Who’s Worth More?
Do CEOs ‘earn’ their money as honestly
as Hollywood actresses?
By Ken Shepherd
Business & Media Institute
Jan. 19, 2006
Â Â Â Â
CNN’s Andy Serwer fired the media’s latest salvo against American
business with his January 19 swipe at corporate salaries. The
Fortune magazine editor shut out defenders of corporate executives
whom he hinted might be “getting paid for a pulse” while suggesting
that a famous actress “earns” every penny she makes.
Â Â Â Â “Julia Roberts makes a movie, she gets big bucks, more
than $20 million-a-film,” Serwer opened his story quickly adding,
“That’s okay, her movies usually earn many times that. You could say
she makes money the old-fashioned way, she earns it. But,” asked the
business contributor, “can the same be said for all those business
executives who make millions? Are they really worth it?”
Â Â Â Â Serwer then strung together some examples of what he
considered excess, including former Disney CEO Michael Eisner’s $576
million-a-year salary and former General Electric chief Jack Welch’s
company-furnished New York penthouse. But in praising a Hollywood
star while slamming Wall Street ones, Serwer insulted his audience’s
intelligence. As much as Julia Roberts is paid for her labor as an
actress, she is also paid for being Julia Roberts: a Hollywood star
who draws audiences, and with them, box office revenue by the
Â Â Â Â Any number of actresses could play the title role in
“Erin Brockovich” and command a much lower salary than Roberts for
the same amount of work – weeks of grueling long days of rehearsal
and filming – but Roberts’s unique ability to rake in a large
audience, and with it, profitability, is a significant part of how
she “earns” every penny of her $20 million per movie.
Â Â Â Â In the same way, any number of businessmen can attempt
to run a multi-million-dollar enterprise like Disney or General
Electric while commanding a significantly lower salary. But it’s the
unique ability of an Eisner or a Welch in their respective
industries to inspire confidence in consumers, shareholders, and
employees that factors into paying those men significantly more than
other job candidates.
Â Â Â Â This common-sense principle is what economists refer to
economic rent, or “a measure of market power: the difference
between what a factor of production is paid and how much it would
need to be paid to remain in its current use.”
Â Â Â Â But if Andy Serwer really doesn’t believe this
principle works in the real world, I’d gladly be willing to take his
gig on “American Morning” for half of whatever he’s paid.