Weekly Roundup

Some articles of note from the past week:
[Gary Rivlin, "In Rebuilding as in the Disaster, Wealth and Class Help Define New Orleans," New York Times, April 25, 2006. Backup link.]

[Jad Mouawad, "For Leading Exxon to Its Riches, $144,573 a Day," New York Times, April 15, 2006]
Lee R. Raymond was paid the equivalent of $144,573 a day during his 13 year stint as the chairman and chief executive of Exxon Mobile (the company which garnered $36 billion in profits last year - the largest corporate profit posting in history).

[Eric Dash, "Off to the Races Again, Leaving Many Behind," New York Times, April 9, 2006]
Some things to think about amidst the perpetual explanations that low paying jobs are unavoidable since corporations must cut costs to maintain market viability.

The average pay for a chief executive increased 27 percent last year, to $11.3 million, according to a survey of 200 large companies by Pearl Meyer & Partners, the compensation practice of Clark Consulting... By contrast, the average wage-earner took home $43,480 in 2004, according to Commerce Department data.
***
Compensation committees, meanwhile, are often reluctant to withhold a bonus or stock award for poor performance. Many big shareholders, such as mutual funds and pension plans, have chosen not to cast votes critical of management. The results have been a growing gap between chief executives and ordinary employees, and often between the boss and managers one layer below.
***
The average top executive's salary at a big company was more than 170 times the average worker's earnings in 2004, up from a multiple of 68 in 1940, according to a study last year by Carola Frydman, a doctoral candidate at Harvard, and Raven E. Saks, an economist at the Federal Reserve.
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About 81 percent of Americans say they think that the chief executives of large companies are overpaid, a percentage that changes little with income level or political party affiliation, according to a Los Angeles Times/Bloomberg survey in February. Many shareholders, moreover, are just plain angry.
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The divide between executives and ordinary workers was not always so great. From the mid-1940's through the 1970's, the pay of both groups grew at about the same rate, 1.3 percent, according to the study by Ms. Frydman and Ms. Saks. They analyzed the compensation of top executives at 102 large companies from 1936 to 2003.
But starting in the 1980's, executive compensation began to accelerate. In 1980, the average chief executive made about $1.6 million in today's dollars. By 1990, the figure had risen to $2.7 million; by 2004, it was about $7.6 million, after peaking at almost twice that amount in 2000. In other words, executive pay rose an average of 6.8 percent a year.
At the same time, the growth rate slowed for the average worker's pay. That figure rose to about $43,000 in 2004 from about $36,000 in 1980, an increase of 0.8 percent a year in inflation-adjusted terms.
CORPORATIONS, meanwhile, projected that their own earnings would grow by an average of 11.5 percent a year during that 24-year stretch, by Mr. Bogle's calculations. In reality, he said, they delivered growth of 6 percent a year, slightly less than the growth rate of the entire economy, as measured by gross domestic product.
Chief executives "aren't creating any exceptional value, so you would think that the average compensation of the C.E.O. would grow at the rate of the average worker," Mr. Bogle said. "When you look at it in that way, it is a real problem."

[Claudia H. Deutsch, "Behind Big Dollars, Worrisome Boards," New York Times, April 9, 2006]
It seems that extremely high pay for executives stems from the fact that the upper management of these corporations is not particularly vested in the performance of the company. The bureaucratic nature of these organizations tends to allow the people at the top to use their companies, to some extent, as merely a structure for funneling wealth to themselves. This creates a certain tension with other sectors of the elite in our society (namely the shareholders) who have an interest in seeing the company behave effectively in the market.

That is the question that worries Charles M. Elson, the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. As he sees it, forcing companies to bring excessive pay to light is, at best, treating a symptom. It does little to cure the underlying diseases: runaway compensation packages, granted by boards that barely monitor the performance of the chief executive.
"Disclosure is like aspirin; it can make you feel a little better, but it can't even cure the common cold," he said. "The fact is, a board that overpays the C.E.O. is in all probability not minding the store on other issues, either."
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The real problem is that institutional investors have traditionally seen excessive pay as a minor if not nonexistent issue when it comes to earnings.
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Q. So what's an enlightened shareholder to do? Fight for the right to vote out the whole slate of overpaying directors?
A. That will help only if they can be sure that the directors they choose as replacements are better than the ones that were ousted. We really need the institutional investors themselves to sit on the boards. Or at least they should vote in people who are sympathetic to their financial goals and are deeply enmeshed in shareholder responsibility. And they should insist that every director invest a personally meaningful amount into the company's stock. If you do your job right, it can be a very nice investment. And it can help contain runaway compensation.
I did a study in 1992 that showed that companies whose directors owned an average of $100,000 worth of shares were much less likely to be overpaying their executives. And I did a follow-up study that showed that the more equity directors held, the more likely they were to replace the C.E.O. when the company performed poorly. When you think it's your money you are about to pay to the C.E.O., you might drive a harder bargain. Otherwise, it's like going to a car dealership to bargain for a friend; if you're not writing the check yourself, you don't try as hard.

["CNN's Immigration Problem," Fairness and Accuracy in Reporting, 4/24/06]
"When the Wall Street Journal (—4/13/06) —surveyed economists on whether illegal immigration provided a net gain to the U.S. economy, 44 of 46 said that it did."

["Wounded Soldiers Fight Off Bill Collectors at Home," ABC News, April 26, 2006]

Hundreds of soldiers wounded in battle in Iraq have found themselves fighting off bill collectors on the home front, according to a report to be released tomorrow. The draft report by the Government Accountability Office, which ABC News obtained, said that hundreds of wounded soldiers had military debts incurred through no fault of their own turned over to collection agencies.
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Army specialist Tyson Johnson of Mobile, Ala., had just been promoted in a field ceremony in Iraq when a mortar round exploded outside his tent, almost killing him.
"It took my kidney, my left kidney, shrapnel came in through my head, back of my head," he recounted.
His injuries forced him out of the military, and the Army demanded he repay an enlistment bonus of $2,700 because he'd only served two-thirds of his three-year tour.
When he couldn't pay, Johnson's account was turned over to bill collectors. He ended up living out of his car when the Army reported him to credit agencies as having bad debts, making it impossible for him to rent an apartment.
"Oh, man, I felt betrayed," Johnson said. "I felt like, oh, my heart dropped."
And there are many more like Johnson. Staff Sgt. Ryan Kelly lost his leg in a roadside bomb attack in Iraq.
He didn't realize it, but the Army continued to mistakenly pay him combat bonus pay, about $2,000, while he was in the hospital rehabilitating, and then demanded that he pay it back.
He, too, was threatened by the Army with debt collectors and a negative credit report.
"By law, he's not entitled to the money, so he must pay it back," said Col. Richard Shrank, the commander of the United States Army Finance Command.
The Army said it moved wounded soldiers out of the battlefield so quickly its accounting office could not keep up, resulting in numerous payroll errors.
"This is no way to win a war, I can tell you that," said Davis. "You'd think after four years after fighting a war in Iraq, the government would have its act together."
But the Army said it is now trying to correct the problem. Since ABC News first reported on the plight of soldiers, featuring Johnson and Kelly in a "Primetime" investigation in October 2004, the Army has forgiven most of their debts.