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Out-of-Control CEO Compensation Pales In Comparison to MLB Superstar Salaries

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Is CEO compensation out of control?

LA Times business writer Michael Hiltizk thinks so. “The CEO pay curve has been galloping out of control for so long that it has achieved the status of a cliché,” he recently wrote. “In 1965 the average U.S. CEO earned 24 times the pay of the average worker. Four decades later the ratio was 411 to 1.”

“These guys are writing checks for themselves,” the columnist elaborated on CNBC. “The club of board members who sit on compensation committees are all CEOs. Hewlett-Packard just handed out a $50 million pay package to an incoming CEO without a record at that company. Every member of the compensation committee is a CEO or former CEO…There is no free market in this sphere. These guys are paying themselves.”

But, if you think the income disparity between CEOs and the rest of us looks extreme, check out what’s going on in Major League Baseball.

Mark Perry, a professor of economics and finance at the University of Michigan, notes that the ratio of the median salary of the top 25 highest-paid Major League Baseball (MLB) players to the median U.S. household income has increased steadily from 70:1 in 1990 to an estimated 374:1 for 2010.

That’s an all-time historic high.

However, Perry believes that these superstar athletes, like those C-suite executives, deserve every dime. For both well-heeled groups, he argues, market forces determine the lavish compensation.

“….in the same way that the top athletes can command higher salaries each year because of increased fan interest in sports (domestically and globally) and increased competition for those top positions (domestically and globally), CEOs can command higher salaries because of increased global competition and bigger markets, and bigger companies.”

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POSITION:  No positions in stocks mentioned.