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 October 30, 2014 07:33 GMT

ECONOMY-THE DAY AHEAD

WASHINGTON (AP) -- The Labor Department will report today on the number of people who applied for unemployment benefits last week. Economists forecast that weekly applications declined 2,000 to a seasonally adjusted 281,000.

Also today, the Commerce Department will release third-quarter gross domestic product figures. Many economists predict that overall growth of the economy, as measured by the gross domestic product, reached a healthy 3 percent annual rate in the July-September quarter, according to a survey by data firm FactSet.

Freddie Mac will report on average mortgage rates for this week. Last week, the average for the 30-year loan slid to 3.92 percent.

There are four major companies that will report earnings today.

Altria Group and Mastercard will report quarterly financial results before the market opens.

Starbucks and LinkedIn Corp. will report quarterly earnings after the closing bell.

EARNS-SAMSUNG ELECTRONICS

SEOUL, South Korea (AP) -- Samsung Electronics Co. says its third-quarter income has plunged 49 percent to the lowest level in nearly three years as its handset business slows down.

Samsung says its net income for the July-September quarter was 4.2 trillion won ($4 billion), a sharp decline from 8.2 trillion won a year earlier. The income was the lowest since 2012 but above market expectations. Analysts polled by Factset expected 3.7 trillion won income.

Sales fell 20 percent to 47.4 trillion won while operating income shrank 60 percent to 4.1 trillion won.

Samsung warned earlier this month that its handset profit declined despite a marginal shipment increase. Analysts said the Galaxy S5 smartphone launched in April did not sell well while many consumers held off upgrading their phones, instead waiting for new iPhones.

CHINA-CREDIT CARDS

BEIJING (AP) -- China's Cabinet says it will ease restrictions on credit card processing in a move that might help to resolve a lengthy dispute with the United States over access for Visa, Mastercard and other foreign competitors.

A Cabinet announcement said "all qualified domestic and overseas enterprises" will be allowed to apply to set up credit card clearing operations. It gave no details of what qualifications would be required for a foreign competitor to be approved.

Beijing's restrictions have given a near-monopoly on credit card processing to a state-owned entity, UnionPay.

The World Trade Organization ruled two years ago the restrictions treated foreign competitors unfairly. The government said it would review the decision but did little to increase market access.

FACEBOOK-WHATSAPP FOUNDERS

SAN FRANCISCO (AP) -- WhatsApp founders Jan Koum and Brian Acton received 116 million shares of Facebook stock currently worth nearly $9 billion when they sold their mobile messaging service to the social networking leader earlier this month.

The breakdown of the big winners in Facebook Inc.'s $22 billion acquisition emerged Wednesday in a regulatory filing.

Koum, a Ukraine immigrant who was once living on welfare, reaped the biggest jackpot with 76.4 million Facebook shares now worth $5.8 billion. That makes him Facebook's fourth largest stockholder behind company CEO Mark Zuckerberg and two mutual funds, Fidelity Management and Vanguard.

Acton, who worked with Koum when they were both Yahoo Inc. engineers, owns 39.7 million Facebook shares worth $3 billion.

More than 45 other WhatsApp current and former employees also received Facebook stock.

FOR-PROFIT COLLEGES

WASHINGTON (AP) -- For-profit colleges that don't produce graduates capable of paying off their student loans could soon face the wrath of the federal government.

Schools with career-oriented programs that fail to comply with the new rule being announced today by the Obama administration stand to lose access to federal student-aid programs.

To meet these "gainful employment" standards, a program will have to show that the estimated annual loan payment of a typical graduate doesn't exceed 20 percent of discretionary income, or 8 percent of total earnings.

The Education Department estimates that about 1,400 programs serving 840,000 students won't pass. Nearly all of these programs are offered by for-profit schools.

SUPREME COURT-HEALTH OVERHAUL-SUBSIDIES

WASHINGTON (AP) -- Supreme Court justices have their first chance this week to decide whether they have the appetite for another major fight over President Barack Obama's health care law.

Some of the same players who mounted the first failed effort to kill the law altogether now want the justices to rule that subsidies that help millions of low- and middle-income people afford their premiums under the law are illegal.

The challengers are appealing a unanimous ruling of a three-judge panel of the federal appeals court in Richmond, Virginia, that upheld Internal Revenue Service regulations that allow health-insurance tax credits under the Affordable Care Act for consumers in all 50 states. The appeal is on the agenda for the justices' private conference on Friday, and word of their action could come as early as Monday.

AIRBAG RECALL

DETROIT (AP) -- The U.S. government's auto safety agency, responding to criticism of its slow response to safety issues, has told the manufacturer of millions of potentially faulty air bags to make replacement parts faster and do more testing to find the cause of the problem.

The National Highway Traffic Safety Administration sent letters Wednesday to Japanese air bag maker Takata Corp. and 10 automakers seeking information in a widening air bag recall that now covers almost 8 million U.S. vehicles.

The vehicles are equipped with Takata air bags that can potentially inflate with too much force, blowing apart metal canisters and sending shards flying at drivers and passengers. Safety advocates say four people have died due to the problem.

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