Friday, December 5, 2008
Posted by Jeff Lipshaw
Over at Concurring Opinions, the always insightful Lawrence Cunningham ponders the seeming immunity to the present financial crisis in the world of baseball salaries.
Baseball salaries versus CEO salaries have always been something of a mystery to me. Why is there not the same populist outcry? Sports salaries are the example I use regularly when we talk about having legislation that limits compensation in any particular area. One could speculate that the difference is performance: baseball players have clear metrics for performance, and they aren't rewarded for destroying value, except that they are! See, e.g., Edgar Renteria, who just signed with the San Francisco Giants for $18.5 million for two years, after having been a complete bust with the (my) Detroit Tigers last year. This is not to defend excessive executive compensation (whatever that is), or excessive law professor compensation, for that matter, but only to wonder about market forces generally.
Here's a quick off-the-cuff theory: the heuristics are such that it doesn't take much to put you in a particular orbit, and once you are in the orbit, it's sticky. Case-in-point: Matt Cassel, who never started a game in college (he was the back-up quarterback his entire career to Carson Palmer and Matt Leinart) will go on the market after one moderately successful year as the fill-in for Tom Brady, because the predictors of success are so opaque that one good year does it. (You heard it here first, by the way. The Detroit Lions, having done this once before with Scott Mitchell, who parlayed one good year filling in for Dan Marino, will bid for Matt Cassel, proving once again that those who fail to learn from history are doomed to repeat it.)
I suppose I ought to tie this back to the legal profession, and I think I can. When I used to be in the business of hiring law firms, I asked myself regularly why we would pay 3X or 4X to a Wall Street law firm, when we could pay X or 2X to a fine firm in St. Louis or Indianapolis or Detroit to do equivalent work. And, indeed, one strategy was to work against the tendency to pay for the premium brand, when, if you looked at the ingredients on the label, the generics were made of the same stuff. Oops, sorry to compare Harvard-Yale-Stanford educated lawyers at, say, Skadden and, say, Baker & Daniels to toothpaste, and even more to use the brand of the law schools to compare the quality of the ingredients!