Outrage Over Wall Street Pay, but Shrugs for Silicon Valley?

From the New York Times Blog “DealBook” by Steven Davidoff:

Big paydays on Wall Street often come under laserlike scrutiny, while Silicon Valley gets a pass on its own compensation excesses. Why the double standard?

Take Eric Schmidt, the former chief executive and current chairman of Google. Google’s compensation committee last month awarded Mr. Schmidt $100 million in restricted stock plus $6 million in cash. The stock vests in four years and comes on the heels of a $100 million award made in 2011.

It’s unclear why Google felt the need to award Mr. Schmidt this amount.

When asked for comment, a representative of Google directed me to the regulatory filing Google made disclosing Mr. Schmidt’s compensation award. The filing states the award was paid “in recognition of his contributions to Google’s performance in fiscal year 2013.” How about that for detail?

Mr. Schmidt already owns shares worth billions of dollars in Google, and has a net worth of more than $8 billion, according to Forbes. So the latest award amount is just a few ducats to him.

As chairman, Mr. Schmidt does make a substantial contribution to Google, including helping the company negotiate a settlement with the European Union in an antitrust case. But his pay is extraordinarily high for a chairman. The typical director at a Standard & Poor’s 500 company was paid $251,000 in 2012, according to Bloomberg News. Mr. Schmidt is above that range by over $100 million.

Still, the pay award was greeted with few questions and apparently no criticism from Google’s shareholders or others. Compare this with the continued outcry over Wall Street executive pay.

The latest was the criticism of Jamie Dimon’s pay for 2013, given the many regulatory travails of his bank, JPMorgan Chase. The bank’s board awarded Mr. Dimon $20 million in pay for 2013, $18.5 million of which was in restricted stock that vests over three years.

In doing so, the JPMorgan board stated that the award was justified because of JPMorgan’s “sustained long-term performance; gains in market share and customer satisfaction; and the regulatory issues the company has faced and the steps the company has taken to resolve those issues.”

While JPMorgan may be hogging the regulatory limelight at the moment, other Wall Street banks have faced that glare and have been questioned about their chief executives’ compensation. Total pay for Lloyd Blankfein of Goldman Sachs, no stranger to regulatory scrutiny, has not yet been disclosed, but he was recently awarded $14 million in stock. Once his cash bonus is announced, Mr. Blankfein will probably be paid an amount similar to Mr. Dimon’s.

Like JPMorgan’s board, Goldman’s board has sought to justify such pay and is criticized just the same.

This double standard for finance and technology doesn’t make sense.

Read the entire article here.

Tech start-up publishes employee salaries, encourages transparency

San Francisco tech start-up Buffer has been making waves with its transparency campaign, jump starting a national conversation about salaries and, by implication, the way businesses conduct their business in this country.

“We hope this might help other companies think about how to decide salaries, and will open us up to feedback from the community,” CEO Joel Gascoigne wrote in a blog post published on the company’s website Thursday. See the full post with published salaries here. By creating a transparent formula and paying above market rate, Gasciogne says he hopes to promote long-term commitment from employees. “In Silicon Valley, there’s a culture of people jumping from one place to the next. That’s why we focus on culture. Doing it this way means we can grow just as fast—if not faster—than doing it the ‘normal’ cutthroat way.”

The move is a radical departure from the normal but profoundly unjust practice of concealing salaries from other employees and the public in a country with a growing income inequality problem and a troubling trend of executive compensation that tops all other advanced industrialized countries. Despite the Great Recession and ongoing budget crises as a consequence of financial deregulation and corporate corruption, executive pay was 354 times greater than the average American worker’s salary.

In addition to regulatory reforms on the financial and banking industries the Dodd-Frank Wall Street Reform and Consumer Protection Act now requires companies to disclose their CEO-to-worker pay ratio. The SEC proposed the following rules to implement the law:

  • Section 951 requires advisory votes of shareholders about executive compensation and golden parachutes. This section also requires specific disclosure of golden parachutes in merger proxies. This section further requires institutional investment managers subject to Section 13(f) of the Securities Exchange Act to report at least annually how they voted on these advisory shareholder votes.
  • Section 952 requires disclosure about the role of, and potential conflicts involving, compensation consultants. This statute also requires the Commission to direct that the exchanges adopt listing standards that include certain enhanced independence requirements for members of issuers’ compensation committees. The Commission is also directed to establish competitively neutral independence factors for all who are retained to advise compensation committees.
  • Section 953 requires additional disclosure about certain compensation matters, including pay-for-performance and the ratio between the CEO’s total compensation and the median total compensation for all other company employees.
  • Section 954 requires the Commission to direct the exchanges to prohibit the listing of securities of issuers that have not developed and implemented compensation claw-back policies.
  • Section 955 requires additional disclosure about whether directors and employees are permitted to hedge any decrease in market value of the company’s stock.

Hopefully, the recent action taken by Buffer to make transparent the ratio between its executive pay and staff will help facilitate this national conversation about establishing appropriate limits to executive salaries and what to do about the more troubling question concerning the unsustainable growth of income inequality in this country.

Hostess, union fail at negotiations

Hostess announced Tuesday night that it failed to reach a new agreement with BCTWGM, and union officials said the company plans to proceed with shuttering its operations after 82 years in business.

18,500 workers will lose their jobs overnight, adding more grist to the grind of the  jobless recovery. Today’s announcement came four days after the company announced that its liquidation, which many observers believed was all but assured by the union’s strike.

The firm filed for bankruptcy last January because its labor costs were unsustainable and that it needed to cut its wage, health and pension costs to continue operating—despite the questionable practice of paying executives gross compensation packages for an otherwise struggling company.

Mediation ordered for Hostess, union

Today in New York a judge for the Federal Bankruptcy Court all-but-ordered mediation between Hostess Brands and the Bakery, Confectionary, Tobacco Workers and Grain Millers Union (BCTGM) in an effort to avoid the demise of the company and one of it quintessential American snack brands, the Twinkie.

In January, the company filed for Chapter 11 bankruptcy protection for a second time, nearly three years after emerging from an earlier stint. The company said it could not meet its debt obligations during the first round of bankruptcy, but BCTGM and the Teamsters were furious that the company continued to pay executives exorbitant compensation while demanding major concessions from them. The company then offered a contract to workers of BCTGM with an eight percent pay cut for bakers and a 32 percent reduction of benefits, while its CEO was given a 300 percent raise above his basic compensation.

In this new round of contract negotiations financial disclosures revealed the company gave its top nine executives 60 to 100 percent raises, even though the company stopped paying its pension obligations to workers. The Teamsters agreed to more steep concessions but the workers of BCTGM refused, citing the egregious abuse of company executives as key factor of its fiduciary problems. When the union refused to accept an additional $100 million in cost concessions, the company’s management announced it was ending operations and liquidating its assets.

Today’s announcement by Judge Robert Drain effectively puts those plans on hold as mediation takes place between management and BCTGM. Although the union refused steeper cuts, the Teamsters agreed to more cuts in their last round of contract negotiations, adding pressure to all parties to come to an agreement and avoid the dissolution of the company.

Note:  The average Teamsters driver makes $20 an hour, and the average baker makes $16, while the compensation of the company’s top executives ranges in the tens of millions. Over 18,000 middle-class workers are on the verge of destitution, while company executives remain insulated from financial hardship.

There is very little oversight of executive compensation in this country, but there is a growing awareness that insolvent companies regularly pay executives exorbitant and unjustified compensation packages that are unlinked from their financial performance. The question is whether Congress has the political will to regulate this form of economic transaction that increases wealth inequality and hampers long-term economic performance. This is doubtful as Congress is increasingly the coordinating committee for an unregulated and predatory form of capitalism that simultaneously encourages wealth maximization and wealth inequality.