Beware of CEOs who feel your pain. These days, that's not easy. They seem to be just about everywhere. With the economy in free-fall, CEOs all across the United States have begun slashing their own pay, waging what amounts to a veritable empathy offensive.

What's really going on with this new surge of self-sacrificing? We have the story in this week's Too Much.

Also this week: a look at the urban — and rural — legend that's scaring the bejeezus out of hard-working small businesspeople and family farmers.

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Meg Whitman, the billionaire former CEO of online's eBay, wants to be the governor of California. The 52-year-old, fresh from her stint as a co-chair of the John McCain campaign, is reportedly considering a gubernatorial bid in 2010. The current eBay CEO is hailing Whitman as someone who has “helped create economic opportunity for millions of people.” But veteran Silicon Valley journalist Charles Cooper feels Whitman may have trouble getting traction as a candidate. The “achievements of ultra-rich yuppie technocrats,” notes Cooper, “don't fascinate us the way they once did.” Whitman does seem to have a problem relating to the world outside her rather privileged personal bubble. Even her philanthropy reeks of regal. A new student residence at Princeton now named after Whitman, quips Business Week, comes across as a “a billionaire's mansion in the form of a dorm.” The student rooms all sport “triple-glazed mahogany casement windows.”

Hell hath no fury, suggests a new survey of America’s most affluent, worse than millionaires accustomed to double-digit returns on their investments. U.S. millionaire households — those with at least $1 million in assets, not counting their primary residence — watched their net worths drop by nearly a third last year, say pollsters from the Spectrem Group, and the wealthy, says Spectrem president George Walper, are reacting “with a huge amount of anger” at their investment advisers. That anger may be misplaced. Millionaire portfolios actually “outperformed” the stock market in 2008. The S&P 500 dropped nearly 40 percent for the year, and Nasdaq fell 41.5 percent . . .

Angry affluents looking for an alternative to investment advisers and private wealth managers now have one, in a growing “self-help” network known as Tiger 21. This New York-based “investment club” for mega millionaires aims to bring together rich people willing “to share experiences about the opportunities and challenges of living with money.” The club currently boasts chapters in locales from Palm Beach to San Francisco, with members forking over $30,000 a year in dues for the chance to talk investment chit-chat. The chatterers hold fortunes that average between $30 and $50 million, not counting, says a club spokesman, “homes, art, and toys.” Tiger 21 appears to be booming. Says Steve Sack, an entrepreneur now organizing a new Seattle chapter: “People are scared and the antidote to that fear is knowledge and information.”

Some deep pockets with fading fortunes apparently no longer get the joy they once did from sailing the Seven Seas — on their super-yachts. A rash of used luxury boats has hit the market. Amway’s Richard De Vos has a 167-footer, with an on-board diving pool, on sale for just $22.5 million. Ron Perelman, the billionaire who took cosmetics giant Revlon private in 1985, wants considerably more, $68.6 million, for his Ultima 111, a 190-foot boat with eight “staterooms.” And venture capitalist Tom Perkins, the UK Guardian reports, is trying to unload his 290-foot Maltese Falcon for $157.8 million. Meanwhile, over in Florida’s Fort Lauderdale, designer Donald Starkey still has enough faith in the yachting market to push on with the construction of a true global “giga-yacht,” a 656-foot, five-decker scheduled to be ready for sale in 2010 — at $500 million . . .

Nancy Edwards, a grandmother who works at a Kellogg’s plant in Rome, Georgia, won $1 million in the Georgia state lottery last year. She'll take home $34,500 per year for the next 20 years. Not that bad, but not nearly as good as the $150,000 in bonus Georgia Lottery CEO Margaret DeFrancisco pocketed in 2008, on top of her $286,000 salary, a sum that nearly doubles the salary of Georgia’s governor. That bonus has infuriated some state lawmakers, who have been asked to freeze state worker pay to wipe out a state budget shortfall that might top $2 billion. But the biggest winners from Georgia's lottery remain, as always, the already rich. The poor, notes Georgia economist Mark Thornton, “pay the bulk of the lottery tax” — while Georgia households making $1 million a year pay state income taxes at the same rate as families making $10,000.

Quote of the Week

“Put me down as clearly as you possibly can as one who wants to have those tax cuts for the wealthiest Americans repealed.”
Rep. Nancy Pelosi,
speaker, U.S. House of Representatives, urging prompt congressional action against the Bush-era tax cuts for the rich, January 8, 2009

New Wisdom
on Wealth

Nanette Byrnes, No CEO Bonus for 2008, Business Week, January 7, 2009. A business journalist wonders why the execs of bailed-out firms who are “giving up” their bonuses deserve bonuses in the first place.

Ken Toole, Bailing Out Bank Executives, Flathead Beacon (Kalispell, Montana), January 9, 2009. A Montana Public Service Commission member on the corporate pay practices that have have led to our economic meltdown.

New from CEO Land: A Sympathy Scam

From Wall Street to America’s ultimate Main Street — in Peoria, Illinois — top corporate and financial execs have spent the last few months announcing what appear to be painfully deep pay cuts in their own personal compensation.

That’s the least we CEOs can do, the message goes, in these most difficult of economic times. You average folks may be hurting, but we’re hurting, too.

In Peoria, the CEO of the world’s biggest construction equipment company will this year see his total pay drop by up to 50 percent. The company, Caterpillar Inc., announced this executive pay slash in December, along with plans to trim employee wages by up to 15 percent, lay off workers, and subject plants to temporary shutdowns.

“We understand these decisions will disrupt the lives of many of our employees and their families,” Caterpillar CEO Jim Owens noted apologetically, “and we regret the need to take these steps.”

At Citigroup, the flailing global banking giant, top executives are regretting their plans to lay off 52,000 workers so much that they're denying themselves all the 2008 bonus cash they’re entitled, by contract, to collect.

“The most senior leaders,” Citi CEO Vikram Pandit nobly announced in a new year’s memo, “should be affected the most.”

Last week, Bank of America CEO Ken Lewis joined the ranks of CEO self-sacrificers. He’ll be asking Bank of America’s board of directors not to award any bonuses to the bank’s top executive team.

“It is only fair,” proclaimed Lewis, “that our most senior executives, who have been rewarded in past years when our company and stock price performed, should now share in the pain as performance has lagged.”

Overall, notes the corporate consulting firm Watson Wyatt, about half of 264 recently surveyed major U.S. companies say they’ll be cutting executive pay in 2009. Another corporate consulting firm, Equilar, has found that 26 major companies actually filed papers locking in CEO salary cuts in 2008’s final weeks.

So have we all become just one big economic family, with everyone sharing the sacrifices that hard times demand? Not exactly. The paycheck hits that CEOs have been so proudly announcing turn out, upon closer inspection, to be a lot more pinprick than pain. 

Take, for instance, the 20 percent “salary cut” that FedEx CEO Fred Smith is now swallowing. Or the 25 percent salary dip for Motorola co-CEOs Greg Brown and Sanjay Jha. Or the 33 percent ax on the salary of Western Digital chief exec John Coyne.  

These all seem serious sacrifices. But salary cash only makes up a minor part of CEO pay packages. Top executives take in much more in stock and other incentive awards than they do from straight salary.

Essentially, notes Equilar research manager Alexander Cwirko-Godycki, CEOs who announce “salary cuts” are merely “cutting a portion of the smallest part of the pay package” that comes their way.

And all those bonuses that the top execs in high-finance are giving up? Maybe not such a mammoth sacrifice either. Consider the now bonus-less Citigroup CEO Vikram Pandit.

Citi’s share price last year plunged from just under $30 to just over $3. The stock is currently trading under $8. Last January, Citi rewarded CEO Pandit with a grant of 1 million Citi shares. If taxpayer bailout billions help the Citi share price rise just another $5 in 2009, Pandit’s personal portfolio — from that share grant last year alone — will gain $5 million.

Situations like Pandit’s abound. The Conference Board, a business research group, last month revealed that CEOs at the largest 10 percent of U.S. corporations are holding stocks and stock options in their companies worth “about 100 times” the value of their annual salary.

In other words, even modest increases in company share prices — and experts expect modest increases as the stock market begins to recover from last year’s record plunge — can translate into huge windfalls for company CEOs.

Some companies are already turbocharging these windfalls. Mike Ullman, the CEO of the J.C. Penney retail chain, last month received a new pay deal that guarantees him $25 million in cash if the Penney share price rises from its depressed $20 December level to $32.75 over the next three years.

The Peoria-based Caterpillar, at first glance, doesn’t seem to be playing by the same CEO pay cut scam playbook. Caterpillar CEO Jim Owens is facing a 50 percent cut in his total pay, not just salary and bonus. But shed no sympathy for Owens. He's coming off a 15 percent pay hike in 2007 that brought his total take-home to over $17.1 million.

Actually, we need to go considerably further back than 2007 to understand the colossal emptiness of Caterpillar’s current share-the-pain rhetoric. In the 1990s, Caterpillar helped lead Corporate America’s assault on the good union jobs that created modern America’s middle class.

Caterpillar prepped for that assault, in the 1980s, by expanding operations overseas to gradually reduce the unionized share of its workforce. Then, in 1991, Caterpillar execs provoked a strike by demanding the right to hire new workers at half the going rate.

In April 1992, five months into the strike, the union’s walkout ended — after Caterpillar threatened to hire permanent replacements for all the strikers. The union would strike again two years later, but no contract would be signed until 1998. By that time, Caterpillar annual profits had soared nearly four-fold and the company’s share price had tripled.

Caterpillar's CEO at the time, Donald Fites, did quite well, too. Over the course of Caterpillar's five most bitter years of 1990s labor strife, he collected $10 million. Workers, meanwhile, ended up with a contract that allowed Caterpillar to replace retirees with new hires paid 70 percent of the old wage.

Fites himself retired in 1999, but he re-emerged in the news this past November — just a month before Caterpillar’s current CEO announced his personal pay cut — as the latest inductee into the Association of Equipment Manufacturers hall of fame. Fites, noted one tribute at the hall of fame induction, guided Caterpillar “through some very difficult times.”

Those difficult times left Fites with a handsome fortune. His CEO successors, in our current “difficult times,” see no reason to settle for anything less.

Exposing a Fearsome 'Death Tax' Myth

David Joulfaian, The Estate Tax and the Demise of the Family Business: A Comment, Social Science Research Network, December 1, 2008

The billionaires who have bankrolled the 20-year campaign to gut the federal estate tax — the only federal tax on grand accumulations of private wealth — haven’t yet succeeded politically. The estate tax will indeed disappear next year, under the terms of the Bush tax cut passed in 2001. But the estate tax will resurface in 2011, at its 2000 status, unless Congress takes some step in the interim.

Lawmakers will almost certainly, observers believe, do just that. Sometime this year or next, the current Congress will decide estate taxation’s long-term fate.

And that decision, many observers also believe, will leave the tax rates on the fortunes that America’s super rich leave behind at death at a level much lower than the rates on the books when George W. Bush entered the White House.

In effect, then, billionaires stand on the verge of a grand estate tax victory, mainly because they’ve successfully propagated a massive new mythology about what they call the “death tax.”

Legions of small businesspeople and family farmers, bombarded by “death tax” myths, now worry about the future of their family enterprises. A federal “death tax,” they fear, will kick in when they die and force their children to sell the family business to raise the cash they need to pay the tax.

These small businesspeople need not fear — at all. David Joulfaian, a tax analyst in the U.S. Treasury Department, explains why in this recently published paper that picks apart, claim by claim, the “threat” to small business the estate tax purportedly poses.    

In reality, Joulfaian shows, the U.S. tax code bends over backwards to give small businesspeople and family farmers preferential estate tax treatment. Ever since 1958, for instance, estates with small family enterprises have been able to defer any estate tax due for up to 15 years and pay the tax under an installment plan.

And the tax code also lets estates value family enterprises at less than the going market rate. Suppose, for instance, a family farm is operating in an area where home developers have bid up the price of land. For estate tax purposes, the value of a farm will be the farm’s value as an operating agricultural enterprise, not the farm’s value on the open market.

But none of the federal tax code provisions like these ever actually have to come into play — because most truly small businesses simply don’t face any estate tax liability. Under current law, an estate has to be worth at least $3.5 million, or $7 million in the case of a couple, to bring the estate tax into play.

The bottom line: The estate tax now impacts, at death, less than 1 percent of American households.

Will that message get out in time to save the estate tax as a brake on billionaire fortunes? Maybe. A number of groups are now working to smash the “death tax” myths that now surround estate taxation. This new paper by David Joulfaian will certainly give a boost to their labors.

Stat of the Week

The Washington, D.C.-based Citizens for Tax Justice recently calculated how much revenue could be raised if Congress hiked the current 35 percent tax rate on income in the highest income bracket to 45 percent and added a 50 percent rate for income over $1 million, while ending preferential tax treatment for investment income and making sure the alternate minimum tax only impacts wealthy households. Such changes would this year raise an additional $256.4 billion from America's top 1 percent, enough to bankroll a huge chunk of the new public works spending the Obama administration will shortly be proposing to Congress.

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.