April 9, 2007
The national CEO pay surveys for 2006 have just started to appear. The Corporate Library, a Maine-based research group, opened the data deluge last Monday with a review of CEO pay reports for 2006 filed through March 23. The New York Times pay figures surfaced yesterday, and the Wall Street Journal numbers arrived earlier today.
Two quick reflections. The first: The new federal rules that require corporations to disclose more info about what they pay their top execs are generating some fascinating additional data.
The second: The new disclosure regs are so far having zilch civilizing impact on corporate behavior. CEO pay is continuing to rise at rates that any reasonable person would have to consider revolting.
Next week’s Too Much will explore the Times and Journal data depths. We’ll focus this week on the Corporate Library story.
The punishment should fit the crime, goes the old popular saw. The punishment, most Finns believe, should also fit the wallet. Finland ties traffic-ticket fines to incomes. Speeders and other traffic law violators pay a “day-fine” roughly equal to half their daily income after taxes. The more severe the infraction, the higher the number of day-fines assessed, notes Finnish analyst Tapio Lappi-Seppälä. Three years ago, a just-published look at the Finnish system relates, police fined an “heir to a family sausage fortune” $204,000 for driving 50 in a 25-mph zone . . .
Are houses for sale on your block going unsold? You’re clearly not living in any high-rent district. Business at the top end of the U.S. housing market is booming, with sales of homes in the $5 million-and-up price range up 11 percent last year, reports the Dallas-based Institute for Luxury Home Marketing. Ten residential properties sold for over $28 million in 2006. The most expensive, a New Jersey spread priced at $58 million, went to Richard Kurtz, the CEO of Advanced Photonix, a telecom supplier. California currently boasts the most homes valued over $1 million, but New York has passed California in what Miki Naftali, the top exec at Elad Properties, calls the “ultra-luxury market.” Naftali’s company last year turned a set of suites in New York’s fabled Plaza Hotel into one-bedroom condos that start at $6.9 million . . .
Owners of those new luxury suites at the Plaza won’t have to go far for an ultimate shopping experience. Right next door sits Bergdorf Goodman, the ten-level emporium that has graciously served Manhattan’s elite, at its current Fifth Avenue site, since 1929. What’s hot at Bergdorf’s? Sales staff, notes a recent store profile, “can’t keep their $495 Russian mink crocheted skullcaps in stock.” Also available: tote bags that start at $855 and a makeup trunk that will set the discriminating shopper back $3,670. Bergdorf has just completed a $85-million makeover designed to make the premises more appealing to a younger set. Explains store fashion director Linda Fargo: “We want to be a place where you can buy a $10,000 gown and the most happening pair of jeans.”
Exactly 37,837 Californians, the state’s tax agency reports, took home over $1 million in 2004, the most recent year with numbers crunched. These financially fortunate made up just 0.4 percent of the state’s tax filers. They collected, on average, 444 times more income than Californians making under $1 million. California’s tax rate on income in the state’s highest tax bracket, Ventura County Star analyst Timm Herdt noted last week, once stood at 11 percent. The current top-bracket rate: 9.3 percent. If the state, in 2004, had applied an 11 percent rate to the top-bracket income of California’s richest 5 percent, state revenues would have increased by $4 billion, just about enough to offset California's “structural budget deficit.”
In Minnesota, state senators have passed legislation that will, if enacted, subject all income over $250,000 to a new 9.7 percent tax rate. The new rate would impact one in 25 of the state’s taxpayers — and give Minnesota the nation’s highest top state tax rate on high incomes. Lawmakers in Minnesota's House, meanwhile, are considering a bill that would up the state’s top rate, now 7.85 percent, to 9 percent. GOP lawmakers are calling the two tax hike proposals “retro class warfare,” and Republican Governor Tim Pawlenty is threatening a veto. Minnesotans making over $350,000 a year currently pay 9.6 percent of their incomes in state and local taxes. State residents making $47,000 to $105,000 a year, by contrast, pay 12.3 percent of their incomes in state and local tax. Notes the Minneapolis Star Tribune in an editorial supporting a tax hike on Minnesota’s wealthiest: “It's not soaking the rich to ask a fairer contribution from people who have gained the most from the society state and local governments help sustain.”
Quote of the Week
“The nation needs an administration that will offer solutions for the scourge of income inequality.”
Editorial, It Didn’t End Well Last Time,
New York Times,
April 4, 2007
New Wisdom
on Wealth
Richard Conniff, The Rich Are More Oblivious Than You and Me, New York Times, April 4, 2007. A look at the research literature that helps explain why almost all of us, given enough wealth and power, "would soon end up living large and acting like idiots."
At first glance, the Corporate Library’s new figures on CEO pay, released last week, seem to show a distinct “moderating” trend.
The CEOs at the over 1,000 companies Corporate Library researchers examined saw their median take-home jump by 9.29 percent in 2006. That’s significantly less than the 15.98 percent annual increase the Corporate Library reported last year.
But this 9.29 percent figure doesn’t quite paint the full picture. Within corporate ranks, the Corporate Library data make clear, CEO pay varied wildly in 2006. The truly large companies in the Corporate Library sample, those companies big enough to rate S&P 500 status, hiked their median CEO pay by 23.78 percent, to $14.8 million.
Let's place that increase in a little perspective. U.S. worker weekly wages, federal statisticians note, rose just 3.5 percent in 2006.
The Corporate Library pay calculations count only “compensation that has actually been received” by CEOs. That includes all salary, bonus, and personal profits from exercising stock options awarded in previous years. The Corporate Library’s totals don’t include the value of new stock options awarded executives over the course of 2006.
The year's biggest CEO pay package, Corporate Library researchers calculate, went to Leslie Blodgett, the top exec at cosmetics giant Bare Escentuals. Blodgett collected $118.9 million in 2006, with most of that coming from the $117.7 million she cleared cashing out stock options.
Not included in the Corporate Library pay total for Blodgett: a value for the 4 million additional stock options Bare Escentuals generously handed her before 2006 ended.
The most “generous” corporation in 2006? That’s a bit easier to answer this year, what with the new federal disclosure rules in effect. The rules, the Corporate Library notes, require corporations, for the first time ever, to reveal “the total present value of top executives’ pension and deferred compensation arrangements in the form of a lump sum.”
Most of these pension and deferred pay dollars, before this year, went unreported.
CEOs, the newly available data show, are sitting on some sizeable lump sums. Ten CEOs are set to collect over $50 million in pension and deferred pay when they retire.
Topping the list: $158.4 million pension package headed into the pocket of AT&T CEO Ed Whitacre. Trailing phone man Whitacre: oil man Ray Irani, the CEO of Occidental Petroleum, who’s set to collect $124 million when he rides off to the sunset.
About half of Whitacre’s retirement stash, $73.8 million, comes from the pay dollars the CEO has been “deferring” from taxes over the years. Such tax-free deferrals are starting to capture lawmaker attention on Capitol Hill. The Senate earlier this year passed a tax code change that would place a $1 million cap on the pay execs can park away tax-free.
Average Americans, of course, can defer pay dollars from taxes, too — but no more than $15,500 a year, under current 401(k) law.
Lawmakers in the House have made no move yet on the Senate cap on executive pay deferrals. Maybe they’ll soon start to feel, after these latest revelations, a little sense of urgency.
Middle-income people, researchers tell us, contribute a greater share of their dollars to charity than rich people do. That pattern, new data suggest, appears to hold at the national level as well.
Rich nations with robust middle classes are now contributing considerably more of their national income as aid to the world’s poor than rich nations that allow their wealth to tilt to the top.
The new data — published last week by the Organization for Economic Cooperation and Development — document that only five rich nations are currently spending enough on “official development assistance” to reach the international aid target set by the UN.
The UN recommends that rich nations devote at least 0.7 percent of their gross incomes to efforts that help the world's poor. The five nations that met this standard last year — Sweden, Luxemburg, Norway, the Netherlands, and Denmark — rank among the world’s most equal nations.
The United States, the world’s most unequal rich nation, doesn’t even come close to hitting the UN standard. In 2006, only 0.17 percent of U.S. national income went as aid.
Among the world’s rich nations, the United States now ranks next-to-last in aid as a share of national income. To meet the UN global-giving target, the United States would have to quadruple current aid levels.
The new OECD statistics actually hand the United States — and several other rich nations — more credit for generosity than they may deserve. Aid to poor nations, most people assume, means dollars for “wells, schools, and essential vaccinations.” But the United States counts as “development assistance,” the British Guardian notes, the dollars spent on broadcasting anti-Castro programming to Cuba.
The United States and other rich nations also count debt relief toward their aid totals. Last year, for instance, rich nations “forgave” $14 billion worth of debt to Iraq.
“Iraq was not paying back its debt anyway,” researchers at Oxfam, an independent relief agency, pointed out last week, “and thus gained little in real terms.”
Overall, even counting debt relief in Iraq and other questionable expenditures, aid to poor nations from rich nations dropped to under $104 billion last year, less, after adjusting for inflation, than rich nations spent on global aid a decade ago. This aid total, Oxfam points out, “equates to just one tenth of world military spending.”
Stat of the Week
Verizon CEO Ivan Seidenberg collected $20.2 million in pay last year, a tidy sum that brought his total take-home for the past five years to $109 million. Over those same five years, Verizon shares dropped 5 percent. This May, at the Verizon annual meeting, AFL-CIO activists will be asking shareholders to can the company directors who rubber-stamped Seidenberg’s pay plan.
Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954.
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E-mail: editor@toomuchonline.org.
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