Optionality not responsibility is why managers earn more

A common lie managers tell, both to us lowlifes in the workforce but also to themselves, is that their higher earnings are justified due to all the responsibility they are carrying.

Of course this can not be true, because in pretty much no company beyond a given size, managers actually are responsible for their mistakes. Punishment and benefits are asymmetrical, with punishment always going down in the hierarchy, whereas benefits always go up.

There is an optionality. They can take the responsibility if they like (i.e. when things go well), but do not need to take it on (i.e. when things don't go well). The only weird thing is that they do not seem to pay a premium for this, except having to wear suits and ties.

The larger the company, the bigger this optionality becomes. It is a common trick to build toxic waste subsidiaries, so whenever something goes wrong, you can just throw away this company and the bottom line of the umbrella corporation is not affected. Also here is no premium involved, only the transaction costs of setting up and running another company.

So there is a very weird market situation, as there are people being granted optionality, at the expense of others, without the others being compensated in form of a premium. [1] As if the market wasn't as free as they claim it to be.

In fact, if there was really some responsibility for stakeholders, we would see some transitivity of risk. Any risk taken by individuals lower in the hierarchy would automatically be also risk of people higher up and then their job would be to manage the people accordingly, and the same would be true across companies and shareholdings.

But in our current establishment, risk is not even remotely transitive.

In case you are offended by these thought and you say, no, in my company we figured it out and compensation and responsibility are fairly distributed, let me know! ;-)

[1]Though there are sometimes positions for people who are explicitly there to take the blame and they get compensated accordingly, but of course this does not apply to you or me.