Executive compensation and the concentration of wealth

Title:B&D CEO's big pay isn't unusual -- nor is critics' ire
Source: MSNBC
Date: March 21, 2004


From the article:

At Towson-based power tool giant Black & Decker, president and CEO Nolan D. Archibald's salary rose 8 percent in 2003 --to $1.375 million -- while his bonus stayed flat at $2.75 million. He also received an additional $7.28 million for the company's three-year performance, and options for 300,000 shares of stock.

Also:

At troubled Allegheny Energy (www. alleghenyenergy.com), CEO Paul J. Evanson made $467,308 in salary and $787,500 in bonus in his first six months on the job. He received a $6.3 million 'make-whole' payment for joining the company, which included moving expenses.

Former CEO Alan J. Noia, who retired May 1, made $255,385 in salary last year. Additionally, his severance package provided for a stipend of $133,000 a month for 30 months, or nearly $4 million.

Why does the article call Allegheny Energy "troubled"? You find this page on the Allegheny web site, which says:

"For the fourth quarter of 2003, Allegheny reported a consolidated net loss of $13.7 million, or $0.11 per share, compared to a consolidated net loss of $281.8 million, or $2.23 per share, for the fourth quarter of 2002. For the year ended 2003, Allegheny reported a consolidated net loss of $355.0 million, or $2.80 per share, compared to a consolidated net loss of $632.7 million, or $5.04 per share, for the same period in 2002.

So the company has lost approximately a billion dollars over the last two years. In 2002 it fired 600 people -- 10% of its employees [ref]. But the retiring CEO gets a $4 million severance package, and the incoming CEO gets over $7 million. That is the concentration of wealth at work.

Wells Fargo's Kovacevich paid $36.4 million

Title: Wells Fargo's Kovacevich paid $36.4 million

From the article:

"Total compensation for Richard Kovacevich, chairman and CEO of Wells Fargo & Co. reached $36.4 million for the year ended Dec. 31."

Those ATM fees and overdraft charges really add up. And if you have a Wells Fargo mortgage, you paid more for it so that Kovacevich and other top executives could take home such huge paychecks. It all turns into a huge concentration of wealth.

The concentration of wealth depends on a low minimum wage

Title: Wage Against the Machine
Source: Tech Central Station
Date: March 29, 2004

This article disparages Wisconsin's plan to raise the minimum wage, and contains all of the classic arguments against raising the minimum wage. The article claims that raising the minimum wage increases unemployment and that it increases the number of people on welfare. That is because it causes employers to cut back on workers, replace workers with automation, etc.

Because of arguments like these, the minimum wage has not changed since 1996. And since the minimum wage acts as a foundation upon which other wages are based, wages for most workers stagnate.

In the meantime, one group of people has seen the opposite of stagnation for their wages. As pointed out here: "The average chief executive of a major corporation now gets $10.8 million a year, almost 20 times as much as in 1981, as the result of a classic market failure." Simply review the posts in this blog to see where all of the money generated by stagnant wages is going.

The fact is that we could double the minimum wage tomorrow with zero effect on the economy. Prices would not increase at all. The way we do that is by taking the factor of 20 increase given to executives and give it instead to employees.

The article entitled What if we doubled the minimum wage? describes the process in very simple terms:

Imagine a hypothetical company with 20,100 employees. At the top are 100 executives who pay themselves an average of $4 million per year. The other 20,000 employees make minimum wage -- $5.15 per hour -- for 2,000 hours per year of work.

Those executive numbers sound top-heavy, but today they are not. Executive pay truly has been rising at a spectacular rate. For example, when Enron collapsed it had about 20,000 employees. According to the book Pipe Dreams by Robert Bryce:


"Enron filed documents in bankruptcy court that showed total cash payments of $309.8 million to a group of 144 top Enron executives during 2001. In addition, those same executives cashed in stock options worth $311.7 million."

That's more than $4 million per executive across 144 executives.
So in our hypothetical company, we have 100 executives making $400 million per year. We have 20,000 employees making about $200 million per year. If we simply cut the average executive pay from $4 million per year to $2 million per year, we can double the pay of rank and file employees in this company.

Could the executives manage to survive on $2 million rather than $4 million? Yes, they could. They could also survive on $1 million a year, or $500,000. Their pay is completely arbitrary. It has risen by a factor on 10 in the last 20 years -- In 1980, these same executives would have been making $400,000 instead of $4 million.

A common complaint about doubling the minimum wage is that it is "inflationary." The point of this example is to show that employee wages can be doubled without raising prices at all. Executives are now redistributing wealth from employees to themselves at such a remarkable rate that employee wages have fallen considerably by comparison. Simply by reversing this concentration of wealth, employee wages can rise to reasonable levels without changing consumer prices or firing anyone.

The key lies in the voting public -- voters simply need to understand what the concentration of wealth is doing to this country, and then vote to reverse it. As soon as this happens, life in America will be significantly better for everyone.

Costco under pressure to cut wages

Title: Costco's Dilemma: Be Kind To Its Workers, or Wall Street?
Source: Wall Street Journal
Date: March 26, 2004

From the article:

In contrast [to Wal-Mart], rival Costco Wholesale Corp. often is held up as a retailer that does it right, paying well and offering generous benefits.

But Costco's kind-hearted philosophy toward its 100,000 cashiers, shelf-stockers and other workers is drawing criticism from Wall Street. Some analysts and investors contend that the Issaquah, Wash., warehouse-club operator actually is too good to employees, with Costco shareholders suffering as a result.

"From the perspective of investors, Costco's benefits are overly generous," says Bill Dreher, retailing analyst with Deutsche Bank Securities Inc. "Public companies need to care for shareholders first. Costco runs its business like it is a private company."

Also:

Costco has won a reputation for having the best benefits in retail, a sector where labor costs account for about 80% of a typical company's total expenses. Costco pays starting employees at least $10 an hour, and with regular raises a full-time hourly worker can make $40,000 annually within 3½ years. Cashiers are paid $10.50 to $17.50 an hour.

Wal-Mart doesn't disclose its wage rates, since they vary by location. According to a recent study funded by Wal-Mart, cashiers at its Supercenters in Las Vegas were paid $7.65 to $11.45 an hour. Supercenters are Wal-Mart's discount grocery and general-merchandise stores.

The sentence, "Public companies need to care for shareholders first," is interesting. Since 50% of stock is owned by the wealthiest 1% of Americans and 90% is owned by the wealthiest 10%, this philosophy explains where the concentration of wealth is coming from [ref].

Why should the shareholders be first?

The reality is that shareholders make up just 10% of the population, while employees make up 90% of the population. Is it in the nation's best interest to put shareholders first? It is, in fact, not in the nation's best interest. If the "shareholders' best interest" means that wages are falling, jobs are vanishing and more and more wealth is concentrating -- which is what is happening today -- the "shareholders" are a real problem. The nation's economy would be much healthier with a strong, vibrant, fairly-compensated middle class than it ever will be with top 10% of the population owning the large majority -- and an ever increasing majority -- of the nation's wealth.

Costco's approach certainly is notable. It proves that Wal-Mart -- and all other large companies now paying minimum wage, such as McDonald's, etc. -- could Double their wages without any problem. The only things preventing that from happening are: a) the desire of the wealthy to inexoriably concentrate more and more wealth, and b) the government's desire to now help the wealthy because of campaign contributions from the wealthy and the percentage of top-tier government officials who are themselves wealthy.

It will be interesting to see how long Costco maintains its current pay scale in the face of shareholder pressure.

Executive compensation is "seriously off-track"

Title: "Other People's Money" by Walter B. Wriston

Walter B. Wriston is the former Chairman and CEO of Citicorp/Citibank. Here is what he has to say about executive compensation in this article:

"Most reasonable people would argue that executive compensation in America is seriously off-track. Directors responsible for setting salaries and benefits have been treated to a kind of a ratchet approach invented by consultants. It works like this. Consultants come into the boardroom with their power point presentations that show the salaries being paid to other top executives in the same industry. The chart often makes it clear that your CEO is only in the second quartile. This is unacceptable, since your executive is clearly better than competitors. So, a raise is voted and justice done.

The consultants then go to the next corporation and the process is repeated over and over. No reorganization of corporate governance will make a dent in this ploy. Only people with a sense of proportion, and the courage to speak out can halt this deleterious progression."

If we do not speak out, we will be imprisoned by this process. Wealth and power will concentrate to a point where it harms not only the economy, but the basic freedoms of the citizens of the United States.

Wachovia and the concentration of wealth

Title: Wachovia CEO gets $16M compensation in 2003
Source: Charlotte Business Journal
Date: March 15, 2004

From the article:

• Wachovia Corp. Chief Executive Ken Thompson received $16.1 million in total compensation in 2003... $1 million salary, a $5.3 million bonus, options worth $6.4 million and $3.1 million in restricted stock. He also received $354,266 in other compensation.
  
  
• Benjamin Jenkins, who runs the general bank, received $7.8 million in total compensation last year, including a $3.2 million bonus.
  
  
• Donald McMullen, who runs the bank's capital management operations, received $6.1 million in total compensation.
  
  
• Chief Financial Officer Robert Kelly, and Stephen Cummings and W. Barnes Hauptfuhrer, who run Wachovia's corporate and investment bank, each received $5.3 million in total compensation.

These six executives received $45.9 million in one year. That means that each household in America paid an average of about 50 cents to these six executives.

Keep in mind that the President of the United States -- the most powerful man in the world -- makes $400,000 per year.

You might be thinking, "50 cents -- oh well -- no big deal." What you have to keep in mind is that this happens in every big company. Wachovia is just one big bank out of a dozen big banks. There are all the car companies, soap companies, food companies, retail companies, airline companies, fast food companies, advertising companies, entertainment companies, etc, etc., and they are all concentrating wealth in the same way as fast as they can.

Wachovia is the 90th largest company in the U.S. Therefore, let's assume that in the 200 largest companies in America, there are six executives who are concentrating wealth at the same level as these six people at Wachovia. We are simply using Wachovia as an "average large company". In that case, there are 1,200 top people in the top 200 companies.

That tiny group of 1,200 people is taking home roughly $10 billion per year. There are approximately 100 million households in America. That means that your household pays $100 per year to fund the unbelievable salaries paid to these 1,200 people. You pay your $100 each year through inflated prices on the products that these 200 companies sell to you.

Now let's take it a step further. There are a lot more than 6 "top executives" in these 200 big companies. Let's say that there are 100 people in each one who get paid more than $1 million each. That adds an additional $20 billion to the amount paid, or $200 per household.

Now we can go a step further. There are a lot more than 200 companies in America. They are smaller than the top 200, but they are still very big. Let's say there are 2,000 "big" companies in America. Together they triple or quadruple the $300 figure we have come up with so far. So we are up to at least $1,000 per household. And we have not even started to talk about unlisted perks -- the jets, the limousines, the huge offices, the "executive secretaries", the art, etc. (This article on Enron shows just how ridiculous executive perks and expenses can get.) And so on.

The point is simple. If we would rationalize just this one aspect of the concentration of wealth -- irrational executive salaries -- prices would be significantly lower. Your household would have at least 1,000 extra dollars to spend every year on the things that you and your family need.

That is the direct effect that the concentration of wealth is having on you, personally, each day. You and your family needlessly pay at least $1,000 per year so that a very small group of people in America's biggest companies can become obscenely wealthy. That is how the concentration of wealth works.

It is time for each American to actively fight against the concentration of wealth and power in our democratic society.

Retirement and the concentration of wealth

Title: The 10K Run - The sweetheart deals hiding in corporate annual reports.
Date: March 19, 2004
Source: Slate

From the article:

check out the retirement deal of Former CEO John M. Trani, who attracted controversy two years ago when he proposed moving the Connecticut-based company to Bermuda to avoid taxes. Trani resigned on Jan. 1 and began collecting $243,750 a month under his retirement agreement.

Also:

[Gannett] plans to pay former Chief Financial Officer Larry Miller $600,000 a year under a consulting contract signed last year when Miller retired. That's $40,000 more than Miller made when he was working full time for the company, and now he only has to work half time.

These retirement plans pale in comparison to some of the more elaborate ones crafted by the big name CEOs. For example, Jack Welch (former CEO of GE), whose divorce made public his "perks-for-life retirement deal" from GE, was found to be receiving a $9 million annual pension, a $15 million Manhattan penthouse plus use of corporate jets, helicopters and limos. According to this article:

"After [Welch] cut his deal with GE six years ago, compensation pros were quick to dig his new contract out of SEC documents shareholders rarely scrutinize. Soon CEOs were waving Welch's deal in front of their own boards, demanding similar treatment, pay consultants and corporate directors tell NEWSWEEK. While no CEO admits to mimicking Welch's contract, the executive elite began getting similar deals. IBM's then CEO Lou Gerstner renegotiated his contract to extend his perks for 20 years after retirement. Larry Bossidy, the former Honeywell CEO, cut a perks-for-life deal, which he says is much less generous than Welch's. Emerson Electric's former CEO Charles Knight-who approved Gerstner's deal as an IBM director-got his perks extended 15 years beyond retirement. 'Jack's contract became the gold standard,' says one pay consultant."

You pay for ridiculous retirement packages like these through higher prices and lower wages.

The concept of a retirement plan for "normal" employees has largely evaporated, like many other benefits. In some companies, what employees are left with is the ability to contriibute their own money to a 401(K) plan. But in many companies, even that option is not available.

Yet executives are given lush retirement packages that include millions of dollars in pay, corporate funded assistants and office space, use of corporate jets, etc. Consumers fund all of this largess through higher prices. The concentration of wealth accelerates.

New jobs and the concentration of wealth

Title: New jobs just don't pay well
Source: Knight Ridder Newspapers
Date: March 15, 2004

From the article:

While politicians and news media reports have focused on the numbers of jobs lost and gained in this U.S. recovery - a net loss of 2.3 million jobs since 2001 - little has been said about the disparity in pay between jobs lost and jobs gained.

Specifically:

• "A national study says the new jobs being created pay 21 percent less than the jobs they replace."
• "In December, 4.79 million involuntarily worked part time, compared with 3.25 million in December 2000, federal labor statistics show."
• "Some jobs are being created in education, health care services or hospitality, but they pay less, have poor benefits, and they certainly don't pay pensions like the old jobs did,"

Where is all of the money saved by these lower-paying, lower-benefit jobs going? It is concentrating -- it is going to the wealthiest Americans instead of spreading out to the people doing the work. Wal-Mart provides a perfect example of the phenomenon.

So that's why we have jobless recovery

This post about a recent article in the Washington Post is quite relevant to the concentration of wealth.

The fruits of poverty

Title: The fruits of poverty
Source: The Guardian
Date: March 16, 2004

The article starts with this point:

Every year the list is the same, but every year it still comes as a shock. Of the 10 richest people on Earth, five of them have the same surname. It's not Gates, or Murdoch, or Rockefeller, but Walton. They are the heirs and trustees of the supermarket chain Wal-Mart. And between them they are worth $100bn.

Then makes this point:

Wal-Mart, which owns the British chain Asda, is now the biggest company on Earth. In the last financial year it took $245bn. It is successful partly because it is one of the most ruthless employers in the western world.

In the US its sales clerks made an average of $13,861 in 2001, almost $800 below the federal poverty line for a family of three. It is reported to have told new employees how to apply for food stamps so that they don't starve to death. In November, the police found hundreds of illegal immigrants working as cleaners in its stores. Some of them claimed that they were obliged to work seven nights a week, without overtime, insurance or benefits.

By forcing down the prices of the goods they buy, the superstores encourage even more repressive conditions in the companies that supply them. A recent study by Oxfam documents the systematic abuse of workers in the factories and farms that the superstores buy from. The Waltons are so rich because others are so poor.

"The Waltons are so rich because others are so poor." That is exactly the point. That is how the concentration of wealth works. If $100 billion were spread out among 1 million workers at Wal-Mart, each worker would be $100,000 richer. It would completely change the lives of those 1 million people. Instead, all of that wealth concentrates in five people, to the benefit of no one.

It is not as though the concentration of wealth is "preordained by the universe". Things do not "have to be this way." Very simple changes in the law could end the concentration of wealth. For example, as discussed in this article, there could have been a substantial inheritance tax applied to Sam Walton's estate when he passed away. Or there could be substantial income and property taxes applied to the surviving Waltons. Or there could be labor laws in place to protect Wal-Mart's employees. If so, many of the problems we are seeing today would disappear, with no ill-effects on the economy. Chances are the economy would be doing far better, in fact.

See also this post.

The effect of the concentration of wealth on families

Title: Why Women have to Work
Source: Time
Date: March 22, 2004

From the article:

Since the mid-'70s, the amount of the average family budget earmarked for the mortgage has increased a whopping 69% (adjusted for inflation). At the same time, the average father's income increased less than 1%. How to make up the difference? Mom's paycheck of course.

As pointed out here, "The average chief executive of a major corporation now gets $10.8 million a year, almost 20 times as much as in 1981, as the result of a classic market failure." Why has CEO pay skyrocketed while pay for average Americans stagnated like this? It is because the wealth of this nation is rapidly concentrating. Most of it is going to America's wealthiest citizens instead of spreading out to benefit everyone.

As shown above, the concentration of wealth is having a significant impact on working American families.

The article continues:

These moms aren't marching to the office so they can get into brand-new McMansions. In fact, the average family today lives in a house that is older than the one Mom and Dad grew up in, and scarcely half a room bigger. The average couple with young children now shells out more than $127,000 for a home, up from $72,000 (adjusted for inflation) less than 20 years ago.

Then there is preschool. No longer an optional "Mother's Day Out" enterprise, preschool is widely viewed as a prerequisite for elementary school. But that prerequisite isn't offered at most public schools, which means that any mother who wants her kids to have access to this "essential start to early education," as the experts call it, has to come up with cold, hard cash. A full-time preschool program can cost over $5,000 a year—more than a year's tuition at most state universities! Add the cost of health insurance (for those lucky enough to have it) and the eventual price of sending a kid to college (double—when adjusted for inflation—what it was a generation ago), and most middle-class moms find they have no choice but to get a job if they want to make ends meet.

Only when we realize what is happening and actively work to halt the concentration of wealth will things change.

Michael Eisner, part 2

Title: Why pay millions for corporate moochers?
Source: NYT
Date: March 9, 2004

From the article:

The business world finally cracked down last week on one of the world's biggest welfare moochers, dragging Michael Eisner out of the chairman's seat at the Walt Disney Co.... The larger question is not why the Disney board allowed Eisner to run the company nearly into the ground. Rather, it is why it has paid him $285 million since 1996 to do that.... You'd think that the board could have found a chairman to mismanage Disney for only, say, $2 million a year. But corporate boards routinely overpay for mediocrity. Indeed, while corporate America ruthlessly applies capitalism to shave costs in acquiring paper clips or secretaries, the top executive suites tend to be, along with North Korea, the world's last enclaves of socialism.

Also:

The problem with "the great CEO pay heist," as Fortune magazine once called it, is that the free market is not at work here. The average chief executive of a major corporation now gets $10.8 million a year, almost 20 times as much as in 1981, as the result of a classic market failure.

"The salary of the chief executive of the large corporation is not a market award for achievement," John Kenneth Galbraith noted back in 1980. "It is frequently in the nature of a warm personal gesture by the individual to himself."
.
Pay is decided by a few board members, often the chief executive's friends, who are perhaps themselves chief executives sympathetic to the argument that $200 million is about right for such hard work. Compensation experts are hired for advice, but they know that the way to drum up business is not to save shareholders money.

Michael Eisner/Disney and the concentration of wealth

Title: Disney's Eisner Negotiates New Pay Package
Source: Miami Herald
Date: March 15, 2004

From the article:

Letting Eisner stay may be viewed as a wimpy move by his legion of critics, but it's still a breach of his current contract. If he's not CEO and chairman of the board, he can leave with a severance deal worth about $40 million in cash.

Experts say it's unlikely Eisner will lose any pay in this latest round of negotiations.... That's of little comfort to those who have made Eisner's past compensation packages one of their main complaints against him. Eisner has taken in more than $1 billion in compensation from Disney since coming on board 20 years ago, which averages out to more than $50 million a year.

Michael Eisner's job responsibilities are being cut in half. So he can leave, and he will receive $40 million. Or he can stay, and his pay will not be cut.

The fact is that nothing would change at Disney if Eisner were to vanish tomorrow. In fact, things might actually get better. Clearly he is not worth $40 million per year in either case. That is what is so insidious about the concentration of wealth -- the people who are concentrating it get paid obscene amounts of money even when they are providing no value. And the people who are paying for it are normal consumers, who pay inflated prices on everything they buy to fund the concentration of wealth.

Credit cards concentrate wealth

Title: Expired: How a Credit King Was Cut Off
Source: NY Times
Date: March 7, 2004

This is another one of those articles where you get that piling on feeling -- where the concentration of wealth is so unbelievable, it is difficult to imagine.

This article is primarily about Charles M. Cawley, former CEO of MBNA Corporation. The article chronicles his amazing concentration of wealth. Keep in mind that all of the money described here came in one way or another from overcharging customers (you and me) -- everyone holding an MBNA credit card helped to finance this unbelievable extravagance by paying excessive fees to MBNA.

• "MBNA accumulated a fleet of airplanes, helicopters, yachts and expensive cars, as well as a $65 million art collection."
• "In June, [Cawley] borrowed two of MBNA's jets to ferry a group of friends and relatives to Spain and Italy, company officials confirmed."
• "After he returned, Mr. Cawley used $3.5 million of MBNA's money to buy a painting, titled "Other World," directly from Andrew Wyeth"
• $1 million spent on a "corporate retreat" in 2002. George Tenet was there, as was Colin Powell's wife.
• In the lobby there were extremely expensive Duesenberg automobiles.
• "The month before he left the company, he sold $21 million of MBNA stock. And a retirement agreement that was announced a year ago will pay him undisclosed consulting fees, provide him with two full-time personal assistants and access to the company's planes for him and his wife for the rest of their lives."
• "The top six executives received a total of $150 million in 2002."

It goes on and on and on.

The article also mentions things like this:

On a chilly Monday in early November, Laura Bush appeared at a lunchtime reception at a baronial mansion in Wilmington, Del., to express her husband's gratitude for $350,000 in contributions to his re-election campaign. Her host was Charles M. Cawley, and most of the money had come from employees of the MBNA Corporation, the highflying credit card company that he had run for two decades.

The Bush family was well acquainted with Mr. Cawley and his generosity. Only Enron, before its fall, was a bigger source of political donations to George W. Bush than MBNA. Mr. Cawley was also a benefactor to the president's father. Besides donating $1 million to the foundation that built George H. W. Bush's presidential library, Mr. Cawley and MBNA have paid more than $300,000 to the former president and his wife for appearing at company events.... He curried favor in Washington through political contributions and by hiring former senior government officials. MBNA's management team is studded with retired F.B.I. officials, including Louis J. Freeh, its former director.

The concentration of wealth is usually accompanied by the concentration of power -- here we see the president's wife dropping by to pick up a check. A number of top-ranking Washington officials are mentioned in the article.

So here we have a person who is overcharging credit card customers by billions of dollars and siphoning gigantic amounts of money off of the company for personal use. With some of that money, the person is buying amazing contacts in Washington and using those contacts to change legislation.

You would think that a person worth this much money is providing the company with incredible, indispensable value. Surely, if the Board of Directors is authorizing all of these salary and benefit expenditures, then the person is vitally important to the company. Surely the company could not survive without him -- why else pay him so much money?

The fact is that Mr. Cawley was recently fired by the board. It turns out that the company did not need him at all.

This is true of every executive who is concentrating wealth through supersized pay. These executives are human beings, and like everyone else they are easily replaced. The only reason they receive so much pay is because they control the check book -- in all but the most egregious cases, they pay themselves whatever they like and the board approves it. The people who pay for the extravagance are normal consumers -- you and me -- who pay inflated prices on everything we purchase. In 2003, the company made a profit of $2.34 billion. With approximately 100 million households in America, it means that every household paid $23 on average to MBNA.

Steve Jobs' Concentration of Wealth

Title: Jobs' salary is top dollar
Source: MacWorld
Date: March 12, 2004

From the article:

Apple's 2003 10K Annual Report shows that last March [Steve Jobs] received $74.75 million in restricted stock after cancelling his outstanding stock options.

He was also awarded "five million restricted shares of the Company's Common Stock that generally vest in full on the third anniversary of the grant date".

In 2002 he received options for 7.5 million shares and a bonus of $2.3 million. Jobs was granted no stock options in 2003.

In 2001 Jobs received compensation in the form of a $90 million Gulfstream 5 executive jet. Apple agreed to pay for Jobs' use of the jet on company business, and in 2003 he racked up more than $400,000 in related expenses.

The article also notes that, "As has been the case every year since 1998 – the year after his return to the company – Apple CEO Steve Jobs has drawn an annual salary of $1".

What this article points out so clearly is that the "annual salary" of a CEO is irrelevant, because the salary makes up only a tiny portion of an executive's compensation. Besides the salary, the "compensation package" of a typical executive also includes the bonuses, the stock options, the stock grants, the private jets, the penthouse apartments, the yachts, the limousines, the parties, the vacations, the retreats, the benefits, the retirement packages, the pensions, etc., etc., etc. An unbelievable amount of money is poured upon corporate executives. As we will see in tomorrow's post, the amount being poured is obscene, and there is absolutely no reason for it.

In Steve Jobs' case, the items listed in the article total at least $200 million. And that is certainly not all of it.

There are approximately 100 million households in the U.S. What this means is that every household in America has paid Steve Jobs $2, on average, over the last couple of years.

If you do not own an Apple computer, you might think that your household has not paid anything to Steve Jobs. That belief is incorrect. Here is one way you have paid money to Steve Jobs: Many advertising firms use Apple computers. Those advertising firms paid inflated prices for their computers so that Apple could give Steve Jobs $200 million. The advertising firms passed the inflated cost of Apple computers on to their client companies, and those client companies in turn raised the price of their products. So, whenever you buy a tube of toothpaste, a box of cereal, or a new car, you pay an inflated price and your money flows to Steve Jobs. That is how the concentration of wealth works.

Steve Jobs is just one executive, and your household has paid him $2. You are funding thousands of immensely overpaid executives in exactly that same way every year. It adds up to thousands of dollars taken out of your pocket and poured into the pockets of the wealthiest Americans. If we stop the process, then you will have thousands of extra dollars in your own pocket to spend on the things that you and your family need.

Off-shoring, Jobs and Robots

Title: Off-shoring, Jobs and Robots
Source: Robotic Nation Evidence
Date: March 11, 2004

From the article:

Off-shoring is not new. It has been happening to factory workers for several decades. However, politicians, white-collar workers and writers like David Kirkpatrick were unaffected. They could smugly say to factory workers, "You may not like it, but this is good for the economy."

It might be good for "the economy", but I have never met the economy, nor its spouse and children. "The economy" does not care about the lives and families of human beings. So millions of factory workers lost decent jobs in factories and ended up in trash jobs at McDonald's and Wal-Mart. Yes, many people got rich and were able to concentrate massive amounts of wealth. The economy did grow. But millions of people are doing worse now, not better. [And, if you think about it, there is no need for that to have happened -- Wal-Mart could pay workers twice what it is paying them now with no downside.] That same unfortunate process is now happening to white-collar workers, and it is terrifying to anyone with a family and a house payment.

If you look far enough down the road (30 years perhaps, maybe 40), it is possible that there will be only two classes of people in America: the unbelievably wealthy and the unemployed. Right now -- in America today -- the richest 10% of capital owners already own 71% of America. If current trends continue, it will not be long before they own all of it. There will be the capital owners, and everyone else. The reason for that is simple -- every new job that you can think of either: A) can be done by a robot or software in the near future, or B) can be done in India for a tenth of the cost of doing it here.

Kraft and concentration

Title: Kraft bonuses: $10M amid layoffs
Source: CNN Money
Date: March 6, 2004

From the article:

Bonuses totaling more than $10 million were paid out to five Kraft Foods Inc. executives at the end of 2003, even as the giant food maker made plans to lay off thousands of workers.

CEO Roger Deromedi received $3.7 million. Marketing cheif Betsy Holden received $3.5 million. NA President David Johnson got $1.3 million. Executive Vice President Franz-Josef Vogelsang received $1.2 million. Hugh Roberts got $900K.

The article also states:

In January, Chicago-based Kraft said it would cut about 6,000 jobs and close 20 plants as it tried to restore growth.

The company has not been doing well, so it fires 6,000 people. Yet the executives still rake in $10 million. The concentration of wealth advances one more notch.

Attorneys concentrating wealth as fast as they can

Title: The New Billionaires
Source: Trial Lawyers Inc.

From the article:

Once upon a time, the average person blanched at lawyer fees that reached upward of $500 an hour at many of the best firms. But those high hourly fees are chump change compared with what Trial Lawyers, Inc. is raking in these days. From tobacco settlements to asbestos class action suits, the industry now boasts fees that can range as high as an astounding $30,000 an hour, turning some members of Trial Lawyers, Inc. into overnight billionaires and providing the capital to bankroll new lawsuit ventures in new markets.

Also

Regardless of one’s view about the merits of the suits, the mega-fees from the 1998 tobacco settlement were nothing but egregious. Some 300 lawyers from 86 firms will pocket as much as $30 billion over the next 25 years even though, for many of them, the suits posed minimal risk and demanded little effort.That staggering sum comes right out of taxpayers’ pockets—enough money to hire 750,000 teachers.

CEO Pay spiraling upward

Title: Market Watch: The C.E.O.'s Mad, Mad World
Source: NY Times
Date: March 7, 2004

From the article:

According to a preliminary analysis of 2003 executive compensation by Watson Wyatt Worldwide, a benefits consulting firm, the trend for C.E.O. pay is still up, up, up.

And:

Edward E. Whitacre Jr., chairman and chief executive of SBC Communications. Mr. Whitacre was awarded $19.5 million in salary, bonus, long-term incentive pay, restricted stock and other compensation last year, up from $10.1 million in 2002.

And:

Then there is John Tyson, chairman and chief executive of Tyson Foods, the giant meat and food producer. Last year, he received $20.9 million in compensation and 1.2 million stock options. In 2002, he received $7.6 million and 200,000 options.

4,000 SBC employees and 6,000 Tyson employees lost their jobs in 2003.

The cost of supporting the wealthy

The previous post points out that Cingular Wireless will be charging each one of its 46 million subscribers $1.86 in extra fees, and then giving the resulting $87.5 million to a tiny handful of executives.

One way to think about it is, "$1.86 is not that much money in the grand scheme of things -- it doesn't really matter." The thing we all need to recognize about these fees is that they do matter. We are constantly paying them to hundreds of corporations every year in the form of inflated prices on everything we buy. When you add them all up, it works out to more than $1,000 for every American citizen every year. That means two things:

• The hundreds of billions on dollars collected in this way flow to a tiny percentage of the American population. In the process, this money is making this tiny percentage of people unbelievably wealthy and powerful.
• If these inflated prices were eliminated, every American would have more than $1,000 per year in his or her pocket to spend on the things he or she needs, on average.

Keep in mind that the top 10% of Americans own nearly 90% of all the corporate stock in America, and the top 1% own half of it [ref]. What this means is that, when any corporation pays a dividend, 90% of the money goes to the top 10% of Americans, and half of it goes to the top 1% of Americans.

For example, Wal-Mart pays an annual dividend of approximately $1.3 billion dollars. There are about 300 million people in America. So to raise $1.3 billion for its dividend, Wal-Mart overcharges each American, on average, over $4 per year. Then almost all of that money flows to the top 10% of Americans, and half of it flows to the top 1%.

As another example, the top five drug companies in America pay approximately $10 billion per year in annual dividends (even though the 5 companies together are smaller than Wal-Mart in terms of revenue). $10 billion represents approximately $34, on average, for every American citizen.

Kellogg -- the cereal company -- pays over $400 million per year in dividends, or $1.33 per American citizen. Campbell Soup pays nearly $1 per American citizen. And so on.

Then factor in the unbelievable executive compensation paid by these companies every year. With the average CEO making more than $10 million per year, and the other people on their "executive teams" making millions more, it adds up very quickly. Every American citizen -- every man, woman and child in America -- pays at least $1,000 per year in inflated prices to cover these executive salaries and dividends.

All of that money is flowing out of the pockets of normal Americans and into the pockets of the wealthiest Americans, and the wealthy represent a tiny percentage of the American population.

The problem with these wealthy Americans is that, as their wealth grows, so does their power. They then use their power to cut social security benefits, cut wages, ship jobs overseas, corrupt the legal system, corrupt the government, and so on. We are all feeling the effects of their wealth, and their wealth is growing.

Cellular mergers and the concentration of wealth

Title: Merger lucrative for cellular execs
Source: Seattle Post-Intelligencer
Date: March 6, 2004

From the article:

The directors and top five officers at Redmond's AT&T Wireless Services Inc. will get $85.7 million in cash if that company is bought by Cingular Wireless LLC, according to federal documents filed yesterday.

Keep in mind that there will be approximately 46 million Cingular subscribers after the merger [ref]. To pay this tiny handful of executives $85.7 million, Cingular will add an extra fee of $1.86 to the bill of every one of those 46 million subscribers.

That is how the concentration of wealth works. The gigantic amounts of money being concentrated by these executives has to come from somewhere. It comes from all of us in the form of inflated prices on nearly everything we buy from corporations.

If you are a Cingular subscriber, think about this: do you want to pay that extra $1.86 to these executives so that they can become obscenely wealthy?

Concentrating wealth at Coke

Title: Coke paid executives hefty bonuses amid steep job cuts
Source: Associated Press
Date: March 4, 2004

From the article:

"The Coca-Cola Co. paid $8.4 million in bonuses to its top six executives last year, the equivalent of about $2,300 for each of the 3,700 employees the world's largest beverage maker laid off during the same period, a federal filing shows.

The company also said the present value of retiring chief executive Doug Daft's restricted stock awards is $86 million, and it paid out millions last year to companies that some of its directors own or hold a major stake in."

Amazing executive compensation

Title: Fleet awards Gifford $11m
Source: Boston Globe
Date: March 3, 2004

The thing about this article is the remarkable "piling on" effect that it has on you. Fleet Bank is literally pouring money onto its executives. For example:

• Chief executive Chad Gifford received about $11 million in salary, bonuses, and stock options...
  
• And president, Eugene M. McQuade got $8 million...
  
• And vice chairman, H. Jay Sarles got $8 million...
  
• Plus, "On top of those awards, the bank also rewarded each of the top five executives more than $3 million in restricted stock last month, with Gifford receiving shares worth $6.5 million...."
  
• And Brian T. Moynihan "received about $4.5 million last year in salary, bonus, and stock, plus another $3.2 million in stock in February..."
  
• And back in 1999, "the bank awarded former chief executive Terry Murray $14.8 million in stock, and Gifford received $11.1 million in stock..."
  
• And "last year Gifford received a $6 million cash bonus on top of his $992,000 annual salary. He got about $3.8 million in stock..."
  
• And "in February, Fleet awarded Gifford another $6.5 million in restricted stock..."

Why? It is because the executives are giving the money to each other from the corporare bank account. Executive 1: "Would you like several million dollars? Here, let me write you a check." Executive 2: "You are too kind. Now let me give you several million dollars to show you my gratitude. Hand me the check book."

From the previous post we learned that a U.S. Army general with 20 years of experience gets $144,932.40 per year. The president of the United States gets $400,000 per year. Yet the executives at corporations are handing themselves millions of dollars in what appears to be a free-for-all. That money could just as easily go to rank and file employees in the form of higher wages, or back to consumers in the form of lower banking fees and charges.

War and the concentration of wealth

Title: War Profiteers
Source: Center for corporate policy

From the article:

"Many of the companies that have received Iraq reconstruction contracts award their top executives pay packages that are 30 to 175 times as much as a U.S. army general with 20 years experience, and nearly 2,000 times the pay of entry-level soldiers. Congress should keep in mind the words of President Franklin Delano Roosevelt who, in the aftermath of WWII said, 'I don't want to see a single war millionaire created in the United States as a result of this world disaster.' For more information about curbing CEO pay for war contractors click here. Also see the 'War Profiteering Prevention Act' (H.R. 3673) introduced by Rep. Emanuel (D-IL). "

This article lists total CEO compensation (2002) at several of the U.S. companies performing work in Iraq:

• Halliburton -- $7.3 million
• Northrop Grumman -- $9.2 million
• Fluor -- $4.5 million
• Lockheed Martin -- $25.4 million
• Motorola -- $11.8 million
• Lucent Technologies -- $20.8 million (truly amazing given the performance of Lucent around 2002)
• Bechtel -- ["Data not available – privately owned firm. CEO was 51st richest American in 2003, worth an estimated $3.2 billion."]

Money is collected from taxpayers and then flows to these companies, which overcharge so they can pay these incredible salaries for their executive teams. The concentration of wealth is automatic.

Wal-Mart and the concentration of wealth

Title: Wal-Mart stands out on rolls of PeachCare
Source: Atlanta Journal
Date: February 27, 2004

From the article:

A snapshot of Georgia's program for uninsured children shows that it's packed with kids of Wal-Mart employees. A state survey found 10,261 of the 166,000 children covered by Georgia's PeachCare for Kids health insurance in September 2002 had a parent working for Wal-Mart Stores.

Wal-Mart is the nation's largest private employer. Yet we cannot point to Wal-Mart with pride and hold it up as a shining example of America at its best. Instead, people fear Wal-Mart because it is creating an army of employees so poor that they cannot provide health care for themselves or their children. As the largest company in the U.S., Wal-Mart also says to other companies, "if you want to be as successful as Wal-Mart is, you need to treat your employees like Wal-Mart does." The way Wal-Mart treats its employees, quite clearly, is to sink them into poverty and welfare.

Also from the article:

"Most employees who make $7 to $8 an hour can't afford health insurance," said Cindia Cameron, organizing director of 9 to 5, National Association of Working Women. "When a very wealthy employer passes off to taxpayers what is rightfully a labor force cost, that's a serious public policy problem."

This is as simple as the concentration of wealth gets. Wal-Mart pays its shareholders $1.3 billion in dividends each year (much of that going to a handful of insiders). The company owns and operates 20 private jets for its executives. The president of Wal-Mart made $21 million in 2002 [ref], appoximately 1,500 times more than a typical rank and file employee. It is safe to say that there are a number of top executives making millions more. And so on. These vast amounts of money could just as easily be distributed to employees. Instead of providing employees with real jobs, Wal-Mart is a machine to concentrate wealth at the top. See this page for further details.

Wal-Mart will continue to concentrate vast amounts of wealth in this way. Other companies will follow Wal-Mart's example and do the same. American workers will become more and more impoverished. This will continue until it becomes so perverse that Americans see what is happening and demand a fundamental restructuring of the nation's wealth.

The wealthy buy access to senators with stock tips?

Title: Senators' stocks often outperform market
Source: Financial Times
Date: February 24, 2004

From the article:

US senators' personal stock portfolios outperformed the market by an average of 12 per cent a year in the five years to 1998, according to a new study.

"The results clearly support the notion that members of the Senate trade with a substantial informational advantage over ordinary investors," says the author of the report, Professor Alan Ziobrowski of the Robinson College of Business at Georgia State University.

He admits to being "very surprised" by his findings, which were based on 6,000 financial disclosure filings and are due to be published in the Journal of Financial and Quantitative Analysis.

"The results suggest that senators knew when to buy their common stocks and when to sell."

The reason that senators know when to buy and sell, presumably, is because their wealthy supporters give them insider trading information. If true, this would be yet another way for the wealthy to buy access to government officials.

Alternatively, it could be that senators know what legislation is coming down the pipe, intimately understand the effects the legislation will have on different industries and companies, and trade on this insider information.

See also this post and this one.

A massive concentration of wealth at Tyco

Title: Former Tyco Executive Takes Stand in Trial :
Source: Washington Post
Date: February 10, 2004

The Tyco trial is clearly showing just how quickly Tyco executives were concentrating wealth -- with the blessing of the board of directors. From the article:

"The crux of Swartz's argument was that the Tyco compensation committee and the company's full board of directors approved relocation programs that helped the men borrow tens of millions of dollars to buy fancy homes and other perks. In August 1995, Swartz said, the board rendered its blessing after only five minutes of discussion. He said the board fully understood that the plan allowed executives to borrow up to five times the total value of their salary, bonus and stock holdings.

'What I remember about that meeting is that [compensation committee chairman] Dick Bodman in explaining the program said that Dennis would be able to borrow enough to purchase Gracie Mansion,' Swartz said. 'In the final part of the conversation Dennis reminded Dick he wasn't just going to be buying one location. He might be buying a lot of mini-mansions.' "

Here we have a large company loaning its executives tens of millions of dollars. In many cases like this one, corporate loans for executives are interest free and are eventually forgiven -- the executives never have to pay them back.

It is fascinating to look at Tyco's Web site and read what the company has to say about the matter:

Relocation Programs, under which certain executive officers, including Mr. Kozlowski, former CFO Mark Swartz and former Chief Corporate Counsel Mark Belnick used the Company’s relocation program to take non-qualifying interest-free loans and unauthorized benefits that were not generally available to all salaried employees affected by relocations. Under the program, Mr. Kozlowski improperly borrowed approximately $61,690,628 in non-qualifying relocation loans to purchase real estate and other properties, Mr. Swartz borrowed approximately $33,097,925 and Mr. Belnick borrowed approximately $14,635,597.

The “TyCom Bonus” Misappropriation, in which Mr. Kozlowski caused Tyco to pay a special, unapproved bonus to 51 employees who had relocation loans with the Company. The bonus was calculated to forgive the relocation loans of 51 executives and employees, totaling $56,415,037, and to pay compensation sufficient to discharge all of the tax liability due as a result of the forgiveness of those loans. This action was purportedly related to the successful completion of the TyCom Initial Public Offering. The total gross wages paid by the Company in this mortgage forgiveness program were $95,962,000, of which amount Mr. Kozlowski received $32,976,000 and Mr. Swartz received $16,611,000. These benefits were not approved by, or disclosed to, the Compensation Committee or the Board of Directors. However, the employees who received these bonuses were led by Mr. Kozlowski to believe that they were part of a Board-approved program.

We are talking about $200 million or so handed to 51 executives -- a remarkable amount of money by any measure. Tyco's Web site describes the $200 million in this way: "The amount of money improperly diverted by Tyco’s former senior executives from the Company to themselves is very small in comparison with Tyco’s total revenues." In other words, the $200 million handed to executives is inconsequential for the company. That is how massive the concentration of wealth is becoming, and it also explains why executives throughout corporate America are receiving such gigantic amounts of money.

The important thing to recognize is that this "inconsequential" $200 million could have just as easily gone to rank and file employees in the form of higher wages, or back to consumers in the form of lower prices. See this page for details.

Facts about Wealth in the United States

Title Facts about Wealth that every American should know
Source: Office of Social Justice, Archdioeces of St. Paul and Minneapolis

This page defines wealth as, "what you own minus what you owe. In other words, it is net assets."

Selected quotes from the page:

• The [richest 1% of Americans] now own more than the bottom 90% [of Americans].
• The top 10% [of Americans] own 71% of all private wealth.
• Over 86 percent of the value of all stocks and mutual funds, including pensions, was held by the top 10 percent of households. In 1998, the top 1 percent of Americans owned 47.7 percent of all stock.
• Bill Gates alone has as much wealth as the bottom 40% of U.S. households.
• In the 22 years between 1976 and 1998, the share of the nation's private wealth held by the top 1% nearly doubled, going from 22% to 38%.
• In 1982 the wealthiest 400 individuals in the "Forbes 400" owned $92 billion. By 2000 their wealth increased to over $1.2 trillion.

The concentration of wealth is accelerating...