Back in 2010, in “MIT failing to meet its race-based hiring quotas“, I wrote the following:
If a professor of a particular sex or race has more value to the school, why shouldn’t he or she be paid more than a white or Asian male?
Companies express unhappiness about the number of female executives on staff. Why don’t they just offer higher salaries to attract and retain women? The Wall Street Journal suggests that this may in fact be happening. From “Though Outnumbered, Female CEOs Earn More Than Male Chiefs”:
… female chief executives at some of the largest U.S. companies repeatedly outearn their male counterparts. Last year, 21 female CEOs received a median compensation package of $13.8 million, compared with the $11.6 million median for 382 male chiefs, according to a Wall Street Journal analysis of S&P 500 leaders who held the job a full year. Women in the corner offices of the biggest U.S. firms made more money than men in six of the last seven years…
Three out of 10 of the highest-paid CEOs are women, two at tech companies (Meg Whitman at HP; Ginni Rometty at IBM).
The option packages are kind of interesting. Ginni Rometty has 10-year options where some are at a strike price of 25 percent above the current IBM stock price. Assuming that IBM’s stock price remains constant, in real dollars, she gets nothing from these options in a static or deflationary environment. If there is a lot of inflation, however, her options will be worth a fortune. (See also the “Profits from Marriage and Child Support Depend Heavily on Inflation Rates” section within the Quirks chapter.)
Readers: What do you think? Does the higher pay of a sought-after category of worker show that the market is working? Or does the higher pay simply reflect that particular women are doing an awesome job (see HP and IBM versus the S&P 500 during Whitman’s and Rometty’s terms as CEO)? Or in a world where salaries are set by golfing buddies on the Board, is it nonsensical to talk about market pay?
“… in a world where salaries are set by golfing buddies on the Board, is it nonsensical to talk about market pay?”
Yep. Best commentary I’ve seen on executive pay is Roger L. Martin, Fixing the Game. Review by Venkatesh Rao.
CEO pay is outside the domain of reason, like the color of bird feathers.
CEOs of large public companies and big parts of the way large companies do business are outside of free market capitalism.
Typical statistical outlier. Average of 21 people in comparison to average of 382 is not valid. Any given year, any random group of 21 will be above or below the total average. Narrative can be fit according to the result.
Abhay #4,
Sample statistics based on random group of 382 gives better confidence that same calculation on random sample of 21 but they are still valid, especially given that population of large publicly traded companies is not very large! Otherwise commonly used random polls of several thousand at most could not be used to predict behavior of hundreds of million of people.