Posts Tagged ‘United States’

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175102_600 February 6, 2016

CEOs

The typical American has no idea how much corporate CEOs make—but they still believe CEOs are making much too much.

That’s according to a new study from researchers at the Stanford Graduate School of Business (pdf):

Public frustration with CEO pay exists despite a public perception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is 10 times what the average American believes those CEOs earn. The typical American believes a CEO earns $1 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million). . .

The vast majority (74 percent) of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe they are paid an appropriate amount.

Even more:

Nearly two-thirds (62 percent) of Americans believe that there is a maximum amount CEOs should be paid relative to the average worker, regardless of the company and its performance. . .

Those who believe in capping CEO pay relative to the average worker would do so at a very low multiple. The typical American would limit CEO pay to no more than 6 times (17.6 times, based on average numbers) that of the average worker. These figures are significantly below current pay multiples, which are approximately 210 times based on recent compensation figures.

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The United States suffers from an obscene cult of CEOs. Whether we’re talking about “Neutron Jack” Welch (who was celebrated for raising GE’s market value while laying off tens of thousands of workers) or Bill Gates (who made Microsoft competitive by engaging in anticompetitive practices) or Lloyd Blankfein (head of the “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”)—they’re routinely feted as being ruthless, “transgressive” leaders who make change happen in the corporate world.

I suppose it comes as no surprise, then, that two business professors—Hamid Bouchikhi and John R. Kimberly [ht: kc]—would extend that celebration to CEOs in the academy, by studying the decision by Dean of Arts and Letters Mark Roche to divide the Department of Economics at the University of Notre Dame.*

Transgressive leaders are those who are expected by members to abide by sacred organizational norms but who deliberately violate them for the sake of what they believe to be the greater good of the organization. . .The model of transgressive leadership we propose emerged in the wake of field work at the University of Notre Dame, where a new Dean of the College of Arts and Letters forced a paradigmatic, organizational, and managerial reorientation of economics after a long period of repeated and failed attempts by others to redirect the department.

What’s bizarre about this study is that the authors make clear that Roche did, in fact, violate many of the “sacred organizational norms” of the academy—and then they go on to celebrate him as a transgressive leader who managed to create a new, exclusively neoclassical department of economics.

What did Roche do to get to the point of forcing a split within the department? According to the authors, he “committed a series of lower intensity transgressive acts,” including expressing his own view of the paradigmatic orientation of the department, producing and publicly sharing numbers about members’ research productivity, and violating “the sacred norm of academic self-governance and democratic decision making in a research university” by appointing an advisory board, vetoing hiring proposals, and recruiting a new outside chair against the formal opposition of the existing departmental faculty. Those, of course, were all in the way—once the department itself didn’t cave to his demands—of preparing for, in 2003, the splitting of the department into two separate and unequal departments.

The department voted (15-6) against the split. So did the College Council (by a tally of 25 to 14). And the decision was challenged by several prominent mainstream economists, including Robert Solow (in a letter to the president of the university):

You should know that I am a mainstream economist, in fact a mainstream mainstream economist. But I am not an uptight mainstream economist. Economics, like any discipline, ought to welcome unorthodox ideas, and deal with them intellectually as best it can. It does pretty well, in fact. To conduct a purge, as you are doing, sounds like a confession of incapacity. I grant that you are not shooting the Trotskyites in the back of the head, but merely sending them to Siberia, That is not much of an improvement.

And Deirdre McCloskey (in an article in the Eastern Economics Journal):

What’s the problem nowadays at Notre Dame? … The Dean of the College of Arts and Letters, one Mark Roche, together with his agent in Economics, Richard Jensen, and with the backing of the Provost, Nathan Hatch, and the apparent entrepreneurship of the Dean of the Graduate School, Jeffrey Kantor, has decided that Notre Dame’s Econ Dept is broke . . . and should become mainstream…The Department has resisted. It’s being punished with appointments imposed on it; its promotions have been turned back. It may be abolished entirely, its distinctive graduate program scrapped, and a new one started that will be drearily Samuelsonian.

But the dean, with the protection of the university administration, ultimately got what he wanted. And, according to the authors, Roche’s transgressions ultimately served the good of his college because he sought to appease the faculty (by opening new communications channels and rewarding faculty members whose work met his criteria), thus leading to a celebratory self-evaluation (in his own private notes):

When I stepped down there was a truly joyful reception, as much like a wedding reception as a retirement party. It may be self-deception, but my sense was that there was more gratitude for what had been accomplished than for my leaving office.

Ultimately, Bouchikhi and Kimberly celebrate the cult of CEOs—who “have a clear vision of what needs to change and accept the collateral human cost, for others and for themselves, if they perceive causing hardship to others as a requirement.” It is a model that is well established in the corporate world and is increasingly becoming the norm in the new corporate university.

 

*Disclaimer: as regular readers of this blog know, I was a member of the Department of Economics when, in 2003, Roche, with the support of the university administration, decided to divide the department into two (one of which, the Department of Economics and Policy Studies, of which I was also a member, was dissolved by Roche’s successor, in 2010). I didn’t know about this research when it was being conducted but I am cited numerous times in the paper.

Chart of the day

Posted: 4 February 2016 in Uncategorized
Tags: , ,

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As Alvin Powell explains,

One measure of American inequality is the percentage of the nation’s overall wealth owned by different parts of the population. The graphic above shows that the richest 20 percent of the country owns 88.9 percent of the nation’s wealth, while the bottom 40 percent owes more than it owns.

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It’s impossible to defend the grotesque—and growing—levels of inequality that characterize U.S. capitalism.

But, as they have throughout American history, some people still try. Their most common argument is that there’s nothing wrong with unequal outcomes as long as there is equal opportunity.*

Hmmm, not so much.

A recent study by a team of researchers led by Stanford economist Raj Chetty (pdf)—summarized and analyzed by Ben Casselman and Andrew Flowers—confirms that “where you come from. . .plays a major role in determining where you will end up later in life.”

Your starting point determines, for example (as in the figure above), how likely you are to have a job at age 30. Children from poor families are much less likely to work in adulthood than children from middle-class and upper-class families. Only about 60 percent of children from the poorest families are working at age 30, compared with more than 80 percent of children from higher-income families.

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It also determines your income at the age of 30: there’s a steady increase in income until the top few percentiles of parental income, when it spikes.**

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And, finally, it determines where you end up in the distribution of income (as the chart above measures not dollar incomes, but household income by percentile). Children from the richest 1 percent of families end up being, on average, in about the top third of households at age 30, while children from the poorest 1 percent of families end up in the bottom third at age 30.

It’s clear the United States suffers from an obscenely unequal distribution of income and wealth. It’s also characterized by a profoundly unequal distribution of opportunities.

 

*That line of argument suffers from three main problems: First, it presumes inequality only affects individuals, not society as a whole. In other words, it overlooks the effects of the concentration of income and wealth in the hands of a small group of individuals in terms of their ability to decide what happens not only in their own lives, but in the rest of society. Second, even if perfect mobility existed, making it to the top would still mean there’s a an even larger group at the bottom; that is, the existence of equal opportunity doesn’t undo or overturn the existing class structure. Third, it overlooks the extent to which unequal outcomes actually contribute—via household and neighborhood effects, government policy, education, and so on—to making equal opportunity an even more distant fantasy.

**As Casselman and Flowers explain, “This measures only wage and salary earnings, so it doesn’t factor in any other advantages these young adults might have, such as trust funds, lower student debt, or parental help with housing or other expenses.”

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