TCS Daily

Top of the World?

By David R. Henderson - January 11, 2007 12:00 AM

This is the final installment of my three-part review of Alan Reynolds's excellent new book, Income and Wealth. In the first installment, I laid out some of Reynolds's criticisms of the view that the vast majority of families' incomes have not increased much in the last few decades. Reynolds's evidence showed that they have, in fact, increased. In the second installment, I laid out Reynolds's main evidence against what I called "the real-wage pessimists," those who believe that the vast majority of U.S. workers have had little or no growth in real wages in the last few decades. This installment highlights his evidence on the claim that the top 1% has garnered the lion's share of income gains in the last two decades and that CEO pay is about 500 to 1,000 times the pay of the average worker.

The Top 1%

The seminal study showing the percent of income going to the top 1% is a National Bureau of Economic Research (NBER) study by economists Emmanual Saez of the University of California, Berkeley and Thomas Piketty of École normale supérieure in Paris. A version was later published as "Income Inequality in the United States" [pdf] in Harvard's Quarterly Journal of Economics. Their data showed that the share of income going to the top 1% of taxpayers (including capital gains), after being as low as 8 to 9% in the 1960s and 1970s, rose from 9.3% in 1980 to 16.4% in 1998.While many commentators in the popular press have reported the Piketty/Saez results uncritically, Reynolds dug into their data and discovered some huge problems, not mainly with the data themselves, but with other people's and, to some exent, Piketty's and Saez's interpretation of the data.

First, notes Reynolds, the Piketty/Saez data are on "tax units," not on individuals or families, a fact that Piketty and Saez admit. As I noted in my first installment, if a married couple filing jointly has an older child living in the couple's household but earning income, as my daughter did while in high school, that family will count as two tax units, not one. This, write Piketty and Saez, is not a problem because: "The average number of individuals per tax unit decreased over the century but this decrease was roughly uniform across income groups." (p. 4) Yet, after reading through their whole article, I could find neither data on this nor a citation to back up their assertion.

Second, notes Reynolds, a large part of the increase in the share of the top 1% of "tax units" occurred in 1986. This was understandable, Reynolds writes, because the 1986 Tax Reform Act raised the top tax rate on capital gains from 20% to 28%, effective in 1987, giving people with substantial unrealized capital gains a strong incentive to realize those gains and pay taxes on them in 1986. Because the changes in the tax law became widely known in August 1986, people had more than 3 months to cash in their capital gains. And, of course, a disproportionately high share of capital gains is earned by people in the top income brackets. Sure enough, Pikkety's and Saez's own data support this interpretation. They show that between 1985 and 1986, the income share of people in the top 1%, excluding capital gains, barely wiggled, rising from 9.09% to 9.13%. But the share of the top 1%, including capital gains, rose from 11.24% to 13.40%, an increase exceeding 2 percentage points.

Of course, Reynolds's interpretation explains why the share of the top 1%, including capital gains, rose in 1986 and fell in 1987 (from 13.40% in 1986 to 11.84% in 1987.) But why would the share of the top 1% rise after 1987 and stay high? Pikkety and Saez attribute it to a relatively sudden increase in earned income of what they call the "working rich." Reynolds has an alternate explanation that goes back to a separate provision of the 1986 Tax Reform Act—the dramatic changes in the top tax rates on corporate income and individual income. Before 1986, the top tax rate on corporate income was 46 percent, but the top income tax rate was 50% (and had been 70% as recently as 1980.) The 1986 law reduced the top tax rate on corporate income to 34%, but reduced the top income tax rate even more dramatically, from 50% to 28%. This, notes Reynolds, gave people who owned corporations an incentive to shift from C corporations, which paid corporate income tax, to S corporations, which paid individual income taxes. The shift in tax rates under the 1986 law was complete by 1988. With less income being taxed by the corporate income tax system and more falling under individual income taxes—and with a disproportionately high share of the people who had shifted to S corporations being in the highest-income groups—this could account for a few-percentage-point shift in the share of the top 1%. But, as Reynolds writes, this "was simply a bookkeeping change, having nothing to do with the actual distribution of income."

But, if the 1986 tax law is the main explanation for the increasing share of the top 1%, why would that share continue to rise well after 1988, when the new tax law was completely in force, instead of leveling off at a higher level? Reynolds points to other changes in the tax law that could have caused this shift to S corporations to continue over a number of years. He writes, "Rules governing Subchapter-S originally allowed only up to thirty-five stockholders but their number was expanded in stages to 100." Moreover, he notes, a 1996 law allowed banks to file as Subchapter-S corporations and, by December 2003, there were over 2000 such banks, with the largest at $9 billion (he doesn't specify whether he means income or assets, a big difference.) So income of "tax units" after 1987 included more and more "units" that had previously filed under the corporate tax system.

Reynolds describes a number of other factors that can help account for the increasing share of the top 1% of tax units. I'll highlight two. One is that before 1987, there was no requirement to report income from municipal bonds on tax forms and, from 1987 on, this income had to be reported. Because such income is not taxed at the federal level, municipal bonds, which pay low interest rates to reflect this preferential tax treatment, are attractive only to people paying the highest marginal tax rates—that is, the highest-income people. So, some of the increase in the share of the top 1% simply reflects a change in the law on reporting income, not a change in income. The second is that the income share of people in the lower income categories is understated because much of our income is 401(k) and 403(b) income and, therefore, does not show up on our tax forms.


What about the claim—one that has become widespread—that the incomes of the top CEOs are 500 to 1,000 times the incomes of average workers? Reynolds is at his most devastating in taking this claim apart. Here he is at his best:

On January 21, 2006, a Wall Street Journal feature story said, "In 2004, the aggregate compensation of the chief executive officers of the S&P 500 companies . . . totaled about $5 billion, up 39% from 2003, according to Paul Hodgson of the Corporate Library." If you divide $5 billion among 500 CEOs, that is $10 million apiece. But the alleged 39 percent increase in 2004 implies that the 500 CEOs received just $7.2 million apiece in 2003. Meanwhile, a graph in the same Wall Street Journal story shows average CEO compensation as only $2.16 million in 2005. At that point, most readers must have been as befuddled as the writer. But that is not the end of the confusion.

A sidebar to the same report claimed that "the average CEO's salary in the U.S. is 475 times greater than the average worker's salary." If average CEO pay was $2.16 million, then a ratio of 475:1 implies average workers earn only $4,547 a year. If average CEO pay was $7.2 million in 2003 then a ratio of 475:1 implies "the average worker's salary" was only $15,158 (about $7.29 an hour), which is much less than half of any credible average. If the wildly different estimates on CEO pay were even close to being "average," then the ratio of 475:1 makes no sense.

New York Times columnist and Princeton economist Paul Krugman wrote an article in which he claimed that the 100 highest-paid CEOs in the Fortune 500 in 1999 made 1,000 times the pay of ordinary workers. Where did Krugman get the $37.5 million average CEO pay that led him to this conclusion? He credulously accepted Fortune magazine's estimates, even though, according to Reynolds, at least three quarters of this $37.5 million estimate was for stock options granted in 1999. Fortune valued these options by assuming that the prices of the stocks would rise by one third. Of course, the March 2000 stock market crash belied this assumption. Yet Krugman wrote his piece in October 2002, well after this crash and well before the stock market recovery, and he didn't bother revaluing the options.

Krugman was not the only one who ignored the stock market crash. Ben Stein, writing in 2006, asserted, "the graph for the pay of CEOs is a vertical line in the last five years." In fact, notes Reynolds, CEO pay for the S&P 500 fell by almost 48 percent from 2000 to 2003. Imagine that: CEO pay falling when a huge proportion of it is in stocks and stock options, and the stock market has fallen. Who'd have thunk it?

There's so much more in Reynolds's chapter on CEO pay and in the other chapters, such as the one on mobility across income groups, that I don't have room for. My best advice: read the book, and mark it up while doing so.

David R. Henderson, is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School in Monterey, Calif. He is author of The Joy of Freedom: An Economist's Odyssey and co-author, with Charles L. Hooper, of Making Great Decisions in Business and Life (Chicago Park Press, 2006).



Fetch me my handkerchief to cry for the poor, underpaid CEOs
How great the injustice!!! Ten times more is not enough!!! Who cares about the shareholders??? Why should they expect value to increase?

crying out loud
What about this example about caring for the shareholders?
I just heard that the ceo of Goldman Sachs makes about $10million a year for the past 6 years. Now I'll bet we could hire instead a guy like Lemuel for say only half a million a year instead, thus saving the company many millions over the years, right? So I suggest to people complaining about exec pay, to offer their services for less, like maybe only twice as much as the lowest, or average worker in the company. If this experiment turns out that neither Golman Sachs, nor GE, nor Berkshire, nor Microsoft, nor Citibank will hire Lemuel for those prices, why not?

Tell this to the shareholders of Home Depot
who just had to spend $200 million to fire a failing CEO.
personalizing this by bringing me into it is ridiculous.

Home Depot
Here's another idea then. Let's compare how much money HK made while that guy was ceo, then you take the position for only say, one million dollars a year, then compare how much he made for the company with how much you make. RE personalizing it, I would like to here formally offer my services to any of the Fortune 500 companies for only 50% of what the current CEO makes. So how many offers can I expect? Why wouldn't they hire Diet or Lemuel for such a small salary? Could there really be some difference in skill sets between the floor sweeper and the CEO, or us two? Or maybe the fotocopy girl would do instead?

there's nothing that motivates eric more than jealousy of those who work harder than he does
Why do you care how much other people make? Isn't your allowance big enough?

It's about who a company president works for
which is the stockholders. Who are not getting value based on performance.

And this isn't about me, dipsh*t.

It's not about me, and I ddin't have the beef with Home Depot
The stockholders, who own the company, did. Take it up with them.

You pity Home Depot shareholders?
Who is forcing them to own stock in Home Depot?

Who forces anyone to shop there?

and who runs the company?
The biggest problem is the board of directors. Only large shareholders or company officials should be on the board. And people should be allowed only one board membership. I remember looking at HP at one time. Carly was on Boeing's board. Phil Condit was on the board of Weyerhuaser. And so on and so forth. Which one of those clowns is not going to vote for a favorable financial package? They are all playing in the same backyard.

Home Depot shareholders forced the CEO out
Take it up with them.

If you don't own stock, what business is it of yours?

I'm sorry, I thought there was a discussion of executive salaries going on
And the expensive firing of an extremely highly paid and low-performing chief executive seemed relevant.

You sure hate it when anyone does above average don't you? CEO salaries are decided by the board and approved by shareholders. As to Home Depot, well it caused a huge stink which I am doubtful is resolved. I think the board made a huge mistake and they get fired for mistakes. However, I don't think HD did all that poorly (I have not read the P&L) but in reality the salaries of top executives is a matter for the board of directors and shareholders and no body else at all. I will tell you something now that I think was wrong. K Mart was allowed by the SEC to cancel all outstanding common stock, of which I owned 1000 shares, and now they own Sears. Purchased at billions, rather than compensating the old shareholders. Companies need to sink or swim without any intervention. The stock cancellation was lobbied by the large creditors and done to protect the creditors at the expense of shareholders and this is wrong (government and court intervention). I for one will not ever enter a K Mart or Sears again and I have told them such...

Just curious
Why should a CEO of any company make any given wage? They did not start the company, few CEOs ever invested anything into the development of the company, nor were they innovators or creators of any kind. Most are little better than the bean counters that work for them in accounting.

Of course, there are exceptions, several of them. Still, what makes the average corporate CEO worth any given sum, let alone the average $4 or $5 million (before golden parachute and stock options) they now make?

The Average wage earner makes significantly less than $40,000 a year. 100X that is 4 million. Use a rough doubling down and a executive president should make 2 million, an executive vice pres 1 million, a regional manager 500,000, an area manager 250,000 a store manager 125,000, a department manager 62,500.

Trust me, that ain't the case. Using a retailer like Home Depot, the average floor worker makes about $18-20 K, the average department manager maybe $24-28K and the sore manager, even with bonuses, makes, maybe, $60k (usually significantly less). Area and regional managers are in the 75K to 125K range. From there it is all over the place, depending on the company and the layers and levels of management. But few other execs in a company make in excess of $1M, even with bonuses, while CEOs make as much as 10s of millions, especially with bonuses and perks, and average in the $4-5M range.


Few companies with problems improve drastically with new CEOs (again, there are exceptions; but they are so famous you can name them all). While, at the same time, solid companies often get into serious financial problems due, often at least in part, to a poor CEO hire. Yet that CEO will still make millions and, to get rid of him, the company pays an enormous golden parachute (Sometimes hundreds of millions).

If you are an investor or worker at this company, this is an issue you should be worried about. this is not jelousy, it is common sense. I'm often concerned when any company pays more than 20 times it's mean average salary for a CEO; especially if a "golden parachute" of more than 2 years base salary is part of the deal.

What you say about K-Mart/Sears is true, and I won't do business there either. But, to me, that is due to part of the same issue. Bloated exec salaries and bonuses, with little in real accountablility, is how K-Mart got into trouble. Some of these same people are the ones working with the creditors to screw you and me and keep the company afloat. Now, the CEO who put together the K-Mark/Sears deal is (I have no doubt) making millions, and tens of millions more in bonuses.


Too Bad....
The common stockholder is the last in line when a company goes broke. That is how it is, and that is why stocks are risky. The creditors always get paid before the stockholders. It's the law.

Kmart had been doing poorly for a LONG time. You gambled by holding their stock, hoping that they would improve and the stock would rise, and you lost. The value of K-mart when the debt was tallied was zero, and that is why you got nothing. If you had read the balance sheets, this would have been clear to you.

Don't get me wrong--sometimes such gambles pay off. But I, too, have lost money when companies have gone bellie-up. But I knew it was a risk by monitoring my investments, and nobody can be blamed but me.

In contras, Enron was a situation where lying and cheating hid the truth from the investors. That is why people have gone to jail in that case.


The Evangelical Council for Fiscal Accountability (ECFA) recommends that no one in their member organizations (non-profits) get paid no more than 10 times the lowest paid employee. That seems more than generous to me.

It seems to me that if Boards of Directors of for profit companies adopted the same standards, they would better serve their shareholders (the owners) and their employees.

Sure. The stockholders were jealous
Why is the idea that pay, even at the CEO level, should be based on performance rather than mutual backscratching by Board buddies such a threatening idea???

A bit of a difference, but the idea is sound
Some companies have different jobs with different educational and skill level requirements; yet all are laborers. No way you would ever get a CEO type to take a job at 10X $7 hr. Call it $150,000 a year. Even at 10X a beginning accountant salary (probably around $30K). But, no CEO should ever get more than 30X median company salary. (Take all salaries divide by number of workers X30; probably around $1.1 Million in most cases.) Not as a base pay anyway.

Now I do agree with performance bonuses. If our company increases it's market share and thus increases it's profit, said CEO should make a percentage point or two of the profit increase only.

This bonus is only paid if the profit increase is by increasing sales and/or adding a product, service or value to a present offering. Said CEO can't cut employees to create a false increase in profit and be allowed to profit from it. (He could reduce employee expenses through automation however. Companies should always be effecient and effecient CEOs should be rewarded.)

I absolutely disagree with "Golden Parachutes". No employee, not even a CEO, should ever receive severence compensation more than double his annual base pay. This should be enough to discourage firings without cause, yet little enough to allow for firings of deadwood without a legal process or lengthy processing.

mean & median income
Median income is around $40k but mean (average) income is over $60k thus income does not fall on a bell curve but is much fatter on the bottom end.

HD ceo
It was the guy who told hd to shove it, not the other way round. Indeed he was consider a brilliant guy in that exec world. And now if we would follow his career, he'll probably go into 'private equity' and make even more money for the firm and himself. Yet you think he's only worth a little bit more than you? You're either very vain, or dumb, or generally cluess about economics.

bottom feeding commentators
It seems like a lot of the commentators around here are pretty clueless about economics. One guy just can't believe that any exec could be worth more than he himself, and another guy says that stocks are 'gambling' and 'risky'. Gambling and risky compared to what, Las Vegas casinos, a suburban house, his SUV, studying feminist, marxist, post-modern revisionist history at college? If you bet money in casinos, the odds are always on the house. On the contrary if you invest in the stock market the odds are you will have about a 10% return, even by throwing darts at a board. If you study a bit, it's way more. It's the only game in town where the odds are in favor of the investor. And people around here complain about the execs that run the companies; usualy envy of losers.

You misunderstood
I have no issue with that at all. None what so ever. I simply do not want the government to get involved. I have heard some groups call for salary limits and that is what I want to avoid. This is a issue stockholders and individual companies need to bring to bear on CEO's.

Yes, true
I agree with you. I am not blaming anyone. However, it chapped me that after a few years and basically writing off the common shareholder they bought Sears. There is nothing I can do but I do not shop there. It is my only revenge. However, I thought it wrong that a poorly run company that was essentially non-competitive got a free ride on the shareholders to rise again by court mandate.

Change the name of the game to "Quarterback"...
Assumptions: The game is called Managerial Capitalism. And the system is Financial Economics. The market value of the entity is measured by the price of its equities and these reflect the market's best judgement regarding the company's prospects going forward. A large public company has a very long planning horizon and the net present value of its discounted earnings per share is calculated out 200 quarters. (50 years. After which the tables terminate and the projected value runs to zero.)

OK. The CEO is the ultimate decision maker for the entire entity. This is not a democracy and decision making is strictly hierarchical. He has total authority. The Board might hire or fire him and the Board might write policy. But the CEO decides what to do.

Public companies are all about the numbers. Managerial Capitalism defines the reality that financial assets necessary for corporate success (and survival) are controlled by the market (Wall Street). This is not an Open System where players are comfortable dealing with unknown strangers because a third party (the SEC and the courts) will enforce the rule of law. This is a Limitd Access System where the players are absolutely known to each other.

Senior executives should already be part of the Ivy League / Top Business School club, carefully groomed at one of the major consulting houses (Bain, Booz Allen, McKinsey, Boston Consulting Group) and seasoned on Wall Street by total immersion in the financial process. Highly regarded senior line managers will have spent some serious time inside one of the Fortune 50 industrial companies. General Electric is the best.

The CEO at one of these major firms is an industrial strength talent and an accomplished performer. Highly regarded throughout his own industry and in the financial community such a guy could easily make $100-$500 million launching his own company, assembling small entities into a medium sized operation and 100% financed by his associates on the Street. With this guy in charge the Board knows for certain that the company is professionally managed and that his judgement will be respected by the analysts. Of course, he negotiates a very attractive deal for himself.

This is the way the game is played. The company is regarded as an extension of the CEO. If the Board tried to save money and promote a solid but unknown player from the ranks he would probably get chewed up by the professional heavyweights in the industry and in the financial community. The CEO must be "bankable" like a Hollywood star. Otherwise, maybe no one will want to see the film or purchase the stock.

why not?
When someone is spending their own money, I tend to feel that they have some reason, even if I don't understand it.

Over the last few decades, I've seen good CEO's make companies grow tremendously. I've also seen bad CEO's destroy companies.

Just because I can't detail everything a CEO spends his/her day on, doesn't mean I have a right to declare that they don't do anything.

What CEO's do, is make decisions. A good coach can take a bunch of talented players and turn them into a winning team. A good CEO does the same.

genii abound - - - -
Why should anyone care what someone else does with their money? You're not forced to do business with them. Start your own business and run it any way you like, prove to everyone your opinions are correct, then we'll all listen to you. There used to be a wise saying, "mind your own business".

I've got news for the jealous control freaks, rich people are necessary to the well-being of the society, especially the poor. That's why God commanded us not to covet.

It's because they are envious busybodies. People hate success and usually try to strike them down. Just look at the way they grumple about Bill Gates, Buffett, Wal-mart, etc. But there would also be a big problem if they took your suggestion to start their own company and run it the way they want. They would find out real soon that to hire and retail good managers they would also have to pay alot of money for them. It would also hurt their self-esteem when they offer a pay of say 100% percent higher than the lowest, or average salary to their execs; and that's because the applicants would laugh in their faces. And I don't mean well know execs but also kids graduating with MBAs. I guess their STARTING pay can be well over $100k a year, plus sign on incentives. Maybe I shouldn't have mentioned it because a lot of guys around here like that clown Lemuel will be really envious now.

I still can't understand these multi-million dollar exit packages
I'm as capitalistic, free market as they come. However, I still can't understand why these exit packages are (presumably) written into these CEO pay packages.

If I get fired for not doing my job well, my company is not going to give me 20-30 years worth of my salary. I get nothing and rightly so.

Why do Boards of Directors think that they have to do this?? In my opinion they have the buying power. Inside of Home Depot there were probably at least a dozen or so executives that could have done no worse than the fired CEO. I'm sure that the board could find a talented executive that would agree to the terms "if you do well you get rich via options and bonuses, if you get fired, you get nothing".

To me that is a lack of fidicuiary duty by the Board in representing the owners of the company and they should be held liable.

The only reason I can think of why Boards do this crappy negotiating on exit packages is that so many of the Board members are CEO's themselves, therefore their interest is in raising the overall levels of CEO pay.

exit packages
The higher up the ladder you go, the harder it is to find the next job.
I'm a professional, but probably 8 to 10 rungs below the executive suite, but I've had termination packages at almost every job I've ever worked at. Usually something like 1 to 2 weeks of pay for every year I've worked at the company.

Price we must pay for free market
Any system you can bring may be astrocry, communism, dicatorship or old kingdom, only few are rich and other are poor, only in democracy we can openly disscuse this issu,let voter must more concious for their right may be we can improve this inequility

once more, in english please

thank you
This certainly explains the "why" of, say, the top 100 companies. And most have few problems (it's why their stock is called "blue chip")

But you made the quarterback reference, so I will use it as an example.

There are, maybe, 60 quarterbacks in the NFL making $1 million or more. Only the top 10 or 15 are making more than $5 million. In the history of the league, less than 200 qbs have ever made more than $1million, and less than 1,000 players at any position have made that kind of money. The highest paid are now in the $20 million a year range; but only a handful ever make that kind of money.

In my opinion, no single player is worth 20% of a teams salary cap money, so this is stupid (and many teams pay dearly down the road for this stupidity). This is my point as to CEOs

And there is no "golden parachute". They do have a retirement deal as part of the NFLPA collective bargaining deal. The highest paid do not get huge bonus packages for winning; they are getting paid that kind of money because it is expected of them.

CEOs, on the other hand, are all getting pretty good deals and, unfortunately, not all come up the way you explain. Perhaps at fortune 500 companies, but we aren't just talking about that group. Very small company CEOs can make as little as $100K a year; but these are usually at small, rural hospitals and such.

For publically traded companies with at least a 10 year market record, it is nearing the $1M mark as a minimum. That is a pretty heafty minimum and there are thousands of these. Many of these companies do not have the portfolio to be paying $5M-$10M a year with stock options and massive $100M+ "golden parachute" options. But their board of directors are all fat cats that sit on the board of several companies. They set the price and the companies pay. Sometimes they pay dearly.

I agree that markets should set the price. But I disagree when that price is out of whack with reality. Many CEO, and in a lot of cases other execs, salaries are out of whack.

High paid stars are a good example. Many companies, like a number of films, lose money because of top heavy salaries. In companies it is the top couple of levels of execs; in movies it is an over paid director and too many high paid, top name, stars. A number of highly successful movies have had no known quantities on the list. Some very good companies are in the same boat. Overpaying for "top talent" is a definate sign of financial stupidity, whether it is the NFL, movies or companies.

In my opinion (and this is only my opinion) this happens because you have people whose experiences with finances are all in the stratispheric numbers. Then don't care "what it costs" because they can easily afford it. I see this on a smaller scale with wealthy people all the time.

good question
And, if this were the case, I wouldn't say a word.
"When someone is spending their own money, I tend to feel that they have some reason, even if I don't understand it."

It is not the case. These guys are spending other people's money.

Top heavy companies often find themselves in financial problems; it is not just about the CEO, but about the levels below him as well. You will find the companies with the highest paid CEOs also pay higher salaries for these people.

A good rule of thumb is that management salaries should equal less than 15% of the total salary base for the company. If the CEO alone is making 2-5%, it is a sure be that management as a whole is well above that level.

In the end, I could care less. I just don't like investing in top-heavy companies and only do so with proven blue chips. When I see an energy company, like NorthWestern Energy, hire some CEO for $5 million a year plus stock options and bonuses with a $100M "golden parachute", I opt out. More often than not, over the past 10 years, this has been a good strategy. If you invest in moderate sized companies, be aware of what your board of directors does.

I agree that Kmart should probably had been allowed to go under, rather than be resurrected by Sears. I always hated shopping there, and I do not see much improvement since the Sears merger. But Sears has been on hard times, too, so who knows if the merger will help both.

once again
"In my opinion, no single player is worth 20% of a teams salary cap money"

Why should anyone care what your opinion is? What expertise do you have in playing football, or running a football team?

"And there is no "golden parachute"."
You are aware that if a player has a 5 year contract, then the team has to pay him for those full 5 years, whether he is playing or not. This is no different from these "golden parachutes" that upset you so much.

rules of thumb?
Who made you god, so that your rules of thumb must be followed by everyone?

If you don't think the board is doing a good job, then vote them out. If you're not a shareholder, and hence have no vote, then your opinion isn't worth crap.

If you are an employee and think you aren't being paid enough, then don't let the door hit you in the butt on your way out.

Where are you getting your information??? He was kicked out. Read:
In the real world, this is what happened:

A CHAIRMAN'S FALL; Home Depot Board Ousts Chief, Saying Goodbye With Big Check

Published: January 4, 2007

In May, in a nearly empty basement ballroom at the Hotel du Pont in Wilmington, Del., Robert L. Nardelli, the chairman and chief executive of Home Depot, stood between huge timers, intended to limit questions from the handful of shareholders present. After dismissing questions about his compensation or the independence of the board, Mr. Nardelli abruptly ended the meeting after only 30 minutes.

Time ran out on Mr. Nardelli on Tuesday, after the board, at a hastily arranged meeting, decided that he should go -- with a $210 million exit package.

> You're either very vain, or dumb, or generally cluess about economics.

and you just don't know what you're talking about.

Hugely different
They only pay that if the player stays on the roster or they choose to get rid of him. Also, that amount is only equal to his salary, not 5 to 20 times his base salary. Add to that the fact that they don't have to pay him if someone else picks him up.

If you don't care what my opinion is, fine! all you have to do is not respond or read it.

If you have an arguement make it
This is pretty whinny for you. What, you a CEO that got busted? And voting out the board isn't as easy as that; if you don't know why, look it up. (Who are often among the majority stockholders??)

This discussion isn't about employees, it is about CEOs. Quit trying to make this a personal attack and stick to the issue.

That is a ways down the ladder
Crap, I got that as a base worker dog at one company. Sucks to be you if that was all you got as management!

But you are right. If you are true "middle management" (depending on the company of course) or above, the exit package can be pretty nice (often as much as a years pay with other noted benefits). No one quibbles about that, it is these 10 year+ times base pay packages that are crazy. Many of these guys can live their present lifestyle on the interest and never have to work again.

Why worry about finding the next job?!

Unfortunately, no
Inequity is a sign of a free market. The balance exists in the fact that any person with a good work ethic and/or a good idea can become wealthy; those who wish to do little will get little.

still clueless
Only the part about the big timer clocks is right. Other than that he gave them the finger. But you didn't comment on the part of him probably going into private equity and making even more money for himself and investors. And you also didn't address the matter of why none of us here, oh, I don't mean you because that would be too personal, could get the CEO job at only say 100K per year. This would be a great leap for guys like you who probably get about say, 24,500. And a really good deal for the company.

inequalities in the market
Sure there are and it's because people arent equal at all. That's why none of us here could get that CEOs job for even a tiny 1 million a year. We're also not equal in the same way with that soccer star David Beckham who might get 250, think of how envious people must be!

Mark & Paul - you all got written exit packages before you started??
I have been a middle manager or professional finance person in 4 publicly held companies and I never received a written exit package before I started with any of the companies.

You all got something in WRITING before you started that said if you were let go due to your poor performance you would receive X amount based on your length of employment?

On the couple of times my company had to do layoffs due to worsening business conditions, people received about a month's pay for every year worked. However, these people did NOT have these terms in their employment contract (if there was one) before they started working.

However, anyone who was let go due to POOR performance basically received nothing (or a couple of weeks).

No arguement
First off, I was just pointing out Mark's payments were way down the ladder.

Yes, I agree completely that CEO salaries and "golden parachutes" are completely out of wack with reality. The fact that it is "fat cats" hiring other "fat cats" is probably the only reasonable explanation.

No, I never had anything in writting, except the companies written severence policy. The reason I laughed at Mark is that I was a low level "shop" manager in a large corporation and, when they sold off part of their holdings, I was given a pretty nice package (about three weeks pay for every year and I had worked for them for three years) that included up to 6 months continuing medical insurance and a full payback of my retirement account, including interest, even though I was not "fully vested".

Your month-per-year is about right for middle management; most of the people below me got about a week-for-year worked.

And, had we been released for poor performance, it would have been nothing at all. (actually, depending on the cause, I was in position for some compensation; but it would have been less than half what I received due to the buy-out. Those below me would get nothing no matter what the actual cause.)

Thus, "golden parachutes", are stupid and financially irresponsible. The boards who give them should be jailed for theft or, at least, investigated very tightly (including the proverbial microscope up the rear-end) by the FTC.

But, if Beckham is getting that as a salary, then the team is bankrupt. If it is largely from endorsements, hey he earned them and had to sell himself to get them; more power to him.

As for getting CEO jobs, no way Bill Gates would be hired either. Oh yeah, he is a CEO! Gee how did that happen? Only because he is the founder and still holds a large share of the company stock.

We aren't talking about the Bill Gates or Dave Thomas types; we are talking CEOs with no connection to the company, except maybe owning a chunk of shares. These are "hires" and none should ever get "golden parachutes". BTW, Gates doesn't have a "golden parachute", just his stock and his billions in the bank.

Many of these companies would be better off with a Dave Thomas (never graduated high school) than they guys they hire. Now, tell me why you and I aren't a better choice than some of the shills that are hired? The only reason we aren't is that we don't have the money or portfolio to be in the "old boy network".

Occasionally these companies actually hire from within; bringing in a current executive manager to be CEO. It isn't always perfect, but it is often a better choice than many of the alternatives.

It's not me that's clueless
I posted the clipping: he was forced out. "Other than that he gave them the finger." That's what many people do after they're fired. As far as him going into private equity: he'd like to, but his record from Home Depot is not shining.

As far your pathetic speculations about how much I personally earn, they are pathetic, and they are speculations. I'm not the one who got fired, and if you want to believe I'm living on $24.5K and this belief makes you feel like less of a nowhere nothing blowhard, go for it.

On second though, I will answer the rhetorical nonsense
1. No one. This is a general "unwritten" rule that was followed widely in business, and the percentages vary depending on the size of the business and how labor intense it is. The actual number used was 10%, but in a smaller, less labor intensive industry 15% is not unreasonable. 20% or 25% may work in some cases and 5% might be more reasonable in others. But, in larger companies, 10-15% is plenty.

Now, that total includes all secretaries and upper level management. The size of the company should decide how many actual execs there are and how that pie is divided. In some cases a CEO might actually be worth 10% of the total salary base, but not often. Especially in large, publically-traded companies. .1% to 1% is a more realistic number.

Now, here's why every stockholder should be angry. Workers salaries are a part of the total expenses of the company. They are the same as raw materials, buildings, power costs, etc.

Execs are more of a hybrid, they are necessary, but cut into the profit. CEOs are pure profit robbers. A good CEO and good management can more than pay for themselves in higher gross income and higher profit margins. A bad management team can kill the business. All managers should be paid what the POSITION is worth, and it should be a nice compensation package. But the money should be in bonuses. Bonuses can be paid for a variety of reasons, not just increased income and/or profit. But CEOs are money guys and their bonuses should come only for making more money for the stockholders. I have no problem with a $$500K-2M starting wage and compensation package and a direct percentage of profits bonus, neither should any CEO. I don't care if the bonus is 50% of increased profits. If it is performance based, they earned it.

But a $4M-$10M base compensation package with 10-20 times the base as a "golden parachute" is just wrong. Any board who agrees to such a deal should be held criminally liable. There is no question that this is theft from the stockholders.

I have been a small stockholder in a few small-medium companies that have made this kind of deal. Not being savy, the first one I didn't even pay attention to. The company went belly up, (and I lost all the money I had invested) but the CEO got his $100M before the courts dealt with the bankruptcy. Since then, I have remained very aware of every decision made by a board of directors of a company I have stock in. If they do this, I sell my stock. I have yet to get bit by the sale, and on a couple of occasions I made out like a bandit (as the company faltered and a couple of them went bankrupt).

I've worked for big corporations a couple of times, I've never complained about my pay, especially at those bigger companies. But, regardless, that isn't the issue at hand.

Democrats acknowledge that the minimum wage destroys jobs
Spokesmen for both Pelosi and Rep. George Miller, D-Calif., the author of the minimum wage bill, said it excluded American Samoa at the request of nonvoting Delegate Eni Faleomavaega, a Democrat who represents the Pacific island territories in the House.

Raising the federal minimum wage would devastate the local tuna industry, Faleomavaega said in a statement last week, noting that American Samoa's economy is "more than 80 percent" dependent on two U.S. tuna processors, Chicken of the Sea and StarKist. Faleomavaega said the Labor Department reviews Samoa's minimum wages every two years.

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