I just heard Bill Hemmer on Fox News say
"we" landed a rover on Mars, but he never made the correlation that
government does good things and creates jobs.
Taxpayers created 7,000 jobs for NASA by spending $2.5
billion in tax revenues at corporations whose CEOs often earn 300 times more
than their average employee...just like with defense spending and other
government programs.
Yet Fox News and the Republicans always says
that government is "too big" and doesn't create jobs, even though the
government has always been the largest U.S. employer in history.
What the GOP really means by "big government" is the
spending of taxpayer money on Social Security and Medicare for the employees of
these big corporations, not the funding of big corporations for huge profits and
excessive CEO pay. By contrast, we give over $4 billion every year to big oil
companies and we get no Mars rovers at all.
Another look at CEO pay
The CEO merry-go-round keeps spinning at Yahoo. But the Internet giant's
exiting execs always seem to grab the brass ring. The latest to exit: Scott
Thompson. He lasted four months, long enough to pocket $7 million. His
predecessor, Carol Bartz, left last September, after 20 months. She came in with
a contract worth $42.7 million and left with an exit deal valued at $10.4
million. Her predecessor, billionaire Yahoo founder Jerry Yang, had
returned for a 18-month stint after his hand-picked successor, Terry Semel,
lasted six lucrative years. Semel cleared $230 million in option profits in
2004. He currently has his Malibu mansion up
for sale. The asking price: $50 million. Yahoo workers are riding their
own merry-go-round. Yahoo last month announced plans to lay off 2,000 staff, the
company’s sixth round of mass layoffs since 2008.
Another example - How much has speculative trading cost JPMorgan Chase,
America’s biggest bank, in this spring’s biggest financial scandal? The
estimates now run up to $7 billion. How much has the scandal cost Ina Drew, the JPMorgan
Chase exec who ran the errant trading office — and is now taking the fall
for JPMorgan CEO Jamie Dimon? Analysts are putting the ultimate value of
Drew's total severance package at somewhere near $32 million. JPMorgan
insiders are now claiming that the bank’s trading troubles started
when Drew caught Lyme disease and had to miss long months of work. Fortunately
for Drew, JPMorgan has one whale of a sick leave policy. Despite her long
absences from work, Drew pulled in compensation worth $15.5 million last year.
Florida’s Palm Beach Post has just published its annual listing of the
local area’s top-paid execs. Ranking third, at $13.3 million, Digital
Domain Media Group CEO John Textor. Not a bad take-home for a CEO whose
company reported only $99 million in 2011 revenue — and $141 million in
losses. Given all that, Digital Domain’s former CEO told the Post,
Textor’s pay seems “extraordinarily high.” Textor’s retort? He claimed
that questions about his pay amount to “class warfare.”
The most expensive real estate in Boston now appears to be the executive suite
of the new CEO at the Liberty Mutual insurance company. That new CEO,
David Long, had the suite renovated shortly after he became the firm’s top
exec last summer. The renovation bill: $4.5 million, a tidy sum that comes to
$3,370 per renovated square foot. That bill, notes the Boston Globe’s
Brian McGrory, equals what Americans who take home $100,000 a year make over the
course of their entire careers. For four years running, adds McGrory, Long’s
CEO predecessor at Liberty Mutual averaged $4.5 million a month.
For-profit hospitals are greasing the luxury trail for their CEOs too. Official
filings have just disclosed that Wayne Smith, top exec at the 134-hospital Community
Health Systems chain, took home $21.58 million last year, a slight bump up
from his $20.96 million in 2010. But Community Health Systems firmly
believes in sharing the wealth. The firm's chief financial officer, the
appropriately surnamed Larry Cash, last year took in $8.73 million.
The Facebook shares that Zuckerberg is still holding give him a net worth
over $19 billion, and the 28-year-old seems to have no intention of sharing much
of his new wealth with Uncle Sam. The Wall Street Journal earlier
detailed the tax code loophole — the “grantor-retained annuity trust” —
that Zuckerberg and his fellow Facebook execs are likely using “to
avoid at least $200 million of estate and gift taxes.”
Facebook is avoiding enormously more than this $200 million at the
enterprise level, thanks to the U.S. tax code’s incredibly generous treatment
of stock options. Facebook's exploitation of this option loophole*, Citizens
for Tax Justice calculates, will cost the federal and state governments
about $6.4 billion.
In Sacramento last week, state senators passed legislation that requires
California corporations to annually disclose what they actually pay their five
highest-paid retired executives.
Over in France the newly elected government is filing new regulations that will
cap CEO pay at enterprises where the government holds a controlling interest —
at 20 times the pay of each enterprise’s lowest-paid worker.
Hollande's government will also be pressing the cap at companies, like Renault,
where French taxpayers hold a minority interest. The CEOs get a pay raise when
their workers do.
No CEOs in the world today make more moola than America’s top execs, and no
top execs in America have, over recent years, made more than top execs in
"high-tech". InfoWorld's new annual tally of high-tech’s 50
highest flyers shows 20 pay packages over $20 million.
What are America’s consumers getting for all that money? Not much. The United
States ranks only 13th globally in Internet connection speed. Boston, the U.S.
market with the fastest Internet, ranks only 51st among global urban centers. Cisco,
the U.S. firm that makes a hefty chunk of the Internet’s plumbing, last year
handed its billionaire CEO, John Chambers, $12.9 million. Over the course of
that year, Chambers axed over 12,000 jobs.
Canada’s Institute for Governance of Private and Public Organizations
called on corporate boards to eliminate stock option packages that have
ballooned executive paychecks in both Canada and the United States. These
"options" are also tax gimmicks for paying lower income tax rates
(capital gains taxes).
But Canada's IGPPO's new policy paper doesn’t just recommend overhauling how
today’s corporate executives get paid. The paper takes direct aim at how much,
urging “a fair and productive relationship” between executive and worker
pay.
Institutional investors (big banks, Bain Capital, etc) continue to insist
that executive compensation, short- and long-term alike, must be linked to a
“performance” that changes in share price value so that they can somehow
accurately measure.
Institutional investors consider stock options — and other rewards linked to
share values — “at-risk compensation.” With this “at-risk
compensation,” the assumption goes, executives only realize ample rewards if
they create real marketplace value for shareholders.
But this faith in the “efficiency” of markets, this trust in share trading
values as a marker that can sort out good from bad executive “performance,”
cannot withstand even the most casual of reality checks.
“Numerous factors beyond the control of management,” as Pay for Value
points out, drive share prices. Stock market booms lift all boats, and those
fortunate enough to occupy a boom-time captain’s chair “become very rich.”
And if a market boom should stumble, enterprising CEOs can always game share
prices on individual stocks “through accounting gimmickry” or kindle the
“infatuations” and “mass hysteria” that can send a share price soaring.
(They also use stock buybacks).
The Canadians behind Pay for Value spend most of their paper discussing
executive pay in the United States. They trace CEO pay's evolution from the
“managerial capitalism” of the mid 20th century to a late-century
“financial capitalism” totally devoted to maximizing “shareholder
value.”
Under “managerial capitalism,” shareholders typically held on to their
shares six to eight years, share price fluctuations had next to no impact on the
annual cash salary and bonus that made up the bulk of CEO pay, and compensation
for top executives averaged no more than 30 times worker pay.
Under “financial capitalism,” the average holding period for shares of stock
dropped to under a year, and share price fluctuations came to determine the bulk
of executive compensation. Top execs now take home hundreds of times the
paychecks that go to their workers.
And because these stock options are not taxed as "regular wages" but
as "capital gains", these corporate execs pay a much lower tax rate
for federal income taxes -- and pay no Social Security or Medicare taxes
whatsoever on this type of personal income.
This new corporate pay pattern has now become “standardized.” Virtually all
major companies,” notes Pay for Value, sport the same executive pay
line-up of salaries, bonus, stock awards, and exceedingly generous pension
benefits.
These generous pension — and related severance — benefits effectively
insulate CEOs from any iota of real “risk.” Whatever happens, they’ll
still pocket mega millions at the end of the day. That “high risk-high
reward” justification for our North American executive pay status quo, notes Pay
for Value, “rings hollow.”
“Social trust, reciprocity, loyalty, sharing of goals, and pride in the
organization,” observes Pay for Value, “will dissipate slowly but surely
where compensation schemes are viewed by employees as unfair and dramatically
skewed in favor of the few.”
But the authors of Pay for Value, after this eloquent denunciation of top-heavy
corporate reward systems, shrink back in horror from the one already legislating
CEO pay reform that could advance their pay reform agenda. They refuse to
endorse the pay ratio disclosure mandate enacted in the 2010 Dodd-Frank bill.
This Dodd-Frank mandate requires that all publicly traded corporations annually
reveal the ratio between their CEO and median worker pay. What better way to
encourage corporate boards to adopt, as Pay for Value advises, a pay
ratio between execs and workers that will seem “fair” in the “social,
cultural and industrial circumstances within which the company operates.”
Pay for Value inexplicably gags on this disclosure notion. Such
disclosure, the paper argues, might provide “fodder for sensationalistic
reporting.” Corporations should only “have to declare in official filings
that their board of directors has adopted policies on fair and equitable
compensation.”
A truly bizarre position. Canada’s Institute for Governance of Private and
Public Organizations is arguing, in effect, that we should trust corporate
boards, in the absence of the public oversight that ratio disclosure would
enable, to voluntarily set reasonable pay ratios between top and bottom within
their enterprises.
Corporate groups will no doubt seize on this Pay for Value opposition to
Dodd-Frank’s pay ratio disclosure mandate. They’ll use this opposition to
advance their ongoing — and so far successful — lobbying campaign to stall
the new mandate’s enforcement.
The rest of us can honor the spirit of the Pay for Value’s overall
analysis by urging regulators at the Securities and Exchange Commission, the
federal watchdog over Wall Street, to stop dragging their feet and start issuing
the regulations needed to put the Dodd-Frank disclosure mandate into play.
A campaign to press the SEC on pay ratio disclosure is already underway. This
campaign needs to succeed.
“Fundamental changes in compensation practices,” as the authors of Pay
for Value themselves put it, “will happen only if and when management’s
performance is measured more by the way the company meets its broader
obligations and less by growth in earnings per share and by meeting the
quarterly earnings expectations of analysts.”
Economist Lars Osberg has been writing about income distribution since the
1970s. Back all those years ago, few other scholars shared his preoccupation.
Income distribution, as a field of study, had turned rather boring. America's
incomes had been trending more equal ever since the New Deal, and that trend
seemed all but certain to continue. Income distribution struck most researchers,
Osberg remembers, as “about as interesting as watching grass grow.”
But things have changed since then. Income distribution, in our Great Recession
and Occupy movement world, has suddenly become a hot topic, and now the heat is
on.
That equalizing trend (that seemed so boringly eternal back in the 1970s) has
totally reversed. The United States and Canada, the two nations Osberg knows
best, have been growing ever more unequal.
Our political system either has to intervene or we’ll have a real disaster on
our hands. And that disaster will surely come economically, Osberg argues,
because our U.S. and Canadian economies, left to their own devices, have nothing
going on within them that could increase our lowest incomes. Half of the entire
U.S. work force earn less than $25,000 a year, thanks to low paying jobs at Staples,
Wal-Mart, and McDonalds.
In Mexico, by contrast, the economic bedrock is shifting. Mexico’s movers and
shakers had a1997 intervention — initially known as the Progresa, now the
Oportunidades program — essentially forced upon them.
In 1994, the onset of the NAFTA trade agreement had begun ushering Mexico into
economic crisis, and that same year, Osberg notes, the Zapatista insurrection in
Chiapas province had “forcefully reminded” Mexico’s elite “of the
country’s deep and recent history of violent revolution and civil conflict.”
Continued growth in inequality, Mexico's elite understood, might “push the
populace towards social unrest, with unpredictable consequences.” (Like the
one that drove the Romneys out of Mexico in 1912. Read my post: The
Romney Family Dynasty).
Osberg sees no comparable political pressure in the United States and Canada,
only a “dominant political feedback loop” that translates more income for
the top 1 percent into more political influence for that same elite few.
The political consequence of this increasing 1 percent power: a gridlock that
prevents any move to reforms — like steeply graduated progressive income taxes
— that could temper income inequality. The economic consequence: serial
financial crises that leave “deeper and longer busts in the real economy.”
But until real tax reform is litigated by Congress, we will continue on the
ever-widening income gap between rich and poor, the the CEOs will continue to
extract the maximum from civilization while giving back as little as possible.
But it's not so bad for ALL workers. The world's luxury retailers have new cause
for celebration. Luxury analyst Ron Kurtz says today’s rich are bursting free
from the recession's “frugal fatigue” burden, and savvy luxury retailers,
CNBC reports, are now doubling down on exclusivity to exploit this new yearning
to spend free. The retailers are “keeping prices high and availability low.”
One example: Hermes has built up the waiting list for its signature
handbags. The bags can currently go for $4,000 each.
Gulfstream, the biggest name in private luxury aviation, can’t keep up
with the demand, even with per-plane prices topping $62 million. Gulfstream's
back-order list now stretches 200 planes long.
I guess more private jets for a select few and less and less jobs paying a real
"living wage" is where we're headed for years to come.
* How does the stock-option loophole operate?
Say Facebook hands out to execs a million options each to buy Facebook
shares at $1 a share. These lucky option recipients later “exercise” their
options and buy those shares at that $1 — and then turn around and sell them
at $38, the Facebook going rate at that time.
These option recipients will have to pay income tax on their $37-per-share
profit. But Facebook — as an enterprise — can deduct that $37 off its
corporate income tax. This deduction, of course, will fatten Facebook’s
bottom line and pump up even further the value of the shares Facebook’s
execs are holding.
The pushback against all this Facebook greed grabbing? Two U.S. senators
— Chuck Schumer from New York and Bob Casey from Pennsylvania — did propose
legislation that would subject future wealthy citizenship renouncers like
Eduardo Saverin to a 30 percent capital gains tax rate. But even the bill's
supporters acknowledge that this legislation has no chance whatsoever of passage
in the current Congress....who half are millionaires themselves.
Legislation from Michigan senator Carl Levin that would strike down the much
more significant stock option loophole faces an equally steep path to passage.
New York’s Working Families Party, among other groups, is helping drive
an effort to boost the Levin legislation.
Meanwhile, Fox Business News reported that execs and investors who’ve
“scored famously” from Facebook’s Wall Street debut have
multi-million dollar mansions and $100,000 Porsches “flying off local
shelves” in Silicon Valley.
America’s rich certainly do have cause to celebrate, and Mitt Romney wants to
lower his (and the top percent's) taxes even more, while the rest of us are
still struggling -- when more and more of us are being pushed from the
middle-class into poverty.
Obama wants to change this unfair tax code, but he can't do it by himself.
The American people have to vote for Democrats in Congress...those who are more
likely to propose and pass a fairer tax bill.
READ MY POST: Every year in the U.S. $1 trillion in personal income not taxed
for Social Security or Medicare.
ALSO VISIT: www.toomuchonline.org
