THE JUGGERNAUT OF CEO COMPENSATION

18 May 2015 | By ken in Society | 1 Comment

No Shame

All “10 of the top-paid C.E.O.s received at least $50 million last year,” according to Equilar, a firm that tracks executive compensation. Much of the “overall compensation came in the form of stock.” But, in addition, many “chief executives received generous cash bonuses, a form of compensation that does little to incentivize long-term performance.”

“It’s really an outmoded way of paying,” notes Robert Jackson Jr., a professor of corporate governance at Columbia Law School.

According to The New York Times, these ballooning payouts occur “despite sustained efforts to restrict excessive executive compensation . . . . Employers are no longer footing the tax bills for departing C.E.O.s who enjoy golden parachutes. Supplemental pension plans, which heaped benefits on executives regardless of how well the company did, are largely a thing of the past. Stock awards are mostly tied to performance, not simply awarded at regular intervals.” Moreover, there is more public disclosure of executive compensation, because, it was believed that if “companies have to report C.E.O. pay that is 1,000 times that of the average worker or justify growing pay in spite of weak results, perhaps shame will kick in.” A recent study concluded that C.E.O pay as “a multiple of the typical worker’s pay rocketed from an average of 20 times in 1965 to 295.9 in 2013.”

But The Times concluded, shame “hasn’t worked.” (See, “For the Highest-Paid C.E.O.s, the Party Goes On.”) We have to wonder why?

C.E.O.s actually form a club, a tight-knit oligarchy, and in that group there is only one measure of success. C.E.O.s know where they stand relatively to each other, and they want to be treated with respect. For one thing, many of them sit on the boards that determine the salaries of other C.E.O.s, and the boards make a point of knowing what the “standards” are. They may actually believe that compensation works as an incentive, but it’s probably more a matter of playing by the rules and being “appropriate” and “fair” to members of their group – in that rarefied world.

But there is another factor: the status and power of the oligarchy depends on large sums of money required to sustain their social position. In paying each other such immense sums, they are also ensuring the continuation and power of their class.

It takes a lot of money to pay for the armies of lawyers, accountants, advisors, consultants, lobbyists, and others enabling them to protect the wealth through which they maintain control of the political process, and guard their wealth against taxation. To be sure, they also spend a great deal of cash on their private homes and planes, their art collections, and so forth. And they also want to donate hospital wings, museum galleries, while funding their favorite charities. But the essential expense is about preserving the power and control of the oligarchy itself.

It sometimes seems as if our growing wealth inequality is a mystery, an insoluble problem. But simple changes in the tax code could do much to levy reasonable rates on the income of oligarchs’, eliminate tax shelters, and deplete the estates the super-wealthy pass onto their children.

The “invisible hand” of oligarchy keeps that from happening.

FIXING CORRUPTION

10 May 2015 | By ken in Society | No Comments Yet

Can Anything Be Done?

Given the amounts of money involved and the sprawling global landscape within which it occurs, it’s no surprise how much insider trading, bribery, deception, and just plain theft occurs in business. This is been augmented by the powerful role played by the financial industry, promoting mergers, acquisitions, restructurings, and divestments, without much interest in making more reliable goods or providing truly useful services. The sums of money involved are irresistible.

Recently, The Economist looking into the effort of containing bribery, noted that “the cost and complexity of investigations are spiraling beyond what is reasonable.” It cited the fact that Siemens, convicted of handing out bribes in developing countries, has “spent a staggering $3 billion on fines and internal investigations” while Walmart “will soon have spent $800m on fees and compliance stemming from a bribery investigation in Mexico.” (See “Daft on Graft.”)

It complained of “a ravenous ‘compliance industry’ of lawyers and forensic accountants” as well as “competing prosecutors” in different jurisdictions getting into the act and, in the process, inflating costs.

In his recent book, Too Big to Jail, Brandon Garrett notes that many efforts to get companies to reform themselves have inevitably backfired. Many regulators and watchdogs tried an approach of “rehabilitating” companies, based on a legal strategy developed with youthful, first-time offenders. The idea is that punishment is deferred, pending efforts by offenders to fix themselves.

Garret notes that some companies really try, but the record is mixed, to say the least. The essential problem is that changing a company’s culture is truly difficult, and even those that set out with good intentions have little idea of the complexities and resistances they will inevitably run into. Moreover, in only 25% of cases is any over-sight provided, and, even when monitors are charged to track compliance with reforms, seldom is any real effort made to check that the monitors are trained, adequately motivated or free from bias.

Fundamentally, the incentives for corruption usually remain in place. In the cases of Siemens and Walmart, western companies were dealing with officials in Africa and parts of Asia where bribery is an accepted way of doing business. No doubt, the company officials charged with managing their entry into those markets felt they had no choice but to go along with those culture’s practices. To be sure, they could have refused to engage in “corruption,” but almost certainly they would have been replaced by others less troubled by the unorthodox requirements of the job.

Corruption is not acceptable, but it will never be fully eradicated. Like the weather, it is something we have to understand and monitor if we are going to be able to cope effectively and limit the damage it can do. It requires constant vigilance, oversight, and, yes, money. It needs regulatory agencies and ambitious (even over zealous) prosecutors, expensive trials, and punishments that target the perpetrators.

Garrett notes the vital role of whistle blowers and informants in calling attention to corruption. Those who go public with their company’s crimes play an indispensible role, though often vilified and shunned by “loyal” co-workers. But he also notes the valuable effects of a simple hot-line to report ethical abuses, something many companies fail to offer.

Among other things we have to over come our own ambivalence about the battle. And he gives a nicely detailed account about how Siemens did finally engage in a massive and successful effort to change its culture. It replaced most of it top management and hired a former minister of finance in Germany to over see its efforts at reform.

Progress is not impossible – just very, very hard.

WHY NOT TAX THE RICH?

02 May 2015 | By ken in Society | No Comments Yet

Our Problem with the Wealthy

It has been a bedrock idea of modern democracy that those who have more should pay more, but throughout history the rich have been remarkably successful in beating back attempts by the poor to dip into their pockets.

To start with, the rich usually have more authority and power. In more recent times, armies of lobbyists and donors to political campaigns, advisors, accountants and lawyers have worked tirelessly behind the scenes to ensure that the tax laws remain favorable to the rich. Oddly, though, the poor themselves seem at best ambivalent about taxing the rich. Why don’t they clamor for a more equitable tax system?

One reason is that so long as America remains “the land or opportunity,” even when that opportunity is increasingly restricted, the poor feel that money is being taken away from them – or will be taken away, that is, when they finally realize their dream of getting rich. It is hard for them to think of government as ever being on their side. They resent the taxes they do not yet have to pay.

In other words people find it hard to give up their illusions about this country even though it has long since ceased to offer what they want and need.

Another explanation was offered recently by a commentator on The Daily Kos, a liberal internet site. “I felt my own poverty was a moral failure . . . . To make up for my own failures, I voted to give rich people tax cuts, because somewhere deep inside, I knew they were better than me. They earned it. My support for conservative politics was atonement for the original sin of being white trash.”

Not everyone feels such depth of self-contempt, but many do feel inferior, inadequate, or self-blaming for their “failures” to achieve their goals. They avoid blaming the system stacked against them, crediting others with the superior qualities they lack.
Both sets of reasons speak to the fact that people have trouble accepting their own shortcomings and weaknesses, and engage in irrational projections onto others in order to protect themselves from deeper feelings of shame and inadequacy.

We are infatuated with wealth; we dream of it in our movies and TV shows. On the other hand, much work is increasingly dysfunctional, under-rewarded, unsatisfying and insecure. Moreover, those who do not have skilled jobs with good pay and mobility when their companies are restructured or bought out, face chronic poverty. The recent groundswell to shore up the minimum wage speaks to our grudging awareness of this problem.

And then there are those in the middle, with skills that are being gradually replaced by robots and smart machines that are cheaper, more reliable, and don’t get sick or protest.
These trends seem inexorable, but they seem to take place in the half-lit world of the unconscious. They are things we don’t really want to face squarely. To be sure, there are statistics, headlines, and occasional news items that refer to these trends, but we seem to prefer to keep the big picture blurry.

Backwards America

20 April 2015 | By ken in Society | No Comments Yet

Out of Sight, Out of Mind

Do we just take it for granted that the U.S. is the best at everything? We don’t seem to notice how bad things really are. Or how much better off other countries are in ways we used to excel.

According to The Social Progress Index, compiled by Professor Michael Porter at the Harvard Business School, the United States ranks “30th in life expectancy, 38th in saving children’s lives, and a humiliating 55th in women surviving childbirth . . . . We have higher traffic fatality rates than 37 other countries, and higher suicide rates than 80.”

We also rank 32nd in preventing early marriage, 38th in the equality of our education system, 49th in high school enrollment rates

But in reporting on these findings in The Times, Nicholas Kristof disposed of the idea that income inequality has amplified the suffering of the poor. He pointed out that “Professor Porter and his number-crunchers found only a mild correlation between economic equality (measured by Gini coefficient) and social progress.”

“What mattered much more was poverty.” He added: “inequality at the top seems to matter less for well-being than inequality at the bottom. Perhaps we should worry less about reining in the top 1 percent and more about helping the bottom 20 percent?”

We can reach two conclusions from this. One: we don’t have to be super wealthy to make social progress. The more billionaires we have doesn’t make for better, healthier or safer lives. On the other hand, you have to have a certain amount of money in our society just to be seen, and those not seen, at the bottom or in the margins, don’t seem to register. Not only do they lack advocates in Washington, many of them, demoralized and hopeless, don’t even bother to vote. Perhaps we never were “one nation,” but as we focus on our celebrities and oligarchs, the others seem increasingly irrelevant.

A few years ago, I cited a study demonstrating that the poor are more generous than the rich. They have less to give, of course, but they give more of what they have. That must be because they have an easier time identifying with the suffering of others. Being poor they can’t so easily deny what reminds them of their own plight. They empathize and identify with those who belong with them in their groups.

The rich empathize with their groups, of course, but the groups to which they belong attend benefits and openings, sponsor galas and contribute to building new museum wings or concert halls or hospitals or schools. The issues they speak about with each other are about getting what they want, even when that means giving millions away in order to make sure they are in control. And they are seldom unrecognized, whether their names are on the front of buildings, on the backs of chairs, or in programs.

And, generally speaking, they are not suffering.

Is Marriage Only for the Rich?

09 April 2015 | By ken in Society | 3 Comments

The End of the Working Class

It is common knowledge that professionals are more likely to marry and less likely to divorce than less educated workers.

But according to sociologist Andrew Cherlin, the picture has become more complicated as real wages decline. For several decades now, both members of a couple, whether or not they are professionals, have needed to work to make ends meet. Pooling two incomes provided the necessary solid financial foundation. But, he adds, what works for professionals increasingly does not work for the working class. As Cherlin noted, “we have seen declines in marriage among high school graduates who are stuck in the middle of the labor market.”

“In the past few decades, as factory work has moved overseas or become automated, the jobs that sustain these families have dried up for men. At the same time, changing economic and cultural currents have also strengthened the position of women. The combination of these economic and cultural shifts have led to “the fall of the working-class family,” Cherlin said.

“What’s happening is that high school-educated women don’t see good marriage prospects in the future and so they are using their economic independence to start their own families. So, yes, women’s independence is part of this story, but this [alone] doesn’t necessarily lead to lower rates of marriage. It only does so when the possibility of finding a good marriage partner isn’t encouraging.”

Another part of the story is about “individualism.” In the old days that meant working hard, striking out on one’s own, succeeding in your career. “Today,” according to Cherlin, “it often means striving for personal growth, individual development, a happier sense of self. That change occurred among the middle class a few decades ago. It’s now occurring among the working class. We’re now seeing young working-class men and women talk about their lives in the same kind of therapeutic personal-satisfaction sense that the middle class has been showing for decades.” And that expectation is growing among the working class, “even though their economic lives are highly unstable and unsatisfactory.”

In an interview in The Guardian, he sees this as part of the “slow disintegration of the American working class over the past few decades.”

He believes “more than half the young adult working population” are now struggling for a level of economic security and personal fulfillment they are unlikely to achieve. Without a college degree, “their prospects in the labor market have declined substantially and their family lives have changed too.”

So, yes, women’s independence is part of this story, but this [alone] doesn’t necessarily lead to lower rates of marriage. It only does so when the possibility of finding a good marriage partner isn’t encouraging.

If this is not discouraging enough, he added some pessimistic reflections on the future of work in general, echoing what many others have been saying. “On some days I wonder if we just no longer have enough work for everyone to do.”

We have to wonder about the long-term effects. Unemployment is bad enough, but adding crushed hopes and chronic lack of fulfillment is a recipe for social malaise and high levels of emotional conflict.