Snow Says High Ceo Compensation Justified by High Productivity

March 19, 2006

Snow Says High CEO Compensation Justified by High Productivity

According to John Snow, CEOs and other "superstars" are paid according to the value they add to the marketplace, i.e. the market is efficiently rewarding them for their high productivity. In addition, he says most Americans are benefiting from the economic expansion:

Snow Defends President's Handling of Economy, by Greg Ip, WSJ: Confronting criticism of the Bush administration's economic record, Treasury Secretary John Snow said the widening gap between high-paid and low-paid Americans reflects a labor market efficiently rewarding more-productive people. But he insisted most Americans are benefiting from the economic expansion.

"What's been happening in the United States for about 20 years is [a] long-term trend to differentiate compensation," Mr. Snow said... "Look at the Harvard economics faculty, look at doctors over here at George Washington University...look at baseball players, look at football players. We've moved into a star system... Across virtually all professions, there have been growing gaps."

Mr. Snow said the same phenomenon explains why compensation for corporate chief executive officers has climbed so sharply. "In an aggregate sense, it reflects the marginal productivity of CEOs. Do I trust the market for CEOs to work efficiently? Yes. Until we can find a better way to compensate CEOs, I'm going to trust the marketplace."

Since the 1970s, CEO compensation has gone from 40 times to more than 300 times the average worker's salary... Mr. Snow ... said the administration intends to publicly challenge perceptions that typical workers and families haven't benefited much from the economic expansion. The extent to which the expansion has been broadly shared is "the new sort of battle line in the political arena," he said. ...

Mr. Snow distributed a fact sheet that showed after-tax income per person, adjusted for inflation, rose 8.2% from January 2001, when George W. Bush took office as president, through January 2006. The sheet also showed that per-person net worth ... rose 2.4%, unadjusted for inflation, from early 2001 to the end of 2005. "People have more money in their pocket" and in their bank accounts, he said.

Mr. Snow's case relies on averages, which can be skewed by big gains among the wealthiest. Other data suggest the typical family has seen little advance in income or net worth since Mr. Bush took office. Census Bureau data show median family income ... fell 3.6% from 2000 through 2004.