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 November 21, 2014 18:31 GMT

CHINA-ECONOMY

BEIJING (AP) -- China's central bank unexpectedly slashed interest rates on Friday to re-energize the world's No. 2 economy, joining a growing list of major economies that are trying to encourage growth in the face of a global slowdown.

On top of the rate cut, Chinese authorities promised to inject credit into the financial system if needed.

The People's Bank of China said it is trying to address "financing difficulties" caused by a shortage of credit. It also said the move was not a change in monetary policy and economic conditions are within an "appropriate range."

China's economic growth fell to a five-year low of 7.3 percent in the latest quarter and manufacturing and other indicators are declining. That has prompted suggestions Beijing might intervene to prop up growth.

EUROPE-ECONOMY

FRANKFURT, Germany (AP) -- European Central Bank head Mario Draghi says the chief monetary authority for the eurozone is willing to "step up the pressure" and broaden its stimulus efforts to help the struggling economy.

Draghi said Friday at a banking congress in Frankfurt, Germany that if current efforts do not achieve the desired effect the ECB could "broaden even more the channels through which we intervene."

The ECB has already lowered its benchmark interest rate to near zero and started purchasing bonds made up of bank loans to companies -- an effort to boost lending and economic activity.

Some economists think the bank could widen the bond purchases to include corporate or government bonds in an effort to pump newly created money into the financial system -- so-called quantitative easing, or QE.

STATE UNEMPLOYMENT

WASHINGTON (AP) -- Unemployment rates fell in 34 U.S. states in October, a sign that steady hiring this year has been broadly dispersed through most of the country.

The Labor Department says unemployment rates rose in just 5 states, the fewest since April. Rates were unchanged in 11 states.

Nationwide, employers added 214,000 jobs in October, the ninth straight month of gains above 200,000. That's the longest such stretch since 1995. The U.S. unemployment rate fell to 5.8 percent, a six-year low, from 5.9 percent. Steady economic growth has prompted more companies to add jobs, though the additional hiring hasn't yet boosted wages.

Georgia had the highest unemployment rate, at 7.7 percent, though that was down from 7.9 percent in September. North Dakota continued to have the lowest rate, at 2.8 percent.

LEXUS RECALL

DETROIT (AP) -- Toyota is recalling nearly 423,000 Lexus luxury brand cars in the U.S. to fix fuel leaks that can cause fires.

The recalls affect the 2006 to 2011 GS, 2007 to 2010 LS and the 2006 to 2011 IS models.

Toyota says the cars' fuel lines have nickel phosphate plating to protect against corrosion. Some lines could have been built with particles coming in contact with a gasket. That can cause the sealing property to deteriorate and cause fuel leaks.

Toyota says it's not aware of any fires or injuries caused by the problem. The company found it after getting complaints of fuel odors.

Dealers will repair the gasket seating surface at no cost to owners.

Some of the Lexuses were recalled in 2009 to fix leaks in aluminum fuel pipes.

JAPAN-US-AIR BAGS

TOKYO (AP) -- Japan's transport ministry has told air bag maker Takata to conduct an internal investigation after cases of its air bags exploding triggered safety concerns in the U.S. and other countries.

Transport Minister Akihiro Ohta said Friday that the ministry ordered Takata Corp. to conduct its own investigation into the air bags and report back. The ministry's direct instruction to an auto parts maker is considered rare.

The ministry also ordered Takata and Japanese automakers to study whether additional recalls are needed at home following a U.S. decision to expand recalls nationwide from an earlier measure limited to high-humidity zones.

Takata air bags can inflate with excessive force, sending metal shrapnel toward the driver and passengers. The problems have caused six deaths and dozens of injuries.

FORD PICKUP-FUEL ECONOMY

DEARBORN, Mich. (AP) -- Ford says its new aluminum-bodied F-150 pickup will get up to 26 mpg on the highway, making it the most fuel efficient gas-powered full-size pickup.

The Ram truck is the current leader among pickups, getting up to 25 mpg on the highway with a gas engine.

Fuel economy is a key data point for the new F-150, which is arriving at dealerships this week. Ford shaved 700 pounds off the weight of the truck by switching the body from steel to lightweight aluminum, a dramatic change for the best-selling vehicle in the U.S.

The F-150 will get 26 mpg on the highway with a 2.7-liter EcoBoost engine, which is a $495 option. That is 13 percent better than the outgoing truck's 23 mpg.

ETHANOL IN GASOLINE

WASHINGTON (AP) -- The Obama administration is delaying a decision on whether to reduce the amount of ethanol in the nation's fuel supply.

Last year the Environmental Protection Agency proposed to reduce the amount of ethanol in fuel for the first time. The decision angered corn growers and ethanol companies who have since lobbied the government to reverse the decision.

The EPA said Friday it expects to make a final decision next year.

The ethanol targets are required by a 2007 law that tried to address global warming, reduce dependence on foreign oil and boost the rural economy by requiring oil companies to blend billions of gallons of biofuels into gasoline annually.

Lawmakers did not anticipate fuel economy would improve as much as it has in recent years, reducing overall demand for gasoline.

IMMIGRATION-ECONOMICS

WASHINGTON (AP) -- The White House says President Barack Obama's immigration executive actions would boost the economy by expanding the U.S. labor force and increasing worker productivity. It says average wages would rise over a 10 year period, a claim that Obama critics and even some labor allies dispute.

The report by Obama's Council of Economic Advisers estimates the administrative actions would increase the gross domestic product by $90 billion, or 0.4 percent, over 10 years. It says wages for native workers will rise by 0.3 percent by 2024

The report aims to counter critics such as Sen. Jeff Sessions of Alabama, the top Republican on the Senate Budget Committee, who say the executive measures would reduce wages and cost American workers' jobs. AFL-CIO President Richard Trumka also says Obama's moves to provide access to temporary visas could suppress wages in the tech sector.

Obama's actions could spare nearly 5 million immigrants illegally in the U.S. from deportation and make them eligible for work permits.

AEREO-BANKRUPTCY

NEW YORK (AP) -- Online streaming service Aereo says that it has filed for Chapter 11 bankruptcy protection, saying an unfavorable ruling by the U.S. Supreme Court was too difficult to overcome.

In June, the Supreme Court ruled that Aereo operates much like a cable TV company. As a result, the court said the service violates copyright law unless Aereo pays broadcasters licensing fees for offering TV station programs to customers' tablets, phones and other gadgets.

CEO Chet Kanojia said in a statement Friday on the company's website that the Supreme Court decision "effectively changed the laws that had governed Aereo's technology, creating regulatory and legal uncertainty."

Kanojia said that the Chapter 11 filing will allow Aereo Inc. to maximize the value of its business while avoiding the cost and distraction of litigation.

FRANCE-HSBC

PARIS (AP) -- HSBC says it has been placed under formal investigation in France over services it offered to clients required to pay taxes in France.

In a statement Friday, Switzerland-based HSBC Private Bank said French investigators demanded a 50 million euro ($62 million) bond.

France's government is increasingly cracking down on tax dodgers, including establishing an office dedicated solely to investigating financial crimes.

HSBC said the investigation involves the bank's actions from 2006-2007.

RUSSIA-SAUDI ARABIA

MOSCOW (AP) -- Russia's foreign minister says there should be no intervention in global energy production, even as the country's economy takes a hit from rapidly falling oil prices.

After a meeting with his Saudi counterpart in Moscow, Sergei Lavrov said both Russia and Saudi Arabia did not want oil production targets to be affected by "political or geopolitical designs."

The theory that the United States has manipulated global oil production to bring down prices is a popular theme on state-owned television in Russia, where the economy and state budget are heavily dependent on oil exports.

Also on Monday, Russian Energy Minister Alexander Novak told Russian news agencies that the government was reviewing the possibility of lowering oil production, but still wasn't sure whether such a move would be feasible.

GULF PLATFORM-EXPLOSION

NEW ORLEANS (AP) -- A drilling company says a worker killed in an offshore explosion was cleaning a piece of equipment during routine maintenance at its oil-and-gas platform in the Gulf of Mexico.

Houston-based Fieldwood Energy LLC says another worker suffered "visible injury" and two other workers reported ringing in their ears. The company says the three injured workers have been released from the hospital.

Fieldwood says the worker who was killed Thursday was cleaning a piece of equipment that separates oil from water liquids when an "isolated pressure event" occurred. The company says the victim was employed by the Louisiana company Turnkey Cleaning Services, which specializes in cleaning offshore facilities.

The explosion happened on the Echo Platform, which is about 12 miles offshore near the mouth of the Mississippi River.

DOW CHEMICAL-THIRD POINT

NEW YORK (AP) -- Dow Chemical Co. says it will add four new members to its board of directors after pressure from hedge fund activist Daniel Loeb's Third Point.

Shares of the specialty chemicals maker rose 2.6 percent to $52.82 in morning trading Friday.

The new additions are Mark Loughridge, Raymond Milchovich, Robert Miller, who will join the board in January. Richard Davis will join in May.

Dow has also agreed to include the group in its nominees for election at the 2015 annual meeting nominate.

In January, Third Point disclosed that it bought a stake in Dow, but did not disclose how many shares it bought. Third Point says Dow is its biggest investment.

As recently as last week, Third Point published a website and video pushing Dow to shake up its board and increase shareholder value.

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