If you want Michael Jordan in your lineup, you have to pay what it takes to get him. The reality is that CEO pay is set through a clubby, rigged system in which CEOs, their buddies on board compensation committees, and a small cadre of lawyers and ''compensation consultants'' are in cahoots to keep the millions coming, irrespective of performance. Here's how it works. Say Amalgamated Widget is looking for a new chief executive to turn around its troubled operations. Once the board settles on a candidate, the candidate's lawyer has a compensation consultant prepare a report showing the salaries and stock packages given to CEOs at similar companies facing comparable challenges.
Executives know that once they crack the inner sanctum, even failure is richly rewarded.
Frontline employees who feel outraged and demoralized by such payoffs can't be blamed for thinking they represent hush money at work, not the free market. That may be the understatement of the millenium. But it also holds an indispensable policy lesson. Once the veil is lifted and you realize that CEO pay is set largely by the exercise of institutional power designed to insulate CEOs from market forces, there is no philosophical or ideological reason not to use the same power on behalf of workers. The argument made against policies like a higher minimum wage, or hikes in such wage supplements as the Earned Income Tax Credit, is that they represent an unacceptable and even dangerous attempt to tamper with market forces.