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Author Topic: Differences in labeling economic actors?
Ben
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I just saw someone commenting on Facebook about how there's a lot of chatter from Occupy Wall Street protestors and supporters against CEOs and large financial corporations, businesses, and others; but these same people aren't saying anything bad against celebrities and the entertainment industry, which also rakes in the big money. Made me think a bit about what is really the difference between Oprah and the CEO of Goldman-Sachs in terms of income, besides the magnitude? What do you think?

Also, this brought to mind a question I had at the time about the bailouts of certain firms on Wall Street. What makes a company "too big to fail" and how is the economic impact of such a company different from that of a monopoly? If such a company was allowed to fail and would take out such a large section of our economy, why is that company allowed to have such an influence? I realize that such terms as I am using may be incorrect and am looking to learn what I can here, although I am already aware of the different uses to which the label of monopoly has been applied from small to large businesses and also associations.

And why aren't unions considered a monopoly on specialized labor? What makes a union different from a monopoly in terms of companies being customers of the union's specialized labor?

I know I'm inviting thread derails all over the place with these topics, and though I'm interested in these too, I'm hoping to learn a bit about what really makes a difference, if any, in the labels and roles I've asked about, and possibly others I haven't thought about yet.

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LoverOfJoy
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I think people typically are upset with CEOs making gobs of money for a couple of reasons.

1. They think of CEOs as not doing any work that actually brings in profits.
2. If the company fails, the CEOs still make gobs of money while the actual workers get laid off.

For celebrities, (1) people see them as actually doing all the work while publishers and media conglomerates taking more than their fair share of the profits.

and (2) if the musician/actor/etc. does poorly at his job it's going to affect his pocketbook. Either he gets a percentage of the profits so if the movie bombs he gets little to nothing. Or he gets some lump sum regardless of the success of the product BUT...if the product fails he'll be unable to command such a high wage for the next product.

So if Halle Berry gets X million for a movie that sucks in large part due to her poor performance, she will be unable to negotiate X million for her next movie.

I think most people aren't offended by talented people making money. They are offended by people making profit off the backs of others who are underpaid and then continuing to make profit after damaging the company.

If word came out that Oprah was paying all her employees minimum wage or laid off half her staff when her failed idea for a Christmas sing-along album brought Harpo into the red you'd likely see more people protesting against Oprah.

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Pyrtolin
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Even more to the point here, CEO's, except for a small handful that stand up for responsible corporate behavior, tend to get paid better for putting people out of work and cutting wages. And if they do a really bad job, they get a huge bonus to hold them over a year or so, if that, until they can land an even higher paying job elsewhere.

http://www.commondreams.org/views01/0417-04.htm
http://www.dailyfinance.com/2009/04/03/pay-for-performnce-try-pay-for-failure-ceos-paid-millions-to/

In as much as media personalties make large incomes, at least that can be viewed as them commanding a proportion of the revenue they bring in (but there certainly are complaints about the levels of money that they command, but that gets closer to subjective issues of personally valuing a certain kind of entertainment.)

I can't find the exact passage, but Adam Smith said something to the effect of: A person who acts as a steward for the land of another will not tend it well. Since his duty is to maximize immediate revenue for his employer, he will see to do that, even when it is not the best long term decision for the health of the land or well-being of the tenants. The moral and forward thinking elements of such management are discouraged by that arrangement.

He saw the problem in the corporate structures of his time, and it's exactly what we see happening now as well in corporate entities where profits are given more priority than good business.

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Grant
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Basically what it comes down to is that CEOs are "employers".

Oprah is probably an employer as well, but honestly I feel that Oprah could probably own slaves and get away with it.

Most celebrities are paid only for their talent/skill. They are paid purely for their production. That includes movie stars and athletes.

CEOs are paid because they are management. They do not actually produce much, the skills they are paid for is organizational and visionary.

Tom Cruise is paid more than everybody else involved in the movie, including management (the director, etc) because he has effectively argued that HE is the most responsible for the success or failure of the movie.

Alex Rodriguez gets paid more then anybody else on the Yankees, including management (the General Manager, Manager, etc) because presumably he has proven that HE is more responsible for the success or failure of the team then anybody else.

The CEO of General Motors presumably makes more money then anybody else in GM because presumably he has proven that HE has a bigger responsibilty for the success or failure of the company then anyone else.

I don't know how much money the CEO of General Motors makes as compared to a guy/girl who works on the assembly line. I'm not sure how much money Tom Cruise makes on a movie as compared to the main cameraman. I do know that the gap has been widening. "Talent" keeps getting paid more and more a share of the profits because they are seen as the prime movers and they are highly competed over and are being highly incentivized. Eventually the cameramen and the assembly workers are going to get pissed, cause the division of labor really hasn't changed, but they keep getting a smaller and smaller piece of pie.

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Pyrtolin
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quote:
Eventually the cameramen and the assembly workers are going to get pissed, cause the division of labor really hasn't changed, but they keep getting a smaller and smaller piece of pie.
And, especially for the assembly line worker, they're actually turning out more products and creating more revenue, but they're not making proportionately more income. Some of them might even be at risk of being laid off because efficiency has improved to the point where less workers are needed to saturate demand.
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Grant
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"And, especially for the assembly line worker, they're actually turning out more products"

That's a good point.

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Pyrtolin
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But, and this is the kicker, they have to buy up all of those extra products, or they lose their jobs even faster. But since they're not being paid in proportion to the products produced, they've got to use debt instead. Which the CEO gladly offers them as a way to "invest" his extra profits.
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Ben
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Pyrtolin,

That about the CEOs earning extra even if companies don't do well, as paid employees make poor stewards, is a good point. What would be a better approach to make sure such leaders are also careful stewards for the future of the company? I'd think some type of equity or ownership in the company whose benefits pay out later based on the long term performance of the company would work as a good incentive, but stocks and shares can be manipulated whatever the rules are about that. I could suggest part of the compensation a CEO gets be based on a payout to be paid x years after each year the CEO has been working for the company, based on the overall average value of the company over these x years after, or something... I'm not in charge of a company though so I can't try it out. Any companies do something like this? One downside'd be that people like to be paid now, not years later... and I'd imagine tax issues would complicate this further.

Now I'm wondering if there's a relationship between these CEOs having short term goals and the "too big to fail" problem of bailouts that can be minimized to some degree by requiring long term approaches. This doesn't answer my questions about the companies still having an oversize negative effect on the economy if they were to fail. Is the danger or importance overhyped, or is this more cronyism, where politicians are bought out by corporations and the politicians and bureaucracy ignores the negative effects of the companies and help prop up them in tough times in exchange for election support? I'm looking at both sides of the political spectrum here, so let's not get stuck on which party supports which companies supports which parties, but the actual influence of the companies on the economy, if they were to fail or even if not.

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Pyrtolin
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quote:
I'd imagine tax issues would complicate this further.
Taxes actually used to be one of the checks on this kind of thing. higher rates on high levels of income make it less appealing to be compensated huge amounts all at once, instead making long term equity (cashed in in small increments over time) more appealing as a form of compensation. A real invisible hand situation- the best long term individual return becomes ensuring the long term health of the company, as well as promoting overall economic growth at the same time so the company can continue to provide you a solid income under the higher thresholds for a long time.
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