It's Not Just CEOs, the Top Pay for MLB Players, Oprah, Criss Angel, Cesar Millan is "Out of Control"
The CNBC discussion above focuses on the question of whether CEO pay is "out of control." LA Times business writer Michael Hiltizk say Yes, and in a recent LA Times article he cited this Harvard Magazine article that reports that the "Ratio of Average CEO Pay to Average Worker Pay" has increased from 107:1 in 1990 to 344:1 in 2007.
The chart above was calculated using the USA Today Salaries Database, and shows the ratio of the median salary of the top 25 highest-paid MLB players in each year (i.e. the player who ranked #13 in the MLB by salary) to the median U.S. household income for each year. In 1990, Andre Dawson was paid $2.1 million by the Chicago Cubs (#13 highest paid in the MLB) and that was 70 times the median household income in that year of $29,943. By 2010, Manny Ramirez (13th highest-paid player this year) is making $18,695,000 for the LA Dodgers, and that's 370 times the estimated median household income this year of $50,500.
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 corporations (average CEO pay in 2009 was $9.2 million for the S&P 500 companies).
And in the same way that the top athletes can command higher salaries each year because of increased fan interest in sports (domestically and globally) and increased competition for those top positions (domestically and globally), CEOs can command higher salaries because of increased global competition and bigger markets, and bigger companies. Just like the highest-paid athletes deserve to make more today than their counterparts in the past, the CEOs of Ford, Caterpillar, Johnson & Johnson, and McDonald's deserve to make more than their counterparts of the past. The markets today for cars, machinery, consumer products and fast food are not only much bigger today than in the past, both domestically and globally, they're much more competitive and challenging and the CEOs who can face those challenges deserve to make a lot of money.
We rarely hear anybody say that the pay of athletes, musicians, movie stars, entertainers is "out of control," and yet many of those celebrities (Oprah, Tiger Woods, Michael Jordan, Criss Angel, Cesar Millan aka The Dog Whisperer, etc.) ARE CEOs, of their own multi-million dollar enterprises. And as Reason's Katherine Mangu-Ward pointed out in the video, the CEOs don't write those checks to themselves, so we should realistically assume that market forces play a large role in determining CEO compensation, just like we should assume that Alex Rodriguez's $33 million salary this year is determined largely by market forces.