March 27, 2009

Sympathy for the CEO

Obama at Bat

When AIG handed out their millions in bonuses, Obama was thrown what is called a slow-ball pitch. He walked up to the plate with a crowd getting more and more disgusted with his spending and budgetary plans. There were a few boos audible from the stands - some even coming from his team’s supporters. So he needed a hit. And it didn’t take much to score a populist point by deriding AIG for handing out employee retention bonuses after receiving huge taxpayer bailout money.


For a few moments Obama was able to throw off some heat, tap into some pigheaded class antagonisms, and perpetuate his ‘looking out for the little guy’ image. The only problem is that - Obama didn’t just get a slow ball pitch…the whole play was phony. The AIG bailout was a Bush Administration deal (but ongoing) and employee compensation plans were guaranteed to remain intact. So when the bailout deal was negotiated these bonuses would have been impossible to hide and common knowledge to all the parties involved including the Obama people (especially Tim Geithner).And not only that but,: (CNN) -- "Senate Banking committee Chairman (democrat-ed) Christopher Dodd told CNN Wednesday that he was responsible for language added to the federal stimulus bill to make sure that already-existing contracts for bonuses at companies receiving federal bailout money were honored"*. It was in the Stimulus Bill!(see links below) All Obama and other members of congress had to do was wait for the wind-up…the throw…and wham – be all over the media feigning disgust and complaining about “corporate greed”.

True, the whole affair was a convenient distraction from Obama’s disaster-in–the-making economic schemes, but it doesn’t make the million dollar-plus payouts any easier to digest. With many people out of work and some sectors of the economy clearly beleaguered, who wouldn’t be frustrated about some Wall Street executives making out like bandits? The whole affair does raise some interesting questions though.

Whipping Post Du Jour

In tough times people start looking to point fingers. Often immigrants get blamed for making a tight job market even worse. Unfortunately, this country finds it easier to harass valuable legal immigrants who contribute to our society rather than the system- sucking illegal immigrants…but that is another issue. Unlike the 'under-the-radar' illegals our other target du jour is very often high profile, high-flying, corporate executives. When times are good no one gets too excited about seven figure salaries or the plethora of compensation packages. But in times like these, it is quite a different story.

Mr.Burns and his lovely ape-chest vest

Sympathy for the CEO

From movies to television shows to children’s cartoons, how often is the villain a top level corporate executive – invariably white, male, and insatiably greedy? Not that this is anything new. After all, the past few decades have many examples of evil portrayed as being a CEO or faceless corporation. (One of my favorite characters is the Simpson’s Mr. Burns who, incidentally, meets his fellow Republicans in a creepy and haunted looking mansion on a hill.) But these characterizations work both subliminally and overtly to foster suspicion or worse on those who are so vital to any nation.

The wage market is no different than any other market. The laws of supply and demand are just as applicable in the high-level executive wage market as any other market. How much would you expect to be paid for having the livelihood of thousands in your hands? How much would you expect to be paid to take on the responsibility for millions and millions of dollars from investors (who could include everyone from sovereign nations to your retired grandmother)? How much would you expect to be paid when your job is running a company who directly and indirectly may affect countless other business and jobs?

So far, the answer to these questions are not answered by any one ‘enlightened’ person - but by the wage market which functions surprisingly well in determining how much a CEO gets paid. Of course, like anything involving human beings it does not and will never work perfectly. But in comparison to any other system, the market is the most efficient determiner of compensation, salaries, and value.


An easy way to understand this process would be to first remember a business’s goal is to be profitable (I realize I have already lost my liberal friends at this point). So any business wanting to maximize profits will seek to pay the market wage for a CEO. They would not want to pay more than the market value for the job because this would be counter to the profit motive. They cannot pay less than the market value because a highly educated and ambitious executive-to-be would just work for the company next door, in the next state, or even in another country.

Since that all makes sense to most people the problem is in perception. When a high school educated worker at the local burger joint compares his wage to that of a CEO, the difference is staggering. But then again, the differences in responsibilities and duties between the two jobs are equally staggering. Also, the labor pool (supply) of burger flippers is much larger than for CEO’s. At this point my more philosophical liberal friends will usually say, “Well it’s just not fair!”


If it is not fair, than what would be the alternative? If not the market, then who pray tell should value work and decide upon compensation? Perhaps a committee of ‘the people’ should decide - but that was already tried before in the many failed communist nations. There is no need to reiterate the inherent failures of command economies, but in simple terms: few people would be willing to go through the intense schooling and then take on the vast responsibilities of a corporate executive for the wage of a burger-flipper.

Is this good art?

Eye of the Beholder

But since the issue of “fairness” is in question, I could think of other things that seem quite unfair. Is it fair for an actress, who plays pretend for a living, to be paid millions of dollars for a film? Does some scrawny kid deserve millions for lip-syncing pop songs that they didn’t even write? And what about writers? Does writing a story really merit the huge advances and earnings they can make? What about athletes like Tiger Woods who hit a ball around grass? Are any of these high paid occupations more valuable than perhaps building homeless shelters or curing diseases? Furthermore, I walked through the Gardens Mall a few weeks ago and stopped in an art store. How someone could be paid $60,000 for producing art -a piece of canvas with paint that looked like colorful vomit - will never seem fair to me.

How much is this worth?

For artists, it is probably a good thing that I am not on a committee of ‘the people’ to value art because I would not value it in a way that they would think fair. To be quite honest with you, I believe most actors, musicians, and artists deserve the same or less than our intrepid burger-flipper. So, we see how the market works even when it may not always seem fair from an individuals perspective. It arrives at value through consensus and the latest information. It factors in the expertise of the whole which far exceeds the expertise of the parts. In this manner the people who appraise, buy, sell, and insure art, for example, set its value not me. The same is true for the wage markets.

Next time you see the President and these Washington fat cats hamming up to the media whilst they speak with outrage about the pay of Wall Street executives, don’t for a second think that they are concerned for the average person. They are just playing the same old class warfare card to get your support. These executives are an easy target when people don’t understand how the wage market works and have been raised on negative stereotypes of executives by the media. Ironically, liberal Hollywood itself is made up some of the largest multi-national corporations staffed by countless CEOs. Perhaps like all liberals, they see themselves as exempt from the caricatures they condemn.

Fictional Hollywood Executive Les Grossman

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