Posts Tagged ‘CEOs’

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Chart of the day

Posted: 13 June 2014 in Uncategorized
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In charting the amount of the surplus that ends up in the hands (or, if you prefer, pockets or bank accounts) of CEOs, the Economic Policy Institute finds that:

  • Average CEO compensation was $15.2 million in 2013, using a comprehensive measure of CEO pay that covers CEOs of the top 350 U.S. firms and includes the value of stock options exercised in a given year, up 2.8 percent since 2012 and 21.7 percent since 2010.
  • From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period.
  • The CEO-to-worker compensation ratio was 20-to-1 in 1965 and 29.9-to-1 in 1978, grew to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013, far higher than it was in the 1960s, 1970s, 1980s, or 1990s.
  • If Facebook, which they exclude from their data due to its outlier high compensation numbers, were included in the sample, average CEO pay was $24.8 million in 2013, and the CEO-to-worker compensation ratio was 510.7-to-1.

 

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The Wall Street Journal reports that the Class of 2014 is the most indebted class ever.

The average Class of 2014 graduate with student-loan debt has to pay back some $33,000, according to an analysis of government data by Mark Kantrowitz, publisher at Edvisors, a group of web sites about planning and paying for college. Even after adjusting for inflation that’s nearly double the amount borrowers had to pay back 20 years ago.

One problem is the growing gap between earnings and average student loan balance, as in the chart below:

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Another problem is, as the Institute for Policy Studies [pdf] reports, the student debt crisis is worse at state schools with the highest-paid presidents.

Though it has been rising everywhere, average student debt of graduates in the top 25 public universities with the highest executive pay increased 5 percentage points more or 13% faster than the national average from summer 2006 to summer 2012.

The rise was most pronounced when executive compensation soared during the 1% recovery. From summer 2010 to summer 2011 alone, student debt in the top 25 rose by 10%, increasing 43% faster than the national average.

And to make matters even worse, today’s Chronicle of Higher Education reports that executive compensation is rising at public universities.

The million-dollar college presidency, which was unheard of at public institutions less than a decade ago, is increasingly common at top-tier universities. Nine college leaders earned more than $1-million in 2012-13, up from four in 2011-12, and three in 2010-11.

Finally, back to the report by the Institute for Policy Studies report, public universities with the highest executive compensation are increasingly relying on low-wage faculty labor.

As in universities everywhere, hiring of adjunct and contingent faculty far outstripped permanent faculty hiring at the 25 public universities with the highest executive pay. However, we found that adjunct (part- time) and contingent (temporary) faculty grew much faster than the national average when executive compensation soared at the top 25.

Put it all together and we have students who are increasingly going into debt at universities where executive compensation is soaring and education is being produced by part-time and contingent faculty in order to graduate and obtain jobs that are making it difficult to pay off their student loans.

Chart of the day

Posted: 16 May 2014 in Uncategorized
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A new study by Payscale, a business research group, illustrates how much many CEOs are being paid compared to the median workers’ salaries in their companies.*

CVS/Caremark tops the list, with CEO Larry Merlo taking home more than $12 million while the median employee salary is $28,700—a ratio of 422 to 1. Goodyear comes in second, with a ratio of 323 to 1, and the Walt Disney Company stands at 283 to 1.

 

*The interactive chart is here. PayScale only looked at the top 100 publicly traded companies by revenue. So, many companies notorious for CEO-to-worker pay disparities aren’t included.

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Thanks to Thomas Piketty’s new book, the returns to capital are now back on the intellectual—if not the political—agenda. But, as one of my students (who just completed a wonderful senior thesis on “The Gilt and the Glitter: Thorsten Veblen, The Theory of the Leisure Class, and the Second Gilded Age”) noticed, the composition of incomes of the leisure class changed between the first and second Gilded Ages: in 1916, most of their income came from “capital”; now, a large portion comes from “salaries”—although, as we can see below (in data from 2007), that’s less true of the top 0.1 percent than of the rest of the top 1 percent.

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Robert Solow, in the clearest review of Piketty’s book to date, is the first to notice this change.

You get the picture: modern capitalism is an unequal society, and the rich-get-richer dynamic strongly suggest that it will get more so. But there is one more loose end to tie up, already hinted at, and it has to do with the advent of very high wage incomes. First, here are some facts about the composition of top incomes. About 60 percent of the income of the top 1 percent in the United States today is labor income. Only when you get to the top tenth of 1 percent does income from capital start to predominate. The income of the top hundredth of 1 percent is 70 percent from capital. The story for France is not very different, though the proportion of labor income is a bit higher at every level. Evidently there are some very high wage incomes, as if you didn’t know.

This is a fairly recent development. In the 1960s, the top 1 percent of wage earners collected a little more than 5 percent of all wage incomes. This fraction has risen pretty steadily until nowadays, when the top 1 percent of wage earners receive 10–12 percent of all wages. This time the story is rather different in France. There the share of total wages going to the top percentile was steady at 6 percent until very recently, when it climbed to 7 percent. The recent surge of extreme inequality at the top of the wage distribution may be primarily an American development. Piketty, who with Emmanuel Saez has made a careful study of high-income tax returns in the United States, attributes this to the rise of what he calls “supermanagers.” The very highest income class consists to a substantial extent of top executives of large corporations, with very rich compensation packages. (A disproportionate number of these, but by no means all of them, come from the financial services industry.) With or without stock options, these large pay packages get converted to wealth and future income from wealth. But the fact remains that much of the increased income (and wealth) inequality in the United States is driven by the rise of these supermanagers.

And Solow’s interpretation?

It is of course possible that “supermanagers” really are supermanagers, and their very high pay merely reflects their very large contributions to corporate profits. It is even possible that their increased dominance since the 1960s has an identifiable cause along that line. This explanation would be harder to maintain if the phenomenon turns out to be uniquely American. It does not occur in France or, on casual observation, in Germany or Japan. Can their top executives lack a certain gene? If so, it would be a fruitful field for transplants.

Another possibility, tempting but still rather vague, is that top management compensation, at least some of it, does not really belong in the category of labor income, but represents instead a sort of adjunct to capital, and should be treated in part as a way of sharing in income from capital. There is a puzzle here whose solution would shed some light on the recent increase in inequality at the top of the pyramid in the United States. The puzzle may not be soluble because the variety of circumstances and outcomes is just too large.

Solow seems to be onto something: the source of the salary incomes of the top 1 percent is just as much capital as are the other sources of their income, such as profits, dividends, interest, rent, and capital gains. All of them—including the salaries of “supermanagers”—represent distributions of the surplus initially appropriated by capital.

Therefore, as Solow concludes, “it is pretty clear that the class of supermanagers belongs socially and politically with the rentiers, not with the larger body of salaried and independent professionals and middle managers.”