Are Bankers Paid Too Much? Are Technology CEOs?

DavidHumus writes with this excerpt from a New York Times article: "Big paydays on Wall Street often come under laserlike scrutiny, while Silicon Valley gets a pass on its own compensation excesses. Why the double standard? The typical director at a Standard & Poor's 500 company was paid $251,000 in 2012, according to Bloomberg News. Mr. Schmidt [Google's CEO] is above that range by over $100 million. ...The latest was the criticism of Jamie Dimon's pay for 2013, given the many regulatory travails of his bank, JPMorgan Chase. The bank's board awarded Mr. Dimon $20 million in pay for 2013, $18.5 million of which was in restricted stock that vests over three years. ...For one, the outsize pay for Mr. Schmidt doesn't square with Google's performance. Putting aside the fact that he is not even the chief executive, Google had net income of $12.9 billion last year. JPMorgan was higher at $17.9 billion...." DavidHumus notes "Maybe the bigger question is why is CEO pay so entirely disconnected from company performance?"

Comments

tl;dr

[Anonymous Coward]

Yes

Re:tl;dr

[amicusNYCL]

Seconded, yes.

Here's the difference: technology CEOs run companies that make things and contribute to society. Bankers earn a profit by moving other peoples' money around and taking some off the top. One of those jobs is necessary for us to progress.

Re:tl;dr

[Anubis350]

I find having a bank account very handy for handling my money. Banks do contribute to society.

Bear in mind that investment banks and savings banks used to have huge firewalls between them, so that the one you find useful wasn't the one taking huge risks (it is, or was, also the smaller banks that typically extend credit to local businesses, not the huge investment banks)

Re:tl;dr

[geoskd]

The Banker? Because without him, those technology CEO's wouldn't have any money to make things and contribute to society.

Horse crap. When the technology company critically needed money, the investment bankers are nowhere to be found. The only people that will put money in that direction are the angel investors. The bankers only become involved when all of the real risk has been removed. Without investment bankers, companies would still be formed and grow, it would just be a much slower, more natural, growth. Investment bankers are, as stated, parasites.

Re:tl;dr

[interkin3tic]

Straw man argument. No one said that banks are useless, just that "bankers" (in the wall street sense) contribute less to society (in the "where most people live" sense) than one would expect, given how much they are paid.

It's not like repealing glass-steagall gave us the internet, smart phones, and a cure for cancer. All that I can see it did was continue a feedback loop whereby the super-rich get richer, get more power, and change the laws to make themselves richer at our expense.

Credit unions serve the purpose you mention, yet they don't at the moment leech off society like chase does. We could do away with the too-big-to-fail entities, and it wouldn't hurt you or me too much. Well, in theory, anyway, I'm sure the extraction process in reality would leave something worse, be it through reform in the current political climate or violent revolution.

Re:tl;dr

[Anonymous Coward]

The salary of the vice president at McD's isn't taking money meant for the burger flippers pocket....

Um, yes... yes, he is. That's exactly the point.

Re:tl;dr

[master_kaos]

Are you sure? I find it hilarious how huge companies have to lay off thousands of employees, yet the CEOs are still making their 10s of millions in salary. How about first eliminating bonuses, as well as dropping salary before eliminating employees. For example ,Blackberry CEO getting a compensation package of 88 mil literally days before laying off a bunch of employees. How about offering him 50 mil instead and keeping on 700 workers,
And he gets a private jet to travel between his home and Waterloo headquarters at an approx value of 50k per round trip (almost someones full yearly salary) because he is too fucking lazy to move to waterloo to do his job even though he is getting a shitton of money.
And yes I am a bit better because I do live near (and work in)waterloo and know a few people affected by the layoffs.

Re:tl;dr

[PopeRatzo]

The salary of the vice president at McD's isn't taking money meant for the burger flippers pocket....

He absolutely is.

In fact, in the specific case you cite, low-end wages are kept below poverty so that not only is the vice-president of McD's taking money away from the burger flippers, but he's taking money from each and every taxpayer by having the government subsidize his employees.

There are even laws now to codify such arrangements. If a Southeastern state lures a manufacturing plant from say, Washington or Oregon, one of the ways they do it is to agree to allow the company to keep any state income taxes that are withheld from employees wages. The taxes are still taken out of each paycheck, but the money never goes beyond the company's coffers.

Corporations are seeking out this kind of deal, and states, in a rush to the bottom, are giving in so they can show how they're "bringing jobs" to their area.

The issue of sports stars or movie stars is a red herring. There are so few of them as to make it irrelevant, and their pay is directly tied to the profits they are expected to generate for the owners.

CEOs' salaries on the other hand, are entirely a function of a buddy system in corporate boards. Everybody gets a nice income and lifelong security and they scratch each others' backs. You will never hear of the board of directors of a big company or bank asking if maybe they can find a CEO from Pakistan or China who's willing to work for $250,000 instead of $40,000,000, even though there is very little evidence that the CEO has that much impact on a company's bottom line. Despite the fact that it's absolutely the job of the directors to do so. And even if that did ever happen, it wouldn't explain the huge salaries for unproven CEOs for companies getting huge bonuses even when the company is not doing well, which is much more common than most people would imagine. You will often hear, on the other hand, about sports teams deciding not to pay a veteran $40,000,000 if there is $400,000 rookie who can do the job. One of those "minimum wage" players was the quarterback who won the Super Bowl this year, in fact. The guy he replaced was obscenely overpaid and the rookie showed promise and the owners gave him the job.

And there are plenty of other ways in which income disparities directly hurt most people. Just have a look at the work of Richard Wilkinson and co, who have done a lot of work on this issue. Yes, when people at the top make a lot of money and their incomes increase out of proportion to the rest of society, it takes money away from the people flipping burgers and making cars. And writing code.

http://www.ted.com/talks/richa...

Re:tl;dr

[Anonymous Coward]

Not to mention that both actors and athletes have benefited from being unionized workforces, which is one of the reasons they've been able to negotiate a percentage of profits in the first place.

Re:tl;dr

[ultranova]

My thing is, why do we complain at all about who makes how much?

Because if you indoctrinate people into believing income should be earned, they don't conveniently forget all about that when it comes to your income. CEOs are not perceived as pulling their weight, producing nothing but seemingly endless bankruptcies and layoffs, so all that "welfare queen" rhetoric is now turning against them.

I mean, it isn't really a zero sum game.

Of course income is a zero-sum game. Economy produces a certain amount of value per year. If your share of the pie grows, mine must shrink. And if your share is perceived to be unfairly large, then you can expect other people to act against you, driven by both self-interest and a desire to right an apparent wrong.

Of course it's possible to justify larger share as an incentive to grow the pie a a whole. The problem is, the CEOs haven't done so. The 1% are the modern nobility; the accusations about overcompensation are simply the warning rumbles of a good old peasant revolution every king who fails continuously risks facing.

Re:tl;dr

[mspohr]

Ah yes, the glories of the free market will cure all ills.
Do you really believe this or are you just trolling?
"Because if you don't like the job, you can leave, and they can replace you in a couple hours. I fail to see how that is greed when so many people are willing to work for that, and get by on it."
Are you aware:
- Most people don't have an option to just leave and get a better job. Have you heard about the unemployment problem?
- People aren't "getting by" on minimum wage jobs. They need food stamps to eat and Medicaid for health care (if they can get these programs).
- Average Walmart / fast food worker is not a teenager but is a 30 year old trying to support a family and is not "getting by".
Do you actually know any minimum wage workers or unemployed people?

Re:tl;dr

[flaming error]

"Is that hour worth 60 of those newly employed people?"

No.

In the first place you have a dimensional analysis problem of non-matching units.

In the second place, one CEO can't do the work of 60 people. That's why he had to hire them.

You're right that his job isn't easy. No interesting job is. Lots of people work hard.

The average CEO makes 340 times his average employee. The CEO does not work 340 times harder than his average employee. He doesn't know 340 times more than his average employee. He doesn't single-handedly bring in 340 times more productivity than his average employee.

Instead he gets the credit (and sometimes blame) for what every other person in the organization accomplished.

Good CEOs deserve respect. Not worship. And not money disproportionate to his contribution.

The reason CEOs get paid so much is not because the free market prices them so high. It's because they are on each others' Board of Directors and they all figured out they could overcharge their companies and share the spoils amongst themselves.

Because

[boristdog]

Because the tech sector hasn't crashed the world economy...yet?

Re:Because

[phantomfive]

1999-2000 Tech bubble?

The tech bubble crash is really interesting to compare to the banking crash. More money was lost in the tech crash, but the impact on the economy was much less. The reason for this is because in the tech bubble, equity was lost, but in the banking crash, it was debt.

Some economists see this as an indication that banks should be financed the same way tech companies are financed, with shares of stock instead of savings. Hard to say but it's an idea worth thinking about.

Re:They are all paid too much

[SQLGuru]

At the top tier (VP, Pres, CxO), pay should be capped as some (documented) multiplier of the lowest level salary. Bonuses should be tied to company performance. That's it. If the CIO wants to get paid more, he either needs to raise the rates of those below him or improve the performance of the company in some meaningful way. When a company making billions pays its executives $50M but lays off thousands making $40K, it feels really crappy. Sure, I understand that sometimes those layoffs boost performance and what not, but there really is a point where having MORE money doesn't really do much for you.......whereas losing your job is VERY disruptive.

Perhaps...

[Anonymous Coward]

Perhaps if Google and Apple had done the same damage to the economy as bankers did a few years ago and had to be rescued with 700 billion dollars (from a government that argues that a few billion in homeless shelters is wasteful expending) people would be pissed at them too.

Re:They are all paid too much

[mrchaotica]

At the top tier (VP, Pres, CxO), pay should be capped as some (documented) multiplier of the lowest level salary. Bonuses should be tied to company performance. That's it. If the CIO wants to get paid more, he either needs to raise the rates of those below him or improve the performance of the company in some meaningful way. When a company making billions pays its executives $50M but lays off thousands making $40K, it feels really crappy.

The fact that executive pay being so disproportionate to employee pay "feels really crappy" is not a problem. The fact that executive pay being so disproportionate to employee pay destabilizes society by destroying the middle class is a problem!

Re:ELOP

[mbone]

Another word JOBS.

Even if you hate Apple look what happened to Apple since 1997 when Steve Jobs came back who is considered one of the best CEOs? CEO's get paid a lot because they have a HUGE impact on stock price and company performance.

Steve Jobs had a salary of $ 1 per year. He shared in the success of the company because he owned a good chunk of it.

That, I have no problem with.

Re: They are all paid too much

[Anonymous Coward]

Too bad that free markets are a theoretical ideal that doesn't really happen in real life. Sure, market forces shape outcomes. But market failure is a real thing that happens. You can't rely on the market to correct it's own failure.

Finance is a valuable activity

[sjbe]

Bankers earn a profit by moving other peoples' money around and taking some off the top.

True, and the reason they can make money at this is because it is a VERY valuable activity to society. Far more valuable than the bit they keep for themselves most of the time. If you need evidence of how valuable it is, merely look at our recent financial crisis when the flow of money froze up.

There are plenty of jobs that don't involve making things but nevertheless are very valuable. Don't confuse the value of the activity with the behavior of the parties involved.

One of those jobs is necessary for us to progress.

Think so? Try building a company without access to banking or financial services. You won't get very far. Anyone who thinks banking and financial services aren't necessary for progress doesn't understand finance. It's like saying your car doesn't need oil. Technically true for a little while but it won't work very well or for very long.

Re:Finance is a valuable activity

[epine]

If you need evidence of how valuable it is, merely look at our recent financial crisis when the flow of money froze up.

That's just about the dumbest thing I've ever heard.

I guess you don't recall the August 1981 strike air-traffic controllers strike. Most of those wealthy bankers could be replaced by people being paid 10% as much, and after a few years we'd hardly notice the difference, except perhaps that the new lot wouldn't be nearly so adept at screwing the system over.

I guess if you were running NASA you'd pay a billion dollars per o-ring, because--gosh--look at what happens if it won't deform, and the size of the bill if we need to replace the dumb thing. Ten thousand parts at a billion dollars each sure adds up. When you think about it, with each o-ring protecting the safety of a ten-trillion dollar shuttle, a mere billion dollars per ring is a screaming deal, wouldn't you say?

Finance wasn't rocket science until the inmates figured out that astrobucks are a good living. It doesn't need to be rocket science any more than an o-ring needs to cost a billion dollars.

The controllers had Washington by the balls. Big mistake. The bankers have Washington by the carotid artery. We can therefore infer from this that bankers do more important, more productive, more difficult work. Or we can infer that bankers are better at pouring over Grey's Anatomy if it serves their personal interests.

Re:They are all paid too much

[nine-times]

It would distort the free market and no one would take the risk or the very hard work like 70 hour work weeks, MBAs, and other things for dozens of years without the compensation.

Huh? People do work very hard for 70 hours a week without making 20 million dollars for it. It happens all the time. Sometimes because they have to, and sometimes because they enjoy their jobs. And getting MBAs? Do people actually need to get MBAs?

If someone is paid too much the market takes care of that with something called a firing.

Are you sure about that?

the shareholders need a return and who is the shareholder? Your elderly mom, YOU, etc.

Except often they're not, at least not to a meaningful degree. Your elderly mom probably has a 401k that gives her a 0.001% share in the company without knowing it. Mostly "the shareholders" are rich people.

The sky is the limit and the CEO didn't start out like this overnight. It was not luck. Even company founders are poor. It took Zuckerberg 10 years before he became very wealthy.

You're conflating some different issues here. The sky is the theoretical limit, in abstract, but not really so much for everyone. Zuckerberg did not start off poor. He started out upper-middle class. And he was lucky. He found himself with a good idea at the right place and at the right time and with the right help. Any number of things could have gone against him, resulting in Facebook never becoming the company that it is today.

So while it wouldn't be fair to claim that Zuckerberg sat around doing nothing and just happened across success, like finding the winning lottery ticket, it's also not fair to everyone else to paint the picture as though Zuckerberg created his own success through pure brilliance and hard work. He made smart decisions and worked hard, but others made equally smart decisions and worked equally hard without ever making a million dollars.

Re:You get, what you negotiate

[SeaFox]

"Maybe the bigger question is why is CEO pay so entirely disconnected from company performance?"

The even bigger question is, why is this any of our business? As long as it is not the taxpayers footing the bill, count your own money...

Taxpayers are footing the bill. Or did you miss the recent media attention about all the people who work at Wal-Mart, McDonald's etc and have to get food stamps and other government assistance to make ends meet. This isn't the rhetorical lazy bum leeching off welfare or unemployment benefits, there are people being good citizens and actually working.

Re:They are all paid too much

[AchilleTalon]

BTW, bankers are an exception due to what happened with the financial crisis which ended with governement pumping tons of dollars to keep them afloat no matter how bad they did. At then end, everyone did pay for the risk, not just the shareholders and investors. That's what was unacceptable. The rules were bent in that case at the advantage of bankers.

CEO pay IS based on performance

[Sponge Bath]

If a company succeeds, CEO pay increases because their super human abilities are solely responsible for corporate performance. If a company fails, CEO pay increases because their super human abilities limited the damage from incompetent workers and are needed to liquidate the company in an orderly fashion.

Re:They are all paid too much

[Billly Gates]

Jobs was worth every penny after what he brought to Apple.

Apple didn't magically invent the iphone, imac, ipod, appstore, and Steve led the way. It brought value to hundreds of millions of people.

Yes if you are skilled doing programming/network design/chip design/ you can get wealthy. The key is to not work for someone elses dream.

Think of a product or server you and your fellow coworkers can provide? Start a company with your partners and make something. Or move to a place with startups in Silicon Valley where you make less starting out but have options in owning shares of the company. Many will fail but you will have many clients on your resume fast until one sticks and you strike gold.

You are more valuable than you think. Just because your current company doesn't value what you do as part of the bottom line, doesn't mean your skillset wont benefit someone else more greatly. ... of course if you have a baby and a wife there is also risk. Are you willing to take that? If not then being paid a lot less is worth the price in terms of job security and benefits.

Re:They are all paid too much

[swb]

"Say on pay" wouldn't be such a hot topic in corporate governance (it even has its own wikipedia page) if investors actually had that much influence over executive compensation.

Most top executive compensation is detrmined by compensation committees made up of board members, many of whom are also top executives elsewhere. I don't want to risk you limiting my compensation if it exposes me to a risk you might limit mine. There's a moral hazard for these people.

The consultancies who get involved in executive compensation face the same risks -- those that come out and say that compensation should be decreased will likely find themselves losing business. Another moral hazard where self-interest keeps them from advocating for anything but the status quo.

The end result is that rank and file investors have little to no control over this and many barriers are erected to prevent shareholders from voting in more than an advisory way on this, let alone an up/down vote or even less likely, dictating compensation strategies.

Even in situations where CEOs have the concentrated authority to make big decisions unilaterally, I find it hard to believe that they are *individually* performing all the work required to make them. They are instead relying on legions of experts and other labor to make a decision, something which I don't think is magical enough to warrant the sheer scale of pay they recieve because they individually aren't doing the work but are demanding the scale of pay as if they were.

Even then, when they make terrible decisions that cost billions of dollars or oversee others who lose this and they lose their jobs, they still walk away with so much money its difficult to see any accountability they face. Maybe if you face the prospect of earning $20 million dollars you should also face the risk of losing $20 million dollars personally. But the current system is just win-win for them outside of bragging rights at the club.

Re:Fair v. Equitable: Who cares?

[DudeTheMath]

Note that the CEO is trying to get the most out of his (almost always "his") employer, too. Who's his employer? Why, the board, usually full of banking CEOs who love to negotiate their high salaries, bonuses, etc., from their boards. It's largely a big circle jerk.

Re:ELOP

[Princeofcups]

Steve Jobs had a salary of $ 1 per year. He shared in the success of the company because he owned a good chunk of it.

That, I have no problem with.

Until you understand that the $1 a year is one of the most egregious tax dodges today. You pay tax on salary, not on "capital gains." You then borrow against your stocks if you need cash.

Re:Employed

[PopeRatzo]

Yeah, there is a difference between a guy who bets he can make a company successful and the guy who gets a multi-million dollar salary plus stock options to help him avoid paying taxes.

The first is a rarity. The second is business as usual in US corporations.

Today, the average CEO makes $9.7 million annually, up year after year, while worker salaries are on a steady decline.

Two separate economies. That is not sustainable.