Good piece in the Washington Post by Peter Whoriskey, pointing to a study showing that executive pay is the largest single factor in soaring incomes for the super rich.

For years, statistics have depicted growing income disparity in the United States, and it has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent. But economists had little idea who these people were. How many were Wall street financiers? Sports stars? Entrepreneurs? Economists could only speculate, and debates over what is fair stalled.

Now a mounting body of economic research indicates that the rise in pay for company executives is a critical feature in the widening income gap.

And the study didn't include Wall Street firms.

Posted by Jay Hancock at 9:19 AM | Permalink | Comments (1)
Categories: Executive Pay
        

From a USA Today story on executive perks in the Great Recession:

•Black & Decker CEO Nolan Archibald received compensation worth $25.8 million in 2010. As chairman of the newly merged Stanley Black & Decker, he’ll get $43.3 million in 2011 and a bonus of up to $45 million in 2013. His 2010 perks were valued at more than $600,000, including $526,391 for personal travel on the company jet, $39,676 for financial planning, $25,722 for cars, $4,528 for sports and entertainment tickets, $1,820 for club dues, and Black & Decker products valued at $2,685.

Meanwhile the guy's laying off numerous employees as a result of Black & Decker's sale to Stanley Works.

Posted by Jay Hancock at 8:56 AM | Permalink | Comments (5)
Categories: Executive Pay
        

How gross is CEO pay in the Fortune 1000? Even conservatives are criticizing it.

One item on my column-idea list is to catch up with the damage wrought by Stanley Black & Decker bigwigs John Lundgren and Nolan Archibald. The two agreed to combine Stanley with Black & Decker a while back with plans to increase profits by firing thousands.

Never thought I'd get beat to it by Cal Thomas. My impression of Thomas was that he's a social conservative more than an economic conservative, and this column supports that:

The moral issue in executive pay is whether management deserves these high salaries while employees are laid off, or denied pay increases.

Last April the Baltimore Sun reported that Stanley-Black and Decker in Towson, Md., announced plans to lay off 4,000 of its 38,000 employees. Yet, according to USA Today, Stanley-Black & Decker CEO John Lundgren made more than $32 million in 2010, up 253.1 percent from the previous year....

If I were a CEO being paid such astronomical amounts and people were being laid off, or struggling in a recession, at least in part due to the lack of pay increases, I would feel morally obligated to take less money. I would ask the chief financial officer of my company to share some of my wealth with loyal employees so that they could continue caring for their families.

Thomas obviously hasn't been reading his Milton Friedman. George Will once made a good conservative response to criticism of corporate layoffs, which was: Why should any company employ more people than it needs? But the combo of layoffs and gargantuan pay is especially distasteful.

Here is the whole Thomas column:

During the 2008 presidential campaign when candidate Barack Obama told “Joe the Plumber” that he wanted to “spread the wealth around,” it sounded to a lot of conservatives like socialism: “From each according to his ability, to each according to his need,” in the words of Karl Marx.

There is a kind of wealth spreading, however, that ought to meet the political litmus test of conservative Republicans, liberal Democrats and radical Independents. At a time of high

Continue reading "Cal Thomas: Black & Decker layoffs a moral issue" »

Posted by Jay Hancock at 6:12 AM | Permalink | Comments (11)
Categories: Executive Pay
        

Hewlett Packard boss Mark Hurd resigned last month after the board learned that he fudged his expense accounts with regard to time spent with a female former reality-show contestant. Nobody was more critical of the defenestration than Oracle's Larry Ellison, who has now hired Hurd for one of the top three spots at Oracle, dispensing with President Charles Phillips.

We'll see how this one turns out. Hurd was used to being alpha dog at HP, but Ellison is one of the top egos in any industry, anywhere. There is also Safra Catz, who also holds the title of president. She's the former chief financial officer, also a potential heir to Ellison, and can't be especially happy about the hire. Separately the three are incredibly talented. Whether they can work together is very much an open question.

Here's my August column on Mark Hurd's golden parachute, which he was allowed to keep despite his behavior.

Posted by Jay Hancock at 9:12 AM | Permalink | Comments (0)
Categories: Executive Pay
        

This looks like a great analysis from the Institute for Policy Studies -- an attempt to quantify how CEOs are enriching themselves off the misery of employee layoffs. The equation has been around for years: CEOs get paid based on cash flow and profit margins and stock prices, all of which can be improved for the short term by slashing and burning among the cubicles. CEOs reap immediate, enormous bonuses -- long-term damage to the company be damned.

But I've never seen this kind of detailed look. The IPS analysis offers compelling and maddening evidence of this dynamic. The whole study is worth looking at, including scores of the Layoff Leaders. (Congratulations Fred Hassan at Schering-Plough! No. 1, with $50 million in pay, 16,000 layoffs!)

Here are some highlights:

-- CEOs at the 50 major firms that have laid off the most workers since the onset of the economic crisis took home nearly $12 million each on average in 2009, 42 percent more than the average compensation that went to S&P 500 CEOs.

-- These layoffs in no way rate as an inevitable consequence of red corporate ink. Of the 50 top corporate layoff leaders, 72 percent ended last year in the black. Overall, these top 50 layoff firms enjoyed a 44 percent average profit increase in 2009.

-- Of the 50 layoff leading companies, only two reported paying corporate income tax in
2009 at the 35 percent statutory rate.

-- These numbers all reflect a broader trend in Great Recession-era Corporate America: the relentless squeezing of worker jobs, pay, and benefits to boost corporate earnings and maintain corporate executive paychecks at their recent bloated levels.

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (6)
Categories: Executive Pay
        

Well, at least Bank of America's board did something right, sort of. CEO Kenneth Lewis, who bought Merrill Lynch a year ago even when he knew it would be terrible for Bank of America shareholders, is leaving. No surprise there. Here's what's unusual: Technically he gets no golden parachute. He has no employment contract with the bank. And, even more unusual, in 2002 Bank of America froze the "supplemental" pension that Lewis and other bigwigs get.

Lewis will still have an executive pension, but he hasn't accrued seniority benefits in it since then. The present pension policy at Bank of America is to have execs get more or less the same pension as everybody else -- a great idea.

This is not to say that Lewis will be in poverty. His pension will still be huge. The present value of the whole package grew by $854,256 last year alone. His total compensation for the last three years was $10 million, $24.8 million and $27.9 million, respectively. Sure, a big chunk of that was in stock options that are WAY underwater. (Strike prices were in the $50 and $40 ranges. The stock is now $17.) But under the bank's rules Lewis gets to hang onto his options even after he retires -- until they expire. That gives him up to 2014 or so to wait for the stock head back up.

Another good thing about Bank of America's exec pay is the relatively few perks that top dogs get. "We provide very few executive fringe benefits," the bank says. Of course, "very few" for corporate royalty still means tons to you and me. Last year Lewis got $14,000 in home-security and parking benefits, $220,000 of free personal travel on company jets and $18,000 in free financial and tax planning. But he can't head off to the golf course just yet. Dealing with the litigation over last year's decision to buy Merill Lynch will probably take years.

Posted by Jay Hancock at 8:29 AM | Permalink | Comments (0)
Categories: Executive Pay
        

The Wall Street Journal reports that the Federal Reserve is proposing to regulate bankers' pay, giving itself the option to intervene if compensation schemes give key employees the incentive to bet the franchise on cockamamie ventures.

The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives.

Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees -- from chief executives, to traders, to loan officers -- to take too much risk. Bureaucrats wouldn't set the pay of individuals, but would review and, if necessary, amend each bank's salary and bonus policies to make sure they don't create harmful incentives.

Anybody who appreciates the many benefits of capitalism and free enterprise ought to be creeped out by what's going on. On the other hand, Wall Street virtually asked for this to happen. Don't blame the Fed. Blame the big New York bankers, who betrayed their shareholders and betrayed their system.

Posted by Jay Hancock at 10:20 AM | Permalink | Comments (1)
Categories: Executive Pay
        

One of the keys to solving the executive pay mess is to make CEOs hang onto their stake in the company for a long time -- even after they retire. That way they can't gin up the risk, loot the place while the getting's still good and then ride off into the sunset before things collapse. Check our yesterday's speech from Lloyd Blankfein, boss of Goldman Sachs.

As I mentioned earlier, an individual's performance should be evaluated over time so as to avoid excessive risk taking and allow for a "clawback" effect. To ensure this, all equity awards should be subject to future delivery and/or deferred exercise over at least a three-year period. And, senior executive officers should be required to retain the bulk of the equity they receive until they retire. In addition, equity delivery schedules should continue to apply after the individual has left the firm.

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (2)
Categories: Executive Pay