Shhh. Never shine sunlight on the magic.
Folks desperately want to believe these programs are profit centers.
Directors overshadow producers in movies but it’s the opposite way in television. People know that Chuck Lorre produces shows but they probably wouldn’t know the writers and directors on those shows (who often change from episode to episode anyway).
Although interesting fact: the main director on Two and a Half Men was James Widdoes - the guy who played Hoover on Animal House.
I’m a college football fan, and my team is a public university that pays its coach more than any other employee, but at least we’re not talking about orders of magnitude more.
Is it just me or is this not just a rehash of the question “Why is water so cheap and diamonds so expensive?” that is probably covered in any Econ 101 class?
Of course as humans we infuse all sorts of worth and value to what we do that just isn’t there from an economic perspective; but looking at it this way makes it easier to see things more clearly I think.
No, let me give you one concrete example. Bill Belichick is Tom Brady’s coach for the New England Patriots. Both of them are superstars and will almost certainly go into the NFL Hall of Fame but Bill Belichick ‘only’ makes $7.5 million while Tom Brady makes a guaranteed $24 million a year (oddly enough, his wife still makes more as a supermodel).
Both of them are operating at the highest levels possible within their role but Bill Belichick is not only the boss of Tom Brady but also everyone else on the Patriot’s roster. You might think that Tom Brady becoming a huge success was inevitable but that isn’t true. He was lucky to get drafted as a 2nd string quarterback (Round 6: pick 199) but Bill Belichick saw some odd talent in him that turned out to be very accurate. However, that was far from the only one. He has a well-documented history of ‘rain-making’ when it comes to players that other teams dismiss and makes them work with proven success when other players leave or get injured.
My point isn’t to play up Bill Belichick or claim that he isn’t an asshole or to downplay Tom Brady’s performance but I still find it more than a little odd that the person that runs most of the show makes about 1/3 of what one of his employees makes. NFL coaches are not interchangeable at the highest levels. American football is the one sport in which coaches have a real strategic impact even during the game unlike basketball or soccer. Great coaches like Mike Ditka, Tom Landry and a few others have proven that consistently.
The same type of salary inversion happens in a few other fields but not the vast majority of them. I am just wondering why a few, very specific jobs defy the norms.
I’m just not seeing the difference. The basic principle about water and diamonds applies perfectly to this situation. The ultimate point is that economic outcomes can be random and illogical, and many various factors lead to economic outcomes. Your assumption is that the determining factor in salary level is one thing (position within the hierarchy), when in fact it is a different thing or things.
The diamond and water scenario is a simple example that shows that value is not determined by one thing; i.e, in a logical sense water should have more monitory value because without it you will die; whereas diamonds or lack thereof do not affect your health or well being and so should have less value.
One thing to think about in the specific case of athletes and their coach is potential career length. Athletes earn money for 10-20 years at best while a coach can have a far longer career. Looking at Wikipedia it looks like Belichick has been working for 40 years already, for example.
Part of the issue may be how general that skill is. I work at a company for 30 years and know everything about the K37-J widget. That may make me invaluable to my current company but that is completely unmarketable outside of my company so they really don’t need to pay me to retain me.
Moderator Note
It looks like you copied and pasted the wrong link into that post. Rather than spoiler it, I have just removed the link.
Ultimately the price of anything is a social phenomena. A buyer is willing to pay what he/she is willing to pay for reasons that need only make sense to themselves.
The cost of production puts a floor under the (long-term) price of anything. But the ceiling price is set entirely by the whims of the buyer(s).
Fashion has a lot to do with the price of very expensive things. Said another way, whenever you find something very expensive, you’ll find that a large fraction of that price is socially determined. And as such, it’s essentially arbitrary.
The income difference between an American CEO & his shop floor workers is about 30x the difference between a Swedish CEO and his shop floor workers. Why? Fashion at the high end. No less and also no more.
Humans have a tendency to overvalue the leader and to embody the leader with the attributes of the whole organization. Bill Gates is very talented. But he didn’t single-handedly create the powerhouse that was Microsoft in its heyday. But folks think of him as it. Le etat c’est moi in reverse. “Star power” they call it. And it has made humans worship Kings since the first humans and first Kings.
e.g. As instrumental as, say, Belichick is to the success of the Patriots both in prep and in play, he’s still seen by the typical fan as behind the scenes. Brady is the one doing, so he’s the one getting the adulation and the rewards.
At the end of the day I think for the Belichick / Brady example we could come up with some certain specifics about the history of the two men and the history of the NFL. I don’t think that’d give us much useful info to generalize to MLB, much less to C-level execs or TV/Movie celebs.
e.g. a lot of CFOs make or break their CEO. But who gets the press and who gets the payout?
No, it’s a supply and demand issue. Water is literally falling on our heads and dropping at our feet every few days. Diamonds … aren’t.
Oh dear. Now I’m curious about what I linked to. In any event, it was supposed to be this article.
I think I see what he’s getting at (and you explain why he’s wrong). Water is immensely useful, and vital to our lives, and the vast, vast majority of life on this planet, if not literally all. (there might be some microbes somewhere that don’t need water, I suppose).
But the catch is that the supply is SO vast, that water is extraordinarily cheap in most places. Diamonds, for one reason or another, are scarce, and they’re reckoned extremely beautiful. So they’re a status symbol, and not practical at all. Who are you going to be more impressed by- the guy whose wife is dripping with real diamonds, or the guy saying “I got a cistern with 20,000 gallons in the back!”
However, if water were to become scarce enough, it would surpass diamonds in price, due to the fact that it’s rather price inelastic (i.e. you require a certain amount of water to live, and there are no substitutes or putting it off), so if the price goes up, you’ll continue to pay the higher price, as you require it to live.
Conversely, something like a candy bar is price elastic, in that if the price is raised, you’ll get a different bar, or just do without.
This is not a fantastic example, as Gates’s wealth largely did not come from someone handling him a giant salary, but rather from his owning many shares of a company that became very large. He’s not rich because he was a CEO, he’s rick because he owned Microsoft.
Certainly there are some weirdly high-paid CEOs but what you often have a situation where people are literally voting each other giant pay raises in a situation where it is difficult for them to be held accountable to lower-level shareholders.
Thank you; that is exactly what I was trying to get at - I thought it would be a simple enough concept for everyone to understand. I am actually a little surprised by the need for an extensive explanation.
I think you still don’t understand. The post you seem to support reflects my view of it being a supply and demand issue. Water will become much more valuable only after people that there is not a virtually unlimited amount of it.
I’m ok with that :).
I’m not sure how much scrutiny “Battle Creek” got, which was I believe the next Vince Gilligan show to hit the air. It did not however get many viewers, at least not enough to prevent it getting canceled. Which is too bad because I really liked it.
I think the misplaced assumption is that all professions require a rigid hierarchy where “managers” automatically get paid more than the people they manage. There are many professions in addition to sports and film, such as some creative roles, sales, computer programming and others where individual contributors may get paid less than the people who manage them. A salesman, for example, might be paid a percentage based on how much he sells while his sales manager may get paid a flat salary to perform a more administrative role. In many cases, a good salesman might out-earn his manager. A talented computer engineer could make more than his department head.
The money that comes in through sales is what “keeps the business running”. The purpose of a business is to make money through sales. Running a bunch of email servers and enterprise applications is ancillary to that purpose.
Sort of like how people pay money to see Tom Brady and the rest of the Patriots. They aren’t there to watch Bill Belichick.
First, I agree the career life issue matters more for pro sports coaches vs. players. Very few pro players last 10 years in the stratosphere of salaries. Most coaches have a ploddingly good salary for 40 working years, getting better with their record. Of course, if the team has to pay off too many fired coaches, then they will temporarily promote/steal some assistant coach for a low-cost try-out.
Pilots is an interesting example. To fly a big plane and make 6 figures (low 6 figures) you need a career. Everyone can get a private plot’s license (I did in 1977). All you need is reasonable smarts and hand-eye coordination (and eyes). Then you have to dedicate yourself to accruing time and scrounging money for flying time and commercial training. Then you get a low-paying job (my nephew lived at home until age 30) as you prove your ability. To fly giant jets, you need to attract the confidence of a company willing to invest tens of thousands in progressively more advanced training. (Time in a big jet simulator can run thousands an hour.) So it’s a progressive weeding system, but at each step there are more candidates than positions, so… supply and demand.
the other point is that when there’s a river of money flowing past, the people with buckets will dip in. There’s probably nothing in 3/4 of Wall Street jobs that can’t be done by any decent business or accounting grad, or glib salesman - but the ones that through luck or connections end up on the job make a large multiple of equivalent salaries in auto parts making or plumbing supply. (Real estate commissions are another good example…)
Finally, CEO’s are one massive circle-jerk. The top elite are often board members for other elite, and approve their salaries. The figures provided to boards - by those seeking the money - are obviously biased to show the pay rate is necessary. Often the board is hand-picked to rubber stamp upper management’s requests, so essentially the foxes are running the henhouse.