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Why your boss is overpaid

Forbes Magazine, 23 May 2006

It is a typical “Dilbert” strip. The boss announces, “Our CEO has voluntarily slashed his pay from $6 million per year to $4 million. In a written statement, he said he wants to ‘share the pain.’ Do you feel better now?” A downtrodden intern replies, “I make my underpants from sandwich bags.”

But that’s office life, is it not? Bosses make obscene sums of money while downtrodden cubicle slaves toil almost without reward. It might seem insane, but economists have a surprise for us: The insanity reflects nothing more than cool economic logic. There is method in the madness.

The ugly truth is that your boss is probably overpaid–and it’s for your benefit, not his. Why? It might be because he isn’t being paid for the work he does but, rather, to inspire you. In other words, we work our socks off in underpaying jobs in the hope that one day we’ll win the rat race and become overpaid fat cats ourselves. Economists call this “tournament theory.”

Continued at Forbes, subscription free.

23rd of May, 2006Other Writing • Comments off