So, by paying high salaries, firms hope to be able to take their pick of managers and get the most competent. However, firms have yet to show that they are able to determine the competent from the incompetent. So, at the moment, most firms are simply paying high salaries to whomever is good at politicking and showing themselves in a good light regardless of actual competence.
Correct. I would go further and argue that paying stratospheric salaries for executives actually reduces the quality of people selected. The number of competitors increases, but the nature of the competition changes dramatically and therefore the selection process becomes a nasty pile of fail. Short-sighted narcissists instead of leaders rise. They elevate like people, and so on, until their worldview completely dominates the corporate sphere.
High-ranking political positions pay a middle-class salary (although the social access these positions offer corrupt this intention) for a reason: people who attain them should be those who want the job and to do the work (in this case, to lead) rather than those seeking the material perks.
Yeah, as the number of applicants increases due to large salaries, the difficulty to figure out which candidates are good increases.
One area that economists often point this out is in education. Many would like teachers to be both paid more and held to a higher standard (when being hired) to get the best teachers. However, as you increase the screening and competition for teaching jobs, the ones with the most alternative options (who are likely the best teachers) will seek jobs elsewhere rather than being subjected to a battery of tests and bureaucracy.
In this case, there aren't as many alternatives since CEO positions are at the top of the pile. Likewise, political positions come with other desired perks - namely power and prestige.
Economics in this area is really hard. If you (or anyone) come up with a better system of screening individuals for positions, the world will be a much better place. Right now, we typically rely on things like resumes, experience, interviews, etc. which don't really give a good picture. For example, someone who worked on impressive thing X might have had a really minor roll in X and someone else who worked on slightly less impressive Y might have been integral to Y, but resumes can sometimes deceive on that. However, both of those candidates can be filtered above someone with no experience. Eh. I really wish I had a good solution to this - and other rating problems. Yelp is nice, but just because many people are rating things doesn't make it accurate - sometimes people get angry over something that isn't the other party's fault and can take out retribution which skews the ratings.
Economics in this area is really hard. If you (or anyone) come up with a better system of screening individuals for positions, the world will be a much better place. Right now, we typically rely on things like resumes, experience, interviews, etc. which don't really give a good picture.
There's a solution, but it's radical: a massive push in the direction of social equality, decoupling one's material well-being and lifestyle (somewhat) from one's job position. Right now, the perks associated with a corporate leadership position are so obscene as to create an incentive for the wrong people not merely to put themselves forward for these positions (which could be attributed to a benign overestimation of one's skill) but to actively manipulate the system.
Obviously, society needs to encourage and reward hard work, but the mainstream corporate approach is seriously broken. Hard jobs should pay more than easier ones, and high-ranking jobs should only be available to those with sufficient experience and knowledge, but the concept of a job title as a reward for previous accomplishments (work for less than you're worth now, maybe be an overcompensated and famous CEO later) has proven itself to be a practical disaster, in addition to the model's ethical problems.
The main reward for a high-power job should be the work itself, so that those who fill the positions are likely to be people who actually want to do the job (and are likely to be good at it) rather than those who want the salaries and status. 95% of Fortune 500 executives are not people who want intrinsically to run companies; they want the perks.
Regarding material rewards, that's a matter of "getting the stakes right"-- not so low as to be insulting (since trivial rewards/costs are less incentive than intrinsic motivations) but not so high as to encourage people to lie about their talents, skills, and work ethics (more than they already do, human nature being what it is).
> 95% of Fortune 500 executives are not people who want intrinsically to run companies; they want the perks.
How about some evidence?
Note that reducing the pay doesn't reduce the status. If status is the only points, who's to say that folks won't continue to play the game?
> Hard jobs should pay more than easier ones, and high-ranking jobs should only be available to those with sufficient experience and knowledge
Who makes the call? Does the facebook kid have sufficient experience and knowledge? Did Bill Gates?
If we reduce pay, that money goes somewhere else. Where and why is that good? (Take pro-athletes as an example. If we limit their salaries, who gets the money?)
How would this work? There would still be a huge incentive for firms to offer higher salaries to get who they wanted to hire.
The main reward for a high-power job should be the work itself
Well, if the work itself is equally rewarding at two firms and one is willing to pay you 10x as much, why shouldn't you go to that firm? Are you proposing some sort of law against compensation about a certain point? Limiting all salaries to $250K per year or something?
decoupling one's material well-being and lifestyle (somewhat) from one's job position
Does this also include decoupling one's material well-being from one's output? To be fair, in the next paragraph you address that saying, "Obviously, society needs to encourage and reward hard work," but who is determining what is hard work in your system? Is this your personal morality? You've decided that certain labor is worth more than other labor and think society should use your values?
high-ranking jobs should only be available to those with sufficient experience and knowledge, but the concept of a job title as a reward for previous accomplishments has proven itself to be a practical disaster, in addition to the model's ethical problems.
Other than previous accomplishments, how else can firms screen people? This isn't just a CEO thing. It's pretty much how all labor works in our system. You've been here for x years and so should be earning more. You did well on project y and so you should get a raise. You've shown an aptitude for z so we're promoting you.
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I'm not trying to tear your argument apart. It's just that there's a reason why "radical" solutions are often not solutions. Often times they might fix one thing while breaking 10 others. The problem we have here is that we can't figure out who is good at being a manager (or any sort of employee). You're arguing for a changed system that doesn't actually address that problem. We still have no idea who to promote. People will still lie about qualifications because people want to be the boss for power reasons in addition to monetary reasons. Would you argue that politicians are such better managers because they're in it for the position rather than the money? I wouldn't say they're inherently worse than business leaders, but I wouldn't say they're a better bunch either.
Likewise, we currently value labor based on market offering. You've suggested a move to the "hardness" of the job being the basis of compensation. What makes a job hard? Is computer programming harder than teaching? What about construction work? It's really subjective.
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Clearly there are problems with the system, but you need to address the root of those problems. How do we accurately measure employee (from the lowest level to the CEO) output value? How do we screen potential applicants for all jobs accurately?
This isn't just a problem at the CEO level. I've seen programmers that couldn't say what a linked list was, but they got past the screening process and coasted on a salary. Likewise, there are CEOs that are doing great jobs managing their companies. This isn't merely a CEO problem, but rather a whole labor problem - it's just more repugnant to us that an incompetent CEO is getting paid millions when compared to an incompetent low-level worker doing nothing.
Correct. I would go further and argue that paying stratospheric salaries for executives actually reduces the quality of people selected. The number of competitors increases, but the nature of the competition changes dramatically and therefore the selection process becomes a nasty pile of fail. Short-sighted narcissists instead of leaders rise. They elevate like people, and so on, until their worldview completely dominates the corporate sphere.
High-ranking political positions pay a middle-class salary (although the social access these positions offer corrupt this intention) for a reason: people who attain them should be those who want the job and to do the work (in this case, to lead) rather than those seeking the material perks.