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“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

August 17, 2015 Posted by | CEO Compensation, Corporate Law, Public Corporations | , , , , , , , , | 1 Comment

“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

July 13, 2015 Posted by | Bernie Sanders, Hillary Clinton, Jeb Bush | , , , , , , , , | Leave a comment

“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

March 27, 2015 Posted by | Corporations, Economic Inequality, Taxpayers | , , , , , , , | Leave a comment

“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

March 23, 2015 Posted by | Illinois, Right To Work Laws, Unions | , , , , , , , | Leave a comment

“Separating Fact From Advocacy”: How The Media Enable The Anti-Worker Movement

NPR Morning Edition aired a report this week that reeked of anti-union bias, and inadvertently promoted the Koch brothers’ agenda to reduce collective bargaining rights, which means smaller wages and benefits.

The report was rife with errors, missing facts, bollixed concepts, and a meaningless comparison used to impeach a union source.

Below I’ll detail the serious problems with reports by Lisa Autry of WKU Public Radio in Bowling Green, Kentucky, but first you should know why this matters to you no matter where you live.

A serious, very well-funded, and thoroughly documented movement to pay workers less and reduce their rights, while increasing the rights of employers, is gaining traction as more states pass laws that harm workers. A host of proposals in Congress would compound this if passed and signed into law.

News organizations help this anti-worker movement, even if they do not mean to, when they get facts wrong, lack balance, provide vagaries instead of telling details, and fail to apply time-tested reporting practices to separate fact from advocacy.

The advocates are sophisticated. They pose as “nonprofit research organizations,” but are better described as ideological marketing agencies.

There’s nothing wrong with marketing ideology, only with not being honest about what you are doing.

These tax-exempt outfits operate on the model of Madison Avenue; reinforcing instincts, hopes, and desire to stir demand for what may not be good for you or be of dubious effectiveness.

Carefully read, their reports are mostly assertions with a sprinkling of cherry-picked facts and projections, which I have found, reviewing them years later, turned out to be wrong.

Midwestern and southern states have been enacting anti-worker laws that take away collective bargaining rights, while forcing unions to represent people who do not share in the costs of collective bargaining and protecting workers in grievance proceedings. Other laws directly reduce compensation, especially pensions, although police and firefighters are generally shielded.

A key part of this strategy is creating the impression that unions are bad for workers. This goes to a problem that Presidents John Adams and James Madison feared would destroy the nation – the rise of a “business aristocracy” that would trick people whose only income was from wages into supporting policies that would be good for the business aristocrats, but bad for workers.

The NPR report was about Kentucky counties that are passing so-called “right to work” laws, a worthy topic for sure.

Early on, reporter Lisa Autry makes this untrue statement:  “Democrats have rejected efforts to allow employees in unionized companies the freedom to choose whether to join a union.”

No law requires workers to join a union under a binding U.S. Supreme Court decision. Congress outlawed the “closed shop” in the 1947 Taft-Hartley Act, formally known as the Labor Management Relations Act.

Workers at firms with union contracts are only required to pay dues that cover the costs of representing them in negotiating contracts and grievance procedures.

Russell D. Lewis, the NPR Southern bureau chief who edited Autry’s report, told me he was only vaguely aware of the Taft-Hartley Act and did not recognize her error.

From an economic perspective, what so-called “right to work” laws do is allow workers to enjoy the benefits of collective bargaining and contract enforcement without sharing in the costs. This is a form of moral hazard that weakens unions and makes it likely that they will fail because of what economists call the free rider problem: Those who do not share in the costs of negotiating contracts and enforcing them enjoy the same benefits and protections as those who do.

Autry’s NPR report failed to mention a central fact – Kentucky’s highest court ruled in 1965 that cities and counties cannot adopt local collective bargaining laws. In a case that unions brought against Jesse Puckett, mayor of Shelbyville, Kentucky’s highest court ruled (emphasis added):

it is not reasonable to believe that Congress could have intended to [leave to local governments] the determination of policy in such a controversial area as that of union-security agreements. We believe Congress was willing to permit varying policies at the state level, but could not have intended to allow as many local policies as there are local political subdivisions in the nation. It is our conclusion that Congress has pre-empted from cities the field undertaken to be entered by the Shelbyville ordinance.

In reports for her local NPR station, Autry never cited this. She did, however, a report on a politician who told her that equal numbers of people believe a county-level ordinance would be legal or illegal. In another report, on whether counties have the legal authority to pass such laws, she said, “the answer depends on who you ask.”

It took me less than a minute using an Internet search engine to find the 1965 case. It was also cited in a nuanced and balanced January news report in the Louisville Courier-Journal. Even cub reporter Gina Clear of the News-Enterprise in Elizabethtown, KY provided coverage that was balanced and far better informed than Autry’s.

Did Autry fail to report the court decision because of laziness, poor judgment, or anti-union bias? I cannot give you a definitive answer because Autry and Kevin Willis, WKU’s news director, ignored my repeated requests for an interview, passing the buck to Lewis.

Strange, journalists who expect people to return their calls but do not hold themselves to that standard.

My review of several dozen Autry pieces suggests a bias against unions and workers.

Autry tends to quote anti-unionists at length, but paraphrase what union leaders say, though she did one report that explained union perspectives.

She frequently does one-sided reports using language that assumes only anti-union policies have merit, and quotes only anti-union sources. She also did a one-sided report against increasing the minimum wage.

Lewis, the NPR editor, noted that Autry quoted a United Auto Workers local official saying that Alabama and Mississippi, both with so-called “right to work” laws, have “some of the worst education, highest poverty. What happens is that as they reduce the union labor, less and less [sic] people are making a decent wage.”

But Autry followed that quote with a bizarre point to impeach the union official’s remarks: “Actually, since World War II, income and job growth have increased faster in right-to-work states.”

That might be relevant to a story about how Jim Crow laws kept, and still keep, blacks from many well-paying jobs. Or in a story about how taxpayer investments, especially in the Interstate Highways, canals, and electricity, opened the South to building factories after the war.

Autry cited no source. Lewis sent me a report by the Mackinac Center, another libertarian marketing agency.  It is much more nuanced than Autry’s flat statement.

And actually, to invoke Autry’s word, what would be relevant would be current data on household incomes in states with and without laws requiring workers to pay for the benefits they get from any union that represents them.

In 2013 the median household income (half make more, half less) was $49,087 in so-called “right to work” states, but $56,746 in other states. That means in the states with diminished worker rights people have to work a full year plus eight weeks to get what their peers earn in a year.

Autry’s piece and Lewis’s editing seem to violate NPR’s ethics handbook, which says “good editors are also good prosecutors. They test, probe and challenge reporters, always with the goal of making NPR’s stories as good (and therefore as accurate) as possible.”

The handbook also says “attribute everything… When in doubt, err on the side of attributing — that is, make it very clear where we’ve gotten our information (or where the organization we give credit to has gotten its information). Every NPR reporter and editor should be able to immediately identify the source of any facts in our stories — and why we consider them credible. And every reader or listener should know where we got our information.”

In her NPR piece and a number of WKU reports, Autry quotes the Bluegrass Institute, which she describes as “a Kentucky-based think tank that advocates for smaller government.”

With just two employees, it doesn’t have much capacity to think.

What Autry neglected to report was that the Bluegrass Institute is an ad agency for Kochian ideas.  It is also part of a network that is funded by corporate interests closely allied with the American Legislative Exchange Council (ALEC), which poses as a nonpartisan advocate for smaller government and more federalism, but is funded by corporations opposed to unions, the Koch Brothers, and their confreres. While the network says its members are independent, behind closed doors it operates like an ideological Ikea selling libertarian ideas, The New Yorker magazine reported.

Editor Lewis told me he had no idea about the Bluegrass Institute’s connections.

Lewis also indicated he was not troubled by using the term “right to work,” which is both factually inaccurate and politically loaded. Based on the evidence I call them right-to-work-for-less laws. NPR surely should explain to listeners that an abundance of official data (and economic theory) show that union workers make more than their non-union counterparts.

Autry ended her NPR piece with another falsehood: “Meanwhile, several labor unions — including some from out of state — have filed a federal lawsuit to stop Kentucky’s local right-to-work movement.”

All of the unions represent workers in the county where the lawsuit was filed, a fact anyone who read the lawsuit should know. Irwin “Buddy” Cutler, the lawyer who filed the case, noted that to have standing – the right to sue – the union would have to represent workers in the county where the dispute exists.

Lewis said he did not know that, which explains his failure to ask what strikes me as an obvious question. Beyond that, what purpose did ending on this (false) point serve?

NPR owes listeners a corrective. It also needs to balance its reports and use relevant data. More importantly, all news organizations need to be wary of “think tanks” bearing easy information.

 

By: David Cay Johnston, The National Memo, March 21, 2015

March 23, 2015 Posted by | Journalism, Media, Right To Work Laws | , , , , , , , , | Leave a comment

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