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Pay gaps orbit around star system
By Al Lewis,
Staff Columnist
Denver Post
Tuesday, March 21, 2006

If you are not pulling in enough money, it may be because you lack the gravity of a star.

"We've moved into a star system for some reason which is not fully understood," Treasury Secretary John Snow recently told The Wall Street Journal.  "Across virtually all professions, there have been growing gaps (in pay)."

Snow was defending the Bush administration's record on the economy, arguing that Americans are broadly benefiting from the expansion.  It's just that some Americans are benefiting a lot more than others because the market rewards more-productive people, Snow said.

Many movie stars, sports legends and recording artists bring home incredible paychecks, primarily because they can command attention from large audiences.  Meanwhile, many others in the same fields struggle just to survive.

The same is true in business, where CEOs of large companies can make 300 to 1,000 times what their workers are paid, depending on which executive compensation study you read.

This trend dates back decades and has little to do with the current administration, but I imagine that Snow, who was once CEO of CSX Corp., is OK with the star system since he is one of the stars.

It seems how one views the star system depends largely on one's orbit within it.

I talked to Robert Fields, a New York attorney who helps corporate executives negotiate compensation.

"It's purely supply and demand," he said.  "The number of really capable people who can run a large, sophisticated, complicated company is not infinite. ... If you want the best, you've got to be able to pay the going rate for it.  There's an old saying:  If you want to run with the big dogs, you've got to be prepared to (bleep) on the big trees."

I also called Lowell Peterson, a New York labor attorney.

"There is room for differences in pay, based on skill, experience and even luck, but that doesn't justify this broad hollowing out of the middle class," he said.  "We're losing manufacturing jobs.  Fewer and fewer people have meaningful health care coverage.  Union (membership) is in the single digits.  And while all this is going on, wealthy people are doing better than ever."

As Snow accurately points out, the star system has taken over most professions, from lawyers and doctors to brokers.  Sometimes, the system favors those with the best sales skills.  Other times, those best at office politics shine brightest.

The biggest problem with the star system is that stardom can be illusory.

One day, you are MC Hammer and the next day you are, well, MC Hammer.  But at least, with rappers, somebody accurately counts the CDs they sell.

With CEOs -- who knows?

"We've seen CEOs walk away with 50 million dollars for doing a lousy job," said Vectra Bank Colorado economist Jeff Thredgold.  "If there's anything about the U.S. economy, it's prone to excess."

It's also prone to the cult of personality and executives like Jack Welch, former chairman of General Electric Co., writing best-selling books and smiling on TV screens and magazine covers.

Since Welch visited the University of Denver last fall, students and professors have been discussing celebrity CEOs, said business ethics professor Buie Seawell.

"The job (of CEO) is supposed to be about a fiduciary duty toward shareholders -- not making yourself the biggest star," Seawell said.  "When you are talking about a corporation, you are talking about other people's money.  One of the hardest things to get across in a business ethics class is that it's not all about you."

Thredgold said he believes the gap in pay between CEOs and the minions they command will be narrower in the years to come.  Shareholders are getting smarter, he said, and they are increasingly demanding reforms.

"The pressure is there for boards to be more responsible," he said.  "Market forces will deal with this."

Of course, there are many competing forces in the market -- celebrity among them.

The old saw is that celebrities are well-known for being well-known, but society always pays a premium for this trait, and big business does too.

Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-820-1967 or alewis@denverpost.com.

http://www.denverpost.com/business/ci_3622350