Friday, June 03, 2005

George Mikan and Executive Compensation

George Mikan the NBA Hall of Fame Center died this week. Absolute all reports of the man that I have read say he was nothing but a great guy.

For instance: Yahoo! Sports - NBA - Shaq offers to pay for Mikan's funeral: "Mikan died Wednesday night at a rehabilitation center in Scottsdale, Ariz., following a long fight with diabetes and kidney ailments. He was 80....`He was a great man. We had many, many conversations,'' O'Neal said. ``Very nice to me. I know what he was and I know what he did.''

So why do I bring him up now? Because of an old Business Week article from maybe 10 years ago--I'll try to track it down at some point. The article was on executive compensation and discussed why Shaq (then at the LA Lakers) got paid more (in real terms) than Mikan used to as the star of the Minneapolis Lakers of an earlier epoch.

Of course there were many reasons for the pay differential (free agency, better marketing, etc), but a key reason identified in the article was technology: many times more people can now watch a game on TV and now on the internet than could attend a game of the Minneapolis Lakers in Mikan's day.

The same idea holds true for executive compensation. Technology has multiplied the impact of a manager's actions. We see that as corporate hierarchies have been flattened. Whereas before the impact of a single manager might directly impact only a handful of employees, today the same decision may directly affect thousands. Hence, the marginal productivity has increased. So it is one reason that executive pay has increased.

This is not to say that technology is the only cause of the pay increase, but it is an important reason why executive pay has increased faster than the pay of typcial employees.

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