Addressing Income Inequality (v2): CEO Pay

The other day I posted the first in a series on income inequality, since it's probably the biggest issue this election season.

For Bernie Sanders, it sometimes seems to be the only issue, although I thought there was one debate where he said the single biggest issue facing our country was climate change; I could be wrong.  For Hillary Clinton, income inequality has become a larger issue than she might have hoped, particularly when the Sanders camp is hitting her speaking engagement income. 

One of the things we hear an awful lot about is the fact that millionaires and billionaires, the 1%, are getting almost all of the new income and getting more and more obscenely rich; the rest of us, the 99% are struggling and barely keeping our heads above water - actually, or in comparison, or at least in perception. 

My first post was about the minimum wage, with a little extra thrown in about the new Obama administration overtime rules that will go into effect on December 1st.  Tonight, let's take a look at what people earn.

First, some general understanding, things we think we know to be true, or believe to be true:

• CEOs make a lot of money;
• the ratio of CEO salary to worker salary is skewed;
• the top 1% make a lot of money

But what do those generally understood concepts mean? What happens if we put some numbers around the concepts?

• In 2014, for example, average CEO pay (including stock options and all the rest) at the largest 350 companies  was $16.3M
• That ratio of CEO to worker salary?  That was about 300 to 1.
• To be in the top 10% (according to IRS data from 2013), you only needed adjusted gross income of $128K
• To be in the top 1%, the figure was $429K
• To be in the top .1%, it's $1.9M
• To be in the top .01%, it's a mere $9.5M

Is it shocking to you that the minimum adjusted gross income requirements to be in these upper echelons are so low? It was to me.  Things get even more interesting when you look at CEO pay versus pay other people's pay.

First, here are the top 5 CEOs based on total compensation, as of 2014 (details on how the numbers were derived and what companies were included is in the small print in the article):

1. David Zaslaw, CEO of Discovery Communications (the Discovery Channel and others): $11M salary, $145 other compensation (stock options, bonuses, etc.)
2. Michael Fries, CEO of Liberty Global, which provides cable service in 14 countries: $16.M salary, $95.9 other compensation
3. Mario Gabelli, CEO GAMCO Investors, a company founded by Gabelli back in the 1970s, which manages close to $40B in assets: $88.5M
4. Satya Nardella, CEO of Microsoft, a company with over $90B revenue: $4.5M salary, $79.8M other compensation
5. Nick Woodman, CEO and founder of Go Pro, the cool cameras; $2.7M salary, $74.7M other compensation

No question about it -- that's a lot of money. Not so much the salaries, which don't bother me all that much - but the 'other compensation' adds a ton of money and it does seem hard to justify. 

Let's look at some other 'lots of money' buckets, which seem a lot harder to justify, in my mind. Take college basketball coaches:

1. Coach K, Duke University: $7,299,666
2. John Calipari, Kentucky: $6,875,376
3. Sean Miller, Arizona: $4,945,664
4. Bill Seif, Kansas: $4,943,776
5. Tom Izzo, Michigan State: $4,150,359

Syracuse's Jim Boeheim was only No. 20 on the list, with a paltry $2,144,284.

NFL players for 2015?

1. Green Bay's Aaron Rodgers: $22M, $110M over five years
2. Seattle's Russel Wilson: $21.9M, $87.6M over four years
3. Pittsburgh's Ben Roethlisberger: $21.85M, $87.4M over four year
4. The Giants' Eli Manning: $21.8M, $84M over four years
5. Carolina's Cam Newton: $20.8M, part of a five year, $103M deal

How about Major League Baseball? Here's your top five in 2015:

1. Clayton Kershaw, with the Dodgers: $32.8M, part of a $215M deal
2. David Price, Red Sox: $30.5M, part of a $217M deal
3. Miguel Cabrera, Detroit Tigers: $30M, part of a $248M deal
4. Justin Verlander, Tigers: $28.6M
5. Yoenis Cespedes, NY Mets: $28.1M

TV personalities?  In the year spanning June 2014 - June 2015, Howard Stern made $95M; Ellen DeGeneres $75M; Dr Phil $70M, Gordon Ramsay, the cursing chef, and Ryan Seacrest both made $60M.

Actors? Good lord, it's nuts: Robert Downey Jr's $80M? Jackie Chan, $50M? Bradley Cooper, $41.5M?  

There are examples all over the place. News anchors?  ABC made a nine-figure deal with George Stephanopoulos. NBC pays Matt Lauer $20M.

Kim Kardashian made $52.5M in 2015.

So  in the overall scheme of things, do we really pay CEOs too much? Or do we pay lots of people too much?  

Addressing Income Inequality (v1): Living Wages

Let's admit into evidence that there is an income inequality problem in America.  The really rich are getting really richer, and the minimum wage is not a living wage.

And let us accept those facts as just that - facts. Meaning, let's not argue whether the minimum wage should be a living wage, for example -- let's just pretend we're adults, not Republicans, is what I'm getting at. You know what I'm talking about.

So - we have income inequality RIGHT NOW, today, the worst it's been since maybe even going as far back as when man and dinosaur strolled across Texas together and what do we do about it?

Example #1. 

We run for President and promise to raise the federal minimum wage to an arbitrary $15 per hour ($31,200 annually) - by 2020.  Or, promise to raise the minimum wage to $12 and have the states and localities do more.

These are proposals from Bernie Sanders and Hillary Clinton, respectively. These are the Democrats, who see the issue as a huge deal in the campaign, as opposed to Donald Trump  who might believe we shouldn't have a minimum wage at all, I'm not sure - and I don't think he is either. But these are the Democrats, who might take almost their full first term to address wages for the lowest paid people, who are suffering the most right now. 

Example #2. 

In New York, again Dems taking the lead, we implement different minimum wages - one for fast food workers, one for tipped workers in the hospitality industry, a different one for other tipped workers, and now, new with this year's budget, two for down-staters, and a different one for the rest of the state, regardless of their line of work.

Seriously -- it takes an economics major to figure out how we get there and when.  Take a look:

The timing and scope of the minimum wage increase varies depending on which county in New York State an employee works, and the size of the business. For instance, for employees in New York City who are employed by a company that has 11 or more employees, the minimum wage will increase to $11 per hour at the end of 2016, $13 at the end of 2017, and $15 at the end of 2018. However, for employees in NYC who are employed at a company with 10 or fewer employee, the minimum wages are smaller and implemented over a longer time period with the minimum wage rising to $10.50 at the end of 2016, $12 at the end of 2017, $13.50 at the end of 2018, and $15 at the end of 2019.

Sounds easy enough, right?

For employees who work in the NYC commuter counties of Nassau, Suffolk and Westchester, the minimum wage will increase to $10 at the end of 2016, then will increase in $1 increments at the end of each year until the minimum wage reaches $15 at the end of 2021.

Take a breath, there's more:

For workers in the rest of New York State, the minimum wage will increase to $9.70 at the end of 2016, and then increase in $0.70 increments at the end of each year, until the minimum wage reaches $12.50 at the end of 2020.  After 2020, the minimum wage will increase to $15 in increments determined by the state Director of the Division of Budget in consultation with the state Department of Labor.

Except for:

the law also contains a "safety valve" provision which provides that, beginning in 2019, the state Director of the Division of Budget will conduct an annual analysis of the economy in each region in the state, and the effect of the minimum wage increases, to determine whether a temporary suspension of the scheduled increases is necessary.

Got that?  One state, trying to raise the minimum wage that is currently not a living wage, and taking some three, four, five years (or maybe never) to get it done.

Example #3.
People are working longer hours than ever before and still not making ends meet. So we'll address that too. Except that will happen right now, or at least by the end of this year, the end of Obama's presidency.  In case you missed it, there's a new rule on overtime.

Under a new rule announced by the White House Tuesday, anybody making a salary of less than $47,476 ($913 a week) (which is $22.825 per hour) will automatically qualify for overtime pay when they work more than 40 hours a week. That's roughly double the $23,660 ($455 per week) (which is $11.375 per hour).

Why are we doing this, you ask?

Because there are folks who have some management responsibilities who have been exempt from OT, until this change.  I was not aware, but since 1975, according to the article, the percentage of salaried workers who are eligible for overtime has fallen from 62% to 7%.. That will increase to 35% when the new rule goes into effect.

Bet you're wondering how that threshold was determined, aren't you?  Well, we're told,

The new threshold will be updated every three years to make sure it stays at the 40th percentile of full-time salaries in the lowest income region of the country. Based on wage growth projections, that means it could rise to $51,000 by 2020.

So, here we have three examples of helping solve the wage problem, three different solutions:

• a one-size fits all (Sanders)
• a one size fits some, if they're not full-figured (Clinton)
• a many sizes might fit most eventually, unless the sizes stop being made (Cuomo), or
• a size from some unknown part of the country that fits everyone (Obama)

Do any of the solutions solve the problem? There's certainly no guarantee.  

Fast food companies, for example, are increasing their self-serve kiosks, in part because we all so hate standing in line to be served by a human (anyone remember bank tellers?) and certainly in part because employers will automate to avoid having to pay arbitrary wages. (Ironically, some of the people making the automated kiosks will likely be earning less than the people in the fast food restaurants the kiosks are designed to replace.)

Some employers will find a way to get rid of one person, I'm sure, to qualify for the lower minimum wage afforded to smaller businesses here in New York.  And, of course, the new overtime rule will likely see some salaried people become hourly people, reducing their flexibility and perhaps their other 'managerial' benefits; others will simply not be offered the extra hours, so they won't benefit from the change at all. In fact, they may lose money, given that straight time for hours over 40 is better than nothing. 

Throw in other regulations that determine benefit levels, or define 'small business' in a totally different way, making it even more costly for small businesses to navigate our state and federal regulatory landscape, and throw in the countless legal experts who will find the loopholes in these regulations (as there always are, and as they always do) to satisfy shareholders and pension funds and 401k funds, and to keep the costs of their products down, and what will the real outcome be?

Finally, what do any of these minimum wage solutions in particular do for the vast majority of workers who are struggling on their current, non-living wage of $15 an hour today, and will likely not receive a 50%, 60%, or 70% increase by the end of 2020?  Their struggle will continue, right, even though their minimum wage-earning teenagers will be thriving?

I know people say we have to start somewhere, but do we know where that 'somewhere' really is?

My Middle-Aged White Lady Perspective: $15/hour

So you've all heard by now that New York's Sonofa Gov, Andrew Cuomo, called for a Wage Board to rubber stamp the idea that fast food workers deserve to make $15 per hour. Eventually. Not right now, of course, when they're struggling making less than a living wage, but later -- 2018 in New York City, and 2021 across the rest of the state. Said rubber stamp was applied, and without more than three or six years of further ado, wages will go up for folks who work in places food is paid for before it's eaten, as long as the establishment meets the requirements.

From my middle-aged white lady perspective, this is a ridiculous idea, on several fronts.

(1) How many fast food workers are people "trying to raise a family" on minimum wage? I suspect there are some, and we've of course seen them on news stories about the wage hike, but most folks I see working in these restaurants are teenagers, not adults. High schoolers, not grandmas and grandpas. That may be a factor of where I live (Syracuse) or how infrequently I go to Arby's, McDonald's, Burger King, or Dunkin' Donuts, but generally my experience is, the person wearing the manager or supervisor name tag is the only 'adult' behind the counter. Do high school juniors really deserve to make as much as college graduates?

(2) If the entry level job pays $15, how much will these businesses have to raise the salaries of the assistant shift supervisors? Shift supervisors? Store managers? District managers? And how much will that cut further into the restaurant's profitability or even ability to survive?

(3) Have we no plans to grow the economy and the job market in New York, that we are anticipating people will still be in the same fast good positions three or six years out? And have we no plans to reduce the cost of living here in the Empire State, to reduce government mandates and taxes and wasteful spending, the things that would make all salaries last longer, leaving arbitrary wage increases as our best option? And if that's the best answer today, what will it be six years from now? Will a 'living wage' be $20 then?

(4) What makes fast food workers special, compared to, say, substitute teachers? Home care workers? Cashiers? Stock boys at grocery stores? Retail employees? Do we really value someone who puts donuts in a box more than someone who teaches or cares for the young, the elderly, the disabled?  Is that who we want to be here in the great state of New York?

(5) Why would we want to devalue experience and education?  Some time ago, I posed the question on how we can double or significantly increase the minimum wage without making the same adjustments in all other wages, which are 'commensurate with experience' or require college degrees, or both.

(6) Mandating $15/hour doesn't only raise the hourly rate of pay for workers. It also raises the cost of benefits for the company; it raises the taxes that the businesses pay; and it obviously will raise the cost of the food sold at the restaurant. Those increased costs will be passed on to consumers, including all of those folks who are NOT getting a massive, government-directed raise.

(7) The new wage comes without any expectation of increased productivity or service; it only brings added cost to the businesses and their customers.

I'm old enough, and fortunate enough, to have spent my adult life working at jobs where there was incentive to work harder, to do more, to go the extra mile on behalf of my employer or our customers. I'm grateful for the opportunity to be able to advance, to take on added responsibilities and to be financially rewarded for doing that.

I understand that not everyone has that chance today. I get that. But randomly eliminating that opportunity because it's been priced out of the market by a Governor who's pandering for support, money and votes (or in my opinion, lamenting that he hasn't been more like his late father and trying to make amends), serves us how? Randomly deciding that only a portion of the labor force in New York is, by stroke of a pen, suddenly worthy of a 60 - 70% salary increase serves us how?

It is, on its face, nothing but a poorly conceived government-ordered handout that will not solve the income gap, or reduce income inequality. It is intended to replace one government benefit (SNAP and other assistance paid to low-wage earners), but as designed may actually end up increasing government benefits for the cheering workers we saw on television when this was announced.

The next time you're in your local Panera Bread, look around for the tablet computers where you can order and pay for your food, without having to talk with a cashier. Or, when you're sitting at your table after doing your own ordering, waiting for your food to be brought out, take a look at the little sign on the wall advising that you could have ordered from your table - no need to even stand at a tablet. That's right - you can grab your table first, pull out your smart phone, place your order and pay, and then go back to playing Words with Friends without ever batting an eyelash.

Those tablets? They don't call in sick; they don't require 30 percent or more in benefits overhead; they don't costs the business increased payroll taxes; and they government can't raise their salary.  I'm willing to bet we'll see a lot more of those, and fewer fast food workers, working fewer hours, by the time the vaunted $15 hourly wage is in place.

And the other big reason? Because the people who pushed for the huge pay increase for fast food workers are not regular customers of fast food restaurants. I maintain that they should be, particularly when full increase finally goes into effect, because of that whole 'walk the talk' thing. You know, kinda like Donald Trump not liking that his ties and shirts were made in China and complaining about the quality and that China is raping America, but continuing to have his line of branded items made in China anyway. Walk the talk, folks.

I'll give a 2021 fast food hour's pay to the first person who gets a shot of the Governor and Sandra Lee chowing down on a Brown Sugar Bacon BLT.

My Salary is My Business

Happy Equal Pay Day.

What's that mean, you're wondering? Well, according to the numbers, if My Sweet Baboo were the average male and earned a full dollar in 2013, and I were the average female I would have only earned 77 cents last year, and it would have taken me until today to earn the last 23 cents needed for me to have a 2013 dollar too.

Rather than arguing whether or not a there is a pay gap, and whether or not it's 77 cents to a dollar, and whether or not it's self-inflicted because women take low paying jobs, or have babies, or aren't driven or don't have the right personalities, or are held back by a glass ceiling, let's talk about today, about President Obama signing an executive order and issuing a presidential memorandum to help address that wage gap.  They both have limited impact, but there's at least some chance -- however slim -- that they could become law for all employers.

The first one, the executive order, will prohibit contractors working for the federal government from taking action against employees who talk salary with coworkers. According to the White House,

It is important that women and all employees feel they can seek information about pay from colleagues without the threat of being fired.

The memorandum directs the Department of Labor to get data from those federal contractors, compensation data broken down by gender and race. The thinking here, again according to the administration?

It aims to allow for more efficient enforcement and even voluntary compliance.  Employers often don't realize there is a pay gap until they're confronted with it. 

I can't speak to the second point above, but I can to the first. I've worked at companies where discussing salary was strongly discouraged, even if there wasn't an official policy on the subject. I have friends who have worked (or still do) at companies where asking someone else their salary was grounds for dismissal, as was answering the question if asked.  Admittedly this was back in the day but I'm reasonably comfortable there are still companies with policies like that. And, frankly I am reasonably comfortable with a policy like that.

Maybe my sensitivity to discussing my salary comes from my childhood, seeing my Dad's name and salary published in the newspaper back in the 70s when he was a teacher with a master's degree who made a ton of money -- barely more than one of his former students made working as a union janitor at a local factory, and almost as much as a friend's dad who was a truck driver.  Yeah, that could be why.

Or maybe it's because I don't feel a sense of sisterhood (or any other kind of hood) to such an extent that I'd share my personal information with someone out of solidarity.  Yeah, that could be why, too.

Regardless of what the company policy is, or what the executive order says, my policy has always been and will always be don't ask, don't tell.  Because there are only a handful of people who need to know what I make:  me, my boss, the taxman, and My Sweet Baboo.

And I'm not sure how much he cares, as long as I can afford to buy the groceries and the cat food.