That seems like a reasonable amount for the CEO of a massive health care system. Not an easy business to manage and someone who can manage a business that large could do lots of other things. Kaiser is also pretty efficient as far as health care organizations go.
back
3 comments
I am quite sure someone about as competent would do his job for far less. I got this feeling the higher you go the less skill based recruitment is and the more connections and friends matter.
You can say the same thing about professional athletes. Sure, there are bench players in the NBA that would love to start for the Warriors for half of what Steph Curry makes, and they'd probably do a pretty good job. They're amazing basketball players after all. They're likely in the top 1,000 basketball players in the whole world. But they are probably not going to lead the Warriors to a championship. In some situations it's worth paying for that extra little bit of skill+talent.
I'm not sure if that small margin matters for running a major HMO, but I could imagine it does. And that small margin might just be having connections and friends. Maybe having those connections and friends is that extra value proposition that a good CEO brings.
I think a key difference is that sports regularly "tests" performance to help make sure the cream rises to the top. The practice squads are are playing the exact same positions to vie for a starting gig. How many B-squad business types get to head-to-head with an active CEO for long enough to see who's really got the chops?
As a layperson, it seems like the research is mixed as to whether a specific CEO really matters that much to the bottom line. Despite the inconclusive evidence, though, they sure get paid well like it's a given that they really, really matter.
Overall, there is a negative correlation between CEO pay and performance.
https://chiefexecutive.net/higher-ceo-pay-produce-better-com...
There are other studies that show the opposite though and it's important to not draw strong conclusions from a single study. To quote one study:
"compensation arrangements are endogenous and correlated with many unobservables, measuring their causal effects on behavior and firm value is extremely difficult"
Frydman, C. and Jenter, D., 2010. CEO compensation. Annu. Rev. Financ. Econ., 2(1), pp.75-102.
You can say that but the analogy makes little sense.
The difference between Steph Curry and some nba basketball player in the 99.9% percentile actually does matter a lot. And keep in mind hat Curry’s salary is actually lower than his value to a team because of salary cap structures.
> I got this feeling the higher you go the less skill based recruitment is and the more connections and friends matter.
That’s fact not feeling. There are very few positions at the top and an oversupply of skilled people willing to fill them.
It becomes a matter of getting favored by the right people…sure executives put in the work but impressing the right people at the right time is how one progresses in the upper echelons.
There is oversupply of people willing to fill high level positions. Problem is that if you want people who have proven that they are skilled (aka successfully held equivalent or higher position at similar company) the pool is much smaller and competition for them is much higher. In addition executive leaving is very disruptive (takes 6+ months to find new one, etc) so you want to pay above average so he does not leave which leads to arms race in salaries.
On what executive mishire can cause just look at recent events at Flexport. It takes 1+ year to understand that executive is failing and course correction is extremely expensive and disruptive.
Promoting up from within, and grooming successors who started low down the ladder in the company, used to be common.
Now we hire straight in from B-schools at VP or director level, and one of those ends up CEO eventually (if a CEO's not simply hired from outside, directly).
This practice seems to have dramatically increased the cost of executives. I wonder if it's increased quality.
[EDIT] OK not straight from b-school, they have to do a stint in management consulting or whatever first. Because having that be something that the totally inexperienced do makes complete sense.
The idea of hiring straight from B-schools, without experience, tells me B-schools schools have decided to sell out to maximize student throughput. It used to be that very few people got accepted to B-schools without at least a decade or so of experience.
>In addition executive leaving is very disruptive (takes 6+ months to find new one, etc)
Ironically, I read this as an indicator of a bad leader and one who doesn't deserve high pay. A good leader should be regularly training their underlings to make sure there are as few hiccups as possible if they get hit by a bus.
Given the wide variation in quality among US healthcare organizations, and the fact that Kaiser has been consistently one of the better ones across most quality metrics, I think you are wrong and are underestimating the challenge involved in both running an organization of Kaiser's size and of recruiting an appropriate person for that role.
I do agree that assessment is less skill based at those levels, but that is largely because the job is not hard skill based. That doesn't mean the person doesn't matter or that they are interchangeable. No one but Steve Jobs could've turned around Apple for example.
Could you provide a list of names who can/are willing to do it for less? I think our executive recruiting folks (from a lage-cap company) would be more than happy to get some referrals :)
/s
> That seems like a reasonable amount for the CEO of a massive health care system. Not an easy business to manage and someone who can manage a business that large could do lots of other things.
As far as US CEO salaries go, I agree that it doesn’t sound particularly egregious.
Compare that with, say, Nintendo’s President, who makes the equivalent of $2.4 million.
https://www.nintendo.co.jp/ir/pdf/2023/annual2303e.pdf
Executive pay in the US seems to be high compared to at least Japan. Are US executives really that much better than Japanese executives scored against objective metrics?
Japanese companies did not do very well over the last 20 years (by pretty much any metric) so objectively US executives as a group did significantly better than Japanese executives as a group. In addition you can't talk only CEO salaries without mentioning that salaries in US are overall much higher than in Japan. 13M salary for somebody managing 305k employees sounds very reasonable when senior manager/director (manages 50 people) at tech company makes 1M+.
Compare it to the past US CEO pay then. In the heyday of the American economic boom of the 1960s, the CEO-to-worker pay gap was an order of magnitude lower. What's a bit odd to me is how the social norms have shifted regarding this, to the point where average Americans defend it as just.
Did you adjust for company size? I bet the average s&p 500 company is much larger than they were in the 60s. Doesn't seem strange or unjust to me that a ceo of a $1 trillion market cap company can demand higher pay than one for a $1 billion company.
> Did you adjust for company size? I bet the average s&p 500 company is much larger than they were in the 60s.
If you adjust for company size then you should adjust for inflation as well. I’d be interested in knowing for sure, but if I had to, I’d guess they’re 5-10x, not 1000x, bigger.
As another commenter mentioned, there’s a lot that goes into market cap. The adjusted PE is quite a bit higher than the 1960s, implying the market caps are overvalued by comparison, so I’m not sure market cap is a great proxy.
One other way to measure it is by worker productivity, which has also increased since the 1960s. Somehow those productivity gains are disproportionately hoovered up by management.
Assigning macroeconomic trends to the actions of CEOs seems off. A really good CEO (if that exists) can not fight decades of terrible macro.
> Are US executives really that much better than Japanese executives scored against objective metrics?
At negotiation and price discovery, clearly they are :)
US execs seem to be really good at using company money to provide back-scratching favors to board members. Maybe they're less-good at that in other countries, so boards don't reward them as well.
US developer pay is easily 2-3x that of our Western European counterparts. The gap widens tremendously as you move further East in Europe and especially into the middle east, Asia and SE Asia. But you get American developers (myself included) coming out of the woodwork to defend that.
Comparing the President of a Japanese video game company to the CEO of major American healthcare organization with ~6-7x the revenue isn't really an apt comparison, is it?
> Comparing the President of a Japanese video game company to the CEO of major American healthcare organization with ~6-7x the revenue isn't really an apt comparison, is it?
Why wouldn’t it be? And if it’s not, how about a comparison between Sony and KP? Sony’s revenue in 2022 was $88B (though with a much larger net of $6.7B instead of KP’s $0.9B). Sony’s CEO was paid $4.4M.
https://www.sony.com/en/SonyInfo/IR/library/FY2022_20F_PDF.p...
I also think spinning Nintendo as simply a Japanese video game company undersells their global presence as well as the fact that they build hardware in addition to software. My guess is that Nintendo or Sony have a much greater global presence than KP though I certainly could be wrong.
Sure, I'm not complaining, just trying to provide context..
Kaiser is a Colossus, it was more-or-less the first HMO. I've been reading about it in the context of health care economics since the 1980s.
I was getting a test at the hospital in my town the other day and got asked by the technician about my job, which involves public opinion data, and that got into "why are people unhappy with the economy today?" which got into strikes, and she volunteered Kaiser as an example so people like her are very away this is going on.