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I'm not sure how to phrase this, so please be patient and try to understand what I intend to say.
CEO pay relative to median employee pay has soared since the 1970s. That is, a CEO may be paid $10,000,000 vs the median employee at $70,000 (arbitrary numbers), where before 1970 the numbers may have been $150,000 and $20,000
Using only one set of numbers can be deceiving though. For instance, through mergers and acquisitions, there may be One CEO where there were previously 10. So you might be able to see this by comparing Total Executive Pay - ie the whole C-suite to Total Non-Executive Pay.
Also, many companies have become more efficient as measured in revenue per employee over time, so another good set of numbers might be Total Executive Pay vs Gross Revenue.
How does Executive Pay look in these contexts?
I'm sure someone has done the work, but I have not had luck googling it, and I definitely don't trust a LLM to get this one right.
As a thought experiment, consider what it would take to make CEO pay gap even BIGGER, in addition to stock-based comp* and buybacks, which are mentioned in headline. Here's what one might do:
- Reduce unions
- Outsource and automate labor
- Slow minimum wage increases
- Consolidate power via M&A (you mentioned this)
- Cut back on benefits like healthcare, pensions and paid leave
- Promote "guru culture": indispensable, iconic leaders like Jack Welch, Steve Jobs etc
- Shift economy towards high-margin industries (tech, finance, pharma) and away from lower-margin ones (retail, manufacturing)
Turns out all of these have been happening since the 70s. So this result should not be surprising.
*Important note that the 1993 Clinton tax bill made it so corporations could no longer deduct the full amount of top executive salaries as a business expense. Only up to $1 million. UNLESS the amount beyond $1 million was performance-based (leading to stock option comp boom).
It's no longer a company it's an empire. Got it. But the executive layer didn’t shrink. You don’t just have one CEO now you have the CEO, presidents of divisions, business-unit heads, all pulling down compensation packages that in the 1970s would’ve looked like outliers even for the very top.
Is revenue per employee the best metric? Productivity gains don’t automatically justify higher executive pay. Most of those gains come from technology the CEO didn't invent or personally implement, supply-chain leverage, and cost-cutting at the bottom, not from some surge of genius at the top. Yet the financial rewards are heavily skewed upward, while median wages flatlined. Plus you know the rule about what you measure being what you get more of. All that would happens under your metric is CEOs push to move to 'contractors' to reduce the measured headcount to justify an even higher salary.
Changing the metric just masks things. Society is broken for those at the bottom, and if their numbers grow too large, it will become broken for everyone.
Keep in mind that executive compensation is at the expense of the shareholders, not the workers.
The company with the lowest median pay, Aptiv, I had to look up, and what a darling of a company this is:
- guilty of systemic accounting fraud from 1999-2004
- manufactured a (allegedly known-to-be) faulty ignition switch that led to the deaths of 124 people and injured 275 others
- currently forcing 20,000 former employees to fight a decades-long legal battle for their earned pension benefits
- gleefully dumps massive quantities of carcinogens and poisons into the environment, including: lead compounds, chromium compounds, sulfuric and hydrochloride acid (lol), and glycol ethers
Citations here: https://en.m.wikipedia.org/wiki/Aptiv
It’s entirely possible that this is causal ABs deliberate, ie the reason why boards of these companies have approved large CEO pay packages is so that the CEO will align themselves with the shareholders paying them rather than the workers working for them and cut wages so the money can be returned to shareholders as buybacks.
There's no plan. CEO salaries have just crept up steadily.
If anything, they're paying CEOs so much in some cases that the rational thing for the CEO to do is as little work as possible. Why work hard if you'll get enough to retire comfortably on regardless of your performance?
Now the question is how the efficient market hypothesis plays out here in the long term. Counterexamples like Costco exist and are doing extremely well, when and how do their asset prices reflect this?
Do you have an iPhone? Mine is constantly turning “and” into “ABs” when I type with swipe.
Google up "CEO fiduciary duty" - that's very much within the definition of a CEO role.
Yeah pretty much.. but this is a good thing. Companies should focus on improving profits and not wages.
Wages are not set by a company, they're set by the supply and demand of the market. Adding a minimum wage just criminalizes hiring anyone who is not productive enough to economically justify the minimum. It hurts unskilled poor people the most.
Stock buybacks used to be illegal. It's a loophole way of paying employees at a lower tax rate than salary.
HBR discusses some downsides of buybacks: https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...
Buybacks are just a more tax-efficient way to issue dividends to shareholders (dividend issuance is a taxable event and at short-term rates, buybacks raise the stock price and those gains aren't taxable until you sell, at which point it may be long-term cap gains).
It's reasonable to be upset about the fact that this is arguably a tax dodge! But all of the other criticism of buybacks apply equally to dividends which no one seems to get upset about. Fundamentally this is the corporation saying it doesn't have a market-beating way to reinvest this capital, and it's giving the money back to its owners to more productively invest.
Stock buybacks were never illegal. Stock buybacks were how Buffett took control of a small textile mill called Berkshire Hathaway in the 1960s. What was not allowed was at-the-market buybacks in the open market. Corporations had to do tender offers at a fixed price, usually well above market price, in order to attract sellers to mail in their certificates. I'm not sure why that is necessarily better or helps anyone, so I think allowing ATM buybacks is a net good.
That's specifically focusing on debt-driven buybacks and leverage, which is come down significantly since the dates in the article: https://www.federalreserve.gov/publications/April-2025-finan...
Metrics like debt service costs to cashflow are also relatively healthy.
Inequity is a real thing, but I am confused about why the CEO of a company that consists primarily of low wage earners deserves a lower compensation for that reason alone. If you follow this logic to extremes, the compensation of a CEO of a company of a dozen people earning 100,000 should be higher than one with with tens of thousands of employees earning 30,000.
Not all businesses are the same.
What’s the motivation of the CEO to increase employee wages if his compensation isn’t tied to theirs?
There’s this perverse belief that companies should exist to enrich the wealthy shareholders at the expense of the workers and it’s put us dangerously close to a complete collapse of the social contract.
> I am confused about why the CEO of a company that consists primarily of low wage earners deserves a lower compensation for that reason alone
If you're looking for an economic reason, there isn't any. Politics in the US has always been moralistic since the days of the Puritans, so people prefer moralistic "solutions".
Even $30,000 is below minimum wage full time on the west coast. You’re not gonna be doing well at all making that.
> 100 S&P 500 corporations with the lowest median worker pay
So not necessarily “low-wage” corporations, just the lowest quintile from a very small group.
There’s plenty of low wage corporations in the S&P 500 index.
It’s certainly not enough of a cherrypicked group to warrant dismissing their findings.
This is exactly why I believe in building companies that actually create value, not just extract it. We could easily charge enterprise prices and hire armies of consultants to inflate our costs. Instead, we focus on making compliance genuinely affordable for the companies that need it most.
The best businesses solve real problems efficiently. When you're spending millions on CEO compensation while your workers can't afford basic necessities, you're not solving problems - you're creating them.
I suspect the low tax rate of long term capital gains combined with companies being allowed to do buy-backs drives all of this.
Seems like today they are paid mostly in stock. Their vision becomes very short term. If they can’t organically grow the company, stock buybacks will prop up their shares. Otherwise a CEO paid mainly from salary might be more motivated to stay a tiny bit longer.
Brought to you by trickle down economics!!
I kind of wish stock buybacks had to include an equivalent portion of executive and board shares (bought back) and options (reduced). It may raise the value of remaining shares, but at least it would reduce the use of the decision to drain value from the public and the company itself.
It’s interesting to me this doesn’t self correct. I’d love to know if someone can explain why.
E.g. presumably companies can pay people more if they capture less value themselves. Why can’t a company do that and just hire the best talent?
Because the "talent" in this case is a commodity. Most of the low-wage corporation's employees tend to be front-of-house customer facing staff or brown-collar labor, which in most cases does not require any special skill set, nor rewards exceptional talent in most companies. Jobs that are easily replaceable and does not require a degree holder.
Ironically, one of the few places I've seen that actually rewards employees for going above and beyond regularly is Walmart. Entry-level staff who can rise through the ranks with exceptional work can turn from low-wage line workers to store managers who are often paid close to $250k.
In business sectors where talent matters, the reverse process absolutely does take place, and it is a positive flywheel. Ex: take US tech. Stock issuance (as opposed to buybacks) is used as incentive to attract talent, which then drives growth and valuation, which makes the company more attractive for talent, in a reflexive cycle.
But many businesses are just optimizing for lowest labor cost when it comes to their main workforce. That's where you see the arguably exploitive situation above.
If you want a fun exercise, try to estimate how many more Chipotle stores they could open if they didn't have to pay their executive salaries.
Maybe this is the self correction. Consider the various CEOs of Apple. Some drove it to near bankruptcy, Jobs drove it to the richest company in the world.
Same company, same employees.
The only difference was leadership.
Consider also what happened to MSFT when Nadella took over. Same company, same employees, dramatically different results.
As a shareholder of Microsoft and Apple, I am happy with their CEO compensation. They earned it. And after all, CEO compensation comes out of the pockets of the shareholders, not the pockets of the employees.
Talent quality doesn’t really matter outside of the bottom 20% and the top 5%
Shareholders won't let them, basically
So perhaps someone can explain something to me.
One of the main problems I see with modern Corporatism is that "shareholders" have too much influence over companies, driving them to make choices that erode long-term customer trust and brand value in return for short-term gains. (This is rational from the investor POV, because they can sell their stake at any point and still have made a profit on the dead husk of a company they left behind). Put more briefly, being beholden to shareholders drives enshittification.
Stock buybacks should, in principal, allow a company to dilute shareholder power and re-control its own destiny. It should allow a company that is successful enough to not need external investment anymore to re-prioritize what's good for the company, rather than the shareholders, especially once they've reached the point of having enough free cash to not need investors. Why, then, is it so universally reviled?
I think what I've heard is: The buyback is part of a larger scheme where execs / board members can pump the price of the stock, and then make themselves money either through bonuses tied to rising stock prices, or through dumping their own shares once the market price goes up.
https://en.wikipedia.org/wiki/Share_repurchase#Criticism
The vibe is that there's a vicious cycle of "Customers are not brand-loyal, let's make our products shitty, hollow out the brand, and then liquidate everything to enrich ourselves" and "Why should I be loyal to any brand when brands that were institutions in my parents' time, like Sears and Craftsman, are hollowing out their brands and making everything shitty for a quick buck?"
Feels like everything has become a market for lemons, and the hand of Moloch has realized that if something isn't a market for lemons, it would be more profitable if it was.
In my head there's a piece of red string connecting this to the Internet Whalefall phenomenon - The Internet used to feel like (again, vibes are all I have for this) a place where the savvy early-adopter techie could be rewarded for their skill at installing any web browser but IE, with secret information shared by other elite techies, about which brands were good and how to get things done cheaper.
But now that Eternal September post-2007 has Pokemon-mega-evolved into Eternal 2007, everyone just buys reviews and nothing online is trustworthy. All the whale meat is eaten and those picking at the bones are left starving.
This led to my personal heuristic of just taking recommendations from people or orgs I meet in person. "Do you like that brand of clothing? How is that USB hub treating you? Where did you buy this?" It's a natural hedge against "I could have _told_ you not to buy that piece of crap" and it's also mathematically similar to best-of-two-random-choices load balancing. Just pick any service or product that one real human halfway-likes.
Shareholders own the company. They are literally the owners of the company. Like anything you own.
In the same way you own your house and pay a painter to paint it, the shareholders own the company and pay Nick to stamp boxes.
I don't know of anyone who has had work done on their home, and then upon selling the home, went back to the painter and said "Here is your cut of the profit we made selling our house, thanks for the great work!"
But I know and endless number of people who think that because they painted a house at an agreed price to make it look nice, they need to be cut in on the profit from selling the house.
The stock does not carry voting rights and for good reason management could effectively vote itself more power and entrench control. There are many laws in place to prevent this.
Reagan economic policy of legalizing stock manipulation via "stock buybucks" has been one of the worst mistakes for American class and sustainable living.
Measuring median wage of Starbucks employees against the one time multi-year strictly performance based stock-option plan given to the new CEO is so blatantly dishonest I can barely read the rest of the article.
Especially when Starbucks awards stock and healthcare plans to even part time baristas. Probably one of the better major employers of low skill labor in the world.
Is part of the performance keeping worker wages as low as possible?
I'd likely be progressive if American progressivism wasn't so economically illiterate (as opposed to say Piketty). The vindictive themes make me think that it's motivated more by envy than a genuine desire to improve society.
The CEO to worker compensation ratio is a useless metric. There is absolutely no reason why Starbucks should be punished for hiring more workers over a company like Nvidia that hires relatively few very well paid workers. If you want raise taxes, just increase taxes across the board.
If you really think that stock buybacks are meant to "pump up short term share prices", you should test your theory in the market and you'll be a billionaire in no time.
>if American progressivism wasn't so economically illiterate
Economists by and large tend to be academically and principally in support of many progressive positions so I'm not sure your statement can be read any other way than "I don't like perspectives that disagree with my primed and preconceived beliefs"
Which is an exceedingly common phenomena in a post-truth world. But it's quite obvious; just want to point that out to you.
For decades, professional American economists vote for the democratic party at a rate greatly exceeding the general population and profess support for ideological progressive positions that is also at a notable rate higher than the general population.
You know, there's also something to say about how people invoke the term "economics" in their own personal posts as some sort of grandstanding dog-whistle but we'd be here for hours.
This in particular seems silly to post to the hackernews crowd, as this seems to imply the majority of stock goes to senior execs, when large tech companies are literally paying out tens of billions of dollars to the average tech worker.
This from an advocacy group with a clear agenda. But if they wanted to raise wages they could just advocate for less immigration and robust enforcement. Restrict supply, wages will rise.
But they don't.
I did an exercise here: the average CEO salary of S&P 500 is around $20M. That's around $10B totally. Assume there are three executives - so thats around $30B annually.
Lets go much further, lets multiply this by 10 to account for top 5000 companies (in practice it would be more like top 20,000 because the lower companies have much lower CEO salaries).
There are around 300 million people in USA. By redistributing the 100% CEO salary you can give around $900 per year to every single person. All this for $900? Which does not even account for income tax paid by CEO's. Edit: after accounting for income tax it is more like $600
So all you have achieved by completely eradicating C suite salary for top 20,000 companies in the USA is around ~$900~ $600 for each individual per year.
I'm increasingly convinced that CEO pay is the wrong place to look at for any impact at all.
Edit: there's more to this if you account for spending patterns.
Even if you give $500 to every citizen, that does not mean affordability will increase because inflation can increase proportionally. This is because even with increased money, each citizen is buying goods amongst the same quantity of goods as before.
For example we can take potatoes: do you think citizens can afford potatoes even more now? No, because the number of potatoes have remained the same. Taking away CEO salary does not mean potato stock would increase because CEO's are not hoarding up potatoes.