September 17, 2007
Corporate annual meetings, over recent years, have become rather testy confrontations between activist shareholders and obstinate managements. Who won this year's face-offs? Earlier this month, USA Today surveyed results from the 2007 annual meetings and declared a winner.
Corporate America, USA Today gushed, “can no longer ignore shareholders, whose proposals on CEO pay and other hot-button issues are receiving record high ‘support’ votes.”
So far this year, the report continued, an amazing 124 executive pay resolutions — most designed, in one way or another, to link CEO pay to “performance” — have won a significant share of annual meeting votes.
Will overpaid, poorly “performing” CEOs now soon be history? Who knows? In this week’s Too Much, we ask a more useful question: What would actually happen if “pay for performance” ruled the corporate roost?
Also this week: British labor takes on child poverty — and the super-rich.
One of every four renting households in the United States, new Census data released last week reveal, find themselves having to spend over half their household income on rent. Meanwhile, in California’s Silicon Valley, wealth is concentrating so freely and fast that three luxury car enthusiasts, “are building,” the Mercury News reports, “condominiums exclusively for cars.” The soon-to-be-completed car condos will start at $250,000 and run up to $2.8 million, for a unit that spans 10,000 square feet. The typical American two-car garage occupies about 400 square feet. Notes Ralph Borelli, one of the entrepreneurs behind the new San Jose car condo complex: “A lot of wealth has been created with the high-tech industry and a lot of people are passionate about cars. These people can afford to get into their passion in a big way.”
Silicon Valley's awesomely affluent have plane passions, too. Google’s two billionaire co-founders, Larry Page and Sergey Brin, have just had an agreement signed that gives their private jet — a 
Boeing 767 wide-body — access to a federal government airport in Silicon Valley that’s otherwise closed to civilian air traffic. The Google boys will pay $1.3 million per year for their new landing rights. In return, the National Aeronautics and Space Administration gets to place scientific instruments on the Google wide-body — a 180-seater Page and Brin had customized to sport a party lounge and multiple bedrooms — and two other Google private jets. NASA is calling the deal a “win-win.” Local residents, worried about excessive airport noise, beg to differ. They've been fighting, since the 1990s, to keep the airport — just a four-mile drive from the Google headquarters — off-limits to general aviation . . .
Working hard, that’s what average Ohioans have been doing over the past 30 years. Two-parent Ohio families, says a new study from Policy Matters Ohio, are working 17 percent more hours — over 12 extra weeks a work a year — than they did back in 1979. But they don’t have much to show for that labor. Incomes for average Ohio families — the middle 20 percent of the state’s households — have dipped, after inflation, from $37,489 to $37,400 since 1988. Over those same years, the average incomes of Ohio’s wealthiest 1 percent have soared over 40 percent, to $986,000. Ohio, says Policy Matters analyst Amy Hanauer, needs to “get a handle on the explosive growth in inequality and do more to ensure that working people share in the gains of our economy.”
Have CEO personality cults finally gone too far? CEOs, notes Ohio State law prof Dale Oesterle, have long “trumpeted their unique importance to the success of any company” to justify their multiple millions in compensation. Stock market traders eager to grab an insider’s edge have now taken that trumpeting to heart. They're busily prying into CEO private lives, researching everything from the size of the homes CEOs buy to deaths in CEO families. Statistics seem to show, researchers claim, that a company’s share price usually sinks after the company’s top exec buys a mega home or loses a spouse or child. The death of a CEO in-law, on the other hand, “correlates to market overperformance.” CEOs may have made this “unsavory” prying “inevitable,” Ohio State’s Oesterle observed last week, with their constant harping on the larger-than-life contribution chief execs make to corporate success . . .
Tax reformers in South Korea are urging higher taxes on capital gains — the income from the sale of stock, bonds, and other property — now that new government stats have revealed substantially higher levels of national inequality. In 1996, South Korea’s most affluent 20 percent made only 5.24 times the income of the nation’s poorest 20 percent. The top fifth, data released earlier this month show, are currently taking home 8.12 times more, with most of that increase reflecting what Hanbat University’s Cho Bok-hyun calls a “widening increase in the financial-asset gap.” Stiffer taxes on “profits from stock transactions,” says Cho, could help reduce Korea’s “inequality of financial-asset distribution.” In the United States, where most capital gains face only a 15 percent tax, the top fifth of the nation’s households average 14.8 times more income than the bottom fifth.
Inequality
by the numbers
Newly revised!
Quote of the Week
“I don't want to die rich. Money does not mean anything to me. The worst thing is greed — the accumulation of money. I don't know why people who are extraordinarily wealthy are not more generous.”
Dame Anita Roddick, the founder of The Body Shop cosmetics chain, who died last week at the age of 64, two years after she started giving away her over $200 million fortune.
New Wisdom
on Wealth
Are America's Rich Falling Behind The Super-Rich? A short but delicious video from the satirical Onion explores “how we can help the merely rich catch up.”
If you’re a corporate chief executive in the United States today, you need not go on American Idol to show you can perform. You just need to put up great numbers.
Top executives are doing just that — in Corporate America’s health insurance sector. Over recent years, industry analyst Jon Gabel noted last week, profit margins for major health insurers have essentially doubled, from about 3 percent in the 1980s and 1990s to 6 percent today.
“The period 1999 to 2007 has been one of unprecedented profitability,” adds Gabel, the author of a just-released Kaiser Foundation study on health insurance in the United States and a former health industry trade association insider.
This high-profit performance has not gone unrewarded. Last year, CEO pay at the top U.S. health insurers — Cigna, Aetna, Coventry Health Care, WellPoint, and UnitedHealth Group — nearly doubled the $10.8 million national big-time CEO average.
Cigna CEO H. Edward Hanway, for instance, ended 2006 with $20.4 million in take-home, says Health Care Week, the top industry trade publication.
Over at Aetna, CEO John Rowe collected $24.8 million before retiring on October 1. His successor as Aetna chief executive, Ron Williams, pocketed $18.5 million for the year.
UnitedHealth also had a two-CEO year in 2006. Long-time CEO William McGuire retired November 30 with $12 million in 2006 compensation. His successor, Stephen Hemsley, took home $14.3 million.
McGuire retired holding options worth over $1 billion. That’s above and beyond the over $520 million in compensation he collected from 1992 through 2005.
McGuire’s fans consider that towering level of reward entirely appropriate. UnitedHealth shares, after all, skyrocketed over fifty-fold during his CEO tenure. UnitedHealth, by McGuire’s retirement, had become the nation’s second-largest health insurer, with one of every six insured Americans paying UnitedHealth premiums.
But those premium-payers have precious little reason to applaud McGuire’s “performance” — or the performance of any of his lavishly compensated fellow health insurer chief execs. Average American workers, the Kaiser Foundation documented last week, are now paying over $1,600 more out-of-pocket per year for family coverage than they did in 2001.
Health insurance premiums — the worker and employer shares together — shot up 6.1 percent in 2006, over double the year’s 2.6 percent inflation rate. The “cycle of higher profits for health insurance companies,” says Kaiser study author Jon Gabel, has certainly contributed mightily to these premium increases.
And these premium increases, in turn, are driving “a continuing decline in employer-provided health coverage.” The share of Americans with job-based health insurance has dipped to 59.7 percent, from 64.2 percent in 2000, and the number of uninsured Americans has jumped to 47 million.
But none of these numbers count when health industry corporate boards get around to rating CEO “performance,” and few shareholders seem to mind. Until they do, health industry CEOs will continue to bloat their corporate and personal bottom lines at the expense — and health — of their consumers.
They “perform.” We pay.
The Trades Union Congress, the federation that speaks for 7 million British workers, last week opened a major new “campaign to put the fight against inequality right at the top of our political agenda.”
The lead initiative of this new labor effort: a drive to end the tax loophole that has left the UK the world’s biggest billionaire tax haven.
“Today a significant group of super-rich float free from the rest of society and think that tax is for the little people,” Trades Union Congress general secretary Brendan Barber told reporters right before the opening of British labor’s annual convention.
If those superrich were no longer allowed to float free, Barber noted in his convention keynote address, the UK could “pay the bill for halving child poverty by 2010.”
In 2005, 112,000 wealthy British residents claimed “non-domiciled” tax status, the nation’s single biggest loophole. Shutting that loophole would, by conservative estimate, raise $8.6 billion. Ending tax breaks for British private equity investment fund managers, another Trades Union Congress priority, could raise billions more.
The TUC's Barber emphasized last week that everyone in Britain — and not just the poor — has a great deal to gain from efforts “to narrow the gap between the super-rich and the rest of us.”
“The super-rich distort the housing market,” he gave as one example, “with house prices following top pay not average pay.”
Even more dangerously, Barber noted, the wealth gap “harms social cohesion” — nations with less inequality than the UK have lower crime rates — and stunts economic development.
“Far from being an engine of economic growth, inequality holds us back,” the TUC leader pointed out, adding that 11 of the 12 European nations richer than the UK have more equal distributions of income and wealth.
The campaign for a more equal UK, Barber acknowledged, will take a “generation-long commitment.”
“We recognize our responsibility as a trade union movement to build support for a new progressive consensus of equality and redistribution — not based on the old politics of envy but on a new politics of cutting the costs of inequality,” he summed up. “The more popular these policies become, the more government will be prepared to do.”
Stat of the Week
Britain's 1,000 wealthiest people, acording to the latest Sunday Times “Rich List,” together hold approximately three-quarters of a trillion dollars in assets, almost quadruple the wealth they held a decade ago.
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