CEO Pay

Can Anyone Tackle Our Tax-Dodging CEOs?

Sam Pizzigati — Sat, 03 Sep 2011 15:18:27 -0400

A new report from the Institute for Policy Studies documents how America's top corporate execs are stiffing Uncle Sam — and lavishly lining their own pockets in the process.

Sarah Anderson, a veteran analyst at the Institute for Policy Studies in Washington, D.C., has been the lead author of the Institute’s annual executive pay report ever since 1993.

On CEO pay, Anderson sighs, “I sometimes think I’ve seen everything.”

And then came the research for this year’s report — released last Wednesday — and the results floored even Anderson.

Last year, the Institute for Policy Studies researchers discovered, CEOs at 25 of America’s largest corporations — powerhouses that range from Boeing and Verizon to Prudential and G.E. — took home more in personal compensation than the companies they run paid Uncle Sam in federal corporate income tax.

In 2010, these 25 companies averaged a whopping $1.9 billion each in global profits. Yet they actually came out ahead last year at tax time. Uncle Sam owed them money, an average $304 million in tax refunds and credits.

The CEOs who call the shots at these 25 companies make up a quarter of 2010's 100 highest-paid CEOs. Their average take-home last year: $16.7 million.

How could the companies these 25 CEOs rule be so profitable — and so generous to their top execs — yet end up paying Uncle Sam so precious little?

Giant corporations like these, explains IPS study co-author Chuck Collins, are essentially “rewarding CEOs for aggressive tax avoidance.”

That reality has caught the eye of Rep. Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee. Last week, at the release of the new IPS study, Cummings called for hearings to examine “why CEO pay and corporate profits are skyrocketing while worker pay stagnates.”

The new IPS report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging, puts numbers on this soaring and stagnation. Last year, the study documents, CEOs at America’s S&P top 500 corporations saw their average pay jump 27.8 percent. Average worker pay rose just 3.3 percent.

The aggressive tax dodging that’s enriching corporations and CEOs, the IPS analysts add, doesn’t actually break any laws. Corporate America has seen to that — by just as aggressively gaming the political system to stud the tax code with loophole after loophole.

In fact, 20 of the 25 major corporations that paid their CEO more than Uncle Sam last year, notes Executive Excess 2011, “also spent more on lobbying lawmakers than they paid in corporate taxes.” And 18 of the 25 “gave more to the political campaigns of their favorite candidates than they paid to the IRS in taxes.”

This corporate lobbying and campaign cash has, over the years, created a tax code that offers CEOs a wide array of tax-dodging options. Many involve tax havens. Of the 25 top firms that paid their CEOs more than Uncle Sam last year, Executive Excess points out, 18 sport tax haven subsidiaries.

The over 550 tax haven subsidiaries of these 18 firms make shifting profits offshore — and beyond the reach of federal tax collectors — almost effortless. One example of this effortlessness: the shell game known as “transfer pricing.”

To play this “transfer” game, a corporate chief typically hands a tax haven subsidiary control over the U.S.-based firm’s “intellectual property,” assets that might range from patents to logos. The shell company then charges the U.S.-based operation inflated royalties for the right to use this property.

The U.S.-based concern happily tallies these inflated royalty costs, adds them in with the company's other regular expenses, and proceeds to tell the IRS that the company's U.S. operations have lost money for the year. The resulting profits from all this scheming pile up, in turn, on the books of the tax haven subsidiary, where they face rock-bottom tax rates — or no taxes at all.[pullquote]The tax code lets corporations 'defer' taxes, a power the code does not grant to individual taxpayers.[/pullquote]

Last week’s IPS study drew extensive media coverage, from national dailies like the New York Times and Washington Post to top global news services. Reporters at many of these outlets asked the corporate giants the IPS study spotlights to defend themselves.

Some firms, like Bank of New York Mellon, offered no defense. Others, like Ameriprise and General Electric, argued they weren’t dodging taxes. They were merely “deferring” them.

The tax code does indeed let corporations “defer” taxes, a power the code does not grant to individual taxpayers. These deferrals, notes Executive Excess 2011 co-author Scott Klinger, amount to interest-free loans to corporations.

Even better — for corporations — the deferred taxes may go unpaid for decades. Taxes on earnings held offshore, for instance, do not come due until those earnings slide back into the United States. Adds Klinger: “If these funds are never brought home, the taxes are never paid.”

Verizon and eBay led the corporate pushback last week against the new IPS study. eBay charged that IPS had “misrepresented” the company's tax situation. A Bloomberg reporter, in response, asked eBay and Verizon to disclose their exact 2010 federal tax return information. Both declined to make that disclosure.

Other reporters covering the corporate pushback told IPS that the corporate media relations officers that had contacted them couldn't themselves explain what the numbers in the tax footnotes of their own corporate reports meant.

Corporations, IPS noted Friday in a reaction to the pushback, seem to complain “almost every time a story is written about a particular corporation’s tax position.” Yet these same corporations resist reforms that would require all companies to disclose clearer data on “what they actually pay in taxes.”

This year's Institute for Policy Studies Executive Excess report offers outraged readers a guide to all the significant reform proposals — inside and outside Congress — on the tax and pay games CEOs play.

IPS has also created an action page online to help Americans push corporate tax and pay reform forward. And that reform, after this year's Executive Excess, has seldom seemed more desperately needed.

“We have,” as the new 2011 Executive Excess sums up, “a corporate tax system today that works for top executives — and no one else.”

Sam Pizzigati co-authors the annual IPS executive pay report. He also edits Too Much, the online IPS weekly on excess and inequality. Read the current issue or sign up at Inequality.Org to receive Too Much in your email inbox.

The Hazards in Our Fairytale Marketplace

Sam Pizzigati — Mon, 25 Apr 2011 11:48:51 -0400

A consumer alert for soccer moms and doting granddads: Outrageous compensation rewards give corporate executives an incentive to behave outrageously — against you! The story behind the sad demise of a beloved camera.

We’ve come to expect, here early in the 21st century, that business will abuse workers, at every opportunity. We’ve watched corporate leaders downsize and outsource, slash benefits, raid pension funds, and routinely replace full-timers with temps. Such moves have become standard corporate operating procedure.

But we don’t expect corporations to show consumers the same contempt, at least not openly. Corporate execs, behind the curtains, may overcharge and bait and switch. In public, these same execs pay homage to consumer sovereignty.

We consumers have internalized this hypocrisy. We really believe we matter. We assume that corporations will bend over backwards to discover and deliver the products and services that great numbers of us want.

We’re living, in effect, a fairytale. Corporate leaders today care no more about consumers than they do about workers. What do they care about? Maybe we should ask John Chambers, the CEO of high-tech giant Cisco.

Chambers has stood tall, in Silicon Valley, ever since the Internet emerged as a major phenomenon in the mid 1990s. Cisco made the bulk of the Web’s initial “plumbing,” the routers and switches that keep bits and bytes racing.

Cisco also made Chambers fabulously rich. He even survived, quite nicely, the collapse of the dot-com bubble in 2000. Chambers and five fellow execs cleared $307.8 million that year when they unloaded shares before Cisco's stock peaked. Over half that windfall, $156 million, went to Chambers.

That sort of corporate executive derring-do established Chambers’ “street cred” — on Wall Street — as a CEO superstar. And that rep would help lock in, year after year, grand rewards for the Cisco CEO.

But all the while the ground under Chambers and Cisco was starting to shake. The chief exec and the company owed their meteoric rise — at the height of the dot-com bubble, Cisco rated as the world’s most valuable corporation — to good fortune, not genius. Cisco had been in the right place at the exact right time.

So had Microsoft, and companies like Microsoft and Cisco were able to parlay their first-to-the-gate status in emerging new technologies into marketplace dominance that let them charge far more than any normal market could bear.

Profits on Cisco’s networking gear regularly ran 60 to 70 percent. But profit margins that huge, as Microsoft would also learn, get ever harder to sustain as industries mature. And modest growth, as Chambers surely understood, would not be enough to keep Wall Street happy — and his personal gravy train rolling.

So Chambers began wheeling and dealing. Cisco had always sold product primarily to businesses. Chambers now started buying up companies that sell directly to consumers. In 2003, the first big move: Cisco spent half a billion acquiring LinkSys, a company that makes home routers.

More acquisitions would follow, and Chambers would vow, as 2009 opened, to build Cisco consumer sales into a $5 to $10 billion-a-year operation. That March, to dramatize that pledge, Chambers spent another $590 million to swallow up Pure Digital, the maker of the wildly popular Flip video camcorder.

“Pure Digital,” as the Cisco news release announcing the acquisition would boast, “has revolutionized the way people capture and share video.”

And the Flip had indeed done just that. Inexpensive and incredibly easy to use, the Flip had won the hearts of millions of consumers, including New York Times consumer tech guru David Pogue.

“I’ve got all these great videos of my toddler son in the back seat of the car,” he would later write, “because he’d suddenly start singing a hilarious made-up song, and I’d grab the Flip from the center console, hit the button, and I’d have it.”

But Cisco's foray into consumer sales would soon sputter. Under Cisco, Flip lost market share to copycat camcorders, and the NPD market research firm would put a good chunk of the blame on Cisco “strategic marketing missteps.”

On consumer electronics, analysts soon realized, Cisco had no clue. The company was trying to squeeze out 60 to 70 percent profit margins in a consumer electronic marketplace where products, as CNET reporter Marguerite Reardon would point out, “are lucky to get profit margins in the low 30 percent range.”

The entire Cisco bid for consumer sales, not just the Flip buy, was turning out to be a disaster. And new competitors, at the same time, were busy gnawing away at Cisco’s dominance in its “core” networking equipment business.

Those competitors were charging lower prices. Cisco faced an increasingly distasteful choice: Either cut prices, too — and accept lower profit margins — or lose market share. Wall Street watched and grew antsy. Cisco’s share price, $27 at 2011's start, sank to $17. The Street expected more from a CEO superstar.

Chambers, for his part, was getting desperate. Early this month, in a memo to Cisco employees, he acknowledged that Cisco had “disappointed our investors” and needed “more discipline.” He pledged to “make tough decisions” with “surgical precision” that would create only “healthy disruption.”

The “healthy” disruption would come the next week. Chambers shut down Cisco's entire Flip operation and axed the jobs of 550 Flip employees. Seven million happy Flip owners would no longer be able to count on support and upgrades.

The decision, consumer electronics experts quickly charged, made no market sense. The Flip remained, despite stumbles under Cisco, the nation’s most popular camcorder. And a jazzy new Flip model, fumed David Pogue from the New York Times, was going to ship the same day Chambers pulled the plug.

“Chambers wants to demonstrate to Wall Street that he is ‘turning things around,’” added Investing Daily editor Jim Fink, a Flip user himself, “but terminating the wildly successful Flip video franchise is not the way to demonstrate a turnaround.”

But none of the consumer anger and frustration the shutdown provoked would end up mattering because, in the end, consumers don’t matter to corporate execs like Cisco’s Chambers. If they did, Cisco would have sold Flip to another company — to keep the product alive — instead of shutting the Flip totally down.

Why didn’t Chambers sell the Flip? The Flip franchise holds information property rights to some key video technology. Keeping control over those property rights, observers surmise, meant much more to Cisco than serving consumers.

In his early April memo to Cisco employees, Chambers vowed to create a Cisco “that puts people, customers, and communities at the core of its values.”

An empty promise. High-ranking executives like Cisco's John Chambers — who has personally averaged $38.9 million annually over the last six years, according to the latest Forbes reckoning — are operating in a corporate economy that rewards only greed. All the rest, consumers included, be damned.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up to receive Too Much in your email inbox.

TV Appearance: A Little Buzz Kill About Jobs Numbers, Hedge Fund Billionaires, and Other Econ Stuff

Richard Eskow — Fri, 01 Apr 2011 21:58:57 -0400

I think Alonya was suggesting at the end that I was being a downer about those job figures ... I believe the current slang term for that kind of thing is "buzz kill." Oh, well!

For a change, all of the political negativity coming from my general vicinity was directed at Republicans - and only Republicans.

(This was last-minute, hence the unshaven look.)

About that "unshaven" look: I asked a personal question about it on my own blog - one that's far too trivial to diminish these august pages.

CEO Pay Bashing, Tea Party-Style

Sam Pizzigati — Sun, 13 Mar 2011 13:46:13 -0400

Has Jim DeMint, the right-wing senator leading the assault on federal domestic spending, finally gone too far? His corporate executive benefactors may soon come to think so.

Even hypocrites can sometimes have a point. Take Jim DeMint, for instance, the U.S. senator — and Tea Party favorite — from South Carolina who may well be Capitol Hill’s most zealously single-minded budget-cutter.

Earlier this month, DeMint came out swinging against the defenders of federal funding for Big Bird, Elmo, and the rest of public broadcasting's powers that be.

How dare the muckety-mucks of public TV and radio demand our tax dollars, DeMint roared in a Wall Street Journal op-ed. These muckety-mucks, he went on to expound, “are making more than the President of the United States.”

That happens to be true. PBS president Paula Kerger is taking home $632,233 in annual compensation, a hefty chunk of change over President Obama’s $400,000. Her counterpart at NPR, Kevin Close, came in at $1.2 million in 2009.

If public broadcasting can afford to shell out executive paychecks like these, Jim DeMint declares, “surely it can operate without tax dollars.”

So what makes DeMint a hypocrite here? If the good senator really believed that enterprises with lavishly paid executives can afford to do without taxpayer support, he wouldn’t be wasting his time ranting against public broadcasting. He’d be raging instead at Big Oil — or Corporate America writ large.

In 2009, CEOs at America's oil and gas giants averaged $10.4 million each. These same executives happily accepted billions in U.S. taxpayer largesse, sums that dwarf the relative peanuts that go annually to public broadcasting.

Most of this largesse to Big Oil comes in the form of tax breaks, or “tax expenditures,” as budget experts label them. Our nation’s budget experts, the conservative Tax Foundation notes in a new report, consider these tax breaks “the equivalent of spending through the tax code.”

How much do U.S. taxpayers spend on the oil and gas industry? The Tax Foundation has identified $5.8 billion in targeted tax breaks set to go to oil and gas corporations over the next five years.

These oil and gas companies also, of course, benefit from various other corporate tax breaks not specific to the oil and gas industry. Overall, the Tax Foundation reports, these general-purpose corporate tax breaks will cost U.S. taxpayers $448.5 billion over the next five years, on top of the $54.2 billion U.S. companies will be reaping in industry-specific tax breaks.

The combined taxpayer outlay going to private corporations from these two revenue streams: over $100 billion a year, computes the Tax Foundation.

The annual taxpayer outlay last year for public broadcasting: $420 million, or less than one-half of 1 percent of what goes annually to private corporations.

America's big-time private corporations all pay their top executives more — millions more — than the President of the United States. If these corporations can afford to pay their top execs more than the President, then — by Jim DeMint’s public broadcasting logic — they should be able to operate without our tax dollars.

Senator DeMint, predictably, isn’t making this logical leap. He’s confining his “outrage” against taxpayer subsidies for excessive executive pay to public broadcasting. That makes him a hypocrite. But DeMint’s original point, that our tax dollars shouldn’t be subsidizing excessive executive pay, remains a good one.

The President of the United States currently earns about 25 times more than the lowest-paid federal worker. What if we denied tax dollars — in whatever form they get delivered — to all enterprises that pay their top executives over 25 times their lowest-paid workers? What would happen then?

Public broadcasting enterprises would no doubt quickly reduce their top executive pay. Not too long ago, these enterprises operated efficiently and effectively with top-bottom pay ratios well within the 25:1 ratio.

Not that terribly long ago, back in the 1960s, most U.S. private corporations also operated successfully within — or quite close to — that 25:1 benchmark.

Executive pay in the United States really didn't start skyrocketing until the early 1980s. In 2009, the latest year with full stats available, top CEOs took home 263 times more than their workers.

The gap between corporate executive and worker pay has, in short, essentially multiplied tenfold over the span of a single executive generation.

Has the value of CEO labor, over that time span, increased ten times faster than the value of the labor average workers perform?

Top corporate execs would rather we not ask this question too loudly, mainly because they know exactly how America’s taxpayers would answer. No one in their right mind believes that top corporate executives have become ten times more valuable than they used to be. Yet America’s tax dollars, year after year, are still feathering — at a furious pace — the cushiest of executive nests.

Senator Jim DeMint can see “no reason” why taxpayers should any longer “need to subsidize” overpaid public broadcasting executives. What reason can he suggest, we can all wonder, for having taxpayers continue to subsidize the far more lavish compensation of Corporate America's finest?

A Potential Breakthrough on CEO Pay Excess?

Sam Pizzigati — Sun, 28 Nov 2010 11:45:38 -0500

Over across the Atlantic, reformers have begun a year-long probe that has the fire-power — and credibility — needed to challenge the sacred cows of the global executive compensation status quo.

U.S. corporate profits, the Commerce Department reported last week, have just hit an all-time quarterly high. This year’s corporate executive pay will likely set a record, too. We’ll know next April, when the latest CEO pay stats start appearing.

We do know, right now, that executive pay overall has survived the Great Recession quite nicely. CEOs are still taking home close to 300 times what their workers average. Until the early 1980s, America's chief execs seldom took home over 30 times their worker pay.

We also know that the most celebrated check on excessive CEO compensation so far enacted in the United States — the provision in the new financial industry reform act that gives shareholders an advisory “say on pay” — isn’t going to do much to downsize executive rewards.

Several other nations, the record shows, already have “say on pay” measures on the books. None of these measures have decreased executive compensation.

Record profits. Inadequate reform. CEO pay hikes, given this combination, now seem inevitable — and maybe even perpetual. We seem trapped in a status quo that endlessly and shamelessly rewards our biggest movers and shakers.

We need something that gives these movers and shakers a real shake, some new stab at a solution that points a way out of our current compensation excess. That new stab we need may have just appeared — in Britain.

Earlier this month, widely respected leaders from the UK’s business, media, academic, religious, and trade union communities came together to announce a new blue-ribbon “High Pay Commission.” The panel will spend the next year dissecting the drivers behind British “top pay” — and then recommend reforms that can “mitigate or reduce” that “top pay” excess.

We’ve seen, of course, investigations into executive pay excess before. But this investigation could be different. Blue-ribbon CEO pay panels in the past have avoided any consideration of the social and economic chaos we invite when we reward executives royally. The reforms these past panels proposed basically sought only to limit high pay to “high-performing” executives.

This new “High Pay Commission” has a cast of characters that figures to produce an end product far more sweeping. The six commissioners will be drawing upon an “expert panel” that includes some of the world's most incisive critics of contemporary corporate compensation and the staggering inequality that compensation has created.

In other words, instead of pablum, this new “High Pay Commission” could produce a set of recommendations powerful enough to reverberate across the Atlantic and impact the corporate pay debate in the United States.

The idea of a “High Pay Commission” first surfaced in Britain the summer before last when Compass, a highly visible British think tank, brought together 100 British luminaries who called on the then-Labor Party government “to launch a wide-ranging review of pay at the top.”

This review, the 100 luminaries declared, should go well beyond conventional thinking about executive pay reform and “consider proposals to restrict excessive remuneration” as bold as “maximum wage ratios.”

This “High Pay Commission” idea made lots of headlines. But the Labor Party government made no move to establish any high pay review panel. Neither did the coalition of Britain’s Conservative and Liberal Democrat parties that has governed the UK since the Labor Party’s election defeat last spring.

With no official action pending, the Compass think tank — backed by funding from the Joseph Rowntree Charitable Trust — decided to move forward with a “High Pay Commission” totally independent of the government.

Chairing the new panel will be Deborah Hargreaves, the former financial editor at the Financial Times, Britain’s most important business daily, and, more recently, the business editor at the Guardian, another prestigious national paper.

Her five fellow commissioners include a top executive at a $12 billion British pension fund, the former chief exec at the UK’s largest property development company, a Harvard Business School-trained chief investment officer at an asset management company that sits on top of $61.5 billion in assets, a theologian who spent two decades directing the UK’s biggest church charity, and the deputy general secretary of Britain’s national trade union federation.

“It is crucial to try and understand the developments that have led to the wide gap between high and low pay in recent years,” High Pay Commission chair Hargreaves noted at her panel’s launch, “and the impact this has had on the economy and on society.”

The experts who’ll be helping with that understanding range from Lord Christopher Haskins, the former long-time top executive at Britain’s most prominent food manufacturer, to Andrew Sims, the New Economics Foundation director of policy who has written widely on the importance of setting limits on compensation at a modern economy’s summit.

Also serving on the High Pay Commission’s expert panel: Dr. Kate Pickett, the epidemiologist whose recent co-authored book, The Spirit Level: Why Greater Equality Makes Societies Stronger, may be the best survey yet of the dangers wide gaps in compensation inevitably engender.

The British public seems to already sense these dangers. Earlier this month, to accompany the new High Pay Commission’s launch, the Compass think tank released the results of a new opinion poll on executive pay. Only 1 percent of the British people, the poll found, feel that CEOs should be paid more than £4 million, the equivalent of $6.3 million. British CEOs currently average nearly $7.7 million.

The High Pay Commission will be gathering public comment and conducting interviews and case studies over the next 12 months. The panel’s final report will be due next November. The recommendations in that report figure to be an influential must-read — on both sides of the Atlantic.

The Budget 'Waste' Deficit Hawks Never Seem to See

Sam Pizzigati — Sun, 14 Nov 2010 17:36:32 -0500

Localities the nation over can't afford to fill potholes or keep libraries open. Yet top corporate execs are continuing to stuff their pockets with our tax dollars. Here's how we can start the unstuffing.

Americans don’t like the idea of their tax dollars making anybody rich. That’s why TV ads bashing members of Congress for voting themselves pay raises flood our airwaves every campaign season.

But if you really want to find people profiteering off our tax dollars, don’t look at Congress. Look into the “private” sector — at executives like Ralph Shrader, the CEO of Booz Allen Hamilton, a consulting company that gets 98 percent of its revenue from the federal government.

Shrader took home $4.2 million last year. The top five Booz Allen execs together pocketed just under $20 million. They averaged 23 times what members of Congress take home.

Or consider Howard Lance, the top exec at Harris, a Florida company that took in $2.2 billion in federal contracts last year for projects like overhauling the billing at veterans hospitals. Lance has collected, over the past five years, $46.1 million for his CEO labors, over 50 times congressional pay during that same time span.

And we certainly shouldn’t overlook Robert Stevens, the chief exec at Lockheed Martin, the top federal contractor of them all. Stevens made $20.4 million last year running a company that takes in 84 percent of its revenue from the U.S. government. A member of Congress would have to serve 58 two-year terms to make that much.

This list — of private sector execs currently making fortunes from public sector tax dollars — could go on quite a bit longer. Federal contracting has become a mammoth operation. In 2009 alone, the top 100 private purveyors of public services gobbled up $130 billion in federal contracts.

But you don’t have to grab a government contract to profiteer off tax dollars. A hefty number of corporate concerns have developed highly lucrative business plans that exploit our tax dollars indirectly. For-profit institutions of higher “learning” have evolved this exploitation into a morally indefensible art form.

For-profit colleges have been around, of course, for generations, but mostly at the margins of higher education. Two decades ago, less than 1 percent of college students attended for-profit institutions.

That figure has since multiplied over tenfold. The secret to the for-profit higher ed sector’s success: Corporate educational empires like the Apollo Group, operator of the University of Phoenix, aggressively recruit low-income students who qualify for federal student loans.

The students use these loans to pay their tuition. But many never graduate, and many of those who do don’t have the skills they need to make enough money to pay back their loans. So they default — and taxpayers get stuck with the tab.

The top execs at these for-profit education corporations, in the meantime, get rich. Last week, a Bloomberg news report documented, for the first time ever, the incredible extent of these riches. Top execs at the nation's biggest 15 for-profit colleges, notes the new Bloomberg report, have together pocketed $2 billion since 2003 selling off shares from their personal stashes of company stock.

Nine of these execs took in windfalls over $45 million each.

The vice-chair of the Apollo Group, Peter Sperling, cashed out an amazing $574.3 million. He currently owns a $20 million estate in California’s Santa Barbara and a “neoclassical villa and guest house” in San Francisco worth $47 million.

“For-profit colleges,” says Columbia University education analyst Henry Levin, “are reaching into the public trough to finance luxurious lifestyles at the expense of people who are going to have to pay back loans.”

All this feeding at the public trough, we need to keep in mind, comes at a time when local and state government budget cuts have public colleges and universities laying off faculty, raising tuition, and axing academic programs.

The really sad part of all this? We could easily end this executive feasting at the public’s expense. A simple model for protecting our tax dollars already exists.

In higher education, for instance, federal legislation has long denied our tax dollars to colleges and universities that discriminate by race or gender. As a society, we’ve made the determination that our tax dollars shouldn’t be subsidizing racial or gender inequality.

That same principle could be — and should be — extended. Our tax dollars should not be subsidizing economic inequality, by going to corporations that regularly and excessively overpay their top executives.

At what point does corporate executive compensation become excessive? Back in the 1960s, only a handful of U.S. corporations paid their top execs over 25 times what their workers took home. The President of the United States currently makes just under 25 times what the lowest-paid full-time federal worker makes.

Last year, the CEO of Strayer Education Inc., a for-profit college chain “that receives three-quarters of its revenue from U.S. taxpayers,” took home $41.9 million, over 2,000 times the take-home of a worker making $10 an hour,

That sort of profiteering off our tax dollars could not take place if federal law denied our tax dollars to enterprises that pay their executives over 25 or 50 or even 100 times what their lowest-paid workers are making.

Several members of Congress, most notably Rep. Jan Schakowsky from Illinois and Rep. Barbara Lee from California, have introduced legislation that would move us in that direction. Their legislation made sense In the “good times” before 2008. Their legislation makes even more sense today.

Recovery? Why Our CEOs Don't Give a Hoot

Sam Pizzigati — Sun, 10 Oct 2010 13:11:22 -0400

Over recent decades, recoveries from U.S. recessions have become steadily weaker and weaker. Over these same decades, executive pay has been steadily soaring. Could these two trends be somehow related?

Shocking new economic realities don’t suddenly jump up onto our nation’s front pages. They creep up, over time. One shocking new reality has now begun that creeping. America’s newspapers have begun reporting that our nation’s largest corporations — at a time of continuing Great Recession for average American families — are sitting on colossal stashes of cash.

That cash —$1.8 trillion in all, says the Federal Reserve, if you throw in cash-equivalent assets — could be going into investments, notes a New York Times analysis, that create jobs or help companies develop better products and services. But our cash-rich corporations have shown virtually zilch interest in making these sorts of economically productive investments.

In fact, only 0.7 percent of the nearly 1,000 chief financial officers CFO Magazine surveyed last month say they expect to hire more full-time workers any time soon. Outside of “necessary maintenance,” one top Standard and Poor’s analyst told the Wall Street Journal earlier this month, companies “aren't spending much on anything” internal.

So what are corporations doing with their towering mountains of cash? They’re using those dollars, says the Washington Post, “not to hire workers or build factories, but to prop up their share prices.”

The propping details vary by corporation. Some companies like Hewlett-Packard and Pepsico are pumping cash into buyouts of other companies. Others like Microsoft and McDonald’s are funneling cash to shareholders, via higher dividends. And still others are “buying back” shares of their own stock.

None of these moves create jobs or offer much help to average American households. Corporate takeovers, for instance, almost always result in job cutbacks, not increases. Dividends certainly do help shareholders, but most shares of corporate stock belong to the already affluent, not average families.

The top 1 percent of American households, as NYU economist Edward Wolff noted this past spring, own 49.3 percent of all stock and mutual funds. The bottom 90 percent? They own just 10.6 percent of the nation’s stock wealth.

Over two-thirds of middle-class Americans, Wolff adds, hold less than $5,000 in stock, either directly or indirectly via retirement accounts. For these average Americans, dividend hikes mean no more than a few extra dollars a year.

Stock buybacks have the same impact. By making a company’s shares more valuable on Wall Street, these buybacks merely enrich already rich shareholders. For everyone else, buybacks represent a total waste of corporate resources.

Why are so many corporations plowing their excess cash into mergers and dividends and buybacks instead of jobs and research and development? The news reports of recent weeks haven’t generally been too helpful here.

Businesses, speculates the New York Times, may be too “worried” about the economy slipping backwards to make productive investments. Corporations, suggests the Wall Street Journal, are waiting to see if “demand stabilizes.”

Amid these musings, a much more obvious explanation goes unnoted. Top corporations are plowing their cash into mergers, buybacks, and dividends because the executives who run these corporations have all the incentive in the world to do just that.

Top executives today don’t get rich making the sorts of investments that create jobs and make their companies more efficient and effective. Those investments, after all, may take years to produce positive results. Instead, 21st century execs take the fast track to fortune. They manipulate their corporate share price. The higher and quicker their share price rises, the bigger their personal windfall — since top execs get the vast bulk of their pay in stock-related compensation.

A generation ago, corporate executive pay didn't work that way. Corporations, before the 1980s, gave out far fewer and smaller stock awards. With no fabulous stock jackpot to cash in at the end of the rainbow, executives had no great incentive to manipulate share prices.

Since then, stock-based awards have sent executive pay soaring. After adjusting for inflation, as an Institute for Policy Studies report recently noted, CEO pay last year more than doubled the CEO pay average for the 1990s and more than quadrupled the CEO pay average for the 1980s.

Since the 1980s, the economic data show, recoveries from America's recessions have also been getting weaker and weaker. The share price manipulation strategies that work just fine for executives simply aren't working for everyone else. America hasn't been growing out of recessions. America has been lurching

Could our lawmakers do something to end, or significantly reduce, the pay incentives that encourage CEOs to get rich quick at the expense of real recovery?

Lawmakers certainly could — if they dared to leverage the power of the public purse. Almost every major U.S. corporation currently profits big-time off that public purse, either via government contracts or subsidies or tax breaks. Lawmakers, if they chose to deny these benefits to companies that pay execs excessively more than workers, could turn corporate pay incentives upside-down.

Corporate CEO pay last year ran nearly 300 times average worker pay. If lawmakers decided to deny our tax dollars to companies that pay execs over 25 times worker pay — the corporate pay ratio back in the mid 20th century — execs would suddenly have little incentive to play their merger, buyback, and dividend games. Why bother? No juicy jackpot would any longer beckon.

With no incentive to swing for the jackpot fences, these execs just might find themselves doing what they should have been doing all along: help figure out ways to produce the products and services that consumers truly value.

Congressional lawmakers, this past summer, actually took a necessary first step in this pay-ratio direction. The new financial reform bill signed into law in July includes a provision — plugged in by New Jersey senator Bob Menendez — that requires all publicly traded corporations, not just financial institutions, to reveal the pay gap between their top exec and most typical workers.

Securities and Exchange Commission staffers have begun writing the regulations necessary to enforce this new mandate. But they’re getting pounded — by corporate lobbyists furious that they let the mandate slip into law. The lobbyists are demanding Menendez mandate regs that water the mandate down.

This SEC rule-making battle over the Menendez pay ratio mandate will drag into next year. The AFL-CIO, America’s labor center, will be mobilizing on the mandate’s behalf. Labor understands the stakes at play here. To get the economy right, we need to get corporate pay incentives right, too.

Boom Times for Parchment Profiteers

Sam Pizzigati — Sun, 12 Sep 2010 13:09:54 -0400

The tax dollars we spend on higher ed ought to have one purpose and one purpose alone: to educate students. So why do we let these dollars mint mega millionaires?

Most students who attend college today are getting an education. But more and more are not getting the education they expected. They’re getting fleeced — by for-profit colleges that are making millions for their top execs and saddling ill-prepared students with many thousands of dollars in crushing debt.

These for-profit schools have become the hottest phenomenon in American higher education. Yet two decades ago they barely existed. In 1990, less than 1 percent of U.S. college students attended a for-profit school. Today for-profits enroll nearly 10 percent of the nation’s college students.

What’s driving this enrollment explosion? Your tax dollars. For-profit colleges enroll a modest tenth of the nation’s college students. But they collect — from the federal government — nearly a quarter of the nation’s college student aid dollars, over $21 billion in all.

Those billions have translated into multi-million paychecks for the power suits who run the for-profit educational industry. Over the last three years, the top five execs at three industry giants — the ITT Technical Institute, Corinthian Colleges, and the Apollo Group — took home a combined $130 million.

These execs, charges financial analyst Steven Eisman, are operating “marketing machines masquerading as universities.” Most all of these “marketing machines” follow the same basic three-step formula.

First, enroll anybody with a pulse. Some for-profits, notes Eisman, even have recruiters “trolling casinos and homeless shelters.”

Second, charge humungous tuitions. Kaplan University Online, U.S. Senator Tom Harkin from Iowa revealed earlier this month, charges $33,390 for an associate degree in business administration. At Northern Virginia Community College, a public institution, that same degree can be earned for $8,500.

Third, push your enrollees to sign up for federal loans you know they’ll never be able to pay back. No big deal. The for-profits get the loan dollars up-front. Only students — and taxpayers — take any hit when students default.

And students at for-profit colleges certainly do default. Over recent years, notes Iowa’s Harkin, they’ve collected 23 percent of federal student loans and grants and suffered “a staggering 44 percent of defaults.”

For-profit higher ed companies, at the same time, have become some of the world’s most lucrative businesses, with profit margins that run 40 percent, over four times the going profit rate at defense contractors and other firms that get the bulk of their revenue from taxpayer dollars.

If current trends continue, says financial analyst Steven Eisman from FrontPoint Partners, we’ll be “on the cusp of a new social disaster.” For-profit students will owe, he estimates, “$330 billion on defaulted loans over the next 10 years.”

The U.S. Department of Education has proposed new regulations that aim to end these current trends. The new rules would, among other changes, deny federal student aid to for-profits that “graduate” large numbers of students who can’t earn enough money to repay their debts. The new rules would also penalize for-profit school officials who deceive students into enrolling.

But the for-profit industry has mobilized a massive push to water down the new rules. The for-profits, the New York Times reported last week, have been twisting student arms to send in protest letters.

This phony “grassroots” pushback against the Education Department’s proposed reforms may or may not pay off for the for-profits. But even if the bulk of the new reforms go into effect, the huge rewards that for-profit college execs have been collecting give them a continuing — and maybe irresistible — incentive to seek new loopholes and game the system.

So why not go after those rewards directly — by simply denying all federal student loans to any institution of higher education that compensates its top executives at, say, over 25 times the pay of its lowest-paid workers? For-profit higher ed execs are currently averaging hundreds of time their worker pay.

Federal law already denies financial aid dollars to any educational institution that discriminates by race or gender. As a society, we've decided that we don’t want our tax dollars subsidizing racial or gender inequality. Why should we let our tax dollars subsidize economic inequality?

Our tax dollars, in higher education, are doing just that. Andrew Clark, the CEO of the higher ed for-profit that operates the University of the Rockies, last year took home $20.5 million. The top 10 execs in higher ed for-profits, the Chronicle of Higher Education notes, averaged just under $7 million.

The chase after windfalls like these is distorting — and degrading — higher education. We need to end the chasing.

Surfing in Style through the Great Recession

Sam Pizzigati — Sun, 05 Sep 2010 11:07:34 -0400

American corporate CEOs, an eye-opening new study documents, have discovered a quick fix that almost guarantees good times for the executive set. They kill jobs.

If you started last year on the payroll at Verizon or Alcoa or Boeing or IBM, you may have found yourself off the payroll by year’s end. All these American corporate giants — and dozens more — have slashed their payrolls by the thousands since the Great Recession first kicked into gear.

But if you started last year in the chief executive suite of any of these companies, you ended the year with more than your job. You ended the year with many more new millions in your pocket.

In fact, details a just-released new report from the Institute for Policy Studies, CEOs at the 50 U.S. firms that have fired the most workers since our current economic meltdown began “took home nearly $12 million each on average in 2009,” a windfall 42 percent higher than the year’s overall CEO pay average.

These layoff-happy CEOs, Executive Excess 2010 makes plain, didn’t just line their own pockets while they were throwing employees out the door. These CEOs, in effect, threw people out the door to line their own pockets.

The layoffs these CEOs engineered, the new Executive Excess explains, “in no way rate as an inevitable consequence of red corporate ink.” Nearly three quarters of the nation’s corporate layoff leaders — 72 percent — actually ended last year in the black. Together, the top 50 layoff firms “enjoyed a 44 percent average profit increase in 2009.”

These stunning numbers, Institute for Policy Studies researchers point out, reflect “a broader trend in Great Recession Corporate America: squeezing workers to boost profits and maintain high CEO pay.”

Absurdly high pay. In 2009, jobless workers fortunate enough to qualify for unemployment benefits all year long collected, on average, only $15,860. The top 50 CEO job-killers averaged $11,977,128 each, or 755 times the dollars going to jobless Americans able to collect unemployment benefits.

The larger universe of the CEOs at America’s top 500 companies last year averaged $8.4 million in total compensation, a figure that translates into 263 times the average 2009 pay of employed U.S. workers.

Executive pay, across the board, did drop last year from the year before. But Institute for Policy Studies analysts see this dip as a mere blip in a long-term trend that has seen U.S. top executive pay double since the 1990s, after taking inflation into account, and quadruple since the 1980s.

Unfortunately, the new Executive Excess notes, the CEO pay reforms enacted into law earlier this summer — as part of the financial reform package — aren’t likely to turn that long-term trend around.

“Congressional and White House reform efforts, by and large, have frozen into a seldom challenged conventional wisdom,” the report relates, “that may be promising more reform than these efforts can deliver.”

This year’s Executive Excess, the Institute’s 17th annual CEO pay study, features a comprehensive chart that tracks all the CEO pay reforms so far enacted into law — and lists a host of other reform measures either still pending before Congress or currently getting attention in other nations.

Executive Excess 2010 rates the executive pay-deflating viability of all these reforms, ranking each one on a yardstick that emphasizes the importance of encouraging narrower CEO-worker pay gaps and eliminating taxpayer subsidies for excessive executive compensation.

The most obvious next step to more effective CEO pay reform? That step, suggests Executive Excess, would be taking action — before the next economic crisis — to cap executive pay at firms that pocket government bailouts.

In 2009, one CEO at a bailed-out enterprise — James Rohr of PNC Financial — personally took home $14.8 million, after his powerhouse bank collected $7.58 billion in taxpayer dollars and slashed 5,800 jobs.

Restricting pay at bailed-out companies, Executive Excess observes, “could have an important preventive effect.”

“Given a clear warning about the consequences for their own paychecks,” concludes the report, “executives might think twice about taking actions that endanger their future — and ours.”

Why Almost Anybody Can Be a CEO

Sam Pizzigati — Sun, 22 Aug 2010 16:13:32 -0400

The takeaway from the latest top gun flame-out at Hewlett-Packard: Chief executive 'success,' in America today, essentially demands no more than greed and a developmentally arrested ego.

The tall tales we’ve inherited from ages long gone we call myths. The tall tales that spook our contemporary everyday life we call “urban legends.” But we’ve yet to come up with a label for the tall tales that Corporate America showers down upon us.

These corporate tall tales, unlike urban legends, actually make a difference in our lives. Corporate tall tales don’t just drive the decisions that drive our economy. They drive these decisions in a reckless direction. And the most reckless of these drivers? That may be the tall tale of the “rare talent.”

We’ve heard this whopper quite a bit over recent decades. Running a major corporation, we’re told, takes enormous — and exceedingly rare — executive talent. To get this top talent, and keep it, firms have no choice but to pay top dollar and then some. If they don’t, they’ll never succeed in the fiercely competitive global marketplace, and we’ll all be doomed.

Five years ago, the corporate board at America’s premiere technology company, Hewlett-Packard, anointed Mark Hurd one of these rare talents and named him HP’s new CEO. Earlier this month, that same HP board shoved a disgraced Hurd out the door, the same door that Hurd’s rare and talented predecessor, Carly Fiorina, had been shoved out of early in 2005.

Out goes one “rare” talent, in goes another. This CEO revolving door has become Corporate America’s standard operating procedure. Major companies — high-tech giants like Yahoo, retailers like Home Depot, financial kingpins like Merrill Lynch — routinely shell out fortunes to sign wonderfully “special” talents they then proceed, a few years later, to ingloriously dump.

But none of these dumpings ever seem to dent the corporate demand for CEO superstar “talent.” Corporate boards simply dispatch their failed talents off into the sunset, with generous severance packages, and proudly announce their new corporate savior du jour — and that savior’s generous sign-on package.

In HP's case, Carly Fiorina, the current GOP candidate for a California U.S. Senate seat, left the company with $42.4 million in severance and stock options, after entering HP’s executive suite with a four-year deal that ensured her $90 million. Mark Hurd followed Fiorina into HP’s chief executive suite with a contract that featured over $20 million in signing inducements.

Hurd would, all told, pocket $134.2 million from 2005 through 2009. He’s now exiting HP with a getaway package that may well hit $40 million.

HP’s engineer founders, William Hewlett and David Packard, would no doubt be aghast. The company they founded in 1939 celebrated and valued all employees, not just top executives. Their philosophy — the “HP way” — shunned hierarchy and shared rewards.

Sacrifices, too. During one 1970s economic downturn, the company avoided layoffs by cutting pay 10 percent across the entire board, executives included.

At the height of the HP way, as one reporter would marvel, Hewlett-Packard’s CEO worked from “a cubicle in the midst of a vast room instead of a corner office.” Mark Hurd, in the first speech as HP’s top exec, played to that spirit.

“Building a great company isn't all about a CEO,” he pronounced five years ago to cheers of delight from HP employees. “It's a team sport.”

But Hurd quickly proved to be something less than a team player. Four months into his Hewlett-Packard reign, Hurd announced plans to cut over 14,000 jobs, a tenth of HP's global workforce, and started shutting down the company's traditional pension program.

Conspicuously exempt from this cost-cutting offensive: HP's executive suites. Just days before the layoff announcement, HP introduced its new chief information officer, Randall Mott, a former executive at Wal-Mart. Mott started his CIO duties with a pay package worth $15.3 million.

Hurd’s early months as CEO would set the tone. William Hewlett and David Packard, years earlier, had built HP market share by valuing employees and investing in R&D. Hurd cut R&D and abrasively dissed employees at every opportunity. He would “grow” HP by “merging and purging” — taking out debt to buy up rivals, grab their customers, and fire their workers.

Hurd wheeled and dealed his takeovers at a frantic pace. In his first 46 months at HP, he orchestrated 31 mergers and, in the process, killed nearly 40,000 jobs.

Hurd treated consumers with no more respect than workers. At one point during his tenure, HP was upping prices on computer printer ink — the company’s cash cow — at over double the inflation rate, charging $30 for cartridges that cost HP a mere $3 to manufacture.

Hurd’s HP gave customer service equally short-shrift. In early 2009, after surveying 44,000 readers, PCWorld magazine rated HP dead-last — among top computer makers — on reliability and service for laptops, dead-last for printers, and next to dead-last for desktops.

On Wall Street, meanwhile, nobody noticed — or cared. Investors were too busy shouting Hurd’s praises. HP’s share price, after all, had doubled under his Hurd's watch. In Corporate America’s eyes, Hurd had truly proven himself a rare and special talent. He had a paycheck to match. This past April, Forbes rated Hurd the top-paid executive in America’s technology hardware industry.

But what “rare” talent did Hurd actually demonstrate? Does slashing R&D demand an executive expertise in excruciatingly short global supply? Are CEOs who can wheel and deal their way to one job-killing merger after another few and far between? Does ripping off consumers require some gift that only the universe’s finest executives have been granted?

In reality, Hurd demonstrated no special talent. His basic merge-and-purge business plan at HP made sense only as a personal enrichment strategy.

“Boosting earnings via acquisitions and cost cutting,” as corporate analyst Eleanor Bloxham noted recently in Fortune, “is not a sustainable business model and wouldn't have been one for the long term, with or without Hurd.”

Sustainable business models, of course, do have a drawback. They don’t make anybody super rich. So why bother, Corporate America and Wall Street have jointly concluded, putting one together?

The Hewlett-Packard board of directors certainly didn’t hold Hurd’s failure to think sustainably against him. They lavished upon him high praise and rewards right up until the moment earlier this month when the married 53-year-old Hurd became a public relations liability — by wining and dining a 50-year-old former erotic actress and fudging HP’s books to cover up his indiscretion.

HP’s next CEO will almost certainly pick up where Hurd left off, just as Hurd picked up where Carly Fiorina left off. The new CEO will wow Wall Street with still more cost cutting and wheeling and dealing.

None of that will take rare talent. Just greed.