almost all of it was deducted: See Scott Klinger and Sarah Anderson, Fleecing Uncle Sam, Center for Effective Government and Institute for Policy Studies websites, 2014 (http://www.ips-dc.org/wp-content/uploads/2014/11/IPS_Fleecing_Uncle_Sam_Report_Nov2014.pdf).
“The most natural explanation”: See N. Gregory Mankiw, “Yes, the Wealthy Can Be Deserving,” New York Times, February 16, 2014 (http://www.nytimes.com/2014/02/16/business/yes-the-wealthy-can-be-deserving.html).
the average compensation for a board member: Jeff Green and Hideki Suzuki, “Board Director Pay Hits Record $251,000 for 250 Hours,” Bloomberg News, May 29, 2013 (http://www.bloomberg.com/news/2013-05-30/board-director-pay-hits-record-251-000-for-250-hours.html).
“Say on pay” votes: U.S. Securities and Exchange Commission, “SEC Adopts Rules for Say-on-Pay and Golden Parachute Compensation as Required Under Dodd-Frank Act,” press release, January 25, 2011 (http://www.sec.gov/news/press/2011/2011-25.htm).
Billionaire Larry Ellison: Aaron Ricadela, “Oracle Investors Reject CEO Ellison’s Pay at Annual Meeting,” Bloomberg Business, October 31, 2013.
In Australia, by contrast: See Julie Walker, “Australia Has Had Three Years with the Two-Strikes Law and Executive Pay Pain Won’t Go Away,” Business Insider Australia, October 17, 2013 (http://www.businessinsider.com.au/australia-has-had-three-years-with-the-two-strikes-law-and-executive-pay-pain-wont-go-away-2013-10#ixzz3KnFsy7CY).
That rule has contributed: Trevor Chappell, “Pay Packets for Top Bosses Hit $4.8m,” The Australian, September 18, 2014 (http://www.theaustralian.com.au/news/latest-news/pay-packets-for-top-bosses-hit-48m/story-fn3dxity-1227062091908?nk=b617256a578d48ed6ca86f426cd40b14).
a steadily larger portion of CEO pay: See Kevin J. Murphy, “Executive Compensation: Where We Are, and How We Got There,” Handbook of the Economics of Finance, ed. George Constantinides, Milton Harris, and René Stulz (Oxford: Elsevier Science North Holland, 2013), pp. 211–356.
Professor William Lazonick of the University of Massachusetts Lowell: See Lazonick, Taking Stock, p. 5 (http://rooseveltinstitute.org/sites/all/files/Lazonick_Executive_Pay_White_Paper_Roosevelt_Institute.pdf).
the Securities and Exchange Commission regarded stock buybacks: Ibid., p. 8 (http://rooseveltinstitute.org/sites/all/files/Lazonick_Executive_Pay_White_Paper_Roosevelt_Institute.pdf).
Adding to the allure of stock options: Ibid., p. 9 (http://rooseveltinstitute.org/sites/all/files/Lazonick_Executive_Pay_White_Paper_Roosevelt_Institute.pdf).
in 1993, the Clinton administration decided: See Steven Balsam, Taxes and Executive Compensation, Briefing Paper #344, Economic Policy Institute website, August 14, 2012 (http://www.epi.org/publication/taxes-executive-compensation/).
Between 2003 and 2012: William Lazonick, “Profits Without Prosperity,” Harvard Business Review, September 2014 (https://hbr.org/2014/09/profits-without-prosperity).
companies in the Standard & Poor’s 500 index repurchased: “The Repurchase Revolution,” The Economist, September 13, 2014 (http://www.economist.com/news/business/21616968-companies-have-been-gobbling-up-their-own-shares-exceptional-rate-there-are-good-reasons).
S&P 500 companies put most of their net earnings: Lazonick, “Profits Without Prosperity.” (https://hbr.org/2014/09/profits-without-prosperity)
it spent $108 billion buying back its own shares: IBM, What Will We Make of This Moment? 2013 IBM Annual Report, IBM website, 2013, p. 7 (http://www.ibm.com/annualreport/2013/bin/assets/2013_ibm_annual.pdf).
“all these ‘shareholder friendly’ maneuvers”: Andrew Ross Sorkin, “The Truth Hidden by IBM’s Buybacks,” New York Times, October 20, 2014 (http://dealbook.nytimes.com/2014/10/20/the-truth-hidden-by-ibms-buybacks/).
the strategy had paid off for IBM’s CEOs: Lazonick, Taking Stock, p. 12 (http://rooseveltinstitute.org/sites/all/files/Lazonick_Executive_Pay_White_Paper_Roosevelt_Institute.pdf).
It, too, had a lifelong employment policy: William Lazonick, “Innovative Enterprise and Shareholder Value,” AIR Working Paper #14-03/01, Academic-Industry Research Network website, March 2014, p. 16 (http://www.theairnet.org/files/research/WorkingPapers/Lazonick_InnovativeEnterpriseandShareholderValue_AIR-WP14_0301.pdf).
Hewlett-Packard’s CEOs received: Lazonick, Taking Stock, p. 12 (http://rooseveltinstitute.org/sites/all/files/Lazonick_Executive_Pay_White_Paper_Roosevelt_Institute.pdf).
Apple borrowed $17 billion: Charles Mead and Sarika Gangar, “Apple Raises $17 Billion in Record Corporate Bond Sale,” Bloomberg News, April 30, 2013 (http://www.bloomberg.com/news/2013-04-30/apple-plans-six-part-bond-sale-in-first-offering-since-1996-1-.html).
Apple CEO Tim Cook: Gary Strauss, Barbara Hansen, and Matt Krantz, “Millions by Millions, CEO Pay Goes Up,” USA Today, April 4, 2014; see chart “2013 CEO Compensation, Realized Compensation.” (http://www.usatoday.com/story/money/business/2014/04/03/2013-ceo-pay/7200481/)
Stock options and restricted stock grants: Murphy, “Executive Compensation,” pp. 211–356.
Time Warner chief executive Jeff Bewkes: William Launder, “Time Warner CEO Bewkes’s 2013 Compensation Up 26%,” Wall Street Journal, April 21, 2014 (http://online.wsj.com/articles/SB10001424052702304049904579516231015294734).
Facebook’s Mark Zuckerberg: Facebook, Inc., Schedule 14A Definitive Proxy Statement, March 31, 2014, pp. 21, 32 (http://www.sec.gov/Archives/edgar/data/1326801/000132680114000016/facebook2014proxystatement.htm).
Michael J. Cooper of the University of Utah: On the relationship between CEO pay and performance, see Michael J. Cooper, Huseyin Gulen, and P. Raghavendra Rau, “Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance,” working paper series, Social Science Research Network website, October 1, 2014. See also Susan Adams, “The Highest-Paid CEOs Are the Worst Performers, New Study Says,” Forbes, June 16, 2014 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572085) (http://www.forbes.com/sites/susanadams/2014/06/16/the-highest-paid-ceos-are-the-worst-performers-new-study-says/).
Sony CEO Kazuo Hirai: Gavin J. Blair, “Sony CEO, Top Execs to Return $10 Million in Bonuses Amid Electronics Unit Losses,” Hollywood Reporter, May 13, 2014 (http://www.hollywoodreporter.com/news/sony-ceo-execs-return-bonuses-703557).
Martin Sullivan: Michael B. Dorff, Indispensable and Other Myths: How the CEO Pay Experiment Failed and How to Fix It (Berkeley and Los Angeles: University of California Press, 2014), pp. 1–2.
Hank A. McKinnell, Jr.: Gary Rivlin, “New Study Shows How Golden Parachutes Are Getting Bigger,” Daily Beast, January 11, 2012 (http://www.thedailybeast.com/articles/2012/01/11/new-study-shows-how-golden-parachutes-are-getting-bigger.html).
Douglas Ivester of Coca-Cola: Liz Moyer, “Supersize That Severance!” Forbes, October 31, 2007 (http://www.forbes.com/2007/10/30/merrill-severance-compensation-biz-wall-cx_lm_1031failure.html).
Donald Carty: Richard Finger, “Why American Airlines Employees Loathe Management,” Forbes, April 29, 2013 (http://www.forbes.com/sites/richardfinger/2013/04/29/why-american-airlines-employees-loathe-management/).
If anything, pay for failure: Paul Hodgson and Greg Ruel, Twenty-One U.S. CEOs with Golden Parachutes of More Than $100 Million, GMI Ratings website, January 2012 (http://go.gmiratings.com/rs/gmiratings/images/GMIRatings_GoldenParachutes_012012.pdf).
Howard Schultz, CEO of Starbucks: Sarah Anderson and Marjorie Wood, Restaurant Industry Pay: Taxpayers’ Double Burden, Institute for Policy Studies website, April 22, 2014, p. 5 (http://www.ips-dc.org/wp-content/uploads/2014/04/IPS-Restaurant-Industry-Pay-Report-2014.pdf).
“It was well-intentioned�
�: Senator Chuck Grassley, “Executive Compensation: Backdating to the Future/Oversight of Current Issues Regarding Executive Compensation Including Backdating of Stock Options; and Tax Treatment of Executive Compensation, Retirement and Benefits,” closing statement, Finance Committee hearing, September 6, 2006 (http://www.finance.senate.gov/newsroom/chairman/release/?id=fa3baac7-174f-4e3e-b16d-2eda0b6cec87).
The Economic Policy Institute estimated: Steven Balsam, Taxes and Executive Compensation, Briefing Paper #344, Economic Policy Institute website, August 14, 2012 (http://www.epi.org/publication/taxes-executive-compensation/).
Capital gains are taxed at a lower rate: “Topic 409—Capital Gains and Losses,” Internal Revenue Service website, August 19, 2014 (http://www.irs.gov/taxtopics/tc409.html).
12 THE SUBTERFUGE OF WALL STREET PAY
Wall Street’s five largest banks: Hester Peirce and Robert Greene, “The Decline of US Small Banks (2000–2013),” Mercatus Center website, February 24, 2014 (http://mercatus.org/publication/decline-us-small-banks-2000-2013).
Kenichi Ueda of the International Monetary Fund: Kenichi Ueda and Beatrice Weder di Mauro, “Quantifying Structural Subsidy Values for Systemically Important Financial Institutions,” IMF Working Paper no. 12/28, International Monetary Fund website, May 2012, p. 4 (http://www.imf.org/external/pubs/ft/wp/2012/wp12128.pdf).
This may not sound like much: “Why Should Taxpayers Give Big Banks $83 Billion a Year?” editorial, Bloomberg View, February 20, 2013 (http://www.bloombergview.com/articles/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year).
This estimate, by the way, is consistent: See International Monetary Fund, “Global Financial Stability Report: Moving from Liquidity- to Growth-Driven Markets,” World Economic and Financial Surveys, International Monetary Fund website, April 2014, p. 104; U.S. Government Accountability Office, Large Bank Holding Companies: Expectations of Government Support, GAO-14-621, U.S. Government Accountability website, July 2014, pp. 50–51 (https://www.imf.org/External/Pubs/FT/GFSR/2014/01/pdf/text.pdf) (http://www.gao.gov/assets/670/665162.pdf).
Economists from New York University: See Viral V. Acharya, Deniz Anginer, A. Joseph Warburton, “The End of Market Discipline? Investor Expectations of Implicit State Guarantees,” Minneapolis Federal Reserve Bank, Social Science Research Network website, June 2014 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1961656).
The lion’s share of that subsidy: “Why Should Taxpayers Give Big Banks $83 Billion a Year?” (http://www.bloombergview.com/articles/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year-)
After reviewing these wills: Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation, “Agencies Provide Feedback on Second Round Resolution Plans of ‘First-Wave’ Filers,” joint press release, August 5, 2014 (http://www.federalreserve.gov/newsevents/press/bcreg/20140805a.htm).
Thomas Hoenig: Statement by Thomas M. Hoenig, Vice Chairman, Federal Deposit Insurance Corporation, “Credibility of the 2013 Living Wills Submitted by First Wave Filers,” FDIC website, August 5, 2014, p. 2 (https://www.fdic.gov/news/news/speeches/spaug0514a.pdf).
the $26.7 billion distributed to Wall Street bankers: Sarah Anderson, “Wall Street Bonuses and the Minimum Wage,” Institute for Policy Studies website, March 12, 2014 (http://www.ips-dc.org/wall_street_bonuses_and_the_minimum_wage/).
The remainder of the $83 billion: “Rewarding Work Through State Earned Income Tax Credits,” policy brief, Institute on Taxation and Economic Policy website, April 2014 (http://www.itepnet.org/pdf/pb15eitc.pdf).
That year the top twenty-five hedge-fund managers: Nathan Vardi, “The 25 Highest-Earning Hedge Fund Managers and Traders,” Forbes, February 26, 2014 (http://www.forbes.com/sites/nathanvardi/2014/02/26/the-highest-earning-hedge fund-managers-and-traders/).
Even run-of-the-mill portfolio managers: Brendan Conway, “Entry Level Hedge Fund Pay: $353,000,” Barron’s, October 31, 2013 (http://blogs.barrons.com/focusonfunds/2013/10/31/entry-level-hedge fund-pay-353000/).
“The portfolio managers know the best price”: Eric Falkenstein, “Righteous Bonuses,” Falkenblog, February 2, 2009 (http://falkenblog.blogspot.co.uk/2009/02/righteous-bonuses.html).
SAC Capital managed so much money: For a discussion of SAC Capital, see Marcia Vickers, “The Most Powerful Trader on Wall Street You’ve Never Heard Of,” Bloomberg Businessweek, July 20, 2003 (http://www.businessweek.com/stories/2003-07-20/the-most-powerful-trader-on-wall-street-youve-never-heard-of).
His firm was fined $1.8 billion: Agustino Fontevecchia, “Steve Cohen Personally Made $2.3B in 2013 Despite Having to Shut Down SAC Capital,” Forbes, March 13, 2014 (http://www.forbes.com/sites/afontevecchia/2014/03/13/steve-cohen-personally-made-2-3b-in-2013-despite-having-to-shut-down-sac-capital/).
But Cohen’s treatment: Peter H. Stone and Michael Isikoff, “Hedge Funds Bet Heavily on Republicans at End of Election,” Center for Public Integrity website, January 5, 2011 (http://www.publicintegrity.org/2011/01/05/2232/hedge funds-bet-heavily-republicans-end-election).
If confidential information is indeed: Floyd Norris, “Loosening the Rules on Inside Trading,” New York Times, April 24, 2014 (http://www.nytimes.com/2014/04/25/business/loosening-the-rules-on-insider-trading.html).
Michigan congressman Sander M. Levin: See Monica Vendituoli, “Hedge Funds: Background,” OpenSecrets.org website, updated September 2013 (http://www.opensecrets.org/industries/background.php?ind=F2700).
13 THE DECLINING BARGAINING POWER OF THE MIDDLE
For three decades after World War II: See Susan Fleck, John Glaser, and Shawn Sprague, “The Compensation-Productivity Gap: A Visual Essay,” Monthly Labor Review, January 2011 (http://www.bls.gov/opub/mlr/2011/01/art3full.pdf).
By 2013, the median household: U.S. Census Bureau, “Historical Income Tables: Households,” table H-6 (https://www.census.gov/hhes/www/income/data/historical/household/).
Job security also declined: See Henry S. Farber, “Job Loss and the Decline in Job Security in the United States,” in Labor in the New Economy, ed. Katharine G. Abraham, James R. Spletzer, and Michael Harper (Chicago: University of Chicago Press, 2010). See also U.S. Bureau of Labor Statistics, “Seasonally Adjusted Employment-Population Ratio” (http://data.bls.gov/timeseries/LNS12300000) (http://www.nber.org/chapters/c10822.pdf).
In 2013, an American household: U.S. Census Bureau, “Historical Income Tables: Households,” table H-6 (https://www.census.gov/hhes/www/income/data/historical/household/).
Their average pay: Drew DeSilver, “For Most Workers, Real Wages Have Barely Budged for Decades,” Fact Tank, Pew Research Center website, October 9, 2014 (http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/).
the median income in Germany: David Leonhardt, “The German Example,” New York Times, June 7, 2011.
the standard explanation doesn’t tell us why: Heidi Shierholz, Six Years from Its Beginning, the Great Recession’s Shadow Looms Over the Labor Market, Issue Brief #374, Economic Policy Institute website, January 9, 2014 (http://www.epi.org/publication/years-beginning-great-recessions-shadow/).
the real average hourly wages: Heidi Shierholz, Alyssa Davis, and Will Kimball, The Class of 2014: The Weak Economy Is Idling Too Many Young Graduates, Briefing Paper #377, Economic Policy Institute website, May 1, 2014 (http://www.epi.org/publication/class-of-2014/).
according to the Federal Reserve Bank of New York: Jaison R. Abel and Richard Deitz, “Are the Job Prospects of Recent College Graduates Improving?” Liberty Street Economics, Federal Reserve Bank of New York website, September 4, 2014 (http://libertystreeteconomics.newy
orkfed.org/2014/09/are-the-job-prospects-of-recent-college-graduates-improving.html#.VJRvwsAB).
“Generation Limbo”: Jennifer 8. Lee, “Generation Limbo: Waiting It Out,” New York Times, August 31, 2011 (http://www.nytimes.com/2011/09/01/fashion/recent-college-graduates-wait-for-their-real-careers-to-begin.html?pagewanted=all).
As early as 1914: Walter Lippmann, Drift and Mastery (Englewood Cliffs, NJ: Prentice Hall, 1914; reprinted 1961), pp. 22, 23.
“in their own interest”: Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (New York: Macmillan, 1932), p. 302.
The solution, Berle and Means concluded: Ibid., p. 312.
“The job of management”: Frank Abrams, “Management’s Responsibilities in a Complex World,” Harvard Business Review 29, no. 3 (1951): 29–34.
Fortune magazine urged CEOs: See Fortune 40, no. 4 (October 1951): 98–99.
“the majority of Americans support private enterprise”: For a discussion of General Electric and corporate stewardship, see Rick Wartzman, “Whatever Happened to Corporate Stewardship?” Harvard Business Review, August 29, 2014. See also “Business: The New Conservatism,” Time, November 26, 1956 (https://hbr.org/2014/08/whatever-happened-to-corporate-stewardship).
The 1974 act changed that: See Michael McCarthy, “Why Pension Funds Go to Risky Investments,” Washington Post, October 19, 2014 (http://www.washingtonpost.com/blogs/monkey-cage/wp/2014/10/19/why-pension-funds-go-to-risky-investments/).
In 1982, another large pool of capital became available: See Garn–St. Germain Depository Institutions Act of 1982, Pub. L. No. 97-320. See also Marcia Millon Cornett and Hassan Tehranian, “An Examination of the Impact of the Garn–St. Germain Depository Institutions Act of 1982 on Commercial Banks and Savings and Loans,” Journal of Finance 45, no. 1 (March 1990): 95–111 (https://www2.bc.edu/hassan-tehranian/Hassan%20published%20paper/An%20Examination%20of%20the%20Impact%20of%20the%20Gar-St.%20Germain.pdf).
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