My Turn: In baseball and corporate America, salaries are out of control
Robinson Cano just signed a 10-year contract to play baseball for the Seattle Mariners. For that he will be paid $240 million, or an average of $24 million per year until he is 41.
A group of us were sitting around at coffee the other day talking about how the disparity in pay has changed over the last few years. I decided to look into this a little more.
When I was a kid back in the dark ages of the 1950s, my favorite ballplayer was Ted Williams. Robinson Cano cannot be compared with Williams in skill sets or as a draw to the public, but I thought it would be interesting to compare their inflation-adjusted pay and the ratios of their salaries to the National Average Wage Index levels of their corresponding eras.
Here are the results:
Inflation adjusted to 2012
Pay in 1959: $125,000
Inflation-adjusted pay: $971,093
Pay in 2014: $24,000,000
Inflation-adjusted pay: $24,000,000
Compared with average workers
Pay in 1959: $125,000
NAWI pay in 1959: $3,855.80
Pay in 2014: $24,000,000
NAWI pay in 2012: $44,321.59
While these figures are startling and show how out of control pay disparity has become in sports, it pales to the corresponding changes in business at some major corporations.
When I was a very senior officer at a Fortune 500 company back in the early 1980s, I earned about six times more than the average salary of employees in my units. Today that ratio at many of these large companies would be close to 200 times. That’s a ratio expansion almost double what we’ve seen in sports.
For the ballplayers and other sports figures, the numbers are staggering, but these players bring very high levels of skills to popular sports and their pay is based on what their idiot owners are willing to shell out. It is a competitive bidding process and they are taking advantage of the marketplace.
Senior executives at successful, large corporations also deserve to be well-paid, but it is a lot easier for them to advance to the level of exorbitant excess. In combination with a friendly and well-paid board of directors, they control their own destiny. For a lot of them it is about using their pay as a proclamation of their status in a game of “who can make the best-paid list” in Forbes or the Wall Street Journal. And since their egos are always bigger than their paychecks, the trend is a geometrically rising pay level. The companies justify these levels to stockholders by going out and getting consultant comparison studies of other companies doing the same thing. All of this occurs while the average salary base at these companies is kept under tight control. The sad fact is that for really big companies, you can pay your top five or six executives huge money and hardly make a dent in earnings as long as you keep the broader employee cost base down.
Many North American unions have come in for some very justifiable criticism because they refuse to deal with the realities of the laws of comparative advantage. They have seen manufacturing businesses flee overseas because they won’t adjust work rules or pension programs. But it is a hard thing to ask them to make huge sacrifices when they see the games being played by senior managements in these companies.
The huge deals for Cano and others make an impression on most of us because we follow sports a lot closer than business, and because these salaries are exposed to the harsh glare of publicity. Key executive salaries are buried under footnotes and obscured by allocations to special pension benefits, stock options, etc. And it appears to be too much work for most of our journalists to dig into the fine print of these corporate 10k’s and annual reports, and shine a light on what is going on in some of these board rooms.
The bottom line is that the pay disparity issue has been getting worse for years, both in business and in sports. And as long as the costs can be passed along to the public in ticket prices, cable bills and the cost of services, it will continue.
Competition keeps prices up in sports (along with the fact that the agents are smarter than the owners). Competition also keeps the prices going up for CEOs and senior executives. Unfortunately, it seems to be the competition to see who can pay themselves the most.
Until we start applying some pressure on out-of-control managements, owners and players to act like responsible citizens, pay disparity will continue to weigh heavily on our national conscience.
(Glenn Currie is a Concord poet, humorist and children’s book writer. His latest book is “Surviving Seventh Grade.”)