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April 6, 2009 |
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We’ve become accustomed, over the years, to pollsters who share their latest survey results in carefully modulated, always understated sound bites. But the results from the latest public opinion polling on CEOs and Wall Street had poll analysts last week dispensing with their dispassion. “The American people are mad as hell,” noted Peter Brown, the lead researcher on a just-released national poll from Quinnipiac University in New York. “They think the folks who got the country into the financial mess are both stupid and crooked and want the government to burn them at the stake.” By an 81-16 percent margin, Brown added, Americans want to “limit pay” for executives at bailed-out companies, and “almost one in three want to limit executive pay even for companies that don't take bailout money.” That support for across-the-board limits may soon go higher, once Americans start digesting the new figures on CEO pay that started emerging last Friday. We have those figures — and the story behind them — in this week’s Too Much. |
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The world’s wealthiest investors, in these turbulent times, are flocking to a new asset class: timepieces. In January, Germany’s exclusive Lange Uhren watchmaking company brought 250 units of a new 2009 model to a trade fair in Geneva. The watches — priced at $189,000 each — sold out. Last week, at the luxury watch industry’s largest trade show, Lange won “watch of the year” honors for a 2008 model that’s specially “designed to counter the effects of gravity on the accuracy of a timepiece.” The price for this gravity-defying marvel: $264,600. Lange, overall, manufactures 5,000 watches a year . . .
Chauffeurs and chefs — for the rich and shameless — have seen better days, says the top exec at Greycoat Placements, a British finishing school for domestic servants. In today’s uncertain times, says Greycoat’s Stephanie Rough, wealthy families are increasingly replacing chauffeurs with cab contracts and getting their “house manager” — the job title that's replacing “butler” — to handle more of the cooking. Many other rich families, eager to cut back on outlays for domestic staff that can routinely run $660,000 a year, are hiring from domestic staff temp agencies. Temp hires have jumped, an official at the Quintessentially Estates agency noted last week, 25 percent over the last three months alone. But analysts at servant schools like Denver’s Starkey International Institute for Household Management see no overall industry downturn. Says school founder Mary Starkey: “There will always be wealthy people and they increasingly need help to coordinate their busy lives.” Here’s the good news about IRS face-to-face audits of taxpayers who report $1 million or more in income: On average, these high-income audits generate nearly $200,000 in additional taxes per return. Here’s the bad news: The IRS last year audited, face-to-face, just 3.1 of every 100 millionaire returns. A new report from the Syracuse University-based Transactional Record Access Clearinghouse charges that face-to-face audits of millionaire returns “have sunk to at best the same level they were five years ago, before the IRS announced it intended to target these high-income tax returns for increased scrutiny.” Nothing comes cheap in Monaco, the sun-drenched Mediterranean principality that caters to the world’s rich, notes the Economist magazine, with “tax advantages so persuasive that foreign residents far outnumber the locals.” Rock lobster at Monaco’s Hotel Metropole will set a discriminating diner back $185 a plate. But if you want real sticker shock, try buying an apartment in Monaco. A noisy two-bedroom next to an elevated highway is now going for $10.8 million. Prices like that have earned Monaco the new global number one slot in the just-released Knight Frank Index of the world’s most expensive prime property. Real estate in Monaco now averages $75,000 per square meter. London ranks second most expensive in the latest Knight Frank ranking, Manhattan third. |
Quote of the Week “We want trickle-up economics, not trickle-down economics. We want a dramatic redistribution of income and wealth that reverses the trend of the past 30 years because it is fair, and also because it makes capitalism less prone to crisis by providing a reliable source of demand for businesses satisfying the needs of ordinary people.”
New Wisdom Dean Baker, Bankers wrecked the auto industry, Los Angeles Times, April 2, 2009. The latest White House toxic assets plan will reinforce pay patterns that have top Wall Streeters making more than 1,000 times as much as auto workers.
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The CEO Pay Latest: The Outrages Continue Millions of Americans last year lost their jobs, their homes, and their retirement security. American CEOs last year lost some pocket change — and some of them didn’t even lose that. In 2008, the Wall Street Journal reported this past Friday, pay for typical big-time U.S. CEOs dropped a mere 3.4 percent, to a $7.6 million median. On Sunday, the New York Times pronounced a 9.4 percent CEO pay falloff last year. But the Times put median CEO pay at $8.4 million, a higher total. The Journal figures cover the first 200 U.S. corporations with over $5 billion in revenue to file executive pay figures for 2008. The Times tally spotlights 200 CEOs at companies that last year took in at least $6.3 billion in revenue. Several major U.S. corporations haven’t yet disclosed their 2008 pay numbers. CEO pay specifics for last year, consequently, will likely change somewhat over the coming weeks as other national news outlets — USA Today and Forbes, among them — hit the streets with their annual CEO pay surveys. But any new specifics that may emerge won’t alter the larger CEO pay picture. In 2008, despite the worst economic meltdown in over 75 years, U.S. chief executives continued to take home over 300 times more pay than their workers. That’s a gap ten times wider than the gap between top execs and workers that existed just a generation ago. Corporate boards of directors seem determined to keep this massive gap intact. Many corporations, the new CEO pay reports show, are refusing to make even symbolic gestures toward more common-sense executive compensation. Remember last fall's firestorm over executive jets? In 2008, over half America’s big corporations — 104 of the 200 the Wall Street Journal tracked — continued to foot the bill for the personal air travel of their top executives, only three fewer than the year before. CEOs have to report the personal air travel subsidies they get, along with whatever other perks they receive, as taxable income. Over a third of America’s biggest corporations last year actually gave their executives extra money to pay the taxes on all this perk income. The dollars devoted to this tax reimbursing — or “grossing up,” as power suits refer to the process — averaged $16,400 last year. That sum might not sound like much, given the millions CEOs take home overall, but, in 2008, average American workers had to labor five months to make $16,400. The Wall Street Journal doesn’t include perks like free air travel and tax gross-ups in its $7.6 million figure for 2008 CEO “direct compensation.” The New York Times $8.4 million total does. Neither paper’s pay totals for 2008 include the gains CEOs registered last year cashing out the stock options they collected in previous years. These cashouts generated some staggering personal paydays. Occidental Petroleum’s Ray Irani, for instance, took home $49.9 million in “total direct compensation,” according to the Journal figures. But he gained another $215.9 million in 2008 from options and other long-term “incentives” that Occidental had stuffed in his personal portfolio before last year. Corporate boards have essentially created a perpetual motion pay machine that year in and year out gins up millions in executive compensation, no matter what may be happening economically in the real world. In “good” times, with revenues and profits up, boards hand executives stock awards and cash bonuses as rewards for their fine “performance.” In hard times, boards keep the stock awards coming — as an incentive to stick around and perform better in the future. Congress, in the months since the Great Meltdown began a year ago, has at times appeared ready to toss a monkey wrench or two into Corporate America’s perpetual motion executive windfall machine. The stimulus bill that lawmakers passed in February includes provisions that will, if applied seriously, dampen executive pay at companies that get federal bailout dollars. But top Treasury Department officials, the Washington Post revealed Saturday, are now setting up special “middlemen” conduits that let banks and other bailout-related companies benefit from taxpayer dollars without having to face any meaningful executive pay restrictions. Treasury Secretary Timothy Geithner believes, the Post reports, that major firms won’t participate in bailout recovery efforts if their execs face pay limits. On that score, Geithner may be right. The sense of entitlement in executive suites has become so entrenched that America’s biggest enterprises now consider maintaining outrageously high executive pay a matter of “principle.” Unfortunately, Geithner’s response to this executive blackmail — “we get to keep our windfalls or else” — couldn’t be more wrong-headed. Instead of giving bailout-related companies a free pass on executive pay, Geithner should be asking Congress to extend executive pay limits beyond the bailout. Lawmakers could, for instance, deny companies federal contracts if they pay their executives over 25 times what they pay their workers. Or Congress, to discourage the chase after windfalls that has driven the U.S. economy off the straight and narrow, could up tax rates on companies that overpay their execs. American public opinion appears already headed in this direction, toward more sweeping executive pay limits. For the sake of a successful economic recovery, the Obama White House now needs to run faster and catch up. |
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Who's Really Distorting the 'Good Old Days'? Brink Lindsey, Paul Krugman’s Nostalgianomics: Economic Policies, Social Norms, and Income Inequality. Cato Institute, Washington, D.C., 2009. America’s conservatives, over recent generations, have remained remarkably consistent in their core political outlook. Keep trade unions weak and taxes on rich people low, the classic right-wing talking points assure us, and all America will certainly prosper. Try the reverse — smile on unions and tax the rich — and disaster will inevitably follow.
This inconvenient historical reality poses quite a challenge for conservatives. They could, of course, try to make the case that Americans prospered in the quarter-century after World War II despite strong unions and stiff taxes on America’s richest. But you can’t make that argument and, at the same time, maintain that strong unions and stiff taxes on high incomes will always bring doom and desperation. In the face of this predicament, what’s a self-respecting right-wing intellectual to do? Brink Lindsey, a lead researcher at the free-marketeering Cato Institute, has come forward with a most original solution. Lindsey has launched an attack on mid 20th century America — from the left! In his lively new monograph, Paul Krugman’s Nostalgianomics, Lindsey builds his case as a critique of the Nobel Prize-winning Princeton economist who, in a string on books and New York Times op-eds, has linked the prosperity of the 1950s and 1960s to that era’s deep-seated income equality, an equality nurtured by public policies that encouraged unions and heavily taxed the rich. Krugman, Lindsey believes, is painting a ridiculously “rosy-tinged” picture of a past not nearly as wonderful as Krugman would have us believe. True, Lindsey concedes, the postwar years did see “glittering economic growth and widely shared prosperity.” But this prosperity rested on a set of social norms — nativist chauvinism, racism, sexism, mindless conformity and groupthink — that no self-respecting “21st century progressive,” says Lindsey, could ever “be expected to endorse.” These social norms only broke down when the “convulsions of the 1960s,” Lindsey continues, “ushered in a new, more individualistic ethos” that welcomed, without prejudice, differences between people. This growing individualism, in turn, unleashed an explosion of entrepreneurial energy that left America more economically vibrant — and unequal. “Economic institutions improved, and social norms improved,” Lindsey sums up, “but as a result incomes diverged.” Paul Krugman can and no doubt will defend himself from the charges of “gauzy sentimentalism” that Lindsey levels against him. So let’s instead focus here on Lindsey’s characterization of the progress we as a nation have made against racial and gender injustice. Lindsey sees this progress as a reaction against the “in-group solidarity” and “group-minded mores” that fostered narrow income gaps in the mid 20th century. He argues that these mores, besides restricting “competition among enterprises for top talent,” nurtured discrimination against outsiders. This perspective would likely have surprised — and even shocked — the mid 20th century's greatest champions of racial and gender justice. Equality, these champions believed, always begets more equality. The more economic equality in a society, the more outrageously indefensible that society's remaining social inequalities will begin to appear. Martin Luther King understood this dynamic. So did Walter Reuther, the great auto worker union leader of the postwar years who helped fund King’s 1963 March on Washington. Figures like King and Reuther considered struggles for greater racial and gender equity a natural extension of the struggle for greater income equality. We should, too. If that’s nostalgia, bring it on. |
Stat of the Week By a narrow 51-48 margin, the U.S. Senate late last week added an amendment to the budget bill that will, if allowed to stand, slice the estate tax rate down to 35 percent on joint estate value over $10 million. This new lower rate, notes the Center on Budget and Policy Priorities, will benefit “only the wealthiest 0.28 percent of estates” — and reduce federal revenues, over the decade that starts in 2012, by $442 billion more than the federal government would receive if current tax law went unchanged.
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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. |
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Irish rocker Bob Geldof, the anti-poverty crusader behind Live Aid, last week floated an alternative to “hanging” the bankers who have cratered the world economy. Geldof, in a Financial Times 
This take on the world, as a logical proposition, has a rather serious problem. History refuses to cooperate. The years when prosperity most defined America — the middle decades of the 20th century — just happen to be the years when unions exercised their greatest influence and the rich paid their highest taxes.