could be worse = A-OK
Yesterday Kevin Drum quoted a ridiculous excerpt from the Weekly Standard in which Irwin Stelzer frets about CEOs' solidly middle-class-ish income when compared to the titans of Wall Street.
Hilarious as that sentiment is, it may actually be part of a trend. We've had the May issue of Forbes kicking around the office (don't ask me why), and they have a feature on compensation that begins like this:
TOP GUNS
Think chief executives get fat paychecks? People who manage piles of money do much better.If you fret about the outsize paychecks of America's chief executives, take a look at the kingpins who run private equity and hedge funds. Reaping the rewards of percentage fees, the 20 top Wall Street fund managers earned an average $658 million in 2006 versus $145 million for the 20 highest-paid chief executives. It's almost enough to think the chiefs ought to ask for a raise.
James Simons, who owns an estimates 40% of Renaissance Technologies, sits atop our list with earnings of $1.5 billion. That's $850 million more than the top-earning chief executive, Apple's Steve Jobs.
It concludes like so:
Ever since the days of Cornelius Vanderbilt Wall Street has been a good place to build net worth. There are 16 billionaires on our list of top Wall Street earners but just 4 among the 20 best-paid chief executives.
Those poor fucking guys! And with the rising cost of fuel, do you have any idea how expensive it's becoming to fly the kids to soccer practice on your private jet? That flat tax can't get here soon enough.
Okay, so hedge fund managers are obviously overcompensated. But who cares? The victims of their outsize paychecks are primarily other elites, who simply get a worse return on their investment than they otherwise might. They can take their business elsewhere if they're bothered by this arrangement. But when a company's resources are unjustifiably directed toward the top, many of the people who are negatively affected are typically powerless to do anything about it. That's the problem. CEO whining about how Billy's mom lets him stay up late (on his own private island) is unlikely to convince anyone.
All of which reminds me: I still need to see 28 Weeks Later.
Comments
A private island is an intriguing subject of envy, but apparently CEOs may not be good parents. What a shocker.
I don't really understand economics but my heart tells me that those gaylords on wall street are _somehow_ benefiting at the expense of us little guys.
That sound you hear is the million Chets up here smirking simultaneously. Overcompensated HF managers affect you. A simplistic example: when they take company X private, which you hold shares in, every dollar that goes to compensating them is a dollar that could have otherwise paid you for your share.
Also, all the HF guys are out in Greenwich, CT. Us shclubs here on Wall Street are just pushing around sheets of paper.
Your simplistic example assumes (i) that hedge fund managers did nothing to add value to the company during the term of their ownership (i.e., the value was already in the company, but only the hedge fund managers noticed it) and (ii) the market was so inefficient as to not incorporate that preexisting value into the price of the stock. That could be possible at the margins, but it can't be the whole story.
The recent focus of ire is on the taxation of carried interests.
I'm not arguing that HF folks' overcompensation is a good thing -- just that its negative aspects primarily affect investors. Although this has implications for anyone with a retirement fund, it predominantly impacts the relatively well-off -- unlike executive compensation, which can more directly affect low-wage workers and consumers.