The Grand Illusion
This past weekend, an interesting analysis appeared in a number of newspapers, showing that the highest-paid people in medicine weren’t the doctors, but the “senior management” types in healthcare. Hospital directors make a lot more than the most expensive surgeons, and multiple times what general practitioners do. This is a problem, but it’s not confined to medicine. It’s everywhere. The senior executives in pharmaceutical companies make ten times what their top researchers make – if not hundreds of times. In my wife’s university, from what I can determine, nine of the ten top-paid individuals are “management” types, and most of the top fifty are either management types or professors of business or management. The same has long been true in corporate America as well.
The question is, then, just why are these management types so much more valuable than those under them who actually do the work, design and make the products, do the market research, sell those new products, teach the students, build the highways, heal and repair the sick. Not only that but even among the top executive types, pay levels are marginally related, if even that, to actual performance or worth to society. The highest-paid individuals in America are hedge fund managers and other financial types whose greatest accomplishments are speculation and speed-trading, which is essentially legal high-speed graft and extortion, justified by them as “providing market liquidity.” Study after study has shown that the highest-paid executives tend, overwhelmingly, to be taller, good-looking males – whose actual performance on the job is, on average, less than that of either shorter male CEOs or women.
These facts are anything but unknown. So why do we continue to select and reward individuals and occupations that aren’t the best for improving life for the vast majority of us? For that matter, why don’t corporations pick executives and managers based on more than a modicum of talent and a maximum of appearance and charisma? And what’s the societal point of minimizing productive people and resources in the United States so that a comparative handful of executives and speculators can pile up more hundreds of millions or billions of dollars?
Are we really that self-destructive?
Compensation for Manager A is usually set by a group of other managers. It’s not unlikely that Manager A is also on a compensation committee for another organization, which might have executives who decided Manager A’s compensation. (Read up on interlocking directors and compensation committees.)
Even if there is no direct overlap (and true quid pro quo), everyone involved in executive compensation has an incentive to keep compensation high. Think about it in the same way that you would assign your neighbor’s house as high a value as possible because that indirectly affects the value of your own home.
Compensation bloat is a pretty big problem, and even shareholders – the people who actually own the company – have little say in it because internal corporate governance structures to provide little in the way of oversight. Witness Warren Buffett’s recent ‘complaints’ about the compensation plan at Coca-Cola (of which Berkshire Hathaway is a large shareholder). http://www.cnbc.com/id/101639390
“Are we really that self-destructive?”
In a word… yes. I’m speaking here specifically about the USA. Perhaps not as individuals, but as a society. I think some of it is a societal lack of focus. In the early days of the US, there was the western expansion, unfriendly borders that needed defending, and most of the citizen either knew how bad the ‘old country’ was or had relatives right there ready to remind them. (and if anyone says the border with Mexico is unfriendly, answer me this: how many military units do we have stationed near the border whose main task it is to deter an invasion from mexico?)
Great Britain was always a threat in the early and mid 1800s, then Germany and its various Allies, then the Soviet Union. Clear, definable issues with real and palpable goals. Other, less militaristic examples: women’s sufferage, race equality, the space race.
Currently – and for the last 20 years or so – there’s been little for the public to actually bring into focus. 9/11 occurred, but the response – other than anti-Osama bin Laden – was unfocused and the actions that were taken (Afghanistan/Iraq) are popularly perceived more as stunts and distractions rather than real efforts by US leadership to prosecute a ‘War on Terror.’ Mind you, I’m talking about the political leadership, not the military leadership.
Couple that with the fact that soundbite driven television/radio media (and the near collapse of print media) does not lend itself to any publicly digestible, thoughtful analysis by experts in the various fields and there is a definable rising feeling that kills most things related to a society.
And that feeling is Apathy.