Medical Tuesday Blog
Why Do We Pay Our Administrators So Much Money?
Hospital administrators are being paid two to ten times as much money as they pay their physicians in the groups they are purchasing and managing. Perhaps it is time that physicians read Malcolm Gladwell’s piece in the New Yorker: Why do we pay our stars so much money?
There was a time, not so long ago, when people at the very top of their profession—the “talent”—did not make a lot of money. In the postwar years, corporate lawyers, Wall Street investment bankers, Fortune 500 executives, all-star professional athletes, and the like made a fraction of what they earn today. In baseball, between the mid-nineteen-forties and the mid-nineteen-sixties, the game’s minimum and highest salaries both fell by more than a third, in constant dollars. In 1935, lawyers in the United States made, on average, four times the country’s per-capita income. By 1958, that number was 2.4. The president of DuPont, Crawford Greenewalt, testified before Congress in 1955 that he took home half what his predecessor had made thirty years earlier. (“Being an honest man,” Greenewalt added wryly, “I think I should say that when I pointed the discrepancy out to him he replied merely that he was easily twice as good as I and hence deserved it.”) That era was an upside-down version of our own: when society gazed upon captains of industry and commerce, it marveled at how ordinary their lives were. . .
The truly rich in the nineteen-fifties and sixties were people who had inherited money—the heirs of the great fortunes of the Gilded Age. Entrepreneurs who sold their own businesses could also become wealthy, because capital-gains taxes were relatively low. But the marketplace chose not to pay salaried professionals and managers a lot of money, and society chose not to let them keep much of what they made. On income above two hundred thousand dollars a year, the marginal tax rate was as high as ninety-one per cent. Formerly exclusive occupations, meanwhile, were opening themselves to new talent, as a result of the expansion of the public university system. Economists of the era were convinced, as one analysis put it, that there was a “connection between economic growth and the advance of democracy on the one hand and the worsening economic status of the intellectual and professional classes on the other.” In 1956, Roswell Magill, a partner at Cravath, Swaine & Moore, spoke for a generation of professionals when he wrote that law firms “can no longer honestly assure promising young men that if they become partners they can save money in substantial amounts, build country homes and gardens for themselves like their fathers and grandfathers did, and plan extensive European holidays.”
And then, suddenly, the world changed. Taxes began to fall. The salaries paid to high-level professionals—“talent”—started to rise. Baseball players became multimillionaires. C.E.O.s got private jets. The lawyers at Cravath, Swaine & Moore who once despaired of their economic future began saving money in substantial amounts, building country homes and gardens for themselves like their fathers and grandfathers did, and planning extensive European holidays. In the nineteen-seventies, against all expectations, the salaryman rose from the dead.
The story of how this transformation happened has been told in many different ways. Economists have pointed to the globalization of the world economy and the rise of what Robert Frank and Philip Cook call the “winner-take-all” economy. Political scientists speak of how the social consensus changed in favor of privilege: taxes came down, and the commitment to economic equality eroded. But there is one more crucial piece to the puzzle. As Roger Martin, the dean of the Rotman School of Management, at the University of Toronto, argued in the Harvard Business Review a few years ago, people who fell into the category of “Talent” came to realize that what they possessed was relatively scarce compared with what the class of owners, “Capital,” had at their disposal. People like O’Rourke and Mr. C and Roswell Magill “woke up”—in Martin’s phrase—to what they were really worth. And who woke them up? The Marvin Millers of the world. . . .
To read who the Marvin Millers of the world are, go to Malcolm Gladwell’s treatise: The Talent Grab http://www.newyorker.com/magazine/2010/10/11/talent-grab
Physicians: Wake up to the fact that the knowledge we possess is also far more scarce and thus far more valuable compared with what the class of hospital owners, administrators, HMOs, are really worth. Let MedicalTuesday wake you up!