Executive compensation packages

Updated: Saturday, August 3, 2013
Executive compensation packages story image
KALAMAZOO, Mich. (NEWSCHANNEL 3) - The numbers are in, and they say that while unemployment rates remain high here in Michigan and across the country, executive pay keeps soaring.

Tonight, in Tom’s Corner, Tom Van Howe wonders how anyone can make the argument anymore that “we’re all in this together.”

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I have no objection to people being paid what they're worth.

Everybody wants that. Whether you’re making pickles in Holland, car parts in Grand Rapids, or working a checkout counter in Kalamazoo.

Trouble is, according to statistics, workers today are taking home less in real weekly wages than they did in the 1970s.

Meantime, Chief Executives of the 200 biggest public companies in the United States are doing somewhat better.

Their median compensation clocks in a something more than $15-million dollars a year—a 16 percent jump from the year before, eight times what it was in the 50s, and double what it was in the 90s.

The late Peter Drucker, a prolific author whose writings contributed greatly to the philosophical and practical foundation of the modern business corporation, said that once the pay ration exceeds 25 to 1, it becomes hard for management to make the case that 'we’re all in this together.' Particularly,” he said, “when it’s clear that company leaders have isolated themselves from any risk.”

In other words, if the company goes down the tubes, for bad management, or any other reason, they’ll walk away with their millions, smile, and ask “what’s next.” Not so for even the most loyal workers.

Modern corporate practice has left Drucker’s philosophy in the dust.

Talk about a disconnect!

Today’s executives are earning 200 to 500 times what their lowest paid workers are making. The word obscene pops in my mind.

In an editorial on Sunday, the New York Times asked if CEOs are overpaid, or worth every penny.

And while it didn’t really answer the question, it said we need more detail about the obvious gaps in pay because it could help policy makers and economists detect emerging asset bubbles and impending crashes, which generally correlate with rising income disparities.

But corporations resist offering such detailed information—even though the law says they must—because, they say, somewhat cynically, that coming up with it is a statistical nightmare.

These giant corporations are publicly held, which means management has to answer to stockholders.

But much of that stock is held by investment funds and managed accounts and its not likely that Harry and Mary Hotchkiss from Poughkeepsie are going to raise a fuss over compensation packages.

It's very likely they don’t even know they have any stock in this company or that one.

And that leaves a highly-paid board of directors—many of whom are there because they are like minded—to set the salaries, bonuses, benefits, stock and option grants.

It’s a club—a club of well compensated people making sure they all stay well compensated.

It's not a matter of what someone needs, it’s a matter of keeping score. It’s a club thing.

For the record, large companies in Europe often have worker representatives on their boards as a check against bloated pay packages.
 
Just for the sake of discussion, lets pretend the CEO at company “x” chose to take just $3 million a year instead of the median $15 million; he might have to sell his house in the Hamptons, or maybe one of his jets.
 
But there would be enough left over to give 600 employees raises of $20,000. Think of the ripples that would have on a local economy. If everyone did that, think about the ripples across the country.

I know that’s not going to happen. Wishful thinking. But it would go a long, long way toward establishing the thought that we, as working, caring, industrious Americans really are all in this together.

In this corner... I’m Tom Van Howe.

Business News

Last Update on January 27, 2015 18:22 GMT

EARNINGS

NEW YORK (AP) -- Several big-name companies have turned in disappointing earnings or weaker outlooks today.

Caterpillar's stock has fallen 7 percent after restructuring costs took a bite out of earnings. The heavy equipment maker also issued a weaker outlook, citing the tumbling price of commodities.

Procter & Gamble is down 3 percent as the strong U.S. dollar cut into second-quarter earnings. The company says exchange rates will remain a challenge well into fiscal 2015.

American Airlines is bucking the negative trend with its results, though not with its share price. The airline is getting a huge lift from cheaper fuel -- with savings that could top $5 billion this year -- and strong travel demand. It logged record profits of $597 million in the fourth quarter, reversing a $2 billion loss a year earlier. However, American's shares have fallen 3 percent after the company said first quarter revenue for each seat flown would be 2 to 4 percent lower than a year ago.

3M's shares are down despite 7 percent increase in profits. DuPont is also down despite rising profits.

Pfizer shares are flat, but it is the one member of the Dow 30 that's at least seen its stock price flirt with a gain. Despite a drop in fourth-quarter profits, the drugmaker beat Wall Street expectations.

CONSUMER CONFIDENCE

WASHINGTON (AP) -- U.S. consumer confidence shot up in January to the highest level since August 2007.

The Conference Board reports that its consumer confidence index climbed to 102.9 this month from a revised 93.1 in December.

Americans are feeling better about current economic conditions, including the job market. They are also more optimistic about business conditions over the next six months.

Consumer confidence has been rising as the economy improves. Employers added nearly 3 million jobs last year, most since 1999. The unemployment rate last month tumbled to a 6-year low of 5.6 percent.

The economy grew from July through September at a 5 percent annual rate, fastest in 11 years.

Adding to improving spirits: Gas prices have plunged to $2.04 a gallon Tuesday from $2.32 a gallon a month ago, according to AAA.

DURABLE GOODS

WASHINGTON (AP) -- Orders for long-lasting manufactured goods dropped sharply in December, dragged lower by a big decline in demand for commercial aircraft.

The Commerce Department says orders for durable goods fell 3.4 percent in December following a 2.1 percent decline in November. The weakness was led by a 55.5 percent plunge in the volatile category of commercial aircraft.

There was also weakness in a number of areas, and a key category that serves as a proxy for business investment plans edged down 0.6 percent in December after a similar decline in November and a 1.8 percent fall in October.

NEW HOME SALES

WASHINGTON (AP) -- Sales of new U.S. homes accelerated strongly in December, a sign that home-buying may improve this year after a lackluster 2014.

The Commerce Department says new home sales climbed 11.6 percent last month to a seasonally adjusted annual rate of 481,000. The gains were not enough to offset essentially flat home-buying over the course of 2014. Just 435,000 new homes were bought last year, a modest 1.2 percent improvement from 2013.

The growth in December pointed to rising sales in 2015, buoyed by the combination of strong hiring in recent months and drastically lower mortgage rates. Home values are also rising at a slower pace, improving affordability for would-be buyers.

HOME PRICES

WASHINGTON (AP) -- U.S. home prices rose at a modest pace in November, held back by weaker sales and a limited number of available houses.

The Standard & Poor's/Case-Shiller 20-city home price index increased 4.3 percent in November from 12 months earlier. That's down slightly from a 4.5 percent pace in October. Sharp price increases early last year and tight credit held back home sales in 2014. Sales of existing homes fell 3.1 percent to 4.93 million. Yet housing may rebound this year thanks to smaller price gains, lower mortgage rates, and healthy hiring.

The Case-Shiller index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The November figures are the latest available.

STATE UNEMPLOYMENT

WASHINGTON (AP) -- Unemployment rates fell in 42 U.S. states last month, the latest sign that strong hiring is boosting job opportunities nationwide.

The Labor Department said Tuesday that rates rose in just four states last month and were unchanged in four others.

Job gains remained healthy in states with large oil and gas industries, suggesting that plunging oil prices have yet to cause significant layoffs. Texas gained 45,700 jobs in December, the most in the nation. Overall, 41 states gained jobs, while nine said they had lost jobs.

Nationwide, nearly 3 million more Americans are earning paychecks now compared with 12 months ago. That should help boost consumer spending and accelerate the economy's growth. Analysts forecast that growth should top 3 percent this year for the first time in a decade.

GAS LINE ACCIDENTS

WASHINGTON (AP) -- Accident investigators say there are systemic weaknesses in the way natural gas providers protect against the rupture of major, high-pressure pipelines in populated areas. They are pointing to three powerful accidents in California, Florida and West Virginia in recent years.

A report by the National Transportation Safety Board urges changes in how pipelines are inspected. It questions whether pipelines in populated areas with the greatest potential for damaging explosions are given adequate priority.

In each of the accidents examined by the board, the gas companies failed to conduct inspections or tests that might have revealed pipeline weaknesses.

The U.S. is crisscrossed by nearly 300,000 miles of gas transmission pipelines, more than half of which were installed before 1970.

OBAMA-OFFSHORE DRILLING

WASHINGTON (AP) -- The Obama administration is floating a plan that for the first time would open up areas off the Atlantic Coast to drilling

The proposal envisions auctioning areas located more than 50 miles off Virginia, North and South Carolina, and Georgia to oil companies come 2021. For decades, oil companies have been barred from drilling in the Atlantic Ocean, where a moratorium was in place up until 2008.

Meanwhile, the plan also would restrict drilling in environmentally-sensitive areas off Alaska. It would make parts of the Beaufort and Chukchi seas off limits, citing their importance to Alaska natives and the sensitive environmental resources.

The plan is already drawing criticism on Capitol Hill. Alaska Republican Sen. Lisa Murkowski calls it a war on her home state. Northeastern Democrats are expected to outline their objections later today to drilling in the Atlantic Ocean.

CONGRESS-TRADE

WASHINGTON (AP) -- The Obama administration's top trade official says Congress must return enhanced negotiating powers to the White House in order to cut important trade deals with Pacific-rim nations and others.

U.S. Trade Representative Michael Froman told Congress on Tuesday that President Barack Obama needs "trade promotion authority." That power, sometimes called "fast-track" authority, allows presidents to send proposed trade agreements to Congress for yes or no votes, with no amendments.

Congress has sometimes granted such powers before.

Utah Republican and Senate Finance Committee Chairman Orrin Hatch agreed that Obama needs the enhanced authority to complete a long-discussed trade deal with Japan and several other Pacific nations.

Many Democrats, liberals and labor groups oppose such deals, which they say hurt American jobs. Several anti-trade protesters interrupted Froman's committee testimony.

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