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May 5, 2008 |
| This Week | |
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Back in 1983, just a few years after CEO pay in the United States started soaring, the world’s most honored management expert penned an essay that savaged the “greed effect” he saw taking root in Corporate America. The Japanese, Peter Drucker pointed out, “pay their top executives far less than what we pay ours,” rarely over eight times what they pay blue-collar workers, “yet their companies aren't doing too badly.” And how much, at the time, were U.S. companies paying their top execs? What pay ratio between U.S. CEOs and workers had Drucker, the founder of modern management science, so upset? In the early 1980s, American CEOs were beginning to take home 40 times more than their workers. Last week, Forbes released the last of this spring’s annual CEO pay reports. The CEOs of America’s 500 biggest companies, the new Forbes data show, are now taking home 407 times the pay of the typical American worker. The good news? At one recent corporate annual meeting, shareholders angry about excessive executive pay actually booed their CEO. We have more, in this week’s Too Much, about Bronx cheers and business. |
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| Greed at a Glance: Wealth and the Queen | |
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Carola Wiese, a 31-year-old German, has a cushy job. She jets the world visiting art galleries. She glides into exquisite private homes filled with great artwork off-limits to the general public. She rubs elbows with famous painters. Now here’s the strange part: Wiese works for a bank, the Swiss UBS AG. Her mission: helping the global mega rich invest in fine art. And she has 13 investment banker colleagues at UBS who do the same exact work she does. The next stop for art-loving investment bankers: the Hong Kong International Art Fair, a global extravaganza that opens May 14 with 100 top galleries under one roof, hawking both Picassos and current talents like Zhang Xiaogang, a Chinese painter who last month sold an oil at auction for $6 million, twice the predicted price. Worldwide fine art sales are now bumping $1 trillion a year . . . The Irish economic boom may be receding, but one boom legacy — Ireland’s first-ever generation of “gilded youth” — will likely plague Ireland for years to come. Until recent times, commentator Martina Devlin observed last week in the Emerald Isle’s leading newspaper, Ireland has “never had an uber-wealthy class” large enough to produce a critical mass of “junior have-mores.” That critical mass has now arrived. Today's high-spending teenage Irish affluents live in a world where “daddy is a ‘high net-worth individual,’ as they say in financial circles, and mummy shows you exactly how to manipulate him.” In an Ireland where the “wealth pyramid is starting to crumble,” notes Devlin, these youth may be in for a cruel wakeup: “In teaching them to believe they have an automatic claim to privilege, their parents have handed them a smoking gun instead of a silver spoon.” How much has the UK changed since the Times of London began publishing an annual list of Britain’s 1,000 richest? The queen herself may be the best marker. In 1989, the year the “Rich List” first appeared, Queen Elizabeth II ranked first, with a fortune worth $640 million. On the latest list, released a week ago, the queen ranked 264th. The top 25 on the latest Times list all sport at least $4.5 billion in net worth. The wealth of the UK’s 1,000 richest residents, overall, has quadrupled just since 1997. Leaders of the Labor Party, Britain’s ruling party for all those years, have dismissed concerns about the UK’s rapidly concentrating wealth. Society, they’ve argued, should focus on ending poverty at the bottom, not wealth at the top. How has the UK been doing on ending poverty? The percentage of British children living in official “severe poverty,” the Times noted last week, now stands “no lower than in 1997.” Americans, some social scientists believe, have a higher tolerance for inequality than other peoples. That explains, for these analysts, why the United States has become the developed world's most unequal nation. But new experiments by a University of California at Santa Cruz researcher are challenging this conventional wisdom. Researcher Paul Viotti, supported by the National Science Foundation, has been conducting economic simulations that have groups of five people divvy up $100 in real money. High percentages of participants, Viotti has found, opt “to distribute the money equally, even when given the chance to claim the whole $100 for themselves.” This August’s American Political Science Association annual meeting will highlight Viotti’s work, and the UC Santa Cruz scholar and a colleague, University of San Francisco economist Alessandra Cassar, have begun expanding this inequality research abroad. The work, says Viotti, “undermines the dominant idea that people will pursue their self-interest above the well-being of others.” |
Quote of the Week “Middle-class countries can exist only when most are middle-class. But in Canada, that's increasingly not the case. The rich are getting richer and the poor poorer. Meanwhile those in the middle are treading water.”
New Wisdom United for a Fair Economy, Evaluating Candidates on Taxes, April 2008. Two terrific voter guides — one for candidates for state office, one for federal — that can help expose political proposals designed to enrich the already rich. Michael Tobis, There is no food shortage, Grist, April 28, 2008. A top environmental analyst traces the roots of the current food price crisis to the world's growing legions of wealthy people.
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| In Focus: Shareholders as Boo Birds | |
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Last month, at a Hilton Hotel ballroom in New York, things turned ugly for some of Wall Street’s most eminent power suits. The occasion: the annual meeting of Citigroup, the financial colossus that last year wrote off $20.4 billion in subprime-related losses — and has so far this year lost another $9.1 billion. On hand for the annual meeting: over a thousand angry Citi shareholders. They packed the ballroom. And they wanted answers — about the remarkably lavish rewards that continue to flow to Citigroup’s top executives. How lavish? In January, just a month after Citi's CEO through the worst of the mortgage mess left the company with an exit package worth $42 million, Citigroup’s board of directors awarded that CEO's chief financial officer, Gary Crittenden, a $12 million “retention bonus.” The company’s current CEO, Vikram Pandit, did his best at the Citi annual meeting to justify this sublimely generous board gesture. Citigroup, he noted, was operating in a “competitive” environment and needed to pay well to “retain” staff. The shareholders didn’t buy that explanation — or much of anything else Citigroup executives had to say. They jeered. They booed. They laughed sarcastically. And they cheered shareholders who lined up at the ballroom microphones to vent their outrage. “Where can you get a job where you do nothing to earn your money and get paid in advance?” asked one irate shareholder. “Citigroup!” Added another: “There is something wrong in this company.” But that shareholder didn’t quite have it right. There’s something deeply wrong in all of Corporate America, not just Citigroup. Year after year, through good years and bad, America’s top executives continue to pull in compensation packages that fly in the face of reason — and slap in the face everyone who doesn't sit in an executive suite. “Top-level executives,” says Dr. Ken Siegel, a leading global managerial psychologist, “are living in an unconscionable fog.” Wrapped in this fog, Siegel argued last month in a business press commentary, executives don’t see the “deep employee disengagement and pervasive employee cynicism and hostility” that outrageously lavish CEO pay so consistently generates. Is anyone in the business world listening to this sort of critique? Some business reformers are indeed trying to break down America's current corporate caste structure. Many of them will be gathering in New York City next October for a national conference sponsored by WorldBlu, an energetic group that’s endeavoring to promote the goal of workplace democracy. This WorldBlu Live conference will be showcasing the work of executives like Rob Everts, the co-director of Equal Exchange, a Massachusetts-based natural-foods company that has been registering healthy earnings for over two decades via strategies that actively involve employees in all key decisions. Equal Exchange, says Everts, has “built a workplace where people are respected,” where “profit goes to build the mission, not line CEO pockets.” And nobody’s jeering. |
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| In Review: When Inequality Becomes Academic | |
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American Association of University Professors, Where Are the Priorities? The 2007-08 Report on the Economic Status of the Profession. Washington, D.C.: 2008. Colleges and universities, Americans have believed for generations, help make the United States a land of opportunity. They offer the poor a ticket to the middle class. They serve to narrow the economic gaps that divide us. They deserve our heartfelt thanks.
The college as ivory tower isolated from an unfair outside world has essentially become the college as standard-issue corporation, complete with outsourcing and extravagantly paid superstar executives. Two years ago, notes the American Association of University Professors, the presidents of 81 private universities took home over half a million dollars. These 81 averaged over $700,000 each — at a time when overall faculty salaries have been lagging behind inflation. Over the past decade, top administrator paychecks have increased over six times faster than paychecks for faculty. Joining presidents at the higher ed economic summit: the coaches of big-time collegiate football programs. Fifty of these coaches, as of this past fall, are collecting over $1 million a year. Meanwhile, the universities that employ these coaches are outsourcing dining services to for-profit contractors that pay just minimum wage — and outsourcing teaching responsibilities “to legions of poorly paid non-tenure-track adjunct faculty, postdoctoral fellows, and graduate students.” University officialdom has a rationale for this exploding higher ed pay gap: the market. Inexorable “market forces,” administrators pronounce, explain why university executives and football coaches must earn as much as they do. Why must everyone else make do with less? These same “market forces.” Observe the professorial authors of this new AAUP pay study: “When market forces are widely offered as a reason why presidents, administrative vice presidents, and football coaches must be paid enormous salaries — while at the same time market forces are blamed for the continuing suppression of contingent faculty wages, the growing use of graduate students in undergraduate teaching, and the increasing length of postdoctoral fellowships — we would be remiss if we did not ask hard questions about priorities.” How about starting with this one: Just what should our “knowledge factories” be manufacturing? Opportunity for all? Or multimillionaires? |
Stat of the Week The Democratic Party primary battle is about to shift to Oregon. Here's one topic just begging for discussion: our ever-widening income gap. Between 2002 and 2006, the latest year with stats, the richest 1 percent of Oregon households saw their incomes jump an average $299,000 after inflation. The incomes of Oregon's middle-income households, notes the Oregon Center on Public Policy, rose $72.
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| About Too Much | |
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Poor Rex Tillerson, the CEO of Exxon Mobil. The guy can’t catch a break. His company, the largest publicly traded corporation in the world, last week posted a $10.9 billion profit in 2008’s first quarter, the second largest quarterly profit in U.S. corporate history, and Wall Street investors sent Exxon’s share price down. Seems they think Exxon should be doing better. Maybe that explains why Tillerson only took home 
College presidents make this case all the time. They should stop. American higher education, makes clear this