A different pay question

So I've been wrestling with this for several years and would love some wider perspectives. my entire career has been in education and non-profits. I've had other jobs, but never worked in a true "money making" field. I'm blown away by some of the top compensation figures, and as we've been fighting to make teaching a livable profession it leads to questions about pay for the administrators. So here's my question(s):

Do you think the head of an organization should be the highest paid (ED, CEO, Principal...)?

Do you think there should be a multiplier of average or lowest full-time to highest? Say executive pay is no more than 10x the lowest paid employee, or principal makes 3x the average?

To be clear, I'm all for people making what they can to better their lives but I don't think anyone wants a for-profit fire department  So what should the person in charge of all the other people make?

Lol this is going straight under the patio.

bbbbRASS said:

Do you think the head of an organization should be the highest paid (ED, CEO, Principal...)?

Regardless of anyone's opinions, they're the ones that get to decide if they are the highest paid or not.

As the owner of a company:

I have employees who take home more than I do. Good for them! It doesn't bother me but it is also a little disingenuous as I have equity in the company. 

Should there be a limit? Maybe not, but when you have CEOs making 500x what their employees do it might be worth an ethical evaluation. 

In reply to brandonsmash :

We're already approaching 500x for some companies (Mattel was already over 400x a few years ago) and I'd think the time for an ethical evaluation was more like 20x.

In reply to bbbbRASS: 

I would suggest reading UAW strike and CEO compensation. That thread had a good run and while not identical scenarios, you can expect to get a lot of the same sentiment about compensation from the same forum members. 

We toured a university in central Illinois that ironically my son ended up as an assistant professor for four years.

Older engineering department professor joked his daughter graduated with an engineering degree out of college making more than him at the end of his career. 

If my son was making $75,000 the president should be in the $225,000 range - 3X.

red_stapler said:

Regardless of anyone's opinions, they're the ones that get to decide if they are the highest paid or not.

Not always the case with public sector jobs like education. In the public sector, pay scales may be set by a commission or the legislative body and not the top dog in that department or agency.

bbbbRASS said:

Do you think the head of an organization should be the highest paid (ED, CEO, Principal...)?

In a free society, pay will be commensurate with a supply and demand curve, just like any other commodity.  The rarer the skills offered by the employee and the more the company needs those skills, the higher the pay will need to be to hire that person.

Arbitrary multiplier factors are arbitrary.  Let's compare the value to Apple of the guy sweeping the floors vs that of Steve Jobs.  Can you really say that Jobs only brought 10x or 100x the value?  Of course not.  Without him the company would have gone bankrupt before Y2K.  Truly visionary CEOs are rare, and as a result are worth an immense amount of money to a company.

So should the guy in charge get paid more?  Well, in principle he was put in charge because he's good at what he does and has been judged capable of handling more responsibility.  If that's true then usually he is more valuable to the company than the people who work for him and thus it makes sense that he would be paid more.  Of course, this is all assuming a true meritocracy system, which is often not the case.  Corruption, nepotism, cronyism, and "old boys networks" will often invert this relationship, but those are all symptoms of a company that is rotting.

I don't know much about what firefighters actually do as a part of their jobs, so I have no idea if one can be 10x as valuable as another.  I will say that in software engineering it is quite possible for a superstar engineer to be 10x as productive as an average one.

Supposedly in the early 2000s, the execs at Ford were reviewing the list of the top most highly paid employees at the company.  The CEO is said to have exclaimed "Who the hell is Edmund Irvine?" when he saw the name at the top of the list (which was not his).  (Eddie Irvine was the star driver for the Jaguar Formula One team that they owned at the time, and given that he had finished #2 in the driver's championship in 1999 he could negotiate a fairly high salary)

So if there is a very rare technical skill it is quite possible for an employee to make more than the head. I know of more than one non-profits where a CFO or CTO, or lead researcher is the highest-paid employee. 
 

The private sector to me is where capitalism and socialism seem to be most at odds. Sure, Steve Jobs was worth more than 10x the lowest floor sweeper. But perhaps as the company made fantastic profits it should invest in the people it is built on with a rising floor? I am not saying this should be government regulated, I think people are the hardest material to replace and replicate and keeping the good ones (and keeping them happy/productive) is the key to sustainable longevity. A good CEO or company will be fighting harder for the pay of those under them then for their own package. I think of college football coaches who negotiate smaller salaries for themselves so they can have a bigger pool to hire and retain better assistant coaches. 

edit: the below is more of a rant. It's probably not fully formed thoughts or a great part of the discussion. Leaving it for my own accountability. 
 

Also, the FANNG companies have valuations totally out of whack with what we actually need. 
Can I eat my technology? Will my AI save me from drowning? We need to invest in the linemen who make sure the end products have electricity, the drivers who deliver all the trinkets (until drones replace them), and the growers and packers who let us meatsacks stuff our faces and sustain life. It's like we need the pandemic again and harsher to actually value the nurses, custodians, and stock boys (stock people?) of the world.

i don't love unions, but man are we making a case of collective bargaining and strikes these days.

This exact question comes up in several forms a few times a year. 

I predict that the same people will say pretty much the same things this time as they did last time. The big government types will say regulate, the small government types will say leave them alone. At the end of it, nobody will change their minds. 

I'm pretty sure most of you know where I stand on this topic so I won't repeat myself here. 

Oh, and IBTL.

Part of the problem is that we use this word "value" and rather subconsciously get its meanings conflated.  Yes, if we didn't have the people who pick our food for us, most of us would starve to death and keeping the world fed is of high value using the definition of "importance".  But anyone who's ever read _The_Grapes_of_Wrath_ knows that pretty much any human being can go out there and do that so it's kind of a reverse bidding war.  If you find someone who demands $20/hour to do this valuable work, you can't swing a dead cat without hitting a hundred people who will happily do it for $5/hour.  There are many complications to that, of course, but even if you were to assume whatever level of minimum wage you deem to be fair and whatever level of labor organization you want and solve for migrant workers in any way you see fit, it's still work that is of great importance, but the skills required to do the work are not particularly unique or difficult to posses.  No matter what rock you turn over, you'll be able to find someone capable of doing it.  Therefore, when it comes to the "market price" definition of value for that job, there is very little.

Sure, you can't eat an AI, but pay for jobs has absolutely nothing to do with societal benefit of the thing you do.  It's about market forces and how many qualified people exist to do the work that needs to be done. 

In reply to wae :

All of that.

No matter how we try to sugar coat it, semi-skilled labor is a commodity and is priced accordingly.

This is not to say that every CEO or board member earns their pay, but arbitrarily setting salary limits of X times the lowest pay in the organization is ridiculous.

I agree with what pretty much everyone is saying. These threads do come up, and I often see both sides of them. I moved to SC (in part) to not have to be part of the teacher unions in PA. Once here, I quickly saw how the difference in quality of education was impacted by the lack of that baseline and regulation of the profession. I basically stopped recommending education as a career for people in the South, as I felt there were always other options that provided a much better quality of life. Now in the last 3 years locally we have increased teacher pay by roughly 50% and staffing has been able to be more selective with better candidates. During the same time principals salaries have also massively risen (with much less attention/ transparency) and I don't see any of the same benefit to that. I am able to suggest my own salary and I certainly don't think it is a wise use of (very limited) funds in my organization to just give me big raises because others get them. I think a lot of us see how hard it is to find good employees and the answer (generally) is pay and treat them better. I know this is a rant, because I feel like CEOs/Principals/EDs are out of touch with their employees. Everyone should spend at least a week each quarter trying to do the job of the lowest people. Sorry for sounding off. 

It's an interesting question that probably doesn't have a correct answer.

I chose my profession partly because I knew it would pay well enough and be stable.

To some extent, people can choose what they want to do for money.  Sure, I cant choose to be a CEO. You can't even really choose to be in management.  Those decisions are usually made by others based on your perceived skills and value.

Pay was mentioned as a way to get better quality candidates.  This is true, it increases the pool of people that are willing to apply for the job.  However, pay is not usually a motivating situation for people with a job.  Humans think it is, but when you get down to it, other things are actually more important.  Such as Co workers, work/life balance, schedules, and bosses.  These things have been proven (by people's actions, not their words) to be more important to an employee than how much they actually make.

I don't think there is a clear correlation between a person's employment tasks and how much they make.  

One final thought....  over the last 10 to 20 years it has been more lucrative for people to bounce around from job to job.  Each time they take a new job, they expect more money from the new employer and usually get it.  This type wage increase has outpaced the standard wage increases (If you just stayed at one company).

You're worth what it takes to retain you.    In many fields, they can only reliably hire by outbidding where you currently work.

I've been watching my career (auto tech) on Indeed and it seems like the people who hire at $80-100k/year hire right away, the people who are hiring at only $50-60k have their listings up for weeks.  They're either not hiring, or their employees are jumping ship to companies that pay better.

wvumtnbkr said:

 

 You can't even really choose to be in management.  Those decisions are usually made by others based on your perceived skills and value.

 

Pay was mentioned as a way to get better quality candidates.  This is true, it increases the pool of people that are willing to apply for the job.  However, pay is not usually a motivating situation for people with a job.  Humans think it is, but when you get down to it, other things are actually more important.  Such as Co workers, work/life balance, schedules, and bosses.  These things have been proven (by people's actions, not their words) to be more important to an employee than how much they actually make.

I disagree, at least with what left in the quote. You can absolutely choose to be in management in the same way you choose to be in any skilled position. When I was young I naively thought management were the cream of the crop, the smartest and the best people, that's why they were there. What I quickly discovered was that they were in management because that is where they wanted to be, that is the path they chose, and most weren't even close to the cream of the crop, and many barely competent, if even. 

Work/life balance, coworkers, schedules and bosses are all important, but even added all together, they don't trump the importance of money. Let's be honest, how many of us would be working where we do if we didn't need the money? Very few because money is the predominant reason to get up every day and go where we go. In 1999 I left what I considered the perfect job to be a number in a big factory working in the dirtiest, filthiest part of the plant on straight 12hr nights. I doubled my previous best wages in a year, stayed there over two decades, and it was the best decision I ever made. I think most people would make the same decision.

To address some of the earlier discussion on wages, at that place I was making more than my department manager, and he wasn't happy about it. But people with his skills were more abundant, and willing to work for less than people with my skills which, Ironically, was a failure of ... management.

Here is what I've learned over the last couple of years, as I've advanced in my career and gotten the occasional chance to mingle with folks in the big leagues (CEOs over global, large publicly traded, 10B+ revenue types). I can't do what they do, and nor can 99.99% of the population. Most of the people that I have met at that level probably aren't "smarter" than me, have more practical knowledge than me, or even work harder. The ones who do it well have a rare combination of both leadership and management, a certain charisma, the ability to think incredibly well on their feet (ie, do live interviews on CNBC), are good under pressure and in front of a crowd, able to get out of the weeds and think strategically, and have worked incredibly hard and taken risks to get there. It's not about one of those things, it's the combination of all of them that is rare. Are their over-paid duds with that title as well, no doubt.

Could I sink the same long putt as Tiger Woods in his prime, absolutely. Could I do it as consistently as he did. Not a chance in the world.

The only salary I worry about is mine. As long as the company is paying me a salary that I feel is commensurate with my contribution to the organization, what Sally or Sam or the CEO makes doesn't even cross my mind.

Duke said:

This is not to say that every CEO or board member earns their pay, but arbitrarily setting salary limits of X times the lowest pay in the organization is ridiculous.

More ridiculous than a CEO (or any worker) getting paid 7-9 digits a year though? I don't think so, I think such an outcome is a red flag of severe flaws in the system that produced it, and a salary range limiter would be a useful safety mechanism to prevent such insane outcomes. You'll hardly ever find a person making that kind of money unless it's either through board-level shenanigans or intellectual property shenanigans. It's just more value than a human can produce with their own labor.

GameboyRMH said:

Duke said:

This is not to say that every CEO or board member earns their pay, but arbitrarily setting salary limits of X times the lowest pay in the organization is ridiculous.

More ridiculous than a CEO (or any worker) getting paid 7-9 digits a year though? [...] It's just more value than a human can produce with their own labor. [emphasis mine]

So you say.

This link said:

Between 2001 and 2014, Apple sold roughly 400 million iPods, and another (estimated) 50 million since.

The iPod was launched in 2001.  By 2004, it was 40% of Apple's revenue.  Peak sales of the iPod were in 2008 - total iPod sales were $9.2 billion that year, while the iTunes store was another $3.3 billion.

Did Steve Jobs invent the portable music player?  No.  Did he single-handedly engineer the iPod?  He did not.  But what he DID do was take his vision of what the iPod should be and drive the total design package into a consumer product that made more money than the entire berking country of Nicaragua did in 2008.  And that's not even counting iTunes sales.

I know this will fall on deaf ears with you.  I know you're bitter and want to feel downtrodden.  But I think that individuals can be worth 7 or 8 or 9 digits a year.  And other individuals can work full time and only be worth 5 digits a year.

In reply to Duke :

So Steve Jobs was a rockstar lead product designer, at least in terms of making products people will hand over piles of cash for. You could give him credit for UI/UX design too because he was well-known to micromanage that. Lead product designers wouldn't make 7 digits per year even if they were lucky enough to get a bonus for designing the best thing since sliced bread that hauled in almost $10B in a year. Lead UI/UX designers make even less. So I don't see why the pay for doing those things should get extra orders of magnitude when the person who does those things is also in the C-suite. Furthermore this does nothing to explain the pay of the vast majority of CEOs who do approximately zero design work.

In reply to GameboyRMH :

A lot of it has to do with being able to communicate your dream/vision in such a way (or with pre-established networks) that you will get other to put up their capital to allow you to produce items. Most non-profit CEOs are just good at getting money from others, either by spinning a good story for donations, having rich friends, or being skilled at navigating the labyrinth of bureaucratic paperwork to receive grants. I've gotten literal millions donated over the past decade, maybe others would have done better, probably many would have done worse. I was also willing to mop floors, fix roofs, unclog sewers, fire friends, and put up my own house as collateral to allow us to keep functioning during that time. 

In reply to bbbbRASS :

I know this is a rant, because I feel like CEOs/Principals/EDs are out of touch with their employees. Everyone should spend at least a week each quarter trying to do the job of the lowest people. Sorry for sounding off. 
 

I'd be willing to bet that the average worker is much more out of touch with what it takes to run the company than the CEO is out of touch with what it takes to do their employees' jobs.

Having everyone do the lowest jobs is a horrible idea. If you think paying the CEO millions to run the company is too much, how do you justify paying them that to mop the floor? 
 

My wife was a very successful sales person who made many times the pay of other employees. She worked long hours and did whatever it took to take care of her clients. They had trouble hiring and keeping delivery drivers, so she would frequently hop in the truck and do deliveries herself. Her boss thought it was great and praised her for it. It was a berkeleying stupid, horrible business practice, and he should have been embarrassed. In the time she spent driving a truck, she could have used her skill to generate revenue that would have paid for many drivers. Opportunity cost is real. They were effectively paying one of the highest paid employees to drive a truck instead of paying what it took to get a reliable driver or two or three. It would be like if the Dodgers pulled Shohei Ohtani from the game because they needed someone to cook hot dogs in the concession stand. 

In reply to Boost_Crazy :

My last hose shop was the same.  In the name of efficiency and EBITDA they streamlined the shop getting rid of a driver and assembly personnel. 

Since it's all about service when there a rush delivery the salesman had to go get nonstocked fittings and deliver the hoses. Many times we came in at 6am to help cut specialty rubber strips and stayed after hours to pull orders for the next day.

I left because I spent too much time not selling to customers but the EBITDA numbers looked good. 

In reply to Boost_Crazy :

That is a good point. I do think because I get paid more I should have to work longer and harder, and it is the responsibility of those at the top to understand what they are asking their employees to do. It is not the job of the underlings to understand the head honcho, but that does make for a healthy environment. There are a lot of times I'm fixing a maintenance issue because I can't hire a contractor and if I had fundraised more or managed expenses better I could be spending that time doing something that furthers the bottom line more.