There’s no doubt about it, I‘ve got to stop reading news magazines. There’s
simply too much distressful information there.
We’ve long had a subscription to Newsweektm. We can’t keep
up with it. The latest copy often just lays around on the counter until it
eventually gets pissed on by one (or more) of our cats. Whereupon we throw it
away unread. We really ought to follow our cats’ take on current events. It
would surely help us establish a leveler psychological homeostasis, and keep
our blood pressure under better control.
Before it got pissed on, I managed to catch a small statistic in a sidebar
in the latest Newsweek (June 13, 2005). This had to do with CEO compensation:
In 1980, the average CEO’s compensation as a ratio of an average production
worker’s pay was 42 to 1. By 2004, that ratio had jumped to 358 to 1.
Now I’m sagacious enough to know a little bit about the magnitude of the
responsibilities and expectations placed by the shareholders on the head of
your typical CEO. They are significant. But something’s really gotten out of
hand here. There’s nobody this side of Aldebaran who does anything
worth 358X my salary. That is to say, no single person can be 358X more
skilled, more dedicated, more experienced, more knowledgeable, more effective,
more productive, more inspirational, more canny/savvy, more hardworking, more
valuable than
me or any other "average worker" out there. Nobody.
According to the
Institute for
Policy Studies, executive pay jumped 571 percent between 1990 and 2000.
The explosion in CEO pay over the decade dwarfed the 37 percent growth in
worker pay.
As the IPS calculates it, if the average annual pay for production workers
had grown at the same rate since 1990 as it had for CEOs, their 2000 annual
earnings would have been $120,491 instead of $24,668. Likewise, if the minimum
wage -- which stood at $3.80 an hour in 1990 -- had grown at the same rate as
CEO pay over the decade, it would now be $25.50 an hour, rather than the $5.15
rate it currently is.
There is little correlation between company performance and CEO
compensation. True, if a company does really well, the CEO’s takeaway is
astronomical – mostly as a result of the increased value of stock options.
But if the company’s performance sucks -- it’s merely huge, thanks to
bonuses. Looking at current business events, is there any wonder why there's
such a temptation for a CEO to embark on a little book-cooking exercise to
nudge up his take?
Here’s another sad side of it. CEOs of firms that announced layoffs of
1,000 or more workers earned about 80 percent more, on average, than
executives at 365 top firms surveyed by Business Week. The layoff leaders
earned an average of $23.7 million in total compensation in 2000, compared
with a $13.1 million average for executives as a whole. The top job-cutters
received an increase in salary and bonus of nearly 20 percent in 2000,
compared to average raises in that year for U.S. wage workers of about 3
percent and for salaried employees of 4 percent. (These data were compiled in
2001.)
These huge levels of CEO compensation are
not
the norm for the rest of the industrialized world. Typically, CEO pay in
other industrialized countries is only about one third of what American CEOs
make.
One of President Clinton's principal campaign goals in 1992 was to curb
excessive compensation of corporate executives. True to his word, after being
elected Clinton insisted that the 1993 tax law include a provision limiting
executive pay. As a result, the legislation denied a corporate tax deduction
for pay in excess of $1 million. With the corporate tax rate being 35%, in
effect it cost corporations 35% more to pay their top executives more than $1
million per year. But as is so often the case, the "Law of Unintended
Consequences" then took over. The legislation applied only to cash wages and
not to performance-based compensation and stock options. Bonuses and stock
options, which until then had only constituted a relatively minor portion of
executive compensation, suddenly widened into a giant, greasy loophole in the
law that corporate boards took advantage of to compensate CEOs in a fashion
that would evade corporate tax liabilities. In Washington, as anywhere else,
no good deed goes unpunished.
We needn’t even discuss the well-studied and well-documented relationships
between CEOs and their boards, or more particularly, their board compensation
committees. Being on a compensation committee must be a little bit like dying
and going to Incest Heaven. If I had children, that’d be the job I’d encourage
them to shoot for – professional shill. If you don’t mind using paint thinner
every night to get the grease off your palms…
Well, there are some out there who recognize the eventual chaos that this
situation will cause. Rep. Martin Sabo (D-MN) has offered a new Income Equity
Act (H.R.2691). This act takes a new shot at denying corporations the right to
deduct the excessive pay of top managers from taxable corporate profits. Under
it, the deduction for total executive pay is capped at 25 times the lowest
paid worker in a firm. For example, if a filing clerk at a firm makes $18,000
per year, that business may only deduct $450,000 — or 25 times $18,000 — in
compensation per executive. Under such a provision, companies could reduce
their tax liability by either raising the wage floor or reducing top pay.
According to Sabo, an effective act eliminating the deductibility of pay
accomplishes a number of things. One, it sets a social norm: corporations
cannot expect tax subsidies for excessive and unequal pay. Two, it stimulates
an important national debate about what the appropriate gap between highest
and lowest paid workers should be. Finally, it generates revenue from
corporations that have chosen to heap their profits on a limited few rather
than distribute them widely to all workers. The amount of potential revenue is
not insignificant. If the Income Equity Act had been applied to only the top
two executives at the 365 companies covered in the Business Week pay
survey, the act would have generated tax revenues of over $514 million in 1997
and $493 million in 1998.
Here is the pop quiz following this sad homily:
● What’s the chance, given the
pro-business Neocon political climate pervading the Executive, Legislative
and (soon) Judicial branches of government, that CEO compensation reform can
be effectively implemented?
● Why does the quality of American goods &
services continue to decline as workers become more and more alienated at
their workplaces, and increasingly disenchanted with the prospect of "living
the good life"?
● Why do American CEOs think that their sheer,
arrogant greed will not continue to accelerate the decline in
labor-management relations, resulting in a renaissance of union
organizing activities? (And where can we sign up?)
● When will the Democrats get their heads out of
their anal orifices and exploit these facts for political gain?
I can hardly blame my cats for the way they treat the receipt of this kind
of news. Personally, I think they ought to do a Number 2 on it. It
deserves no less.
Back to Essays...
See also
http://www.aflcio.org/corporateamerica/paywatch/ceou/database.cfm to get a
little closer to home.
Putting the concept of relative organizational value in perspective: As a boy growing up in Baltimore in the 1950’s, I was a huge
Orioles baseball fan. While Brooks Robinson was my "forever" baseball hero
(and I proudly carried his number 5 on my Little League uniform), I also loved
Hoyt Wilhelm, the premier knuckleballer of his time, now a Hall-of-Famer. Hoyt
played for the Orioles from 1958-62.
Hoyt Wilhelm was a great pitcher, with a professional career that stretched
over 20 years -- but he was possibly the worst batter in the history of the
game. The first number of his lifetime batting average was an aught --
.088. He would unfailingly swing at the first 3 pitches thrown to him,
irrespective of their location, speed, angle or spin -- and he looked truly
awful swinging that bat, let me tell you. Most of the time, he sat down after
his 3 swings. Once in awhile, his bat found a loophole in the laws of physics
and it would actually make contact with the baseball. (It’s probably more
accurate to say that the pitcher managed to hit his bat with the thrown ball.)
Even more rarely -- on average, less than twice per season -- the baseball
gods would take it a step further and turn this vagary of science into a hit.
Now consider if I became a professional baseball player tomorrow, in my
decrepit physical condition at age 58. I think I could manage to get at least
one hit, given 400 at-bats in a season and 1200 swinging opportunities
to do so. (I couldn’t look any worse than Hoyt swinging his bat.) There
wouldn’t be anyone in the sport that would get 358X more hits than me
that season, or for that matter, in any season before or after my
rookie debut.
By the way, there’s another strange statistic about
Hoyt Wilhelm that illuminates the
true capriciousness of Nature: He hit a home run in his first major
league at-bat. He never managed to repeat that feat in 431 more at-bat
opportunities during his 20-year playing career. As for the pitcher suffering
the painful ignominy of Hoyt’s first at-bat in 1952, it took a significant
effort to pry his name out of the baseball annals. (History can be generous in
the way it buries details of shameful events.) I now know who he was --
but I shan't divulge his identity here out of respect for his family...
