Home Runs for CEOs

St. Louis Cardinal Matt Holliday makes $17 million a year. A hot dog vendor at Busch stadium makes a little above minimum wage, or about $10 an hour.

A professional baseball player and hot dog vendor both work in the same stadium for the same number of hours addressing the needs of ticket holders. However, it would take the hot dog guy a thousand years to match the one-year salary of a top player.  Yet no one complains.  In fact, most ardent fans would scoff at a comparison, pointing out that Matt Holliday and those of his ilk have practiced thousands of hours to hone the skills that make them the hometown favorites that can fill a stadium with fans who hope to see evidence of the player’s skills and past performance. If a top-ranking player strikes out, throws balls instead of strikes or generally performs badly, no one docks his pay.

A study by the AFL-CIO made a similar but less flattering comparison in the stadium of corporate America. According to their report, the CEO of Walmart, Douglas McMillon, earned $19 million in 2014, while a new Walmart employee made $9-an-hour pay.

The AFL-CIO has started doing the math for other companies too, comparing a given CEO’s estimated hourly salary to the pay of the average worker. The researchers have worked out that it would take an average employee making $10 an hour more than two months to earn as much as the average CEO makes in a single hour.

No one seems to write about the disparity between players and stadium employees, but journalists have invested copious amounts of ink describing the difference in pay between CEOs and average employees of their companies—all the while overlooking these key issues:

• Remuneration for both the ball player and the CEO happens because of perceived or actual value. Matt Holliday agreed to the 2015 contract in 2010, five years before he could deliver the actual value, simply because of perceived value.  CEOs, especially those running publicly traded companies, have to deliver on actual value.
• The pay of an hourly employee is based on that person’s input. In other words, employers measure things like how many hours a person works or how many hot dogs he sells. No one expects him to change the outcome of a game. We calculate the pay of both players and CEOs on output—the things they actually do, like winning games or making pivotal decisions for a company.
• No one would consider the average CEO actually “average.” Rather, they have demonstrated that they can deliver dramatic returns on investments. Similarly, average baseball players never make it to the minors, much less the majors.

Let’s stop talking about hourly fees and start talking about value. Major league players walk the planet like highly-compensated gods, and no one talks about their hourly income—just their performance in the last game. CEOs don’t always play well, but they get traded when they don’t because thousands of families depend on their decisions—the home runs of corporate America.