OPINION: CEO pay can be linked to slow wage growth, but does that make it theft? - Polidicks

Last week the Australian Council of Superannuation Investors released its latest annual survey of CEO pay for the ASX200, reporting that CEO pay-packets increased significantly in 2017. Headlines focussed on the big earners of course, with with realised remuneration of $36.8 million. But closer reading of the ACSI survey reveals some interesting CEO remuneration trends. CEO fixed cash pay remained relatively static in 2017 with modest increases for ASX100 CEOs. This continues the low growth trend in CEO cash salaries previously reported. CEO salaries have fallen ... wait, what? In fact ACSI reports that fixed pay of CEO's in top-100 companies has fallen from its 2008 peak of 32 times average adult full-time earnings to just under 23 times in 2017. The bonus and equity-based elements of CEO pay packets are what increased significantly last year. These are tied to achievement of specific benchmarks such as profitability and share price performance. To some extent CEO pay will increase because of growth in corporate profitability and this in turn is related to the low growth in Australian average wages. However, this alone doesn't explain the spike in bonus payments last year, when most CEOs received a bonus and many bonuses were close to the maximum achievable. In 2017, 74 of the 80 ASX100 CEOs eligible for a bonus received one and almost 1 in 3 ASX100 CEOs received 80 per cent or more of their maximum bonus for the period. Indeed, ACSI remarked that ASX100 CEOs were more likely to lose their job than their bonus in 2017. It seems then that in 2017, ASX200 CEOs shared in Australia's economic growth. But is this spike in executive pay while wages growth is static actually "wages theft", with executives as the favoured few enjoying the benefits of improved company and share price performance? Keeping costs, including wage costs, to a minimum means that corporate profits are maximised and executives are rewarded for this via their "at risk" remuneration. But workers on a static wage don't share in these rewards. Is this intrinsically unfair to the average Australian wage earner? And what can we do about it? ASX corporate governance principles and recommendations say companies should "remunerate fairly and responsibly". But the focus is on fairness for investors rather than the public at large. Similarly, shareholders are able to express concern over the size of executive pay packets through the Australian two-strikes legislation, whereby shareholders vote on the company's remuneration report at its annual general meeting. Any company receiving 25 per cent or more of "no" votes at two consecutive meetings must put a motion to shareholders to spill the board. While it's great that investors have the ability to feedback to company boards about remuneration, neither the ASX principles and recommendations or the two-strikes legislation gives a voice to the community at large. This is an important omission because investors are likely to focus on their own welfare (maximising the value of the company and therefore their own wealth) rather than concerns with wage equality and social justice across the community as a whole. Corporate types operate under 'social licence' There are recent signs of improved ability for stakeholders other than shareholders to influence executive pay outcomes. For example, as part of its current review of the corporate governance principles and recommendations, the ASX is currently considering changes to include a reference to the impact on the entity's social licence to operate if it is seen to pay excessive remuneration to directors and senior executives. It is also considering the suggestion that listed entities should benchmark their remuneration against that of their peers to verify that it is not excessive. Read the rest of the article at CEO pay can be linked to slow wage growth, but does that make it.. Julie Walker is an associate professor of accounting at the University of Queensland Business School.

When a ceo is getting paid way more than any one else in the company then i feel its unfair. Sure they deserve a little more than the average role but not that much more.

Companies require effective leadership to run effectively and profitably. There is in effect a bidding process to get the most effective leader your company can afford.

Bidding process is entirely accurate. Someone who has spent their entire career building and managing multi-billion-dollar companies, someone who is really good at leadership and management, is not going to accept a job paying 20% more than a line worker when there's another company down the road willing to offer more. Considering that the choice of CEO can bankrupt a company, it's not surprising that they're willing to spend a lot to acquire the best talent. There's a legitimate point to be made about how CEO salaries are increasing relative to those of the average worker, but it's not something that can be analyzed in a vacuum when there are so many factors at play.

Even something like no more than double the next-highest paid worker (counting bonuses) would be perfectly fair. And an enormous drop in pay for CEOs in basically every country to my knowledge. Places like the US and Japan are worst about it with dozens of times the pay that the average worker gets but it's still quite a lot in most places.

It's a bidding process of sorts because lots of different companies are going to effectively make an offer and the CEO will likely take the highest offer.

And that's great for them but if we look at highly specialized careers like CPU hardware engineers, they are in often put into non-compete clauses, or the handful of companies that have market dominance make agreements to not poach talent from one another which creates an atmosphere of non-competition. CEO's are the ones often in charge of these sorts of practices and the board of directors or shareholders in larger corporations often love to have people who run with these types of pro-profit strategies. They are valuable profit creating assets, yes, but an honest look should be given to how much true creation they're responsible for, how much corporate culture is related to them in a given instance and how well it works. I do acknowledge they do high-level jobs and should be justly rewarded. But we really, really need to be questioning their overall value, and whether or not they are over valued as a society, that will in turn effect their value in the market place.

Its weird you say that, when CEOs had literally no issue only making a fraction of their current pay mearly 30 years ago. The massive increase is a sudden trend and its pure greed with the average worker being forced to bite the bullet. It could be from cut in salary, or cuts in benefits/workers/hours. Either way, CEOs are making way too much money comparatively to their average worker, especially when its the workers that actually give them that money in the first place. http://fortune.com/2017/07/20/ceo-pay-ratio-2016/ https://imagesvc.timeincapp.com/v3/mm/image?url=https%3A%2F%2Ffortunedotcom.files.wordpress.com%2F2017%2F07%2Fceo-compensation-ratio-2016.png Its pure greed that stifles the working class and promotes consolidation rather than innovation.

Its also hilarious to say as often times, once a company is well established, the middle managers are the ones making the major decisions, no the CEOs.

So did you, like, read anything that you quoted? Who's greedy? Is it the CEOs taking the best job offer available to them? The board members authorizing the disbursement of funds for a valuable CEO? The shareholders authorizing those board members? Are there other factors at play? Is there escalation based on publicly reported figures, ie the Wobegon Effect? Is it the increase in 'pay for performance' compensation packages designed by CEOs' staffs? Has private industry changed in a way that more values CEOs? Are companies larger and more lucrative on average, increasing the height of their hierarchies? Is there any relation to public tax policy? You're looking at a complex system and instead of asking 'what's changed since 30 years ago that drives companies to offer far more money to prospective leadership' you're just calling it greed and stopping the train of thought right there, without ever meaningfully identifying the culprit.

The entire upper echelon is corrupt, including the CEOs. "Pay for performance" is literally, how can we gut employee/customer welfare to retain the highest income for me and my shareholders. Its why you see outsourcing, skeleton crews, cross training, and slashing of benefits. Look at Harley Davidson recently, After outsourcing their workers and getting their tax cut, they gave themselves bonuses as icing on top. Its also why you see disillusioned youth who enter the job market today, because 30 years ago when their parents were getting a job, There was more of everything available to them. Its strictly fucking greed at amassing as much money to pass to the top and only the top. CEO/shareholder pay inflation is a symptom of late stage capitalism that needs to be controlled.

They are the thoroughbreds. The elite. Some visionary and others cutthroat. It takes a very unique individual to run large companies where there are hundreds, if not thousands of variables at play. Not only that but pretty much 100% of your life is dedicated to the role.

It’s less greed on the part of executives, and more of a matter of survival for them. Shareholders, lenders and other creditors typically (but not exclusively) look at measures such as EBITDA to measure a company’s success. And of course, performance-based bonuses are the norm for everyone at or above middle-level management. It makes logical sense to put 2 and 2 together; better company success leads to better remuneration for executives. If you have a CEO who truly does want to boost earnings of their employees (and probably 99% of CEOs would if they could) and they actually did go about that significantly, that would be at detriment to most financial performance metrics. And so not only would that CEO lose their bonuses, they may even lose their job. And even if the Board doesn’t kick the CEO out, there’s a good chance that the shareholders would kick both the CEO and the Board out. It’s less of a greed problem than it is a symptom of a systemic problem. Or rather, problems. Eg, most shareholders (understandably, at least) value financial measures of success over non-financial measures such as environmental, social and cultural capital. There is currently a paradigm shift towards better accounting for those non-financial measures, along with the rise of ‘ethical investors’, but that’s an ongoing process. In the mean time, organisation structures such as co-operatives can (and do) work in the current environment, and they can lead to more equitable outcomes.

CEOs definitely don't drive mid to large sized corporations. They're simply too large to have any sort of actual ability to quantify or even make effective decisions. After a certain point, CEOs become faces and nothing else really.

I'm pretty sure you have no clue how large companies work. CEOs of large companies play a key role in establishing long term goals, setting the vision, communicating with the board/shareholders, etc. It's an incredibly difficult position with massive responsibility.

The biggest problem is wages have stagnated for a long time while productivity has risen hand over fist. CEOs aren’t single handedly responsible for this and do not deserve the whole, or even the largest fraction of that pie year over year.

To counter though, CEOs are just the top of a very long chain of management, and they don't often have many ties to a company or nesscisarily share its values before being hired on. CEOs are largely evaluated by metrics such as revanue and stock price which is more luck and market driven than strategic leadership. There's also the issue of CEOs being given enough stock to serve as both the chairman of the board and the CEO which forms a self feedback loop since they are evaluating their own performance and determining their own compensation incentives, take a look at Wells-Fargo, the red flags went ignored because the ceo was the chairman giving himself a thumbs up

I know the US is obviously the largest and most important economy, but many of those claims are exclusive to corporate governance in the US. Eg the separation between management and the Board of listed companies is much more distinct in pretty much every other major Western economy; it’s only in the US where you see CEOs of listed companies also serving as Chair. That’s something that regulators in the US could actually do something about. Maybe the role of CEO in the US is less important than CEO elsewhere in the world as well. But CEOs do play an important role, nonetheless. CEOs can lead the strategic direction of the company, and their decisions may lead to new business units being bought or current ones being sold. These are things which have a material impact on measures such as EBITDA, which was proven to have a ~57% correlation (although not necessarily causation) with change in share price in Australian listed companies. Quarterly reporting has a similar major correlation with share prices in the US. Market risks are real and companies do need to hedge those market risks, but lack is hardly a major factor regarding share prices.

there's over 300,000 corporations registered through deleware alone, to use the US as a stereotype for all corporations isn't inaccurate as the largest companies in the west are mainly US

As I said, that’s fine and dandy, but I shouldn’t have to remind people that this thread regards Australian CEOs and companies. And at least regarding that specific issue of US companies where management and the Board have overlap, that’s a relatively easy issue to be fixed.

I have known some worthless blowhard CEOs who do nothing while taking all the credit and pay but I also know plenty who never have a moment of quiet. A good CEO isn't the stereotype lazy boss, they have incredibly stressful jobs.

Have you worked for a large company before? I've worked in large companies where having a new CEO come in and change strategic vision, long-term economic goals, and hiring focuses has had a massive impact on the company. They don't need to be on the development floor to have a significant impact. I'm not going to sit here and say that every CEO deserves to make 300x what an average worker does, but the idea that CEOs are just figureheads at midsized companies is utter nonsense, and were it the case their pay would never have ballooned to where it is. My current company got a new CEO a few months ago; he's taking no pay in exchange for splitting ownership of the company with the previous CEO. Already we've seen changes to our long-term growth forecast, acquisition of new contracts, shifts in hiring goals, and changes to company culture. He might have no idea what my job actually entails, but that doesn't mean his policies have no impact on my work.

A part of me thinks much of the ongoing economic mess can be tracked to too many people wanting to make an "easy living". More and more people want to make bank off of good investments like real estate or stocks and part of that means hiring the best, most experienced workers even if you have to engage in a destructive bidding war and curry favor with the guy who may very well hold this year's earnings in his hands. The problem with that is that some people are just born rich so they can buy themselves into companies that already are successful and given today's braindead consumer culture, where pragmatism is second nature, will stay successful. It's just that, thanks to the ongoing corporate consolidation and countries' outright refusal to break up megacorps, there's less and less opportunities for new talent to spring up unless they were born filthy rich. Sure, there's more private businesses now thanks to the internet but that's also starting to change as larger companies will gobble up smaller ones for breakfast. It's really weird trying to think of all these things in parallel, I guess unbridled conquest is just part of human nature, regardless of whether or not it happens with bloodshed. One typically shouldn't see fault in someone's desire to make a better life for themselves or to have security in their life but given that an individual is sympathetic but a mob is a natural disaster, maybe climbing the social/poverty ladder isn't a uniformly good thing for everyone. There's always going to be frictions, there's always going to be people who want to get a leg up on everyone else, at any cost. Class warfare will never go away unless, I suppose, most of humanity goes away. Beggars can't be choosers, after all.

I can appreciate that CEOs probably work hard as hell, and some (even most) might be really, really good at their jobs. The excuse I hear the most often about CEOs’ pay, however, is that they’re “personally responsible” for everything and that the pay should match the risk. I haven’t seen anything to suggest that CEOs actually risk that much - sure, they may get fired if the company does badly or stagnates, but this goes for every employee at that company - but where a cleaning lady might be living pay check to pay check, a CEO usually won’t have to fear getting evicted just because the company doesn’t do well. A CEO running a company badly might actually have much more profound effects on the employees’ lives than their own.

I think it would be pretty disingenuous to say that the risks of a CEOs position and the risks of almost anyone else in the company are equal. The CEO has higher risks, thus he has higher reward. Dropping a CEOs standard of living to that of a janitor, and forcing the CEO to still endure the same risks would be asinine, would it not?

What’s the higher risk for the CEO exactly? Some CEOs even end up with a pretty big golden parachute when they get fired. Of course the CEO makes bigger, “riskier” decisions about the company, but that risk largely applies to the company, not the CEO directly. If the CEO has large amounts of stock in the company, obviously it carries a risk, but just because a company goes bankrupt doesn’t mean you lose your personal wealth - (usually) only what you have in stocks (there are probably company structures where this isn’t the case, but for publicly traded companies at large at least). The change in living standard from being CEO to not being CEO is probably less harsh than from being janitor to not being janitor, is what I’m saying.

A CEO likely has an entire resume built up of degrees, work experience, connections, and such. A janitor has significantly little to none. Thus a CEO is more valuable to the company, thus worth more. CEOs make decisions that directly influence the company. The well-being of the company is the first priority of any CEO, board, shareholders, etc. That means the errors of the CEO carry huge weight, not just for the company but for the employees below him. Bigger decisions, bigger risks, bigger rewards. Just because they aren't directly personal risks doesn't mean they aren't risks that concern a CEO. If a CEO fucks up, yeah he might be fine, but he is also loosing all of his credibility and reputation, which is basically what you are after once you hit that level of management. Just because they get a large pay doesn't mean they don't care about the progress of the company anymore because they can fallback on whatever they have in the bank. If that was the case, we wouldn't have any CEOs. There is literally no parallel that can be drawn between a CEO and a janitor like you were trying to do. It's completely different practices with different goals.

I'm not disputing that CEOs probably care about how the company is running, but that’s not really the basis of their pay, so I don’t really see how that’s relevant? And yes, a CEO’s decisions can have huge implications for the company’s enployees - but in the end, a CEO can only get fired once like everyone else, and that firing may actually be much less of a personal risk than for other employees, who may not have as much wealth. A CEO might lose their reputation (or some of it), but I’m gonna go out on a limb and say they’re gonna be fine; worst case you stop getting executive level positions, and you can start working in a different function. Them being well-educated is also a bit of a moot point since many people in a company is well-educated. You were very quick in answering my post, so it seems like you didn’t see the edit - I’m not arguing that CEOs shouldn’t be paid well, just that risk isn’t necessarily the best justification.

On your first bit, the performance of the company is usually linked directly to CEO pay. This is usually to prevent the issues that we just mentioned. It's very common to see upper level management get paid out based on performance goals. Elon Musk is the first example that comes to mind and his deal with Tesla. Risk alone isn't the best justification, but it's the biggest one. Risk, education, experience, drive, past results, are all pieces of the puzzle. CEOs are highly qualified people, working in very specific functions, doing very high level work with very big risks. Risk-reward compensates that. Other positions simply don't have that characteristic. Since the company cuts the checks, the company pays out more to the people it values most. Frankly, people are generally replaceable at the level we're discussing.

this is capitalism working as intended finding a way to pay workers as low as possible while not being against the law, while working to change the law theres a reason companies outsourced jobs to the third world, they are more friendly to pseudoslavery. our entire economy is built on the back of exploiting nearly free labor