Wednesday, November 12, 2014

Same Coin Two Sides

While the country continues to prove that voting is not a priority we did see a unilateral move by many states to raise the minimum wage without the need for Congressional oversight, review or law. Well as said previously, "all politics are local" and clearly that is where the wage issues begin. Each community has its own costs and variations of expenses that federal minimum wage has not addressed. What it costs to live in San Francisco is not the same as living in Cleveland and each state and city needs to examine what those costs are and address what is a livable wage.

When jobs have been increasing but wages stagnant it is clear we have not reconciled the two. And as the two articles below discuss wages are an issue that define the issue of what is income inequity.

I have a solution. Let's hire the compensation consultants discussed in Mr. Sorkin's column to examine the wages and benefit package of the same companies that the are hired to do on the part of the CEO. Then each plan is compared and contrasted to the varying executives and that of the rank and file. Taking into account of course time on job, level of education and very clear set of skills needed to perform said job and see exactly how each player in the field lines up. This would be of course fully transparent and then let the shareholders, the executive boards and of course the employees really see who gets paid what and the variations, the justifications as to why a CEO is paid 300% more than the lowest paid employee. We know it won't be the janitor as that is usually contracted/outsourced so say in the case of banking, a Teller.

This might actually be the most needed debate and discussion to result over the issue of wages and income inequity.

And of course the movement of shareholders and the supposed investor hedge fund activists to actually do some heavy lifting and take a stronger role and harder hand on this issue of CEO pay.

Will it happen? I have no clue. I want to believe Virgina.

The Great Wage Slowdown, Looming Over Politics
By Dave Leonhardt
NOV. 11, 2014

A quiz: How does the Democratic Party plan to lift stagnant middle-class incomes

I realize that liberal-leaning economists can give a long, substantive answer to this question, touching on health care costs, education and infrastructure. But most Americans would not be able to give a clear answer — which helps explain why the party took such a drubbing last week.

The Democratic Party’s short-term plan to help the middle class just isn’t very clear. Some of the policies that Democrats favor, such as broader access to good education, take years to pay off. Others, like reducing medical costs or building new roads, have an indirect, unnoticed effect on middle-class incomes.

The fact remains that incomes for most Americans aren’t growing very fast and haven’t been for years. Median inflation-adjusted income last year was still $2,100 lower than when President Obama took office in 2009 — and $3,600 lower than when President George W. Bush took office in 2001. That’s not just because of the financial crisis, either: Last month was another solid one for job growth and another weak one for average wage growth, the latest jobs report

The Democratic Party fashions itself as the defender of working families, and low- and middle-income voters are indeed more favorably disposed to Democrats than to Republicans. Those voters have helped the party win the popular vote in five of the last six presidential elections. But if Democrats can’t deliver rising living standards, many voters aren’t going to remain loyal. They’ll skip voting or give a chance to Republicans who offer an alternative, even a vague alternative.

As the 2016 presidential campaign begins to stir, the central question will be how both parties respond to the great wage slowdown. Neither has offered a persuasive answer so far — let alone a solution — which is why the public mood is so sour and American politics has been so tumultuous lately. The partisan makeup of the Senate has seesawed more over the past decade than in any time since just after World War II. The Republicans won big victories in 2004, 2010 and 2014, the Democrats in 2006, 2008 and 2012.

All the while, incomes keep stagnating, and nothing influences the national zeitgeist quite so much as income trends, for understandable reasons.

What can Washington do? The answers are very different for the short term and the long. Over years and decades, nothing matters more than economic growth. The last period of strong income gains — the late 1990s — was also the last period of strong economic growth

Washington could definitely do more to help growth: better infrastructure, a less burdensome tax code, a less wasteful health care system, more bargaining power for workers and, above all, stronger schools and colleges, to lift the skills of the nation’s work force. Countries that have made more educational progress over the last generation have experienced bigger income gains than the United States, and even here the pay gap between college graduates and everyone else has reached.

Yet no mix of these policies is likely to end the great wage slowdown anytime soon. “This is not a silver-bullet issue,” says Gene Sperling, a longtime adviser to Bill and Hillary Clinton and Mr. Obama, “and that’s part of what’s frustrating to people.” In fact, the country is making good progress on several of these issues, starting with health costs, but incomes are still stuck.

Politicians often like to boast that they’ve come up with bold ideas to solve economic problems and then package those ideas as new — a new deal, a new frontier, a new covenant. But most aren’t really new. That’s O.K., too. Truly new ideas don’t come along very often in any field, including economics

So it goes with lifting middle-class incomes. The best hope for doing so, in the immediate future, is probably the oldest and most obvious play in the book: a tax cut.

A few years ago, a middle-class tax cut would have seemed a silly idea. Both Mr. Bush and Mr. Obama had already cut taxes, and the federal budget deficit was enormous. But the deficit has since fallen sharply, thanks in part to lower health costs. Meanwhile, middle- and lower-income families are reaping a disproportionately small share of economic growth. Having the government try to rectify the situation doesn’t sound so silly now — and probably won’t in the 2016 presidential campaign

Tumult in Congress

The partisan balance in the Senate has seesawed more over the past decade than at any other time since the early 1950s, while the House balance has changed more since the 1970s.

Obviously, a tax cut doesn’t need to be a Democratic idea. If anything, it’s traditionally been more of a Republican one. But Republicans’ first priority tends to be cutting the top marginal tax rate or the corporate tax rate, changes that mostly benefit the affluent households already doing pretty well. (And history is clear that such tax cuts rarely bring the economic benefits their advocates claim.

Any presidential candidate — from either party — who can claim the mantle of middle-class tax cutter is likely to benefit from it. For that matter, you could imagine Mr. Obama or reform-minded Republicans in Congress proposing such a tax cut sooner.

The details could be straightforward. The cut could be temporary or permanent. It could involve a decline in marginal tax rates for the middle class or an expansion of tax credits. Mr. Sperling, for example, has suggested giving middle-class and poor families some of the same tax incentives to save for retirement that wealthy people have. Any one of these plans would raise people’s effective income in a tangible way.

Because the long-term budget deficit remains a problem, any such tax cut could be paired with a tax increase for top earners, who — even after the expiration of some Bush-era tax cuts — still face lower rates than they have for most of recent history. “Taxes for high-earning Americans are too low,” argues Roger Altman, the Wall Street executive and Democratic adviser. Most Americans favor tax increases on the well-off, polls show understood this fact — and viewed the Democrats as the party of tax cuts

A middle-class tax cut would not solve all of the country’s economic problems. To be honest, it would worsen some of them — particularly the widespread notion that my taxes are too high and your government benefits are too high. In truth, federal taxes are still low from a historical perspective.

But after 15 years of disappointing income growth, many voters are skeptical of sophisticated economic plans with uncertain, long-term payoffs. They’re looking for simple ideas that can help people immediately. The popularity of minimum-wage increases makes the point: Even as Democrats were going down to defeat nationwide, voters in five states handily approved such increases.

The challenge for the next election will be coming up with a version of the minimum-wage increase that applies to the middle class as well

More Transparency, More Pay for C.E.O.s
Andrew Ross Sorkin
November 10, 2014

“It’s very seldom that publishing compensation accomplishes much for the shareholders. No C.E.O. looks at a proxy statement and comes away saying, ‘I should be paid less.’

It was an intriguing, counter intuitive point, but largely anecdotal

Now, a study by three professors at the University of Cambridge may help prove Mr. Buffett’s assertion

The study shows in devastating detail how compensation consultants — which use the increasingly available public data on compensation to advise boards on how much to pay chief executives — are helping to ratchet up the pay for the nation’s top executives

Companies have long tried to “benchmark” the compensation of their executives to that of their peers

But as the cottage industry of compensation consultancy has emerged — along with more detailed information about salaries and bonuses — the increase in compensation has not slowed. In fact, quite the opposite has happened

“We consistently find evidence that supports the argument that compensation consultants are hired to justify higher C.E.O. pay to the board, shareholders, and other stakeholders,” wrote the study’s authors, Jenny Chu, Jonathan Faasse and P. Raghavendra Rau.

In theory, the hiring of compensation consultants — and the publication of compensation plans publicly — should have curbed the rise in executive pay. The various headline-grabbing lists of compensation for chief executives are seemingly meant to shame boards — and the armada of consultants around them — to restrain their largess.

But according to the study, it’s the other way around: Companies that hire compensation consultants for the first time “show a 7.5 percent increase in C.E.O. pay compared to other firms, and such companies where C.E.O.s get a pay boost are less likely to turn over consultants the following year.

One of the study’s authors cited the jump in pay for Michael Dell, founder and chief executive of Dell, after it hired a compensation consultant in 2011. (His pay quadrupled though it may be hard to ascribe it solely to the consultant.) Similarly, the C.E.O. of Public Storage’s pay multiplied after hiring a consultant.

Worse, allowing a chief executive to hire a compensation consultant instead of leaving the task to the company’s board led to a 13 percent increase in pay, the study’s authors found.

Why in the world is a chief executive in charge of hiring a compensation consultant? That’s a good question, but it happens more than you would imagine.

The study, which examined more than 1,000 United States companies from 2006 to 2012, shows that compensation consultants have an increasing influence inside boardrooms.

In 2009, the Securities and Exchange Commission changed the rules concerning compensation consultants because they were worried about their influence and suspected them of conflicts. Many of the consultants, like Towers Watson, Mercer and Aon Hewitt, offered multiple services in addition to consulting on compensation. As a result, the S.E.C. theorized that the disclosure of consulting fees might help prevent the consultants from trying to curry favor with management by helping to lift pay in the hope of receiving more contracts for other services.

But the study’s authors say they found “that the S.E.C. rule change didn’t work as designed, because both company management and pay consultancies have found ways to circumvent the intent of the new rules.

Indeed, a cottage industry of boutique compensation consultants sprang up in the wake of the new rule, in part because then the companies do not have to disclose consulting fees if the firm does not provide other services. Some Mercer partners left to start Compensation Advisory Partners, and Towers Watson “announced that it would partner with a newly created spinoff, Pay Governance L.L.C.,” the authors wrote.

All of which brings us back to Mr. Buffett’s larger point about the disclosure of the compensation plans in the first place.

Is transparency a good thing? In most cases, it is hard to argue against the benefit it provides.

But when consultants and others use that transparency as a weapon in a compensation arms race, questions, even uncomfortable ones, must be raised.

Let’s be honest, compensation at the top level is rarely based on a true marketplace. Unless a rival company tries to poach a chief executive, it is hard to determine exactly what they should be paid.

Most employers seek to hire people at the lowest possible cost while still paying them enough to do the best job possible and keep them from leaving. It’s a delicate balance. But most companies seek to maximize whatever money they devote toward compensation.

That is rarely how boards think about it. For them, the best chief executive makes the most money.

“How do you tell your shareholders you have a great C.E.O.?” Mr. Rau said. “’For proof, we pay him peanuts.’ They never say they do that

So between the consultants and disclosure of all this information about compensation, the likelihood is that pay will rise at an ever greater pace.

“American shareholders are paying a significant price because they get to look at that proxy statement each year,” Mr. Buffett said.

He told a story about the time he ran Salomon Brothers. “At Salomon, everyone was dissatisfied with their pay, and they got enormous amounts. They were disappointed because they looked at others, and it drove them crazy.

Mr. Buffett’s business partner, Charlie Munger, chimed in: “I would say that envy is doing the country harm."

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