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We Knew They Got Raises. But This?


Philippe Dauman of Viacom led the executive pay list in 2010. The median was $10.8 million.
Photograph by Daniel Acker/Bloomberg News

Executive Pay, Revisited: Even Higher Than It First Seemed
According to figures provided by Equilar, a firm that tracks compensation data, median pay for chief executives at 200 of the nation’s largest companies rose 23 percent last year, much higher than the preliminary figure of 12 percent calculated in early April. Nearly every component of pay was up, including cash bonuses and stock grants. Media executives, in particular, dominated the top of the highest-paid list, with 6 among the top 10.

[ http://www.nytimes.com/interactive/2011/07/03/business/20110703-executive-pay-revisited-even-higher-than-it-first-seemed.html ]


Among the executives who registered huge gains in the value of their company stock and options in 2010 were Warren E. Buffett, the chief executive of Berkshire Hathaway, top, Lawrence J. Ellison of Oracle, center, and Jeffrey P. Bezos of Amazon.com. Together, the three men's holdings climbed by more than $13 billion for the year.
Anindito Mukherjee/European Pressphoto Agency (Top); Paul Sakuma/Associated Press (Center); Kim White/Reuters (Bottom)

By PRADNYA JOSHI
Published: July 2, 2011

IT turns out that the good times are even better than we thought for American chief executives.

A preliminary examination of executive pay in 2010, based on data available as of April 1, found that the paychecks for top American executives were growing again, after shrinking during the 2008-9 recession.

But that study, conducted for The New York Times by Equilar, an executive compensation data firm based in Redwood City, Calif., was just an early snapshot, and there were even more riches to come. Some big companies had not yet disclosed their executive compensation.

So Sunday Business asked Equilar [ http://www.equilar.com/ ] to run the numbers again.

Brace yourself.

The final figures show that the median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009. The earlier study had put the median pay [ http://www.nytimes.com/2011/04/10/business/10comp.html ] at a none-too-shabby $9.6 million, up 12 percent.

Total C.E.O. pay hasn’t quite returned to its heady, prerecession levels — but it certainly seems headed there. Despite the soft economy, weak home prices and persistently high unemployment, some top executives are already making more than they were before the economy soured.

Pay skyrocketed last year because many companies brought back cash bonuses, says Aaron Boyd, head of research at Equilar. Cash bonuses, as opposed to those awarded in stock options, jumped by an astounding 38 percent, the final numbers show.

Granted, many American corporations did well last year. Profits were up substantially. As a result, many companies are sharing the wealth, at least with their executives. “We’re seeing a lot of that reflected in the pay,” Mr. Boyd says.

And at a time of so much tumult in the media business, it might be surprising that some executives in media and communications were among the most richly rewarded last year.

The preliminary and final studies put Philippe P. Dauman, the chief executive of Viacom, at the top of the list. Mr. Dauman made $84.5 million last year, after signing a new long-term contract that included one-time stock awards.

Leslie Moonves, of the CBS Corporation, got a 32 percent raise and reaped $56.9 million. Michael White of DirecTV was paid $32.9 million, while Brian L. Roberts of the Comcast Corporation and Robert A. Iger of the Walt Disney Company each received pay packages valued at $28 million.

“Media firms seemed to be paying a lot,” said Carol Bowie, head of compensation policy development at ISS Governance, which advises large investors [ http://www.issgovernance.com/press/20110620_execcompdata ] on corporate governance issues like proxy votes. “Media companies in general tend to be high-payers, and they tend to feed off each other.”

Other big payers included oil and commodities companies like Exxon Mobil and a few technology giants like Oracle and I.B.M.

Some of the other highly paid executives on the new list who were not in the April survey are Gregg W. Steinhafel of Target, who had a $23.5 million pay package; Michael E. Szymanczyk of Altria, $20.77 million; and Richard C. Adkerson of Freeport-McMoRan Copper & Gold, $35.3 million.

Most ordinary Americans aren’t getting raises anywhere close to those of these chief executives. Many aren’t getting raises at all — or even regular paychecks. Unemployment is still stuck at more than 9 percent.

In some ways, chief executives seem to live in a world apart when it comes to pay. As long as shareholders think that the top brass is doing a good job, executives tend to be well paid, whatever the state of the broader economy. And some corporate boards were probably particularly generous in 2010 after a few relatively lean years for their top executives. In other words, some of this was makeup pay.

“What is of more concern to shareholders is that it looks like C.E.O. pay is recovering faster than company fortunes,” says Paul Hodgson, chief communications officer for GovernanceMetrics International, a ratings and research firm.

According to a report released by GovernanceMetrics [ http://www2.gmiratings.com/news_docs/155620110607prelimceopay.pdf ] in June, the good times for chief executives just keep getting better. Many executives received stock options that were granted in 2008 and 2009, when the stock market was sinking.

Now that the market has recovered from its lows of the financial crisis, many executives are sitting on windfall profits, at least on paper. In addition, cash bonuses for the highest-paid C.E.O.’s are at three times prerecession levels, the report said.

Of course, these sorts of pay figures invariably push the buttons of many ordinary Americans. Yes, workers’ 401(k)’s are looking better than they did in some recent years, but many investors still have not recovered from the hit they took during the financial crisis. And, of course, millions are out of work or trying to hold on to their homes — or both.

And it’s not as if most workers are getting fat raises. The average American worker was taking home $752 a week in late 2010 [ http://www.bls.gov/news.release/archives/wkyeng_01202011.pdf ], up a mere 0.5 percent from a year earlier. After inflation, workers were actually making less.

On the flip side, some chief executives have consistently taken token salaries — sometimes, $1 — choosing instead to rely on their ownership stakes for wealth. These stock riches don’t show up on the current pay lists, but they can be huge.

Warren E. Buffett, for instance, saw his stock holdings rise last year by 16 percent, to $46 billion. Other longtime chief executives or founders who are sitting on billions of paper profits include Jeffrey P. Bezos of Amazon.com and Michael S. Dell, the founder of Dell.

Resurgent executive pay has some corporate watchdogs worried [ http://www.nytimes.com/2011/06/19/business/19gret.html ] that companies have already forgotten the lessons of the bust. Boards have promised to tie executive pay to company success, but by some measures pay is rising faster than performance. The median pay raise for chief executives last year — 23 percent — was roughly in line with the increase in net corporate profits. But it far exceeded the median gain in shareholders’ total return, which was 16 percent, as well as the median gain in revenue, which was 7 percent.

FOR the moment, shareholders aren’t storming executive suites. And while they received a say on pay under new federal rules last year, their votes are nonbinding. In other words, boards can still do as they please.

Pay specialists say companies are taking a hard look at these votes [ http://say-on-pay.com/ ]. Still, only about 1.5 percent of the 200 companies in the Equilar study were rebuffed by their shareholders on pay. A vast majority of the votes passed overwhelmingly, with 80 percent or 90 percent support, according to Mr. Boyd of Equilar.

Mr. Boyd says companies are making an effort to explain their pay plans. “We saw companies take it very seriously,” he says of the new rule.

In some respects, the mere possibility that shareholders might reject a proposed pay plan is enough to make corporate executives think again. Ms. Bowie of ISS says that outrageous payouts — such as so-called tax gross-ups, in which companies cover executives’ tax bills on perks like corporate jets — are becoming rarer.

Disney for instance, eliminated tax gross-ups this year in the face of shareholder ire, she said.

Company directors have the power to rein in runaway executive pay, but it is unclear whether either they or shareholders will do so in 2012. “It can be done if there is the will,” Ms. Bowie says.

© 2011 The New York Times Company

http://www.nytimes.com/2011/07/03/business/03pay.html [ http://www.nytimes.com/2011/07/03/business/03pay.html?pagewanted=all ]


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BMW layoffs exemplify the evisceration of the middle class


Miguel Carpinteyro is losing his BMW job after 14 years. Three of his children have medical issues, and he and his wife might lose their house.
(Irfan Khan, Los Angeles Times)

Every working American should be dismayed by — and afraid of — what BMW is doing.

Michael Hiltzik
July 03, 2011

By all accounts, BMW's parts distribution warehouse in Ontario was one of the jewels of the company's system.

Supplying dealer service departments throughout Southern California, Arizona and Nevada, it received gold medals from BMW for its efficiency and employed several of the top-ranked workers in the country. In the roughly 40 years its workers had been represented by the Teamsters union, there had never been a labor stoppage.

Times being what they are, when a Teamsters committee [ http://www.teamsters495.org/ ] came to the plant in early June to open negotiations over a new contract to start Sept. 1, they thought they might be asked to accept minuscule wage increases and maybe some givebacks on health coverage.

They were stunned by what they heard instead: As of Aug. 31, the plant would be outsourced to an unidentified third-party logistics company and all but three of its 71 employees laid off.

The union contract will be terminated. Some of the employees might be offered jobs with the new operator, but there are no guarantees. And no one expects the new bosses will match the existing $25 hourly scale or the health benefits provided now.

The average seniority of employees at Ontario is about 20 years; five have spent 30 years or more at Ontario or its predecessor warehouse in Carson. Of the employees to be laid off (according to a notice BMW sent [ https://s3.amazonaws.com/s3.documentcloud.org/documents/213213/col-bmw-warn-act-notice.pdf ] the union), 27 are age 50 or older. The word that came most often to the lips of workers and their families I've talked to is "devastated."

"The hardest thing I ever had to do in my life was to look my family in the eyes and tell them that after 32 years I'm out of a job," says Tim Kitchen, who at 53 is the longest-serving employee at the warehouse. The esprit de corps that once prevailed in the warehouse is gone, he says. "You walk in there now, it's like a morgue." Early retirement isn't an option; Kitchen still has two kids' college educations to pay for.

Every working American should be dismayed by — and afraid of — what BMW is doing.

These employees exemplified the best qualities of the American worker. They devoted their working lives to BMW, at a time when it was building and solidifying its U.S. beachhead. Their wages, with benefits, paid for a reasonable middle-class lifestyle if they managed it carefully. Throw in the job security they were encouraged to expect, and they had the confidence to make sacrifices and investments that contributed to the economy for the long term, like college education for the kids, an addition on the house, a new baby. Then one day they were handed a mass pink slip, effective in a matter of weeks.

The harvest will be weighed in foreclosed homes, college educations deferred or abandoned, new cars left in the dealers' lots (BMWs not excepted) and consumer goods on the shelf, one more little cascade of blows to the U.S. economy.

Miguel Carpinteyro, 42, had 14 years with BMW and every expectation of retiring there. In the backyard of their home in the San Bernardino County community of Highland, he and his wife, Jerri, just finished building a pool, which is good therapy for their two autistic sons. A daughter has a heart condition requiring frequent medical visits.

The family put money aside for retirement through a 401(k), but they may have to tap that to live on, never mind paying their medical bills without employer-sponsored insurance. Their household budget, based on a BMW wage, can't be sustained on much less. "We'll probably end up losing the house," Jerri told me.

Many of the BMW employees can boast of tenures stretching back to the bygone era when a job was more than a job. The longevity of the workforce tells you that good wages and benefits kept turnover at the plant low — when companies cared about keeping turnover low. Some can measure their loyalty to BMW in the kids' ballgames and dance recitals they missed over the years because the company needed them to pull double shifts. Will workers employed by an outsourcing contractor and earning closer to minimum wage do the same? To ask the question is to answer it.

BMW says for the record that it's "very much aware of its legal obligations and corporate responsibilities." The company will negotiate with the Teamsters over severance but won't discuss that or other transitional issues in public. It notes that it still employs 10,000 people in California, including those at two vehicle technology centers and Newbury Park-based BMW DesignworksUSA, and says that number might grow in the future.

The company doesn't concede that it's outsourcing the Ontario plant to save money on wages. It says it brought in outside logistic contractors at Ontario and four of its other five parts depots nationwide because it prefers to focus on its "core expertise" of engineering and making cars. Of course, nonunion workforces generally receive lower pay and benefits than union — that's the power of collective bargaining — so the math is hardly a secret.

If there are operational efficiencies to be gained from the outsourcing, as BMW contends, the firm presumably expects them to translate into higher profits, but it won't be sharing the money with the warehouse workers. Among the most likely beneficiaries are its shareholders — maybe via another dividend boost on top of the $950-million raise [ https://s3.amazonaws.com/s3.documentcloud.org/documents/213189/col-bmw-dividends.pdf ] the company gave them out of its $4.7-billion profit last year.

BMW's defenders will point out that the company has a perfect legal right to outsource any jobs it wishes. Fair enough. Yet by the same token, American taxpayers had a perfect legal right to tell BMW to drop dead when the firm's credit arm asked the Federal Reserve for a low-interest $3.6-billion loan during the 2008 financial crisis. BMW got the money then because U.S. policymakers saw a larger issue at stake: saving the economy from going over a cliff. Just as there's a larger issue involved at Ontario, which is saving the American middle class from going over the same cliff.

The Ontario union, Teamsters Local 495, got Sen. Barbara Boxer (D-Calif.) [ https://s3.amazonaws.com/s3.documentcloud.org/documents/213861/col-bmw-boxer-letter.pdf ] and Reps. Joe Baca (D-Rialto) [ https://s3.amazonaws.com/s3.documentcloud.org/documents/213862/col-bmw-baca-letter.pdf ] and Loretta Sanchez (D-Garden Grove) [ https://s3.amazonaws.com/s3.documentcloud.org/documents/213860/col-bmw-sanchez-letter.pdf ] to write painfully polite letters to Jim O'Donnell, chairman of BMW North America, asking him to reconsider. When I say that's the least they could do, I'm talking literally — it's the very least. How about hauling him before a televised hearing and having him balance out a $3.6-billion taxpayer loan with the firing of 70 American workers? The company surely wouldn't characterize its federal loan as charity, but neither is maintaining its parts distribution workers on a living wage.

It's fashionable to observe today that the loyalty the BMW workers gave their employer was naive; complain to manufacturing CEOs about their remorseless hollowing out of middle-class livelihoods to maintain payouts to shareholders, and the answer you get is that this is merely the way of our hyper-competitive modern world. Nothing personal; it's the tyranny of the marketplace.

Yet what gives BMW the freedom to convert good American middle-class jobs into low-wage piecework is the evaporation of American workers' power of collective action. The labor lawyer and writer Thomas Geoghegan [ http://tomgeoghegan.com/ ] contends that BMW could never outsource union jobs like this in its home country, Germany, where union solidarity extending from the professional staff down to the shop floor would stomp the living daylights out of the very idea. "Foreign companies know there's no solidarity here," he says.

On Monday, the Fourth of July, Americans will gather to celebrate the overthrow of tyranny. But the ease with which we allow corporate employers to impoverish their loyal workers should make us pause under the fireworks and think about how over the ensuing 235 years we've simply substituted one set of tyrants for another, the new ones immeasurably more heartless and bloodthirsty than the ones we shed.

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at [e-mail], read past columns at latimes.com/hiltzik [ http://www.latimes.com/hiltzik ], check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.

Copyright 2011 Los Angeles Times

http://articles.latimes.com/2011/jul/03/business/la-fi-hiltzik-20110703