Sunday, October 5, 2014

The ‘MLB Superstar-to-Worker Pay Ratio’ is 500:1 vs. a ‘CEO-to-Worker Pay Ratio’ of Only 300:1 – Unconscionable?

Mark Perry writes:
The AFL-CIO (and many others including Warren Buffett, Paul Krugman and Robert Reich) think a small group of several hundred American CEOs who head some of the world’s largest companies receive excessive compensation. According to the AFL-CIO, “corporate CEOs in recent decades have been taking a greater share of the economic pie,” implying that the rest of us now get increasingly smaller pieces of the remaining and shrinking economic pie. ...

But would the same people who think that a 331:1 CEO-to-worker pay ratio is unconscionable think that a 500:1 “MLB superstar-to-worker pay ratio” is also unconscionable?

The chart above displays annual ratios of the median salary of the top 25 highest-paid MLB players in each year from 1988 to 2012 (data here) to the average annual pay for factory workers based on these historical hourly wages (same measure of average pay used by the AFL-CIO). In 1988, Dave Winfield was paid $1.98 million by the New York Yankees (and was the 13th highest paid MLB player) and that was about 105 times higher than the average annual factory worker income of slightly less than $19,000 in that year.

By 2012, Roy Halladay and Ryan Howard, both of the Philadelphia Phillies, were tied for the 13th highest MLB salary of $20 million, and that was 507 times the 2012 annual factory income of $39,400, and even much higher than the AFL-CIO’s ratio of 331:1 last year.

In the same way that there are only a few hundred athletes in a given year who are talented enough to make it into the elite group of world-class athletes who earn multi-million dollar salaries, there is likewise only a small group of individuals with the necessary skills and talents to lead large multi-national corporations in the S&P500. And in the same way that the top athletes can command higher salaries each year because of increased fan interest in sports like MLB (both domestically and globally) and increased competition for those top positions (domestic and international players), CEOs can command higher salaries because of increased global competition and bigger markets, and bigger companies...

Unlike CEO pay, we rarely hear anybody say that the pay of athletes, musicians, movie stars, or entertainers is “simply unconscionable.” And yet many of those celebrities (Oprah, Madona, Paul McCartney, Donald Trump, Cesar Millan aka “The Dog Whisperer,” etc.) actually ARE the CEOs of their own multi-million dollar enterprises. It’s also important to remember that CEOs don’t write those checks to themselves, so we should realistically assume that it’s primarily market forces, talent, and performance that determine CEO compensation, just like we should assume that the top 25 MLB salaries in 2012 of between $17-$30 million were determined largely by market forces, performance and talent.

Bottom Line: If people aren’t upset about a “MLB superstar-to-worker pay ratio” of 500:1, then they really shouldn’t be upset about a 300:1 “CEO-to-worker pay ratio.” Likewise, if you’re not upset about the $20 million median salary of the top 25 highest paid MLB players in 2012, you really shouldn’t be upset about the $11.7 million average CEO compensation last year for a small group of the highest-paid executives.
But further, inequality in general is really no big deal. SEE: This Is What Those Who Are Concerned About Inequality Fail to Grasp.


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