Excessive CEO Pay Takes Money Away from Other Workers

The op-ed provides a good analysis of the problem with the economic structures that allow CEOs to be excessively overpaid — the substantial amount of money that the CEOs are overpaid with could instead be going to other lower-level workers. Wages in the United States have hardly increased in decades for most American workers, and the CEO pocket money would make a significant difference in their lives.

The problem is the structure of corporate governance. The people who most immediately determine the CEO’s pay are the corporation’s board of directors. These directors have incredibly cushy jobs. They typically get paid several hundred thousand dollars a year for perhaps 150 hours of work.

Members of corporate boards largely owe their jobs to the CEOs and top management. They almost never get booted out by shareholders; the reelection rate for board members running with board support is over 99 percent.

In this context, board members have no incentive to ask questions like, “Could we get someone as good as our CEO for half the pay?” There is basically no downward pressure on CEO pay and every reason to boost pay. After all, if you were sitting on some huge pot of other people’s money, wouldn’t you want to pay your friends well?

Of course, the CEO pay comes at the expense of returns to shareholders, and these have not been very good in recent years in spite of the best efforts of Trump and the Republicans to help them with tax cuts and pro-business regulation. In the last two decades, stock returns have averaged less than 4.7 percent annually above the rate of inflation. By contrast, in the long Golden Age from 1947 to 1973, real stock returns averaged 8.2 percent.

With the bulk of stock being held by the richest people in the country, there is no reason to shed tears for stockholders, but the fact is they are being ripped off by CEOs and other top management. Given the choice, we should prefer the money ends up in the hands of shareholders rather than CEOs. After all, people below the top 1 percent do own stock in their 401(k)s, as do public and private pension funds. By contrast, every dollar in additional CEO pay is going to someone in the top 0.001 percent of the income distribution.

More important than the money going to the CEOs is the impact that their outlandish pay has on pay structures in the economy more generally. When the CEO is pocketing $20 to $30 million a year, other top executives are likely earning close to $10 million and even the third-tier managers might be topping $1 million.

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If a successful CEO of a large company was pocketing $2-3 million a year, instead of $20 to $30 million, the ripple effect on the pay of others near the top would leave much more money for everyone else. This gives us very good reason to worry about excessive CEO pay.

If the structure of corporate governance makes it too difficult for shareholders to collectively act to limit CEO pay, threatening them with a return to the pre-Trump 35 percent tax rate might give them enough incentive to get the job done. It has always been in the interests of shareholders to pay their CEOs as little as possible, just as they want to pay as little as possible to their other employees.

If shareholders pay a CEO $20 million more than needed to get someone to run the company, it has the same impact on the bottom line as paying $2,000 extra to 10,000 workers. No company deliberately overpays their frontline workers.

Good Immunotherapy is Amazing at Treating Cancer — And It’s Unnecessarily Expensive

Drugs are cheap to produce — it’s things like unjust government-granted patent monopolies that allow pharmaceutical companies to charge exorbitant prices that make drugs expensive.

To quote economist Dean Baker’s latest October 2018 paper:

“Many items that sell at high prices as a result of patent or copyright protection would be free or nearly free in the absence of these government granted monopolies. Perhaps the most notable example is prescription drugs where we will spend over $420 billion in 2018 in the United States for drugs that would almost certainly cost less than $105 billion in a free market. The difference is $315 billion annually or 1.6 percent of GDP. If we add in software, medical equipment, pesticides, fertilizer, and other areas where these protections account for a large percentage of the cost, the gap between protected prices and free market prices likely approaches $1 trillion annually, a sum that is more than 60 percent of after-tax corporate profits.”

On to the article though.

Last week, researchers James Allison and Tasuku Honjo were awarded this year’s Nobel Prize in medicine for their work on cancer immunotherapies, heralded by the Nobel committee as “seminal discoveries” that “constitute a landmark in our fight against cancer.”

Immunotherapies like those developed on the basis of Allison and Honjo’s work are indeed an important step towards a whole new way to treat cancer, as well as a host of other chronic diseases. However, this Nobel award should remind us that these innovative therapies are out of reach for so many patients in the United States due to the exorbitant prices drug companies charge for them.

Just weeks before the Nobel announcement, oncologist Ezekiel Emmanuel wrote in a Wall Street Journal essay, “We Can’t Afford the Drugs That Could Cure Cancer,” that “a cure for cancer has become possible, even probable” with immunotherapies, but that our health system cannot afford their price tag. Just after the Nobel announcement, Vox reporter Julia Belluz reminded us that “the average cost of cancer drugs today is four times the median household income” (emphasis added).

Immunotherapies constitute a part of the class of drugs called biologics (as opposed to chemical pharmaceuticals) that have shown very promising results in treating many previously intractable conditions, such as multiple sclerosis, asthma, chronic pain, and Crohn’s disease, due to their ability to more precisely target individual diseased cells. Therefore it’s no surprise that currently most of the top 10 best-selling drugs worldwide are biologics.

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If biologics really are the future of medicine, we must change the way prescription drugs are priced in the United States, or millions of patients will be left behind. One way to do that is to invest in public pharmaceuticals that can assure an adequate supply of and equitable access to essential medications.

Research Into How to Best Ask for a Pay Raise

This is relevant research in some respects, although it’s unclear how true all of it actually is. Timing is pretty important — employers probably have to be given an incentive, and subtle hints that a valuable employee may look for a job elsewhere with higher pay may make the difference.

To avoid the common fear of sounding greedy or obnoxious, don’t simply ask for more money. Instead say, “I would like to make $X. What would it take for me to get there?”

You might then elaborate with follow-up questions: Would it mean adding extra duties? Changing roles? Improving some aspect of the way I work now?

What’s brilliant about this approach is that it basically says, this isn’t about me and what I feel entitled to. It makes the conversation about the bargaining. And because you’re not asking a yes/no question, it immediately sets up the expectation that some deal will be struck, and we just need to find out what it is. (Sales people use this tactic when they ask, “What would it take for you to accept?”)

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Economists and psychologists have conducted multiple studies on pay negotiation tactics and human behavior. In 2014, psychologists at Columbia University found that naming a salary range with a high “floor” (i.e. the lowest amount you’ll accept) led to higher offers. In 2016, a Columbia Business School study said that cracking a joke about a ridiculous amount of money you’d like to make can “anchor” a conversation, and subtly influence the employer’s thought process so that they’re more likely to go high, too. If you know the job pays in the $60,000 range, ask for half a million. Ha, ha!

These ideas sound promising in theory, but they don’t address that initial obstacle— the fear that asking for what you want, however you go about it, will be off-putting. In this sense, Coffey’s non-scientific method feels more doable. It’s not manipulative, either. You’re asking how your employer values particular contributions for a given role, but you’re flagging your own agenda, too. Your ambition exists and you’ve declared it.

It applies equally well to men as to women, though its basic premise is in keeping with advice Sheryl Sandberg, COO of Facebook, shared at a forum last year about improving policies specifically to advance women’s economic opportunities. Sandberg said that although it shouldn’t be so, women generally are not treated the same way as men when they ask for money.

“If you are negotiating for a raise and you are a man, you can walk in and say ‘I deserve this.’ That will not backfire on you,” Sandberg said. “We know the data says it will backfire on a woman. So I think along with saying ‘I deserve this,’ [women should explain] that, you know, ‘This is important for [my] performance,’ and ‘This will make [me] more effective as a team member.’”

Sandberg said at the time that she hates to share this advice. Women shouldn’t have to adjust their behavior to accommodate a sexist structure. Men who happen to have less confidence than the average dude shouldn’t have to, either, of course, but they might feel more comfortable if they did. This compromise will get you further than not asking at all.

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Anyone considering a job offer should probably attempt to secure a higher starting salary, experts say, because it could work, and it likely will not tarnish your reputation or jeopardize your opportunity. Andréa Mallard, chief marketing officer of athleisure wear company Athleta, who also spoke at the Well + Good panel, told the young women in the crowd that they should never hesitate, because it’s an impressive move.

Whenever she has hired someone who asked for more money, she said, the pushback made her respect that person more, not less. And, if it’s possible, most employers want to hit that number that will make someone feel excited about the job.

Public Pension Fund Managers Have Lost Americans $600 Billion Over the Last Decade

Even as the stock market has boomed over the last decade, a new report finds that these foolish pension fund managers have managed to lose Americans at least $600 billion. This is an amount that’s about equal to $4200 per family.

The costs associated mean that there’s less money to be spent on public goods such as healthcare, libraries, and infrastructure. It would obviously have been much better if these public funds were simply put into low cost index funds (instead of hedge funds and private equity firms) that tried to match the market instead of beating it. (That’s usually a better course of action for most people anyway.) Reducing the pay going to those high-income fund managers would have been a clear economic gain for everyone else.

The financial industry though is mainly an intermediate resource, similar to the trucking industry. This means that unlike housing, education, and healthcare, it isn’t really valuable for its own sake. Similar to the trucking industry, which derives its value from its ability to transport goods efficiently, the financial industry derives its value to the general public by being as benevolently efficient at allocating capital as possible.

There is undeniable evidence that overall, the financial industry has become far less efficient and far more predatory for most people over the last four decades. There’s good reason to think that the financial sector is currently at least three to four times larger than it should be. Back in the 1970s, the industry accounted for about 0.5 percent of GDP, and it now accounts for about 2.3 percent of GDP. The draining difference — diverting money out of the pockets of average workers in wasteful or harmful ways — amounts to at least a few hundred billion dollars of space in the modern economy.

The parallel to this would be if the trucking industry was (all else equal) three to four times too large — there would be way more trucks than necessary to transport goods, there would be costs of heavier pollution and maintaining more salaries than necessary, and people employed as a part of the inefficient trucking industry could instead be working on something with more productive value. To prevent those two industries from becoming corrupted due to excess power, as few resources (labor, oversight, and capital) should be allocated towards them as possible.

The S&L crisis of the 1980s, the stock bubble of the 1990s, and the housing bubble of the 2000s are clear examples of the financial industry allocating capital in ways that are not only inefficient but destructive as well. All of those three events lead to severe economic recessions, with the worst being the housing bubble that caused the Great Recession and global economic turmoil. Comparing this to the two decades before the 1970s, when stronger New Deal financial regulation was in place and there were no serious crashes, there’s clearly a major difference in efficiency.

In sum, it’s clear that the financial system needs to be seriously reorganized around priorities different than making the wealthiest better off at the expense of everyone else. Even moderate measures such as implementing a relatively minor financial transaction tax, limiting the size of the now oligopolistic private banks, and expanding cooperative or public banking would be helpful. Until measures like those happen though, the damage will continue, and the world risks that damage eventually compiling yet again into another major disaster.

The Amazing Victory of Alexandria Ocasio-Cortez in New York’s Primary

In the U.S., elections at higher levels have long been mainly won by whichever side spends more money. This is another way of saying that the elections there are pretty much bought. The data on this is compelling — political scientist Thomas Ferguson has done extensive work (shown in his book Golden Rule) revealing that going back decades, the campaign that spent more money usually won the election.

So when a victory such as Alexandria Ocasio-Cortez (who didn’t have a SuperPAC) defeating the corporate-indentured incumbent Joseph Crowley happens, it’s significant. The progressive Ocasio-Cortez campaign was outspent by an estimated 16 to 1, yet it still managed to achieve a fairly strong victory.

About 75 percent of Americans want some form of campaign finance reform because of how obvious it is that political elections have been corrupted by too much money in politics. So while it’s very good that a candidate such as Ocasio-Cortez has shown the ability to win, if America had a fairer campaign finance system, it would be easier for a candidate such as her to do so. That’s something important to know for the future, so that more good candidates can be elected to positively reform America.

Campaign Finance Reform — 75% Approval

The dreaded extent of money in politics shows itself.

Amidst a widely-shared recognition that the country is effectively being run by powerful special interests, a new poll out Friday shows that more than 3 out of 4 Americans now support serious campaign finance reform as a way to mitigate the corrupting influence of money in the nation’s democracy.

The results of the extensive Pew Research Center survey, released Thursday, reveal Americans “see the country falling well short in living up to” democratic ideals and values, and believe core changes are needed in the political system.

Seventy-six percent say the government is run by a few big interests, a level unchanged since 2015. Just 21 percent say the government is run for the benefit of all.

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The new survey also shows widespread backing of campaign finance reform.

Over three-quarters of Americans—77 percent—say that there should be limits on the amount of money political candidates can spend on campaigns. There is strong support from both Democrats (85 percent) and Republicans (71 percent).

A majority of Americans—65 percent—say they believe new campaign finance laws would be effective in limiting the amount of money in political campaigns.

The U.S. — The World’s Preeminent New Tax Haven

Tax havens are a major factor (and consequence) of global inequality. There are enormous sums of money in offshore tax havens, and there are enormous needs for the many that could make good use of that money, but those two realities are rarely being brought together.

Seven years ago, the U.S. led an effort to address a problem facing governments everywhere. Each year, people manage to avoid paying an estimated $2.5 trillion in income tax — a giant sum that could be used to combat poverty, update infrastructure or lower tax rates for law-abiding citizens.

Now, however, the U.S. is becoming one of the world’s best places to hide money from the tax collector. It’s a distinction that the country would do well to shed.

In 2009, amid growing budget deficits and a tax-fraud scandal at Swiss bank UBS AG, the Group of 20 developed and developing nations came to an agreement: They would no longer tolerate the network of havens, shell companies and secret accounts that had long abetted tax evasion. A year later, the U.S. passed the Foreign Account Tax Compliance Act, which required foreign financial institutions to report the identities and assets of potential U.S. taxpayers to the Internal Revenue Service.

Under threat of losing access to the U.S. financial system, more than 100 countries — including such traditional havens as Bermuda and the Cayman Islands — are complying or have agreed to comply.

The U.S. was expected to reciprocate, by sharing data on the accounts of foreign taxpayers with their respective governments. Yet Congress rejected the Obama administration’s repeated requests to make the necessary changes to the tax code. As a result, the Treasury cannot compel U.S. banks to reveal information such as account balances and names of beneficial owners. The U.S. has also failed to adopt the so-called Common Reporting Standard, a global agreement under which more than 100 countries will automatically provide each other with even more data than FATCA requires.

While the rest of the world provides the transparency that the U.S. demanded, the U.S. is rapidly becoming the new Switzerland. Financial institutions catering to the global elite, such as Rothschild & Co. and Trident Trust Co., have moved accounts from offshore havens to Nevada, Wyoming and South Dakota. New York lawyers are actively marketing the country as a place to park assets. A Russian billionaire, for example, can put real-estate assets in a U.S. trust and rest assured that neither the U.S. tax authorities nor his home-country government will know anything about it. That’s a level of secrecy that not even Vanuatu can offer.

From a certain perspective, all this might look pretty smart: Shut down foreign tax havens and then steal their business. That would be the kind of thinking that’s undermining America’s standing in so many areas, from trade to climate change. Instead of using its power to establish an equitable system of global governance, it’s demanding a standard from the rest of the world that it refuses to apply to itself. That isn’t leadership.