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Forum Post: Corporate Cronyism: The Secret to Overpaid CEOs

Posted 6 years ago on Feb. 17, 2014, 3:37 p.m. EST by LeoYo (5909)
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Corporate Cronyism: The Secret to Overpaid CEOs

Monday, 17 February 2014 10:59 By Dean Baker, Truthout | Op-Ed


It's hardly a secret that the heads of major corporations in the United States get mind bending paychecks. While high pay may be understandable when a top executive turns around a failing company or vastly expands a company's revenue and profit, but CEOs can get paychecks in the tens or hundreds of millions even when they did nothing especially notable.

For example, Lee Raymond retired from Exxon-Mobil in 2005 with $321 million. (That's 22,140 minimum wage work years.) His main accomplishment for the company was sitting at its head at a time when a quadrupling of oil prices sent profits soaring. Hank McKinnel walked away from Pfizer in 2006 with $166 million. It would be hard to identify his outstanding accomplishments.

But you don't have to be mediocre to get a big paycheck as a CEO. Bob Nardelli pocketed $240 million when he left Home Depot after six years. The company's stock price had fallen by 40 percent in his tenure, while the stock of its competitor Lowe's had nearly doubled.

And then we have the CEOs in the financial industry, heads of huge banks like Lehman's, Bear Stearns, and Merrill Lynch, or the insurer AIG. These CEOs took their companies to the edge of bankruptcy or beyond and still walked away with hundreds of millions of dollars in their pockets.

It's not hard to write contracts that would ensure that CEO pay bears a closer relationship to the company's performance. For example, if the value of Raymond's stock incentives at Exxon were tied to the performance of the stock of other oil companies (this can be done) then his going away package probably would not have been one-tenth as large. Also, there can be longer assessment periods so that it's not possible to get rich by bankrupting a company.

If anyone were putting a check on CEO pay, these sorts of practices would be standard, but they aren't for a simple reason. The corporate directors who are supposed to be holding down CEO pay for the benefit of the shareholders are generally buddies of the CEOs.

Corporate CEOs often have considerable input into who sits on their boards. (Some CEOs sit on the boards themselves.) They pick people who will be agreeable and not ask tough questions.

For example, corporate boards probably don't often ask whether they could get a comparably skilled CEO for lower pay, even though top executives of major companies in Europe, Japan, and South Korea earn around one-tenth as much as CEOs in the United States. Of course this is the directors' job. They are supposed to be trying to minimize what the company pays their top executives in the same way that companies try to cut costs by outsourcing production to Mexico, China, and elsewhere.

But friends don't try to save money by cutting their friends' pay. And when the directors themselves are pocketing hundreds of thousands of dollars a year for attending 4-10 meetings, there is little incentive to take their jobs seriously.

Instead we see accomplished people from politics, academia, and other sectors collecting their pay and looking the other way. For example, we have people like Erskine Bowles who had the distinction of sitting on the boards of both Morgan Stanley and General Motors in the years they were bailed out by the government. And we have Martin Feldstein, the country's most prominent conservative economist, who sat on the board of insurance giant AIG when it nearly tanked the world's financial system. Both Bowles and Feldstein were well-compensated for their "work."

Excessive CEO pay matters not only because it takes away money that rightfully belongs to shareholders, which include pension funds and individuals with 401(k) retirement accounts. Excessive CEO pay is important because it sets a pattern for pay packages throughout the economy. When mediocre CEOs of mid-size companies can earn millions or tens of millions a year, it puts upward pressure on the pay of top executives in other sectors.

It is common for top executives of universities and private charities to earn salaries in the millions of dollars because they can point to executives of comparably sized companies who earn several times as much. Those close in line to the boss also can expect comparably bloated salaries. In other words, this is an important part of the story of inequality in the economy.

To try to impose the checks that don't currently exist, the Center for Economic and Policy Research (CEPR) has created Director Watch. This site will highlight directors like Erskine Bowles and Martin Feldstein who stuff their pockets while not performing their jobs.

CEPR also worked with the Huffington Post to compile a data set that lists the directors for the Fortune 100 companies, along with their compensation, the CEOs' compensation, and the companies' stock performance. This data set is now available at the Huffington Post as Pay Pals.

Perhaps a little public attention will get these directors to actually work for their hefty paychecks. The end result could be to bring a lot of paychecks for those at the top back down to earth.

Copyright, Truthout.



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[-] 3 points by DKAtoday (33802) from Coon Rapids, MN 6 years ago

EDIT - What if there were a labor law that stated:

No one ( Boardmember or Owner s or Executive s etc etc etc ) in a business or associated with that business wherein they receive monies from the business in any form - Shall make more than 20% more than the lowest paid Full/Part-time employee of that business - for any monies received/generated by/from that business - this includes wages as well as bonuses stock returns etc etc etc etc etc etc etc.

Ummm Public ( government ) as well as Private sector.

I don't know how you feel about it - But - I think that employers wouldn't be scheduling people for only 8 hrs a week - and that would be only one difference from today's labor practices/abuses. Though I "suppose" that that 8 hr per week worker might get paid like 600.00 or so for that 8 hrs while a 40 hr worker might well receive the same pay only divided out 600.00 by 40 hrs - still I really don't see that happening either as the same conversion rate would travel all of the way to the very top.

[-] 3 points by LeoYo (5909) 6 years ago

Are We Going to Be the Flintstones or the Jetsons?

Monday, 17 February 2014 15:05 By The Daily Take, The Thom Hartmann Program | Op-Ed


America could be flying high with The Jetsons. But instead, we're stuck hoofing it with The Flintstones.

Back in 1966, TIME magazine published an article that looked ahead toward the future, and discussed what the rises of technology and automation would mean for working-class Americans.

From the time of George Washington until the presidency of Ronald Reagan, with a few blips for wars, as American workers became more productive, their wages went up or their working hours went down, or both.

We went from sixty-hour work weeks and poverty wages in the early 19th century, to the fifty-hour work week at the turn of the 20th century with better wages, to solidly middle-class wages and a forty-hour work week by the 1950's.

Whether it was the steam revolution of the early 19th century, the industrial revolution of the late 19th century, or the machine revolution of the early 20th century, as workers were able to make more things – and more profits for their companies – with fewer hours, they shared in the prosperity that was produced by their increased productivity.

So, TIME magazine simply assumed that from 1966 to the year 2000, as computer and advanced mechanization made American workers more productive, that their wages would go up and their work week would go down.

The article concluded that, "By 2000, the machines will be producing so much that everyone in the U.S. will, in effect, be independently wealthy. With government benefits, even nonworking families will have, by one estimate, an annual income of $30,000-$40,000. How to use leisure meaningfully will be a major problem."

That $30,000-$40,000 by the way is more like $215,000 - $288,000 in today's dollars!

And it wasn't just TIME magazine predicting such a luxurious future for America.

Back in the 1960's, it was a common belief that the rise of technology and automation would mean increased productivity in America, which in turn would mean more money and fewer hours worked for American workers.

After all, it had always been that way in America.

The rationale behind that belief was pretty simple.

With increased technology, companies would be able to produce more and be more efficient on a per worker basis.

Revenues would soar, and profits would be passed along to those workers, who'd be making more and working fewer hours.

Back in 1966, everyone thought that by the year 2000, America would be "The Leisure Society."

They thought that our biggest worries would be how to use all of our time off, where to go on our many vacations, and what sort of intellectual and artistic pursuits the middle-class would choose to explore in the 21st century.

But that logic all hinged on the top marginal income tax rate remaining at 70 percent, where it was in 1966.

After CEO's had earned their first million or two, they started hitting that top tax bracket, and simply stopped taking more pay.

After all, who wants to pay 70 percent income tax?

This is why, for about 50 years, CEO's earned about 30 times what their average workers earned.

That high income tax rate thus encouraged CEO's to keep money in their businesses, invest in new technology, pay their workers more, and hire new workers so their businesses could expand.

As businesses became more profitable thanks to investments in automation and technology, workers saw more of those profits, and increasing standards of living and more leisure time.

And TIME magazine, in 1966, assumed that that trend would continue right through to the beginning of the 21st century.

But then Reagan came along, slashed income taxes, and everything changed. The idea of "The Leisure Society" blew up.

In 1981, Ronald Regan introduced his Economic Recovery Tax Act, which slashed the top marginal income tax rate from 70 to 50 percent, cut estate taxes for wealthy businesses, and slashed corporate-profit and capital gains taxes too.

And just a few years later, Reagan again lowered the top income tax rate to 28 percent, a level that hadn't been seen since the early 1920's, a low tax rate is blamed by many economists for causing the bubble that led to the Great Depression.

So, how did the Reagan tax cuts doom today's working-class Americans' opportunity for a life of leisure that TIME magazine foresaw?

When the TIME article came out in 1966, working people's wages had stayed even with productivity levels since 1900.

So, people thought back then that if productivity continued to rise, which was likely, thanks to increases in automation and gains in technology, wages would rise too.

Thanks to Reagan however, although businesses did become more profitable, there was less of an incentive to share the wealth. Because of historically low income tax rates, CEO's pulled profits out of their companies and filled their Swiss bank accounts, all at the expense of working-class Americans.

All the new profits that were created by gains in automation and technology, from the 1980's to today, and that were supposed to be shared with working people, giving us all higher paychecks and more time off, instead went to the wealthy elite.

Productivity continued to rise as it had for more than 200 years of American history, but for the first time, wages stalled since 1980.

The connection between wages and productivity, which had been tied together since 1900, disappeared.

Worker productivity continued to increase thanks to constant improvements in technology, but their wages stayed flat.

Working people's paychecks didn't increase, and neither did their time off.

Back in the 1950's, the average American working in manufacturing worked around 42 hours per week.

Today, an average American working manufacturing is working around 40 hours per week.

Even though productivity has increased 400 percent since 1950, Americans are working, on average, just two hours per week less, and are paid the same or in many cases even less than they were paid in 1950.

If productivity is four times higher today than it was in the 1950's, then Americans should be able to work just ten hours per week to afford the same 1950's lifestyle when a family of four could get by on just one paycheck, own a home, own a car, put their kids through school, take a couple vacations a year, and retire comfortably.

That's the very definition of "The Leisure Society": ten hours of work a week, and the rest of the time spent with family, with travel, with playing golf, with going to the movies, with whatever you want.

But "The Leisure Society" was doomed the minute Ronald Regan decided to slash taxes on the rich in America.

It's time to undo the damage done by Reagan, and roll-back the Reagan tax cuts for the rich, that have let the wealthy elite prosper, while working people got screwed.

Only when the Reagan Revolution is reversed will every American again reap the rewards of increases in productivity in technology.

Let's step out of the Flintstone age, and hop on-board with the Jetsons.

This article was first published on Truthout and any reprint or reproduction on any other website must acknowledge Truthout as the original site of publication.

[-] 2 points by LeoYo (5909) 6 years ago

Why the First Issue Is Money in Politics

Monday, 17 February 2014 12:56 By John Light, Moyers & Company | News Analysis


Constitutional scholar and activist Lawrence Lessig, whose march through New Hampshire to get money out of politics is featured on our broadcast this week, often says that his crusade is the most urgent in America because it impacts virtually every other issue. From achieving tax reform to fighting climate change to strengthening the social safety net, we will see no progress until the wealthy entities that benefit can no longer buy up politicians to prevent the status quo from changing.

“The people who want to stop reform will pay an enormous amount of money to be able to achieve that,” Lessig told us when we met during his march. “…What this system has done is made the politics of dysfunction incredibly profitable.” Some lobbyists, he noted, even advertise their ability to exploit the system and use legislators to “delay and obstruct” progress in Congress.

“We will never get your issue solved until we fix this issue first,” Lessig said in a TED talk last year. “So it’s not that mine is the most important issue. It’s not. Yours is the most important issue, but mine is the first issue, the issue we have to solve before we get to fix the issues you care about.”

Here are five examples of issues beaten into stasis by a barrage of big money.


One example Lessig cites — one that motivates many progressives — is climate change.

“If you are a coal company who’s against the idea of climate change legislation, this [political system] is a boon for you,” he said, “because it’s trivial and cheap to be able to leverage your money, to guarantee nothing ever happens to adjust climate change.”

It’s a scenario America has seen play out time and again, most recently in 2009-10, when cap and trade, an idea that originated with the Reagan administration and had Republican support, seemed to have a real chance of working its way through Congress.

But in 2009, thousands of lobbyists representing energy and natural resource extraction companies spent more than they ever had before — over $400 million, according to the Center for Responsive Politics. That record was broken the very next year, when spending reached $450 million.

Is it coincidental that in 2010, cap and trade was declared dead? In proposing climate change legislation that year, Sens. John Kerry (D-MA) and Lindsey Graham (R-SC) refused to even discuss cap and trade as a realistic policy suggestion.

It wasn’t until last fall, when President Obama used an executive order to circumvent Congress and cap emissions from coal power plants, that the heaviest polluters faced across-the-board emission restrictions.

A similar story is unfolding right now with the Keystone XL pipeline, a massive project that, once operational, would pump more than 800,000 barrels of crude from Alberta’s tar sands to refineries on the US Gulf Coast — every day. It has become a defining issue for both the oil industry and environmental activists.

The pipeline’s approval is a decision over which a legacy-conscious Obama has vacillated for five years. Following a year of record spending by the American Petroleum Institute, the largest trade association for the oil and natural gas industry, and in the face of growing frustration from red state Democratic senators, earlier this month, the State Department released an environmental impact statement claiming that the project would have little impact on global climate emissions. That statement brought the project one step closer to approval, but the Obama administration cautioned that it was still weighing the pros and cons. A 30-day comment period has begun, during which environmental advocates will continue to encourage the administration to stand up to the oil industry, an outcry the oil industry can be expected to counter with another wave of money.

[-] 2 points by LeoYo (5909) 6 years ago


Tax reform is one key issue that especially inflames conservative activists. And as Lessig pointed out when we spoke, the problem of legislative paralysis knows no political alignment; it stumps would-be reformers on both the right and the left.

“It’s incredibly naïve to believe that this Congress will ever simplify the tax system, because the complexities in the tax system are fund-raising opportunities,” he told BillMoyers.com. “Every single special benefit is a reason and a target to raise more money.

“So the special Research & Development Tax Credit which Ronald Reagan created in 1981, and which was originally a temporary provision but has been temporary ever since, is temporary because each time it’s about to expire they have a long list of beneficiaries they can go to and say ‘Geez, we need to raise some money to support the idea of extending this temporary tax benefit.’”

In fact, as NPR reported, Congress annually rings in the New Year by letting dozens of tax breaks expire. There immediately follows a healthy round of campaign contributions, as lobbyists for a slew of industries — from overseas financial operators to rum retailers, from movie producers to racetrack operators — scramble to get those tax breaks reinstated.

Food Stamps

The recent farm bill cut food stamps even further than the already severe cuts implemented in 2013. But it preserves a different sort of safety net: subsidies for big agriculture.

According to the Center for Responsive Politics, in both 2008 and 2013, the two most recent years that the farm bill has come before Congress (it’s renewed every five years), agribusiness spent more than $145 million on lobbying.

Recipients of food stamps, of course, don’t have the same kind of lobbying muscle to advocate on their own behalf. In a Congress pushing austerity, the programs that help the poor continue to hit the chopping block while recipients of corporate welfare can afford a hearty defense to protect their benefits.

In fact, both in 2008 and in 2013, although legislation to roll back agricultural subsidies had bipartisan support, the effort to do so fell apart.

And even though subsidies were “reformed” this year, The New York Times reports that in practice, these reforms mean little.

“It’s a classic bait-and-switch proposal to protect farm subsidies,” Vincent H. Smith, an economist at Montana State University, told the Times. “They’ve eliminated the politically toxic direct payments program and added the money to a program that will provide farmers with even larger subsidies.”

The 2014 farm bill cuts direct payments to farmers, but puts that money into the farm insurance program. Writing in The New Republic, David Dayen explains why this helps big agriculture even more than previous farm bills:

That’s because the farm bill will expand subsidies for crop insurance, which looks like a private-sector program but which actually hands over virtually the same amount of taxpayer money to farmers, mostly wealthy ones, as the old direct payment program. What’s more, the shift from direct payments to crop insurance ensures that those handouts can be distributed in a hidden, more politically palatable way, making it more difficult to ever dislodge them.

Minimum Wage

The fight over raising the minimum wage is a war of information. Conservative opponents of a proposed increase commission academic studies for use by lobbyists and their front groups. A recent New York Times report illustrates how one of the most prominent think tanks opposing the raise, the Employment Policies Institute, “is run by a public relations firm that also represents the restaurant industry, as part of a tightly coordinated effort to defeat the minimum wage increase that the White House and Democrats in Congress have pushed for.”

Their strategy has proven effective, with business groups and the mainstream media continuing to cite research claiming that a raise in the minimum wage will hurt the economy.

Recently, the hotel industry, a major employer of low-wage workers, announced it will lead the fight to keep wages low. According to the congressional newspaper The Hill, the American Hotel and Lodging Association, a group that includes such major hotel chains as Best Western, Hilton and Hyatt, has plans to “lead the charge to beat back the growing emergence of extreme minimum and living wage initiatives that are proven job-killers and ultimately hurt those who are building successful careers from the entry level.”

Simultaneously, as money continues to pour into Congress to keep a low minimum wage at the federal level, proponents of increasing it are turning to the states and cities, where they are finding some limited success.

Net Neutrality

Last month, a federal appeals court struck down Net neutrality, the principle that Internet service providers cannot give favorable treatment to some content over others (e.g., Verizon could not give a faster connection to their own video streaming service than to Netflix).

Tom Wheeler, the new head of the FCC, has not settled on a permanent fix to settle Net neutrality, but says he will announce one soon.

One very easy way for the FCC to reinstate Net neutrality would be to reclassify the Internet under the Federal Communications Act as a telecommunications service, not an information service, giving the agency broader regulatory powers. But if the FCC does that, lobbyists representing Internet service providers like Comcast and Verizon, and their Republican allies, will put up a huge fight.

Meanwhile, congressional Democrats’ recent attempt to use legislation to preserve Net neutrality until the FCC has time to settle on a permanent fix looks likely to die in the House. It is strongly opposed by industry-backed Republicans. For one, Comcast is the second biggest campaign donor to Rep. Greg Walden (R-OR) — and he’s chairman of the communications and technology subcommittee. Instead, FCC Chairman Wheeler reportedly is leaning toward not reclassifying the Internet, but promising instead to take rigorous enforcement action against those Internet providers that attempt to use their considerable size and power to monopolize business or abuse consumers.

But Wheeler is a former lobbyist for the companies he’s now supposed to regulate. Add to that Comcast’s considerable lobbying clout and Washington connections, which soon may be magnified by its proposed merger with Time Warner. There’s reason for doubt that Wheeler’s plan would be effective.

This piece was reprinted by Truthout with permission or license.