CEO's vs. Average Joes....
Monday, February 12, 2007 | Jason JovineRating:
Federal Reserve Chairman Ben S. Bernanke spoke last week (2.6.07) on the topic of income inequality in the USA. He spoke about the multitude of possible causes as well as some potential solutions. He did not get too far into the potential solutions part because he felt that that was “supposed” to be the job of politicians, but he did offer more crystal clear evidence of this trend in America.
Before I go any further, I want to urge all concerned citizens to go the www.federalreserve.gov to read the transcript of the speech he gave before the Greater Chamber of Commerce in Omaha, Nebraska on the date mentioned above.
I believe that income inequality is a HUGE problem and it is getting worse. The cause, as I keep mentioning, is the “Capitalism Gone Wild” culture.
I don’t have the time in this venue here and now to get into the entire debate, but I do think that I have enough time to discuss one aspect of that debate, and that is the compensation of CEOs compared to the compensation of the “Average Joe”.
Let me first let you read a paragraph from Ben Bernanke’s speech last week regarding CEO compensation.
“The compensation of chief executive officers of corporations is often singled out for particular scrutiny. Some economists have argued that the observed increases in CEO pay packages can largely be justified by economic factors, such as changes in the relationship between the CEO and the firm that have led to shorter and less secure tenures for CEOs (Kaplan and Minton, 2006) and to a greater tendency to hire CEOs from outside the company (Murphy and Zabojnik, 2004). Others note that substantial increases in the size and scope of the largest corporations have raised the economic value of skilled corporate leadership (Gabaix and Landier, 2006). However, critics have responded that increases in CEO pay may have been amplified by poor corporate governance, including the substantial influence that some CEOs appear to have had over their own pay (Bebchuk and Fried, 2003). This debate will no doubt continue.”
As you can see from the paragraph above, Ben Bernanke approaches this situation objectively. He offers reasons people cite to validate CEO pay as well as the counter. What I want to do is tell you, the Tycoon reader, what the “Average Joe” (average American citizen) makes and then tell you what the top five CEOs have made.
You could e-mail me and tell me what you think. Fair enough?
Average Joe…..
According to the Bureau of Labor Statistics (www.bls.gov) the “Average Joe” made $17.09 per hour last month (January) and worked an average workweek of 33.8 hours. This obviously works out to $577.64 per week or $2,311 per month and finally $27,727 per year. These were the preliminary numbers, so please don’t e-mail me telling me that I was off by a penny or two.
Just to make math simple, let’s say that the average worker makes $30,000 per year. Now let’s compare what the Joes make to what some CEOs make.
The Five Highest paid CEOs….
(these figures are courtesy of www.forbes.com)
1. Richard D. Fairbank
CEO of Capital One Financial (symbol: COF).
Total compensation: $249.42 million
5-year compensation total: $448.58 million.
8,314 times the Average Joe!
2. Terry S. Semel
CEO of Yahoo (symbol: yhoo)
Total compensation 230.55 million
5-year compensation total: $258.29 million
7,685 times the Average Joe!
3. Henry R. Silverman
CEO of Cendant (symbol: not applicable)
Total compensation: $139.96 million
5-year compensation total: $279.21 million
4,665 times the Average Joe!
4. Bruce Karatz
CEO of KB home (symbol: KBH)
Total compensation: $135.53 million
5-year total compensation: $227.37 million
4,517 time the Average Joe!
5. Richard S. Fuld, Jr.
CEO of Lehman Brothers (symbol: LEH)
Total compensation: $122.67 million
5-year total compensation: $375.81 million
4,089 times the Average Joe!
These CEOs are obviously the highest paid CEOs, and, of course, not all CEOs make this much, but the conclusion that I want to drive home is that income inequality is getting much worse in this country.
What was interesting to me in what Bernanke said last week was that he stressed the fact that dislocated workers needed better “social insurance” to help them get a new job or learn a whole new trade altogether.
Sounds a little bit like what I have been saying in my Tycoon articles the last several weeks. I spoke about how we should make our version of capitalism look more like the Northern European models which help workers through benefits and training to get back on their feet fast without making them feel like failures because they lost their jobs.
I will end this article with a quote from the ancient Greek writer/historian Plutarch.
Plutarch: "An imbalance between rich and poor is the oldest and most fatal ailment of all republics."
Until the next time, folks, spend your hard-earned money wisely.
(Please let us know what you think about Jason Jovine's article.)
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Jason Jovine
Contributing Editor
The Tycoon Report
Mark Your Economic Calendar: What's ahead for the week of February 12, 2007
MARK YOUR ECONOMIC CALENDAR – What’s ahead for the week of February 12th.
Monday, February 12th, 2007
14:00 Treasury Budget: Consensus $40.0B
Big Picture: Tax receipts continue to run strong and left a -$248 bln FY06 budget deficit. Strong tax receipt growth has returned with the stronger economy, profits and income growth. Spending remains stronger than desired (6% avg 12 month yoy growth) as fiscal discipline is needed. The FY05 improvement sliced away a quarter of the record $413 bln FY04 deficit as FY06 sliced away another $71 bln -- far better than expected given the Gulf Coast spending, war costs and government spending restraint not yet demonstrated. Spending restraint is needed to continue to slim the budget.
Tuesday, February 13th, 2007
8:30 Trade Balance: Consensus -$59.5B
Big Picture: August topped the record July 2006 deficit as lower energy prices helped to leave the November deficit -15% lower and the lowest in over a year. The rapid drop is tied to oil prices which added a strong boost to Q4 GDP. The swing of petroleum import prices mask the weakening domestic demand for foreign goods as the weaker dollar and economy slowly reduce demand. Exports feed a stronger world economy. From a year ago exports have risen 13% as imports have risen just 5%. Import growth carries a larger effect on the deficit than exports given that imports are more than 50% larger. China commanded a record 41% of the entire deficit in October. The massive size of the deficit is eyed for effects on the dollar and interest rates. The trade deficit demands an equal but opposite investment inflow from abroad as the record size urges caution regarding foreign demand. But foreign demand remains exceedingly strong given the return of petrodollars and as Asian export markets protect strong trade flows with dollar buying.
Wednesday, February 14th, 2007
8:30 Retail Sales: Consensus 0.3%
Big Picture: Retail sales are slowing under the weight of higher interest rates as lower gas prices provided a late 2006 boost. Strong retail sales growth had been fueled by low interest rates, vehicle discounting and mortgage refinancing as those forces faded in late 2005. Despite the improved employment and income growth the Fed tightening and high energy prices have had a deflating effect on consumer spending and big ticket durable goods purchases particularly. Income growth provides support and is the best read on the future sales pace.
8:30 Retail Sales ex-auto: Consensus 0.3%
Big Picture: Retail sales are slowing under the weight of higher interest rates as lower gas prices provided a late 2006 boost. Strong retail sales growth had been fueled by low interest rates, vehicle discounting and mortgage refinancing as those forces faded in late 2005. Despite the improved employment and income growth the Fed tightening and high energy prices have had a deflating effect on consumer spending and big ticket durable goods purchases particularly. Income growth provides support and is the best read on the future sales pace.
10:00 Business Inventories: Consensus 0.4%
Big Picture: The inventory to sales ratio returned a record low 1.25 months in May as inventory gains (7% yoy) compare to a 4% yoy rise in sales. The historically lean inventory supply compared to sales is intended and shouldn't require rebuilding as the I/S ratio trend argues that technology continues to shorten inventory delivery times and need. Q4 showed the slowed inventory growth required to bring the I/S ratio back toward that record low. Improvements in inventory management don't require as much stock in the warehouses and lots.
Thursday, February 15th, 2007
8:30 Export Prices ex-ag.: Consensus NA
Big Picture: Ex-petrol import price gains have fallen off Oct 2005's decade high of 3.8% yoy to just 1.7% yoy. With the recent slide petrol import prices are up 6.2% yoy to leave a 2.5% yoy rise in total import prices. China and Japan show outright yoy declines in import prices which leaves the entire Pacific Rim -0.3% yoy.
8:30 Import Prices ex-oil: Consensus NA
Big Picture: Ex-petrol import price gains have fallen off Oct 2005's decade high of 3.8% yoy to just 1.7% yoy. With the recent slide petrol import prices are up 6.2% yoy to leave a 2.5% yoy rise in total import prices. China and Japan show outright yoy declines in import prices which leaves the entire Pacific Rim -0.3% yoy.
8:30 Initial Claims: Consensus NA
Big Picture: Initial claims broke above the remarkably tight range held in the 4-week average (306K-318K) over the holiday period as the new year brought the lowest 4-week average in a year. Continued claims showed a five year low in the 4-week average in mid May and now stands about 100K higher. The continued low levels reflect the thin available labor supply which make a qualified hire difficult to find and less likely to be let go. A good read on the labor market as net hiring runs at a slow/moderate historical pace.
9:15 Industrial Production: Consensus 0.0%
Big Picture: Industrial production stands at 3.0% yoy growth as the pace is slowing with lower vehicle and construction related output as underlying capital investment demand is running through what we assume is a mid-cycle stall. The annual growth is tied to business capital investment which brought strong and sustained growth in factory orders and production but has fallen off in recent months. Weaker business confidence in the economy is creating the slowing in capital investment. Capacity use stands at 81.8% -- now below the level historically consistent with inflationary pressures.
9:15 Capacity Utilization: Consensus 81.7%
Big Picture: Industrial production stands at 3.0% yoy growth as the pace is slowing with lower vehicle and construction related output as underlying capital investment demand is running through what we assume is a mid-cycle stall. The annual growth is tied to business capital investment which brought strong and sustained growth in factory orders and production but has fallen off in recent months. Weaker business confidence in the economy is creating the slowing in capital investment. Capacity use stands at 81.8% -- now below the level historically consistent with inflationary pressures.
12:00 Philadelphia Fed: Consensus 5.0
Big Picture: The regional manufacturing index is volatile as the December decline was followed by a strong rebound in January 2007. Revisions removed the Sept and Oct declines as the Dec decline was lightened to -2.3. The weakness in orders from the auto and housing sectors now add to stalled business investment from a break neck pace just a few quarters ago. ISM estimates for 2007 argue that the stall is just that with stronger demand ahead. Risk is that it won't. The Philly index is independent of its components so can provide a misleading read and is especially volatile given the small region covered (mid and east PA, southern NJ and Delaware). The manufacturing sector moves in mini-cycles compared to the overall economy and the regional measures move in even shorter cycles with far more month to month volatility.
Friday, February 16th, 2007
8:30 Housing Starts: Consensus 1610K
Big Picture: The housing market has fallen sharply from the highs seen in 2005. As mortgage rates rose, underlying demand and speculative investment faded as sales declined, inventory built and strong price growth turned to declines. The correction for the inflated housing market was expected (and needed) but with a more gradual decline as starts have fallen -28% from January's 33 year high. Fixed long term mortgage rates now in the low 6%'s and downward price pressure on homes leave sales finding some stability as a return to positive contruction waits for the huge supply of unsold homes to be thinned. National Assoc of Realtors expects the bottom in housing starts in Q2 2007.
8:30 Building Permits: Consensus 1590K
Big Picture: The housing market has fallen sharply from the highs seen in 2005. As mortgage rates rose, underlying demand and speculative investment faded as sales declined, inventory built and strong price growth turned to declines. The correction for the inflated housing market was expected (and needed) but with a more gradual decline as starts have fallen -28% from January's 33 year high. Fixed long term mortgage rates now in the low 6%'s and downward price pressure on homes leave sales finding some stability as a return to positive contruction waits for the huge supply of unsold homes to be thinned. National Assoc of Realtors expects the bottom in housing starts in Q2 2007.
8:30 PPI: Consensus -0.6%
Big Picture: September 2005 PPI growth of 6.9% yoy stood at a 15 year high but has dropped sharply to just 1.1% yoy. The core stands at 2.0% yoy from July 2005's decade high of 2.8%. The stronger pipeline pressures of the last year have only partially fed in to finished goods as the rise (and now decline) in energy prices provides the volatility. The directional trends for producer prices have turned toward lower yoy growth. The importance for the market (and the Fed) is any lingering effects on consumer prices.
8:30 Core PPI: Consensus 0.2%
Big Picture: September 2005 PPI growth of 6.9% yoy stood at a 15 year high but has dropped sharply to just 1.1% yoy. The core stands at 2.0% yoy from July 2005's decade high of 2.8%. The stronger pipeline pressures of the last year have only partially fed in to finished goods as the rise (and now decline) in energy prices provides the volatility. The directional trends for producer prices have turned toward lower yoy growth. The importance for the market (and the Fed) is any lingering effects on consumer prices.
10:00 Mich Sentiment-Prel.: Consensus 97.0
Big Picture: A strong lift from lower energy prices continues to provide the muscle. The January index reached the highest level since December 2004. The expectations component has surged 29% since the August high in gasoline prices. The University of Michigan survey is significantly smaller (500 phone calls) than the Conference Board's, includes a longer outlook (for expectations) as questions are focused on the household compared to the business heavy CB survey. The index far better tracks the consumers' mood than spending habits better indicated through interest rates and income growth.
(Source: www.Briefing.com)
