WP: Special Report on “Breakaway Wealth”
There is a huge Washington Post special report on Breakaway Wealth in the US. More than most other industrialized nations, the US has seen the top 0.1% compensated in vastly disproportionate numbers versus the rest of the populace.
There are at least several reasons to be concerned about this, beyond basic fairness: 1) Nations that have extremes wealth disparities tend towards social unrest. Usually, its banana republics and dictatorships, but it could happen in a corporate-owned quasi democracy as well. 2) CEOs and other company insiders have been engaging in a massive grab of shareholders wealth for decades. Its gotten appreciably worse in the 2000s. 3) Management is now trying to hide their compensation from the business owners — the firm’s shareholders
Making matters even more outrageous, these CEOs are trying to pass legislation that would legally allow them to not to disclose executive compensation at public companies:
“Here’s one financial figure some big U.S. companies would rather keep secret: how much more their chief executive makes than the typical worker. Now a group backed by 81 major companies — including McDonald’s, Lowe’s, General Dynamics, American Airlines, IBM and General Mills — is lobbying against new rules that would force disclosure of that comparison.
The lobbying effort began more than a year ago. It involved some of the biggest names in corporate America and meetings with members of both parties on the House Financial Services Committee and Senate banking committee. The companies and their Republican allies in Congress call comparisons between the chief and everyone else in the company “useless.”
But some Democrats and investors say the information should be issued to highlight the growing income disparity in the United States. They add that opponents of disclosure merely want to hide the outrageous scale of executive pay packages.”
Legalized theft of shareholder assets, approved by a corrupt Congress. What little respect I had left for the GOP is now completely gone. This is not “business friendly” — its utterly corrupt theft of shareholders.
The charts below (click for larger graphics) show exactly how absurd this has become. The rumors you may have heard about class warfare have been greatly exaggerated . . .
>
US Compared with other countries
Who makes up the top 0.1%?
Rising executive pay
Growing share of income for the rich
Charts via Washington Post
>
Sources:
Special Report: Breakaway Wealth
An ongoing Washington Post series about how the rich are pulling away from the rest of America
http://www.washingtonpost.com/breakawaywealth
Business group: Public companies shouldn’t have to compare CEO and worker pay
Peter Whoriskey
Washington Post, June 24 2011
http://www.washingtonpost.com/business/economy/business-group-public-companies-shouldnt-have-to-compare-ceo-and-worker-pay/2011/06/23/AGGMcFjH_story.html
Tweet
Facebook
Reddit
Digg this!
September 5th, 2011 at 9:30 am
They had already gutted the shareholders’ ability to oust management — now this. Charming. This fetish of the shareholders controlling the corporation — and therefore corporate capitalism being democratic in nature — is the fiction on which a lot of our system is based. It’s been nothing but a lie for quite some time now.
I just keep wondering what it’s going to take for most people to wake up and understand. And then I wonder what exactly, if anything, they will do. . . .
September 5th, 2011 at 9:36 am
the tolerance of corp PR. the “we’re-oh-so-wonderful-for-you-and-the-world” schtick is crumbling.
i’m putting together a coup. who’s in?
September 5th, 2011 at 9:37 am
I am hoping that we can solve the wealth/income inequality problems peacefully and in good faith; I fear the possibility of violence and/or a country that more and more resembles a fascist state.
I’ve been wondering if allowing a market crash to occur (suppose, for example, the Fed announced the plan to increase rates) would be the most efficient means of reducing the wealth/income gap. I admit, it wouldn’t improve the plight of the poor, nor would it ‘flatten’ income directly; it would hurt wealth of the rich more than their income.
September 5th, 2011 at 9:54 am
But Barry, these job creators really earn that money. They deserve to be paid thousands of dollars per hour due to their divine management capabilities. Just look at the great bank performance the last few years. QED.
But seriously, I have this discussion with friends and colleagues all the time, and many of them argue that these people deserve it. Those that aren’t making a good wage just aren’t working hard enough or don’t deserve it. Japanese CEO’s, in general, still have their feet firmly planted on the ground, and have some respect for their workers. I wish this country were more like Japan in this regard.
The real question, as in so many of these issues, is where the hell are the boards of directors?
September 5th, 2011 at 9:54 am
Monetary stimulus based FIRE economy = death of middle class.
September 5th, 2011 at 9:57 am
And we should not forget the impact on economic mobility. How is it that the US now ranks with Italy and the UK on economic mobility while… “But most other countries do substantially better. This includes not just Scandinavian social democracies like Denmark, Norway, and Finland (Sweden, curiously, does a bit worse) but Anglophone states such as Canada and Australia, with which the U.S. has much more in common.”
http://wapo.st/9h3st1
September 5th, 2011 at 10:02 am
BusSchDean, the American dream has been a fantasy for the vast majority of middle class and poor people for decades. This makes it all the more absurd that such people tend to be against taxing the wealthy on the grounds that “one day I expect to be among them”.
September 5th, 2011 at 10:08 am
Internal Revenue Code ==> I.R.C. ==> Institutionalized Racketeering and Corruption
Once upon a time if someone paid a politician to do them a favor it was bribery. Now, they pay for the favor of tax breaks and “legalize” (“institutionalize”) what was previously corruption. Part of the problem is that campaign contributions are fully spent each election cycle requiring new favors each election cycle. But tax breaks last forever. A politician might do very well by campaigning on the platform of simplifying the tax code (eliminating targeted tax breaks) and lowering marginal tax rates for everyone.
September 5th, 2011 at 10:09 am
Yes, and with 90% of U.S. employment being in the service sector, which is powered entirely by the middle class, sucking money out of the middle class has what effect on employment? (Especially now that that service sector can no longer be powered by a decades long doubling of consumer debt instead of wage increases).
Cast your mind back to 1984 when CEO compensation was an alarming 50:1. Now it’s 300:1. You cannot possible convince me that these CEOs are better for their companies than 250 more average paid employees. Absolutely no way. They are job destroyers, sucking up the company’s number one resource and no returning value for it.
September 5th, 2011 at 10:11 am
I’m less concerned with the concept of breakaway wealth and more with the nature of this specific instance. When someone like a Bill Gates or Steve Jobs becomes super wealthy, it’s because they have created “stuff” that is broadly desired and accepted by both the individual and the business sectors of society because that stuff has tangible advantages over older stuff; the new stuff offers the potenital to create more wealth.
The financial sector on the other hand has no means to create wealth, but merely extracts wealth from society through each transaction. When the economy stopped growing at a rate that allowed their wealth to grow, the industry then undertook to destroy wealth as a means of creating more transactions to extraction (the whole RMBS farce is one such example).
The only innovation the financial sector has produced is creating more transactional opportunties for it to extract more. Financial profits don’t lead t more jobs. At the same time, we diverted our smartest peope away from creating next gen technology for new “stuff” (which would lead to new jobs) to simply inventing new ways to feed the necessary transaction volume to justify their bonuese and stock PEs.
We need to either tax the hell out of FIRE to make it less attractive or regard it as a public utility with a preset rate of return.
September 5th, 2011 at 10:18 am
Concerned Neighbor: I agree. I happen to be someone who has experienced upward mobility from just one generation ago. The same is not true for my siblings, both worse off. There has been at least one full generation since who likewise saw declines.
September 5th, 2011 at 10:30 am
I have railed against CEO’s ripping off the shareholders ever since the huge stock option pay packages started a couple of decades ago. But I still say the best way to counter this egregious trend is to empower smaller businesses to compete with these oversized, bureaucratic enterprises is to reduce the regulatory and tax complexities that shields them from competition from smaller, more entrepreneurial rivals. Once they are forced to break themselves up (to stay competitive) this trend should reverse.
September 5th, 2011 at 10:39 am
Excess availability of labor breeds contempt for laborers. The top simply has no respect for the bottom which is the bottom line. The bottom will have to lash out in response. It is humanity at its worst.
I’m still waiting for some OPTIONS BACKDATING prosecutions. When they got away with that THEFT it was a sign of much worse to come.
The irony is that really – how many at the top are steve jobs? How many are truly irreplaceable? I’d argue almost none. The sun would rise and the birds would sing and everything would be juuuust fine without the nardellis and ballmers and buffets of the world. Their arrogance is entirely unwarranted.
September 5th, 2011 at 10:47 am
The usual path to decrease the inequality was the Unions and the auto-correction of the system. Since that is no longer relevant, society will look for other ways to equalize the playing field and historically the answer has always been eventually some kind of violent response. May be another Watts moment? Who knows. I can says, though, tea party/republican austerity (our version of let them eat cake) guaranties that outcome. So perhaps, we should elect these fascist to get things eventually fixed.
September 5th, 2011 at 10:52 am
>> When someone like a Bill Gates or Steve Jobs becomes super wealthy, it’s because they have created “stuff” that is broadly desired and accepted by both the individual and the business sectors of society because that stuff has tangible advantages over older stuff; the new stuff offers the potenital to create more wealth.
To elaborate on the reasons they became super wealthy…
They stood on the shoulders of giants and added incremental value. They *marketed* stuff invented by others — not just the Xerox Parc inventors but the generations and generations of scientists (often government-funded) that advanced technology to its level late last century — and sold it to a fairly wealthy middle class (government-supported). Smart, hardworking people in the right place, right time.
Notwithstanding my suspicion that Steve Jobs personally accelerated progress for a couple of years, if Bill Gates or Steve Jobs (or even the Xerox Parc folks) never existed, we’d still end up with GUI-centric OS’s and MP3 players. Instead, the business press would be writing about other names, other companies.
So, my contention is: Steve and Bill became super wealthy because our system lavishes huge rewards for these incremental, society-wide gains to a smallish set of people.
September 5th, 2011 at 10:59 am
Really?
What sort of value did Steve Ballmer add? Bob Nardelli?
Most wealthy executives get to the top because of political saaviness within the company not because they add value to society. Look at cisco…it’s being run into the ground. How well did the executives at gm make out? Shareholders?
September 5th, 2011 at 11:03 am
@wunsacon Says:
“never existed, we’d still end up with GUI-centric OS’s and MP3 players. ”
MP3 was invented by a German firm: “The German company Fraunhofer-Gesellshaft developed MP3 technology and now licenses the patent rights to the audio compression technology – United States Patent 5,579,430 for a “digital encoding process”. The inventors named on the MP3 patent are Bernhard Grill, Karl-Heinz Brandenburg, Thomas Sporer, Bernd Kurten, and Ernst Eberlein.”
Also the Ipod was created OUTSIDE Apple: “One man that could be named the father of the iPod is Tony Fadell. Tony Fadell was a former employee of General Magic and Phillips who wanted to invent a better MP3 player.
After being turned down by RealNetworks and Phillips, Fadell found support for his project with Apple. Tony Fadell went to work for Apple Computers in 2001 as an independent contractor, leading a team of thirty people to develop the new MP3 player.”
Jobs is a genius for being able putting “pretty” faces on mundane SW/HW.
September 5th, 2011 at 11:06 am
…a corporate-owned quasi democracy…
Now there’s a kakistocracy if I ever saw one.
September 5th, 2011 at 11:06 am
The best book on this subject I”ve read is BATTLE FOR THE SOUL OF CAPITALISM by John Bogle of Vanguard fame. His point is that we’ve moved from ownership capitalism to managerial capitalism. Companies used to be managed to maximize the wealth of owners (stock holders) to where we are now, managerial capitalism, as companies are managed to maximize the wealth of the management.
It is a good read on this subject. The book was published in 2005 and in my opinion managerial capitalism is even stronger today.
As expressed above, I think we are heading towards a violent solution to level the playing field. What is really interesting to me is the large number of non-wealthy people that support the actions of those that are ending up with all of the money. I have concluded that fear/hate of the other people not like them is a much stronger motivator than cool rational economic understanding/analysis. This is particularly true when propaganda is effectively used as a strong manipulative tool, that often makes people do dumb things that certainly aren’t in their own self economic interests. Fear of the other folks stealing their shit is much stronger than any rational thought particularly when propaganda is used effectively to stoke the fear/hate. But when folks get hungry (which I have a feeling will happen) the fear of the other guy becomes less of a motivator and hunger will be the final mover.
September 5th, 2011 at 11:08 am
Barry,
You weaken your argument when you say “it could happen here.” *It HAS happened here.*
America was a place of tremendous social and economic inequality from 1870-1930, and it was also a place of tremendous social unrest. Violent strikes in which labor was often crushed at the point of Army bayonets, open warfare between workers and corporate thugs, the only instance in which the US government has used bombers against its own people (W. VA Mine Wars), massacres of civilians, etc… marked American society from 1870-1930.
September 5th, 2011 at 11:15 am
Hmmm. Over the last 30 years we have seen numerous contributing variables to both ends of the income disparity: “progressive” hedge fund managers who make significantly more than their “average” employee, much less the rest of us, and the addition of millions of low wage new Americans, legal and not legal, whose low wages bring down the “average compensation”.
What I love to see is how this group grabs a number and runs with it when it is provided by a blog that rips off the rest of us by taking income earned and having it only taxed as “cap gains” when their own capital did not create the “gain” for them.
When will Buffett or hedge fund managers shut up about the “fairness” of the wealthy paying more taxes and just do it by voluntarily writing a check to the IRS. Phony idiots.
~~~
BR: The simple reality is that the wealthy are grabbing a bigger slice of the pie than ever before, and thanks to 50 year lows in tax rates, keeping even more of it.
Your argument is a #FAIL.
September 5th, 2011 at 11:23 am
OK, I will take the other side of this. First, I have never been concerned about a gap between executive pay and my pay. I just did a quick calculation and, assuming I did not mess up a decimal point or two, if we took 50% of the pay of the top .1% and distributed it to the 300 million people in the US, it would come to about $27/week. What is that , a movie a week for a family of four assuming it is a matinee? It seems the concern is more about lowering an executive’s pay than it is about raising everyone else’s pay. I really am not sure what the purpose of all that is.
Second, it seems to me it is much harder to run a large company now than it was 20 or more years ago. The margins are slimmer, the competition is greater, and the pace of change is swifter. The ability to anticipate change is critical now while it was not as critical then since change came much more slowly. The competition for an executive, who can do that well, is fierce. I look at a Gerstner and what he did for IBM versus a Nardelli who hurt both Home Depot and Chrysler. Who would not pay a Gerstner substantially more than a Nardelli? And, then there is GM whose stock price since the new IPO reflects the moribund management. Whatever the GM management is being paid, it is probably too much.
Finally, the annual report gives the pay and stock options of executive management. One of the arguments offered in the WaPo story concerns the difficulty of even defining the median pay. Do you include a worker in Singapore and part time workers? Then, given the very different characteristics of all these workers, what does that median number even mean? How do I control for the type of work being done and what its value is to the company? If I have a company where engineering is done in the US and manufacturing is done in Asia (like Apple) that median salary will vary significantly from a company that has both engineering and manufacturing in the US. So, what comparison am I actually trying to make here? Not only does the requirement seem to be nonsensical, it ends up being meaningless, anyway. The comparison just seems to be some needless work whose sole function is to be used as a “gotcha” by people and politicians who specialize in defining problems so they can develop a solution that just happens to fit their political philosophy. So, I concur that this would just be a make work (and cost) regulation that at best would produce heat without light. I suspect that is the objective of those wanting this figure.
September 5th, 2011 at 11:30 am
I’m sure the marriage/fight/game of the century will all pale in comparison to the book of the century, about lobbying/lobbyists and what they have wrought.
September 5th, 2011 at 11:32 am
Contrary to the popular GOP belief, FDR did not create a “socialist state,” FDR postponed by some 80 years what Marx thought was inevitable: not only he saved the “job creators” from the guillotine and firing squad, he preserved the existing capitalist system that worked to enrich them to begin with.
This time around, however, the ruling political class also owns the Washington,DC, and their wholly owned “representatives” in the Congress and the WH are doing the opposite to what FDR had attempted in the 1930s.
I guess they are hoping that the modern crowd control systems, the military, police, and the mercenary army (Blackwater, etc) will be enough to protect them from the dumbed-down, reality tv addicted, lazy, apathetic, ignorant and depleted proletariat. And you know what? After seeing the number of cops on the road the this very weekend, after going through several TSA “checkpints”, and after reading about the multy-trillion dollar bank/mortgage/CDO fraud that’s left unprosecuted, I think they are right: this is already a POLICE STATE, and is well on the way to becoming a Fortune-100 corporate-owned fascist country. Whether or not there will be a peaceful resolution is yet to be seen. One thing is certain: there will be no FDR-style “giveaways” to the “parasites” and no concessions in the amount of unprosecuted fraud that “job creators” will commit.
September 5th, 2011 at 11:40 am
>> So, my contention is: Steve and Bill became super wealthy because our system lavishes huge rewards for these incremental, society-wide gains to a smallish set of people.
This poster and others are missing the point of my comment. I’m NOT suggesting that the inventor is the sole recepient of the “lavishness” rewarded by society. The invention is one aspect, bit not the critical one.
Transitioning an invention into a mass market product with universal appeal and applicability to lots of customers is the real key to making a fortune. The US invented videotape back in in the 50′s. But it was Japanese companies that adapted that invention (originally targeting independent TV stations) and turned it into the VCR machine that made gobs of money in the 80′s and 90′s. The whole industry of selling home copies of movies and the movie rental industry was made possible with that one application. Blcokbuster may be dead now, over it’s lifetime, how many people worked for that one company?
I would not characterize Jobs and Gates has having made contributions to a “smallish set of people.” Those products are used by everyone and in demand (I’m speaking in the generic sense: digital music you can carry around, access to a personal computer anywhere, work, home, public library, etc.). Making something work for society is not easy and it should be rewarded big time. Name me one thing Goldman Sachs has done for society that you don’t want to live without today?
That’s what we should be rewarding, rather than Lloyd Blankfein’s ability to help Greece hide off balance debt or Countrywide’s MBS shenanigans.
September 5th, 2011 at 11:43 am
What a bunch of silliness thunder.
Public unions arguably have made out as well as any elitist banker. A $60,000 pensions for thirty years is $1.8 million in “free” money. Since their after tax salaries and therefore pension contributions are entirely financed by OTHER WORKERS, we as a society have essentially given public workers winning lottery tickets for having “served”….all of them!
The system is all about special interest groups and lobbying. Anyone that can form a group of influence and deliver votes en masse to politicians gets huge chunks of the stolen taxpayer dollars. Those workers who find themselves without an organized group ie private sector workers….gets SHAFTED.
September 5th, 2011 at 11:46 am
I’m undecided if poverty or wealth is a better population control mechanism. All I know is I don’t want even more people in this country. If making most of the people poor helps with that, it’s not all bad.
September 5th, 2011 at 11:47 am
@Rick Caird Says:
“it would come to about $27/week. What is that , a movie a week for a family of four assuming it is a matinee?”
Lower income families “earn” about $20k/y your insignificant $27 a week would represent about %7 of extra income so contrary to your superficial analysis I suggest that a %7 increase for these particular segment of the population is significant. As for the rest of your post is just as wrong. In case you are not aware stock option packages are always gamed to favor the execs.
September 5th, 2011 at 11:56 am
Rick Caird, Thy name is obfuscation.
September 5th, 2011 at 12:00 pm
Rich C: In my view you miss the point. The point is two-fold: equity for contribution and sustain a culture of upward mobility. The redistribution you describe trivializes the issue as clearly not all 300M deserve some equal share of what some in this post describe as a rip off of stock holders and employees. Does the 300x truly reflect their contribution or does it reflect their ability to “manage” their boards?
On the issue of upward mobility consider the telling comment from Harvey Golub questioning why gifts to charity are tax deductible and those to grandchildren are not. These are not insignificant gifts when wealth gets accumulated in the current fashion. Let his grandchildren (and everyone else’s) demonstrate their social contribution and be rewarded accordingly.
September 5th, 2011 at 12:02 pm
Think Goldman Bond Trading desk and what a very select few are able to create and pocket.
September 5th, 2011 at 12:02 pm
All I know is I don’t want even more people in this country.
You could help the cause by leaving yourself.
September 5th, 2011 at 12:03 pm
Not one comment here yet on the role of BODs over the past twenty plus years. If I were a substantial investor why would I want to join other investors in law suits against BODs who have relinquished their fiduciary responsibilities? Is that too difficult? Too expensive?
September 5th, 2011 at 12:04 pm
BR: “Legalized theft of shareholder assets, approved by a corrupt Congress. What little respect I had left for the GOP is now completely gone. This is not “business friendly” — its utterly corrupt theft of shareholders.”
Julia: “This fetish of the shareholders controlling the corporation — and therefore corporate capitalism being democratic in nature — is the fiction on which a lot of our system is based. It’s been nothing but a lie for quite some time now.”
Concerned Neighbor: “the American dream has been a fantasy for the vast majority of middle class and poor people for decades. This makes it all the more absurd that such people tend to be against taxing the wealthy on the grounds that “one day I expect to be among them”.
Darkness: “Cast your mind back to 1984 when CEO compensation was an alarming 50:1. Now it’s 300:1. You cannot possible convince me that these CEOs are better for their companies than 250 more average paid employees. Absolutely no way. They are job destroyers, sucking up the company’s number one resource and no returning value for it.”
Mayor Quimby: “The system is all about special interest groups and lobbying. Anyone that can form a group of influence and deliver votes en masse to politicians gets huge chunks of the stolen taxpayer dollars. ”
That’s why I love the Big Picture…great, info, graphs and a civilized well thought, intellectual discussion.
My 2 cents…I am not sure what the chances are of this happening any time soon….but we can fix many of our political and economic woes, just by mandating publicly funded elections at the local, county, state and federal level. End of career politicians and lobbyists…getting there will be tough, but I cannot think of any other one single action that would give us the Democracy our Founding Fathers envisioned and not the current corrupt payola set up we have now.
September 5th, 2011 at 12:06 pm
Stoned. That’s something to consider for sure.
September 5th, 2011 at 12:08 pm
I just keep wondering what it’s going to take for most people to wake up and understand. And then I wonder what exactly, if anything, they will do. . . .
Agreed Julia.
As long as corporate media is the sole source of information used in the forming of opinions, values and beliefs for the vast number of Americans I don’t see much improvement.
IMO the masses will walk themselves to their own graves and shoot themselves on demand in the hopes of appearing patriotic and responsible.
Corporate capitalism = owning shares of congress to grow your personal wealth.
Happy Serf Day!
September 5th, 2011 at 12:13 pm
Someone did a comparison between Euro-based CEO compensation and US-based and showed that US CEOs are paid more (I can’t remember how much more only that it was substantial). Why should this be since there are successful Euro companies competing world wide (the same can be said for Japan-based companies where compensation is less as well). BusSchDean has it about right, BODs are basically crony organizations who vote for pay packages based on some consultant who is paid by the company and they of course want to lavish pay on the CEO since they expect the return favor.
I may be tilting at windmills but every proxy season I vote against egregious stock option compensation plans and most recently voted against the CEO retaining a Board seat because they were mismanaging the company (JNJ, INTC). I’ve also voted against individual directors where I had personal knowledge of them and felt that they had no right to serve on a BOD (just voted against to PG nominees yesterday). I full realize that my votes are a drop in the bucket but someday folks are going to wake up and demand their pension/mutual funds do the same.
September 5th, 2011 at 12:22 pm
@BusSchDean
The point I was trying to make is the 300x is less the ability to manage the board and more the result of the difficulty of finding people who can competently manage large corporations in today’s global business environment. There is a substantial difference in managing a $1 billion corporation than there is in managing a $1 million corporation. The number of people who can mange the former is far less than those who manage the latter. That is why so many founders of a successful company eventually have to pass off the management function to others. I am claiming the increase in executive pay is a reflection of supply and demand for those skills.
The second point I was trying to make is rising executive compensation does not reduce the compensation of other employees. In other words, the executive compensation is not a result of taking a thousand or two from all the other employees. That is why I have always been concerned with my income, not someone else’s. I also see no correlation between executive compensation and upward mobility. That correlation would only be true if there were a link between executive and worker pay. There does not seem to be such a link.
September 5th, 2011 at 12:31 pm
Rick caird: “The second point I was trying to make is rising executive compensation does not reduce the compensation of other employees. In other words, the executive compensation is not a result of taking a thousand or two from all the other employees.” What are you smoking? Can I get some?
On what planet? Did you bother to even look at the charts that BR provided in the post? Executive compensation is through the roof, while Joe 6 packs income has been going, down, down, down for decades…or you are just another one of the many Americans with Cognitive Dissonance fro whom ideology always trumps facts?
September 5th, 2011 at 12:32 pm
BusSchDean: “If I were a substantial investor why would I want to join other investors in law suits against BODs who have relinquished their fiduciary responsibilities? Is that too difficult? Too expensive?”
I’d argue both. It’s shifts in the law that create this problem, I think. First, what it takes to find that the BOD acted in bad faith just gets harder and harder. Second, of course, the corp and/or its D&O insurance is going to defend – there is no real incentive to genuinely pay attention to what is going on for the BOD, because they won’t even pay the costs of litigation. Further, the growing cancer of interlocking boards means that the loyalties of the board class are further and further removed from that of the shareholders – why would you rock the boat as a Director, if you are going to be punished by your whole social circle for doing it?
And as for the costs of defense? Those are just coming out of the corporation in the end, at least in the form of higher premiums.
The direction internal governance law has gone is really, really bad. We’ve been watching a slow-motion disenfranchisement through the courts for a minimum of two decades.
September 5th, 2011 at 12:43 pm
Rick,
I accept that running a $1B corporation is exponentially more challenging than running a $1M or even $10M corporation. I do not accept that the raw # of people capable of doing so is as finite as you suggest. For a whole host of reasons, not the least of which relate to Julia’s post regarding Boards, the notion of this # being small is self-serving to say the least.
September 5th, 2011 at 12:49 pm
“…The direction internal governance law has gone is really, really bad. We’ve been watching a slow-motion disenfranchisement through the courts for a minimum of two decades…”–J. Chestnut, above
and, related to that ‘phenomenon’..
http://search.yippy.com/search?query=%22Hot+Coffee%22+documentary&tb=sitesearch-all&v%3Aproject=clusty
“Corporate Attacks on Consumer Rights” has been in a ‘Bull Market’ for, far, too long..
LSS: Peep are going to have to come to grips with the Idea, that, ‘Drip, by Drip, their ‘Dollars’, everyday, and everyway Spent, are Votes–that Inform their Todays, and shape their ‘Morrows..
and, ~”Those Ignorant of their Rights(?) Have None.”
September 5th, 2011 at 12:54 pm
@Rick Caird,
A belief system is tightly coupled to your sense of self, your very ego. You can’t be bothered to think, nor to even LOOK for facts that are presented to you right there (charts) In a word, you must believe. You epitomize the descent of America into misery.
You see, America does not have a resource problem nor a geography problem. America has a thinking problem, or more to the point, a sizable minority of zealots are desperately anxious to defend at all costs, a twisted belief system that, when stripped of all the hocus pocus and bullshit, is nothing less than savage social Darwinism, the perfect fascist banana republic.
For obvious reasons, I’ll pass up this dystopian vision. Moreover, I’ll keep fighting against it.
@Barry,
“What little respect I had left for the GOP is now completely gone.”
Your patience is remarkably better than mine. I’ve given up on these Enemies of the People a while ago.
September 5th, 2011 at 12:54 pm
@stonedwino
I can see you are unfamiliar with both basic statistics and with the concept that “correlation is not causation”.
Looking again at the chart “Growing share of income for the rich”, the fact that executives are earning more does not imply they are taking that from other employees. As much as you would like to infer that, it is neither a valid nor a logical conclusion.
The tricky part of that chart for you is the lines are graphed as a percentage of total income. The chart is actually not very useful. For example, if the top .1% get a raise and the other 90% do not, the 90%’ percentage of total income goes down, but, as long as there is no inflation, the 90% are not worse off. If the top 10% get 10% more pay (because their options came in) and the 90% get a 5% raise, the 90%’s percentage of total income would go down, too.
September 5th, 2011 at 12:55 pm
Barry,
Thanks for bringing our attention to these CEO douches. However I respectfully disagree with “What little respect I had left for the GOP is now completely gone.” While you are correct that the GOP is the main offender the Dems are also guilty. I believe that if you substituted “the political class” for GOP your statement would be more accurate…of course opinions are like assholes, everyone has one.
An upstate independent
September 5th, 2011 at 12:58 pm
Corporate governance does not exist since boards are composed of insiders. Much like the capture of rating agencies by the banks, directors are captured by corporations. They get perqs and pay in addition to creating a general environment of high pay for people like themselves.
Additionally, there are incentives for boards to approve high pay. High executive pay is a public display of the board’s and society’s belief that the executives are top-notch. If a board reigns in CEO pay, it is saying that the CEO is not as good as the CEO’s of other companies. Perversely, increasing CEO pay protects the board from criticism in case of substandard performance.
Third-party compensation agencies are also like the ratings agencies. They know they will get more work and higher fees if they ensure that the top executives are paid ludicrous amounts of money.
The system is rotten to the core and it goes beyond bond traders at GS or oil traders at Phibro. But nothing will change until Americans realize that they have been lied to all their lives. We are far away from this so I don’t expect Blankfein to pay back any of his holy bonuses.
I would give the US about five more years before we start getting serious riots and lynchings on Wall Street.
September 5th, 2011 at 1:02 pm
It needs to be hammered home that overpayment of executives is theft from the shareholders.
Look at GS shareholders.
Our poltical class is robbing from the public by giving sweet heart deals to doners. That is Perry’s record in Texas.
Obama has robbed the public by letting the banks and Wall Street off the hook when he came into office. W was just stupid by allowing the greatest robbery of all time.
Thank you BR for standing up for what is right.
September 5th, 2011 at 1:03 pm
yon’ QOTD..
“There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.” -John Ruskin, 1819-1900.
September 5th, 2011 at 1:04 pm
Fng- so true. The dems ovsaw the repeal of glass Steagall and Bob rubin then went to make million at citi because he helped make it citiGROUP not citiBANK. I know it was a repub congress but clearly both parties were complicit. How much phony credit aka wealth made its way to politicians after the whole Fannie Freddie derivatives fiasco was perpetuated? The whole stinking lot of dc and wall street needs to be held accountable.
September 5th, 2011 at 1:06 pm
If the WP is writing about this, it’s a sign the gig is up. Not all shareholders are little people. Another stock market crash, this time one that lasts, and the top 10% exclusive of the top .1% will finally get aroused and force some reform. Won’t help the bottom 90%, of course. The bottom 90% is doomed by globalization.
September 5th, 2011 at 1:09 pm
Strange situation isn’t it?
A population that has less and less, but is very well armed and weaponized.
It will be interesting to see if peaceful means of restoring a saner wealth distribution is possible. Because if it isn’t possible…well, the JFK admonition will be put to a rude test, won’t it?
September 5th, 2011 at 1:10 pm
@BusSchDean
Both of Julia’s posts referred to lack of control over the BOD. That is probably true. But, I am not so sure how that reflects onto the pool of people qualified to run large corporations. There are a lot of complaints about the golden parachutes, but it seems the damage a failing executive can do to a large company makes almost any buyout worth the cost. There is just a huge cost to getting the wrong CEO and I suppose that figures into the BOD’s delay in taking action. They hate to think they made a mistake plus the risk they will not get it right the next time is still relatively high. I look at some of the companies who have faltered (AT&T, HP) and it just seems even the right guy for a certain time can be the wrong guy in a different time. Maybe my conception of the pool is too low, but I doubt it is a very large pool. It seems so many executive who were a good #2 are not so good as #1.
September 5th, 2011 at 1:18 pm
Thanks, Robespierre.
>> MayorQuimby @ at 10:59 am
Totally. Another example, here from Mish: “Bank of America is now trading at $7.25 (and barring a miracle it will be lower tomorrow). It could have and should have raised capital when shares were close to $20 in April 2010. Of course Bank of America should never have purchased Countrywide Financial or Merrill Lynch in the first place, so one has to wonder what the hell these CEOs do for the enormous salary and benefits compensation they receive.”
September 5th, 2011 at 1:19 pm
Inequality and social unrest are not related. Look at the social unrest of countries such as Greece, Belgium, Ireland among others. These are all very equal countries and they all recently saw their governments fall as a result of social unrest. Look at France and its regular burts of social unrests. These are all countries with high level of equality as measured by the Gini Index. It is simply not true that inequality = social unrest.
~~~
BR: You seem to be confusing the “necessary” and “sufficient”
September 5th, 2011 at 1:53 pm
@Rick Caird Says:
” the fact that executives are earning more does not imply they are taking that from other employees. As much as you would like to infer that, it is neither a valid nor a logical conclusion. ”
Well unless the CEO have control of the printing press their earning more sure comes from somewhere. That somewhere is the employees and the shareholders. Moreover, in many situations CEOs have engaged in control fraud to their own benefit at the expense of the corporation itself. As for the idea that the talent needed to run billion dollar corporations is so devoid of any factual backing as to be silly at best. As for the fact that an extra $27 a week for the workers means very little I like to point out to you that $27 extra a week represents %5 more for the working poor so stop trivializing it. Now you said that an extra 27 a week changes the lives of the working serf very little yet your statements seem to imply that a few millions less a year would put the top %1 in dire straits. So what gives? Who do you represent?
September 5th, 2011 at 2:13 pm
@Robespierre
“Well unless the CEO have control of the printing press their earning more sure comes from somewhere”. Why not from increased profits or share value? If the CEO makes decision that result in an increased profit of X, then if his increase in pay is less than X, the shareholders have benefited. The whole idea of anybody’s pay is the pay is less than the benefit to the business.
The fact it is easy to demonstrate CEO failures (try Armstrong at AT&T) indicates not everyone can do it (although it looks as if you left out a clause from your sentence, so I had to guess at your meaning). Sure, there is CEO fraud. One that comes to mind is Raines at Fannie Mae and the guy at Black and Decker. But, fraud is fraud and there are civil and criminal penalties for that.
My point with the $27 was to show there is no great pool of money that could be tapped to make a major increase in the welfare of workers. Most people look at the CEO pay and have this inflated value of how far it will go. Finally, I have already expressed I have little interest in CEO pay. I have much more interest in my pay.
September 5th, 2011 at 2:24 pm
is american express listed somewhere in these 81 companies ?
September 5th, 2011 at 2:26 pm
One thing that bothers me in all these discussions is using percentages (whatever they are) to distinguish classes and types. In my mind, there’s a big difference between people who are in the top 1% because they’re surgeons, who went through 12 years of training and risked borrowing huge sums of money to pay for their education, and who now make $1.5 million a year for working forty or fifty hours a week, and, say, a guy who managed to suck his way into the top level at Goodman and makes $100 million a year because of his connections, and who does little perceptible good in the society. I really have no problem with people who earn a lot of money by working hard in a socially useful field.
I’d also point out that a guy who worked all of his life and wound up owning two good McDonalds stores, or Exxon stations, is likely a millionaire — and I would distinguish him from somebody who made an equal amount of money doing financial judo with mortgage sales.
But how do you distinguish between them on a mass basis, as you must when you talk about taxation?
September 5th, 2011 at 2:45 pm
also, it may br helpful to look, more, toward the ‘heart of the matter’/'root of the problem’..
“…The unsustainable nature of debt
Two observations: 1) Fabricated/parasitic so-called “wealth” destroys value by diluting the value of productive wealth. 2) Debt/credit that cannot be paid back is never an asset and is always a hot-potato liability (needing to be foisted to a greater fool to garner “profit” and transaction fees):
“The models [modern debt are] based upon had no contact with reality. They assumed unlimited growth and ability to pay. When matched against the reality of people paying ten times their salary for mortgages that actually added more money owed to their principal (i.e. with negative amortization), required no money down, and set up “balloon payments,” large step-ups in payments after a few years) there is no possible way they could NOT default in a predictable span of time.” ( Part II: How the Credit Default Swap Scam Works (October 13, 2008)
Systemically, all debt that charges a percentage (“usury”) originates in delusion. Debt grows exponentially indefinitely, growth (income and otherwise) cannot. This leads to a widening condition where the fruits of productive “growth” devoted to interest payments increase until those fruits are entirely consumed. (The Elephant In The Room: Debt Grows Exponentially, While Economies Only Grow In An S-Curve (Washington’s Blog)
Once this happens, stores of wealth (hard assets) begin to be cannibalized to make up for the difference. You see this in Greece with its sale of public assets to private companies, and in middle-class America where people are liquidating retirement accounts to pay for their cost of living.
This problem is compounded by a private Federal Reserve that lends money into circulation at interest, and then allows the multiplication of this consumer debt-money liability through fractional reserve banking. The money in circulation today could pay only a small fraction of the total private and public debt. That fact alone is evidence of a kind of systemic fraud. “If you just work hard enough, save, and make sensible decisions, you can get out of debt” could only physically work for a bare fraction of the population, given the money-to-debt ratio. The rest would have to simply default to clear the boards.
This is why debt forgiveness makes not only moral but rational, mathematical sense. Finances require balancing to be coherent. There must be some way to redress systemic imbalance. One has to be able to “zero the scales” to get an accurate weight of value and to re-establish healthy value creation…”
http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html
September 5th, 2011 at 3:22 pm
@Rick Caird Says:
September 5th, 2011 at 2:13 pm
“I have little interest in CEO pay. I have much more interest in my pay.”
If you can’t see that your pay will be negatively impacted by the inequality created by pure corruption then heck nothing left discuss.
September 5th, 2011 at 4:00 pm
ga082003
admin@investingcontrarian.com
2011/09/05 at 9:46 am
capital3x DOT com
Permanently banned for relentless spamming
Buh bye
September 5th, 2011 at 4:44 pm
Mark- debt forgiveness brings with it the collapse of TBTF banks.
September 5th, 2011 at 6:09 pm
It is amazing how rare “talent” must be in the US compared w/ other nations. Compensation for upper management is much higher here v. other nations
September 5th, 2011 at 6:23 pm
@stonedwino
I agree 100% with what you wrote. It is an entirely necessary step to return this country to the democracy that formerly existed in the United States : “My 2 cents…I am not sure what the chances are of this happening any time soon….but we can fix many of our political and economic woes, just by mandating publicly funded elections at the local, county, state and federal level. End of career politicians and lobbyists…getting there will be tough, but I cannot think of any other one single action that would give us the Democracy our Founding Fathers envisioned and not the current corrupt payola set up we have now.”
And then you have Rick Perry who wants to help obliterate a good deal of what’s ostensibly left of our already-bought-and-paid-for political system. Rick Perry wants to repeal the 17th Amendment, taking away the electorate’s right to elect it’s own US Senators, and giving state legislators the power to appoint the members of the US Senate. (http://news.yahoo.com/blogs/ticket/seven-ways-rick-perry-wants-change-constitution-131634517.html)
Honestly, I don’t see a whole lot of difference between the United States now and many of the former Communist bloc countries of Eastern Europe. All the power and wealth were concentrated in a very few hands in the Eastern bloc, with crumbs left to the proletariat. In the United States, there is a sliver of society that has managed to accumulate a modest amount of wealth despite the best efforts of the American plutocracy. It’s rather Orwellian to witness so many of the disenfranchised vote against their own interests, manipulated by expert propagandists and their own ignorance.
If the Tea Party really were a grass roots movement, they would be screaming at the top of their lungs for stonedwino’s idea of publicly funded elections, removing any corporate/uberwealthy/union special interests. Of course since the Tea Party is clandestinely funded by the corporation and uberwealthies, and they are fully aware that most of their grass roots members are completely unaware of that, there is no chance the Tea Party will push for publicly fundedelections which would be 100% at odds with the corporations/uberwealthy own interests of maintaining the status quo. This is all the proof you need to know that the Tea Party has nothing to do with grass roots, and everything to do with special interests.
September 5th, 2011 at 7:25 pm
It’s not just what you know, it’s who you know — or so the saying goes…
Life really is quite simple. It’s just too bad we humans — those running the show, that is — have to complicate it so. It’s unfortunate that the self appointed ruling class has done this since the beginning (?purposefully), and probably even more tragic is that we (most) think that they are the only ones at fault.
Have you ever wondered why — REALLY WHY — globalization is pushed down our throats? I’m not buying the “but we have to remain competitive” bullshit. The majority of people on this earth are not jet setting around the globe. These global elites know they would have a long line of willing workers from all the ends of the earth to keep the wheels turning for them should social unrest be attempted by the working (or unemployed) stiff.
Or….they could just pull the plug if things got too out of hand.
September 5th, 2011 at 8:17 pm
What about risk control and management?
How can any sane business let a 10 million dollar “asset” walk around on the street? Get in a car? A plane?
If they are worth that much money they should be under lock and key. We can’t have these huge assets just wandering off. They will have to be heavily guarded, bars on the windows….
September 5th, 2011 at 8:24 pm
Yeah what a rip-off! And it’s not as if shareholders could just vote the management out if they wanted to. Or sell their shares and invest in companies that don’t rip them off. Damn this evil system!
September 5th, 2011 at 9:16 pm
It is the inevitable result of the “good o’ boy” relationships between CEOs mismanaging their own companies and helping to mismanage others by “volunteering ” to sit on BODs. The controlling mantra seems to be scratch my back and I will scratch yours. I am philosophically opposed to government inteference in private business but I will yield to the obvious. Lets remove the incentives to cheat (options), compensation committees and set pay at some multiple of average employee compensation. If the CEOs don’t like it, let them quit. They don’t really serve any useful function anyway. I don’t believe anyone who owns shares in a company would object. Of course our knee-pad wearing Congress can’t figure it out.
September 5th, 2011 at 9:39 pm
Capitalism has a natural self-correction mechanism to extreme wealth disparity, but it was short circuited when the TBTF’s were bailed out in 2008-2009. If all the TBTF’s were allowed to go under, and the small depositors were paid off by the FDIC through the printing press, most of the wealth of the upper tier would have evaporated. But allowing Lehman to fail had such large collateral damage consequences that the Gov’t was afraid to let the other big boyz fail. This is in a nutshell, is the strategy for the wealthiest to keep what they have – hold a Sword of Damocles over everyone to ensure that the biggest banks are TBTF.
I still think the original sin was bailing out LTCM’s bankers in 1998, which created the infamous Greenspan Put. Without such an implicit guarantee from the Fed, would the housing bubble have happened??
The other huge abuse is stock options and share buybacks. The value being given to insiders is easily hidden in options schemes, and the purpose of buybacks is to allow their options to be exercised without dilution. Buybacks are nothing but a backdoor way to pay insiders. Options need to be fully taxed when issued as theough they were cash, and share buybacks should be banned or heavily discouraged by taxation. Companies should be encouraged to pay out excess cash as dividends instead of buybacks.
September 5th, 2011 at 10:34 pm
Anyone who thinks public financing of elections will solve anything is delusional. All public financing does is to give the MSM a monopoly on having a big megaphone and fixing the outcome of the elections to their liking. He who controls the narrative will control the outcome 90% of the time. Since the MSM is totally on the side of the Democrats, that will give the Democrats an unbeatable advantage in controlling the narrative. Is it any wonder that the Democrats are so totally in favor of publicly financed election campaigns?
“stonedwino Says:
My 2 cents…I am not sure what the chances are of this happening any time soon….but we can fix many of our political and economic woes, just by mandating publicly funded elections at the local, county, state and federal level. End of career politicians and lobbyists…getting there will be tough, but I cannot think of any other one single action that would give us the Democracy our Founding Fathers envisioned and not the current corrupt payola set up we have now.”
September 5th, 2011 at 11:59 pm
This data showing wealth disparity ends in 2005, but if you look at newer data you are going to get pissed.
Believe it or not, even more wealth has been lost for middle and poor class since 2005! The rich are richer than they have been since the time of the Robber Barrons.
September 6th, 2011 at 6:55 am
andrewp111 if you think the MSM is in the dems camp – you have lean bias .. the reporters and writers may lean sometimes – but when push comes to shove the bosses set moderator editors in place to push on the string at the critical moment .. just watch (the corporation who signs the check gets the dialog)
“natural self-correction mechanism” in this 21st century world is all but shanghaied .. 99.99% (add more decimals) of us can not live without the mechanisms provided by big business (and fight)
all this capitalism and free market stuff will work itself out .. but the world will be leaner of people (survive’g well to ok to dismal) …. and you paper pushers – when your labor has been provided extensively – will be on the out too
September 6th, 2011 at 9:17 am
@andrewp111
You wrote “Anyone who thinks public financing of elections will solve anything is delusional. All public financing does is to give the MSM a monopoly on having a big megaphone and fixing the outcome of the elections to their liking. He who controls the narrative will control the outcome 90% of the time. ”
That’s a very accurate description of what we already have now thanks to the appallingly undemocratic Supreme Court Citizen’s United decision, -except just replace the MSM with corporate money/uberwealthy money i.e. the Koch Brothers. As you probably are aware, Citizens United allows for unlimited donations by corporations and uberwealthies to PAC’s on a completely anonymous basis. This money is spent by PAC’s giving them “a big megaphone and fixing the outcome of the elections to their liking”, as they flood the airwaves 2-3 weeks prior to elections swaying uninformed voters who make up their minds simply by listening to the most bombastic campaign ads. These voters essentailly then vote AGAINST their interests and FOR the interests of the megawealthy interests that paid for the ads.
Thanks for describing it so accurately.
September 6th, 2011 at 9:23 am
[...] WP: Special Report on “Breakaway Wealth” | The Big Picture (tags: wealth wealth-gap corporatism) [...]
September 6th, 2011 at 9:25 am
Bravo Rick Caird. You nailed it. I’ll even give the income disparity crowd the acknowledgement of wanting to better society, not really wanting only to lower CEO pay to spread around. What goes wrong is politicians play their wishes back to the less fortunate as “see, even the rich people think they get too much” and then the poligicians (sic) magically proceed to implement all manner of much more corrosive, much more damaging, lower-CEO pay policies. In the end everyone loses, and the progressives cry for yet even more “corrective actions”. Witness the post-Obama-care “take those sons-a-bitches out” rhetoric now seething from the angry, post-partisan mobs. I thought these programs were going to bring tranquility as the costs were spread?
September 11th, 2011 at 4:35 am
Barry: I agree with FNG who suggests that substituting “the political class” for GOP would work better. I wonder how many people (including toddie.g) realize that a majority of the 0.1% uber rich are Democrats/Liberals ? So, is the GOP protecting these guys too along with the less numerous rich GOP’ers?
September 17th, 2011 at 6:15 pm
[...] Inspite of propaganda over the last 30 years- the free market, free trade and economic liberalization has not made the average person in developed countries any wealthier, or richer. The top 1% or more accurately 0.1% (by income) have however made out like bandits. While this differential effect is especially glaring in the USA, many other developed countries have also seen an increase in economic inequality- though none to the…. [...]