The Social Distortions of Excessive Compensation

FROM 1970 to 1990, the fortunes of certain professionals soared out of sight.

In elite law firms, real profits per partner rose by 75 percent, even though the number of lawyers almost tripled and the competition for corporate clients grew more intense.

The incomes of chief executive officers of large corporations more than doubled, even as the number of MBAs increased threefold and foreign firms presented an unprecedented challenge to United States companies.

The statistics are not new and probably not surprising. But in his book, ``The Cost of Talent: How Executives and Professional Are Paid and How It Affects America,'' Derek Bok, former president of Harvard University, asks some thought-provoking questions.

For example, how concerned should we be about the ``swollen paychecks'' of doctors, lawyers, and business executives? Are the large discrepancies in pay among professions justified? What does it say about our society when inflated starting salaries in private professions drive graduates away from teaching and government service jobs?

Bok goes beyond conventional wisdom about supply and demand to examine these issues. He argues persuasively that society pays a high price for the excessive pay of some elite professionals.

Referring to the relatively low salaries of top professors at leading universities, Bok writes: ``Because such individuals may well have won a Nobel prize ... and made great contributions to society, it is worth asking why they should earn so much less than successful professionals in other fields.''

The focus of ``The Cost of Talent'' is on the earnings of professionals in six fields: business, medicine, law, higher education, elementary and high school education, and civil service. Bok's early chapters examine the historical role of compensation, from the mid-1800s to the present. The material in these sections, though heavy on statistics and charts, is important for understanding how we arrived at this point.

Except for the the most successful individuals, during the 1970s average earnings declined in most professions. By the end of the 1980s, lawyers, doctors, and business executives gained back what they had lost and their advantage over less privileged workers hit record levels.

The reason, Bok contends, is that the demand for professional services grew at an unprecedented pace. At the same time, the most highly paid members of the three professions widened the gap even further between themselves and their less-prestigious colleagues.

Bok questions the influence money has on the distribution of talent among professions. The answer, he finds, is not a simple one. The number of students who choose to pursue a business career, for example, are influenced not so much by fluctuations in starting salaries for MBAs or by CEO pay, but by changes in the value society gives being well-to-do.

In later chapters, as Bok lays out his argument on the vast differences in pay among the professions, he also tries to offer some solutions. But the answers are far more difficult. Referring to corporate executives, Bok writes, ``No one knows exactly what a truly competitive paycheck would be.''

Bok acknowledges that most solutions to compensation problems - including raising the income tax on the wealthy, giving bonuses to groups of employees rather than individuals, and increasing public-sector salaries - are only partial.

The heart of ``The Cost of Talent'' goes beyond an obvious concern with earnings. It examines the moral direction in which this country is headed. Rather than alter the pay business executives, doctors, and lawyers earn, Bok argues, the only real solution is to change the value of the work itself.

Though the government can set an example for the private sector, Bok correctly concludes that it is up to those setting and receiving the large salaries to change. He ends with a proverb that is worth considering: ``It behooves us to be careful of what we are worshipping, for what we are worshipping we are becoming.''

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