A point was made how CEO pay is at absurdly high multiples to entry level workers. The explanation was by showing mathematically how a supervisor should be making a maximum multiple of 2:1 over their subordinate. Using this logic, and a minuscule expectation of a 10 level organization structure, this would allow a multiple of 2^10, or 1028x the entry level salary. Assume entry level tellers at a bank are making $10 an hour, or approximately $20,000 a year (tellers average around $13). The CEO would have an allowable range of up to 20,000x1028, or approximately $20,000,000. Jamie Dimon of JP Morgan Chase was paid a $20,000,000 salary.
From the 2015 Schedule 14A, "
Based on strong 2014 performance and historical performance, the CMDC
and Board awarded Mr. Dimon total compensation of $20 million, which is
unchanged from 2013." The argument, in itself, proves a counterargument for why CEO pay is acceptable. Post any thoughts below.
A $20,000,000 salary does sound ridiculous, regardless of any mathematical justification. I wonder if perhaps a mathematical approach is unnecessary. It seems to me that anything over $5,000,000 is really excessive, but of course that is just an arbitrary amount. I often wonder about whether such high salaries are actually justified by a persons capabilities. Some individuals - like the best athletes - are capable of things that literally no one else can do. It seems acceptable that someone who is one of a kind should get some special treatment, but how much? And is a CEO comparable in this way to an athlete? It seems hard to judge, as athlete's compete directly, either alone or as part of a small team. Companies compete with each other but they can have thousands of workers, who can say how much of an impact a CEO really has, or how much more valuable one CEO is compared to another? And even if one CEO is extremely valuable, is it fair to place an arbitrary cutoff on their salary, or is it more fair to allow them to make as much as they can get, even if they don't need it and it won't improve their life? I have never really come to a consensus on these questions.
ReplyDeleteI personally believe that the quality of life goes up exponentially until a certain point. How much can the quality go up when you're making X million dollars more per year? I’d agree that a $20,000,000 salary is ridiculous but who’s to say that they don’t deserve $20,000,000. They are the head of an organization and are responsible for every single macro decision that the company makes in the eyes of the public (whether they actually are or not is a different story). For example in the Volkswagen Scandal how much did the CEO actually know about the scandal. Hypothetically if he did in fact did not know about the scandal he STILL was forced to resign to protect the company image. Not only is the CEO now hated because of the decisions of the company, it will be MUCH harder to find a job because of the decisions of the company. Being a CEO is a part of your life and not just a job you can quit when things get rough. I’m not going to defend the actions of Volkswagen or the whether or not he knew about it but its important to make the distinction between the macro and micro decisions made in the company are only weighed under one person.
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