Monday, May 13, 2013


It's always fun when capitalist expose each other and that is part of what today is about.  Since we all know, since everyone knows, thanks to the Occupy folks, about the one percent, about income disparity, today's story comes as no surprise.  Yet, even when not surprised, one can still gasp.  When you read below about the CEO pay compared to the workers in the corporations they run, well, go ahead and gasp.  It's sickening.  It's capital.  It's now.

But wait, it doesn't stop there.  After you read the full post and look at the graph below from Bloomberg Business Week, don't stop.  Read on to what I have added.  If you are disgusted reading the Bloomberg story, you will throw up after reading the addition.

Ain't we got fun?

Disclosed: The Pay Gap Between CEOs and


Nearly three years after Congress ordered public companies to reveal their chief executive officer-to-worker pay ratios under the Dodd-Frank law, the numbers still aren’t public. The provision was included to deter excessive compensation schemes that, in the words of U.S. Senator Robert Menendez (D-N.J.), “were part of the fuel that led to the financial collapse.” Since then, the requirement has been parked at the Securities and Exchange Commission, which must develop a rule on how to calculate and report the ratio. Questions remain: Do companies have to determine their median employee compensation by an actual count or would statistical sampling suffice? How should global companies reconcile differences in wages and benefits from one country to the next? For that matter, how should investors interpret differences in compensation across industries?

Those who oppose publishing this ratio have seized on some of these questions to argue that the requirement be dropped. “We don’t believe the information would be material to investors in making investment decisions,” says Tim Bartl, president of the Center on Executive Compensation, the advocacy arm of a Washington nonprofit called the HR Policy Association.

To get a sense of what such ratios could reveal, we conducted an experiment. It compared the disclosed CEO compensation mandated by the SEC—including salary, bonus, perks, changes in pension accruals, and the value of stock-based awards—with U.S. government data on average worker pay and benefits by industry. (Most companies don’t disclose actual payroll information for employees.)

In addition to using the industry-specific averages for workers’ compensation, this ratio differs from what Dodd-Frank requires in at least one other respect: It compares CEO pay with the average for all rank-and-file employees in the U.S., while the law calls for using the median of all employees worldwide, including executives other than the CEO.

Others who’ve calculated pay ratios, such as the AFL-CIO, didn’t differentiate worker pay by industry or include employee benefits in their math. Bloomberg News did, which tended to make the ratios smaller. (The AFL-CIO’s average CEO-to-worker multiple at big U.S. companies is 357. Bloomberg’s average ratio for Standard & Poor’s 500 companies is 204; the average of the top 100 companies on our table is 495. That is, CEOs of the companies on that table averaged 495 times the income of nonsupervisory workers in their industries.) There’s no question that using industrywide averages as the denominators is not a perfect substitute for the real pay ratios Dodd-Frank calls for. If you’re a fast-food chain CEO who pays line workers well above minimum wage plus full health benefits, your ratio would still have the same low denominator as the skinflint chain that pays only the minimum.

Every company on the list was asked to comment on the ratio—and to provide their own. Only one in the top 100 came up with a number: Wynn Resorts (WYNN), which says its ratio is 251. “The outdated and incorrect figures being used, together with a flawed methodology, results in a distortion that is insulting to our employees,” Hugh Burns, a spokesman for Simon Property Group (SPG), said in an e-mail. (Simon Property is No. 3 on the Bloomberg list of the largest ratios, and CEO David Simon’s $137.2 million in compensation for 2011 was 1,594 times what the average “funds, trust, and other financial vehicles” worker is paid.) Noting that the pay reported last year is contingent on years of future performance, Burns said, “The survey creates a completely misleading result that grossly overstates and inaccurately portrays David Simon’s compensation and makes any comparison meaningless.”

The SEC has yet to set a deadline for the rule that would make pay-ratio disclosure mandatory. Commissioner Luis Aguilar, a Democrat, suggested publicly in February that companies should voluntarily disclose their ratios until the agency acts. The other four commissioners, including Chairman Mary Jo White, who took office in April, declined to comment. Representative Bill Huizenga, a Michigan Republican, has introduced language to repeal the disclosure requirement. The ratio “doesn’t do anything other than play politics,” he said.

         Top CEO Pay Ratios

It’s been almost three years since Congress directed the Securities and Exchange Commission to require public companies to disclose the ratio of their chief executive officers’ compensation to the median of the rest of their employees’. The agency has yet to produce a rule.

Most companies don’t disclose median worker pay, so Bloomberg calculated ratios based on the U.S. government’s industry-specific averages for pay and benefits of rank-and-file workers. This table/click here, searchable by company name, CEO or industry, shows the Standard & Poor’s 500 Index top 250 companies by ratio. Each was offered a chance to respond; their edited comments are listed.  


Peter Drucker, the celebrated management theorist, certainly thought the CEO-to-rank-and-file multiple mattered. Starting with a 1977 article and until his death in 2005, Drucker considered 25-to-1 or even 20-to-1 the appropriate limit. Beyond that, he indicated, it’s bad for business. In his view, excessively high multiples undermine teamwork and promote a winner-takes-all, “did-it-because-I-could” culture that’s poison to a company’s long-term health. “I’m not talking about the bitter feelings of the people on the plant floor,” Drucker told a reporter in 2004. “They’re convinced that their bosses are crooks anyway.” He meant the people in middle management who become “incredibly disillusioned” by runaway CEO compensation. On big executive payouts that coincide with layoffs, Drucker was unequivocal. That, he said, was “morally unforgivable.”


FROM MONTHLY REVIEWIn the United States in 2007, it is estimated that the five best-paid hedge-fund managers “earned” more than all of the CEOs of the Fortune 500 corporations combined. The income of just the top three hedge-fund managers (James Simon, John Paulson, and George Soros) taken together was $9 billion dollars in 2007. Pittsburgh hedge-fund manager David Tepper made four billion dollars. If we were to suppose that Mr. Tepper worked 2,000 hours in 2009 (fifty weeks at forty hours per week), he took in $2,000,000 per hour and $30,000 a minute

According to Institutional Investors’ annual ranking of the top-earning hedge fund managers in 2012, David Tepper of Appaloosa Management was the top of the class, earning an astounding $2.2 billion in 2012. The next three hedge fund managers after him -- Raymond Dalio of Bridgewater Associates, Steve Cohen of SAC Capital, and James Simons of Renaissance Technologies -- each cleared at least $1 billion. In all, the top 25 hedge fund managers made a total of $14.14 billion in 2012, which amazingly is the lowest total since 2008. In 2011, the top 25 took home $14.4 billion. 

FROM THE ECONOMIST: Pay dynamics there are usually chalked up to growth in "CEO pay", but as new researchout of the Chicago School of Business indicates, CEO salaries are peanuts compared to the change being earned in finance:

We also find that hedge fund investors and other “Wall Street” type individuals comprise a larger fraction of the very highest end of the AGI distribution (the top 0.0001%) than CEOs and top executives. In 2004, nine times as many Wall Street investors earned in excess of $100 million as public company CEOs. In fact, the top twenty-five hedge fund managers combined appear to have earned more than all five hundred S&P 500 CEOs combined (both realized and ex ante). This trend accelerated after 2004. In 2007, it is likely that the top five hedge fund managers earned more than all five hundred S&P 500 CEOs combined.

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