CEO pay

The "Paid-What-You're-Worth" Myth

It’s often assumed that people are paid what they’re worth. According to this logic, minimum wage workers aren’t worth more than the $7.25 an hour they now receive. If they were worth more, they’d earn more. Any attempt to force employers to pay them more will only kill jobs. 

According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldn’t be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form. 

"Paid-what-you’re-worth" is a dangerous myth.  

Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today’s dollars. Today, America’s largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour. 

Does this mean the typical GM employee a half-century ago was worth four times what today’s typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasn’t much better educated or even that much more productive. He often hadn’t graduated from high school. And he worked on a slow-moving assembly line. Today’s Walmart worker is surrounded by digital gadgets — mobile inventory controls, instant checkout devices, retail search engines — making him or her quite productive. 

The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they’d be unionized if they didn’t come close to matching the union contracts.

Today’s Walmart workers don’t have a union to negotiate a better deal. They’re on their own. And because fewer than 7 percent of today’s private-sector workers are unionized, non-union employers across America don’t have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom. 

By the same token, today’s CEOs don’t rake in 300 times the pay of average workers because they’re “worth” it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards don’t want to be seen by investors as having hired a “second-string” CEO who’s paid less than the CEOs of their major competitors. Either way, the result has been a race to the top. 

If you still believe people are paid what they’re worth, take a look at Wall Street bonuses. Last year’s average bonus was up 15 percent over the year before, to more than $164,000. It was the largest average Wall Street bonus since the 2008 financial crisis and the third highest on record, according to New York’s state comptroller. Remember, we’re talking bonuses, above and beyond salaries.

All told, the Street paid out a whopping $26.7 billion in bonuses last year. 

Are Wall Street bankers really worth it? Not if you figure in the hidden subsidy flowing to the big Wall Street banks that ever since the bailout of 2008 have been considered too big to fail. 

People who park their savings in these banks accept a lower interest rate on deposits or loans than they require from America’s smaller banks. That’s because smaller banks are riskier places to park money. Unlike the big banks, the smaller ones won’t be bailed out if they get into trouble.

This hidden subsidy gives Wall Street banks a competitive advantage over the smaller banks, which means Wall Street makes more money. And as their profits grow, the big banks keep getting bigger. 

How large is this hidden subsidy? Two researchers, Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz, have calculated it’s about eight tenths of a percentage point. 

This may not sound like much but multiply it by the total amount of money parked in the ten biggest Wall Street banks and you get a huge amount — roughly $83 billion a year.  

Recall that the Street paid out $26.7 billion in bonuses last year. You don’t have to be a rocket scientist or even a Wall Street banker to see that the hidden subsidy the Wall Street banks enjoy because they’re  too big to fail is about three times what Wall Street paid out in bonuses.

Without the subsidy, no bonus pool. 

By the way, the lion’s share of that subsidy ($64 billion a year) goes to the top five banks — JPMorgan, Bank of America, Citigroup, Wells Fargo. and Goldman Sachs. This amount just about equals these banks’ typical annual profits. In other words, take away the subsidy and not only does the bonus pool disappear, but so do all the profits.  

The reason Wall Street bankers got fat paychecks plus a total of $26.7 billion in bonuses last year wasn’t because they worked so much harder or were so much more clever or insightful than most other Americans. They cleaned up because they happen to work in institutions — big Wall Street banks — that hold a privileged place in the American political economy. 

And why, exactly, do these institutions continue to have such privileges? Why hasn’t Congress used the antitrust laws to cut them down to size so they’re not too big to fail, or at least taxed away their hidden subsidy (which, after all, results from their taxpayer-financed bailout)? 

Perhaps it’s because Wall Street also accounts for a large proportion of campaign donations to major candidates for Congress and the presidency of both parties. 

America’s low-wage workers don’t have privileged positions. They work very hard — many holding down two or more jobs. But they can’t afford to make major campaign contributions and they have no political clout. 

According to the Institute for Policy Studies, the $26.7 billion of bonuses Wall Street banks paid out last year would be enough to more than double the pay of every one of America’s 1,085,000 full-time minimum wage workers. 

The remainder of the $83 billion of hidden subsidy going to those same banks would almost be enough to double what the government now provides low-wage workers in the form of wage subsidies under the Earned Income Tax Credit.

But I don’t expect Congress to make these sorts of adjustments any time soon. 

The “paid-what-your-worth” argument is fundamentally misleading because it ignores power, overlooks institutions, and disregards politics. As such, it lures the unsuspecting into thinking nothing whatever should be done to change what people are paid, because nothing can be done. 

Don’t buy it. 

American Exceptionalism?

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Author’s note: The info here, per the data source and as noted on the flagpole in the poster, is comparative among OECD member nations, not comparative among all nations of the earth.

The Limits of Power: The End of American Exceptionalism (American Empire Project)

The Myth of American Exceptionalism

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American Exceptionalism?

Where CEOs Earn More than Uncle Sam

A new report that compares the CEO pay and tax bills of America’s largest and most profitable corporations says that many of them are paying their CEO more than the amount of tax they pay to Uncle Sam.

The report, compiled by the Institute for Policy Studies, claims that out of America’s 30 largest corporations, seven paid their CEO more than the amount of federal income taxes they paid last year.

These seven companies together reported more than $74 billion in pre-tax U.S. income, but received a total of $1.9 billion in tax refunds from the IRS. This pegs their effective tax rate at 2.5 percent below (as in minus) zero.

The CEOs of these seven companies received a total of $121 million ($17.3 million on average) in compensation in 2013. The list includes Boeing, Ford, Chevron, Citigroup, Verizon, J.P. Morgan and General Motors.             

Boeing, for instance, showed a pre-tax U.S. incomeof $5.946 billion in 2013, and ended up getting a federal tax refund of $82 million (effective tax rate of -1.4 percent). Boeing CEO W. James McNerney, Jr. received $23.3 million in total compensation in 2013.

J.P. Morgan showed a pre-tax income of $17.229 billion, and ended up receiving $1.316 billion in federal tax refunds – an effective tax rate of -7.6 percent. JP Morgan CEO Jamie Dimon collected $11.8 million in compensation in 2013.

Chevron was the only one among the seven companies that actually paid Uncle Sam. Chevron reported $4.672 billion in pre-tax earnings, and ended up paying $15 million in federal income tax. That’s an effective tax rate of 0.3 percent. Chevron CEO John Watson received $20.2 million in compensation for the year.

The study authors also cast a wider net to look at the top 100 highest-paid CEOs in America. Turns out 29 of them received more in pay in 2013 than the amount paid by their company as federal income taxes.

These 29 CEOs made $32 million on average, and their companies reported a total of $24 billion in pre-tax income. Together, they claimed $238 million in tax refunds, which works out to an effective tax rate of -1 percent.  

Read the full IPS report on CEO pay – Download (pdf)  

 Photo credit - ips-dc.org

Raising Taxes on Corporations that Pay Their CEOs Royally and Treat Their Workers Like Serfs

Until the 1980s, corporate CEOs were paid, on average, 30 times what their typical worker was paid. Since then, CEO pay has skyrocketed to 280 times the pay of a typical worker; in big companies, to 354 times.

Meanwhile, over the same thirty-year time span the median American worker has seen no pay increase at all, adjusted for inflation. Even though the pay of male workers continues to outpace that of females, the typical male worker between the ages of 25 and 44 peaked in 1973 and has been dropping ever since. Since 2000, wages of the median male worker across all age brackets has dropped 10 percent, after inflation.

This growing divergence between CEO pay and that of the typical American worker isn’t just wildly unfair. It’s also bad for the economy. It means most workers these days lack the purchasing power to buy what the economy is capable of producing — contributing to the slowest recovery on record. Meanwhile, CEOs and other top executives use their fortunes to fuel speculative booms followed by busts.

Anyone who believes CEOs deserve this astronomical pay hasn’t been paying attention. The entire stock market has risen to record highs. Most CEOs have done little more than ride the wave.

There’s no easy answer for reversing this trend, but this week I’ll be testifying in favor of a bill introduced in the California legislature that at least creates the right incentives. Other states would do well to take a close look.

The proposed legislation, SB 1372, sets corporate taxes according to the ratio of CEO pay to the pay of the company’s typical worker. Corporations with low pay ratios get a tax break.Those with high ratios get a tax increase.

For example, if the CEO makes 100 times the median worker in the company, the company’s tax rate drops from the current 8.8 percent down to 8 percent. If the CEO makes 25 times the pay of the typical worker, the tax rate goes down to 7 percent.

On the other hand, corporations with big disparities face higher taxes. If the CEO makes 200 times the typical employee, the tax rate goes to 9.5 percent; 400 times, to 13 percent.

The California Chamber of Commerce has dubbed this bill a “job killer,” but the reality is the opposite. CEOs don’t create jobs.Their customers create jobs by buying more of what their companies have to sell — giving the companies cause to expand and hire.

So pushing companies to put less money into the hands of their CEOs and more into the hands of average employees creates more buying power among people who will buy, and therefore more jobs.

The other argument against the bill is it’s too complicated. Wrong again. The Dodd-Frank Act already requires companies to publish the ratios of CEO pay to the pay of the company’s median worker (the Securities and Exchange Commission is now weighing a proposal to implement this). So the California bill doesn’t require companies to do anything more than they’ll have to do under federal law. And the tax brackets in the bill are wide enough to make the computation easy.

What about CEO’s gaming the system? Can’t they simply eliminate low-paying jobs by subcontracting them to another company – thereby avoiding large pay disparities while keeping their own compensation in the stratosphere?

No. The proposed law controls for that. Corporations that begin subcontracting more of their low-paying jobs will have to pay a higher tax.  

For the last thirty years, almost all the incentives operating on companies have been to lower the pay of their workers while increasing the pay of their CEOs and other top executives. It’s about time some incentives were applied in the other direction.

The law isn’t perfect, but it’s a start. That the largest state in America is seriously considering it tells you something about how top heavy American business has become, and why it’s time to do something serious about it.

Ex-CEO Runs Target Into The Ground, Gets More In Severance Than All 17,600 Laid-Off Target Canada Employees Combined

Ex-CEO Runs Target Into The Ground, Gets More In Severance Than All 17,600 Laid-Off Target Canada Employees Combined

Earlier this month, Target’s foray into Canada ended with the closure of all 133 of its stores. That meant that roughly 17,600 Canadian workers lost their jobs. They got severance, which is good. However, according to CBC News, Target’s now ex-CEO’s own walk-away package eclipsed what all those workers put together got, by nearly $5 million.

That doesn’t sound like a huge difference, but when you…

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The Practical Choice: Not American Capitalism or "Welfare State Socialism" but an Economy That's Working for a Few or Many

For years Americans have assumed that our hard-charging capitalism  is better than the soft-hearted version found in Canada and Europe. American capitalism might be a bit crueler but it generates faster growth and higher living standards overall. Canada’s and Europe’s “welfare-state socialism” is doomed.  

It was a questionable assumption to begin with, relying to some extent on our collective amnesia about the first three decades after World War II, when tax rates on top incomes in the U.S. never fell below 70 percent, a larger portion of our economy was invested in education than before or since, over a third of our private-sector workers were unionized, we came up with Medicare for the elderly and Medicaid for the poor, and built the biggest infrastructure project in history, known as the interstate highway system.

But then came America’s big U-turn, when we deregulated, de-unionized, lowered taxes on the top, ended welfare, and stopped investing as much of the economy in education and infrastructure.

Meanwhile, Canada and Europe continued on as before. Soviet communism went bust, and many of us assumed European and Canadian “socialism” would as well.

That’s why recent data from the Luxembourg Income Study Database  is so shocking.

The fact is, we’re falling behind. While median per capita income in the United States has stagnated since 2000, it’s up significantly in Canada and Northern Europe. Their typical worker’s income is now higher than ours, and their disposable income – after taxes – higher still.

It’s difficult to make exact comparisons of income across national borders because real purchasing power is hard to measure. But even if we assume Canadians and the citizens of several European nations have simply drawn even with the American middle class, they’re doing better in many other ways.

Most of them get free health care and subsidized child care. And if they lose their jobs, they get far more generous unemployment benefits than we do. (In fact, right now 75 percent of jobless Americans lack any unemployment benefits.)

If you think we make up for it by working less and getting paid more on an hourly basis, think again. There, at least three weeks paid vacation as the norm, along with paid sick leave, and paid parental leave.

We’re working an average of 4.6 percent more hours more than the typical Canadian worker, 21 percent more than the typical French worker, and a whopping 28 percent more than your typical German worker, according to data compiled by New York Times columnist Nicholas Kristof.

But at least Americans are more satisfied, aren’t we? Not really. According to opinion surveys and interviews, Canadians and Northern Europeans are.

They also live longer, their rate of infant mortality is lower, and women in these countries are far less likely to die as result of complications in pregnancy or childbirth.

But at least we’re the land of more equal opportunity, right? Wrong. Their poor kids have a better chance of getting ahead. While 42 percent of American kids born into poor families remain poor through their adult lives, only 30 percent of Britain’s poor kids remain impoverished – and even smaller percentages in other rich countries.

Yes, the American economy continues to grow faster than the economies of Canada and Europe. But faster growth hasn’t translated into higher living standards for most Americans.

Almost all our economic gains have been going to the top – into corporate profits and the stock market (more than a third of whose value is owned by the richest 1 percent). And into executive pay (European CEOs take home far less than their American counterparts).

America’s rich also pay much lower taxes than do the rich in Canada and Europe.

But surely Europe can’t go on like this. You hear it all the time: They can no longer afford their welfare state.

That depends on what’s meant by “welfare state.” If high-quality education is included, we’d do well to emulate them. Americans between the ages of 16 and 24 rank near the bottom among rich countries in literacy and numeracy. That spells trouble for the U.S. economy in the future.

They’re also doing more workforce training, and doing it better, than we are. The result is more skilled workers.  

Universal health care is another part of their “welfare state” that saves them money because healthier workers are more productive.

So let’s put ideology aside. The practical choice isn’t between capitalism and “welfare-state socialism.” It’s between a system that’s working for a few at the top, or one that’s working for just about everyone. Which would you prefer?

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Walmart custodial worker charged with felony theft after being caught eating junk food on camera. She admits to pinching junk food off the shelves over the course of eight years. Why? She couldn’t afford the food — despite her enormous earnings of more than $11.00 per hour, well above the typical sales associate’s pay. Don’t worry: Walmart’s CEO will still earn his $35 million this year. He makes more in an hour than most of his employees make in a year. Oh, and Winters will probably do more time behind bars than anyone responsible for the Bengali sweat shop fire that killed 116 last year.

(AOL Jobs Newsletter) Winters allegedly was caught by the store’s surveillance cameras eating Oreos that she hadn’t paid for during her evening shifts at a Walmart in Portage, Ind. In response, Walmart Stores Inc. notified police and Winters was charged with felony theft, which could result in jail time for the woman described by Chicago TV station WBBM as the “Oreo Grandma.”

According to the report obtained by TheSmokingGun.com, Winters confessed to authorities that she had stolen cookies at the store in Portage, a city of 36,000 on the southern shore of Lake Michigan. And she’s reportedly conceded that she’s been eating — and not paying for — Oreos, gum and potato chips for more than eight years while working night shifts for Walmart.

According to TheSmokingGun, she told a Walmart investigator that she “simply did not have the monies to legitimately purchase the food items.”

As was reported by CBS-affiliate WBBM, Winters has been earning $11.40 an hour at Walmart — putting her above many of her colleagues at the giant retail chain, which employs about 1.4 million Americans. An incoming sales associate typically earns $8.87 an hour.

After posting bail earlier this week, Penny Winters was released from jail as her case continues.

Why We Should Stop Subsidizing Sky-High CEO Pay

Almost everyone knows CEO pay is out of control. It surged 16 percent at big companies last year, and the typical CEO raked in $15.1 million, according to the New York Times

Meanwhile, the median wage continued to drop, adjusted for inflation. 

What’s less well-known is that you and I and other taxpayers are subsidizing this sky-high executive compensation. That’s because corporations deduct it from their income taxes, causing the rest of us to pay more in taxes to make up the difference.  

 This tax subsidy to corporate executives from the rest of us ought to be one of the first tax expenditures to go, when and if congress turns to reforming the tax code.

We almost got there twenty years ago. When he was campaigning for the presidency, Bill Clinton promised that if elected he’d end the deductibility of executive pay in excess of $1 million.

Once in office, though, his economic advisers urged him to modify his pledge to allow corporations to deduct executive pay in excess of $1 million if the pay was linked to corporate performance – that is, to the value of the company’s shares. (I hate to sound like a told-you-so, but I was the one adviser who wanted the new president to stick to his campaign promise without creating the pay-for-performance loophole.)

Clinton agreed with the majority of his advisers, and a new provision was added to the Internal Revenue Code, Section 162(m), allowing corporations to deduct from their tax bills executive compensation in excess of $1 million, if the compensation is tied to company performance.

How has it worked out? Even Senator Charles Grassley, the ranking Republican on the Senate Finance Committee, agrees it’s been a sham:

162(m) is broken. … It was well-intentioned. But it really hasn’t worked at all. Companies have found it easy to get around the law. It has more holes than Swiss cheese. And it seems to have encouraged the options industry. These sophisticated folks are working with Swiss-watch-like devices to game this Swiss-cheese-like rule.

One such game has been to hand out performance awards on the basis of nothing more than an upward drift in the value of the stock market as a whole, over which the executives played no role other than watch as their company’s stock price rose along with that of almost every other company.

Another game has been to back-date executive stock options to match past dips in the companies’ share price, thereby exaggerating the subsequent upswing and creating fatter “performance” bonuses. 

Not only are shareholders taken to the cleaners by these maneuvers. So are you and I and other taxpayers.

The Economic Policy Institute estimates that between 2007 and 2010, a total of $121.5 billion in executive compensation was deducted from corporate earnings, and roughly 55 percent of this total was for performance-based compensation. Given all the games, it’s likely much of this “performance” was baloney.

So what’s the answer? As I argued 20 years ago, keep the cap at $1 million and get rid of the performance-pay loophole. Executive pay in excess of $1 million shouldn’t be deductible from corporate taxes, period.

CEO Pay

If you don’t think CEOs deserve the millions of dollars pay they get, you have no understanding of the risks they have to take, and how directly responsible they are for the health and success of the business.

Joe Sloe makes a bad call on the shop floor, and $150 of product is not sold because it’s on the wrong shelf.

Joe CEO makes a bad call about market expansion, and $150 million dollars is lost after the the new factory fails to make a profit.

Corporate management makes many, many decisions which are extremely hard to make, which have large and measurable impacts on the health and success of the company, and the job places the managers under immense stress to get it right.

If you’re making decisions where the risk isn’t that you’ll be told you don’t have a job, but where you will have to tell 100, 1000, 10000 people THEY don’t have a job, you can and will demand good pay if you’re skilled enough to do it.

If a company needs to pay someone 10 million dollars to ensure they buy the labour of someone skilled enough to make all the right calls, then thats what the market demands.

Stop hating on some of the smartest, most organised and analytical in the business world because they get paid appropriately.