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» Hatrack River Forum » Active Forums » Books, Films, Food and Culture » CEO's, celebrities and selective outrage (Page 1)

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Author Topic: CEO's, celebrities and selective outrage
ScottF
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I saw an interesting conversation on how the average person is extremely dismayed when they see a given CEO make 100's of times what the average worker makes. There's something fundamentally unfair about it.

Yet when we hear about celebrities or sports stars making tens of millions (or more - think Leo, Beyonce, Kobe) we might issue some "that's just crazy" head shaking, but not nearly the outrage of the CEO's earnings.

My theory is it's because we emotionally connect with the product of the great actor, singer, athlete, but rarely have any such connection with the leader of a successful business. But fundamentally, aren't they they same form of unfairness?

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TomDavidson
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No. The celebrity is paid that money because, without them, the team or film would be unsuccessful; the product they represent could not exist without them. The CEO of a multinational corporation is, on the other hand, largely interchangeable and only particularly notable when more corrupt or incompetent than average. Paying someone millions to avoid incompetence is not the same thing as paying someone millions to excel.
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JonHecht
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TomDavidson, you seem to underestimate the talent and hard work it takes to be a successful CEO of a multinational corporation, as well as how integral a good CEO is to the success of the corporation.

It's sure as hell a lot more than avoiding incompetence. Just because there are many brilliant and hard working people doesn't mean CEOs are "largely interchangeable".

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TomDavidson
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quote:
TomDavidson, you seem to underestimate the talent and hard work it takes to be a successful CEO of a multinational corporation...
It certainly seems that way, yes.
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Rakeesh
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quote:
TomDavidson, you seem to underestimate the talent and hard work it takes to be a successful CEO of a multinational corporation, as well as how integral a good CEO is to the success of the corporation.

It's sure as hell a lot more than avoiding incompetence. Just because there are many brilliant and hard working people doesn't mean CEOs are "largely interchangeable".

I wouldn't likely go so far as Tom, but you do realize that th higher up the chain you go, the likelier it is that CEOs have shielded themselves from the ordinary consequences of sloth, incompetence, and stupidity, yes? By that I mean golden parachutes and stock options are opportunities for the fat cats, not the everyday workin dude. But if we were suddenly to declaw some of the harsher consequences of failure or screwup from the rest of the workforce (such as: do a bad job and if you get fired you'll be given an enormous severance package that would let you live comfortably for years)...we would expect to see something of a drop in initiative, hard work, and committment to excel, yes? And in any case, who is it who tells us about how hard working and vital the CEOs are? The...CEOs, yes? This doesn't serve as evidence they're lying, but what other answer would you expect CEOs to give? 'You guys are right-all of the hugely lucrative perks that we hold close to ourselves, we really shouldn't have so many f them.'
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ScottF
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Tom do you think the position of CEO (for larger corps) in general is a stooge placeholder to be manipulated by the board? Or are there legitimately valuable leaders who set the direction and strategy for corporations?

Assuming you allow for some percentage of legitimately talented leaders who are directly responsible for overall performance, where would you place that percentage against the interchangeable ones?

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ScottF
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As a follow on, would Apple have had the trajectory it had if Jobs had not led the team? Does that justify his income and net worth?
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TomDavidson
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quote:
Assuming you allow for some percentage of legitimately talented leaders who are directly responsible for overall performance, where would you place that percentage against the interchangeable ones?
I think I'm being a bit generous when I say it's probably around 8% or so. The smaller the company, the more likely that is.

quote:
As a follow on, would Apple have had the trajectory it had if Jobs had not led the team? Does that justify his income and net worth?
Jobs was a celebrity; his greatest value to Apple was as a tastemaker and spokesperson. In his case, they were paying both for an artist's sensibility and a CEO, and they got their money's worth from the artist and performer. His actual business decisions were frequently problematic.
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theamazeeaz
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I would say that this is the first time I've worked under a boss that is a true executive. I'm fairly impressed at the work he does and how much he keeps track of. Not to mention his people skills are through the roof.

The problem with outrageous CEO pay is that

1. After a certain point, a larger amount of money makes little material difference to one's happiness.
2. It needs to be better than what the other guy got.
3. The other guy got a LOT of money.
4. It's hundreds of times what the people below are getting... they can't afford certain basic necessities and work pretty hard too. These workers may be more replaceable, but implying they don't work hard enough is hugely insulting.
5. A lot of people doing menial jobs have a pretty mind-blowing work ethic and receive a pittance.
6. Executives often have personal assistants that do the overhead for so many things that they are completely supported by them and coddled. They never have to count their own beens and it can be quite embarrassing when they try to get their hands dirty (see undercover boss).

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Orincoro
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quote:
Originally posted by TomDavidson:
quote:
Assuming you allow for some percentage of legitimately talented leaders who are directly responsible for overall performance, where would you place that percentage against the interchangeable ones?
I think I'm being a bit generous when I say it's probably around 8% or so. The smaller the company, the more likely that is.

quote:
As a follow on, would Apple have had the trajectory it had if Jobs had not led the team? Does that justify his income and net worth?
Jobs was a celebrity; his greatest value to Apple was as a tastemaker and spokesperson. In his case, they were paying both for an artist's sensibility and a CEO, and they got their money's worth from the artist and performer. His actual business decisions were frequently problematic.

To be fair, Steve jobs worked for $1 a year, in his second tenure as an Apple exec- having sold most of his stock in the 80s to found Pixar, and Next Computers. The majority of his wealth was actually not from Apple as a result- or came via their acquisition of his technology in the late 90s. So the vast majority of his wealth (which is nothing compared to some of his contemporaries), came from his being a major stakeholder in not a few very successful companies. A matter entirely different from executive pay schemes.

The company actually got in trouble for attempting to retroactively award him options he wasn't entitled to. I don't know the figures on his bonus pay, but he was not payed a salary for many years. When he died, his stake in Apple amounted to a pittance in terms of the market value of the company, and accounted for a small fraction of his fortune.

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Aros
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In any field, there are the "big leagues", where a very small percentage of the world's best make a very large amount. Yes, the proportions are disparate among professions. But there's always a local contractor who can charge a lot more because of his reputation for great work.

For every $20 million sports contract, there are thousands of joes making nothing. For every billionaire author, there are tons who'll never make a living.

A company is a huge entity. It employs people. It has a reputation. It has branding. A top executive for a big company is generally one of those (very) few with a reputation. Their compensation is high because:
- It's given to them by the board as a reflection of shareholder confidence.
- In return, an executive with a successful track record gains the confidence of industry analysts, who in turn influence investment groups.
- They are at the very top of their game. At this level it's about supply and demand. Companies buy track records and reputations. Individuals get praise and blame for successes and failures -- that's human nature.

Yes, there are charismatic leaders. Steve Jobs was iconic, he didn't demand salary, but most people do. How much money could he command at Sony? At GE? How about the new CEO of Ford, the man who turned around their engineering cycle a few years back. How much could he worth?

At the same time, there are able leaders. People who have a track record of stability, predictability, and sound decision making. How much is that worth to a company? How much is that worth to an investor? What does it matter to shareholders if a company pays a CEO more than the competition? Less?

Bottom line: in any field there is a very small minority who makes more than anyone else -- it's either that legendary Hollywood prostitute, that famous author, the contractor to the stars, the sports hall-of-famer. Is there a reason business shouldn't be the same?

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stilesbn
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quote:
No. The celebrity is paid that money because, without them, the team or film would be unsuccessful; the product they represent could not exist without them.
I actually disagree with this statement. With some exceptions I think most actors are interchangeable. Yeah a movie might not be successful without any actors, but for the most part a movie can be successful with a different actor.

There are exceptions where a brand has been created around an actor (Fast and Furious might be one, but he wasn't even a good actor and it still might come back).

Even with professional sports the majority of players are interchangeable between teams with the exception of the superstars like Lebron James, or Peyton Manning, etc.

So no I don't think celebrities are any different than CEO's in their interchangeability.

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ScottF
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I think for a lot of commercial hollywood films the producers/backers seek the "name" actor for the precise reasons Aros states companies hire (for crazy amounts) successful CEOs; proven track record, top of their game, etc.

What was striking to me was they did some man-on-the-street interviews and asked people about some CEO pay figures and the response almost universally "that's not right, nobody needs that much money"

Then they turned around and said what do you think about Robert Downey Jr.? He made $75M last year alone. The responses were "I love that guy!" and "I don't have a problem with it because he's awesome in Iron Man" etc.

But what's the difference? Why should RDJ make 1000x what the camera crew or hundreds of others involved with the film's production make? To me the discrepancy seems like a purely emotional one.

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Aros
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quote:
Originally posted by ScottF:

But what's the difference? Why should RDJ make 1000x what the camera crew or hundreds of others involved with the film's production make? To me the discrepancy seems like a purely emotional one.

The difference is, effective CEOs are "no names" to the common man. To investors and analysts, however, they're big-time celebrities. So why would anyone care what the common man thinks?

It's like asking me about a particular football star. I don't care anything for football, so I'd be a bad person to ask. As, apparently, Tom is for business.

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Aros
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Sorry, I misread that question.

Robert Downey Junior makes that kind of money (as do the CEOs) because of opportunity cost. They are EXTREMELY limited resources. RDJ could be doing something else, but he's nearly irreplaceable as Iron Man . . . so they pay proportionately. Many of these CEOs are charismatic leaders or founders or other such. A sure-and-steady CEO can inspire a lot of confidence from investors, resulting in better dividends and stock prices. And their strategic leadership can garner competitive edge and create value / revenue that far exceeds their salary
- How many viewers did RDJ bring to The Avengers?
- How much value did Gates bring to Microsoft?

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Rakeesh
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Something to clear up, just to address what seems like some misplaced emphasis: high end celebrities make huge, absurd amounts of money. Sometimes, such as for the Kardasheans or such, they're celebrities so far as I can tell *because* they're celebrities. Athletes too re: money.

But there's degrees of wealth just as there are of poverty. There's singer/celebrity/athlete wealth, and it's substantial to say the least. But *corporate* wealth is when you start bumping up against the ceiling. The kind of money we're talking there needs a few extra adjectives vs celebrities.

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TomDavidson
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quote:
As, apparently, Tom is for business.
Except that if you were to ask me "Tom, which businesses are going to do well this year," I'd say "pick the ones with a relatively small CEO-to-line-worker pay ratio." And I would be right more often than the people fawning over executives and pandering to them with paychecks.

quote:
Many of these CEOs are charismatic leaders or founders or other such.
And many are not. And, of course, one man's charismatic leader is another man's smarmy, golf-playing toad.
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ScottF
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One thing I just thought about that might also contribute to the discrepancy is that celebrities (or their movies) seldom get bailed out from the government or get massive tax breaks.

That said, hollywood isn't pure and white when it comes to avoiding taxes. There's a reason why big budget films tend to run shooting and production everywhere *but* California.

<edit> should be bailed out "by" the government

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ScottF
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quote:
Originally posted by Rakeesh:

But there's degrees of wealth just as there are of poverty. There's singer/celebrity/athlete wealth, and it's substantial to say the least. But *corporate* wealth is when you start bumping up against the ceiling. The kind of money we're talking there needs a few extra adjectives vs celebrities.

But we're talking about individual compensation here. And in that regard, the top paid CEO's are very much in line with the top paid actors and sports stars.
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scifibum
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Aros, your analysis of why some CEOs make a ridiculous amount of money left out the most important factor -

CEO pay is determined by the board, and the board is filled with executives from other companies. By voting for extremely high executive pay they help ensure that the boards of the companies they work for will do the same thing for them.

There's no rational reason to think that these boards are able to tell which CEO candidates are going to provide the best return on investment. They are gambling with other people's money because they benefit from the game.

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scifibum
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ScottF, I do think the difference comes down to the average Joe's familiarity with the talents of sports stars or actors.

If they can see and appreciate the work that a star does - and it's easy to see how someone like Kobe Bryant is better than almost everyone else at his job - then you can understand why it might be worth paying him a lot of money. (In the case of sports, too, you know that stardom comes from [mostly] honest competition. Corruption isn't likely to make you a basketball star, because if you can't dazzle on the court, you're not going to make a ton of money.)

Not that the average Joe includes this in their analysis, but there's also the "other people's money" factor. Executive pay (for large public corporations) doesn't come out of the pockets of the people who decided to pay them that much.

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scifibum
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The problem with assessing executive talent is that the executive gets credit for the work of up to hundreds or thousands of people. They get credit for blind luck. They get credit for success even if the only reason they succeeded is because they are backed by competent directors and managers who steer them clear of the consequences of their own stupidity.

They are absolutely in a position to be responsible for success. Sometimes they are. But knowing when they are responsible is pretty tough. It's definitely impossible to say "This person's future success against unknown challenges is so likely that it's worth guaranteeing them a bajillion dollars just to come to work every day."

The real problem is not when they are compensated for apparent success (as long as there are some controls in place to prevent and punish cheating). The real problem is when they are also rewarded for terrible failure.

The existence of golden parachutes in executive contracts illustrates the real problem. If the boards were confident that they could identify the right talent worth risking many millions of dollars on, and if said talent was actually confident that they were worth such outsized rewards, then golden parachutes would not exist. That they do is an admission that no, they really CAN'T tell whether their gamble is going to pay off.

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ScottF
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I agree there is usually a layer of abstraction in a companies success and it's CEO. I also think crappy CEO's and empty suits can be at the right place at the right time.

But if you look at successful companies in the "built to last" mold (great read by Collins, BTW) CEO's are often the one's who make fundamental decisions about product direction, organizational layouts etc. Built-to-last companies don't make gazillions of dollars because they happen to stumble on the latest pet rock craze. Long term success requires thoughtful and often brilliant minds to guide that strategy. Sometimes it's not the CEO himself, but super smart people that he/she knew they needed in the mix to make things happen.

I think the average CEO is just that. Average. But unlike Tom, I think successful companies more often than not have extremely talented CEOs.

Interesting side note: My CEO (i.e. the CEO of the company I work for), according to a list I recently saw, happens to be the #1 highest paid CEO in the US.

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GaalDornick
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quote:
Originally posted by ScottF:
I think for a lot of commercial hollywood films the producers/backers seek the "name" actor for the precise reasons Aros states companies hire (for crazy amounts) successful CEOs; proven track record, top of their game, etc.

What was striking to me was they did some man-on-the-street interviews and asked people about some CEO pay figures and the response almost universally "that's not right, nobody needs that much money"

Then they turned around and said what do you think about Robert Downey Jr.? He made $75M last year alone. The responses were "I love that guy!" and "I don't have a problem with it because he's awesome in Iron Man" etc.

But what's the difference? Why should RDJ make 1000x what the camera crew or hundreds of others involved with the film's production make? To me the discrepancy seems like a purely emotional one.

Any chance you have a link to those interviews?
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ScottF
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http://www.foxbusiness.com/on-air/stossel/index.html
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Aros
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Another factor to CEO compensation is risk. At the lower levels of a company, you can still screw up big and have a job. As a VP in a small company? You can probably recover.

As the CEO of Ford? You're done. Forever. Even if it wasn't your fault. You're being compensated for being a potential corporate scapegoat. And there's a good chance people will personally hate you as the consequence of whatever screw-up-thing you take the blame for. Prison? Also a possibility. As they say in the military, a Commanding Officer is responsible for EVERYTHING that occurs on his ship. Blind luck or intentional, he's the figurehead for the company.

That's one reason a lot of people are happy with middle-management. Job security.

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Aros
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quote:
Originally posted by TomDavidson:
[QB]
quote:
As, apparently, Tom is for business.
Except that if you were to ask me "Tom, which businesses are going to do well this year," I'd say "pick the ones with a relatively small CEO-to-line-worker pay ratio." And I would be right more often than the people fawning over executives and pandering to them with paychecks.
It's all a matter of perspective, isn't it? As an individual investor trying to make a yearly profit, I'd agree wholeheartedly. If you want to make money, find a company that's going to move up in the market, that's going to maximize shareholder value in the short-term. You can never predict the next Apple or Google.

As a large conglomerate trying to retain marketshare, or as a market investor looking for a stable portfolio, I'll disagree wholeheartedly.

But, yes, sometimes a CEO is just a token, a "lucky jersey", so to speak. One success begats another, whether due to luck or skill. People accredit value to a string of success.

And a few years down the line, Tom's brilliant investment will start to feel like it's the CEO's direction that "brought them so far". Executive compensation will increase in the hopes that growth will continue. It's hard to find a corporate culture that will keep executive pay ratios low through a long growth phase. As a matter of fact, that's the kind of company that they make case studies out of.

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MattP
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quote:
Another factor to CEO compensation is risk.
As a rule by the time you are CEO of Ford you are already fabulously wealthy. There is very little real risk other than the risk of not becoming much more wealthy. And no, CEOs do not often end up in jail unless they have done something pretty blatantly illegal directly personally.

On the other hand, your typical hovering around the poverty line line worker has everything to lose if their job heads south.

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Aros
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quote:
Originally posted by MattP:
quote:
Another factor to CEO compensation is risk.
As a rule by the time you are CEO of Ford you are already fabulously wealthy. There is very little real risk other than the risk of not becoming much more wealthy. And no, CEOs do not often end up in jail unless they have done something pretty blatantly illegal directly personally.

Two rebuttals:
- If it was just about wealth, wouldn't said CEO have retired a long time ago? Most people are in these positions by a personal need to accomplish, by drive, to have power, reputation. We all need a career -- it's part of our self-worth. Yes, they have just as much to risk. No, they won't starve if they fail.
- You can go to jail for incompetence. For signing things you don't understand. Do you think every white-collar criminal knows the entire scope and legality of every decision they make? Especially when you're working with government regulations -- you can go to jail for a paperwork error.

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Rakeesh
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quote:
Originally posted by ScottF:
quote:
Originally posted by Rakeesh:

But there's degrees of wealth just as there are of poverty. There's singer/celebrity/athlete wealth, and it's substantial to say the least. But *corporate* wealth is when you start bumping up against the ceiling. The kind of money we're talking there needs a few extra adjectives vs celebrities.

But we're talking about individual compensation here. And in that regard, the top paid CEO's are very much in line with the top paid actors and sports stars.
I want to be sure I understand your position. Is it to say that top paid CEOs are compensated at roughly an equal level to top paid sports stars and actors?
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Mucus
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quote:
Originally posted by theamazeeaz:
The problem with outrageous CEO pay is that

1. After a certain point, a larger amount of money makes little material difference to one's happiness.
2. It needs to be better than what the other guy got.
3. The other guy got a LOT of money.
4. It's hundreds of times what the people below are getting... they can't afford certain basic necessities and work pretty hard too. These workers may be more replaceable, but implying they don't work hard enough is hugely insulting.
5. A lot of people doing menial jobs have a pretty mind-blowing work ethic and receive a pittance.
6. Executives often have personal assistants that do the overhead for so many things that they are completely supported by them and coddled. They never have to count their own beens and it can be quite embarrassing when they try to get their hands dirty (see undercover boss).

I would add a couple of things:

7) This conversation largely revolves around American executive salaries. It should be noted that American executive's salaries are very out-of-line in comparison with comparable-sized companies overseas
quote:
Toyota Motor Corp. made its name on the value and efficiency of its cars. Its chief executive is earning a similar reputation for his compensation.

While the company generated the highest return last year among the world's five biggest automakers by sales, President Akio Toyoda, 57, is the lowest-paid chief of the group, earning less than one tenth as much as his best-compensated counterpart.

Toyoda has led a profit revival since taking control in June 2009, just after the global recession and the surging yen helped spur the automaker's first annual loss in 59 years. Toyoda, the founder's grandson, helped the company recover from Japan's earthquake and tsunami and a recall of millions of cars.

...
Toyoda's 2012 pay was 184 million yen ($1.9 million), a 35 percent increase from the previous year, according to a filing with Japan's Finance Ministry Monday. The carmaker's outlook for increasing profit prompted Toyota in March to approve the biggest bonus for workers since 2008.

...

Alan Mulally, Ford's CEO and the best paid among the top five, took home $21 million in 2012, according to data compiled by Bloomberg. Martin Winterkorn, VW's CEO, was paid 14.5 million euros ($19 million) and Dieter Zetsche got 8.15 million euros at VW's German rival Daimler. Dan Akerson of GM, the Detroit carmaker part owned by the U.S. and Canadian governments, received $11 million.

http://www.autonews.com/article/20130624/OEM02/130629943/toyota-president-delivers-highest-returns-for-lowest-pay#axzz2q1GDbFcE

8) Something that I don't think gets nearly enough press, that big sticker annual salary for CEO is only part of the story. That big annual salary leads to large pensions that are a percentage of that salary and CEO pensions unlike regular pensions are often unfunded. A regular employee contributes money to a pension which is matched by the company, and barring extraordinary circumstances that yearly contribution while the employee is working is all the company will ever need to be liable for.

CEO pensions don't follow this model. CEOs often qualify for pensions after only a few years of work and rather than paying back via invested contributions, they are paid directly year-by-year during retirement.

These liabilities can even be large enough to deter investment i.e. even if you as a investor can turf a bad CEO, you may have to pay them years down the line, thus discouraging your initial investment

quote:
Unlike regular pension plans, the executive pensions are an unfunded liability; companies start paying only once the exec retires or if there is a change of control. That change-of-control clause essentially turns some of the priciest executive pension plans into an unintentional “poison pill” that makes it nearly impossible for anyone to buy the company, says Teachers' Gibson. “Just the cost of funding the existing SERPs amounts to more than 1% of Shaw's current market capitalization,” he adds. “Shareholders have no problem paying for good management, but when that pay gets to be way outside of normal bounds it is just a transfer of wealth and capital from shareholders to management.”
http://www.canadianbusiness.com/business-strategy/special-report-executive-pensions/
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JonHecht
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Today I learned that Aros has a better understanding of human nature than most people.

You also forgot that some of the CEOs became fantastically wealthy as part of a long-term plan to be a philanthropist.


Edit: I thought that I should also mention, as people on here have not, that high level execs were not always high level execs. They may have always been the cream of the crop, but nearly all have been interns.

[ January 10, 2014, 03:27 PM: Message edited by: JonHecht ]

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ScottF
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quote:
Originally posted by Rakeesh:
quote:
Originally posted by ScottF:
quote:
Originally posted by Rakeesh:

But there's degrees of wealth just as there are of poverty. There's singer/celebrity/athlete wealth, and it's substantial to say the least. But *corporate* wealth is when you start bumping up against the ceiling. The kind of money we're talking there needs a few extra adjectives vs celebrities.

But we're talking about individual compensation here. And in that regard, the top paid CEO's are very much in line with the top paid actors and sports stars.
I want to be sure I understand your position. Is it to say that top paid CEOs are compensated at roughly an equal level to top paid sports stars and actors?
According to the top 100 highest paid CEO list (US based) I saw, yes. Although there are performers and sports stars who make considerably more than even the highest paid CEO on that list.
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Elison R. Salazar
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quote:
Originally posted by ScottF:
I saw an interesting conversation on how the average person is extremely dismayed when they see a given CEO make 100's of times what the average worker makes. There's something fundamentally unfair about it.

Yet when we hear about celebrities or sports stars making tens of millions (or more - think Leo, Beyonce, Kobe) we might issue some "that's just crazy" head shaking, but not nearly the outrage of the CEO's earnings.

My theory is it's because we emotionally connect with the product of the great actor, singer, athlete, but rarely have any such connection with the leader of a successful business. But fundamentally, aren't they they same form of unfairness?

Because CEO's are a bunch of borderline narcissistic sociopaths who have had the gall to even recently threaten the catholic church.

CEO pay has gone up nearly five times over since 1965 while production worker pay has only gone up 10 cents

It isn't that "they make money" its that they make money and are literally looting the country of its wealth and doing their damnedest to insure the poor stay poor in a actual case of class warfare as a whole.

Last I checked celebrities weren't stomping on the neck of humanity in the guise of being 'job creators'.

Hey look, The Daily Show actually gives a good rundown yesterday!

[ January 10, 2014, 09:24 PM: Message edited by: Elison R. Salazar ]

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Tuukka
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quote:
Originally posted by ScottF:
I saw an interesting conversation on how the average person is extremely dismayed when they see a given CEO make 100's of times what the average worker makes. There's something fundamentally unfair about it.

Yet when we hear about celebrities or sports stars making tens of millions (or more - think Leo, Beyonce, Kobe) we might issue some "that's just crazy" head shaking, but not nearly the outrage of the CEO's earnings.

My theory is it's because we emotionally connect with the product of the great actor, singer, athlete, but rarely have any such connection with the leader of a successful business. But fundamentally, aren't they they same form of unfairness?

Do you visit moviesites?

Because the people in there bitch about star actor's salaries A LOT. Especially when they don't like the actor.

Sports is probably a bit different, because it's so easy to see who is one of the best, and who is not. With actors it's a lot more subjective thing.

I think the premise of this thread isn't correct.

I also think that people only get really angry for CEO compensation, when the CEO gets incredible money for doing an awful job. Like Stephen Elop did with Nokia. He run the company to the ground in just 3 years, with a series of awful decisions, and kept on being greatly compensated all the way. When the company was in in its death throes last year, and got sold to Microsoft, Elop was greatly compensated even for that.

It got some people a little bit angry here in Finland.

And stuff like that happens fairly often. CEO's get major rewards for doing terrible work.

It doesn't happen in the entertainment business, or in the sports.

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TomDavidson
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quote:
At the lower levels of a company, you can still screw up big and have a job. As a VP in a small company? You can probably recover.

As the CEO of Ford? You're done. Forever. Even if it wasn't your fault. You're being compensated for being a potential corporate scapegoat. And there's a good chance people will personally hate you as the consequence of whatever screw-up-thing you take the blame for. Prison? Also a possibility.

Interesting. I'm curious how many CEOs you think are being successfully prosecuted -- or whose lives have ended in poverty -- for running their companies into the ground through crime or incompetence, relative to the number who have actually done so.
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Rakeesh
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quote:
Originally posted by ScottF:
quote:
Originally posted by Rakeesh:
quote:
Originally posted by ScottF:
quote:
Originally posted by Rakeesh:

But there's degrees of wealth just as there are of poverty. There's singer/celebrity/athlete wealth, and it's substantial to say the least. But *corporate* wealth is when you start bumping up against the ceiling. The kind of money we're talking there needs a few extra adjectives vs celebrities.

But we're talking about individual compensation here. And in that regard, the top paid CEO's are very much in line with the top paid actors and sports stars.
I want to be sure I understand your position. Is it to say that top paid CEOs are compensated at roughly an equal level to top paid sports stars and actors?
According to the top 100 highest paid CEO list (US based) I saw, yes. Although there are performers and sports stars who make considerably more than even the highest paid CEO on that list.
http://www.forbes.com/lists/2012/12/ceo-compensation-12_rank.html

http://www.forbes.com/sites/dorothypomerantz/2013/07/16/robert-downey-jr-tops-forbes-list-of-hollywoods-highest-paid-actors/

The highest paid actor in the US, with movies grossif over a billion dollars in some cases, still paid significantly less than the corporate counterparts. There are many reasons why corporations are the ones putting out movies, not actors and athletes. I suspect your list didn't consider the many, many, *many* very lucrative forms of compensation CEOs can access that aren't strictly their salary.

Also, it should be noted the second on the actor list-Channing Tatum-apparently gained his compensation in large part thanks to his business skill. Ultimately, how much someone is paid is really just a reflection of how much value they have in the eyes of the one paying. If that person is careful to tie the pay to the actual value generated (another arbitrary judgment), then in moral terms we can start to relate the two.

But if the people deciding that pay are peers of that person, who aim to be that person someday, who can expect favors or retaliation in the future, and who themselves have a vested interest in appearing to be valuable (and they do, of course, regardless of the amount and quality of the work they do-everyone does)...

...things can get a little unhinged. Do you think if you and your buddies got together and voted on how much you should each be paid, that your wage would rise, fall, or remain unchanged?

[ January 10, 2014, 05:47 PM: Message edited by: Rakeesh ]

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Samprimary
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quote:
Originally posted by Aros:
Another factor to CEO compensation is risk. At the lower levels of a company, you can still screw up big and have a job. As a VP in a small company? You can probably recover.

As the CEO of Ford? You're done. Forever.

It's generally accepted that the two ways to pull the largest amount of cash out of a CEO position is to either do really well, or do really poorly. The only thing you are "risking" in nearly all cases for your incompetence is that you will do so terribly that you earn your golden parachute for immediate deployment.

Let's analyze the omg ceo risk versus real life, and I can use a test case example for this (not even hardly the worst).

This is what happened to CEO Jill Barad when she failed at the "risk" of CEO compensation and was Done Forever:

quote:
Start with the lump sum payment of more than $26 million she received. The New York Times says this includes five times her annual salary plus bonuses, the forgiveness of a $4 million dollar loan she got from the company in 1997, the forgiveness of another $3 million loan Mattel gave her to buy a home in 1994, plus more than $3 million she will owe in taxes because of the forgiveness of the home loan.

It gets sweeter. The 46-year old ex-CEO will be paid a pension of $708,989 a year for the rest of her life. The company also will pay for: her $5 million life insurance policy; her health insurance; outplacement services to help ease her transition to the post-Mattel period of her life; financial consultants to handle all the money she's being handed; and what is described only as "certain club memberships." I wonder if Greedheads Anonymous is one of those clubs?

We're not through. She also gets to keep her security guards, some of her office equipment, her company car -- and she gets 6.4 million shares of Mattel stock, potentially worth tens of millions of dollars.

such risk. I am sure this properly incentivizes CEO's.
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Rakeesh
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Of course for that sort of thing one would ordinarily expect that she had proof the rest of her peers made a habit of engaging terrorist-financed brothels while binging on heroin by a different group of terrorists.

Who knows? Maybe some nice blackmail explains this sort of thing. Not as though we would know.

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BlackBlade
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We seem to be ignoring the fact that CEOs have the power to change how pay is distributed in their company, whereas celebrities have 0 pull in what the production employees are paid.

When RDJ is cast to play Iron Man, he is not in any position to determine how the movie's gross receipts are paid out.

But hey, it was pretty great when Hostess' executives robbed the employee pension fund to award themselves bonuses while they drove the company into bankruptcy. They were also within their legal rights to do so even without informing the employees paying into the fund. The best part? Bankruptcy allowed those executives to wash their hands of ever refunding those pensions.

And remember how they blamed the baker's union for everything too?

[ January 10, 2014, 11:04 PM: Message edited by: BlackBlade ]

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Rakeesh
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Oh, I wouldn't say that's the best part. The best part is the way they're able to piggyback on the American Dream ideal to get quite a lot of the broader public, who won't spend quite so much effort on amassing wealth (or at least not be nearly as successful in doing so) into thinking that somehow, unions are worse for the general public than high-end corporate bigshots if left to their own devices. That, and persuade so many people that not only are they as ethical as the everyday dude, paid fair compensation for their tireless work and heavy risks...but actually more ethical. Since after all, they maintain this decency in spite of having much greater temptation, what with control over their own pay held by themselves and their peers.

It's never without baffled frustration that I hear the same people who (wisely!) warn of the perils of too much power in the hands of the government, of the temptations and inefficiencies and corruption, will then forget all about that wise wariness of those who seek power when they do it in the boardroom rather than on the campaign trail. We're seeing it right here in this thread, in fact.

I womder: since asking the question 'is the CEO's work really dozens or hundreds or even thousands of times more valuable to the company than those lower on the ladder?' doesn't seem to get results...somehow...would a better question be 'is the grunt's worthiness of compensation really hundreds or even thousands of times less than the bigshot on top?'

I'm not sure how much is simply human nature and how much is simply careful, cunning marketing of the American Dream, it somehow when the vastly wealthy complain that a policy or a politician is attacking them, they somehow manage to get great heaps of people to behave as though they believe they'll join their ranks of wealth any week now.

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Darth_Mauve
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A lot of this revolves around one thing--Responsibility.

They don't deserve pay multipliers because they work harder than their less paid employees, or that they provide more value, or have specialized educations, or secret magical talents.

They are supposed to take responsibilities for their companies.

I've watched some naval shows recently. The captain of the ship is paid much more than anyone else on board. He also has responsibilities that he takes seriously.

Sure he is responsible for the cargo and passengers that create the wealth of the ship. But he is also responsible for the safety of his ship, the safety of his crew, the safety of his passengers, and the safety of other ships at sea. That is why ships answer distress calls from others, or pick up stranded people in the ocean. The captain has a responsibility to follow the "Law of the Sea".

Good captains, in literature and in real life, worry and live by those responsibilities. Poor captains (the Greek cruise ship captain that fled his sinking ship) are ones that accept the praise and perks of their captaincy, but renege on those responsibilities.

Captains of ships have become captains of industry. They get the perks and the best fees, in return they take responsibility for the companies they run.

Good Captains take those responsibilities very seriously. If you talk to any small business owner, or most of the truly dedicated ones--those who spend their lives building a business, each one takes responsibility for their businesses, there employees, their products or services and their customers.

Good captains of large corporations also take those responsibilities seriously. Steve Jobs and other good C-level leaders work hard and accept responsibility for everything.

What gets people upset, what gets people boiling mad, is when the poor captains of industry, use their names and friends and money to buy their way into giant salaries and giant costs to the company they are supposed to be responsible for, and then they renege their responsibilities.

They take as their only responsibility the momentary value of their stock, not their employees, their community, their company or their clients.

The multi-million dollar ball player practices every day, goes to all the practices, and gives his all to win the games. The multi-million dollar celebrity works long and hard to maintain an image and a value to their celebrity status.

If either quits their responsibilities they do meet ridicule from their previous fans, and a loss of their income.

When a CEO reneges on his responsibility to his employees and treats them like disposable expenses, or treats his clients like sheep to be fleeced, or treats his company as a short term stock investment--that is when anger emerges from the rest of us.

They broke the ancient law that's been around since the first captain sailed the first ship. The captain gets the biggest share because he takes the responsibility for his crew and ship.

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Tuukka
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quote:
Originally posted by stilesbn:
quote:
No. The celebrity is paid that money because, without them, the team or film would be unsuccessful; the product they represent could not exist without them.
I actually disagree with this statement. With some exceptions I think most actors are interchangeable. Yeah a movie might not be successful without any actors, but for the most part a movie can be successful with a different actor.

There are exceptions where a brand has been created around an actor (Fast and Furious might be one, but he wasn't even a good actor and it still might come back).

When someone wants to make a film - whether its one of the big studios, or an indie studio, or even no studio at all - they have to first get money for it.

You get money from investors (Singular investors, partnership companies, or stockholders). Even if you're a huge studio with a huge bank account, you still have to convince the people in charge of money, that the film will make profit. Films are expensive. An average budget in Hollywood nowadays is around 50 million, and you have to add another 1/3 for marketing. It's a huge risk to make a film, with no guarantees about its success.

So the first thing you do, is that you try to have as many guarantees as possible. Even a medium level star with no particular B.O success, like Colin Farrell, gives you many many guarantees.

For example:

On average, movies make roughly 75% of their business overseas. So studios pre-sell the movie to the worldside market even before it's made. When they have a 50 million film with 25 million marketing, they can get 40 million covered simply from pre-sales (Once the film is released overseas, they will get more, depending on its success). The foreign distributors are prepared to pay the pre-sales, because they know Colin Farrell. He gives the film certain guarantees, like:

- It's going to be a theatrical release, instead of DTV.

- Farrell will bring a certain level of awareness to the film, even without marketing. Audiences know him, they talk about him. He will do magazine interviews, talk show visits, etc. It's all free marketing for the movie.

- Even if Farrell sometimes struggles to pull an audience in theatre, all the aforementioned things (Initial theatrical run, mainstream awareness, star-status of the lead actor), will mean that the film will perform much better on the video market. In Farrell's case, most of his films perform better on the video market than on theatrical release.

...Those guarantees work on the home market as well. The studio needed 75 million to cover for the budget and marketing. They already got 40 million from foreign investors. So they still need another 35 million.

When a Farrell-starring film comes out in USA, he will have all those magazine covers, all the big time talk show visits, all the social media hype. It's big-scale free marketing.

Once the film is out, you can expect it to make at least 30-40 million in USA theatrical release (Studio gets roughly half of the money). Once it hits the home market (DVD, Blue-ray, VOD, TV, etc) you can expect to collect at least a good 60 million in the long run (Studio gets roughly half of all of that).

Farrell brings a lot of guarantees. And he's not really even that big of a star. Replace him with someone who isn't on the same level, and those guarantees disappear. And that's when suddenly you are in a situation, where it's simply too much of a risk to make the movie. And the movie is never made.

Or maybe you just scale everything to 20% of what you wanted to make. The film only costs 10 million, with 5 million on marketing. You get Jean Claude Van Damme to play the lead. Because on that level, he can bring certain guarantees.

If you want to make a 150 million film, then Farrell won't cut it anymore. You need Will Smith, or Leonardo DiCaprio, or Robert Downey Jr. On that level, they can bring certain guarantees.

Stars are not interchangeable. You change your star, and everything changes.

Of course, stars are not the only thing that matter. Things like genre, story premise, pre-existing brand awareness, director, etc, all also have pre-existing track records, that bring certain guarantees with them.

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Elison R. Salazar
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Bad Captains also had the problem that their crew could mutiny.
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BlackBlade
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quote:
Originally posted by Elison R. Salazar:
Bad Captains also had the problem that their crew could mutiny.

Yeah, they combated that by executing people for sedition.
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Elison R. Salazar
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quote:
Originally posted by BlackBlade:
quote:
Originally posted by Elison R. Salazar:
Bad Captains also had the problem that their crew could mutiny.

Yeah, they combated that by executing people for sedition.
Which will invariable lead to executing innocent people which will only cause MORE people to switch sides until it becomes an inevitable fact that bad captains are inherently unsustainable and will be hung from on high allowing the crew to take control.

Oh look I've gone cross eyed.

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theamazeeaz
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Just because the actor is a less interchangeable part of the film, doesn't mean they aren't overpaid.

A highly-paid cast doesn't insulate against a flop and a big star may help a film recoup its budget, but studios are still gambling. If the writers don't do a good job, if the promotors don't do a good job, the movie is finished. Can you argue that Harrison Ford was an integral part of Ender's Game making what little money it did?

I would also argue that paying actors so highly is seriously harmful to them and society.

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Rakeesh
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Which I guess is something of a workers unite fantasy, but in reality mutiny was by far the exception rather than the rule.
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Elison R. Salazar
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Because I'ld assume good captains were probably the norm is my guess. Or British.
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BlackBlade
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quote:
Originally posted by Elison R. Salazar:
quote:
Originally posted by BlackBlade:
quote:
Originally posted by Elison R. Salazar:
Bad Captains also had the problem that their crew could mutiny.

Yeah, they combated that by executing people for sedition.
Which will invariable lead to executing innocent people which will only cause MORE people to switch sides until it becomes an inevitable fact that bad captains are inherently unsustainable and will be hung from on high allowing the crew to take control.

Oh look I've gone cross eyed.

Or actual seditious elements are swiftly dealt with making the cost of mutiny too high for stressed and angry sailors to seriously contemplate it.

How do you think most mutineers were found out? Other members of the crew ratted you out.

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