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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 30, 2015 18:13 GMT

ECONOMY-GDP

WASHINGTON (AP) -- The U.S. economy slowed in the final three months of 2014 as a big burst in consumer spending was offset by weakness in other areas.

The Commerce Department says the overall economy grew at a 2.6 percent rate in the October-December period, down from sizzling gains of 4.6 percent in the second quarter and 5 percent in the third quarter.

Consumers did their part in the fourth quarter, pushing up spending by fastest rate in nearly nine years. But businesses investment, trade and government spending weakened.

For the year, the economy grew at a moderate rate of 2.4 percent. But economists believe 2015 could be a breakout year for growth, with consumer spending boosted by strong employment gains and falling gas prices. Many expect growth above 3 percent this year.

EMPLOYMENT COST

WASHINGTON (AP) -- Wages and benefits rose at the fastest pace in six years last year, a sign strong job gains could be forcing companies to pay a bit more for workers.

The Labor Department says the employment cost index, which measures pay and benefits, rose 2.2 percent in 2014, up from 2 percent the previous year. That's the biggest gain since 2008. It's also ahead of inflation, which rose 1.3 percent.

Yet the increase is still sluggish by historical standards. In a healthy economy, the index usually rises at about a 3.5 percent pace.

The Federal Reserve is closing watching wages as it considers when to raise the short-term interest rate it controls. Fed Chair Janet Yellen considers rising wages a key sign that the job market is nearing full health.

US-CONSUMER-SENTIMENT

WASHINGTON (AP) -- U.S. consumers are more confident than they've been since January 2004.

The University of Michigan says that its index of consumer sentiment rose to 98.1 in January from 93.6 last month.

Consumers say the prospects for the U.S. economy are the strongest in a decade, and half of consumers expect the expansion to keep going another five years.

The Michigan survey was the latest evidence that strong job growth and tumbling oil prices have lifted consumers' spirits. The Conference Board on Tuesday reported that its consumer confidence index climbed to the highest level since August 2007. And the Commerce Department reported Friday that consumer spending rose from October through December at the fastest pace in nearly nine years.

AMERICAN AIRLINES-PILOTS

DALLAS (AP) -- Pilots at American Airlines and US Airways have approved a single labor contract. That's a step toward combining workforces at the two carriers, which merged in December 2013.

The multiyear deal gives pilots a 23 percent pay raise retroactive to Dec. 2.

The pilots' union said Friday that the contract was approved 66 percent to 34 percent, with 95 percent of eligible pilots casting a vote.

TOYOTA-FATAL CRASH

MINNEAPOLIS (AP) -- A jury of six men and six women is continuing deliberations in a case alleging a 1996 Toyota Camry had a design defect that caused a fatal crash.

Jurors received the case late Wednesday afternoon and deliberated all day Thursday without reaching a verdict. They returned to a federal courthouse in Minneapolis on Friday to keep working.

The jurors must decide whether Toyota's design of the 1996 Camry had a defect that was unreasonably dangerous. If they find there was a defect, they must decide if it directly caused injuries to those hurt or killed when Koua Fong Lee crashed into another car in 2006.

Lee spent 2 1/2 years in prison before being released after reports suggested some Toyota cars had sudden acceleration problems.

GERMANY-BMW-SECURITY FLAW

BERLIN (AP) -- German automaker BMW says it has fixed a security flaw that made 2.2 million of its vehicles vulnerable to break-ins.

The company says the problem affected BMW, Mini and Rolls Royce models equipped with its ConnectedDrive technology, which allows drivers to access certain car functions with a smartphone.

German automobile club ADAC, which discovered the flaw last summer, says hackers could have used a fake cellphone base station to intercept network traffic from the car and lower the windows or open the doors. There are no reports such a break-in ever took place.

BMW spokeswoman Silke Brigl said Friday that hackers wouldn't have been able to start or stop the engine.

Brigl said the problem has been fixed with an automatic update and customers don't need to take any action.

POM JUICE-RULING

WASHINGTON (AP) -- A federal appeals court says many advertising claims for POM Wonderful juice were deceptive in asserting that it curbs the risk of heart disease, prostate cancer and erectile dysfunction and is clinically proven to work.

In a 3-0 decision, the U.S. Court of Appeals for the District of Columbia Circuit upholds the conclusion that many of POM's ads made misleading or false claims. The conclusion was reached by the Federal Trade Commission.

The ads appeared in national publications, on Internet sites, bus stops, billboards, newsletters and on tags attached to the products.

POM Wonderful LLC produces a number of pomegranate-based products.

RUSSIA-FINANCES

MOSCOW (AP) -- Russia deputy sports minister Yuri Nagornykh says his country's economic crisis is forcing athletes to scale back their training plans for next year's Olympics in Brazil.

Training camps abroad can be crucial in acclimatizing athletes for Rio de Janeiro's tropical conditions, but they are rapidly becoming unaffordable after the ruble lost almost half of its value against the U.S. dollar in the last 12 months.

Nagornykh tells Russian agency R-Sport that, with the ruble's value low and the Sports Ministry's budget facing cuts, athletes should stay in Russia rather than train abroad "in order to spend less of the currency reserves."

Officials will select priority sports and athletes for scarce funding, Nagornykh said.

The measures affect athletes for the Rio Olympics, and the 2018 Winter Olympics, he added.

OHIO STATE-ROYALTIES

COLUMBUS, Ohio (AP) -- The Ohio State University is cashing in after the Buckeyes' national championship victory.

The Columbus Dispatch reports the university expects a $3 million increase this year in royalties from licensed merchandise sales as fans continue to buy national championship gear and keepsakes.

Retailers say the team's special story has helped boost sales. The Buckeyes, who defied naysayers in their 42-20 victory over the University of Oregon, earned the final playoff spot after losing two starting quarterbacks to injuries.

Licensing officials also attribute increased sales to the fact Ohio State hadn't won a championship since 2002.

More than half of each dollar that comes into the school's licensing office goes to academic affairs. The athletics department, alumni association and student life program also receive portions of the revenue.

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