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Thursday, July 7, 2011

If sportspersons(cricketers etc) earn millions, why not top MBAs?

During any debate on the causes/effects yadda-yadda of the subprime crisis, especially in online forums, it has become fashionable to trash the high pay of those in the banking/consulting domain. These are seen as low hanging fruit to be easily chopped off, pending the difficult questions of real reform. And even politicans play to the gallery by taxing bonuses, tweaking regulations to mandate lower payouts etc. But sportsmen who earn similar sums(especially in India) are rarely harassed. No one even mentions asking them to pay more than the statutory tax, and often they can get away importing luxury cars etc without paying the appropriate taxes.

At first blush, this comparison may seem absurd. How can you compare a Sachin/Dhoni who earn 'with the sweat of their brow' to the laptop warriors/trading moneys, who can earn and lose millions for themselves/their clients in a fraction? The answer has little to do with underlying skill involved, and more to do with the 'leverage'. The money in cricket comes from broadcasting/advertising revenues, and when the match can reach more people via TV, then the value goes up. Even sponsors are willing to pay millions to both the star and the teams, because they can magnify that exposure. Similarly, consultants/investment bankers working in large global corporations, can leverage those vast global networks and synergies, to create reusable content/ideas/projects etc, and finally to boost the bottom line by outsized amounts.

Like in sports, not all make it. Only the seemingly best are picked, and then ruthlessly discarded by the wayside when they begin to under-perform.  And after tasting the elixir of working with the top brains under the most free conditions, then they may often not be employable elsewhere. No wonder then, that even cold economic logic would justify bumper pay to those lucky few from entry itself, so that others are motivated to compete(akin to lottery), and that this will hedge those few in their times of need(though how much savings remains is an open question).

Another argument dished out is that a top MBA grad may have been elsewhere, if not for that fraction of the cutoff/score. Well, ,life is unfair, more so at the margin. The rewards for being a slight notch better than the other person, results in outsized additional rewards. This is true everywhere. An IIM-A student may draw more than an XLRI student, who may in turn out earn an NMIMS student; even if they had the same work/educational/extra currics profiles at entry. Surely, the difference in their educations is unlikely to have made all the difference, it is merely the brand that carries the day. So if you accept that small differences matter, and that people pay for a reason, then most of the trash arguments about pay will bite the dust.

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