biggest issue wasn't just that execs are getting paid more, it's that it was decided that agreements with regular employees can be ignored but we still have to do right by the execs
I believe this situation shows a basic divide between conservative and liberal viewpoints where conservatives look at this situation and believe it's only involving the shareholders and execs making the agreement where liberals look at it and see it as agreement between two people that is affecting everyone around them and society.
We probably won't get much further discussing it if we are looking at the same event and seeing entirely different situations
I'd probably call it more a difference between a libertarian viewpoint than a conservative one.
And IMO, as soon as you stipulate that they are "making the losses public when society has to come in and help support the safety net for a bunch of employees who just got shafted.", then you'll probably get agreement from most libertarians that this is a lose lose situation. And I tend to agree - if the government is bailing companies out, it can definitely impose conditions on it.
It does not need to be the government handing out cash as a bailout to companies before the costs are becoming a public cost
One obviously wrong approach is to print money and hand it to the workers until they are all getting the same millions as the execs. This simply gets you inflation. Prices will reflect that retail clerks can now afford hundred-thousand-dollar t-shirts, and executive compensation will soar accordingly.
A more subtly broken approach is to regulate wages, so that you cannot pay an executive too much or an employee too little. Blocking the transactions that would do so destroys value. In this particular case, if Sears can't get anyone to administer a controlled descent and recovery, it will crash and burn. Then a worker's risk of layoff goes from likely to guaranteed. You could imagine something similar if we heavily penalized layoffs: less risk-taking, fewer positions available in the first place.
An economist would tell you to steepen the progressive tax curve and expand the EITC, or even run a Negative Income Tax that isn't conditional on work. This isn't free either, but it's generally regarded as the "least worse" option that achieves the social goal while minimizing perverse incentives.
The idea of a paternal responsibility from corporation to employee is intuitive and emotionally resonant, but not necessarily useful. You can say we are socializing the costs of business's risk-taking. You can also say we are purchasing flexibility as a public good, and making a profit on the value it creates in the tax base. I'd like to see us go even further into this "corporate welfare" by eliminating the employer's healthcare obligations in favor of a public option.
Either way, I would prefer UBI. If the employees had a backup plan and weren't reliant on their jobs to live, then you'd see the majority of them did out the second the employer tried to renegotiate on bonuses and severant for them like what has happened with Sears.
At that point youd start seeing the company give more money to employees instead of saying that the executives are the only one keeping the company going rather than the people doing the actual work that brings in revenue
It's not like this was specifically planned. Our society is organized as a capitalist society, which means people decide how much and in what conditions to pay others. In this case, the shareholders, via the board, have decided to pay certain compensation. Since it's their money on the line, and they're the ones with far more detailed knowledge of what's actually going on in the company, I don't see why it's any more "moral" for an outsider to second-guess their decision. (Of course, most shareholders aren't in any sense active, but they are supposed to be well represented by the board, and can replace it if need be).
> One of the premises of giving executives high pay is that they are getting it for succeeding at running the business well,
That's sometimes true. Sometimes even a well run company goes bankrupt, e.g. a video rental company when everyone switches to streaming, in which case the management might be doing a good job by extracting as much value as possible before. (Totally theoretical, I have no idea of the details in this case.)
> but as we see time and time again they still get paid out even when they fail.
And sometimes, they get paid far less. Sometimes they get paid to not make a mess. Sometimes they get paid because their contracts, negotiated beforehand, stipulate certain payouts whether or not they succeed, apparently because that's the price of hiring these people who are presumably good.
Put another way - Michael Jordan was paid a lot of money to play basketball for some teams. They made the agreement based on his past performance. If his team had ended up not doing very well, it wouldn't have made his contract suddenly null and void - at most, future contracts would probably be at a lower price.
Same with execs. Nobody who’s any good will agree to work for a failing company unless they’re guaranteed a payoff. Why try to work on something that’s probably going to fail when there are so many growing companies out there?
BTW the same is true for other highly-sought talent like engineers. Big companies on the brink of failure will shell out if that’s what it takes. It’s not special treatment for the “rule-makers”.
It suggests several reasons, including:
* Many of the conventional mechanisms put in place to prevent this do not work. For example, the observed behaviour of boards does not resemble arms-length negotiation with executives over pay. "Independent" remuneration committees and external consultants likewise do not effectively represent shareholders' interests.
* Shareholders' voting power is very diffuse. If I own one billionth of Google via an index fund in my retirement savings, I ain't exactly got much leverage over them.
* Minority shareholder lawsuits and hostile takeovers are relatively powerless in the current age.
* Outrage costs - i.e. damage to the executives' reputations and future employment prospects - can often be mitigated by camouflaging big payments [2].
* The few large institutional shareholders don't seem inclined to do much about corporate governance. Some such as CalPERS have done things effectively in the past.
[1] https://www.amazon.com/Pay-Without-Performance-Unfulfilled-C... [2] One example the book gives is a CEO whose pension terms were modified so that it the rate was based on his highest-paid year, with pay defined to include income he made from exercising stock options. A minor change that gave the executive an extra $20 million.
In turn the board was supposed to serve the shareholders but, oops, on a BK the shareholders are screwed. So basically the creditors now own the thing.
Once you’re in that spot, though, what are you going to do? Fire all levels of management above the store level? It’s not impossible but it would create absurd levels of additional risk and delay.
It appears that the bonuses are contingent on the company hitting financial goals. This is a normal practice of a company in bankruptcy trying to retain talent during a wind-down or rebuild.
So, perverse as it seems, existing talent with explicitly-performance-linked compensation is often the least worst choice during a wind-down.
It's bankruptcy. It's a failing company. It's ugly. Theoretically these folks are making a lot less than they would have had the company not failed.
They cause the problem and then make others deal with the fallout. Being angry at this isn't weaponizing people's desire for fairness. It's the same as if someone had a factory generating industrial waste that they piped on to your land. They are keeping the profit, and making others pay for it
Naturally. That's normal everywhere.
The question is how can the financial goal rewardable with 10 (EDIT: 8) digits be bankruptcy?
People complain all the time about not being compensated relative to their value to the company, but when people are compensated relative to their value, people still complain. There's no win.
The main limit to executive entry is having access to an executive vacancy. The short version is that if you are an honest hard working employee that access will never be available to you.
You're acting like running a large business isn't a skilled position. It very much is.
A janitor at a hospital cannot become head surgeon by continuing to work as a janitor, and while a janitor is critically important to the hospital, the supply of janitors is such that the pay will never compare to that of the head of the surgical staff.
The typical path to surgeon might look something like this:
High school -> Pre-med -> Med school -> etc. -> surgeon
The path from janitor to surgeon might look like this:
High school -> Married -> Janitor -> Family -> Quit job to go back to school -> bankruptcy, divorce -> janitor
To return to the topic at hand, it's entirely fair for top executives (or surgeons, etc.) to be paid their value, but only if it's also possible for others to try to achieve the same value. Path dependence breaks fairness.
Those two things are completely unrelated.
And why the fixation on janitors? I never said janitors should be paid like executives, only that the paths to higher paying positions need to be more widely available.
Everyone is entitled to some things, but no one is entitled to everything.
That way the core executive team would be motivated to bring in the extra $200 million _without_ requiring huge bonus payouts for failure.
It's a bit shocking that most other answers seem to accept and justify this status-quo without a flinch.
The entire premise for paying execs high salaries is that they have demanding jobs that few people have the skills to do and the work entails risks which ordinary workers do not take. And this justifies exorbitant pay and lavish bonuses. But the reality is that most of these people have no special talents, and even when they run a company into the ground and hurt people (such as those workers who end up, often, with missing pay, fucked up pensions, and no jobs, etc.) and the businesses they are supposed to be stewarding, they still end up being awarded bonuses.
The executives get this pay because they can. Any argument about it being moral or ethical falls apart when you look at reality
Absolutely. Though my experience is that the exec is in the office too when that happens...and on a 5000, 10000 or more employee company, if the employee is being called on to do that every now and then...multipled by the amount of employees being called to do that every now and then...generally said exec is basically never sleeping (probably why they're so grumpy).
And yeah, a lot of people would take the role in a heartbeat when offered.... and cry themselves to death in the bathrooms at every opportunities until they either jump off a bridge or quit.
With that being said, a ton of people would do just fine in any of the categories I listed (skill, connection, willingness). What's rare isn't people with one of those things. It's people with all of those things. Having been part of the loop to hire execs, it's really hard. I've seen a lot of people being promoted to those roles who didn't really want it from lack of candidates.
And then there's things like board members, who usually get the spot simply because they invested in the company: you own it, you get to run it into the ground if you want to (within legal limits, of course. But that's why they get the spot over someone else).
Finally...discrimination aside (and that is certainly a problem when it comes to high positions, and it definitely needs to be fixed), being lucky isn't immoral, IMO.