Indefensible

I was forwarded a link to this screed entitled
"Fearless Leaders"
and asked to comment on it, and I thought it was a good subject for a blog entry.

My first thought is that if most Americans could get as excited about fighting terrorists as they are about fighting CEOs, we could likely look like a united nation to they world and our chances of success in the WOT would be greatly increased. The MSM and many on the left can find excuses for everything from suicide bombers to child molesters, but their hatred of guys that head up companies shows no bounds.

When one deals in numbers, it is very important to have perspective on what the numbers are being related to. The guy that hates CEOs wants to use the salary of the "average worker". How about comparing CEO salaries to other highly paid Americans? I mean, the guy that heads up a 300K person company can't really be considered "average" can he?

On Forbes 2005 list, George Lucas of Star Wars fame was #1 at $295 million, Oprah #2 at $225 million, Mel Gibson $185 M for 3, Bill Clinton was 89th, pulling down $6M for speaking, Dan Brown of DaViinci code made $76 Million, Kate Moss made $5 million for being beautiful and having her picture taken. Tiger Woods made $87 Million, and was #4. Nobody is writing nasty articles about these people and they certainly aren't creating nearly the returns, real products, or jobs that the companies that have high paid CEOs are. I don't mean to denigrate what any of them make. The market pays them too. If the market values pretty pictures of women as much as they value a CEO giving up their entire life for a number of years to head up a major corporation, that is OK with me. I don't claim to be as smart as the millions of customers and stockholders that end up deciding what CEOs should make. Who is it that we would pick that WOULD be as smart to set the "proper" limits?

Why is it though that so many people have a visceral self-righteous indignation over CEO salaries, but they are unbothered by a former president that walked the halls of power with his pants around his knees pulling down $6M a year for giving some speeches? I believe there are three basic reasons. The first is "spiritual". They see Slick Willie as "gifted". He is "special". Same thing for sports stars, authors, film makers. Those are "special gifts", and somehow "worthy". They can understand that Kate Moss is beautiful, Star Wars is creative, and it is very hard to put a white ball in a small hole, so the folks that are the best at it may as well get "huge money". They DON'T understand running a large corporation. They see it as "going to work". They go to work, the CEO goes to work, they can't understand what is different about his work to make it so highly paid. I'd think it may dawn on them that running a company that makes billions of dollars and employs 10's or 100s of K of people is harder than their job, but apparently not. It has become popular in this country to be clueless and outraged, and one of the things it is popular to be that on is CEO salaries.

The second reason is because they don't have emotional intelligence on economics. They believe in the "pie at the table" model of the economy, and figure if the CEO makes more they make less. Oddly, they don't seem to think of Tiger or Kate Moss eating their pie, apparently they see the "gifted" as dining on some other sort of pie. This lack of at least emotional understanding of economics goes back to childhood. We all are raised in some sort of a family. The head(s) of that family appear to be way rich and god-like to us as small children. They COULD get us all the toys we want when we are little, but don't. Worse, if there are siblings, we sometimes see that they allocate money "unfairly", ie. "they didn't give it all to us". We don't understand a lot, but we see "the pie" as of a fixed size and allocated under the control of powerful people. The author of this article, most of the MSM, and the majority of Americans operate with the economic emotions of a young child. Not surprising since the untruth has been drilled into them during all their schooling and continues to be reinforced in the media constantly. Their is a bitter joy in returning to childhood and feeling the outrage that someone else has gotten an unfair slice of YOUR pie, and you will have to do with less.

In reality, neither the world or US economy are fixed in size. In yr 2000 dollars, the US GDP per capita has grown from $22,716 in 1980 to $37,523 today. Just because someone else makes more doesn't mean that you or anyone else makes less. In fact, with growth, it often means that everyone else makes more. Japan, one of the countries pointed out as being better for lower CEO to worker pay multiple had only $29,400 of GDP per capita in 2005 by the same measure. Apparently, CEO pay is not hurting us or helping Japan if it is real results rather than feeling outraged that is important.

This GDP is also not allocated by "powerful people" like "Mom and Dad", it is allocated by a market. Were it allocated by powerful people with connections as was attempted to be driven into my brain as a kid, I'd likely be doing something with turkeys in Barron WI for $10 an hour and complaining bitterly about the "unfairness of the system". Most all of us would overvalue our "fair pay", and undervalue it for others, especially those that make more than us. We all work hard, and are certainly worthy of more, while those that make more than us ought to be satisfied with a lot less than what they make, and just "love their jobs".

40% of the planet lives on something less than $1 a day, so a person making $109,500 is already making 300x that and by comparison is a "greedy CEO". There are millions of "greedy CEOS" in the US relative to 40% of the population of the planet. Is it true that the success of the US is taking money from those people? Hardly, in fact it does the reverse. The success of the US economy and system has created globalization, and it is provably the best "aid to poor nations" ever created in the history of the world, and while it works, it makes many Americans richer as well.

The third reason that people feel resentment about CEO jobs is because they don't understand that getting to the CEO position is a lottery. We understand a lottery where everyone puts in a small amount of money for a very small chance to win a large sum of money. Getting to CEO is a lottery where a fairly large number of people have to work very hard for a very long time to have a very small chance of getting a special job. The payout for that very special job needs to be large enough to keep a significant number of people motivated over a long time in order to come up with the quality level of person needed to accomplish the task. Over time, the market for CEOs has factored that into CEO salary.

There are many reasons that folks with a left tilt hate that analysis. It asserts that the market works, competition works, some people are better suited to positions than others, even high pay can be rational, and a host of other "bad" things if your brain tells you that "everything should be level, we are all equal". Equal for opportunity, but not equal in gifts or outcomes I'm afraid. Those that can't stand the kind of diversity that matters, diversity of competence and outcome, are always going to find a reason to hate those that rise to the top.

We all hate seeing retirement at a young age go away. We hate losing our hair, losing our memory, and waking up stiff too, but we need to get used to all of them.
I've blogged on that at Retiring Models
Part of leadership is also letting people know about reality. CEOs work up to take a very specialized job, and their retirement is going to be different from that of an average worker, just like Tiger, Bill Clinton, or George Lucas. In our system, there isn't anything stopping you from being a CEO if you feel it is a "cushy job for high wages". I don't agree with you, but the great thing about a free country is that anyone can go out and go for the brass ring.

I don't want a CEO job at the salary they make even if it was offered to me. Corporations have to find CEOs from people that make much more than I do, and they have to compete for the best at least significantly on the basis of dollars. On the day that stockholders decide that lower CEO pay is an indicator of better stock performance, CEO pay will start to go down. Until that day, CEOs are going to get the same kind of money as great models, and ex-presidents speaking.