||February 25, 2013|
This coming Sunday, voters in Switzerland will likely enact a
landmark set of limits on executive pay — including a ban on both CEO
signing bonuses and “golden parachutes” — by a landslide margin.
This executive pay initiative, one poll shows, has 64 percent of the Swiss public behind it, and that poll came out before the alarming revelation that one retiring Swiss top exec was getting a $78 million bonus for agreeing not to go work for a rival company. The resulting public uproar grew so loud that the errant executive agreed last week to cancel the payout.
Meanwhile, last week in the United States, a news report on a new tax dodge that can up hedge fund billionaire profits by over 50 percent sank without a trace.
Why so much public outrage in Switzerland, so little in the United States? We’ll leave that question for another day. Instead, in this week’s Too Much, we’d like to take everybody on a little cruise ship vacation.
|GREED AT A GLANCE|
Bank of America CEO Brian Moynihan, we learned last week, saw his pay soar
73 percent last year, to $12.1 million. Moynihan is getting credit for
restoring Bank of America to profitability. But the real credit for
profits at America’s big banks, Bloomberg News detailed
Wednesday, belongs to America’s taxpayers. Our too-big-to-fail banks,
Bloomberg explains, enjoy an “implicit” taxpayer subsidy. They can
borrow money at lower rates because creditors know Uncle Sam will never
risk letting them go under. This subsidy saves America’s 10 largest
banks about 0.8 percent off their borrowing rates, about $83 billion a
year, “an amount,” notes Bloomberg, “roughly equal to their typical
Over recent decades, changes in the rules that run the U.S. economy, on everything from taxes to trade, have helped redistribute America’s wealth to America’s wealthy. But some of those wealthy did their best to resist this greed grab. Last month, a pioneer among these egalitarian Americans of means, William Densmore, passed away at age 88. A top corporate exec in Massachusetts, Densmore retired in the 1980s and later helped found Responsible Wealth, the first national grouping of affluent Americans working for stiffer taxes on high incomes. Densmore would later evolve a list of 15 “rule changes” that could help close America’s economic divide. Early this May, experts and activists will honor — and continue — Densmore’s work at a landmark national “Rules Change” conference at the University of Massachusetts . . .
“Mrs. Patmore,” the frumpy cook in the TV hit Downton Abbey, probably wouldn’t make it as a personal chef for today’s rich and famous. Personal cooks for the rich these days, the Washington Post relates, tend to be a tad more glamorous — like Jenn Crovato, a 37-year-old private-jet-hopping chef who won’t do any meal for less than $1,000. Crovato hit the big-time whipping up treats for billionaire real estate mogul Joseph Robert. He had Crovato on a $100,000 annual retainer that left her free to fix meals on the side for his fellow deep pockets. The one aspect of cooking for the rich that hasn't changed: the stress of dealing with the whims of the wealthy. Crovato’s former boss Robert would call from his car with 20 minutes notice, the Post notes, “and demand lunch for half a dozen friends.”
Quote of the Week
“Only by the most debased principles can, say, bankers, be said to deserve their money, the same principles that led Thucydides to write that the strong do as they will and the weak suffer what they must.”
Ian Welsh, On Economic Justice, February 21, 2013
|PETULANT PLUTOCRAT OF THE WEEK|
|The French minister for industry had a simple request: Would the U.S.-based Titan International consider buying a tire factory in Amiens that Goodyear was planning to close? Titan CEO Maurice Taylor's answer, in a letter disclosed last week: “How stupid do you think we are?” French workers, Taylor’s diatribe went on, make high wages for not working: “They have one hour for their breaks and lunch, talk for three and work for three.” Titan, the letter boasted, is going to “pay less than €1 an hour” to tire workers in China and India and export the tires they make to France. Taylor’s broadside sparked a French media firestorm. So how stupid is Morry Taylor? This stupid: He ran for President in the 1996 GOP primaries and spent $6.5 million of his own money. He won 7,000 votes. He paid, in effect, almost $1,000 for each one.||
|IMAGES OF INEQUALITY|
Larry Chait, for the Billboard Project
The World Top Incomes Database/ The world's top scholars on high incomes have created a site that lets readers compare national income distributions over time.
|PROGRESS AND PROMISE|
|By law, under the 2010 Dodd-Frank Act, U.S. firms must now annually reveal the ratio between what they pay their CEOs and most typical workers. But no major U.S. firm has yet made this disclosure — because the federal Securities and Exchange Commission has still not written the regulations needed to enforce the Dodd-Frank mandate. Last week, at long last, a glimmer of regulatory hope: SEC commissioner Luis Aguilar openly embraced pay ratio disclosure. A high ratio between CEO and median pay, opined Aguilar, can “create risks to an enterprise.” Aguilar’s remarks, notes the AFL-CIO's Vineeta Anand, “may be the first time a SEC commissioner has said anything about the connection between the ratio and risks to a company.” Mary Jo White, the likely next SEC chair, has not yet signaled her stance.||
|inequality by the numbers|
Stat of the Week
In the 2011-12 budget year, offshore tax havens saved wealthy individuals in California $2.94 billion off their state tax bills, notes analyst David Cay Johnston, enough to make the University of California tuition-free for all UC students and their families.
From Inequality, We Can't Take a Vacation
'A million ways to have fun,' goes the cruise ship marketing slogan — but only, the fine print should read, if you have mega millions.Just over a year ago, the Costa Concordia, an ocean liner that belongs to Carnival Cruise Lines, ran aground on an Italian sandbar. Thirty-two died.
“We expect to fully recover from the ship incident,” the subsequent Carnival 2012 annual report told shareholders.
Earlier this month, Carnival suffered another “ship incident.”
The Carnival Triumph, with over 4,200 passengers and crew onboard, lost all power after an engine fire. The ship drifted aimlessly in the Gulf of Mexico for days, with toilets overflowing and food rotting. Raw sewage spilled into cabins and passageways. Passengers would later describe “an overpowering stench.”
Carnival CEO Micky Arison never caught a whiff of this stench. He stayed far away. In fact, two days after the fire, with the Triumph still stinking, Arison showed up courtside in Miami to watch his beloved Miami Heat do basketball battle. Arison owns the Miami Heat.
Arison owns a great many things. This past September, the business magazine Forbes put his total personal fortune at a clean $5 billion.
Last year, after the 32 tragic deaths about Carnival’s ill-fated Costa Concordia, Arison displayed a rather similar cavalier disregard for his passengers’ welfare. He never showed up at the disaster scene in Italy either.
Carnival would go on to offer the 3,200 passengers who survived that disaster a refund, travel expenses, and a bit over $14,000 each. Some perspective: The entire bill for the $14,000 checks — about $45 million — amounts to less than 1 percent of Carnival CEO Arison’s personal net worth.
The Carnival passengers who experienced this month's unpleasantness have received an offer that makes the Costa Concordia compensation seem downright generous. Passengers who waded through sewage on the Triumph for five days will get a refund, free rides home, a credit toward a future cruise, and $500. They also get a complimentary bathrobe.
More perspective: Under U.S. Department of Transportation airline regulations, passengers denied boarding on an oversold flight get up to $1,300 if the delay to their final destination costs them more than four hours.
Cruise giants like Carnival essentially don’t face many regulations with that sort of bite. In fact, they face relatively few regulations at all. In a U.S. port, cruise ships do fall under U.S. Coast Guard jurisdiction. But on the seas, as U.S. Senator Jay Rockefeller noted after the Triumph episode, “the world is theirs.”
An international maritime organization does, to be sure, exist. But its guidelines don’t carry the force of law. Corporations can violate these guidelines, points out maritime legal expert Jim Walker, and face no real consequences.
Cruise corporations have also made sure that any standards on the books only serve for show. All cruise ships, for instance, must now have auxiliary power systems to maintain propulsion and basic passenger services should a fire knock out the main power system, the fate that befell the Carnival Triumph.
This standard, rather conveniently, only applies to ships built after July 1, 2010 and doesn’t cover the Triumph, built in 1999, or just about every other cruise liner on the seven seas.
All these ships could, of course, retrofit to meet the new 2010 safety rule. But that retrofit would make a dent on their corporate profit margins.
And billionaire Carnival CEO Micky Arison doesn’t like to see anything dent his profit. Especially taxes.
Over the previous five years, Senate Transportation Committee chair Jay Rockefeller revealed at a 2012 hearing, Arison’s Carnival Corp. paid just 1.1 percent of its $11.3 billion in profits in combined local, state, and federal taxes.
Dodging taxes and safety regulations certainly does help keep the dollars cascading into the pockets of top cruise industry execs. But you don't get to become a billionaire just by stiffing Uncle Sam and skirting safety regs. Execs like Arison also never miss an opportunity to nickel-and-dime at passenger expense.
Carnival and other cruise giants have been busily inventing new service fees to tack on passenger bills, $50 charges, for instance, for early boarding. Passengers on cruise liners used to have access to any on-board restaurant without paying anything extra. Now they pay extra if they want anything besides a buffet.
All cruise ship passengers, of course, have at least a basic level of personal affluence. Whatever shipboard indignities they suffer, in the end, pale against the indignities so many millions of families suffer today, on a daily basis, in Great Recession America.
But symbols do matter — and what more vivid symbol of the indignity our contemporary corporate-driven inequality imposes than the Carnival Triumph. Thousands of people adrift, going nowhere in a nightmare of sewage and stench, while a billionaire chief exec sits far away in a courtside seat and cheers.
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Paul Buchheit, Five Signs Extreme Wealth Deadens the 'Empathy' and 'Honesty' Parts of the Brain, AlterNet, February 19, 2013. A look at the excuses for inequality our wealthy regularly advance.
Dylan Matthews, How the ultra-rich are pulling away from the ‘merely’ rich, Washington Post, February 19, 2013. Zeroing in on the top 0.01 percent.
Jeff Bryant, New Report Urges Education Secretary To Take Inequality ‘More Seriously,’ Campaign for America's Future, February 19, 2013. “Deep inequities between schools and between students” endanger the nation.
Helena Bachmann, Why Rich Switzerland Is Livid About Rich-Executive Payouts, Time, February 22, 2013. The prospects for a landmark Swiss vote against CEO excess March 3 seem better than ever.
Floyd Norris, A Tax That May Change the Trading Game, New York Times, February 21, 2013. Why speculators have reason to fear the new European financial transactions tax.
Keith Speights, Are Big Pharma’s CEO Pay Packages Outrageous? Motley Fool, February 22, 2013. Three Big Pharma CEOs will collect over $33 million each if their company changes hands.
|new and notable|
Digging Deeper into Executive Pay Excess
Joy Sabino Mullane, Perfect Storms: Congressional Regulation of Executive Compensation, and David Walker, Who Bears the Cost of Excessive Executive Compensation (and Other Corporate Agency Costs)? Villanova Law Review, Volume 57 (2012)Analysts who think deep thoughts about excessive executive pay have traditionally seen corporate shareholders as the primary victim of this excess. Shareholder returns would be higher, the thinking goes, if executive pay sank to more reasonable levels.
Boston University’s David Walker thinks we need to think deeper. Executive excess, Walker explains in this new analysis, may be eroding worker “wages and returns on all sorts of investments.” And if we recognized this broader impact, he suggests, we would also recognize the folly of expecting shareholders, and shareholders alone, to eradicate that excess.
And what broader steps might we take, as a society, to rein in executive excess? Villanova’s Joy Sabino Mullane offers up some ideas in her new survey of the last four-score years of congressional attempts to do that reining.
Did you know, for instance, that lawmakers in the early years of the Great Depression denied federal airmail contracts to companies that compensated their top execs over, in today’s dollars, $305,000? Could a similar strategy today, if expanded to all firms that sought federal contracts, have a significant dampening impact on CEO pay excess? Mullane doesn’t ask that question. Maybe we should.