From Robert Borosage, Campaign for America’s Future, March 29, 2012:
In 2010, as the economy began its slow recovery from the Great Recession, a new study shows the richest 1 percent of Americans captured a staggering 93 percent of all income growth, while the incomes of most Americans stagnated.
…The stock market—leading source of wealth for the few—rebounded. Housing—the leading source of wealth for middle income Americans—continued to decline. Median CEO pay soared a stunning 27 percent. When the 2011 figures come out, the disparities will be even greater. America is recovering the old economy’s extreme inequalities.
…Inside our companies, CEO pay has soared, while worker pay has stagnated at best. According to the Institute for Policy Studies, CEOs are now making 325 times what the average worker makes. CEO pay has soared as companies have dramatically increased stock options as part of compensation packages. Worker pay has stagnated as companies have waged a relentless and successful war on unions. Even mid-level executives have not shared in the fabulous rewards offered the top.
…In 1970, CEOs of S&P 500 firms earned an average of $850,000, with less than 1 percent coming from stock-based compensation. By 2000, CEOs averaged $14 million in compensation in comparable dollars, with 50 percent coming from stock options. The pay packages are justified as “pay for performance,” but like we’ve seen with the AIG bonuses paid out after the failing company was nationalized, or Wall Street bankers adjusting to lower profits by increasing the percentage they take in bonuses, the pay is too often divorced from the performance. The fired CEO of HP, Leo Apotheker is a poster child. He got the boot after 11 months of abject failure, but walked away with $13 million in severance pay, plus the $10 million he pocketed as a signing bonus.
With stock options, CEOs have multimillion-dollar personal incentives to focus on the market’s short-term expectations rather than the long-term health of the company. Worse, they also have multimillion-dollar incentives to cook the books, plunder their own companies to meet short-term expectations, purge workers, move jobs to low-wage centers abroad and more. With CEOs increasingly serving relatively short tenures, they clean up, get out and leave the ruins to their successors. The infamous Wall Street acronym—IBG-UBG—”I’ll be gone; you’ll be gone”—is rife in corporate suites as well.
Not surprisingly, one result has been crime and scandal. The accounting scams of 2001-2002—Enron, WorldCom, Tyco International, Global Crossing, Adelphia and more—were among the biggest business scandals in decades. Then a few years later the news about pervasive backdating of stock options exploded. Executives were routinely backdating their options to hit the lowest stock price in previous months. This enriched executives while defrauding shareholders, abetting tax fraud and committing corporate accounting fraud.
On worker pay, the trends are equally stark. Productivity is up, profits are up, but workers are not sharing in the rewards. One major factor has been that we’ve allowed multinationals to control our trade policy, fecklessly running up unprecedented deficits with mercantilist nations like China, while facilitating the export of jobs abroad. Another major factor has been the unrelenting war on unions.
When unions represented 30 percent of the private workforce in the years after World War II, they helped workers capture a fair share of the profits and productivity they were creating. Union jobs set a standard that nonunion employers had to compete with. And the union movement helped lift the minimum wages and fair labor standards for all.
Now unions are barely 7 percent of the private workforce. Companies routinely trample labor laws and use the threat of moving abroad to force pay and benefit cutbacks. The result has been a declining middle class…
The Institute for America’s Future is a center of nonpartisan research and education devoted to shaping a compelling progressive agenda and message. We strive to open up the space for new thinking and bold reforms on such kitchen-table concerns as the availability of good jobs, affordable health care, accessible higher education, retirement security, improved public infrastructure, living wages, healthy workplaces, safe food, fair trade and clean energy.
Additional reading: Executive Excess 2011: The Massive CEO Rewards for Tax Dodging
The Rich Get Even Richer, Steven Rattner, New York Times