Every spring, ever since the mid 1980s, two events annually transpire on the U.S. executive pay front. The first: America’s media biggies release surveys that document the previous year’s prodigious CEO paychecks. The second: Analysts parse these surveys and immediately begin bewailing the huge rewards that have gone to CEOs who failed to “perform.”

This spring, so far at least, is running straight to form. Will our annual spring CEO merry-go-round ever end? We have more in this week's Too Much.

Also this week: A new report identifies the state where inequality in America is growing the fastest. The answer may surprise you.

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The recession has not yet hit Manhattan, at least not that part of the city the super-rich call home. In 2008’s first quarter, sales of residential properties costing at least $10 million bounded up 318 percent over similar sales one year earlier. Over 2008’s first three months, realtors registered four sales over $30 million. In 2007, they only sold five $30 million-plus properties the entire year. The jewel of the New York luxury residential scene: the new limestone 15 Central Park West, where condos are going for $6,000 per square foot . . .

The recession has hit Beverly Hills. But only the car dealers, real estate agents, and boutique owners who cater to the super-rich seem to have noticed. Reuters recently surveyed luxury purveyors in the Los Angeles area and found definite signs of a consumption slowdown. Notes the general manager of one high-end local auto dealership: “Some clients would have bought a Rolls-Royce and a Bentley every 12 months, but now they've cut it down to buying two cars in an 18-month period.” But demand on other spending fronts remains strong. Customized Fitness Systems reports “business as usual.” The company’s specialty: home gyms that run $1 million to install . . .

Over on the East Coast, the debate over whether luxury has become “recession-proof” appears to be heating up. The nation’s two top luxury-magazine chains last year both saw ad pages increase, and one industry leader, Robb Report publisher David Arnold, scoffs at worries about a slowdown. For affluents with fortunes over $30 million, says Arnold, “even a 5 percent loss doesn’t really impact their lifestyle.” But Wall Street Journal wealth beat reporter Robert Frank begs to differ. Only 50,000 Americans have that much wealth, he argues, “surely not enough to support 20 new luxury magazines and all the mass-luxury companies that fund them.” Sums up Frank: “When you lose $20 million from your $100 million portfolio, you can still afford that new Bentley, but you’re probably not in the mood to buy it.”

Play-time — for the progeny of plutocrats — can be awfully expensive. In London, reports the Sunday Times, deep pockets are shelling out $34,000 for playhouses that feature stained glass windows and $140,000 for bedrooms fully furnished in a Cinderella or Sir Galahad theme. Sheets and pillowcases come extra. Vikas Shah directs corporate strategy for one UK company that offers children’s bedsheets with 22-carat gold sewn in. Pillowcases in this line run $2,400 each. Explains Shah: “The level where people have liquid cash to spend on expensive home products is increasing year on year, and what people buy for their children is becoming more competitive, whether it’s schools, toys, clothes, or bed linen.”

“Inner London,” the European Union statistics office reports, has become three-times wealthier than the rest of Europe, one reason why demand for traditional British butlers is ratcheting up to record levels. Nearly 2 million men and women, says the London-based Work Foundation, now labor in UK domestic service, the most since the Victorian Age. The big attraction: Top butlers can now make about $150,000 a year. A four-week butler training course offered outside London now costs just under $16,000.

Inequality
by the numbers

CEO pay:
the scorecard

Good reads
for your bookshelf

Quote of the Week

“The richest 1 percent of Americans received about $491 billion in tax breaks between 2001 and 2008. That's nearly the same amount as the U.S. debt held by China — $493 billion — in the form of U.S. Treasury securities. Do you want our government to mortgage more of our nation's future to finance tax breaks for the rich?”
Holly Sklar, Tax Day Gifts for the Rich, April 9, 2008.

New Wisdom
on Wealth

Bill Roy, Taxes haven't always been a bad thing for U.S., Topeka Capital-Journal. A former member of Congress reflects on the mid 20th century, a time when “heavy taxes on high-income Americans propelled our nation into its greatest period of growth.”

Daniel Gross, Rich Men Behaving Badly, Slate. All about “the super-rich, the dysfunctional class threatening American values.”

The New York Times, USA Today, the Bloomberg news service, and the Wall Street Journal have, over recent weeks, all reported their CEO pay figures for 2007, and the figures show the same old story. Top executive pay has once again ballooned — up 12 percent, on average, to $12.1 million, says Bloomberg.

These averages still only hint at the vast sums pouring into CEO pace-setter pockets.

Merrill Lynch’s John Thain, the New York Times reports, collected $83.8 million for his labors in 2007. Oracle business software CEO Larry Ellison, adds USA Today, walked off with $61.2 million in annual pay. But Ellison also cashed out stock options he had amassed over prior years — and pocketed another $181.8 million in the process.

The latest CEO pay reports have also, once again, prompted still another round of analyst angst over Corporate America’s continuing willingness to pay handsomely, even extravagantly, for poor executive performance.

“True links between pay and performance,” the Times observes, last year “remained scarce,” a reality the paper dubbed the “most irksome” aspect of this year’s CEO pay numbers.

Evidence for that observation abounds. Residential construction giant KB Home, for instance, lost nearly a billion dollars in 2007. But company CEO Jeffrey Mezger somehow merited a $6 million cash bonus.

Or how about Home Depot, where net income fell 23 percent in 2007 and compensation for the company’s CEO, Steve Odland, rose 85 percent — to $18 million. And don’t forget Sprint Nextel CEO Gary Forsee. He retired under pressure at year’s end, but not before garnering almost $40 million in annual remuneration. He’s now collecting a $84,325 monthly pension.

Isolated cases? Hardly. The CEOs of the nation’s 10 largest financial services companies, notes the Times, collected $320 million in pay last year. The companies they led wrote off an astounding $55 billion in mortgage losses.

In response to all this, commentators and reformers in the institutional investor community are demanding, for the umpteenth year in a row, that corporate boards do more to hold their top execs to the pay-for-performance fire.

“We’re not against pay,” declares Dennis Johnson, a heavyweight with Calpers, the powerful California pension fund. “But we are certainly against pay for failure, or for just showing up.”

Corporate board members, for their part, are vowing to clamp down.

“We get the message,” the top gun at the trade journal for corporate directors, Jeff Cunningham, told USA Today. “Directors are at the negotiating table with their CEOs, looking for very rational pay schemes; no funny business, no games — just pure performance-driven pay planning.”

In other words, next year nothing will change — because the annual hand-wringing over “pay for performance” obscures the real paycheck rot in Corporate America. Making sure that top execs only get paid for “performing” won’t end that root rot. We face a much bigger challenge: making sure that corporate paychecks recognize the contributions of all “performers.”

Corporations today seldom do that. Instead they recognize — and reward — only the executive suite contribution to corporate achievement. In 2007, U.S. worker average weekly wages increased by 3.6 percent. Average CEO take-homes, not counting stock-option cash-outs, soared over three times faster.

Reformers and commentators who insist on “pay for performance” at the executive level tend not to angst about this discrepancy.

Indeed, many reformers operate from the same assumption that guides corporate boards. They credit corporate success to executive success. They would consider a 10 percent CEO pay hike a fitting “pay for performance” reward at a company where shareholders saw a 10 percent on their investment — even if workers at that same enterprise received no pay increase at all.

In Corporate America’s current compensation calculus, in effect, only CEOs count. These CEOs need not prove that their personal labors have contributed more to corporate success than anyone else's labors. If things go well, these top executives simply get all the credit — and all the big bucks.

And if things go poorly? In that case, top executives only get the big bucks.

Jared Bernstein, Elizabeth McNichol, and Andrew Nicholas, Pulling Apart: A State-by-State Analysis of Income Trends. The Center on Budget and Policy Priorities and the Economic Policy Institute. April 2008.

Over the past two decades, reports this new analysis of income in the United States, America’s poor and middle class have been soulmates — in stagnation. Between 1987-1989 and 2004-2006, the average incomes of the bottom fifth of U.S. families increased just 11.1 percent — less than 1 percent a year — after adjusting for inflation. Over those same years, families in America’s middle fifth have seen their incomes increase at an almost identical rate, just 13 percent, also less than 1 percent a year.  

Meanwhile, at the top of America’s income ladder, a totally different story.

Families in America’s top fifth have seen their incomes jump 36.1 percent since the late 1980s, with most of that jumping at the top fifth's upper reaches. Over the last two decades, notes the just-released Pulling Apart, incomes for the top 5 percent of America’s families have catapulted 59.8 percent.

Actually, the report takes pains to note, incomes at the top have increased even faster than that. The Census Bureau data Pulling Apart crunches, the authors emphasize, do not include capital gains on the sale of stocks and other assets, income that pours overwhelmingly into America’s richest pockets.

Pulling Apart, in broad strokes, traces the same rising inequality patterns that other income scholars have identified over recent years. But Pulling Apart offers plenty of fresh detail.

For starters, Pulling Apart offers an unusual glimpse at how much income U.S. families really have available, after paying their federal taxes. The study, tapping data the Census Bureau collects every March, may not cover capital gains. But Pulling Apart does tally every other significant household revenue stream, from Social Security and food stamps to interest and dividends.

Pulling Apart then breaks this data down by state, a step that documents the truly all-American phenomenon that inequality has become. Income gaps are widening in America’s every corner.

Some states, to be sure, are growing unequal faster than others. In Connecticut, the state with the nation’s most rapidly growing income gap, the top fifth of families have enjoyed a 45 percent income increase since the late 1980s, from $116,939 to $169,378, after inflation-adjusting to 2005 dollars.

Over that same period, the poorest fifth of Connecticut families have watched their average incomes drop 17 percent, from $25,570 to $21,133.

What difference does this rising inequality make, in Connecticut or anywhere else in the nation? For the answer, check our full Too Much rundown of this authoritative new Pulling Apart report.

Stat of the Week

The widest income gaps in the United States now sit in New York. The state’s richest 5 percent of families average 15.4 times more income than New York’s poorest fifth of families. In the late 1980s, New York’s top fifth only averaged 9.5 times the income of the state’s bottom fifth, notes a new data analysis from the Economic Policy Institute and the Center for Budget and Policy Priorities.

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.