Tuesday, September 1, 2015

CEO Greed at a Glance

Since 2004, top U.S. executives have had their companies spend nearly $7 trillion buying up their own corporate stock, an outlay that equals around half of all corporate profits. Buybacks artificially raise corporate share prices and trigger, in the process, performance-based windfalls for top execs.

$7 trillion amounts to about 54 percent of all profits from Standard & Poor’s 500-stock index companies between 2003 and 2012.

Goldman Sachs sent out a note to its clients earlier this summer, warning that Washington was raising concerns over buybacks. “Some lawmakers have linked share repurchases with stagnant wages and a lack of business investment,” the note said.

Senators Elizabeth Warren and Tammy Baldwin suggested that stock buybacks might be a form of market manipulation. Both senators have urged the Securities and Exchange Commission to investigate the practice. (More at the New York Times.)

Publicly traded U.S. corporations, starting in 2017, will have to calculate the ratio between their CEO and typical worker compensation and then publicly disclose that ratio number. Under the new regulations the Securities and Exchange Commission adopted last month, we’ll likely see the first wave of disclosures in spring 2018.

Discovery Communications topped a list of companies with the largest pay difference between their chief executives and median workers. The ratio between CEO David M. Zaslav's pay and the median pay of Discovery workers is 1,951 to 1, according to the study. In 2014, Zaslav made $156 million, while the company's median pay was $80,000.

Disney Chief Executive Bob Iger's base pay was $2.5 million in 2014. But, like many CEOs, his total compensation -- $46.5 million -- was boosted by a performance-based bonus.

Corporate CEOs, technically, don’t set their own sky-high pay. They have corporate boards of directors do that dirty work. This board service pays well, an average $250,000 for showing up at 10 or so meetings a year.

Economist Dean Baker is proposing that corporate directors get not one cent of these generous annual stipends if shareholders vote to reject their company’s CEO pay package. Shareholder “say on pay” votes, required by the 2010 Dodd-Frank Act, currently only count as advisory.

The claim: "In a free market, talent gets rewarded." So asserted last month a Chicago Tribune editorial defending contemporary American corporate CEO pay. Top execs “get the mega paycheck,” the Trib pronounced, because “few people have the skill to run a complex, global, multibillion-dollar corporation.”

Former U.S. senator Ted Kaufman from Delaware could hardly agree less. In a new analysis, Kaufman blows away the rationalizations that apologists for executive excess like the Trib regularly trot out.

Do corporate boards, for instance, shell out the big bucks because they fear their prize CEOs will take their highly rare skills someplace else? One recent study of 1,500 companies over 30 years, Kaufman notes, found only 27 instances where a CEO left one company for a top job at another.

If U.S. CEOs owed their good fortune to the natural workings of the free market, adds economist Dean Baker, then all CEOs operating in that market ought to have a shot at equally good fortune. But all CEOs in our globalized world economy don’t have that same shot.

“The fact that well-run and highly profitable companies in Europe and Asia typically pay their CEOs far less than companies in the United States,” Baker observes in a new commentary, “suggests that it is not necessary to have such exorbitant CEO pay to attract competent managers.”

Democratic Sen. Chuck Schumer supports Corporate Tax Dodge

Democratic Senator Chuck Schumer is teaming up with Republican Rob Portman to give a massive handout to multinational corporations. Chuck Schumer (And Porter) wants corporations to stuff more $$$ into the pockets of corporate executives. The $2.2 trillion corporations have stashed overseas won’t go in to investment and hiring and raising wages --- it will go into stock buybacks and stock options for company execs.

Multinational corporations owe nearly $770 billion in taxes on nearly $2.2 trillion that they have been hiding offshore. Sens. Schumer and Portman have a proposal to let companies bring back that money at a much lower tax rate – and then, going even further by lowering the tax rate on all future income earned overseas.

As a Democrat joining with Republicans to promote this proposal Sen. Schumer is undercutting Democratic Leader Harry Reid on the eve of negotiations to avert a government shutdown. While the current leader of Senate Democrats has gone on the record demanding the super-rich pay their fair share to keep the government running, the leader-in-waiting has sided with multinational corporations at the expense of domestic companies and everyday Americans, even earning praise from the likes of Rep. Paul Ryan. (link, link)

Even if the proposal does not become part of a highway bill deal, it will be dredged up again in future negotiations unless we raise such an outcry right now that we kill it for good.

Senators Schumer and Portman claim that letting corporations bring money back to the U.S. at a one-time, lower tax rate would result in new revenue to fund a long-term extension of the highway bill, instead of the recent regular short-term extensions. But corporations already owe that money anyway – at the full 35% corporate tax rate. Letting multinationals bring money back at 14% or lower would be rewarding companies for dodging taxes for years.

Not only would the proposal result in a massive one-time giveaway, it would create a permanent “territorial” tax system that taxes profits earned overseas at a lower rate. Companies that actually do business here in the U.S. would be at a permanent disadvantage to multinationals who can dispatch a team of lawyers and financial wizards to pretend that profits from selling to U.S. customers were actually earned elsewhere. Putting local businesses at a disadvantage and creating a new incentive for companies to outsource jobs makes no sense, especially in order to fund funding job-creating infrastructure.

The bipartisan proposal by Sens. Schumer and Portman would reward the most successful tax dodgers and create a permanent incentive for multinational corporations to move jobs overseas. We need to expose this handout in a massive way and make it absolutely clear to Congress that such a plan is unacceptable.

Corporations like to whine that the 35% U.S. corporate tax rate puts them at a competitive disadvantage, but the reality is that the actually, effective tax rate after loopholes and deductions is equivalent to other nations. More importantly, while the rest of us have suffered through cuts that cost jobs and hurt our health and our communities, corporations have been failing to pay their fair share.

And despite tenacious activism from CREDO members, multinationals recently managed to drag fast track trade approvals through Congress.

Another massive giveaway to corporations should be dead on arrival in Congress, and the presumed frontrunner for Senate Democratic leader should not be lending his name to it. Dozens of national organizations have already spoken out against this proposal.

We need to show Congress where the American public stands right now. Tell Congress: Oppose the Schumer-Portman corporate tax giveaway.
Sign the petition ► http://act.credoaction.com/sign/Schumer_Portman_corporate_tax

CEOs Invest Overseas for Cheaper Labor

Washington Post (August 20, 2015) "Economists at the Economic Policy Institute wrote in a research paper this week that growing trade deficits and declining factory output are directly responsible for 5 million lost American manufacturing jobs over the past 15 years ..."

EPI (August 19, 2015) "Manufacturing started rapidly declining in 2000, just as the U.S. manufacturing trade deficit began to rise sharply."

* As I noted at my blog (May 9, 2015) We have 67,161 less U.S. factories than we did since 1997.

* As I noted at the EP (September 29, 2014) "Ever since Bill Clinton granted permanent normal trade relations to China, the U.S has lost over 64,000 manufacturing firms and at least 5.8 million manufacturing jobs."

Related CEO Posts

Sarah Anderson, This is why your CEO makes more than 300 times your pay, Fortune, August 7, 2015. Let’s award more government contracts to firms with decent CEO-worker pay ratios.

Robert Reich, The Outrageous Ascent of CEO Pay, August 9, 2015. Let’s also tax firms at higher rates if they overpay their CEOs at worker expense.

Sam Pizzigati, A Welcome New Yardstick for Measuring CEO Greed, TruthOut, August 12, 2015. On the significance of the latest SEC CEO pay regulations.

Marjorie Wood looks at the CEO greed pitting elderly Americans against the workers who care for them.

Jim Hightower wonders whether we need a telethon for shamed ex-corporate execs.


  1. A repatriation holiday in 2004 had no apparent positive effect on domestic investment. Today, the rationale for a repatriation holiday is especially unclear because American firms already have extensive access to cheap capital for domestic investment because of low interest rates and accumulated domestic profits.

    Brookings Institute: Don't Fall for Corporate Repatriation


  2. New York Times: "Mr. Trump has called for higher taxes on hedge fund managers and other people who earn “carried interest” income ... But the fiscal impact of taxing carried interest income at ordinary income rates would be small: about $2 billion a year in added revenue within a nearly $4 trillion federal budget."


    MY QUESTION: If all capital gains were taxed as ordinary income (at the current marginal rates for wages), how much would THAT bring in for additional revenues? Add to that, if capital gains were also taxed for Social Security taxes, how much would THAT bring in for the Social Security trust fund?

    That might make for a very interesting post ;)