I've heard a counter-argument to this before and I'm curious to get other's take on it.
Basically, the story goes that when an individual rises into a significant leadership position at a large enough company that the economic calculations become different. There's still an element of domain expertise, but, for the most part, leadership is leadership wherever you go. This implies that a leader could (potentially) move across sectors and still be effective which results in a wider pool of companies that are interested in competing for this person when contrasted to the ICs. Since some sectors are very profitable they end up "bidding up" quality leadership. The combination of this effect along with the fact there are objectively fewer CEOs than ICs results in a mismatch in salaries.
I think there's an element of truth to this, but probably not to the extent that it justifies the widening pay gaps everywhere?
Though this argument falls apart with evidence that CEOs of big firms do need to deeply understand their companies domain. It may work to a degree, but doesn’t seem to coincide with the most valuable companies.
It’s why when Intel was floundering a few years back they got rid of CEO and brought on a CEO with deep engineering expertise.
Tim Cook is a wizard of supply chain, and in many ways that’s a large part of Apples current success, IMHO. The list goes on.
How is that a counter example? Seems like another example of “professional managers” coming in and screwing up a company.
The first Boeing CEOs were from Boeing and were steeped in Boeings engineering culture and valued that expertise. Later CEOs like you mentioned didn’t. Boeing also acquired McDonnell Douglas, and many thought it was great that Boeing got to keep all McDD’s “experienced” managers.
>Tim Cook is a wizard of supply chain, and in many ways that’s a large part of Apples current success, IMHO. The list goes on.
Okay but don't many other companies deal with supply chains? I guess software companies don't, but "companies that trade in physical goods" is a pretty big segment, and it stands to reason that having "a wizard of supply chain" would be useful. Doesn't this translate into an argument in favor of "leadership is leadership wherever you go"?
I’d like to see one of these guys use their magic leadership mojo to lead a platoon of marines into battle. I think he’d find that domain knowledge does, in fact, matter.
To the extent that it truly doesn’t matter, the ceo is a glorified mascot.
Not all CEOs are built the same. Only a minority are able to cross industries successfully, the majority fail miserably. This is because elements that drives success are different between industries. Most of the time, if the CEO is successful one way in one industry, he/she would pursue the same path in another industry, without acknowledging that the second industry is different. What's worse if when they bring their previously successful team. Now you've got a bunch of people doing more the wrong things at the same time.
> Only a minority are able to cross industries successfully, the majority fail miserably.
Now analyze that a little deeper: How do we know they were successful before they tried to cross industries? Solely because the company they were CEO of did well while they were CEO?
Absent a fairly egregious set of drastic changes (eg, Musk's Twitter), the success or failure of a company is both much more complicated than the contributions of any one person, including the CEO, and a trailing indicator. It is very easy for a CEO to make changes that will not be fully felt—for better or for worse—for years after they "step down to spend more time with their families".
We do not have good metrics for successful leadership. We just don't. And despite this, we have whole subcultures that have grown up around the idea that these people, who are often actively detrimental to the organizations they manage, are geniuses singularly responsible for the company's many-million-dollar (or even many-billion-dollar) profits.
It's more likely that it is the only role that tends to be in the room when the board is deciding salaries. Turns out it's great to be able to decide how much your own compensation should be.
HR people and accountants also have the same sort of domain independence. Their salary has not particularly risen faster than the average worker salary.
I think the whole thing falls apart when you get to the point of a CEO making so much money, regardless of their performance, that they can just retire after a single year.
So what if I don't get my contract renewed if I have $50 Million, that's more than most people make in their entire lives. See you at the beach!
A counter consideration I’ve heard is that they have to pay more to keep them off the beach! If the board thinks Turskarama is the best leader for the org, then they have to pay enough to keep you off the beach. Which could be absurd amounts of money.
The problem is that that amount of money doesn't exist, I simply do not desire a lifestyle that costs me more than maybe a couple hundred thousand a year, tops.
At some point sure maybe I can work for a couple of years and I will earn enough to buy myself a super yacht... but I don't want a super yacht as much as I want to not work.
It's very funny to me that people make the argument against raising welfare that there will be no incentive to find work, yet somehow they think this same argument can't apply to the super rich who can retire with a lot of money instead of struggling along on a subsistence income.
I think the MBA mantra that specific product expertise is not important: a widget is a widget, died with Jack Welch and Carly Fiorina (her career). Its still around but not nearly as much as 15-20 years ago.
Basically, the story goes that when an individual rises into a significant leadership position at a large enough company that the economic calculations become different. There's still an element of domain expertise, but, for the most part, leadership is leadership wherever you go. This implies that a leader could (potentially) move across sectors and still be effective which results in a wider pool of companies that are interested in competing for this person when contrasted to the ICs. Since some sectors are very profitable they end up "bidding up" quality leadership. The combination of this effect along with the fact there are objectively fewer CEOs than ICs results in a mismatch in salaries.
I think there's an element of truth to this, but probably not to the extent that it justifies the widening pay gaps everywhere?