October 11, 2010
Annals of Business
Why do we pay our stars so much money?
When Marvin Miller took over as the head of the Major League Baseball Players Association, in 1966, he quickly realized that his members did not know what being in a union meant. He would talk to the players about how unfair their contracts were, about how the owners took an outsized portion of the profits, how pitiful their pensions and health-care benefits were, and how much better things would be if they organized themselves. But they weren’t listening. The players were young, and many came from small towns far from the centers of organized labor. They thought of themselves as privileged: they got to eat steak for dinner, and be cheered by thousands of fans. Even when Miller brought up something as seemingly straightforward as the baseball-card business, the players were oblivious of their worth. “The Topps bubble-gum company would go into the minor leagues,” Miller recalls, “and if the scouts told them someone was going to make it to the majors, they would sign those kids. You know what they would pay them? Five dollars. We’re talking about 1966, 1967. Five dollars to sign. And that meant they would own them for five years, and the players got no percentage of sales, the way you would with any other kind of deal like that. If you made it to the majors, you got a hundred and twenty-five dollars per year—for the company’s right to take your picture, use it in their advertising, put it on a card, use your name and your record on the back of it. I used to say to the players, ‘‘Why’d you sign?’ And they’d look sheepish and say, ‘When I was a kid, I used to collect cards, and now they want to put me on one!’”
One season when Miller was making his annual rounds of the spring-training sites, he decided to put his argument to the players as plainly as he could. He was visiting the San Francisco Giants, in Phoenix, Arizona. “The right fielder for the Giants was Bobby Bonds, a nice man,” Miller says. “I knew what Bonds’s salary was. And, considering that he was a really prime ballplayer—that he had hit more home runs as a lead-off man than anyone had ever hit in the major leagues, that he was a speedy base runner—the number shocked me. I was always shocked when I looked at salaries in those days. So I said, ‘I want to tell you something. Take any one of you—take Bobby Bonds. I’m going to make a prediction.’ ” The prediction was about Bobby Bonds’s son. The Giants’ owner encouraged his players to bring their families to spring training, so Miller knew Bonds’s son well. He was just a little kid, but already it was clear that he was something special. “I said, ‘If we can get rid of the system as we now know it, then Bobby Bonds’s son, if he makes it to the majors, will make more in one year than Bobby will in his whole career.’ And the eyebrows went up.” Bobby Bonds’s son, of course, was Barry Bonds, one of the greatest players of his generation. And Miller was absolutely right: he ended up making more in one year than all the members of his father’s San Francisco Giants team made in their entire careers, combined. That was Marvin Miller’s revolution—and, nearly half a century later, we are still dealing with its consequences.
There was a time, not so long ago, when people at the —very top of their professionthe “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 marvelled at how ordinary their lives were. A Wall Street Journal profile of the C.E.O. of one of the country’s “top industrial concerns” in the late nineteen-forties began with a description of “Mr. C” jotting down the cost of a taxi ride in a little black book he used to track his expenses. His after-tax income, Mr. C said, was $36,611, and the year before it had been $21,032. He’d bought two cars the previous year, but had to dip into his savings to afford them. “Mr. C has never lived extravagantly or even elegantly,” the article reported. “He’s never owned a yacht or a string of race horses. His main relaxation is swimming. ‘My idea of fun would be to have a swimming pool behind the house so I could take a dip whenever I felt like it. But to build it I’d have to sell a couple of my Government bonds. I don’t like to do that, so I’m getting along without the pool.’ ” Getting along without the pool?
In 1959, the Ladies’ Home Journal dispatched a writer to the suburban Chicago home of “Mr. O’Rourke,” one of the country’s “most successful executives.” Since the Wall Street Journal’s visit with Mr. C, America had undergone extraordinary growth. But Mr. O’Rourke’s life was no more extravagant than that of his counterpart of a dozen years earlier. He lived in an ivy-covered Georgian, with ten rooms. Mrs. O’Rourke, “a slim blonde in a tweed suit and loafers,” gave the writer a tour. “For our neighborhood this is not a large place,” she said. “You can see that we’ve made do with rugs from our old home and that this room has never seen the services of an interior decorator. We’ve bought our furniture piece by piece over the years and I’ve never thrown anything away.” Their summer house was a small cottage on a lake. “I’m president of one of the larger companies in the U.S.,” Mr. O’Rourke said, “yet chances are I will never become a millionaire.”
The truly rich in the nineteen-fifties and sixties were people who had inherited —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.
Marvin Miller is in his nineties now. He lives in a modest Manhattan high-rise on the Upper East Side, decorated with Japanese prints. He is slight and wiry: the ballplayers he represented for so long always loomed over him. His head is large and his features are aquiline. He has a wispy mustache—a slightly diminished version of the mustache he was asked to shave, by baseball’s traditionalists, upon his election to the union job. He said no to that request, just as he said no to the suggestion, floated by the players, that Richard Nixon serve as his general counsel, and no to virtually every scheme that baseball’s owners tried to foist upon him during his time in office. It was never wise to cross Marvin Miller. Bowie Kuhn, the commissioner of baseball, once accused Miller of failing to “reciprocate” his overtures of friendship. Miller responded that Kuhn was not trying to be friends: he was trying to “pick my brains,” and “there was scant possibility of reciprocity in that department.”
Miller came to baseball from the United Steelworkers union, where he was the chief economist. He was present during the epic eight-day White House negotiating session that narrowly averted a strike at the height of the Vietnam War, in 1965. He cut his teeth at the State, County and Municipal Workers of America and later served on the National War Labor Board. By temperament and experience, he is that increasingly rare species—the union man. Miller remembers going to Manhattan’s Lower East Side one Saturday morning as a child and seeing his father on the picket line for the Retail, Wholesale and Department Store Union. “My father sold ladies’ coats on Division Street,” Miller recalled, speaking in his apartment one muggy day this summer. “Management had been non-union for years and years and years, the Depression was on, and they were cutting the work year for everybody. The strike lasted a month. One day, my father came home later than usual. I was still up, and he had a document with him that he wanted me to read. It was a settlement. The workers got almost everything they were striking for.” Miller was describing a day in his life that happened more than seventy-five years ago. But there are some things that a union man never forgets. “They got a restoration of the work-year cuts,” he went on, ticking off the details as if the contract were in front of him. “They got affirmation that the management would obey the new wage law and pay time and a half for overtime and Sunday work—and a whole raft of small things. It was very impressive to me as a kid.”
The baseball union that Miller took over, however, was not a real union. It was a Players Association. Each team elected a representative, and the reps formed a loosely structured committee—headed by a part-time adviser who was selected and paid for by the owners. The owners did as they pleased. They required the players to abide by rules and regulations without even giving them copies of the rules and regulations they were to abide by. Every player signed what was called the Uniform Player’s Contract, a document so lopsided in its provisions, and so utterly without regard for the rights of the player, that it reminded Miller of the standard lease that the landlords’ association in New York draws up for prospective tenants. A few months after taking the job, Miller was invited to attend a meeting, in Chicago, of Major League Baseball’s Executive Council, a group consisting of the commissioner and a handful of owners, who served as the game’s governing body. There he discovered that the league had decided to terminate the agreement that had been in place for the previous ten years for funding the players’ pension system. The owners had been giving the players sixty per cent of the revenue from broadcasting the World Series. But, with a new, much larger television deal coming up, the owners had decided that sixty per cent would be too much.
Miller—the veteran of a hundred union negotiations—was stunned as he listened to the owners’ “decision.” In the world he had just come from, this did not happen. There had been no collective bargaining; the upcoming announcement was presented to him as a settled matter. Years later, in his memoirs, he recalled:
I looked across the room, hoping to find a sign that someone understood how blatantly illegal and offensive this all was. My eyes fell on Bowie, the only practicing lawyer in the room. I looked for a flicker of comprehension in his eyes, an awareness that his clients were about to display publicly their violations of law, demonstrating for all to see that they had engaged in a willful refusal to bargain. . . . Kuhn showed not the slightest sign of comprehension.
Miller had no staff at that point, and virtually no budget. He was up against a group of owners who were among the wealthiest men in America. In the past, whenever major battles between the owners and the players had been taken to the courts—including to the Supreme Court—the owners had invariably won. Miller’s own members barely understood what a union was for—and there he was, at a meeting of baseball’s governing committee, being treated like a potted plant.
Yet when Miller pushed back, the owners capitulated. He ended up winning the television-revenue battle. He rebuilt the players’ pension system. He got the owners to agree to collective bargaining—which meant that the players had a seat at the table on every issue affecting the game. He won binding arbitration for salary disputes and other grievances, a victory that he describes as the “difference between dictatorship and democracy”; no longer would players be forced to take whatever they were offered by their team. Then he won free agency, which gave veteran players the right to offer their services to any team they chose.
Not even Miller thought it would be that easy. At one point, he wanted the owners to use surplus income from the pension fund to pay for increased benefits. The owners drew a line in the sand. Reluctantly, Miller led the players out on strike—the first strike in the history of professional sports. This time, surely, the fight would be long and bloody. It was not. The owners folded after thirteen days. As Leonard Koppett, of the Times, memorably summed up the course of the negotiations:
PLAYERS: We want higher pensions.
OWNERS: We won’t give you one damn cent for that.
PLAYERS: You don’t have to—the money is already there. Just let us use it.
OWNERS: It would be imprudent.
PLAYERS: We did it before, and anyhow, we won’t play unless we can have some of it.
This discovery that Capital was suddenly vulnerable swept across the professional classes in the mid-nineteen-seventies. At exactly the same time that Miller was leading the ballplayers out on strike, for example, a parallel revolution was taking place in the publishing world, as authors and their agents began to rewrite the terms of their relationship with publishers. One of the instigators of that revolution was Mort Janklow, a corporate lawyer who, in 1972, did a favor for his college friend William Safire, and sold Safire’s memoir of his years as a speechwriter in the Nixon Administration to William Morrow & Company. Here is how Janklow describes the earliest days of the uprising:
“So Bill delivers the book on September 1, 1973,” Janklow said, in his Park Avenue office, this past summer. “Ten or fifteen days go by, and Larry Hughes, his editor at Morrow, calls me and says, ‘This really doesn’t work for us. There’s no central theme, it seems too episodic—a bunch of the editors read it, and it’s really unacceptable. We feel bad about it, because we love Bill. But we’re going to return the book to you, and we want you to give back the advance.’”
Hughes was exercising the terms of what was then the standard publishing contract—the agreement that every author signed when he or she sold a book. Janklow knew nothing about the publishing world when he agreed to help his friend, and remembers looking at that contract for the first time and being aghast. “My first thought was, Jesus, does anybody sign this?” he said. “The analogy I’ve always made is, the old publishing agreement was to the writer what the New York apartment lease is to a tenant. Because, if you ever read your lease, the only thing that’s permanent is the obligation to pay rent. The building breaks down, you pay rent. It’s very weighted in favor of the landlord. That was the existing agreement in publishing.
“The author needed to deliver a book at a certain time at a certain quality of content, which had to be ‘acceptable’ to the publisher,” Janklow went on. “But there were no parameters on what acceptability meant. So all the publisher had to say was ‘It’s unacceptable,’ and he was out of the contract.”
To Janklow, the real reason for Morrow’s decision was obvious. It was about what had happened in the interval between when the company bought ’s book and when the manuscript was handed in: Watergate. Morrow just didn’t want to publish a pre-Watergate book in a post-Watergate world.
Janklow decided to fight. His friend’s reputation was on the line. Hughes referred Janklow to the publisher’s lawyer, Maurice Greenbaum, of Greenbaum, Wolff & Ernst. “It was considered a very literary, high-level firm,” Janklow recalled. “And Maury Greenbaum was the classic aristocratic fourth-generation German Jew, with a pince-nez. So I went to see him, and he said, ‘Let me tell you about how publishing works,’ and off he went in the most sanctimonious manner. I was a serious corporate lawyer, and he was lecturing me like I was a freshman in law school. He said, ‘You’re in a standards business. You can’t force a publisher to publish a book. If the publisher ’t want the book, you give the money back and you take back the book. That’s the way the business has worked for hundreds of years.’ When he was finished, I said, ‘Mr. ’m not trying to force the publisher to publish the book. I’m just trying to force the publisher to pay for it. This acceptability clause was being fraudulently exercised, and I’m going to sue you.’ So Greenbaum’s jaw clenched, and the veins on his forehead popped, and he said, ‘You don’t understand. If you start a lawsuit, I will see to it that you never work in this business again.’”
The case went to arbitration. Janklow had uncovered a William Morrow memo written in the summer of 1973—before Safire handed in his manuscript—saying that because of the Watergate scandal the firm ought to back out of its deal with Safire. Humiliated, Morrow settled, and a jolt of electricity went through the literary world. The likes of Larry Hughes and Maury Greenbaum didn’t have all the power after all, and, as one author after another—Judith Krantz, Barbara Taylor Bradford, and Sidney Sheldon, among others—called Janklow asking him to represent them, he began steadily extracting concessions from publishers, revising the acceptability clause and the financial terms so that authors were no longer held hostage to the whims of their publishers. “The publisher would say, ‘Send back that contract or there’s no deal,’ ” Janklow went on. “And I would say, ‘Fine, there’s no deal,’ and hang up. They’d call back in an hour: ‘Whoa, what do you mean?’ The point I was making was that the author was more important than the publisher.”
Janklow and Miller have never met, and they occupy entirely different social universes. Miller is a class warrior. Janklow is a rich corporate lawyer. Miller organized the ballplayers. The only thing Janklow ever organized was his Columbia Law School reunion. But their stories are remarkably similar. The insurgent comes to a previously insular professional world. He studies the prevailing rules of engagement, and is aghast. (For New Yorkers of a certain age, apparently, nothing represents injustice quite like the landlord’s contract.) And when he mounts an attack on what everyone else had assumed was the impregnable fortress of Capital, Capital crumbles. Comrade Janklow, meet Comrade Miller.
Why did Capital crumble? Maury Greenbaum had no doubt been glowering at upstart agents for years and no one had ever challenged him before. Bobby Bonds was as deserving of a big contract as his son. So what changed to allow Talent’s value to be realized?
The economists Aya Chacar and William Hesterly offer an answer, in a recent issue of the journal Managerial and Decision Economics, by drawing on the work of Alan Page Fiske. Fiske is a U.C.L.A. anthropologist who argues that people use one of four models to guide the way they interact with one another: communal sharing, equality matching, market pricing, and authority ranking. Communal sharing is a group of roommates in a house who are free to read one another’s books and wear one another’s clothing. Equality matching is a car pool: if I drive your child to school today, you drive my child to school tomorrow. Market pricing is where the terms of exchange are open to negotiation, or subject to the laws of supply and demand. And authority ranking is paternalism: it is a hierarchical system in which “superiors appropriate or pre-empt what they wish,” as Fiske writes, and “have pastoral responsibility to provide for inferiors who are in need and to protect them.”
Fiske’s point isn’t that one of these paradigms is better than the rest. It is that, as human beings, we choose the relational form that’s most appropriate to a particular circumstance. Fiske gives the example of a dinner party. You buy the food at the store, paying more for those items which are considered more valuable. That’s market pricing. Some of the people who come may have been invited because they invited you to a dinner party in the past: that’s equality matching. At the party, everyone is asked to serve himself or herself (communal sharing), but, as the host, you tell your guests where to sit and they do as they are told (authority ranking). Suppose, though, you were to switch the models you were using for your dinner party. If you use equality matching to acquire the food, communal sharing for your invitations, authority ranking for the choice of what to serve, and market pricing for the seating, then you could have the same food, the same guests, and the same venue, but you wouldn’t have a dinner party anymore. You’d have a community fund-raiser. The model chosen in any situation has a profound effect on the nature of the interaction, and that, Chacar and Hesterly maintain, is what explains Talent’s transformation: across the professional world, relational models suddenly changed.
When Miller took over the players’ union, in 1966, the game was governed by the so-called reserve clause. It was a provision interpreted to mean that the club owned the rights to a player in perpetuity—that is, from the moment a player signed a minor-league contract, he belonged to his team, and no longer had any freedom of choice about where he played. Whenever Miller, in his early years as the union’s head, was speaking to players, he would pound away at how wrong that system was. “At every meeting,” he said, “I talked about how the reserve clause made them pieces of property. It took away all their dignity as human beings. It left them without any real bargaining power. You can’t bargain if the employer can simply say, ‘This is your salary and if you don’t like it you are barred from organized baseball.’”
But it wasn’t easy to convince the players that the reserve clause was an indignity. Miller remembers running into the Yankees’ ace Jim Bouton, and listening to Bouton argue, bafflingly, that the reserve clause somehow preserved the continuity and integrity of the game. “I ran into that kind of thinking over and over,” Miller says.
The attitude of the players was a textbook example of authority ranking. The players didn’t see themselves as exploited. Their salaries may not have been as high as they could have been, but they were higher than those of their peers back home. And the owners took care of them in the paternalistic way that superiors, in an authority-ranking system, take care of their subordinates: an owner might slip a player a fifty-dollar bill after a particularly good game, or pick up his medical bills if his child was sick. The players were content with the reserve clause because they had a model in their heads that said their best interests lay in letting the owners call the shots. “The implicit assumption in economics is that agents who find themselves on the short side of a bargaining regime will aggressively seek greater parity,” Chacar and Hesterly write. “This reasoning, however, presumes that agents view economic relationships through a market lens”—and until Miller worked his magic the players simply hadn’t made that leap.
Even on Wall Street, authority ranking held sway. In 1956, the head of Goldman Sachs, Sidney Weinberg, took the Ford Motor Company public, in what was at that point far and away the biggest initial public offering in history. As Charles Ellis, in “The Partnership,” describes the deal:
When Henry Ford had asked Weinberg at the outset what his fee would be, Weinberg had declined to get specific; he offered to work for a dollar a year until everything was over and then let the family decide what his efforts were really worth. Far more than the actual fee, Weinberg always said he appreciated an affectionate, handwritten letter he received from Ford, which says, along with other flattering things, “Without you, it could not have been accomplished.” Weinberg had the letter framed and hung in his office, where he would proudly direct visitors’ attention to it, saying: “That’s the big payoff as far as I’m concerned.” He was speaking more literally than his guests knew. The fee finally paid was estimated at the time to be as high as a million dollars. The actual fee was nowhere near that amount: For two years’ work and a dazzling success, the indispensable man was paid only $250,000. Deeply disappointed, Sidney Weinberg never mentioned the amount.
Let us enumerate all the surreal details of that transaction. A dollar a year? No banker today would so completely defer to a client on the details of his compensation, or suppress his anger at being tossed such a meagre bone, or point triumphantly at a thank-you letter as the real payoff. Weinberg was at that time the leading investment banker on Wall Street. He was so “indispensable” that the parties to the transaction (the Ford I.P.O. was an enormously complex deal involving both the Ford family and the Ford Foundation) fought over who would get to retain him. Weinberg had enormous leverage: a banker in the same position today would have held Ford for ransom. But he chose not to. He didn’t create a bidding war between family and foundation; he chose to swallow his pride and profess to be happy with a handwritten note. That’s authority ranking: Weinberg’s assumption was that he worked for Ford; that if the client gave him two hundred and fifty thousand dollars for two years’ work on the biggest deal of all time then he was obliged to accept it.
What has changed today is not just that there is an extra zero or two on the end of that fee. What has changed is that the investment banker now perceives the social relations between client and banker as open to negotiation. When Roger Martin, of the University of Toronto, says that the talent revolution represented a change in sensibility, this is what he means. Maurice Greenbaum, sneering over his pince-nez at Janklow, represented the last gasp of the old order. He assumed that the social relations of publishing were settled. Janklow, on the other side of the table, was the new breed. He assumed that they were up in the air.
In the mid-nineteen-seventies, private-equity managers like Teddy Forstmann and Henry Kravis pioneered the practice of charging the now common sum of “two and twenty” for managing their clients’ money—that is, an annual service fee of one and a half or two per cent of assets under management, in addition to a twenty-per-cent share of any profits. Two and twenty was the basis on which the modern high-end money-management world was built: it is what has created billionaires where there were once only millionaires. Why did Forstmann do it? Because, he says now, “I wanted to be a principal and not an agent.” He was no longer satisfied with a social order that placed him below his investors. He wanted an order that placed him on the same plane with his investors.
Why did the Hollywood agent Tom Pollock demand, in 1975, that Twentieth Century Fox grant his client George Lucas full ownership of any potential sequels to “Star Wars”? Because Lucas didn’t want to work for the studio. In his apprenticeship with Francis Ford Coppola, he’d seen the frustrations that could lead to. He wanted to work with the studio. “That way, the project could never be buried in studio hell,” Pollock said. “The whole deal came from a fear that the studio wouldn’t agree to make the movie and wouldn’t let it go. What he was looking for was control.”
At that same moment, the world of modelling was transformed, when Lauren Hutton decided that she would no longer do piecework, the way every model had always done, and instead demanded that her biggest client, Revlon, sign her to a proper contract. Here is Hutton in an interview with her fellow-model Paulina Porizkova, in Vogue last year:
PAULINA PORIZKOVA: Can I ask a question? What was modeling like in 1975?
LAUREN: We modeled by the hour before 1974 or 1975. A good working model would have six jobs a day. You’d get a dollar a minute, $60 an hour. . . . So when the Revlon thing came, suddenly it was no longer about $60 an hour. I was getting $25,000 a day, and that was shocking.
PAULINA: How did that happen?
LAUREN: I read an article about a sports guy named Catfish Hunter on the bottom right-hand corner of the New York Times front page one day. It said he was going to get a million-dollar contract. . . . Veruschka had retired; Twiggy had retired; Jean Shrimpton had retired. All the stars were gone. Dick Avedon had no choice but to work with me continually. I yelled over to my boyfriend and asked, “How do you get a contract?” He didn’t even take a second to yell back: “Don’t tell them. Don’t do any makeup ads. Just refuse to do it. Tell all your photographers you want a contract.” Avedon got it like that, and after six months, that was it. . . . It took six months to work out a contract that had never been worked out before, and basically all contracts [after that] were based on that.
PAULINA: Lauren, I salute you. I got my house because of you.
Catfish Hunter, of course, pitched for the New York Yankees. He was the first baseball player Marvin Miller liberated from the tyranny of the reserve clause. The insurgent comes to a previously insular professional world. She studies the prevailing rules of engagement, and when she mounts an attack on what everyone had assumed was the impregnable fortress of Capital, Capital crumbles. Comrade Hutton, meet Comrade Miller.
At one of the many meetings that Miller had with each baseball team when he first took over as union boss, a player stood up and hesitantly asked a question: “We know that you have been working for unions for most of your adult life, and we gather from what general managers and club presidents and owners and league presidents and the commissioner’s office are telling us that they don’t like you. So what we want to know is, can you get along with these people? Or is this going to be a perpetual conflict?”
Miller tried to answer as truthfully as he could: “I said, ‘I think I can get along with most people. But you have to remember that labor relations in this country are adversarial. The interests of the owners and your interests are diametrically opposed on many things, and you can’t hold up as a standard whether they like me.’ Then I said, ‘I’m going to go further. If at any time during my tenure here you find there’s a pattern of owners and owners’ officials singing my praises, you’d better fire me. I’m not kidding.’”
Miller knew firsthand, from his days with the United Steelworkers, how important the lessons of class solidarity and confrontation were. The men who worked in the mills had few financial or social resources. They could not threaten to go to the mill across the street, because their own mill could easily replace them. But a roller operator at U.S. Steel, by standing firm with his fellow-steelworkers, saw the $2.31 an hour he made in 1948 rise to $2.56 in 1950, $2.81 in 1952, up again the next year to $2.90, and then to $2.95, and on and on, rising steadily to $3.57, in 1958.
Miller’s goal was to get his ballplayers to think like steelworkers—to persuade members of the professional class to learn from members of the working class. His great insight was that if you brought trade unionism to the world of talent—to a class with great social and economic resources, whose abilities were exceptional and who couldn’t easily be —you wouldn’t be measuring your success in fractions of a dollar anymore. The class struggle that characterized the conventional world of organized labor would turn into a rout. And so it did: the share of total baseball revenues paid to baseball players in salary went from ten per cent in the pre-Miller years to near fifty per cent by the beginning of the eighties. By 2003, the minimum salary in baseball was fifty times as high as it was when Miller took over, and the average salary was a hundred and thirty-four times as high. In 2005, Barry Bonds, the little boy playing at Miller’s feet, was paid twenty-two million dollars by the San Francisco Giants—which is not only more than what his father’s teammates collectively received in their lifetimes but more than a good number of baseball’s owners ever made in a single year.
Miller knew that the owners would never sing his praises. How could they, after he had so thoroughly trounced them? Twenty-eight years after his retirement, Miller is still not even a member of baseball’s Hall of Fame, despite the fact that no one outside of Babe Ruth and Jackie Robinson has had as great an impact on the modern game.
“My wife was alive and well one of the last times they voted—three years ago this December,” Miller said, shaking his head at the sheer pettiness of it all. “We had a long talk. She said she had come to the conclusion that some things had had their time, and that this is not funny anymore. She said, ‘You can do what you want, of course. But I think you would do well to ask them not to nominate you anymore.’ I thought about it, and she was right. So I wrote a letter to the group that did the nominating, and I thanked them, but I said we’d all be better off if they didn’t do it again.”
He shrugged. He hadn’t taken over the Players Association for the money. He lives in a plain vanilla high-rise on Manhattan’s Upper East Side. He doesn’t summer in the Hamptons. He was a union man—and in his world you measured your success by the size of the bite you took out of Capital. “I guess I have to remember what I said to the players originally,” he said, after a moment’s reflection. “If the owners praise me, fire me.”
But, if one side so thoroughly dominates another in the marketplace, is it really market pricing anymore? A negotiation in which a man can get paid twenty-two million dollars for hitting a baseball is not really a negotiation. It is a capitulation, and the lingering question left by Miller’s revolution is whether the scales ended up being tilted too far in the direction of Talent—whether what Talent did with its newfound power was simply create a new authority ranking, this time with itself at the top. A few years ago, a group of economists looked at more than a hundred Fortune 500 firms, trying to figure out what predicted how much money the C.E.O. made. Compensation, it turned out, was only weakly related to the size and profitability of the company. What really mattered was how much money the members of the compensation committee of the board of directors made in their jobs. Pay is not determined vertically, in other words, according to the characteristics of the organization an executive works for; it is determined horizontally, according to the characteristics of the executive’s peers. They decide, among themselves, what the right amount is. This is not a market.
Chacar and Hesterly observe that in the modern knowledge economy the most successful and profitable industries aren’t necessarily those with the talented employees. That’s because Talent can demand so much in salary that there’s no money left over for shareholders. Retail banking—the branch down the street where you have your checking account—is a more reliable source of profits, Roger Martin says, than the billion-dollar deal-making of investment banks. What do you do when your branch manager threatens to walk if he doesn’t get a big raise? You let him walk. But you can’t do that if you’re Lazard. “The problem with investment banking is that you need investment ” Martin says, “and they become superstars on their own, and, oops, you got a problem—which is that they take all the money.”
When, a few years ago, Robert Nardelli left Home Depot, he was given a severance package worth two hundred and ten million dollars, even though the board of the company was unhappy with his performance. He got that much because he wrote that number into his contract when he was hired, and the reason Home Depot agreed to that provision back then is that Capital has become accustomed to saying yes to Talent, even in cases where Talent does not end up being all that Talented. The problem with the old system of authority ranking was arrogance—the assumption that the world ought to be ordered according to the whims of Capital. The problem with the new order is greed—the assumption that Talent deserves whatever it can extort. As Martin says, the attitude of the professional class has gone from “how much is enough to how much can I get.”
A decade before Marvin Miller came to baseball, Stan Musial, one of the greatest players in the history of the game, had his worst season as a professional, hitting seventy-six points below his career average. Musial then went to the general manager of his team and asked for a twenty-per-cent pay cut from his salary of a hundred thousand dollars. Miller would be outraged by that story: even at his original salary, Musial was grossly underpaid. Miller would also point out that Musial’s team would not have unilaterally raised his salary by twenty per cent if he’d performed brilliantly that season. In both cases, Miller would have been absolutely right. But it is hard—in an era in which failed executives are rewarded like kings and hedge-fund managers live like the robber barons of the Gilded Age—not to be just a little nostalgic for the explanation that Musial gave for his decision: “There wasn’t anything noble about it. I had a lousy year. I didn’t deserve the money.”