A Shave And A Haircut...

Megan McArdle has a piece up over at TheAtlantic.com as a rejoinder to criticisms which have appeared with increased frequency in recent weeks on why some on the Right are calling for pay cuts for UAW workers, but are silent on the same haircut for executives at financial institutions.

Labor costs, McArdle argues, are not the issue at financial institutions – imbalanced balance sheets are. CEO and executive pay amounts to a smaller percentage of the banking and financial industry’s current woes than the auto industry, and reducing labor costs for automakers will bring them closer to parity with their foreign competitors.

Overall, her logic to a comparison that I believe is fundamentally flawed is fair, if a bit blunt. McArdle rightfully points out that many CEOs were forced to take a pay cut, and since their compensation is often tied to company performance many executives’ personal fortunes have already been severely impacted.

I say the comparison is fundamentally flawed for a number of reasons. For one, comparing line work to C-level management is the proverbial apples-to-oranges analogy – it makes for good class envy rhetoric but the relative value each brings to the company table isn’t comparable. CEO’s have invested a substantial amount of education, experience and human capital into their careers and the respective fortune of the company, and can take these resources and sell them on the open market (a finite market for CEOs I might add); the same doesn’t necessarily hold true for auto line workers. Additionally, there is also recourse for a company with unsound management – they can be fired, and many have.

But that is not to say that as a stockholder of a company like AIG, I wouldn’t be demanding the head of the CEO on a silver platter…