Drum roll, please. The time has come to name our 2007 Petulant Plutocrat of the Year.
This year, that's not easy. We simply have too many terrific candidates. War profiteers. Private equity strip-and-flip corporate takeover artists. Investment bankers setting Wall Street bonus records betting on subprime mortgages.
These movers and shakers all meet our basic Petulant Plutocrat threshold: They all have accumulated vast fortunes — at the expense of average Americans — and they all feel they deserve even more.
But, in the end, none of these outstanding candidates have made the final cut. We found our Petulant Plutocrat of the Year elsewhere. We have his story in this week’s Too Much.
Next week, we’ll be taking our annual holiday break. We’ll be back early in the New Year. In the meantime, we hope you enjoy your holiday — and have time to think some egalitarian thoughts.
Last year, around Christmas time, New York’s Buckingham Hotel offered a special luxury holiday package that featured a helicopter ride over the tree lighting at Rockefeller Center. The cost: $75,000. The Buckingham has now come back with a new, improved luxury holiday package for this year. The price: $150,000. But look what you get: a train ride to the Big Apple in a private Amtrak car, two nights in a penthouse suite outfitted with cashmere pajamas, a chauffeured “winter white” Rolls-Royce for getting about town, ice-skating lessons, a voucher good for a $50,000 shopping spree at FAO Schwarz, and — to keep everyone in the true holiday spirit — “individual green iPods loaded with classic Christmas tunes.”
Just a decade ago, a walk-in closet signified a luxury home. Not anymore. The emerging new standard: the walk-in refrigerator. Royal LePage, an Ontario-based real estate company with a deep interest in top-tier properties, is reporting that “professional kitchens akin to what one may find in a five-star restaurant have taken over luxury homes.” Also hot at the high-end: a room set aside totally for gift-wrapping. Realtors first spotted this innovation in the Los Angeles manse of TV mogul Aaron Spelling. Observes ReMax luxury realtor Mike Donia: “These are people who desire to have it all and aren't afraid to flaunt it. At the end of the day, many of them know each other and it's just getting harder to top the next guy.”
The writers on strike against the U.S. entertainment industry now have another reason to hunker down in their struggle for a fairer share of industry revenues: the new pay pact for CBS CEO 
Leslie Moonves. The 58-year-old TV exec, analyst Graef Crystal noted last week, has inked a new five-year contract that guarantees him an annual base salary of $3.5 million, an annual bonus of $10.5 million, stock options worth $35 million, and another $30.4 million worth of free shares that Moonves will earn if he meets “performance” targets that he himself gets to propose. If CBS should decide to fire Moonves before his contract expires, he’ll walk away with all his stock and options plus severance that equals up to three years of his salary and bonus. If Moonves lasts the entire five years, but CBS chooses not to renew his contract, he’s guaranteed a consultancy gig worth an annual $2 million for another three years and additional stock worth $8.1 million. How much will Moonves pocket in the end? Striking writers have plenty of time on their picket lines to calculate the total . . .
German CEOs run some of the world’s biggest corporations. But they take home relative peanuts compared to their U.S. counterparts. German execs have been striving to catch up over recent years, and now Germans angry about rising CEO pay are pushing back. Germany's Social Democratic Party last week set up a workgroup to explore how “to curb payouts” and “limit the tax-deductibility of executive pay.” That move comes after reports that Wendelin Wiedeking, the CEO at automaker Porsche AG, collected $100.2 million last year, for Germany an “almost unheard of” take-home. In response, German president Horst Koehler is calling for a corporate “culture of moderation” to foster “social cohesion,” and one regional leader, Saarland premier Peter Müller, is even proposing an executive pay ceiling . . .
Business is booming in Egypt, with the nation growing at an impressive 7.1 percent annual rate. But an estimated 75 percent of Egyptians have still seen no payoff from their nation’s economic growth, and, earlier this fall, Egyptian finance minister Youssef Boutros Ghali dubbed the plight of the poor “a basic challenge that keeps me awake at night.” Some observers have been more blunt. Notes Nader Fergany, the economist behind several recent annual editions of the Arab Human Development Report: “We have returned this country to what it used to be called before the 1952 revolution: the 1 percent society. One percent controls almost all the wealth.”
Quote of the Week
“Warren Buffett has been all over the business press recently suggesting that the very rich, those on the Forbes 400 list, are taxed advantageously to the rest of the workforce. That it makes no sense that his tax bill as a percentage of income is lower than that of his secretary or housekeeper. He is absolutely right.”
Mark Cuban, the Dallas billionaire who ranks 161st on the Forbes list of America's 400 richest, MSNBC, December 13, 2007
New Wisdom
on Wealth
Andrew Jackson, Why Charity Isn't Enough: The Case For Raising Taxes On Canada's Rich, December 12, 2007. A new study from the Candian Centre for Policy Alternatives argues that “only higher tax rates for the very rich can stop that elite group from growing away from the rest of society.”
Jonathan Forman, Promoting Economic Justice in the Face of Globalization. This new inequality survey from an Oklahoma University law prof concludes that we “simply do not have to settle for a society where the top 5 percent of households have dozens of times as much income as the bottom 20 percent and hundreds of times as much wealth.”
David Cay Johnston, Report Says That the Rich Are Getting Richer Faster, Much Faster, New York Times, December 15, 2007
Health care in the United States has become, over the past quarter-century, more expensive, impersonal, aggravating — and profitable. And few individuals, within health care, have profited any more from this ongoing disaster area than William W. McGuire, our 2007 Petulant Plutocrat of the Year.
Last December, McGuire stepped down as the CEO of UnitedHealth, the nation’s largest health insurer, with over a billion-dollar fortune.
This December, one year later, McGuire agreed to give $418 million of that fortune back, in the largest out-of-CEO-pocket corporate scandal settlement ever. But McGuire remains phenomenally wealthy and still hasn’t admitted any guilt.
Indeed, last week, McGuire had his lawyers in federal court, blasting away at a judge who had tried to freeze some of McGuire’s assets until all legal claims against him can be settled. The lawyers called that move “manifestly unjust.”
William McGuire seems to be discovering “justice” somewhat late in life. McGuire, who turns 60 next year, has spent most of the last two decades building a health care system that now has nearly 20 percent of American working families with health insurance paying over 10 percent of their incomes on health care.
Two years ago, celebrating one of the over 30 corporate mergers that have made UnitedHealth the nation's top health insurer, McGuire promised his company would always be working to “lower costs and make things simpler for consumers.”
“We are really intent,” McGuire added, “on cutting down on hassle.”
But average households in the UnitedHealth corporate family have never quite experienced a hassle-free heaven. UnitedHealth, in McGuire's 15-year tenure as CEO, became notorious for poor customer service, especially for foot-dragging on claims.
“It’s amazing,” a Nebraska hospital official last year told the Lincoln Journal Star, “that a company with these resources can’t figure out how to pay a claim.”
UnitedHealth currently averages five days to fix billing issues, the worst lag in the industry. One reason: To cut costs, the company — under McGuire — outsourced all its call centers overseas.
UnitedHealth has some nasty habits that go beyond keeping customers waiting. This past June, UnitedHealth and six other insurers agreed to stop selling Medicare Advantage policies. Sales agents from the companies, a U.S. Senate investigation found, had been tricking the elderly into buying policies “they couldn't afford.”
UnitedHealth execs haven’t just been cheating customers. Under McGuire, they cheated their own shareholders — by manipulating executive stock options.
In the 1990s, CEOs across America began “backdating” their options, in effect lying about when they received their options to maximize their personal windfalls. At UnitedHealth, McGuire three different times backdated massive option grants to grab the right to buy company shares at the stock’s lowest price of the year.
Over a 12-year period, backdating at UnitedHealth inflated the company’s annual earnings by $1.5 billion. The company, since the backdating surfaced last year, has had to restate all those earnings — and pay the IRS $55 million.
And the price McGuire personally has had to pay? The $418 million he agreed to forfeit earlier this month comes on top of $198 million he agreed to “disgorge” after the backdating scandal first broke.
But McGuire still comes out comfortably ahead. He retains title to $800 million in unexercised stock options, plus all the many millions in cash compensation he collected as UnitedHealth CEO.
What about the future of the company McGuire grew into a giant? Current UnitedHealth CEO Stephen Hemsley remains upbeat, so long as no misguided lawmakers upset America’s private insurance-driven health care status quo.
“No other company,” he exalted recently, “is as entrenched in the American health care system to the breadth and depth that we are.”
Average working families have considerably less reason to exalt. Nearly 30 percent of insured Americans, up from 18 percent in 2004, now say they're having trouble paying for food, heat, and housing.
William McGuire, our 2007 Plutocrat of the Year, may no longer be running the UnitedHealth show. No matter. His legacy lives on.
Debunking Executive Compensation Myths: 2007/2008 Report on Executive Pay.
Watson Wyatt Worldwide, 14 pp .
For reporters who cover the business beat, Ira Kay has become the “go-to guy” — for defending excessive executive pay. Need an “expert” to give balance to a story on the latest CEO pay outrage? You go to Ira Kay. He never disappoints.
Kay, the global director of compensation consulting at Watson Wyatt, now has a new report out that concludes, to no one’s surprise, that all’s fine in CEO pay land. Corporate boards, crows Kay, are doing a grand job “linking executive pay to financial performance.”
The proof? Data for 2004-2006, says Kay’s new study, show that CEOs at “high-performing companies” — as measured by return to shareholders — “typically earn 75 percent more realizable pay than CEOs of low-performing companies.”
“Executives who deliver above-average performance,” Kay contends, “are earning significantly more than those who don’t deliver.”
Kay’s latest numbers will likely raise some eyebrows in academic circles. Numerous studies over the years have found no link between executive pay and corporate performance. Firms that pay top execs top dollar, independent studies note, neither generate more profits than other companies or give shareholders a better return.
Executives today, as Lucian Bebchuk and Jesse Fried note in their 2004 book, Pay without Performance, “have used their influence to obtain higher compensation through arrangements that have substantially decoupled pay from performance.”
But debates over whether or not higher CEO pay boosts shareholder return, in the final analysis, really don’t get to the heart of what’s wrong with excessive executive pay — and why we need to fight it.
Simply put: Companies that promise executives outrageously high rewards — if they “perform” — are giving executives a powerful incentive to perform outrageously.
To pump up quarterly corporate bottom lines — and drive up share prices — these execs will downsize and outsource, slash R & D, and squeeze consumers. And if strategies like these don’t generate enough buzz on Wall Street, they’ll cook the books or lie, cheat, and steal in some other way.
The most recent evidence for this dynamic: the subprime mortgage mess, the subject of a just-published analysis by William Black, the former deputy director of the National Commission on Financial Institution Reform who now directs the Institute for Fraud Prevention.
America’s “largest, most sophisticated financial institutions,” Black observes, have engaged in a series of “imprudent” business moves that “have created a worldwide financial crisis.” And what’s behind this imprudence?
“CEOs, acting on the perverse incentives created by today's outrageous compensation systems,” concludes Black, have “engaged in practices that vastly increased their corporations' risk in order to drive up reported corporate income and thereby secure enormous increases in their own individual incomes.”
The new Watson Wyatt CEO pay report, needless to say, has a slightly different take on the executive compensation landscape.
“Overall,” the corporate consulting company’s report concludes, “we believe that the U.S. executive pay model is working.”
If the rest of us made our living by consulting for corporations, we might believe that, too.
Stat of the Week
The share of total after-tax income in the United States that's going to the top 1 percent of households has hit 15.6 percent, the highest level since the Congressional Budget Office began tracking income over a quarter-century ago, notes a Center for Budget and Policy Priorities analysis of just-released CBO data. Meanwhile, the share of after-tax income going to America's middle fifth of households now stands at 14.4 percent, the lowest on record.
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Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org.
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