Corporate Exec. pay doubles from 5% of net income in 1993-1997 to 9.8% today

mykevermin

mykevermin

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There hasn't been much good research measuring just how much executive pay affects shareholders, but there's enough to conclude that pay does matter.

Lucian Bebchuk, a Harvard Law scholar of executive-pay practices, published a study in the fall with Cornell's Yaniv Grinstein that attempts to measure pay as a portion of earnings. The results are eye-opening: From 1999 to 2003, the five top dogs at each of the 1,500 largest publicly traded firms cumulatively took down $122 billion in salary, bonus and stock, compared with $68 billion from 1993 through 1997.

That's real money by any measure, but as a percentage of earnings, it's downright astonishing: In the period from 2001 to 2003, top-executive compensation amounted to 9.8% of the companies' net income, almost double the 5% in 1993 to 1995. That's money that otherwise would end up in shareholders' pockets.

Prof. Bebchuk, a critic of the disconnect between pay and performance, says executive compensation might not by itself send activist shareholders storming into boardrooms. But, he says, "This is a big deal economically, one shareholders should care about."
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WSJ except taken from Daniel Gross' blog (http://www.danielgross.net/archives/2006/01/08-week/index.html#a000529)

Now, this is simply outrageous. For a liberal such as myself, that's $54 billion that workers ought to be receiving some portion of. As earnings are just under doubling for executives, even if workers' average wages were also doubling, they'd still be smartly outpaced by the doubling of the executive wages (that is, the relative deprivation of doubling $50K per year versus $3M per year still creates a wider gap between the wealthy and the middle class). That would be troubling if workers' wages only doubled, when the fact is that they aren't even that. As I pointed out in previous threads, the mean annual income per household has remained around $44K for over a decade. This is appalling no matter how you look at it.

Case in point, say you're love to hate liberals such as myself. "fuck the workers, they're dumb enough to keep working in a shit job, they should try harder," you like to say. Alright, then, fuck the workers. That doesn't remove or reduce any outrage (I would hope). How can you reconcile that *FIVE PEOPLE* (the study measured the top five positions in 1,500 largest public firms) takes in nearly 10 cents out of every dollar the company makes over its costs? You simply can't. You may not give a damn about workers, but you ought to give a damn that the executives are taking money away from you and other shareholders. As someone who invests in a company, don't you deserve such remuneration? Those five fat cats are taking profits that should be returned in dividends, and keeping it for themselves to the tune of a 200% income markup (on average) over 6 or 7 years (the last three of those years being a recession).

As a conservative or a liberal, you ought to be furious about this.

If you're interested, there is a link to the entire study here.
 
I could care less what people make. As long as the stock performs, shareholder value increases and company projections on sales, growth and revenue meet or exceed forecasts I really don't care what people make.

I am 100% in favor of rewarding performance with outlandish compensation. You bring me more money than I expected I'll make sure you're paid more than what the "average" CEO or worker does in the market.

Greed is good. Greed works. Increased compensation sets apart the achievers and those just passing through life without goals, ambition and ability.

Bravo I say, bravo.
 
It should go toward upping wages, improving conditions etc., but if the choice is to the execs or the stockholders then I'm not overly concerned. Its nice if regular people can benefit, but thats about it.
 
PAD, I understand your points in the first post; it's unsurprising to see you take that approach. My expectation (and perhaps my ignorance) is that this additional income was accrued from 1999-2003. Of that 5 year time frame, 3 of those were a recession (and, if we want to believe those who argue Bush inherited Clinton's recession, that gives us all of 2001-2003, and a portion of 2000 as well, leaving less than 40% of that entire period with a healthy economy in general).

My concern is that this is executives rewarding themselves at times that they aren't performing well (that's by virtue of it being a recession, which it wouldn't be if the top 1,500 public firms were exceeding expectations by that much). Instead, companies ought to be (1) preparing to not meet expectations, (2) putting money aside to offset potential losses, and (3) providing a portion of that money for shareholders in the event expectations are met. The key question is, to me, that, if the top 5 executives' pay in your firms doubled over 5 years, would you, as a worker or shareholder, be outraged if your revenue didn't increase accordingly? Moreover than even *would* you be outraged, *shouldn't* you be outraged?
 
[quote name='alonzomourning23']It should go toward upping wages, improving conditions etc., but if the choice is to the execs or the stockholders then I'm not overly concerned. Its nice if regular people can benefit, but thats about it.[/QUOTE]
Well, as this study shows, net income is being concentrated in the hands of just a few people at the executive level. A great (and legitimate concern, considering this study) among liberals and those afraid of a corporate state is the concentration of wealth into the hands of a few. That is to say, it ought to be your concern to be bothered by executive selfishness, and one way to cease that process is to help the shareholders (which include the laborers in many companies, although never at a substantial rate) acquire some of that money.

The goal may not, for you, include getting more money to shareholders, but I'd argue that, at the moment, the pressing matter isn't who *does* get the lion's share of net income, but to emphasize who *shouldn't* be getting that lion's share. Once executives have their power checked (by an alliance of workers and shareholders - and overly ideal thought if I've ever had one), then progress can be made to fairly distribute that wealth amongst investors and workers. One piece at a time.
 
Mykey, if they're not doing well, can them. I'm not going to defend someone golden parachuting out a position where they failed they tanked jobs, stock prices, revenues etc. In that case summary firing is too good for them.

However if you look at a 10 year period for a company like Apple here's their history. 10 years ago Apple was practically written off. People were saying they should go the clone route, they did, it failed. People thought the niche they held would disappear and the company was moribund and going to go away. Introduce the iMac, rebirth. Introduce the iPod, runaway success and a $78 billion market cap. Probably $73 billion higher than it was 10 years ago.

Does Steve Jobs deserve every dime he's earned from that 10 year turnaround? Yep.

On the flipside you take MCI, Global Crossing, Enron and Tyco execs that should be bankrupt, penniless and stuffing envelopes for a collection agency.

People act as if a CEO just falls of a tree and lands in that office. 20 million kids play organized baseball result in 600 MLB baseball players, 48 All-Stars, maybe any 6 active major league players will make the HOF. 100 million workers in the U.S. if you take the same percentages you're looking at smaller amount of people that reach the pinnacle of their profession. Of course you have CEO's that are the equivilent of the short stops that hit .198 with 1 home run and 11 RBI's.

However the amount of people that can run a $1 billion company and continue to make it grow is extremely small. Therefore they should be paid an extreme amount more than the average person. In the past 7 years we've seen the internet bubble burst and an extreme challenge for businesses to not only remain profitable but grow.

Those who have made a success of their company during these times deserve lavish praise and compensation. Those who don't deserve to be fired.

Just remember the sports analogy, millions may play, few can do it at a high level, even fewer succeed when faced with the ultimate playing field.
 
Ah, so this is where PAD went when he abandoned his own thread.

And I also agree with evanft and the OP. Money can generally be put to greater uses than it is currently being utilized for...
 
SilverPaw, threadcrap elsewhere. This isn't a game of "pin the tail on the Republican." If you feel PAD isn't responding to you, then piss and moan in your own thread. There was some good conversation going on in here until you brought your pity party on in.

PAD, I don't think that I meant to argue about the probability of becoming an executive, the methods for selecting them, or even their deserved pay. I wouldn't argue that they need to cap salaries at 100K per year, or some other arbitrary number. My argument is related to the growth of executive pay, and how that compares to shareholder and employee pay. That five year period shows that income doubled for the highest-paid employees. As I said earlier, if you double *everyones* income from Corporation X, you're still increasing the income gap between earning quintiles. However, we can look at mean income, which has remained stagnant over 15 years, to see that employee wages aren't doubling, and I don't know about you, but considering that the Dow just broke 11,000 for the first time since 2001, I don't think shareholders are doing as well as they were at the beginning of this measurement period.

I'd have to go look at the study, but I suppose the most *fair* measure is that, since executive pay now went from 5 to nearly 10% of the net income for these companies, what is the overall percentage for payment in the form of dividends, and what is the percentage that is paid to employees? Perhaps it is in the study, perhaps it is not. I'm not making the argument that execs make too much (though I do believe that, I don't think it's relevant here). I am arguing that execs are appropriating more and more income to themselves, and the appropriations to shareholders and employees are not increasing. I'd call that unfair, unethical, and very dangerous, economically speaking.

As far as the "fire them" argument, while it is possible, (and something I'm admittedly not familiar with), the only company whose shareholders shitcanned their CEO recently I can think of is Disney (at least I think they shitcanned Eisner). What other examples are there? How easy is it to do (I think there was a long and drawn out battle for Disney)? How likely is it (this, I guess, draws on another set of questions: how involved are stockholders in the doings of their companies owners, and who are those people who are involved?) Somehow, the prospect of telling a Jack Welch to "hit the bricks" sounds about as probable as me giving birth (I know Welch was successful, I just typed the first name that came to mind).

Lastly, Apple is an excellent example of a company that has done well in recent years (and, :drool: those new Mactels). IIRC, Steve Jobs took an annual salary of $1 in 1996, so I wouldn't froth at the mouth is his income doubled ;) . Truth be told, Apple is an anomaly in the recent market. For every Apple there is a Sony, a company that would be dead, dead, dead if not for its video game division, which helped offset losses in all other markets (IIRC).

I guess, in the end, I don't want to argue about the *amount* an exec makes here. I would like to argue, I suppose, about how much of a net income increase should be appropriated to whom. This article makes me think that more is being appropriated to 5 executive positions, and less to employees and shareholders. Moreover, this analysis examined a period which was mostly a recession, so it's not as if most of these companies had a net income increase to reappropriate, so it would appear, however, that they're reappropriating income that would have previously been expected to go somewhere else.
 
I'll debate this point with you as far as the who gets what standpoint. Who deserves credit for success of a company? Management, stockholders or the workers. Well, let's break this up into three schools of competing arguments.

- Management. Ultimately responsible for key decisions. What product/service to engage in, which markets to pursue, how to minimize costs and maximize revenue.

- Stockholders. Fund the company's captial in hopes of a significant return.

- Workers. People who execute the decision of management.

Now, workers is really too generic for purposes of this discusion. There's a world of difference between a product designer who designs 3 versions of the iMac, iPod, G5 and Cinema Display and someone who cares for the bushes in front of the Cupertino HQ or sits at the front desk as eye candy. There's a reason why companies put insurance policies on "key" employees in case they die, hold substantial amounts of stock or are responsible for an inordinate amount of responsibility and account for a company's success or failure.

For example; while Alan Ladd headed 20th Century Fox in the mid 1970's who was more responsible for the Star Wars phenomenon, the man who funded the film or the man who wrote and directed it. Oh and what about the actors and stage hands? Could the film have been a runaway success with Christopher Walken as Han Solo instad of Harrison Ford? Would the success or failure of Star Wars be reliant on who was the key grip, location manager or ran the catering services department for the studio?

These are the types of theorheticals you're dealing with.

I'm always partial to the people with the ideas (Executives, key employees.) and those who put up the financial capital. However you're looking at a chicken and the egg scenario. The best idea goes nowhere without funding (Stockholder argument.) but there is no way the next best thing can be created by dollars alone or commitee (Executive, key employee argument.). Both are superior in the pecking order compared to the people doing the filing, phone answering, marketing materials, production etc. who in comparison to the big idea or the big bucks aren't as key a success to a business venture.

Are they important? Yes. How do they deserve to be compensated? I'm a firm believer in giving two components of compensation without exception. One based on a flat market rate in relation to other sales, clerical, marketing, manufacturing jobs pay. The second is based on company performance. If people have no added incentive to come to work, deliver a great month or year's effort they aren't worth what they could be.

Illustrate it like this. Let's suppose your company payroll is $1,000,000 (I'm just using this figure for easy math.) your owner/CEO pays himself $100,000. COO/CFO makes $90,000, VP of Sales makes $70,000, VP Operations makes $70,000, VP Marketing makes $60,000. The remaining $610,000 is spread out amongst 35 employees; full time, part time, varying levels of responsiblity.

The company makes $2,000,000 in net profit. As per company business plan 30% is put into capital improvements and expansion, 25% goes into ready cash, 25% is disbursed to employees reflective of their positions percentage of payroll, 20% is paid back to stockholders. So in effect you're doling out $500,000 to 40 people reflective of their assigned level of responsibility and role. Now, is it fair that the owner/CEO receives $50,000 of that payout? He/she is ultimately responsible for the other 39 people and it was their money that made the company.

So in effect, the percentages can be toyed with, just like in your initial study. In my example those top 5 employees would have received $195,000 of the $500,000 bonus pool. Or, if you want to look at it in relation to net profits 9.75% of that net. Pretty close to the original example you listed. Depending on the stock holdings in the company, if any, that number will likely increase.

Of course if you're talking a $10,000,000,000 company there's a lot more zeroes. The math though is still the same. The percentages you listed though were arbitrary and not reflective of how a company did or didn't do in the survey of 1,500 companies. The bottom line of the study's conductor seems to imply a lot of money is in a limited amout of hands and that in and of itself is a troubling trend.

I'd argue it's not. It's only troubling if that money is being paid to executives for average, below average or failing companies.
 
I'd like to take this moment and write it in my calendar that I agree with Myke. CEO compensation is outrageous, but it's a board of directors decision to make, not mine. Of course, I also think TV and movie actors are grossly overpaid for their jobs yet no one ever seems to complain about them. What really gets me, and everyone else it seems, is overcompensation of failing companies like United Airlines, where everyone loses their pensions and the CEO's are still taking home millions for assuring a smooth government subsidized bankruptcy.

But, without a doubt, I'm sure myke and especially alonzo will go and ruin a good peaceful moment with some communist whacko proposal of the government stepping in and limiting CEO compensation together with a plan to redistribute profits to the workers and the poor.
 
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