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CEOs being paid to outsource

This does a lot to explain why companies are in a mad rush to outsource, even when it doesn't really save anything for the company:

http://www.reuters.com/newsArticle.jhtml?type=domesticNews&storyID=6108458

"Chief executives at U.S. companies that shipped jobs overseas won a 46 percent pay hike last year, more than five times the average CEO raise, while ordinary workers' paychecks barely budged, a study showed on Tuesday."

Seems like the real way to save would be to cut the CEOs salaries -- looks like all the "savings" from outsourcing are going into the CEOs' pockets.

"The study noted the pay for CEOs who outsource was about 3,300 times the pay of an Indian call center employee or 1,300 times that of an average Indian computer programer."

T. Norman
Wednesday, September 01, 2004

It still saves a lot of money for the company.

CEO
Wednesday, September 01, 2004

"... a study showed ..."

Just goes to show you can use statistics to prove whatever you want.

Nemesis
Wednesday, September 01, 2004

Err.. are you trying to say it's unlikely that an average CEO makes 1,300 times what an Indian computer programmer does?  I have no trouble at all believing that.

muppet
Wednesday, September 01, 2004

"Just goes to show you can use statistics to prove whatever you want."

While I don't disagree with your assertion, it does seem that they proved what they set out to prove. Perhaps you can show data (or maybe even another study) to disprove them, i.e., showing that companies that outsourced gave a their CEO a below-than-average "raise".

Paulo Caetano
Wednesday, September 01, 2004


The company will end up getting theirs when they realize that they've shipped all of their IP overseas to people beyond their legal influence who are guaranteed to have zero loyalty or  interest in the company or the legal/political/etc system in which it is based.

For companies who sell closed source products, how easy in the long term is it from them to convince their shareholders that although the hosting nation has ZERO respect for IP laws, their investment will be protected.

I work with an Indian programmer (in the US) who was told to investigate building Gantt charts online.  His response.... he ripped a copy of MS Project and planned to post it to our website for any and all of our users to download.

I stopped him, but he didn't see anything wrong with this.

MS Project 2003 ($600) * 80 users...

KC
Wednesday, September 01, 2004

Many healthcare companies who sent private personal data overseas are already getting theirs in the form of civil suits.

muppet
Wednesday, September 01, 2004

Muppet -  funnily enough sending personal data overseas without adequate safeguards is illegal here...and the US counts as somewhere without adequate safeguards.

Ah the joys of the global village...where one person's amusing nickname is another's regional insult.

a cynic writes...
Wednesday, September 01, 2004

...and since that wasn't so much a pop at you as a general observation: in one eastern european country my organisation's acronym is a minor swear word - as we found out when one of our members ran into porn on google. 

a cynic writes...
Wednesday, September 01, 2004

And, the Chinese guy named Fuk Yu was in for some real surprises when he arrived in the U.S.

Pongo
Wednesday, September 01, 2004

KC,

There are a lot of hackers/crackers in the US. Does that mean all US programmers are hackers ?

Don't judge every Indian like your idiot Indian co-worker.

indian
Wednesday, September 01, 2004

>>"Chief executives at U.S. companies that shipped jobs overseas won a 46 percent pay hike last year, more than five times the average CEO raise, while ordinary workers' paychecks barely budged, a study showed on Tuesday."<<

Most likely this is because they reduced costs significantly by outsourcing.

A separate issue, like KC says, would be the lack of understanding on the board's part of the fact they just gave away their IP by sending significant work outside the company.

example
Wednesday, September 01, 2004

"Don't judge every Indian like your idiot Indian co-worker."

Several years ago, I read an article about Vietnamese workers in Silicon Valley during the 1980s, the first wave of Vietnamese workers were very good.  They were smart, had a great work ethic, and they were easy to assimilate into workplace.  Because of the success of the "first wave" of Vietnamese immigrants, companies began hiring more Vietnamese workers.  As it turned out, the first wave of workers was from the upper echelon of Vietnamese society; they were well educated and motivated.  However, after that first wave, it was discovered that the quality of the Vietnamese workers was much lower than expected because many of the second wave (and beyond) were poorly educated.

I wonder if history won't repeat itself.

Pongo
Wednesday, September 01, 2004

>>For companies who sell closed source products, how easy in the long term is it from them to convince their shareholders that although the hosting nation has ZERO respect for IP laws, their investment will be protected.

Long term? Who cares about this when you only keep shares for a few months anyway? :-)

Fred
Wednesday, September 01, 2004

"Most likely this is because they reduced costs significantly by outsourcing."

Or led the board to *believe* that they reduced costs significantly.

As others have pointed out before, it is quite easy to spin the figures to make outsourcing look like it saved money.  Just compare the wages, leave out the hidden costs, and pretend that a project would have required the same amount of time and people and produced the same quality (or lack thereof) if it were done locally.

NoName
Wednesday, September 01, 2004

Does anyone really need to read this article? I thought it was common knowledge that most senior managers working for large corporations have been able to boost their pay via downsizing and outsourcing.

Back in the early 1990s, a lot of software projects that I worked on resulted in significant job losses. In fact, that was the whole point of many of those projects. I think it is a safe bet to say that whomever sponsored many of those projects did so because they were attempting to make themselves look good to their boss and of course become a little richer. 

CxOs living and working in the United States are grossly overpaid. This is a fact and not just my opinion. In many other industralized countries such as Japan the average CEO salary is only 10 times the amount of the average worker. In the U.S. it is something like 500 times larger.

One Programmer's Opinion
Wednesday, September 01, 2004

When I asked my Indian coworker "why in the world would you think you can just distribute MS Project online?".

His response was "well, why wouldn't I?  I did it at my last company."  Most of his prior career was in India.

Even if he is the exception - which I think it highly unlikely - companies who depend on closed source software take an inherently HUGE risk whenever they send significant portions of their source code to other countries with different legal systems.

There are risks with giving this code to *anyone* - domestic employees included - but there's a big difference when the developer lives in the same city/country.

KC
Wednesday, September 01, 2004

"CxOs living and working in the United States are grossly overpaid. This is a fact and not just my opinion. In many other industralized countries such as Japan the average CEO salary is only 10 times the amount of the average worker. In the U.S. it is something like 500 times larger."

Is that the fault of the CxO or the company?

If there are multiple companies going for the same person, salary & benefits are ways to compete.

This is the market system.

KC
Wednesday, September 01, 2004

KC:
seems  it's your HR's problem.
How could your HR find such a *talent* from so many indians?

redguardtoo
http://www.d2ksoft.com

redguardtoo
Wednesday, September 01, 2004

redgaurdtoo, you have such great wisdoms that I cannot believes great good intelligence.  I too am thinking about HR's and Indians.

Saprasadecceio
Wednesday, September 01, 2004

redgaurdtoo;

Don't respond to this thread.

I will tell you one thing, I am in my early 20's. As any other young person, one year back, I use to react on each and every rude or insultive statement targeted at me.

Saying, How can any one say this to me, I never did or thought of doing wrong to them!? I end up hitting and abusing that person in return. Keep on thinking about that issue for long, filled with anger.

But then I was taught by my teacher, the line I can never forget:

Never-ever give the REMOTE-CONTROL of your life in another person's hand.

That's it. And do you know, I am mastering this art here. :-)

Anyway, I didn't posted the earlier comment by the name "Indian", and this is my first and last comment on this thread.

Take care, bye.

Mastering the art...Thank you...for helping me out.
Wednesday, September 01, 2004


redguardtwo,

Read my ACTUAL message:

"companies who depend on closed source software take an inherently HUGE risk whenever they send significant portions of their source code to other countries with different legal systems."

That applies whether it's India, China, Mexico, England, or Romania.

KC
Wednesday, September 01, 2004

>>However, after that first wave, it was discovered that the quality of the Vietnamese workers was much lower than expected because many of the second wave (and beyond) were poorly educated.  I wonder if history won't repeat itself.

in some cases, the poorly educated leave their country first... eg. America was founded by such.

its hard to make blanket statements about this because each situation is unique.

Kenny
Wednesday, September 01, 2004

Here is what I find ludicrous about this whole debate:
OK so the CEO shipped jobs to india, salaries are saved earning increase (lets say), the story line shouldn't be: CEO gets HUGE pay raise, the story should be dividends increase for share holders. America has forgotten that management teams ARE NOT THE OWNERS OF THE COMPANY, they should not be entitled to proceeds from cost reduction, that money belongs to share holders (if, and I am unsure about this, real cost savings actually exist).  Part of the problem with corporations today, is there is pressure to lie about earnings, wehn the real pressure should be to delier dividends, because
if there are no dividends, baseball cards are a better investment! 

the artist formerly known as prince
Wednesday, September 01, 2004

>Most likely this is because they reduced costs significantly by outsourcing.
If you think you are saving money by outsourcing (or for that matter following any business fad), it is because you are measuring only some of the real costs. The word  "externality" should be considered an obscene insult instead of some justification why you can dump your real costs off on other people.

Outsourcing is the lastest fad in business. Like ERP, MRP, TQM, business process re-engineering or 6-sigma, it will stampede onto the stage and run amok with all the me-too companies. You might find a company or two who saved money with any of the past fads, but you can probably find some manager who can save money with the "tongue depressor management method."

Peter
Wednesday, September 01, 2004

" The company will end up getting theirs when they realize that they've shipped all of their IP overseas to people beyond their legal influence"

I wonder if the willingness to offshore actually suggests that companies don't really regard code / design as really valuable IP?

Could it be that "brand" is far more important? Is world domination by Free Software imminent?

phil jones
Wednesday, September 01, 2004

Shareholders care about IP being lost because of its effect on dividends and real value.

A CEO who is going to claim a big bonus next year because of outsourcing has much less of an incentive to care about the effect of lost IP on the long-term health of the company.  Especially when they get golden parachutes and protected pensions anyway if the company sinks.

However, nowadays shareholders have far less influence on the board than they used to.  There are some regulations being proposed for making the boards more accountable to shareholders, but CEOs and boards are fighting against them tooth and nail.

NoName
Wednesday, September 01, 2004

" Part of the problem with corporations today, is there is pressure to lie about earnings, wehn the real pressure should be to delier dividends, because
if there are no dividends, baseball cards are a better investment! "

No one is really interested in dividends.  Large investors are not looking for a small but safe return on their ownership.  htey get that by virtue of diversification of holdings.

The thing invetstors are looking for is the share price to rise.  That's it.  If you can make the share price rise, shareholders can get their 12% returns and all is happy.  Cash in the bank is just a fundemental, and as we all know many investors don't look at fundementals.

For a CEO, the outsourcing move has the following effect:
* reduce costs, thereby increasing profit
* increased profit = increased share price.

What most large SV software corps did was freeze hiring, offshore jobs, and lay off workers.  This had the net effect of stopping the share price slide after 2000.  Today, we can see that the share prices are still sliding, because sales are slowing, the economy is soft, and demand for IT is weak(ish)

It's a short-term gain because cost reduction can never substitute growth.

Sassy
Wednesday, September 01, 2004

[It just shows you can use statistics to prove whatever you want.]

Nonsense. You are only saying that because 82.6% of statistics are made up on the spot.

I am Jack's statistician
Wednesday, September 01, 2004

>>"You are only saying that because 82.6% of statistics are made up on the spot."

Killer statistic!

I am Jack's Mortician
Wednesday, September 01, 2004

==>CxOs living and working in the United States are grossly overpaid. This is a fact and not just my opinion.

And should I take it as fact, that if someone offered you a $400K a year job, you'd decline? Come on now, be *honest*.

Bump it up a bit. What about a $900K a year job? What about a $1.5 million a year job.

At what point (*honestly*) would you say: "Damn, you're paying me too much. I'm not gonna take the job -- sorry, I'm gonna take this other job that pays me $80K, 'cause I don't think I'm worth more than $80K".

Enquiring minds want to know! Give us your number!

Most of the BS I see about <whoever> making too much money is simply jeolosy -- you can't get a job that pays that much, ergo, nobody should have a job that pays that much.

Grow up.

Sgt. Sausage
Wednesday, September 01, 2004

Yes sassy, but even if youre right, then increased profits should be put into the treasury of the company and not
the CEO's pockets. Again management teams are not entrpeneurs, they are employees of the corporation, and if they increase profits they should be rewarded like other employeess: a pat on the back, and getting to keep their job. As it is they are allowed to raid the company for all its worth, and often not even report it to the shareholders in the form of financials (Executive Pensions, Stock Options, "loans" that are later forgiven...)

the artist formerly known as prince
Wednesday, September 01, 2004

>> "As it is they are allowed to raid the company for all its worth, and often not even report it to the shareholders in the form of financials (Executive Pensions, Stock Options, "loans" that are later forgiven...)"

I don't understand why you have a problem with that.

Ken Lay
Wednesday, September 01, 2004

++At what point (*honestly*) would you say: "Damn, you're paying me too much. I'm not gonna take the job -- sorry, I'm gonna take this other job that pays me $80K, 'cause I don't think I'm worth more than $80K".

lol.  point goes to sgt. sausage...

Kenny
Wednesday, September 01, 2004

Wrong kenny,
You need to negotiate for your pay, wheras most CEO's get to decide their own (being the most boards/compensation comittees are yes men).

the artist formerly known as prince
Wednesday, September 01, 2004

"Most of the BS I see about <whoever> making too much money is simply jeolosy -- you can't get a job that pays that much, ergo, nobody should have a job that pays that much.

Grow up."

No, Sausage, it's the stockholders saying "why should we pay that guy $10 million a year, when we have others willing to do it for $500K a year?"

Those $50- and 100-million dollar bonuses (times ten executives) is money out of the stockholders' pockets, life savings, and retirement accounts.

Mr. O
Wednesday, September 01, 2004

Kenny = Ken Lay?

NoName
Wednesday, September 01, 2004

"You need to negotiate for your pay, wheras most CEO's get to decide their own (being the most boards/compensation comittees are yes men"

This may be true in a macro sense but the reality is not so cut-and-dry.

Most C-level execs have employmeny contracts reviewed and approved by the compensation committees of the BOD.

Assuming:
* the BOD represents the majority shareholders
* the BOD is *satisfied* with performance (share price increased in past xx months)

Then it's easy to pay out xx% of gross revenue to the management team.

Ethics aside, I think many are confusing revenue performance with share price.  If we had a market where fundementals really mattered, then SP would reflect the fundementals and the management compensation would be directly tied to performance.  But as it is today, SP is determined as much by macro / social factors as it is by the bottom line, and we all know of plently of loser companies which have grossly inflated market caps, even today.

The blame has to be held, to some degree, by the average shareholder who continually seeks a fast buck, gets cold feet at any sign of bad news, buys and sells on recommendation of a press release, and basically is dramatically out of touch with their investments.

Sassy
Wednesday, September 01, 2004

"Most C-level execs have employmeny contracts reviewed and approved by the compensation committees of the BOD."

Who are also yes men, often on the boards of each other's companies.  Shareholders don't have as much control as they used to, and are fighting against the boards and CEOs to regain that control.  If the boards and CEOs were so dedicated to "shareholder value", they wouldn't be fighting the shareholders.

NoName
Wednesday, September 01, 2004

==>You need to negotiate for your pay, wheras most CEO's get to decide their own (being the most boards/compensation comittees are yes men).

Irrelevant to my question.

The question still stands:

++At what point (*honestly*) would you say: "Damn, you're paying me too much. I'm not gonna take the job -- sorry, I'm gonna take this other job that pays me $80K, 'cause I don't think I'm worth more than $80K".

Emphasis on *you* -- at what point would *YOU* draw the line.

BTW: "most CEO's get to decide their own" is assumed to be false until you provide evidence to the contrary.

My question requires no evidence. It's your opinion. Again, give me a number ... I'm waiting ... It's *your* number.

Sgt. Sausage
Wednesday, September 01, 2004

Your point would be valid sarge if CEO compensation was controlled by a free market, but it isn't or CEOs of companies that don't perform wouldn't be given raises.  No one is saying that a CEO should say 'no, not that much' what is being said is that CEO compensation is ouf of wack and there probably isn't a lot that can be done about it but carp until stockholders regain control of the companies they own from the board, or worse until the govt. decides "something must be done" which will, if history is any kind of teacher, make things worse.

Kero
Wednesday, September 01, 2004

==>No one is saying that a CEO should say 'no, not that much' what is being said is that CEO compensation is ouf of wack

And by "out of wack" you mean exactly "not that much".

Who are you to define "out of wack" when you won't even tell us what your personal "out of wack" is.

Who are you to say "He makes too much -- it's 'out of wack'".

==> until the govt. decides "something must be done" which will, if history is any kind of teacher, make things worse.

Something we can actually agree on. This would be the *worst* possible solution.

Sgt. Sausage
Wednesday, September 01, 2004

So we do agree Sassy, my earlier point was that if todays investors were investing based on potential futre returns (dividens or dividend potential based on reinvested capital), rather than based on the belief that there are greater fools willing to buy paper which will never pay them a single cent, they would be more concerned about Mgmt stealing money from them, and we would not see 100,000,000 CEO compensation packages, right?

the artist formerly known as prince
Wednesday, September 01, 2004

"So we do agree Sassy, my earlier point was that if todays investors were investing based on potential futre returns (dividens or dividend potential based on reinvested capital), rather than based on the belief that there are greater fools willing to buy paper which will never pay them a single cent, they would be more concerned about Mgmt stealing money from them, and we would not see 100,000,000 CEO compensation packages, right?"

We agree in spirit but there is a critical distinction.

"potential future returns" does not necessarily mean dividends or dividend potential.

Potential future returns means "Buy low, sell high".

As long as people believe that they can sell at 20x the price they paid there is no incentive to worry about anything other than the share price today, and the potential of the company to raise the SP. 

In an ideal world performance would be directly tied to the SP but this is not the case.

Mom  & Pop Shareholders do not view the corporate coffers as their cash.  They are focused on the movement of the share price.

Look at Microsoft :
* stable, lots of cash ,  weak price potential
So they pay a dividend, meaning "we don't expect much to happen from here on out"

so many investors are looking for the next big hit that will push their investment 100 or 200x.  This is antithetical to any real sane logic but it has happened enough times that the lure is real.

Sassy
Wednesday, September 01, 2004

Nope no difference, I agree with what the reality is, but at some point it will come crashing down (tulip anyone?)

the artist formerly known as prince
Wednesday, September 01, 2004

Read Barbarians at the Gate - story about the LBO of RJR Nabisco.
Ross Johnson (the then CEO of RJR Nabisco) pampers the board so much the board OKed all of the compensation/benefits of the CEO and his cronies.

Mr. Roboto
Wednesday, September 01, 2004

Usually the board isn't pampered, they are in on it.
Most boards are made of of executives from other companies.

the artist formerly known as prince
Wednesday, September 01, 2004

> Could it be that "brand" is far more important? Is world domination by Free Software imminent?

There's a good story in Forbes about how Microsoft is laughing all the way to the bank over open source.

Also, if open source does become more prevalent, there will be a realisation in a few years time that there are no longer people developing new products, or even with the skill to do it. At that time, there will probably be a high demand for real software developers.

JM
Wednesday, September 01, 2004

>> "Also, if open source does become more prevalent, there will be a realisation in a few years time that there are no longer people developing new products, or even with the skill to do it. At that time, there will probably be a high demand for real software developers. "

Dude, it's time to take your medicatiion.

Lixap
Wednesday, September 01, 2004

TAFKAP - the board members of RJR Nabisco at that time also came from other prominent companies.

Mr. Roboto
Wednesday, September 01, 2004

The real robbery comes when the CEO or chairman is a significant shareholder. Take a look at the Hollinger versus Conrad Black case.

Among those facing possible criminal charges for being on the take are Richard Perle. Kissinger it appeared got a clean bill of health though.

Stephen Jones
Thursday, September 02, 2004

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