CEO Pay Gaps, Should I Quit My Job to Start My Own Business? and Why Community Colleges Matter

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Speaker 2 Welcome to Office Hours with Prov G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind.
What's happening?

Speaker 2 Just a reminder: you can now catch office hours every Monday and Friday. That's right, every Monday and Friday, bookends of the week.
Feeling a little exposed, a little insecure.

Speaker 2 If you'd like to submit a question for next time,

Speaker 2 you can send a voice recording to officehours at profitmedia.com.

Speaker 2 Again, that's officehours at profitmedia.com, or post a question on the Galloway Sky Gallery subreddit, and we just might feature it in our next episode. What a thrill! Question number one.

Speaker 2 Our first question comes from Elle from Pennsylvania on Reddit.

Speaker 3 They ask

Speaker 2 in in 2024, median CEO pay rose 9.7% to $17.1 million. Median employee raise rose 1.7% to $85,000.
That's roughly a 200 to 1 ratio in CEO earnings to employee earnings.

Speaker 2 In the 60s and 70s, presumably a time where MAGA thought America was great, it was much closer to 20 or 30 to 1 per the Economic Policy Institute.

Speaker 2 Seeing stuff like this and hearing working class Americans more concerned with identity politics than the massive disparity in compensation between wealthy executives and the working class drives me insane.

Speaker 2 What can we do to make this issue more well known and understood additionally? And what can we do to address this disparity in earnings? Love your show and opinions.

Speaker 2 Been sharing your content with a lot of folks. Thanks, L from PA.
So, well, look, we're brothers from another mother. We're cut from the same cloth, birds of a feather.
I think it's insane.

Speaker 2 I think income inequality. My entire investment strategy is pretty much income inequality.
I'm like, okay, certain companies have more access to cheaper capital and are running away with it.

Speaker 2 I only invest in companies that I see see are probably either a monopoly or some sort of strange left-for-dead company that might offer a 10 or 20x return.

Speaker 2 And also, I've been buying a lot of real estate in very kind of tony areas, London, Palm Beach, Aspen, and New York, because I think that essentially really, really wealthy people are the most boring or homogenous people in the world.

Speaker 2 And they only live in one of five places, Dubai, London, Palm Beach, New York, or Aspen. But it's insane.
And part of it is CEO compensation.

Speaker 2 And first, let me tell you how it happens and two, what I think we should do about it. Okay.

Speaker 2 What happens? I've served on the compensation committee of boards that decide the compensation for the CEO.

Speaker 2 And this is very sensitive because obviously the CEO is usually there for money and knows what his or her buddies are making as CEO of the competitor. And they're very sensitive about it.

Speaker 2 And it's taken them a long time and they're very talented to get to the Iron Throne and they want to get paid really well.

Speaker 2 And also, compensation committee members don't like to actually do any real work. So we hire this firm called Towers Perrin or another compensation consultant.

Speaker 2 And the compensation consultant comes in with the following, a bunch of data on say you're running, say you're on the board of the New York Times. I think I was on the compensation committee there.

Speaker 2 I don't know. Anyways, they bring in a bunch of data that says, okay, this is a $5 billion media company.
$5 billion media companies. Here's the range.
Here's the lowest paid CEO.

Speaker 2 Here's the highest paid CEO of a $5 billion media company. And then the CEO will try and stuff in new media companies because those compensation levels are much higher, right?

Speaker 2 The CEO's vested interest is to get a consultancy that will show that the market is paying people a shit ton of money and he or she usually gets to decide who they hire and so it's a bit of a racket it's a bit of an inside job and this is what happens at the 50% level that's where the average CEO of a $5 billion media company, that's what their compensation is.

Speaker 2 And psychologically, what happens is the following.

Speaker 2 Despite the fact that the average pay of a CEO of a $5 billion media company is really great compensation, we think, well, Janet Robinson, who was our CEO at the time, is trying hard and she's smart and we want to send a good signal and keep her motivated.

Speaker 2 So despite the fact that she's a fairly mediocre CEO, in my view, at the time,

Speaker 2 and shooting everyone who potentially could be the next CEO because of her insecurity, that's a sign of a bad CEO.

Speaker 2 We're going to pay her at 60%, not at 50%. And you think, well, that's no big deal.
Pay them slightly above average.

Speaker 2 But if you're paying someone 20% more than average, that means every three and a half years, you're doubling their compensation relative to the average of an already really really well-compensated group of people.

Speaker 2 As a result, the CEO compensation has skyrocketed, absolutely skyrocketed, whereas employee compensation per your statistics has not really accelerated. Now, here's the issue.
What do you do about it?

Speaker 2 I don't think you can put caps on compensation.

Speaker 2 I think that's socialism. I don't think it works.
What I think you can do is the following. We need a more progressive tax structure.

Speaker 2 I think it's okay that CEOs make tens of millions or hundreds of millions or sometimes even billions.

Speaker 2 If the CEO is really adding that much value and creating that much shareholder value, I don't have a problem with them sharing in it.

Speaker 2 Even if they become, I remember when Mickey Drexler made a billion dollars at the gap, I'm like, he deserves it. He's created so much shareholder value.
He deserves it.

Speaker 2 And who are we to tell him that compensation is too much? You want to use the word fair. You're not going to find a lot of fair in the corporate world, especially in a compensation table.

Speaker 2 But I do think we need to more aggressively address a progressive tax structure.

Speaker 2 And that is, i see no reason why anyone who makes over ten million dollars a year shouldn't have a 60 to 80 percent marginal tax rate why we need that money and there's a lot of people making crazy amounts of money right now and we need to pay down our deficit we need to reinvest in technology and education and food stamps and help some of our least fortunate figure out a way to pull themselves up and we're going to have to just tax people more because what we have now is a regressive tax structure because the majority of your employees pay taxes on current income maximum rate 37%, and the CEO gets majority of their compensation from equity, maximum tax rate, 23.8%.

Speaker 2 So the tax structure has actually become regressive. So I would like to see an alternative minimum tax of 50 or 60%, no loopholes for people who make more than $10 million a year.

Speaker 2 And this is why that tax, while it sounds scary, is less taxing. And Republicans would like you to believe that they're our most productive employees and it's theft.
No, it's not.

Speaker 2 That's actually a lower tax rate than the super wealthy have been paying for most of the 20th century. And here's the good part.

Speaker 2 They're no less happy. Once you get above a certain amount of money, incremental money doesn't give you, provide you with anything.
It doesn't give you any additional value or happiness.

Speaker 2 What are you going to give it to your kids so they can have a Range Rover and a cocaine habit? I mean, you want taxes that are the least taxing, so to speak.

Speaker 2 I'm a big fan of raising taxes on estate taxes.

Speaker 2 I do think you're going to have to raise taxes on corporations who are paying their lowest taxes since 1929, but I don't think you can put compensation caps. I think that's socialism.

Speaker 2 It doesn't work and creates all sorts of gymnastics around spreading out all these unnatural acts that'll waste time and energy.

Speaker 2 But I do think anyone making over a certain amount of money should be subject to the same progressive tax structure that we've had for most of the 20th century. Appreciate the question.

Speaker 2 Our second question comes from Papaya Mellon on Reddit. You got to give it to the Redditors.
They sound very creative, but they sound like a group of people to be fun to do edibles with.

Speaker 2 All right, I'm a 23-year-old engineer working in the aerospace industry at a Fortune 500 company.

Speaker 2 On one hand, I find that I have a good job that I could maybe rise up in, have great friends and a great family, all while living in one of the most beautiful places in the world.

Speaker 2 On the other hand, the job is very unchallenging, and I find myself wanting to go after my startup dream to chase that challenge.

Speaker 2 I feel that at my age and skill, my risk tolerance is very high, and I should be going after the startup dream, but I struggle to identify if that's really what I want to do or if that's just conditioning from the internet and that I'm not doing enough.

Speaker 2 Do you think that a young 20-something should throw caution to the wind and bet on their ability or value the growth opportunity and comfort that corporate America provides?

Speaker 2 This is what the passe internet answer is going to be and is going to be, go for it now. You're young.
Start a company. This is America.
Absolutely chase your dreams.

Speaker 2 You know, all the shots you don't take, you miss. Okay, hold on.
Hold on.

Speaker 2 Anyone who's telling you to start a company without a solid idea of what you're doing is already rich. And here's the thing.

Speaker 2 We romanticize entrepreneurship and we diminish unfairly the power of the U.S. corporation.
The greatest wealth generator in history is the U.S. corporation.
And it sounds like you're at a good one.

Speaker 2 So I would be very careful before leaving that seat. If you're making good money at a good company and doing well, they're going to have no trouble replacing you.

Speaker 2 There's going to be a lot of applications that come in for your job.

Speaker 2 Now, as someone who started nine companies, if you have a co-founder, if you have an idea, if you have a small company that reaches out to you and they already have traction, I actually think the sweet spot of upside on a risk-adjusted basis is not being the founder of a company because there's just so much infant mortality and hooking up the printer and finding money and trying to find those first few employees.

Speaker 2 I think the sweet spot is being employee kind of 10 to 50 because Some of the risk has already been starched out. A lot of the people who work at ProfG were joined L2 after the first few employees.

Speaker 2 So they kind of knew it was working. They kind of knew we had some level of product market fit, but it was still early enough that they got a decent chunk of equity.
I think that's the sweet spot.

Speaker 2 But if you have a great idea, you feel like you've already lined up, if you want to start a business, start it before you leave.

Speaker 2 And that is have a company or have people who've already kind of started it and you know it sort of works.

Speaker 2 But just deciding to take off with a backpack and come back and start a company and give up a job, time goes fast.

Speaker 2 And I think there's a really decent chance that two, three years into it, you look back and think, I probably just should have stayed at that company and banked some money.

Speaker 2 If you're not challenged at work, then what I would suggest if you're good is you have a transparent conversation with your manager and your review and say,

Speaker 2 I don't, you know, I like it here, be appreciative, be thoughtful, but I'd like some more challenging work. I'd like to challenge myself and push myself.

Speaker 2 And if it's a good company, they're going to find the type of work that challenges you.

Speaker 2 So in sum, we romanticize entrepreneurship and people don't appreciate how great it is to have a big platform that pays for you to have that mole removed. And you can make a lot of money.

Speaker 2 Corporations are a great place to get rich slowly and time goes fast.

Speaker 2 And if you're maximizing out your 401k and getting equity participation and they like you, I would think about trying to find a more entrepreneurial culture or more challenging work within that organization.

Speaker 2 But again, these are very personal decisions.

Speaker 2 One thing I would definitely recommend doing is assembling a kitchen cabinet of kind of sober people who know your situation, know how important economic security is.

Speaker 2 And if you find an opportunity that you can bounce it off of, because sometimes it's hard to read the label from inside the bottle.

Speaker 2 And some, anyone who just hears the question and answers one way or another isn't being very thoughtful. It depends on your situation at work.
It depends on your opportunities.

Speaker 2 Quite frankly, it depends on how much money you have. If you have rich parents you can fall back on, sure, you can be more risk aggressive.

Speaker 2 If you just had your second child and your spouse isn't working, it's very hard to give up that steady salary.

Speaker 2 So, but again, a big theme here is we have a tendency to romanticize entrepreneurship and not appreciate how powerful the U.S. corporation is.
Congratulations on all your success.

Speaker 2 It sounds as if you're doing really well.

Speaker 2 We'll be right back after a quick break.

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Speaker 2 Welcome back onto our final question.

Speaker 6 Hey, Professor Galloway, Patrick here from New Hampshire. I've spent over 25 years in higher education, mostly at public universities and colleges.

Speaker 6 I have been a student, an RD, an adjunct, and a dean, but now I'm a community college administrator. So basically, I've had every seat except the one with huge endowments.

Speaker 6 You often focus on the overly rejective schools, the elites of the world, if you will, and how they need to evolve and are not.

Speaker 6 I'd love to hear your take on the rest of the iceberg, community colleges.

Speaker 6 We serve almost half of the undergraduate population, quietly, efficiently, and without a marketing budget that rivals a Marvel film.

Speaker 6 In a future driven by ROI, relevance, and access, and where education is critical to the nation's success, where do you see community colleges fitting in?

Speaker 2 Thanks. What a great question.
And also, you press on soft tissue. I'm a little defensive because you're right.

Speaker 2 By the way, when you find yourself getting a little offensive, it's usually because whoever's asking you a question is right. It's touched a nerve.

Speaker 2 And I don't speak nearly enough about community colleges and the Cal State system. I'm very involved at UC.
I went to UC Berkeley.

Speaker 2 I went to UCLA, and I talk a lot about the UC system, but sort of the hero of California is the Cal State system that is the biggest granter of Pell Grants, meaning they're educating more kids from low-income households.

Speaker 2 And it's a great way. Most of us aren't remarkable.
I applied to college when I was 17. I showed up to UCLA and rushed a fraternity when I was 17 years old.
My boy is 17.

Speaker 2 The idea of him at college right now totally freaks me out.

Speaker 2 And within like a couple of weeks, I got too fucked up, fell, was in the emergency room, barely got through my freshman year, almost got kicked out of school.

Speaker 2 I was on academic probation because I couldn't handle the temptation of alcohol and sports and being away from home. And everything ended well.
It turned out out okay.

Speaker 2 And maybe that was part of the learning process. But community colleges, there's sort of a chance to marinate a bit.
Not the same.

Speaker 2 First off, I love the fact that they have much lower admission standards and much lower cost. That is where higher ed needs to go.

Speaker 2 Anyways, according to the U.S. Department of Education,

Speaker 2 There are 1,022 community colleges in 20 to 2021, making up 28% of U.S. colleges participating in federal aid programs.

Speaker 2 Nearly 9 million students attended community colleges, accounting for 44% of all U.S. undergrads.
Most 72% attended part-time.

Speaker 2 Average in-district tuition, love this, $3,300 and 32%, a third received Pell Grants. 13% took out federal loans.

Speaker 2 My roommate, my junior in college, a kid named Mike, went to junior college first, and he was one of the more impressive people that I went to college with.

Speaker 2 Kind, nice, handsome.

Speaker 2 Anyways, just, and he had gone to community college for one or two years. There was a ton of kids in the fraternity at UCLA who were like, you know, okay, I didn't get $1,600 on the SAT.

Speaker 2 Maybe I'm helping my parents out. Maybe I don't have the money right now, whatever it is.
So

Speaker 2 I'm going to kind of marinate, if you will, and go to community college. I think that there's a huge opportunity enroll for community colleges.

Speaker 2 What I would like to see is it, I mean, essentially, there's kind of a trade here. And that is colleges become so expensive that there's sort of a community college ARB.
What is that?

Speaker 2 Rather than going to UC Santa Barbara, let's not even use UC Santa Barbara, rather than going to USC, which costs probably $100,000 a year when you take on tuition and living costs, you go to community college for two years, which costs a lot less.

Speaker 2 And basically, you cut the total cost of your four-year education by a third, maybe even a half.

Speaker 2 Now, having said that, you lose a lot because you don't have the same momentum and the same friends and the same kind of four-year experience.

Speaker 2 But at the end of the day, if you don't have the money, it's a pretty good ARB.

Speaker 2 It's also a chance to get into a really good school. One thing that's wonderful about our elite schools is they do take in a lot of transfers.

Speaker 2 And if you show you can operate well in the academic environment at Santa Monica Community College, where I was going to go had I not gotten into UCLA the last minute, UCLA likes that.

Speaker 2 And they say, well, clearly you can operate in an academic environment. So I'm a big fan of if I were going to say, all right, Where does Governor Newsom need to allocate more or less funds?

Speaker 2 I hate to say this.

Speaker 2 The University of California has people like me donating millions of dollars.

Speaker 2 The Cal State system, because it's not as sexy and people don't brag about naming the new wing at Santa Monica Community College, it doesn't get nearly the philanthropic giving because it's not as prestigious and doesn't tickle rich people's egos.

Speaker 2 But that is really where the greatest return on investment right now. I'm not as familiar with the curriculum, but what I would suggest is I think the biggest opportunity.

Speaker 2 And also it foots to this kind of emerging crisis of struggling young men, is more vocational programming.

Speaker 2 And that is a track for kids looking to transfer to a four-year program that's more liberal arts, more general, if you will. And then there's tracks for kids who are like, I'm not cut out for school.

Speaker 2 We all knew that person in high school was usually a guy who had hated school, wasn't good at it, but could fix your car and loved wood auto and metal shop, which we've replaced with computer science for some reason or Mandarin.

Speaker 2 So I wonder if there's more investment or tracks available for great vocational jobs.

Speaker 2 You've probably seen that TikTok showing that an 11th grader who gets through Auto Shop, they're being offered $70,000 a year jobs out of the 11th grade.

Speaker 2 So I wonder if the role of vocational programming that foots through the economy, where we're supposedly going to have somewhere between 7 and 11 million open jobs in the vocations, the skill needed to install energy efficient heaters, fix an EV,

Speaker 2 build a nuclear power plant, especially construction, especially nursing, healthcare, all a long-winded way of saying, I think you're doing God's work and I'd like to see greater resources.

Speaker 2 And if there's any suggestion i would make and maybe you're already making it is to not fall into this drunken intoxicated elitism that you have to have a liberal arts education there's great trades jobs out there that someone with 12 to 24 months in apprenticeship right away can put themselves on an on-ramp to a wonderful middle-class life but again i appreciate your good word

Speaker 2 That's all for this episode. If you'd like to submit a question, please email a voice recording to officehours at profgmedia.com.
Again, that's officehours at propgmedia.com.

Speaker 2 Or if you prefer to ask on Reddit, just post your question on the Scott Galloway subreddit, and we just might feature it in an upcoming episode.

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