What is the highest reasonable salary?

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Stormlock
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What is the highest reasonable salary?

Postby Stormlock » Mon Mar 23, 2009 11:08 pm UTC

This came up in the AIG topic and seems to warrant it's own discussion to me. The question is quite easily understood, and I'm obviously not the only person who thinks pro sports players/CEOs/celebrities don't really deserve to make more money than an entire community for undergoing less hardship than say, a restaurant cook. Now, pretty much any number is fairly arbitrary, but I'd say that around 100k a year is probably around the upper limit. And I'd only find that reasonable for the really nasty jobs. Dangerous things like construction, mining/logging, or fishing, or things with a very limited population willing to do them that also require an expensive education, such as a paramedic. (My brother finished school for this recently, I'll be surprised if he can pay off the loans and turn a decent profit before getting burned out with all the horror stories I hear from him.) Management and acting really doesn't deserve to even be in the top 30% I'd say, given that it involves no physical harm in either the short or long term, nor does it require a decade of excessively expensive schooling. Sports can be physically taxing, but given the overwhelming willingness of people to perform the task, I'd say it warrants less than average pay as well.

So, what are your thoughts on the subject?
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ieattime20
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Re: What is the highest reasonable salary?

Postby ieattime20 » Mon Mar 23, 2009 11:15 pm UTC

I'll try to be brief with this and hopefully get to touch on it more later. There is a complication I'd like to bring up and then at least a sort-of, semi-solution I'd like to reference.

When you talk about salaries, are you talking about net income? If I'm mistaken in this, or missing something, please feel free to enlighten me, but in cases where a business is owned privately, there really shouldn't be an upper limit, because that money can and is used to reinvest into the company and to buffer against financial downturns. It's sort of like the economy of scale that necessitates incorporation as something to handle industry on a larger scale. There are things Home Depot can do because of its larger scale that mom-and-pop stores really never could, and part of this is accepting that the corporation (or the private owner, if it's the case) could potentially make, on the books, tremendous amounts of yearly income. It's one of the reasons that, as much as I would like it, I'm sort of against salary/bonus caps.

However, in Nassim Nicholas Taleb's book Fooled by Randomness, shameless plug, the author discusses near the outset that a certain degree of stability of income is correlated with how much of it is 'earned'. To paraphrase an example in his book, whether someone makes $100K on a single round of Russian Roulette in a year or in a year of dental practice makes little difference to the accountant, but clearly one is deserved and the other is not because the former is more dependent on chance, while the latter is more dependent on skill. The degree to which chance affects many, many jobs is in that book, however, and is really surprising.

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Re: What is the highest reasonable salary?

Postby Lemminkainen » Mon Mar 23, 2009 11:18 pm UTC

Salaries usually tend to be a reflection of what a person's labor is worth to somebody or something else, for the simple reason that corporations or individuals won't pay somebody more than the value they believe they will get in return. High salaries simply reflect high value to society. Celebrities and sports stars are paid lots of money because they entertain millions of people and can get knowledge of products our broadly. Pay isn't a reflection of hardship, but of value to society. Of course, sometimes labor prices are artificially high thanks to rent-seeking behaviors. These should be stamped out, but a general salary cap would lead to underproduction of valued labor and general economic inefficiency.

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Re: What is the highest reasonable salary?

Postby Stormlock » Mon Mar 23, 2009 11:48 pm UTC

Celebrities aren't payed that much because they enertain millions of people. Kids on youtube can entertain millions of people. Celebrities are payed that much because even their obscene contracts are peanuts compared to the cost of the advertising itself. (Although it still boggles my mind. I mean, honestly, I could hire a bum off the street to do a better job than half the actors I see in commercials.) And somehow, the writers who are held to the same standards (And, arguably, far more integral in the quality of the comercial or movie or whatever) make far less money.

A perfect example is thus: What would you value the labour of a paramedic at? The guy who can raise you from the dead on your way to the hospital, and routinely has to deal with all manner of disgusting and dangerous jobs involving drunks, dug addicts, crazies, and people with very unfortunate medical conditions. Society apparently values them less than the guy who picks up garbage from the curb and throws it in the back of a truck. Paramedic Garbage collection.

It's pretty much a given that actual value is incredibly distorted by things like unions and lobbyists. People get payed based on a lot of things, not just a reflection of how valued they are. For one things, medical professionals would be a HELL of a lot more valued if they could go on strike without being arrested. It's not like you can just hire some scabs to replace them. Nor is there some massive surplus of them available.
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Re: What is the highest reasonable salary?

Postby Veracious Sole » Tue Mar 24, 2009 12:22 am UTC

The highest a salary should ever be is the highest price that the employer is capable of paying. Really, Why should there be an upper limit on what person makes? If a person finds a way to pull in millions of dollars by sitting on their ass, then they should be allowed to keep that money. It may have been luck, it may have been hard work, but they have managed to secure it somehow. Let them enjoy their riches.

Sports players and entertainers shouldn't be capped either. First of all, it's not exactly a cake walk to become a professional athlete. Second of all, should you become one you now have to work your as off to stay at the same level as the others in your sport. All of whom were chosen because they were damn good at what they do. Finally, it is because of your contribution (or potential contribution) to the team that allows franchise owners to make the obscene amounts of money that they do.
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Durandal
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Re: What is the highest reasonable salary?

Postby Durandal » Tue Mar 24, 2009 12:23 am UTC

With 'being a professional athlete' a serious path I could go down at this point, and knowing many professional athletes personally, I though I might contribute what I know on that particular subject.

Many people seem to find the salaries some athletes receive ridiculous. "Why should they receive so much reward for having fun all day?" they ask.

What people don't seem to realize is that being a professional athlete requires quite a bit more than simply showing up to events on time and putting in the requisite level of performance to keep their contract. The job requires that you wake up at 6:00 am every goddam morning (except the odd Sunday if you're lucky) and train until lunch. After a short break, training resumes until 5-6:00 at which time supper is had, then a cooldown/recovery session extends until around 8:00, after which the athlete has free time until they need to go to sleep in order to wake up at 6:00 am the next morning and do it all again.

I should also add that this isn't mindless work they are doing - this training fucking hurts. For the experience, the team I'm on (speed skater, by the way) tried the national team program on a Saturday, and I've never been in so much pain in my life. Not a single teammate got through that day without throwing up at least twice. Our coach had to cut down the program significantly. And the pain doesn't go away with increased fitness either; it's still there, you just have to have the mental toughness to ignore it.

Long story short, professional athletes deserve the money they get. It's no different for hockey, or football, or soccer. All of them are at the very peak of human performance, and the differences are measured in inches. Slip up even once, hundreds of people are waiting to take your place. You have to push your body right to the very edge ever day. I won't even go into the stresses involved, with thousands expecting you to perform.

Show me another job that requires this of you.

As to my opinions on the topic at hand, I should point out that for every person making $45,000 a year that thinks $100,000 is all anyone should ever need, there's a whole lot of people making even less that think 45K would be too much. CEOs have a stressful life. Their decisions affect the livelihood of thousands of people. They have to be talented and resourceful, able to look into the future and steer the company through it. Not everyone can do the job.

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Re: What is the highest reasonable salary?

Postby ieattime20 » Tue Mar 24, 2009 12:54 am UTC

Durandal wrote:Show me another job that requires this of you.


I've got some factory workers I'd like you to meet....

Granted, their days aren't from 6 a.m. to 8 p.m., more like 7-7, but the labor they do isn't significantly less, and the danger they're in is significantly more, yet even with overtime pay their compensation is orders of magnitude less.

One should not go about this talking about how 'hard' or 'stressful' a job is, because there are people who get paid significantly less than athletes or CEOs whose lives aren't at all less stressful or hard.

The OP is right, athletes are paid what they are because other athletes are paid comparably, and the athletes know they can ask for that much because it is significantly less than money spent on advertising. There is no other reason, and the same applies to CEOs.

The problem (or 'problem') is that compensation isn't determined by the worth of your labor, but by competitiveness and the market (i.e. the income of your employer and your ability to convince them that you're worth that much). I think it is personally a problem, but I'm not sure how to fix it. Anarcho-syndicisms don't really suffer from this kind of thing (since you get direct compensation based on performance and worth, by bartering), but oh man jesus is that another can of worms no one around here wants crawling around.

If I had my druthers, I'd teach people to critically think at very young ages (I believe education is the fundamental solution to most problems) so that they learn to negotiate based on real values and not silly arguments like how big the market is, and learn the importance of constantly renegotiating their wages in a capitalist market. You wouldn't see shareholders giving out Golden Parachutes, people paid for failure, and other problems with the corporate culture. Nor would you need wage caps.

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Re: What is the highest reasonable salary?

Postby ExistentialVigilante » Tue Mar 24, 2009 1:03 am UTC

The highest reasonable salary is the gross production of the entire world.

Salary is determined not by the action performed, but the demand for the action performed by the person(s) paying. (Economics. It works, bitches.)
It is completely conceivable (economically, of course) that every single person on the face of the Earth, through a drug induced haze, commits the entire fruit of their labor toward a man who writes webcomics. As long as they want it that bad, they will pay. If not, Mr. Webcomic will refuse his services and the rest of the world will deal with it.
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Durandal
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Re: What is the highest reasonable salary?

Postby Durandal » Tue Mar 24, 2009 1:36 am UTC

ieattime20 wrote:
Durandal wrote:Show me another job that requires this of you.


I've got some factory workers I'd like you to meet....

Granted, their days aren't from 6 a.m. to 8 p.m., more like 7-7, but the labor they do isn't significantly less, and the danger they're in is significantly more, yet even with overtime pay their compensation is orders of magnitude less.

One should not go about this talking about how 'hard' or 'stressful' a job is, because there are people who get paid significantly less than athletes or CEOs whose lives aren't at all less stressful or hard.

The OP is right, athletes are paid what they are because other athletes are paid comparably, and the athletes know they can ask for that much because it is significantly less than money spent on advertising. There is no other reason, and the same applies to CEOs.

See, you're missing the part where not everyone can be a professional athlete. In fact, there are very few people in the world who can. Just like not everyone is born smart enough to be a M.D., not everyone is born with the heart, lungs, size and circulatory system to be an athlete. Compare this to factory workers, where the vast majority of the population is perfectly capable of performing the job. Also, there is competition from robotics, which do not require pay (except for maintenance) and are far better in most (but not all) cases.

Long story short, high demand + small talent pool = high pay, and conversely low demand + large talent pool = low pay.

I should accentuate the importance of 'high demand'. Certainly, professional speed skaters have a salary that is pitiful by most standards (although this is offset by having the cost of living greatly reduced by their country's government), unless they do something noteworthy, such as win a medal at an international event or set a world record. As well as bonuses (I believe it's around $50,000 for a Gold at the Olympics), sponsorship deals take place for added income.

The way athletes are paid is far different in say, the NHL, where players do not have loyalty to their country of origin to make them stay put. With large amounts of capital to play around with, vast sums of money are offered to get talented players. No team wants to skimp out then have someone step in with a far nicer offer and snap the player up. It is because the franchises have so much money that players get as much as they do; expectations have nothing to do with it.

I assume the same concept may be applied to corporations, where there there runs the risk a CEO can receive a far nicer offer from a rival company and jump ship.

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Re: What is the highest reasonable salary?

Postby Stormlock » Tue Mar 24, 2009 1:50 am UTC

Economics only works in a vacuum. In the real world, we force people who do things like SAVE YOUR FUCKING LIFE to work for whatever we're willing to shell out or jail them because it's convenient. Many professions have this factor applied to them.

In the ideal world of perfect competition, I'd agree that there should be no caps, but competition is unfair since it's, well... competition. If I can spend 50 dollars to insure I only need to pay you 100 dollars instead of just paying you 151, it's in my interests to do so. It also makes me a gigantic asshole who needs to be shot out of a cannon into a mass grave. Such people need not exist to allow the rest of us to be happy.

I'm not really advocating a hard cap on salaries. I mean, there should be some exceptions, since some people really are just extraordinarily rare and special. (Not atheletes. Sorry, but being .1% better than the next 2000 guys in line isn't THAT special. Not when it's a competitive sport that can be won or lost on a bad ref call .1% of the time.) But those people tend not to make the most money right now anyways. I'm just asking what people think is the point at which you're just being an idiot to pay someone that much money.
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Re: What is the highest reasonable salary?

Postby Durandal » Tue Mar 24, 2009 2:05 am UTC

Your comments on athletes I'll let slide (even though managing to get that .1% better is a monumental act of determination [and genetic luck]), but by the sounds of your paramedic example you misunderstand the concept of the talent pool. Being a paramedic is difficult, yes, but not so difficult that the restrictions are ridiculous. There are a lot of people out there who are capable of being one, and most people who become one will do it out of the idealistic notion that they want to save lives rather than for the money.

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Re: What is the highest reasonable salary?

Postby Stormlock » Tue Mar 24, 2009 2:37 am UTC

More people than there are capable of hauling garbage?

Talent pools are also limited by the number of people WILLING to do the job. Lots and lots of people would be willing to do grueling work for a shot at being the best in the world at something even for no pay, certainly at least as many as would be willing to work as a medical professional to save lives. True, only a tiny fraction of them have a shot at success. However, how many people are willing to give up the opportunity to work for 4-8 years while paying out the ass just so they can begin to do a job that pays merely on par with menial labour? And of those people, how many are capable? Not everyone can remember which of a few dozen drugs with names I couldn't begin to pronounce is the only one they must give a person who is 4 degrees below normal body temperature with an irregular pulse and having trouble breathing. Remember the wrong one and he potentially dies and you never work in your profession again. Do this 4 days in a row with 12 hour shifts (Plus overtime you can't refuse if you're needed.) I'd call that a fairly small talent pool. I'd also say there is significantly more demand (You don't really need me to pull up numbers of paramedics vs numbers of professional atheletes do you?)

The fact is, pretty much any medical professional, as well as firefighters, police officers and low level teachers would get payed WAY more money if they were allowed to compete for better wages the way a normal union can. And pro atheletes and CEO's would get payed far less if they weren't being hired by people who spend a normal person's yearly salary to redecorate their office every 3 months to play with so much money a 2% increase in efficiency will cover their entire salary. Of course, a reasonable person might realize that investing that same amount of money in the rest of the company instead of the CEO might achieve the same increase in efficiency.
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Re: What is the highest reasonable salary?

Postby Durandal » Tue Mar 24, 2009 2:52 am UTC

I'm not arguing your points. I'm saying that's how things are. A sort of equilibrium has been established. I'm trying to explain why that equilibrium is how it is. The people that decide who gets enormous amounts of money have that money for a reason - they're very successful with the tactics that they use, and so they invest more money to continue with those tactics.

Also, I'm getting rather sick of you thinking of professional athletes as an upgraded version of jock assholes from high school, not worthy of your respect merely because their accomplishments lie outside the realms of intellectualism.

If you think that teachers and firefighters and co. deserve more money, that's fine. It would be great if they got more money, I'm all for that. But that just isn't how it works, and there are far too many factors that would have to change in order for that not to be the case.

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Re: What is the highest reasonable salary?

Postby Indon » Tue Mar 24, 2009 3:21 am UTC

No government employee makes more than the president.

In AiG's case, they're 80% govt employees. Simple reciprocation puts that ratio at 1.25.

So no employee at an 80% govt-owned company should exceed 125% of the president's salary*.

*-Of course, if a CEO had the choice of not giving themselves millions of dollars for destroying their company, and just letting the economy die, well, I think it safe to say that this is after the fact because otherwise the bailout wouldn't have happened.

Edit: To give a wholly non-facetious answer, I think market forces dictate wages as best we reasonably can, until the government gets involved. And in AiG's case, as well as the case of other badly-run welfare corps, the government is definitely involved.
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Re: What is the highest reasonable salary?

Postby Stormlock » Tue Mar 24, 2009 3:28 am UTC

They can have $100k of my respect, not $10 000k. If you can set a world record maybe 125k. If you can all but single handedly win every game of your sport for a decade and make everyone around you look like a cockroach for the next century, then you deserve $10 000k. Otherwise you're winning the lottery by being the one of the guys that got noticed and happening to play a sport that is popular. They deserve no more respect from me than would one of the top 100 most skilled dog sled racers (Or, hell, Starcraft players) who happened to win 100 million at a casino.
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Re: What is the highest reasonable salary?

Postby Dazmilar » Tue Mar 24, 2009 3:38 am UTC

If we can get off the rich person witch hunt for a second here, the real problem with executive compensation isn't some lack of a sense of fairness or that you're angry somebody has a larger house than you and how dare they. This might work for rousing the rabble, but the problem with some of the compensation for the executives in some of the companies in the news has to do with how that compensation creates and encourages an environment that is risky and bad for business long-term. CEOs that are brought in for a few years to get the stock up in price do not have a long-term stake in the company. If you're being compensated on how well the stock performs over a short period, you're encouraged to get that stock up in whatever way you can without regards to how it might hurt the company or stock in the future. What you should be worried about is, fine, you fix up the credit-default swaps with regulation, the packaging of bad mortgages, whatever your current financial system goblin of the week is, and everything else remains the same. Eventually people will find the next scheme, and work that until you have another bubble and crash.

Before this becomes a back and forth of, "Well I know a few paramedics and they work really hard," "Well I know a minor leaguer and he works really hard," I suggest that you don't really know the pressures and difficulty of any job that you're just reading a description of, and you don't know whatever extra problems go into that job. Celebrities deal with public life and privacy issues that I'd have a hard time quantifying. (How much money is losing x hours of privacy and personal freedom worth?)

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Re: What is the highest reasonable salary?

Postby Stormlock » Tue Mar 24, 2009 3:58 am UTC

Well, considering the number of celebrities that continue to work for years instead of taking their X million dollars and enjoying life, I'm guessing loss of privacy isn't worth THAT much. :roll: If I could get even an extra 20k a year in exchange for having paparazi swarm me any time I went outdoors I'd be thrilled.

I think theres two separate things to rant about here: One is the people who are making money by essentially grifting the general populace (which no longer requires much talent since the internet has made finding marks very easy). The second are people who, while not cheating anyone, have essentially had a massive windfall. The first isn't really anything we're likely to argue over. The second I find unpalatable as well however, particularly when people try to tell me their windfall is well deserved.
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Re: What is the highest reasonable salary?

Postby Dogbert » Tue Mar 24, 2009 4:14 am UTC

I'm seeing a fairly two-sided debate emerging here, with pragmatic economists (demand sets pay) on one side and what I'll call the idealists (because it isn't in effect at the moment) on the other arguing that there should be a hard payroll cap. That's a disturbingly small number of explanations for a field as large as economics. I'm no economist, and I'll never claim to know half as much as many of the other people on this forum, but life has taught me that there is no subject worth discussing that has only two differing viewpoints/explanations. Where's the color, folks? This debate shouldn't be black and white.

I think there are some payrolls that are determined simply by the danger present in the occupation. I hear they'll pay contractors upwards of 150K in Iraq to drive 18-wheelers of supplies around -- a pay rate that's obviously inflated to account for hazard. On another hand, we have professional athletes who do nothing more than entertain, and even if they're damn good at it, the fact remains that they're being paid obscene amounts to entertain. Or CEOs, who have never dug a ditch in their life but did create 3500 jobs in their community. Or we have garbage collectors and taxi drivers and used car salesmen and so on and so forth.

I'd like to submit that each of these payrates were determined independently of each other and as a result were set at current rates for different reasons. A hard cap on pay rate would completely dismiss this fact, and I'm rather uncomfortable with some of the possible fallout that would inevitably trickle down. Or tumble down, as the case would be here in the United States.

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Re: What is the highest reasonable salary?

Postby Dogbert » Tue Mar 24, 2009 4:16 am UTC

Dogbert wrote:I'm seeing...
Spoiler:
a fairly two-sided debate emerging here, with pragmatic economists (demand sets pay) on one side and what I'll call the idealists (because it isn't in effect at the moment) on the other arguing that there should be a hard payroll cap. That's a disturbingly small number of explanations for a field as large as economics. I'm no economist, and I'll never claim to know half as much as many of the other people on this forum, but life has taught me that there is no subject worth discussing that has only two differing viewpoints/explanations. Where's the color, folks? This debate shouldn't be black and white.

I think there are some payrolls that are determined simply by the danger present in the occupation. I hear they'll pay contractors upwards of 150K in Iraq to drive 18-wheelers of supplies around -- a pay rate that's obviously inflated to account for hazard. On another hand, we have professional athletes who do nothing more than entertain, and even if they're damn good at it, the fact remains that they're being paid obscene amounts to entertain. Or CEOs, who have never dug a ditch in their life but did create 3500 jobs in their community. Or we have garbage collectors and taxi drivers and used car salesmen and so on and so forth.

I'd like to submit that each of these payrates were determined independently of each other and as a result were set at current rates for different reasons. A hard cap on pay rate would completely dismiss this fact, and I'm rather uncomfortable with some of the possible fallout that would inevitably trickle down. Or tumble down, as the case would be here in the United States.


Summary: Talent determines pay rate in a world unaffected by human emotion. Throw emotion in, and we have today's world.

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Re: What is the highest reasonable salary?

Postby floodslayer » Tue Mar 24, 2009 4:24 am UTC

I think an important factor to keep in mind here is that the market doesn't seek to pay people what they "deserve". My dad always says that "something is worth what someone else is willing to pay for it." If that someone else is savvy with their money, they'll pay something a bit less that the value added by the employee's services and production. The OP is frustrated over how this "value added" is determined.

Yes, it is true that a quarterback cannot save someone's life or educate a child or (in most cases) even make a decent role model. But if he can sell a million overpriced collectible jerseys and ten million bottles of Coke, that's value added to his franchise. If his endorsement can sell shoes and sports drinks better than that of an actor, that's value added to his endorsers. The research has born out that star players make money, and star players are rare. Sure it's true that some pro sports players sit the bench for 50 million dollar contracts, but that's the value that their (potential) play is worth to their owner.

The argument that these values are distorted by certain extra-market forces is absolutely true. If city X thought all the ambulance drivers or traffic cops would walk out tomorrow, you KNOW they'd be paid a hell of a lot better. If CEOs job were a competition (solely) of business sense and not a collection of social networks and power plays, they might be payed a hell of a lot less. These distortions of the competitive forces are a large part of why the apparent value of some positions is so distant from their compensation, and some people have a vested interest in amplifying these distortions.

If you have a problem with CEO pay, run a corporation with $1 mil salary caps (or go big and throw in the proposed $100 000) and see who comes out of the woodwork to apply. You most likely couldn't attract decent, experienced engineers or middle managers for that. The very fact that you are paying so low will most likely erode any investor confidence, and them's the brakes. If you have a problem with pro-athlete pay, you'll have to address cultural obsession with celebrity images and educate people well enough that they aren't vulnerable to mass marketing.

All that said, I'm not really in disagreement that the pay examples you've highlighted aren't troubling, I think that they are. I have a friend who works for a university putting paper in copy machines. He is EMT-Basic certified, but doesn't work as an EMT because the Uni pays him better and he has better hours. But if your assumption that EMT positions are too difficult and undesirable to be justified by the pay were true, there wouldn't be enough of them. That shortage would up pay, and it would bear out.

I'm not saying civil servants don't deserve more, and I'm glad so many choose the (economically) irrational positions that they do. But if you think they deserve more, you should be working to redefine the notion of added value so that these positions are seen for what they really are ... deserving of higher praise and higher compensation. I'm in favor of this. I'm also in favor of narrowing the wealth gap and possibly even of wealth redistribution, but I don't think salary caps are the way to go ...

Just because I felt like googling, I tacked on a few bits of pay info I found with regards to medical professionals vs pro athletes. I tacked on some coaching info as well, since a lot of college players who pursue sports end up coaching if they fail in the pro sports world.

paramedic (20 years experience): $16/hr
http://www.payscale.com/research/US/Job=Emergency_Medical_Technician_(EMT)_/_Paramedic/Hourly_Rate
university dean of medicine (median): $385 000/yr
http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_ED03000095.html
pro athelete (Tom Brady): ~$6mil in 2007, but the endorsements is where the money is
college coach (NCAA qualifying basketball head coaches): $800 000
http://www.usatoday.com/sports/graphics/basketball_contracts/flash.htm
highschool coach (including teaching): $33 000
http://careers.stateuniversity.com/pages/542/Athletic-Coach.html

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Re: What is the highest reasonable salary?

Postby Cynwulf » Tue Mar 24, 2009 4:43 am UTC

I don't like the idea of actively regulating a person's income. Massive individual rights issues are brought forth. However, I think it is important to see that there is nothing inherently wrong with a person having 'too much' (note this is entirely subjective) income.

With that said, I do believe that the current US financial situation is a total clusterfrak that should have never happened. AIG's actions are symptomatic of the extreme negligence, greed, and unaccountability inherent to the US corporate environment. The fact that the average AIG executive got more compensation than an average person could make in their entire life does not bother me. What does bother me is that AIG executives, after failing at their jobs and running their business into the ground, kept their positions, whined to the US government for money, and then awarded themselves publicly-funded compensation as if they had the best year in company history. That string of utter insanity should have never occurred. This is hardly the brisk, efficient capitalism of Adam Smith; this is stagnant, sloppy corporatism mired in corruption and greed.

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Re: What is the highest reasonable salary?

Postby ieattime20 » Tue Mar 24, 2009 4:52 am UTC

OK, let me break out of snark-mode and do a little bit of careful clarification here.

For one, no, neither I nor the OP (as far as I can see) are
Dazmilar wrote:angry somebody has a larger house than you and how dare they.
Like any good economist, a lot of people are sort of sensitive to what I'll term perceived market inefficiencies, i.e. a gross misallocation of funds that appears to not have been arrived at rationally (for example, by value-added calculations, what I deem the true measure of worth of labor).

My last comment was directed at the idea that the level of performance and hardship that a sports athlete endures is commensurate at all with their pay. The two are at a complete disconnect. Give you an example: Let's pretend all the top 10% of athletes never existed and instead we're 'stuck' with the next 10%, probably significantly worse at playing. Or everyone now was suddenly half or 3/4ths as good at their respective sport. Do you think they'd be paid any less? Hell no, they wouldn't, because as explained simply by essentially being the beneficiary of a selection bias (the top of your sport) you add huge value to a franchise.

A more startling example comes in the case of CEOs. Businesses (and oh my, especially CEOs) will go on for hours about their training courses and their expertise in running a company, without ever at all underlining the idea that, beyond common sense, a gigantic proportion of their 'success' is due to luck, not skill. Market upturns, market downturns, what your competitor does, what the labor unions do, how successful your advertising is on a given day, etc. Further, they're focused, as explained above, on the short-term behavior of their company's stock, because that's what their compensation package is based on, their golden parachute. There are plenty of ways to raise your stock in the moment, such as firing your Blue Sky division (historically, one of the best things for a company's long-term success), which frees up tremendous money and makes you look, to stock traders, like you're 'cleaning house'.

This is where market inefficiency comes in. This is not a compensation based on any real sense of 'value added'. There are thousands of MBAs every year who know the 'basics' and could get lucky just like that, but aren't hired. Plenty of people run successful companies without ever getting one of these 'esoteric, highly specialized, highly competitive' degrees. But what are the stockholders to do? Hire a CEO for a tenth the cost? They wouldn't get anyone because every MBA knows they can get more money elsewhere, and the further reason is that when the stockholders put up that resume their own stock will irrationally and stupidly plummet. Unless there's sudden and pervasive change (like with labor unions), stockholders will continue to be held hostage to their own stocks by, essentially, extortionists and a lunatic market.

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Re: What is the highest reasonable salary?

Postby The Mighty Thesaurus » Tue Mar 24, 2009 4:56 am UTC

Durandal wrote:See, you're missing the part where not everyone can be a professional athlete. In fact, there are very few people in the world who can. Just like not everyone is born smart enough to be a M.D., not everyone is born with the heart, lungs, size and circulatory system to be an athlete. Compare this to factory workers, where the vast majority of the population is perfectly capable of performing the job. Also, there is competition from robotics, which do not require pay (except for maintenance) and are far better in most (but not all) cases.

You are missing the part where M.D.s contribute to society. It doesn't matter how much work athletes put in, their efforts are largely useless to everyone else, and should be rewarded correspondingly.
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Re: What is the highest reasonable salary?

Postby Cynwulf » Tue Mar 24, 2009 5:19 am UTC

The Mighty Thesaurus wrote:
Durandal wrote:See, you're missing the part where not everyone can be a professional athlete. In fact, there are very few people in the world who can. Just like not everyone is born smart enough to be a M.D., not everyone is born with the heart, lungs, size and circulatory system to be an athlete. Compare this to factory workers, where the vast majority of the population is perfectly capable of performing the job. Also, there is competition from robotics, which do not require pay (except for maintenance) and are far better in most (but not all) cases.

You are missing the part where M.D.s contribute to society. It doesn't matter how much work athletes put in, their efforts are largely useless to everyone else, and should be rewarded correspondingly.


Athletes do not contribute directly in the same way that a factory worker might (they do not directly produce something), but they do indirectly produce.

Par exemple: a football game. There are staff for the event, vendors, media folks (newscasters and such), sponsors, etc, all put to work. Additionally, people are entertained by watching athletes. That entertainment translates into relaxation and improved morale, and most likely, an increase in their productivity. Athletes are just as important to society and an economy as artisans or musicians.
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Re: What is the highest reasonable salary?

Postby Dogbert » Tue Mar 24, 2009 5:26 am UTC

The Mighty Thesaurus wrote:You are missing the part where M.D.s contribute to society. It doesn't matter how much work athletes put in, their efforts are largely useless to everyone else, and should be rewarded correspondingly.


Just to throw a wrench in this discussion, how do we determine utility? Seems to me that a lot of people determine self-worth on things unrelated to their performance and/or overall 'value' to their community. Doctors committing suicide, paramedics quitting because of depression, garbage carriers feeling useless, you get the picture. Since that's the case, anything that counteracts this depression is intrinsically valuable and does, in fact, help communities grow and prosper. Ergo, entertainment services a common need. When it does so for a large number of people, one can justify a greater renumeration.

We're humans, people. That means we need more than just food and shelter to survive happily, and it also means that we are willing to pay anyone that can reliably twerk our emotions.

EDIT: Ninja'ed by Cynwulf.

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Re: What is the highest reasonable salary?

Postby Stormlock » Tue Mar 24, 2009 9:19 am UTC

ieattime20 wrote:OK, let me break out of snark-mode and do a little bit of careful clarification here.

For one, no, neither I nor the OP (as far as I can see) are
Dazmilar wrote:angry somebody has a larger house than you and how dare they.
Like any good economist, a lot of people are sort of sensitive to what I'll term perceived market inefficiencies, i.e. a gross misallocation of funds that appears to not have been arrived at rationally (for example, by value-added calculations, what I deem the true measure of worth of labor).



Thank you. I can be very bad at communicating my position sometimes. Although my anger (a bit strong of a term perhaps) has a bit of a different source, namely that the people spending this money and justifying (In the sense that they are making it worthwhile, not explaining why it is so) it seem staggeringly stupid. I'm certainly no economist myself, but one doesn't need to be a doctor to realize gushing blood is bad.

It aggravates me additionally because I cannot think of a solution, or indeed, even anything that would work towards a solution, short of catastrophic destruction of the top 10% or so of the wealthy people in the world. Then maybe it could be built back up in a more sensible fashion (but probably not). The concept of trying to re-educate essentially the entire world is staggeringly impossible to begin with, and when you add to that the fact that people with a lot of influence already have a very vested interest in making things slide the other way, well, RAWR.

I mentioned before that some of these overpaid people are grifting people while others essentially have a windfall, but there is overlap too. Therein lies the problem; people grifting massive sums of money create these windfall opportunities for others in the process, and therefore will increase the wealth gap not only by the margin of their own success, but additionally by the margin of those lucky people they pull up along with them.

I generally attribute the root of this problem to advertising- an artifact of capitalism that really should be entirely unfeasible. But because it is not only feasible to add value to your product by duping people, but it is, by and large, the most feasible way to add value, advertising is worth astronomical amounts of money. If Pepsi had nothing more than it's name labeled on it's cans while Coke retained all of it's advertising, Pepsi wouldn't be worth it's recycling deposit. EVERYONE would drink Coke instead. Therefore, advertising is essentially more valuable than the product it supports. Combined with the absolutely massive industries common in the modern world and the fact that a relatively minscule number of people are required to create the advertising, and you get essentially random people worth hundreds of millions of dollars. Additionally, the effectiveness of advertising completely destroys fair competition in any venue it can be applied, from art and culture to law and politics. The true value of anything no longer matters in the face of what it will be percieved to be through the lens of the media. That probably deserves it's own topic though.

My point about advertising here is mostly that I understand the 'why' of most of the unreasonable salaries floating around. I was more intending a discussion about what is the most sensibly valuable profession out there, and how much we should really value it. I'd personally value scientific progress the most I think, because it is the most valuable to society- from a purely empirical point of view, inventing, say, the mercury thermometer has increased the productivity of the human race by more than pretty much anything else one could do individually outside of invention. Law making (Which I consider a part of governance) could also be capable of such massive benefits. Although, it is quite difficult to value either of these things realistically because there benefits (Or horrific drawbacks) are often only clear in hindsight. Still, I think it would make sense to create an immense amount of competition for these jobs, at least in an ideal world where the people who would get the jobs were selected by true ability rather than by a warped image of their talents as is the case in our current political situation, where there already is an immense amount of competition and media interference in said competition.

In short, I think people writing laws and inventing things should recieve the highest salaries of all. Putting a specific figure on it seems silly in retrospect; changing what the most highly paid people get paid would warp the rest of the economy so much numbers would be nigh impossible to truly measure anyways. The next highest salaries in the world would go to the most talented people in the world despite their relative lack of any long term value, and then to jobs that are either of great benefit to society or which require the greatest sacrifice of either time or safety, or some other intangible.
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Re: What is the highest reasonable salary?

Postby phonon266737 » Tue Mar 24, 2009 11:59 am UTC

There are a lot of poor people in this world (6+ Billion or so).
Poor people tend to not give their money away, they can hardly afford to live
If someone (for any reason) becomes popular and just 1% of poor people decide they want to give you a dollar, you have a decent (really nice) salary. But there is a fine line between "I would pay to go see that guy do XXX" and not. Thus why professional athletes, celebrities, etc, make so much: the common person WANTS to give them a little money. I work in a lab - billions of poor people don't want to give me any money.

Sure, these celebrities and athletes make a lot. But it is not one single person who decides they make that much money: it's a huge body of supporters. What, do you want to tell people "no, you CAN'T go to see that football game / movie, the players/actors are making too much"

Should we ban collective monetary pools to do anything? If too many people agree on buying something, I guess we have to write a law to ban it, raise taxes, and then write a spending bill to use that money elsewhere?

It would be really awesome if everyone decided "hey, I like my Doctor. I'll pay him $1000 a year, even if I don't get sick" Wait.. people do that!!, but the health care/insurance system makes the money dissapear or something. But that's another topic.

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Re: What is the highest reasonable salary?

Postby Azrael » Tue Mar 24, 2009 12:10 pm UTC

This thread has veered off into the realm of unsupported bickering.

That will stop.

Now.

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Re: What is the highest reasonable salary?

Postby wisty » Tue Mar 24, 2009 1:19 pm UTC

A lot of the best companies have low-paid CEOs. Not just the joke $1 salaries (like Steve Jobs), but the $1 million dollar salaries in places like Toyota. Toyota is not a bad company, or so I hear.

Warren Buffet knows a bit about business, and he is often disgusted at executive pay and perks. An executive remuneration consultant (who knows which side of the bread is buttered) is selected by the company (read, CEO) to find a competitive pay. The consultant then recommends that the CEO gets paid more than average. Every company (read, CEO) wants to pay above average, so salaries just skyrocket. The board of directors (who are often buddies of the CEO) then rubber stamps the salary. It's considered *extremely* bad form for a board to sack a CEO, even if the CEO underperformed.

Why does the CEO need to be highly paid? Can't they hire from within the ranks? If the old CEO doesn't transfer skills, and groom assistants / successors, then it's probably a company going down the tubes anyway. A company that doesn't develop it's people has issues.

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Re: What is the highest reasonable salary?

Postby Zamfir » Tue Mar 24, 2009 2:09 pm UTC

Besides Wisty's "CEO game the system" explanation, which i probably very true, I alos like the "tournament pay" explanation for CEO pay.

Instead of raising salary for 10 middle managers by 10,000, you can also increase their salaries by 5000, increase their boss's by 30,000, and suggest that if they work hard they can be boss. Apply the same trick for the bosses, and the bosses' bosses, etc., and you end up with a system where the top is paid a fortune not because they are worth it, but because it encourages lower managers to work hard just to get a shot at being the top.

This explains a lot of the difference with Japan, where CEOs are, if anything, in even stronger positions to game the system. But Toyota managers won't and can't leave the company to become manager at Honda, so the need for a tournament pay system is less.

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Re: What is the highest reasonable salary?

Postby Ixtellor » Tue Mar 24, 2009 7:29 pm UTC

1) Whatever the market will bear.

2) The problem with CEO pay is the boards. The boards are just yes men who rubber stamp things, instead of looking out for shareholders and the companies long term interests.

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Re: What is the highest reasonable salary?

Postby Indon » Wed Mar 25, 2009 12:34 am UTC

Ixtellor wrote:2) The problem with CEO pay is the boards. The boards are just yes men who rubber stamp things, instead of looking out for shareholders and the companies long term interests.


But if you can just bail on a stock in favor of a more profitable stock, why would looking out for a shareholder at all entail long-term concerns?
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Re: What is the highest reasonable salary?

Postby Stormlock » Wed Mar 25, 2009 12:37 am UTC

Because bailing on the stock after the bubble bursts doesn't help you. If one were interested in the long term, there would be less risk of that, and therefore safer growth for the shareholder.
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Re: What is the highest reasonable salary?

Postby Indon » Wed Mar 25, 2009 12:43 am UTC

Stormlock wrote:Because bailing on the stock after the bubble bursts doesn't help you.


But it only hurts the last people to own the stock.

It's like a game of "Chicken".
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Re: What is the highest reasonable salary?

Postby wisty » Wed Mar 25, 2009 12:43 pm UTC

A low Gini coefficient is bad, because people have no incentives.

But a high Gini coefficient is also bad, because the stakes are too high. People lie and cheat, corruption sets it, etc. The USA is a little high, by most standards.

A difference in 20x between the top and bottom in an organization is a good incentive, but it doesn't encourage ridiculous political games to get to the top. Some successful companies run along those lines.

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Re: What is the highest reasonable salary?

Postby Zamfir » Wed Mar 25, 2009 4:33 pm UTC

wisty wrote:A difference in 20x between the top and bottom in an organization is a good incentive, but it doesn't encourage ridiculous political games to get to the top. Some successful companies run along those lines.


On hte other hand, people are willing to play political games to get to the top even if there is no extra pay at all. Look at politicians for example.

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Re: What is the highest reasonable salary?

Postby sikyon » Wed Mar 25, 2009 5:28 pm UTC

The highest reasonable salary is uncapped.

A person's worth is not a determination of their skill * effort.

You only need to run faster than the slowest person to escape the dragon.

Frankly what executives are paid IS what their worth is. You want the best executives, you pay them that much. If you don't, then someone else will and they will move. Because these people are the decision makers, the people who control the company, etc.

For example, take AIG bonuses. If people don't get those bonuses, then they may move out. Head to other companies. Then AIG will collapse, for sure. So the government can spend a bailout on nothing, or a bailout in which part of it is used as retention for the best and brightest.

Because, remember, you are not just losing the best people by not paying them the most. You are allowing competitors to get them too. And then they will turn around and crush you.

If you are the last one standing, then your value is infact infinite. So potential rewards of the best CEO's are massive.

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Re: What is the highest reasonable salary?

Postby floodslayer » Wed Mar 25, 2009 6:09 pm UTC

sikyon wrote:Frankly what executives are paid IS what their worth is. You want the best executives, you pay them that much. If you don't, then someone else will and they will move. Because these people are the decision makers, the people who control the company, etc.

For example, take AIG bonuses. If people don't get those bonuses, then they may move out. Head to other companies. Then AIG will collapse, for sure. So the government can spend a bailout on nothing, or a bailout in which part of it is used as retention for the best and brightest.


This ignores the possibility that some people who make it to the CEO level aren't actually the sharpest business(wo)men. It's certainly an extremely selective field and most people who get to that level are most likely pretty sharp. But if you're the Chief Executive that means that you take total responsibility. Once you make it to the point where you take home tens of millions a year (without bonuses) you shouldn't just have to show up to keep your job. You should be doing it damn well. If you have a year where you do fucking damn well, maybe you take home some extra. But if you run your company into the ground to the point that it is about to go bust, you shouldn't get a reward. When we step past the class warfare aspects, this is where people have a legitimate gripe with executive compensation.

A system that rewards failure of a magnitude few people can fully comprehend by giving those in charge more money than god is broken.

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Re: What is the highest reasonable salary?

Postby ieattime20 » Wed Mar 25, 2009 6:18 pm UTC

floodslayer wrote:A system that rewards failure of a magnitude few people can fully comprehend by giving those in charge more money than god is broken.


But you know what the reply will be. "If we don't put those compensation bonuses in the contract for our CEO, we won't hire a good CEO, since other people will."

This is where I will say that explanations are different than justifications.

Further, the idea that a CEO gets paid what he/she does in order to be the best in their field is patently ridiculous. I don't doubt these people are smart, but as I've said elsewhere, the degree to which they personally delude themselves (being human beings) into thinking that luck doesn't play a role is sort of staggering. The degree to which luck plays a role is grossly underestimated. How much would you pay someone to go to Vegas with your money and gamble it? Are you sure that's a particularly poor example?

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Re: What is the highest reasonable salary?

Postby Stormlock » Wed Mar 25, 2009 7:51 pm UTC

sikyon wrote:The highest reasonable salary is uncapped.

A person's worth is not a determination of their skill * effort.

You only need to run faster than the slowest person to escape the dragon.

Frankly what executives are paid IS what their worth is. You want the best executives, you pay them that much. If you don't, then someone else will and they will move. Because these people are the decision makers, the people who control the company, etc.

For example, take AIG bonuses. If people don't get those bonuses, then they may move out. Head to other companies. Then AIG will collapse, for sure. So the government can spend a bailout on nothing, or a bailout in which part of it is used as retention for the best and brightest.

Because, remember, you are not just losing the best people by not paying them the most. You are allowing competitors to get them too. And then they will turn around and crush you.

If you are the last one standing, then your value is infact infinite. So potential rewards of the best CEO's are massive.


This promotes the idea that when faced with a dragon, you should stab everyone near you trying to fight the dragon and run the fuck away. Because you don't need to be a better runner to outrun someone, you just have to be willing to take unfair and/or illegal measures in your own interest. This is like arguing that a sportsman who takes illegal drugs and beats everyone else is a more valuable player. This is a very one dimensional way of looking at it.

A person should be valued on what they can provide, not what they can do relative to those they compete with. (And not even directly relative at that.)
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