The journey from there to here
Published on May 17, 2006 By Gideon MacLeish In Current Events

I hate lavish CEO salaries.

I hate the fact that the CEO's of major corporations live in penthouse apartments while the worker that provides the labor to run the company must watch their dimes and nickels.

But in my growing understanding of economics, I have gradually become aware that CEO salaries, while insane, are a perfect example of the law of supply and demand.

See, a good company can't do anything without a good leader. The best product in the world is worthless without someone with the capability to market the product and to oversee the infrastructure to produce, store, ship, and market the product.

And the truth is, for good company heads, there is a growing demand, with a decreasing supply. Companies need someone with the savvy to ride a business through its ups and downs, and to not only handle current successes and failures, but to foresee and draft plans for future successes, with contingency plans to redirect the company in the case of future failures. In other words, someone with vision.

These need to be people who do more than react; they need to be able to spot trends and to predict what will happen not only tomorrow, but beyond tomorrow, in order to ensure that their business does not fall into the abyssal plain of businesses that once had good ideas but failed to follow through with more good ideas.

Those people are, in fact, rare. Factory workers, sadly, aren't. And when someone with a good mind becomes available, there are a good number of companies willing to bid for their services. They are the best of the best, and they drive the engines of the free market.

The best way to decrease CEO salaries is to create a greater supply. To educate ourselves and our children to see the big picture, to be able to direct not only their own lives, but the lives of others. To be good leaders with a strong vision and a sense of responsibility. And we can do that in many small ways, first and foremost, by not perceiving ourselves as victims, but rather as captains of our own destiny. For if we can't get beyond the mindset of seeing ourselves as victims, how can we help but see our businesses as victims of trends we could have anticipated with a more positive, proactive approach.

The future truly is NOT in our stars, but in ourselves. It is up to US to remedy the problems we see in society. If we want to see greater wage equity for the working man, we need to produce more leaders to meet the demand for the same.


Comments
on May 17, 2006
You are progressing far on your journey, Gideon-san!  Excellent article and 100% correct.
on May 17, 2006
I am becoming convinced that the single best thing you can do to help your children to become leaders is to teach them to master the game of chess. The game requires that you evaluate the motivation for every move and potential consequences four or five turns down the line. It teaches you not to act hastily, and to follow up on your successes as well as to recognize your failures early on. This is why it is a key part of my children's learning experience.
on May 17, 2006
Hello All,

Good work, Gideon. Much truth in your words. While on the one hand I am clearly and unabashedly a liberal, I am also an entrepreneur. While in graduate school my wife and I opened a two person parttime counseling center. We grew this business into a franchiseed private mental health services corporation with four companies, eight offices in two states with 30 docs. In 1991 I had enough of corporate life. When we started, I was a scruffy sort. When I sold the company and retired (the second time), I was wearing the then fashionable three piece suit, beeper and carphone. Funny how things evolve.

I believe strongly in the business ethic, but just as strongly in business as a citizen. I was once the Executive Director of our community's Chamber of Commerce (Nordonia Hills, Ohio) and can tell you that the problems I faced there were more about keeping corporate citizens as good citizens than anything else. Greed has a way of pushing the limits everywhere. So, while on the one hand corporate leadership is a very good thing, there must be a balance in the equation. I knew execs who stayed up all hours of the night to figure out ways of keeping their labor costs down. This translates almost always into ways of screwing the guy building the widget the CEO wants to sell.

Right now I'm very happy to be a simple monk.

Be well.
on May 18, 2006
I have to give a LOT of credit to Brad for my lesson in this area. When the complaints about Halliburton's no compete contracts were being levelled, Brad was quick to point out that Halliburton was the only private industry equipped to do the job. When aircraft carriers were moved off the shore of India in the wake of the tsunami, Brad was quick to point out that those carriers provided what was needed for the community. It's not that much of a leap to realize that CEO's make what they do because they are the only ones equipped to do what is needed to run these companies. As a result, the best way to control skyrocketing CEO salaries is: CREATE MORE SUPPLY by training up our young people with the skills to do the job.
on May 18, 2006

In a world where actors get $25 million to appear in a film, it's hard to see how one can object to CEO salaries.

I can say with some experience that the # of people who can be effective CEOs (especially of large companies) is tiny. T-I-N-Y. 

When I look at just what I have to do and what skills I'm required to have (and what sacrifices I have to make to run my small business) I would have no problem paying myself 10X what someone else makes. 

That my salary isn't 10X what others make is more about reinvesting as much as I can back into the business than any statement of "fairness".

on May 18, 2006

In a world where actors get $25 million to appear in a film, it's hard to see how one can object to CEO salaries.

Outstanding analogy! at best, we get 2 hours of pleasure for that much money.  The CEOs give us a lot more for a lot longer.  The bad ones fade.  The good ones will get richer.  because WE decide to reward them.

on May 19, 2006

In a world where actors get $25 million to appear in a film, it's hard to see how one can object to CEO salaries.

Oh, believe me, Brad, I think actors' salaries are too high as well. Unlike CEO salaries; however, actors' salaries are pretty much artificially inflated. And CEO salaries, while high, are more easily controlled than actors' salaries.

on May 19, 2006
As an Apple lover, I say Steve Jobs is a perfect example of how a single CEO can save a dying company and make it relevant again. I often see on Mac blogs the worry over what'll happen to Apple once he retires.
on May 19, 2006

A good point.

It doesn't take much more than a look at how Apple has turned around since Steve Jobs returned to see how important and rare a good CEO is.

If Apple was a $1 billion corporation when Steve Jobs returned and it is now say a $10 billion corporation, how can one begrudge Steve Jobs having a $100M salary? That's a fantastic return on investment.  If I could have a guy come in and increase the value of something I owned by 10X where 10X = $9 BILLION DOLLARS then paying him a tiny % of that is a bargain.

Heck, when you sell your house, the realestate agent gets 5% of what you sell your home for.  So if you sell your home for $200,000 that realestate agent gets $10,000 of it.

Now, in the case of Apple, in 2001, was valued at around $5 billion.  Today it is worth $53 BILLION.  If Steve Jobs were a realstate agent, he'd collect $2.5 BILLION just as part of his commission let alone other things.

I'd say if Steve Jobs made an annual salary of $500M that Apple was getting him cheap.

on May 20, 2006

Heck, when you sell your house, the realestate agent gets 5% of what you sell your home for.

You only pay 5%?  Damn!  We pay 6%!

on May 23, 2006
CEOs are always on call. Most have to be ready to travel at a moment's notice. Their time is no longer their own. They have to manage the entire business, and are responsible for everything that goes on. Yeah, CEOs should get paid more than the factory workers. They're doing even more work than the factory workers.