How much should a leader earn? The conventional answer, adopted by economists and managers, is that there should be no limit beyond that which is dictated by their skills and the profit he can provide to his employer. Outstanding salaries and gigantic bonuses? Not necessarily a bad thing, provided that fair compensation is proportional to what the leader produces.
This line of reasoning has numerous supporters inside and outside the academy – in 2013, one of the most prominent American economists, Gregory Mankiw, published a paper explaining why the whole society gains if companies can give unrestricted salaries its employees (and of course if they are free to accept them without constraints). But with the dramatic growth in inequality over the last three decades, mostly driven by the difference between the ‘mid-table’ wages and the top executives pay, the idea became increasingly disputed.
The Economist itself, hardly a liberal publication, has talked about this issue in articles like Executive pay: neither rigged, fair nor. The text is long, but the conclusion is simple: wages so high are not only unjust, but also inefficient, since there is nothing in the available data suggesting that the remuneration paid to CEO’s is aligned with the results they generate. One of the most striking cases is that of Richard Fuld, former CEO of bankrupt Lehman Brothers, who pocketed 500 million dollars in salaries and bonuses between 2000 and 2008, despite of the fact that his company… well, went, bankrupt. The following graph, taken from a study by the Economic Policy Institute, shows the evolution of salaries of CEO’s, as a percentage of the median wage of their respective companies.
But this trend in top salaries is not restricted to profitable companies. In football, at least, the same has been happening at least since the early 90’s. Here at Finance Football we took some time to look at top salaries and reached some interesting conclusions. Here are the four most important.
Coaches are luckier than CEOs (at least in Europe)
Data collection is extremely tricky and difficult, because CEO’s, unlike coaches, are paid in a thousand ways – wages, company shares, bonuses, and even hard-to-value complex financial products. But according to data compiled by consultants, the European highest-paid CEO in 2014 (the last year for which there is reliable data available) was Martin Winterkorn. The Volskwagen boss (who left the company shortly after the scandal of manipulation of CO2 emissions), pocketed an outstanding €14.9 million.
Does it look impressive? Maybe. But you can see better than this in the list of the highest paid head coaches in Europe: Pepe Guardiola (€18 million) and Carlo Ancelotti (€15 million). The table below compares the five highest-paid coaches with the five CEO with better remuneration.
In Portugal, the difference is even more striking. The highest-paid CEO is António Mexia (boss of the electric company EDP), who dovetailed €2.1 million in 2015. But this it is less than half of what received Jorge Jesus, the king of the national coaches (€5 million). The footballing comparison, by the way, was mentioned by Mexia himself. When confronted by the press with his exorbitant compensation, he simply replied that he earns as much “as the right-back of a mid-table club”.
How to earn 300 times the average wage of your country…
A common metric in this kind of comparison is the ratio between the CEO’s compensation and the average salary of paid by its company. It is difficult to apply this to the world of football, because there are no figures for the average salary paid in each club, but it is possible to compare coach’s salaries with the average salaries paid in the respective countries. This is what we did. The conclusion is striking. In the top 20 of the highest paid coaches there are leaders earning 300 times what the average worker takes home by the end of the month.
The ranking order is not exactly the same as the TOP 20 table, because average wages vary widely from country to country. One of the most notable differences is the change in the relative position of Jorge Jesus, coach of Sporting, who becomes the fourth coach in this ranking. This is because the average salary Portuguese is also the lowest at European level, which propels its relative position.
… or 1000 times the minimum wage (yes, with 3 zeroes)
The figures are even more astounding if calculated in order to the Minimum Wage in force in each country. The most striking example: Zidane, the Real Madrid coach, takes home the equivalent of 1,036 minimum salaries. Luis Enrique, the leader of Barcelona, is not far behind. Both coaches ‘advance’ on the table because the Spanish minimum wage is much lower than in England and Germany, for example. Italy doesn’t even have a mandatory minimum wage, so italian coaches don’t show up in this ranking.
The crazy 90’s
Was it always like this? No, definitely not. But it is difficult to prove it, because there are virtually no historical data on the salaries of football coaches.
However, there are some pretty much reliable figures on the evolution of salaries of football players throughout the years, and it is likely that the remuneration of leaders to behaved more or less in line with the major superstars. If top coaches’ pay goes hand-in-hand with best players’ pay, then we can take a look at the later to infer what happened to the former.
These data suggest that in the UK, at least, the beautiful game’s protagonists earn much more today than a few decades ago, and that wage difference began to accentuate in the early 90. In 1960, a player of the Premier League earned only 1.2 times the English average salary, and in 1980 this ratio increased to 4.5. In 2010, the ratio was 50 to 1.