[Jerry2]

I'm convinvinced that CEO-employee wage gap is due to this not-so-well known legal case from 1919: Dodge v. Ford Motor Co. [1]

Basically, in 1919, Henry Ford sought to reinvest the Ford Motor Company’s profits into raising employee wages and expanding hiring, arguing that sharing success with workers would strengthen the economy and the company’s long-term prospects. However, minority shareholders John and Horace Dodge (who also ran their own competing auto company) sued Ford, claiming that his actions violated the fiduciary duty to maximize profits for shareholders.

The Michigan Supreme Court ruled in favor of the Dodges, declaring that a corporation’s primary obligation was to serve the financial interests of its shareholders and not broader social goals or even the well-being of its employees. This decision established a legal precedent that continues to shape corporate law even today and reinforcing the doctrine of "shareholder primacy" and limiting the ability of companies to prioritize stakeholders (like workers or communities) over investor returns.

It's been downhill for employees since.

[1] https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

[caseysoftware]

I think you're off by about 80 years:

> Twenty-five years ago, Bill Clinton campaigned on an idea for limiting excessive pay for American CEOs: Cap the tax deductibility of top executives' compensation at $1 million, and companies, not wanting bigger tax bills, might reel in their pay. In his 1993 budget, advisers suggested a compromise: Companies couldn't deduct CEO pay over $1 million unless it was "performance-based."

> But many believe the loophole had the opposite effect, driving companies instead to pay more in stock options and certain performance-based bonuses, which actually supercharged the growth in CEO pay. In 1989, according to the left-leaning Economic Policy Institute, the median value of annual CEO compensation was $2.7 million. By 1995 it was $6.6 million, and it reached $13 million in 2016.

Ref: https://www.washingtonpost.com/news/on-leadership/wp/2017/11...

[drewcoo]

Looks like they started measuring during the FDR administration.

https://fortune.com/2025/04/15/ceo-worker-pay-gap-problem-am...

[m00x]

Bill Clinton made irreparable damage to the American workforce. He sold out America to move all manufacturing to China by giving massive incentives to companies to do so. The market boomed and all that money went to investors instead of workers.

[prasadjoglekar]

While partially true in hindsight, letting China into the WTO, removing tariffs and giving them MFN status was a bipartisan effort beginning in the 80s and 90s. The premise was that China's market would open for US goods and services as well.

It hasn't worked out like that for sure.

[echaozh]

It hasn't? If only the US is willing to sell.

[opo]

>Basically, in 1919, Henry Ford sought to reinvest the Ford Motor Company’s profits into raising employee wages

I don't actually see any reference in the wikipedia article that Ford was saying he wanted to use the dividend money to raise wages:

>...Henry Ford, sought to end special dividends for shareholders in favor of massive investments in new plants that would enable Ford to dramatically increase production, and the number of people employed at his plants, while continuing to cut the costs and prices of his cars.

And as usual in these cases, there are other unstated reasons that might actually be more important to the decision maker:

>...Ford was also motivated by a desire to squeeze out his minority shareholders, especially the Dodge brothers, whom he suspected (correctly) of using their Ford dividends to build a rival car company. By cutting off their dividends, Ford hoped to starve the Dodges of capital to fuel their growth

[sershe]

People always talk about shareholder value like it's some outrageous weird thing. Really, shareholders are just.. owners. And managers are their agents.

Let's say you hire a general contractor to remodel your house. How would you feel about him doing what's good for society without consulting you - e.g. buying sustainable material that is more expensive, or locally sourced material that is less durable or less safe? Or hiring more workers like they do on NYC construction projects cause it's good for labor? Especially if it's something you disagree with, like he's maga and refuses to hire cheaper immigrants, giving preference to disgraced former cops. When the bill comes with all the extra costs, hed just say he's not working for the owner value but for the good of society as he sees it :)

[al_borland]

Having people who make enough money to buy stuff is in the best financial interest of all companies in the long term.

Companies and investors need to think further than 90 days ahead.

[erikerikson]

I'm sympathetic but the problem with this is that you are asking a discrete entity to optimize for the commons. There are more sophisticated solutions.

[frakt0x90]

He wasn't exactly doing it out the goodness of his heart. From the same article:

"Ford was also motivated by a desire to squeeze out his minority shareholders, especially the Dodge brothers, whom he suspected (correctly) of using their Ford dividends to build a rival car company. By cutting off their dividends, Ford hoped to starve the Dodges of capital to fuel their growth."

[andrekandre]

  > The Michigan Supreme Court ruled in favor of the Dodges, declaring that a corporation’s primary obligation was to serve the financial interests of its shareholders and not broader social goals or even the well-being of its employees.

i am not a legal expert but my laypersons' reaction to this is, how can a court just declare such a thing ... it seems even from the cited criticisms others agree... fta:

  > Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate.

[evilops]

By the same argument shouldn’t CEO pay be reduced?

[drewcoo]

That's an example of trying to clean up Ford's image.

Ford didn't want to share with the employees. He was very strongly anti-union (granted, not a factor until post-WWII). He was a Nazi supporter and not just because he was a notorious antisemite, Nazis opposed organized labor, too. He is sometimes mistakenly acclaimed for being for civil rights because he hired so many black men (who were not unionized, in an attempt to defeat the unions).

The lawsuit wasn't about shareholders vs broader social goals. It was about shareholders vs the CEO. The article is not about shareholder vs CEO pay. This lawsuit is unrelated.

And before someone claims Ford paid his workers enough to be customers (the reason he still wanted to pay them more in 1918), consider that in the early days after he'd implemented an assembly line the work became incredibly monotonous and workers were leaving for other automakers, so Ford was forced to pay them better to stay with him.