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I have a really hard time with CEO vs worker pay discussions. It kind of drives me crazy. Lets take Starbucks, since I'm currently hearing unions complain about the disparity right now. The argument mostly feels like math blindness, but maybe my problem is that I'm bringing an abacus to a knife fight.
The Starbucks CEO makes $95 million a year. They argue this is outrageous because their employees only make $20/hour or whatever.
Why not complete the math? What if we took the Starbucks CEO, fired him, and redistributed his $95 million a year a salary to the workers? Well, the 361,000 workers would see their pay bumped by about $1 per day. It's really hard to get across that the workers at each Starbucks already capture a huge portion of the value of the cup of coffee they serve (aside from real estate costs, cost of goods, etc). The Starbucks CEO takes perhaps a 1 cent from that cup.
This is a simple economic fact that seems almost impossible to communicate. Unionization won't improve worker pay on this front because there isn't much on a per unit basis that can be squeezed to give to workers.
I mean, the union could say lets increase the cost of coffee at Starbucks by 2.5x so that every employee can now afford a 3 bedroom 2 bathroom house in their neighborhood but then their competitors would eat their lunch. And customers might actually be pretty outraged by the idea of paying $18 for a blended coffee plus tip. So, the unions don't try this angle.
In my town a particular annoying version of this argument is happening regarding a company that distributes Pepsi products in the region. They somehow ended up with a union 50 years ago which includes a pension. The company recently announced they can't fucking afford to give employees a pension anymore for the very not valuable job of delivering cases of Diet Pepsi to 7-11s all day and they want to switch them over to an 401k. This was an enormous outrage and the delivery people have been on strike over this for a year now. Going by the town's reaction, they seem to believe thousands of dollars per case of soda being delivered are waiting to be wrestled away from the evil classists who run the company.
It never occurs to anyone to learn to do something more valuable. Just that they need to win the fight against the classists, a fight that could not change anything if they won.
How much unrest is actually caused by failure to reason through 9th grade math regarding your personal conditions?
Is any of this even about actually improving worker conditions? I know it's cliche to be skeptical of unions but I honestly don't understand their modern presence at all.
This feels like a Pascal's Mugging type of argument though. Or more specifically the petersburg paradox
Is there any specific reason to pay the CEO $95 million? It's not like there's a standard market rate for CEOs. It varies wildly and depends heavily on the subjective opinions of the board members. Why not go out and find another CEO for $200 million? A $200 million CEO should be even better than a mere $100 million one, right? Starbucks makes about $36 billion in annual revenue right now, so even $200 million is (like you said) a drop in the bucket. A mere 0.5%. If the new, better CEO can increase performance even 1%, he's worth it.
But then you can play the game again, and again, and again. There's no upper limit for CEO pay! Where does it stop? Their stock is kind of struggling right now- would a $10 billion CEO lead them to greatness? Or should they just cut costs and try to remain in their nice, small, profitable niche? Most sane people would say they should just stick to selling coffee, but you could do the math and imagine that even a 1% chance of becoming the next hot tech stock is worth gambling the entire company on.
Starbucks is admittedly a weak example for this. They have a lot of part time hourly employees, and they all get health benefits, so their biggest expense by far is already employee compensation. It just doesn't go as much to salaries.
For a different extreme, look at Tesla. 125,000 employees right now. Market cap 1.3 trillion. Elon Musk right now earns about 8$ billion a year under current conditions, but it goes up by 1% of Teslas total market cap for each additional trillion in their market cap. If he hits just the easiest goals, he gets $36 billion a year. If it goes up to 8 trillion, he clears an eye watering $878 billion in 10 years, almost $90 billion a year. (yes that's in stock, not cash, if that makes a difference)
Doing the same math as you, that could be ($90 billion)/(125,000 employees) = $720,000 per employee, per year. Is that still just a trivial cost? I dont' think so. In that case he's being given a large chunk of the company as his compensation. (And that's just the CEO, non including any of the other executives who also get paid a lot)
You could argue that in that situation he deserves it since the stock went up so much. But like... how do you know? How does anyone know? If some Tesla employee delivers full self driving while the government decides to tax gas cars and promote EVs, does Elon really deserve that much credit? Surely there should be some limit where we decide that a CEO is just too expensive, but there doesn't seem to be any mechanism in corporate America to limit it. Meanwhile, managers are very much incentavized to cut expenses, which heavily includes limiting employee salaries. There isn't any mechanism in the corporate structure to say "OK our stock didn't grow much. But on the plus side, we were able to consistently raise salaries for all our employees every year."
in history they sometimes talk about "the great man model," where history is heavily shaped by a few exceptional individuals. They mostly bring it up to disparage it, saying how history is far more complicated than just what people like Caesar and Alexander did. They'd be laughed out of the room if they tried to give all credit for an entire country to just one person. But apparently corporate leadership still believes in this line of thinking- they value the CEO far more than anything else. I can't help but worry that our largest corporations are under the control of middlebrow business majors who vastly oversimplify everything.
Who's "we"? What does this "we" have to do with it? What would it mean for this "we" to "decide"?
I can certainly think of mechanisms in corporate America by which individuals can "decide" that they think a company is wasting money on a CEO and take actions based on that decision. If enough of them do, then I guess maybe one could call that group a "we", and the results can range from simply insulating that "we" from any negative consequences to providing a signal to directly causing a change.
I think your response actually supports my point. In theory "we" the stockholders could cut their CEO's pay, or "we" as voters could pass a law limiting all CEO pay. But in practice, no one is organized enough to actually be able to do anything about it. The CEOs get their pay not because some perfectly efficient market is finding the correct value for them, but because they have more political power where it counts.
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