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Executive Overcompensation Symptomatic of Deep Problems

executive overcompensation

U.S. CEO and Worker’s Pay Ratio 1965-2010.

For the Christian Science Monitor, staff writer Schuyler Velasco compiled a list of the American corporations where the yawning abyss between CEO pay and employee pay is most apparent. For every dollar the average McDonald’s employee makes, CEO Donald Thompson takes home 1,196 of them. How is it possible that any human being’s time is worth more than a thousand times as much as the time of another human being?

Existential questions aside, McDonald’s is the most egregious example of ridiculously munificent executive compensation, followed by Starbucks and Dollar General. Among the top 10, the least discrepancy is found at AT&T, where the biggest boss makes only 558 times the wage of an average worker.

Ratcheting up Salaries

For Dissent Magazine, Colin Gordon explains the process of deciding how much to pay a bigwig. A show of detached neutrality is made by deferring to the wisdom of a “compensation committee.” The members are other bigwigs with similar job descriptions. Next week, one of those execs will be up for a raise, and guess who will be on his compensation committee? That’s right — the very same guy whose salary he is deciding today. Gordon says:

These compensation committees […] have perfected a machine for ratcheting up executive pay. As a general rule, CEO pay is calculated from a benchmark of peers. The result is a lucrative game of leapfrog. The selection of peers is arbitrary — and often consists of cherry-picking larger and successful firms with higher-paid executives.

In effect — with very limited input from shareholders and no demonstrable connection to firm performance — top executives set their own salaries.

Shareholders Lack Clout

Supposedly, performance-based pay is subject to shareholder approval, and a reasonable person might ask, “Why don’t they take charge, and rein in these greed-heads?” But as it turns out, the deck is stacked. The system contrives to make shareholder influence largely theoretical. Their role is purely advisory and the corporation doesn’t have to do what they recommend.

For a giant business with high-powered lawyers on retainer, it is very easy to circumvent any rule. The corporate entity can hide, even from its own stockholders, exactly what is going on, in what Gordon calls “a concerted effort to camouflage the level and terms of executive pay packages with various forms of stealth compensation (such as lavish retirement deals) or rigged performance measures (such as stock options).” Even worse, there are two classes of shareholders. Gordon says:

Increasingly, shareholding is dominated by the block holdings of big institutional investors (mutual funds, pension funds, and the like). And many public firms use ‘dual class’ shares to distribute voting rights more narrowly than stock ownership.

Stockholding citizens, even the most socially conscientious, have very little clout. And what do the execs get paid for? Who knows, but it’s a pretty sure bet they are not busy figuring out how to reduce the income gap, and pay enough so that none of their employees need to apply for government relief.

Universal Living Wage

Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance, believes that a company should be transparent about whether it pays a living wage to every person who works for it. For a recent Fortune CNN article, she quoted House the Homeless President Richard R. Troxell about the Universal Living Wage concept, so please go and take a look.

Also, please remember Economic Gap Day is coming up on Tuesday, September 2. Everyone is urged to organize or join a demonstration in a highly visible public place. Check out this video of a past Economic Gap Day to catch the vibe:

The Universal Living Wage means basic food, clothing, shelter (including utilities), public transportation, and access to an emergency room! This must be the minimum standard for every American and all people.

Reactions?

Source: “CEO Vs. Worker Pay: Walmart, McDonald’s, and Eight Other Firms With Biggest Gaps,” CSMonitor.com, 12/12/13.
Source: “Fatter Cats: Executive Pay and American Inequality,” DissentMagazine.org, 04/24/14.
Source: “Inequality in the U.S.: Are We Making Any Progress?Fortune.com, 08/04/14.
Image by Devendra Makkar.

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Over-the-Top Income Inequality

Income Inequality

When discussing the disparity between big boss pay and average worker pay, the first thing the defenders want us to know is that if top executives let their enormous paychecks be divided among the workers, each piece of the pie would be quite small.

Walmart has a million hourly employees, and 475,000 of them make more than $25,000 per year. For the purpose of this exercise, Danielle Kurtzleben leaves out those upper-tier employees. The other 525,000 workers make less. The CEO, C. Douglas McMillon, makes $25.6 million annually. If he turned over $20 million for distribution among those 525,000 employees, they would each gain only $38 per year.

When cited by industry apologists (which Kurtzleben definitely is not, by the way), examples like this are supposed to convince us to stop picking on the business world’s poor, abused CEOs. But why shouldn’t we encourage such sharing? Even if it is only $38 extra, the workers need it more than Mr. McMillon does. When a family survives on food stamps, every little bit helps. And just think what such a gesture would do for morale and public relations!

Could something like that happen?

Actually, something like that could happen, and very recently it did. At Kentucky State University, interim President Raymond Burse made news by volunteering for a $90,000 pay cut so that 24 low-income employees could have a raise. It will boost their pay rate from $7.25 to $10.25 per hour (and the institution promises to continue paying the higher wage for those positions in the future). This is a very generous example for anyone in an executive position to set, though not a totally unprecedented one.

For the Christian Science Monitor, Hayley Fox notes that at Virginia’s Hampton University, President William Harvey refused a portion, amounting to more than $1 million, of his executive compensation so that low-wage workers could be paid more. No doubt there are other examples of highly paid yet ethically aware earners trying to compensate for the system’s unfairness. Maybe this trend pioneered in academia will spread to other businesses.

But let’s get back to those who see nothing wrong with the huge discrepancy between our society’s most generously and most stingily rewarded employees. They would have us believe that everything is made right by the Earned Income Tax Credit (EITC) — which Richard R. Troxell of House the Homeless calls the biggest scam ever perpetrated against America’s working poor.

First, you jump through the bureaucratic hoops of the application process to get back your own money that you should have had all along. And a crisis requiring money does not wait for our schedule or the government’s convenience. Mainly, the EITC is “chump change” in comparison with — and an unsatisfactory substitute for — a Living Wage that affords a family the basic necessities of life. Richard says:

Business has shifted their financial responsibility of paying a “fair wage for a fair day’s work” onto the backs of the taxpayers of America. The Federal Government has allowed the businesses of America to shirk their responsibility to pay fair minimum wages. Instead of paying what their work is worth, businesses hide behind the pitifully small tax supported stipend that leaves core American workers dirt poor and often subject to homelessness.

We will talk more about income inequality next time, but let’s just mention a few of the reasons why it is bad for the entire country. First, it’s different from general, all-encompassing poverty. Many people who grew up in the 1930s, during the Great Depression, have said they had no consciousness of being poor because everyone was equally destitute, and there was no basis for comparison. Nowadays, all who live in poverty are acutely conscious of exactly what the rich own and spend.

Historically, the consequences of extreme wealth disparity are crippling debt, a reduced standard of wellness, and economic stagnation for many individuals who had hoped and expected to better their circumstances. There is even research from the field of evolutionary psychology to show that when the difference between the highest incomes and the lowest is vast, the murder rate increases. Throughout the economy, general health and growth are negatively affected and homelessness is rampant. The processes of democracy suffer, and the political system is dangerously destabilized as the poor realize how devotedly the government serves the wealthy few. Unlike generalized and widespread poverty, an outrageous degree of inequality is very obvious. People can’t help noticing, and they don’t like what they see.

Source: “What if Walmart’s CEO took a pay cut for his workers?” Vox.com, 08/06/14
Source: “College president takes a $90,000 pay cut to give low-wage workers a raise,” CSMonitor.com, 08/15/14
Source: “CEO Of One Of The World’s Largest Banks: Income Inequality Is ‘Destabilizing,’ ThinkProgress.org, 06/13/14
Image by mSeattle

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Fear of Foster Care Threat Is Not Illogical

Sleeping Child

House the Homeless has been considering, with dismay, the brisk back-and-forth exchange between the foster care system and the ranks of people experiencing homelessness. An untethered, chaotic lifestyle leads to more of the same in the next generation. Any young person whose past includes periods of homelessness is more likely to face homelessness in the future. Kids who age out of the foster care system are more likely to become homeless. In a vicious cycle, kids from homeless families are often at risk of winding up in the foster care system.

Writer Annie Gowen interviewed the executive director of the National Center for Housing and Child Welfare, Ruth Anne White, who said “about half of states list a caregiver’s inability to provide shelter as part of their definition of abuse and neglect.” In mid-2012, news came from Washington, D.C., that homeless parents were not signing up with agencies that existed to help them because they feared losing their children.

The Washington Legal Clinic for the Homeless learned that clients avoided seeking help because intake workers had threatened, if the clients really had nowhere to live, to report them to the child welfare authorities. According to rumor, the city purposely created this climate of fear to scare families away from applying for services in an overburdened system. The Washington Post quoted a Child and Family Services Agency (CFSA) spokesperson who said:

[W]hile homelessness alone is not sufficient reason under D.C. law to remove a child from a parents’ care, the agency has investigated families seeking shelter to see if there were other issues of abuse and neglect.… So far, 32 families have been reported … but no children have yet been removed from their parents’ care.

Also in our nation’s capital, the disappearance and probable death of 8-year-old Relisha Rudd caused consternation. Relisha went missing from D.C.’s former General Hospital, now a massive homeless shelter where she and three younger brothers were among some 600 children in residence. They stayed with their mother, Shamika Young (who, incidentally, entered the foster-care system at age 6). Relisha was allowed to leave the facility with her “god-daddy,” a man Young trusted as a longtime friend who had taken Relisha to his family’s home many times before. She was last seen on March 1, and shortly afterward the man killed his wife and then was found dead himself.

Real fear

When questioned about why she had not reported her daughter missing, Young said she was afraid that if she went to the police, the authorities would take her other kids. Apparently, this fear was not unfounded. Records showed that some type of report had been generated three times before that could have led to the four children being placed in the foster care system. Nothing ever happened, but the possibility was perceived by their mother as a real threat.

When Relisha Rudd was in the news daily, some online commenters expressed very sentimental opinions about the superiority of foster care over shelter life or, even worse, street life. How, they wondered, could anyone possibly hesitate to recommend foster care? The sad truth is, it’s all too easy to find foster care horror stories, and all too easy to meet unaccompanied youth who ran away from foster placements to become street people.

The mutability of circumstance presents child welfare agencies with chronic uncertainty. A crisis focuses official attention on the family, but then their situation stabilizes. Then turmoil comes again, followed by relative calm. The rationale for placing kids in foster care is rarely cut-and-dried. Case workers have to make judgment calls all the time. On behalf of Washington’s CFSA, Mindy Good spoke to a reporter who wrote this account:

[I]n 2012, the District had one of the nation’s highest removal rates and one of the lowest in placing children with relatives once they were taken from the home, Good said. A year earlier, the city’s Citizen Review Panel, which is charged with monitoring the agency, issued a report that called for “significant reforms to prevent unnecessary removals — and to prevent the unnecessary harm they cause to children and families.”

In other words, the child protection authorities are criticized and attacked for two opposite reasons — for interfering too much and taking too many kids; and for not removing Relisha and her brothers from their mother’s care. The city’s health and human services, the official bodies in charge of Relisha’s life and well-being, promised a review of their procedures, but no report has yet been issued. At any rate, it is clear that homeless parents are not paranoid, because a very real possibility exists that their children can be taken from them. Sometimes it is necessary; other times it is not in the best interests of anyone.

Reactions?

Source: “Homeless D.C. families, who turn to the city for help, risk triggering a child welfare investigation,” WashingtonPost.com, 06/23/12
Source: “Before Relisha Rudd went missing, the 8-year-old longed to escape D.C.’s homeless shelter,” WashingtonPost.com, 04/05/14
Source: “Body in park tentatively identified as Relisha Tatum’s alleged abductor, police chief says,” WashingtonPost.com, 03/31/14
Image by Lyman Erskine

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Foster Care System Increases Homeless Totals

homeless (poles)

Every now and then a scandal arises from the foster care system. Earlier this year, Americans were horrified by a story from North Carolina that broke when a law enforcement officer observed an 11-year old boy handcuffed to the porch of a house. The weather was cold, and someone had tied a dead chicken around his neck. It turned out that, along with this foster child, four adopted children lived in the house. The adults in residence were a medical professional — a male who worked as a hospital nurse — and a female Department of Social Services employee who happened to be the county’s child protective services supervisor.

Had no one noticed the abuse and neglect? Some faculty members did, where the kids used to go to school. But the couple who fostered and/or adopted them had unenrolled them in favor of home-schooling. The publicity surrounding this story pointed up the fact that North Carolina has more than 53,000 registered home schools, many of them populated by foster children — some of whom were taken on just for the sake of earning subsistence payments from the government. Since there is no legal requirement to inspect home schools, this means a lot of foster kids are being raised in sequestered environments, ignored and forgotten. The potential is huge for every kind of abuse.

The case made enough of a splash to get several other social services workers fired, and to stimulate a review of the process by which foster-care licenses are granted. Meanwhile, investigators looked for approximately 36 children who had been fostered by the couple in the past.

California

Those former foster kids must be scattered all over the map. Maybe some of them ended up in the Morongo Basin, an area of Southern California whose population includes about 800 people experiencing homelessness. On leaving the area, longtime advocate Rae Packard told an audience,

In my experience working at Morongo Basin Unity Home, women who choose to leave their abuser and go into a shelter most often lose custody of their children. Judges nationwide consider shelter housing to be ‘homeless’ and give custody of the children to the abuser, who is stable in the home.

Remember the House the Homeless post titled “Are Homeless Parents Paranoid?” If paranoia represents an unreasonable or unlikely fear, homeless parents apparently are not paranoid. All kinds of heart-rending scenarios take place every day in offices and courtrooms. A homeless mother faces the real possibility that her kids can be turned over to the violent non-provider who caused all the trouble, or taken by the state and placed in foster situations. Or she can try to stay under the radar and avoid government agencies altogether. This involves teaching kids to lie to authorities, and other habits that can get them in trouble.

Elsewhere in California, journalist Greg Lee interviewed the CEO of the Riverside County branch of Court Appointed Foster Children (CASA). In that county, some 4,000 foster children reside, with another 1,500 in the nearby Coachella Valley. CASA is a volunteer organization with not nearly enough volunteers for its mission, which is to assign each child an advocate to help them deal with the court system. Deborah Sutton-Weiss made a startling statement:

The foster system is broke. We have more homeless children on the streets now than we have vets and that’s a big deal…. What does happen to them is that they either end up homeless, prostituting, in jail or dead.

The authorities take kids from their parents for reasons that are sometimes excellent and sometimes wrong or pointless. Those children grow up in foster homes, age out of the system, and all too often find themselves on the streets. Vulnerable and unprotected, girls get pregnant and have children who either have no place to live or are removed to foster placements. (Either way, they grow up with a greater chance of being chronically homeless.) There is far too much two-way traffic between the foster care system and homelessness, and plenty more about it to discuss.

Reactions?

Source: “Two growing NC student populations: homeless and homeschooled,” BlueNC.com, 11/24/13
Source: “About 800 homeless in Hi-Desert, speaker tells advisers,” HiDesertStar.com, 04/18/14
Source: “Homelessness among foster children on the rise in California,” KESQ.com, 07/22/14
Image by Martin Belam