“The Outrageous Ascent Of CEO Pay”: Corporate Law In The United States Gives Shareholders At Most An Advisory Role
The Securities and Exchange Commission approved a rule last week requiring that large publicly held corporations disclose the ratios of the pay of their top CEOs to the pay of their median workers.
About time.
For the last 30 years almost all incentives operating on American corporations have resulted in lower pay for average workers and higher pay for CEOs and other top executives.
Consider that in 1965, CEOs of America’s largest corporations were paid, on average, 20 times the pay of average workers.
Now, the ratio is over 300 to 1.
Not only has CEO pay exploded, so has the pay of top executives just below them.
The share of corporate income devoted to compensating the five highest-paid executives of large corporations ballooned from an average of five percent in 1993 to more than 15 percent by 2005 (the latest data available).
Corporations might otherwise have devoted this sizable sum to research and development, additional jobs, higher wages for average workers, or dividends to shareholders – who, not incidentally, are supposed to be the owners of the firm.
Corporate apologists say CEOs and other top executives are worth these amounts because their corporations have performed so well over the last three decades that CEOs are like star baseball players or movie stars.
Baloney. Most CEOs haven’t done anything special. The entire stock market surged over this time.
Even if a company’s CEO simply played online solitaire for 30 years, the company’s stock would have ridden the wave.
Besides, that stock market surge has had less to do with widespread economic gains than with changes in market rules favoring big companies and major banks over average employees, consumers, and taxpayers.
Consider, for example, the stronger and more extensive intellectual-property rights now enjoyed by major corporations, and the far weaker antitrust enforcement against them.
Add in the rash of taxpayer-funded bailouts, taxpayer-funded subsidies and bankruptcies favoring big banks and corporations over employees and small borrowers.
Not to mention trade agreements making it easier to outsource American jobs, and state legislation (cynically termed “right-to-work” laws) dramatically reducing the power of unions to bargain for higher wages.
The result has been higher stock prices but not higher living standards for most Americans.
Which doesn’t justify sky-high CEO pay unless you think some CEOs deserve it for their political prowess in wangling these legal changes through Congress and state legislatures.
It even turns out the higher the CEO pay, the worse the firm does.
Professors Michael J. Cooper of the University of Utah, Huseyin Gulen of Purdue University and P. Raghavendra Rau of the University of Cambridge, recently found that companies with the highest-paid CEOs returned about 10 percent less to their shareholders than do their industry peers.
So why aren’t shareholders hollering about CEO pay? Because corporate law in the United States gives shareholders at most an advisory role.
They can holler all they want, but CEOs don’t have to listen.
Larry Ellison, the CEO of Oracle, received a pay package in 2013 valued at $78.4 million, a sum so stunning that Oracle shareholders rejected it. That made no difference because Ellison controlled the board.
In Australia, by contrast, shareholders have the right to force an entire corporate board to stand for re-election if 25 percent or more of a company’s shareholders vote against a CEO pay plan two years in a row.
Which is why Australian CEOs are paid an average of only 70 times the pay of the typical Australian worker.
The new SEC rule requiring disclosure of pay ratios could help strengthen the hand of American shareholders.
The rule might generate other reforms as well – such as pegging corporate tax rates to those ratios.
Under a bill introduced in the California legislature last year, a company whose CEO earns only 25 times the pay of its typical worker would pay a corporate tax rate of only seven percent, rather than the 8.8 percent rate now applied to all California firms.
On the other hand, a company whose CEO earns 200 times the pay of its typical employee, would face a 9.5 percent rate. If the CEO earned 400 times, the rate would be 13 percent.
The bill hasn’t made it through the legislature because business groups call it a “job killer.”
The reality is the opposite. CEOs don’t create jobs. Their customers create jobs by buying more of what their companies have to sell.
So pushing companies to put less money into the hands of their CEOs and more into the hands of their average employees will create more jobs.
The SEC’s disclosure rule isn’t perfect. Some corporations could try to game it by contracting out their low-wage jobs. Some industries pay their typical workers higher wages than other industries.
But the rule marks an important start.
By: Robert Reich, The Robert Reich Blog, August 9, 2015
“From Someone Who Was Raised In Privilege”: Jeb Bush Wants Us To Work More For The Collective Good. Who’s The Socialist Now?
Former governor Jeb Bush’s announcement this week that he thinks people should work more hours puts him in direct opposition to the two leading contenders on the Democratic side – both of whom are pushing proposals that will allow people to work less. This could mean that 2016 will be an election in which work hours play a central role.
Bush’s comment came during a speech in which he listed the things that Americans need to do to reach his target of 4.0% annual GDP growth “as far as the eye can see”: increase labor force participation, work longer hours, and increase productivity. (It was not the first time that Bush said that he thought people should work more – he previously argued for raising the normal retirement age for Social Security.)
The sight of someone who was raised in privilege and relied on family connections to make his careers in business and politics telling the rest of the American public that they have to work more will make good fodder for Bush’s political opponents. But this position is actually held by many people in policy circles in both political parties.
Even if almost no one thinks that Bush’s 4.0% permanent growth target is remotely plausible, those that agree with his premise that Americans need to work more argue that we need more workers in order to sustain economic growth at all. In particular, they posit that, as our population ages, we will have to keep people in the work force beyond the current retirement age and get more hours of work from them each year until they do retire.
This view is striking given that the United States – and most of the rest of the world – has been suffering from the opposite problem for the last eight years: we don’t have enough jobs for the people who want them. The United States, Europe, and Japan all have fewer people working than would like to work because there is insufficient demand in the economy. Obviously we can’t both have a shortage of workers and a shortage of jobs at the same time.
One of the theories that is getting widely (and wrongly) repeated is that none of us will have work because robots are taking all the jobs. But, while the robots taking all our jobs story is an exaggeration, the basic point is right: we are seeing rising productivity, which means that we can produce more goods and services with the same amount of labor. Productivity, including that spurred by technological innovation, is the basis for rising living standards.
Historically, the benefits from higher productivity are higher pay and more leisure – if we go back a century, for instance, work weeks of 60 or even 70 hours a week were common. But while the American work week has been largely fixed at 40 hours a week for the last 70 years, other countries have pursued policies to shorten the work week and/or work year through paid sick days, paid family leave, and paid vacation.
Several European countries have actively pushed policies of work sharing as an alternative to unemployment: the government compensates workers, in part, for a reduction in hours rather than paying unemployment insurance to someone who has lost their job. Germany has led the way in pushing work sharing policies, which is an important factor in its 4.7% unemployment rate. And, as a result of work sharing and other policies, the average worker in Germany puts in almost 25% fewer hours each year than workers in the United States, according to the OECD. Most other wealthy countries are similar to Germany: in the Netherlands, the average work year is 21% shorter than in the US and, in Denmark, it is 20% shorter.
The leading Democratic contenders are proposing policies to bring the US more in line with the rest of the world’s work weeks. Secretary Clinton indicated that she will support paid family leave and paid sick days, although she has not yet produced specific proposals. Senator Bernie Sanders, the other leading contender, also supports paid family leave and paid sick days, and he recently offered a proposal that would guarantee all workers two weeks per year of paid vacation. That might seem like small change compared to the five to six weeks a year that is now standard in Europe, but it would be a huge gain for tens of millions of workers.
There is a long way yet before the parties select their nominees, but if the general election ends up being a contest between Jeb Bush and either Clinton or Sanders, it will present the country’s workers with an unusually clear choice. We will have one candidate who wants to ensure that people can work less but keep the same standard of living, and another who wants people to work more hours and retire later for the good of the country’s economy – and the latter candidate is the one who doesn’t identify as a socialist.
By: Dean Baker, The Guardian, July 12, 2015
“Your Dollars At Work — For The Rich”: We’re Not Talking Trickle Here, We’re Talking Cascading To Privatize Everything
Conservative pundits and politicians routinely divide our U.S. economy into two totally distinct spheres. We have the noble private sector over here, they tell us, and the bumbling, bloated public sector over there.
In reality, of course, we have just one economy, with the private and public sectors inextricably entangled. Each year, in fact, hundreds of billions of tax dollars end up flowing directly into the private sector.
The federal government alone, a new Congressional Budget Office report calculates, annually spends $500 billion — that’s half a trillion dollars — to purchase goods and services from private companies. State and local governments spend many billions more on top of that.
We’re not talking trickle here — we’re talking cascade, as our elected leaders rush to privatize services that public employees previously provided.This massive privatization of everything from prisons to public schools hasn’t done much of anything to make the United States a better place to live.
On the other hand, this privatization has paid off quite handsomely for America’s most affluent. They’re collecting ever more generous paychecks, courtesy of the tax dollars the rest of us are paying.
In Washington, D.C., for instance, top officials of the private companies that run many of the city’s charter schools are taking in double or triple what traditional public schools take in, or even more.
The CEO at one company that runs five of these charters, The Washington Post recently reported, pulled in $1.3 million in 2013. That’s nearly five times the pay that went to the top public official responsible for the District of Columbia’s 100-plus traditional public schools.
America’s taxpayer-funded military contractors would, of course, consider that chump change. The CEO at Lockheed Martin, for one, personally pocketed over $25 million in 2013.
So do you like this idea of executives in power suits raking in multiple millions of your tax dollars?
Rhode Island state senator William Conley sure doesn’t. He and four of his colleagues have just introduced legislation that would stop the stuffing of tax dollars into the pockets of wildly overpaid corporate executives.
Conley’s bill directs Rhode Island to start “giving preference in the awarding of state contracts” to business enterprises whose highest-paid execs receive no more than 25 times the pay of their median — most typical — workers.
Back in the middle of the 20th century, only a handful of top corporate executives ever made more than 25 times the pay of the average worker. Today, by contrast, only a handful of top execs make less than 100 times median pay.
If Conley’s bill becomes law, the ramifications could be huge.
That’s because we may soon know, for the first time ever, the exact ratio between CEO and median worker pay at every major American corporation that trades on Wall Street.
Five years ago, legislation that mandates this disclosure passed Congress and made it into law. Intense corporate lobbying has been stalling its enforcement, but the stall may soon end. The federal Securities and Exchange Commission finally appears ready to issue the regulations needed to enforce full pay ratio disclosure.
CEO-worker pay comparisons for individual companies will likely start hitting the headlines the year after next. With these new stats, taxpayers will be able to see exactly which corporations feeding at the public trough are doing the most to make America more unequal.
With this information, average taxpayers could then do a great deal. They could, for starters, follow Senator Conley’s lead in Rhode Island and urge their lawmakers to reward — with our tax dollars — only those corporations that pay their workers fairly.
By: Sam Pizzigati, Columnist, OtherWords; Associate Fellow, Institute for Policy Studies: The National Memo, March 25, 2015
“Defending Unions Against The Haters”: Right-To-Work Laws Are Intended To Limit Union Growth
Joining a union is the best investment a worker can make.
Unions need defending, maybe more than ever, because of the attacks they face. The passage of a right-to-work law in Wisconsin and Illinois Governor Bruce Rauner’s proposal for union-free zones show how distorted the lens is when the focus turns to organized labor.
Right-to-work laws are intended to limit union growth, but advocates never cite political motives or antipathy for working people. Instead, their calls for reducing labor market protections are based on the claim that unions restrain personal liberty and restrict economic development.
Nothing is further from the truth.
The “labor hater,” as Martin Luther King Jr. once called the corporate and political conservatives who mobilize against organized labor, argues that if you reduce unionization, economic prosperity will be unleashed. Yes, but for whom? Restricting union growth has always been bad for workers’ economic and political freedom. The cumulative weight of decades of social science has unquestionably demonstrated that union-bargained contracts provide workers with higher incomes, more and better benefits, and a stronger “voice” in the workplace.
Implementing a statewide right-to-work law in Illinois would be punitive for working men and women. According to a 2013 University of Illinois study that I co-authored, workers would suffer an income loss of 5.7 percent to 7.3 percent. Additionally, fewer workers would have health and retirement benefits, and with workers earning less, poverty would likely rise by 1 percent.
As King warned in the 1960s, after mostly Southern states moved to adopt right-to-work, the losses would be particularly harsh on people of color. Per-hour work incomes are at least $2.49 lower in right-to-work states for African-American, Latino, and Asian workers, compared with their wages in collective bargaining states. With lower earnings, annual state income tax revenues in Illinois would shrink by $1.5 billion.
To be fair, Rauner has not called for a statewide law. So what would the effects of a more limited local jurisdiction approach be on Illinois workers?
The premise of the local zones is that unionization suppresses job growth. But like so many claims for opposing policies that protect workers, the criticism doesn’t hold up.
A look at recent data for the Chicago area suggests that union membership levels have no direct correlation to higher unemployment. The opposite’s true, in fact. Around Chicago in 2013, the county with the fewest union members had the six-county area’s highest unemployment rate.
When you look more broadly, you find that the average unemployment rate for all eastern Illinois counties bordering right-to-work Indiana was 5.7 percent, compared with 7.6 percent for those Indiana counties just across the border. And while right-to-work prophets predict a paradise of unparalleled job creation, in 2014, Illinois added 103,000 jobs (fourth highest in the nation), compared with Indiana’s 89,000.
Union defenders should never suggest that collective bargaining is either the primary or sole driver of job creation; nor should right-to-work supporters argue that limiting union dues is a sure-fire way to put people to work.
What is assured is that the loss of income that would result from a reduction of union members will exacerbate existing income disparities. If just half of Illinois’ counties transitioned into “union free zones,” total employee compensation would drop an estimated $1.2 billion.
It’s also possible that with or without right-to-work, employment could spike in Illinois. For example, the state could take up large-scale hydraulic fracturing. But no matter the reasons that jobs appear, what is important is how the workers are valued.
By:Robert Bruno, Professor of Labor and Employment Relations at the University of Illinois at Urbana-Champaign; The National Memo, March 20, 2015
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