Friday, February 16, 2007

What Public Servants Earn

The recent attention paid to judicial salaries on this blog (here, here and here) raises a baseline question. Granted, Supreme Court Justices are underpaid relative to law firm associates and even faculty at leading law schools, but then why are those the relevant comparisons? Consider the following take-home pay numbers:

Chief Justice of the United States: $212,000

Active duty Army sergeant with 4 years of experience: $25,495 (Source here.)

Richard Grasso's 2003 take-home pay as CEO of the NY Stock Exchange: $139,500,000

Grasso was not a government employee as head of the NYSE, but NYSE is a non-profit organization, and thus under New York law, can only pay compensation that is "reasonable" and "commensurate with services provided." Accordingly, Grasso and NYSE are defendants in a civil suit brought by the New York Attorney General to rescind much of his pay. Grasso will certainly argue that these terms must be defined by reference to industry standards, and can point to comparable compensation for CEOs of the firms that list their stocks on the NYSE. (Click here for a list of top-paid CEOs.) It is likely that in making its case against Grasso and NYSE, the NY AG will argue that the NYSE Board was partly in Grasso's pocket and partly incompetent. But beyond that, the case may well come down to a battle of what the relevant standard of comparison should be: Corporate CEOs versus heads of other non-profits such as university presidents.

I can't predict what will happen in the NY litigation, but I can say that our public discourse seems to favor Grasso in at least one sense. The relevant comparison seems always to be market-driven: What could/would this person earn in some other job? Yes, there is an important debate over what exactly the relevant comparison should be: Law firm partner or law school professor? Corporate CEO or university president? But it doesn't seem to occur to anyone to make cross-sector comparisons. Indeed, even the army tries to persuade recruits that its pay for a sergeant is more like $42,376 when you figure in all the benefits like food, housing and medical care. (And that's not even counting additional benefits like free air travel to Iraq and free use of night-vision goggles while on patrol in Baghdad!) Thus, the army explains that total compensation for a job as a sergeant compares favorably with compensation for working as a civilian police officer. Notably, the army does not compare salaries for its sergeants with take-home pay for corporate CEOs or even merely upper-middle-class lawyers.

Why not? Well, for one thing, that would expose our extraordinary income inequality. But more deeply, I think, Americans have so completely accepted the notion of market valuation that (with the notable exception of John Edwards and a few other economic populists) we have lost the vocabulary with which to make or even understand the argument that an army sergeant deserves to be paid more than one three thousandth of what the head of the New York Stock Exchange earns.

11 comments:

egarber said...

Throw teachers in there too. My wife taught for 12 years in a pretty tough district -- that can be pretty thankless...

Tam said...

At least one argument for raising judicial salaries seems to apply to the case for intersectoral income equality as well: we should pay judges more in order to attract the best lawyers to become judges. In other words, the level of compensation is tied to other non-economic value judgments and, critically, is causally prior to the average quality level of the profession. This argument tacitly entertains the idea that perhaps members of a field are "low caliber," by whatever standards, because they are so underpaid, rather than that they necessarily deserve their low pay because they are such underperformers.

The argument is particularly applicable against detractors of the teaching profession, who frequently cite an alleged abundance of bad teachers as a justification for underpaying teachers so much. Even assuming, arguendo, their factual claim, one could respond that raising teachers' salaries would attract better teachers. (To be sure, I reject the premise - I have been in public school from kindergarten through law school, and the overwhelming majority of my teachers at each level have been good to excellent (Neil Buchanan aside; terrible in all 3 courses I took with him)).

At any rate, I always get too involved debating the factual claim to try out the argument above, but I'd like to see these folks respond to it the next time I encounter one.

Craig J. Albert said...

Another reasonable basis for comparison is to ask, "What do I need to offer to pay for this job in order to attract x applicants of the requisite level of quality/expertise?" If you're the board of the NYSE and you decide that you can't live without one particular named person -- say, Dick Grasso -- as your CEO, then you don't have much bargaining power, and you may end up paying $139 million to get him. But if you're asking, "What do I have to do to get [fill-in your own blanks here, such as 'lawyers with at least 15 years regulatory experience and a Series 7 license'], then your answer is going to be a much lower number.

Ask yourself whether there's something that magically happens to someone who holds an MBA that transforms their worth between the time that they successfully run an office and the time they they successfully run a division; the answer is, "probably not", unless you can also show that there was sonething that person had that the other competitors/workers lacked. Or, to take a sports example, ask yourself why a successful assistant coach at a Division I school earning about what a tenure-track faculty member makes is suddenly paid -- not worth, mind you, but immediately paid -- the highest salary at the university on the day he takes the job as head football or basketball coach. He hasn't won a game yet, so what are you paying for?

Neil H. Buchanan said...
This comment has been removed by the author.
Neil H. Buchanan said...

Thanks, Tam!! ;-)

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