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View Diary: Bank of America CEO: We have a 'right to make a profit' (285 comments)

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  •  were companies that much less effective (1+ / 0-)
    Recommended by:
    eztempo

    when CEO pay was one tenth what it is today relative to average worker pay?  Are they 10 times more effective today?

    •  Short answer: I don't know. (1+ / 0-)
      Recommended by:
      VClib

      (Much) Longer answer...

      For starters "more effective" may mean handling a more complex job with similar results or may mean handling a job of the same complexity with better results.

      I've not looked into the detail behind studies showing substantial differences in CEO compensation relative to the average worker compensation now vs. in past decades.

      However, one needs to be careful with such studies to make sure the consider all relevant factors.

      Corporations across the decades of similar size should be compared. I'm not sure what measure of 'size' should be used but, off the cuff, some possibilities include inflation adjusted global revenue, percent of global market share for their products, and inflation adjusted market cap (for public corporations). Obviously, a CEO running a small corporation limited in both product and geographical scope and number of customers and employees generally has a much easier job requiring less skill and knowledge for their primary CEO duties than that of a giant global corporation such as GE. Also, a larger corporation will justifiably spend more on employee training, defined work flow, and job specialization (because they can amortize such expense over more workers) which likely reduces the skills required of some employees so the average skill level of employees, and hence compensation, might be different between smaller and larger corporations. If there had been a shift from, on the average, smaller corporations to larger corporations, this could explain the phenomena (and, justifiably so).

      Comparisons between corporations over time should also factor in the level of ownership the CEO has in the corporation. A CEO's compensation in a corporation whose CEO owns a good sized chunk of the corporation (in inflation adjusted dollar value or in percentage of the corporation) can not be compared to the compensation of a CEO who owns comparatively little of the corporation. For example, a CEO who owns a large chunk of stock in the corporation can take zero compensation and still be incented to do a great job and work very hard just to boost the stock value over time as they benefit more from that than any form of corporate provided compensation would be likely to (indeed, it's not unusual for such CEOs to give themselves ridiculously small "salaries" in part for this reason). So, if over the decades, more corporations are run by CEOs who don't own a lot of stock (they are not, for example, founders or very early employees or heirs of same), one would expect to see CEO salary to increase.

      Comparisons also have to take into account bias caused by private corporations and those with few shareholders having few if any reporting requirements regarding CEO compensation. The data for such corporations is going to be much less accurate.

      One also needs to take into account what has been "considered" income for reporting purposes. The standards have changed, at least in practice, quite a bit in the last fifty years. I believe quite a few "perks" that are now counted as CEO compensation were previously not.

      I'm sure that there several other factors that I could think of if I spent another ten minutes thinking about it, but I would take with a grain of salt any study that didn't take such factors into account.

      Even for similar sized corporations, over the decades my sense is (and it's just that, an impression) that CEO's jobs have become more complex and hence require higher skill levels to perform well. Overall (of course, there are exceptions one can point at), I think that product life cycles have shrunk requiring increased agility, that a larger percentages of corporations must deal in global markets (each with their own legal, cultural, tax, and market forces) to be competitive, and that domestic regulation (Federal, state, and local) have increased. All of these require a CEO to be aware of and make decisions about a broader range of issues. If my sense properly reflects reality, this could increase demand (and hence pay) for more highly skilled (at least on paper) CEOs.

      •  biggest hole in your argument: (0+ / 0-)

        stock prices are rigged artificially by companies to boost "compensation" then they drop leaving shareholders and pensioners holding the bag after the CEO leaves with his or her golden parachute. The game is rigged against employees.

        Every argument you make above I could make on the other side saying that workers are even more screwed.

        In the 50s  60s and 70s they got fully paid pensions for life so their pay then was higher, MUCH higher, than it is today in real terms.

        Also the obvious fact that worker productivity has increased dramatically in the past 40 years with a zero gain or decrease in real wages.

        •  Much of worker productivity gains... (0+ / 0-)

          ...are due to technology improvements and capital investment -- not due to individual workers actually doing more "work" per hour.

          Consider what it took in 1961 for a small or midsized business to communicate in writing with a customer via a routine "personalized" form letter. Consider only the portion of the process after the appropriate form letter has been selected...

          If the communication is, as is likely, sent via email or FAX, compare the human labor required today compared to that required in 1961. Today it's likely a few clicks and maybe typing in a phone number or email address. Notice the typist (letter and envelope)  required in 1961 disappeared. As did the filing clerk filing the carbon copy. As did the USPS labor (pickup, sorting, transport, deliver). As did the labor required to produce the paper, envelope, and stamp.

          Even if a snail-mail letter is sent today, it requires much less human labor than in 1961. After a few clicks, the letter and envelop pop out of a printer. At a midsized company the envelope may be "stuffed", stamped, and perhaps presorted by zip by machines without touching a human hand. At a smaller company a human probably stuffs the envelope and tosses it into a tray to be picked up by a human. In any event, no paper copy is printed and filed in a filing cabinet. Once the letter ends up in the USPS, today some of the sorting is done by machines using OCR rather than by humans as in 1961.

          The result is the same -- the customer receives written communication. However, the labor required to provide it is much less and, hence, the business is more "productive" per worker.

          It's true that some small portion of that labor that disappeared was replaced in part by a different sort of labor. Unfortunately, for low skilled workers, the replacement labor tends to be more highly skilled (IT infrastructure design, install, and maintenance plus application development replaced the mindless task of typing, filing, and moving boxes of letters around).

          Yes, "labor" is screwed. But it's partially a structural issue because there is just less need for "labor" and more need for skilled insightful creative workers. Rote jobs that can be performed by anyone with a few hours or weeks training as long as they have an IQ over 90 and possess a modicum of willingness to show up for work regularly are becoming increasingly rare and nothing is going to stop this. No, I don't know how to "solve" this in a way that "works" because I don't think there is a solution that fits into the memes and expectations of fifty years ago -- anymore than a solution that fit the memes and expectations of 1911 would have worked in 1961.

          We have some serious cultural problems in the United States -- and China and India (to a lesser extent, but in a more alarming way for the long term) are driving a Mack truck through these giant holes as the world evolves around us.

          •  and that productivity gain is more work (0+ / 0-)

            individuals are doing.

            I used to work in a place with a word processing dept.  Now I type everything, including reports and powerpoints.  Most professionals do.  In other words we are doing more.

            •  I've quite the opposite experience. (0+ / 0-)

              "Professionals" are not the lower paid employees that I think we are generally talking about here. Anyway...

              Although individual's mileage may vary depending on their comfort level with the available tools (often PowerPoint, Excel, and Word nowadays), I personally have experienced the exact opposite of what you have.

              Thirty years ago when I could actually hand off the "mechanical" parts of my slides/reports to someone, I found that I spent way more time interacting with those people than I spend doing all the work myself today. Back then I still had to provide all the intellectual material, and the order/general layout. I still had to type/cut/paste most of it into the input to the person building the slides/report (well, I COULD have written it in longhand, but that would have been much more work for me). Back then, the tools were more cumbersome and required more routine labor to use so it sometimes made sense for me to offload the work, but the world has changed. Now I create my slides/reports directly in the tool - why would I spend time having someone else reenter it and having to review their work and iterate with them?

              As well, I've also gained immensely greater flexibility by doing my own slides. I can change the slides seconds before the presentation in response to changing conditions (such as avoiding redundancy with a prior presenter or new "guidance" from someone due to breaking news). Overall, I am just more agile doing my own slides in addition to being lower cost for me.

              Frankly, I don't know anyone in my business that would WANT someone else to do their slides/reports for them - it would just be too slow and cumbersome. Yes, we do all want templates (often provided by corporate communications) but that's a "one time cost" every time the marketing droids change the corporate "look and feel" (on the average perhaps every 12-24 months).

              So, in the end, a slide deck I generate today takes LESS of my labor and NONE of someone else's labor than one I generated with someone else doing the actual slide formatting/generation thirty years ago. I'm personally expending less effort and the overall organization is expending even less relative effort. The product is better (largely due to agility and the fact that one fixes more stuff when it doesn't look quite right if they can do it with a few seconds effort rather than doing another round with the "word processing" folks).

              Less total effort at all levels and superior product, ergo more productivity per employee - all due to technology and capital expenditure.

              •  "professionals" may not be that low paid but (0+ / 0-)

                their wages have been stagnant, especially relative to their productivity gains, the amount of hours they work and what they are responsbile for.

                And they have lost their pensions and seen their health care costs rise, so it is  a net loss.

                And of coure the BS they get every day - you have to do more with less (so the owners can make more than they ever did).  Etc.  

                •  In some fields at some levels yes, in others, no. (0+ / 0-)

                  But overall, you're probably correct.

                  In software development in startup companies where I have the most personal experience, engineers' real salaries have increased substantially in the past 30 years for the same educational and experience levels.

                  None ever had pensions and most didn't match 401(k) contributions.

                  But, IIRC, every one (once it was actually hiring people) offered completely paid medical for the employee and sometimes for the whole family.

                  As far as work hours... Thirty years ago, the key developers probably averaged 12 hours a day during the week and usually one weekend day which was often more like 8 or 10 hours (all this varied based on where they were on the critical path - most worked 36 hour stretches occasionally to get something done that was holding up their teammates). Obviously today similar developers usually spend less time actually in the office and rarely come in on weekends because technology such as the broadband and VPN enables them to work from home at their convenience (for example, after putting the kids to bed). Though, all in all, they probably work about the same number of hours now as before.

                  As far as BS, I don't recall much change -- just the nature of the jerks and the buzzwords they toss around and the stupid stuff they say and do has changed!

                  Productivity in terms of "function points per day" per developer has gone WAY up, but that's mostly because of advancing technology. Think Java vs. Assembly. Think two or more days to compile the entire product on "the only mainframe" vs. ten minutes on one of several 8-core servers w/64 GB of memory that are sitting in a rack in the server room.

                  But, admittedly, my view is not representative.

              •  all due to technology? What about (0+ / 0-)

                training and skill of the employees?  You just explained how much better you do this on your own.  It cannot be all simply because of technology.  You must have the training, skills and abilitites necessary to do these things well while still doing all your other professional thinking/research/analysis etc.  The tools may help you but those tools are useless unless they are used well. That seems to be your point.  so in fact you make my point.  You are adding even more value in less time, you are doing your work plus the work of numerous otehrs in the prior set up. so you are much more valuable. But is your pay much higher in real terms?  If so you are in the minority by a long shot.  My point is made. thanks

                •  Maybe there's a lost generation in their 60's+ (0+ / 0-)

                  They teach Word, Excel, and PowerPoint in high school (at least some). It seems impossible to have gotten through a four year university in most any "professional" field in the past 20 years without being comfortable with computers and perhaps some of these very specific tools.

                  A level of computer literacy is an expected entry level skill now for any profession. We dropped the ability to spell as a requirement though (thank the FSM for spell checkers). No one expects to spend time training a "professional" in Word or PowerPoint or Excel -- if they need it, they know it or can easily figure it out well enough to do the job. Even if they do go to a one day training course in each product once in their lives just to get a jump start, that's amortized over 45 years of working. To be effective in these tools, one needs to know about 10% or less of their total capabilities. As one uses these tools, they learn more about another 10% that is useful to reach the mastery that may be helpful in their current job.

                  This is little different than having to learn how to use a dictation machine effectively without a lot of "oops, change that, that should be 'DON'T throw out the baby with the bathwater'. I couldn't dictate a letter effectively if my life depended on it without training -- instead I learned how to use a word processor (not Word initially).

          •  actually the solution is very easy (0+ / 0-)

            If workers had seen real wages increase as much as productivity and if executives wages had increased in line with workers pay then we would still be in the relatively sustainable situation of the 50 - 70s.  There would be more equitable distribution of wealth and income and we would not have these great recessions and huge demand deficits.

            People lost pensions, replaced by the casino of the stock "market", maniupulated by the wealthy for the wealthy.

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