From an LA Times article:
McDonald’s has sued former Chief Executive Steve Easterbrook, alleging that he fraudulently hid details of three sexual relationships with employees when the board fired him in November over a separate relationship with a subordinate.
In a securities filing and a document lodged with the Delaware Chancery Court, the fast-food chain said it was seeking to recover the compensation and severance payments it allowed Easterbrook to leave with. Equilar, the executive-pay consultancy, reported at the time that his severance deal was worth about $40 million .
McDonald’s would not have approved the separation agreement had it known the extent of his “inappropriate personal behavior,” the company said, but would instead have terminated him for cause.
" the board fired him in November over a separate relationship with a subordinate."
- He was fired for cause, yet got to take home $40 million!!
- Severance pay of $40 million (for just one employee!) for a company (McDonald's) that pays so little that its workers qualify for food stamps.
My theory incorporates two key components:
- How corporate boards, made up of other corporate executives, all benefit when an executive gets the highest possible compensation package, because that sets the standards for their own boards to set their own compensation.
- "Temporary" tax cuts on the wealthy, gave boards more incentive to raise compensation to make as much money as possible while the taxes were lower.
Steve Clifford outlines the argument for point 1 in The Atlantic article:
How Companies Actually Decide What to Pay CEOs:
I know—for over 20 years, I helped craft some extremely generous executive-compensation packages.
He talks about the shift from using internal equity as the model (keeping the ratio between the highest paid and the average worker pay reasonable) to the external equity model where the compensation of the top executives in a corporation should be competitive with other top executives. This meant, he writes, internal equity went from 20:1 or 30:1 in the 70s, to the situation in 2014 where
500 of the highest-paid senior executives at U.S. companies made nearly 1,000 times as much money as the average American worker, after taking into account salary, bonuses, and stock-based compensation.
The article explains exactly how compensation committees on Boards of Directors actually set executive pay and why it spirals higher and higher.
The second point is harder to definitively prove, but Bush's tax cuts in 2001 and 2003 along with cuts to inheritance taxes means that the wealthy get wealthier much faster and the gap between the rich and the poor gets wider and wider. Here are a couple of articles that go into more detail:
I believe that a large inequality gap has lots of harmful consequences to democracy:
- The wealthy have an outsized influence on elections through unlimited campaign contributions and ability to lobby federal, state, and local, legislators
- Employers have far more power over employee wages and working conditions through their ability to get Congress to weaken union power
- More people are living from pay-check to pay-check and thus their employers have more leverage over them for a variety of issues - forced overtime, less time with their families, forced arbitration for disputes, etc.
But proving these things is complicated.
As you might imagine, Heritage Foundation scholars argue that there is no evidence the inequality endangers democracy.
But all this hinges on a number of assumption about morality. While the Christian bible talks endlessly about charity and helping the poor, our basic philosophy about work - The Protestant [Work] Ethic - assumes that those who are poor have themselves to blame. It ignores the elaborate rules and procedures that are devised to justify a $40 million severance package for someone who had an inappropriate relationship with a subordinate in a company where most of the employees are for working minimum wage.
And in our increasingly technological work places, where machines are rapidly replacing workers, we need a different mechanism than work for the basic distribution of wealth. And in a world where the imperative of the market ignores the environmental and human damage of corporate externalities, we need to find an sustainable economic system more in balance with the natural world.
Ok, I'll bite. This quote from the lead paragraph from your link to the researcher who had worked for the Heritage Foundation, who says
ReplyDelete'There is no evidence that the rich have greater political influence during times of greater economic inequality.'
Ouch. In European education, it's absolutely unavoidable learning of the French Revolution (the American Revolutionary War is much more commonly called 'war of indepedence' in Britain, for instance). The French Revolution, to Britain, stands as grim reminder of ignoring its rabble masses at aristocratic peril. Many remember (but not enough, frankly) that legally-sanctioned mal-distribution of land and wealth in Imperial Russia's hundreds of years of chattel-class serfdom gave rise to a 'cleansing' revolution as well.
Marx predicated his idea of class revolution on the deprivations of economic, political, and legal inequalities. Americans too often think they have forged a system where the 'dream' acts a bit like a relief valve to inequality.
As the still-ruling class understands here in England, it's best to 'give a bit' once-in-a-while to its public, rather than risk losing far too much in those rare outbreaks of lower orders hubris.
Tut tut. Americans can be so thick at times.
The good part of a blog is that it keeps me from perfectionist procrastination that results in nothing getting posted because it's not perfect. The downside is that I post things that aren't perfect. I wanted to add more links, but I had other things to do. This morning Steve Teles was interviewed on MarketPlace. He does a better job of making my argument. He wrote with Brink Lindsey a book called “The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality.” The Heritage Foundation piece is part of the Conservative plan to justify unregulated ownership of wealth and property. Just like an article in Newsweek yesterday that created legal bullshit to argue that Kamala Harris isn't eligible to run for VP because she isn't a natural born citizenship. It's the creation of pseudo legal/academic theories to support maintaining power for the powerful. Power, not truth, is the object. Like the tobacco companies' 'research' disputing the negative health impacts of smoking and the oil companies' 'research' disputing climate change, even though both industries knew their arguments were false.
DeleteMuch to think about!!
ReplyDeleteI used to work for an international consulting firm with an executive compensation practice. We talked a good talk about how compensation committees had a duty to make sure exec comp was reasonable and not excessive, but our biggest PR move was to conduct an annual survey (which for some years was published in the Wall Street Journal) of exec comp that I am sure was used to cherry-pick everybody who was making more than your favorite CEO, and use that as evidence that your fave should get a raise. It was a great art (for which the greatest exec comp consultants were very well paid) to construct a "peer group" of companies that were supposed to be a benchmark for how well your guys were paid. If your company did worse than the peer group, your CEO was supposed to get a smaller bonus. Astonishingly, when that happened the consultant was occasionally asked to construct a new peer group!!
Just a quibble about the Protestant Ethic (usually described as the Protestant Work Ethic -- there are other Protestant ethics....). Calvinists do believe that if you don't work hard it's your fault being poor, tough luck. Other Protestants aren't so judgmental, and the P.W.E. means in practice that you should find joy in work and work to the glory of God, but there's no moral failure involved in being poor.
Finally, as somebody was quoted in the NYTimes story about Easterbrook, you would think it would be Investigation 101 to look on the email servers for evidence before you send your CEO into retirement with $40M. Kind of like the Senate trying Trump without hearing any testimony.
Kathy, You're absolutely right! I should have put "work" between "Protestant" and "Ethic." And yes, there are different Protestant churches with different stands, but the Protestant Work Ethic is the basis for Conservative arguments that you must work to have any value in our society and their fight to keep work as the most 'legitimate' basis for income distribution. (Even though inherited - not earned - money is okay.)
DeleteI didn't know about your experience in the field of compensation. Thanks for adding your knowledge to the discussion. Most people have no idea how rigged compensation decisions are. And don't think about how loosely, if at all, compensation is tied to either how much work someone does (I think about women who clean houses or take care of the elderly), the human value of the work, or even the economic value of the work. Yet the more money you have (along with the whiter your skin), the more respect and power you have, regardless of how you got that money.