‘Eye-popping’ payouts for CEOs follow Trump’s tax cuts, while wages stagnate

From today’s Politico “Finance and Tax” Series:

Some of the biggest winners from President Donald Trump’s new tax law are corporate executives who have reaped gains as their companies buy back a record amount of stock, a practice that rewards shareholders by boosting the value of existing shares.

A POLITICO review of data disclosed in Securities and Exchange Commission filings shows the executives, who often receive most of their compensation in stock, have been profiting handsomely by selling shares since Trump signed the law on Dec. 22 and slashed corporate tax rates to 21 percent. That trend is likely to increase, as Wall Street analysts expect buyback activity to accelerate in the coming weeks.

“It is going to be a parade of eye-popping numbers,” said Pat McGurn, the head of strategic research and analysis at Institutional Shareholder Services, a shareholder advisory firm.

That could undercut the political messaging value of the tax cuts in the Republican campaign to maintain control of Congress in the midterm elections.

The SEC requires company executives to disclose share purchases or sales within two business days. Companies emphasize that their executives’ share sales are often scheduled at regular intervals well in advance. In Banga’s case, he has routinely sold shares once a year, and always in May, since 2013…

Yet the insider sales feed the narrative that corporate tax cuts enrich executives in the short term while yielding less clear long-term benefits for workers and the broader economy. Critics of insider sales argue that they diminish the value of paying C-suite employees in shares — a practice that’s intended to give them a greater stake in the long-term health of the company — and can even raise questions about the motivation for the buybacks themselves.

Following the tax cuts, roughly 28 percent of companies in the S&P 500 mentioned plans to return some of their tax savings to shareholders, according to Morgan Stanley. Public companies announced more than $600 billion in buybacks in the first half of this year — already toppling the previous annual record.

Year to date, buybacks have doubled from the same period a year ago, Merrill Lynch said in a July 24 report, citing its clients’ trading activity. “Last week we noted that buyback activity [was] poised to accelerate over the next six weeks, and indeed, corporate clients’ buybacks picked up to a two-month high and the 6th-highest level in our data history,” the company said.

Read the complete article here.

 

Opinion: Treating Workers Fairly at Rent the Runway

From today’s New York Times:

I am ashamed to say that until recently I was part of the majority: I am the chief executive of a company that gave different benefits to different groups of employees.

Like so many companies before us, my company, Rent the Runway, had two tiers of workers. Our salaried employees — who typically came from relatively privileged, educated backgrounds — were given generous parental leave, paid sick leave and the flexibility to work from home, or even abroad. Our hourly employees, working in Rent the Runway’s warehouse, on the customer service team and in our retail stores, had to face life events like caring for a newborn, grieving after the death of a family member or taking care of a critically ill loved one without this same level of benefits.

I had inadvertently created classes of employees — and by doing so, had done my part to contribute to America’s inequality problem.

When you’re founding a business, you take your cues on corporate culture from larger, already successful organizations. In America, some of the biggest companies have decided to handle the dual pressures of keeping costs down while retaining “corporate talent” by ramping up benefits packages. Companies like Starbucks and Walgreens compete for top-tier candidates by offering cushy policies in areas like parental leave or vacation.

But the best benefits are reserved for corporate talent, for whom the competition is considered steepest; employees who work at hourly rates are an afterthought (and that doesn’t begin to factor in companies like Uber that opt to consider the people they work with “contractors”). When I started Rent the Runway, I simply followed suit.

But over the years, I began to reflect on how the system that I and others had constructed may have been perpetuating deep-seated social problems. Last month, I equalized benefits for all of our employees at Rent the Runway. Our warehouse, customer service and store employees now have the same bereavement, parental leave, family sick leave and sabbatical packages that corporate employees have.

We know the grim statistics, such as only 14 percent of civilian workers in the United States have access to paid family leave; one in every four new mothers go back to work just 10 days after giving birth; and people who make more than $75,000 a year are twice as likely as those who make less than $30,000 to get paid leave.

Of course, chief executives and their leadership teams have outsize salaries as well as outsize benefits. C.E.O.s at the 350 largest companies make 271 times the earnings of the typical worker. The people with the most means have the most flexibility in their lives, not only because they have the ability to throw money at their problems but also because their companies grant them this flexibility to keep them happy.

Read the complete article here.

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.