Narrowing the debate on the National debt and whether to tax the wealthiest.

I sent an email to friends yesterday showing an article on Executive compensation vs. Average workers pay and decided to post it here.The article is titled, WHO RULES AMERICA by Prof. G. William Domhoff, Sociology Dept. Univ. of California, Santa Cruz. It is very worth reading and educating yourself.

For the complete article click this.

"Income Ratios and Power: Executives vs. Laborers

Another way that income can be used as a power indicator is by comparing average CEO annual pay to average factory worker pay, something that has been done for many years byBusiness Week and, later, the Associated Press. The ratio of CEO pay to factory worker pay rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when CEOs were cashing in big stock options. It was at 411:1 in 2005 and 344:1 in 2007, according to research by United for a Fair Economy. By way of comparison, the same ratio is about 25:1 in Europe. The changes in the American ratio from 1960 to 2007 are displayed in Figure 8, which is based on data from several hundred of the largest corporations.

Figure 8: CEOs' pay as a multiple of the average worker's pay, 1960-2007

Source: Executive Excess 2008, the 15th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.

It's even more revealing to compare the actual rates of increase of the salaries of CEOs and ordinary workers; from 1990 to 2005, CEOs' pay increased almost 300% (adjusted for inflation), while production workers gained a scant 4.3%. The purchasing power of the federal minimum wage actually declined by 9.3%, when inflation is taken into account. These startling results are illustrated in Figure 9.

Figure 9: CEOs' average pay, production workers' average pay, the S&P 500 Index,corporate profits, and the federal minimum wage, 1990-2005(all figures adjusted for inflation)


Source: Executive Excess 2006, the 13th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.

Although some of the information I've relied upon to create this section on executives' vs. workers' pay is a few years old now, the AFL/CIO provides up-to-date information on CEO salaries at their Web site. There, you can learn that the median compensation for CEO's in allindustries as of early 2010 is $3.9 million; it's $10.6 million for the companies listed in Standard and Poor's 500, and $19.8 million for the companies listed in the Dow-Jones Industrial Average. Since the median worker's pay is about $36,000, then you can quickly calculate that CEOs in general make 100 times as much as the workers, that CEO's of S&P 500 firms make almost 300 times as much, and that CEOs at the Dow-Jones companies make 550 times as much. (For a more recent update on CEOs' pay, see "The Drought Is Over (At Least for CEOs)" at NYTimes.com; the article reports that the median compensation for CEOs at 200 major companies was $9.6 million in 2010 -- up by about 12% over 2009 and generally equal to or surpassing pre-recession levels. For specific information about some of the top CEOs, see http://projects.nytimes.com/executive_compensation.

If you wonder how such a large gap could develop, the proximate, or most immediate, factor involves the way in which CEOs now are able to rig things so that the board of directors, which they help select -- and which includes some fellow CEOs on whose boards they sit -- gives them the pay they want. The trick is in hiring outside experts, called "compensation consultants," who give the process a thin veneer of economic respectability.

The process has been explained in detail by a retired CEO of DuPont, Edgar S. Woolard, Jr., who is now chair of the New York Stock Exchange's executive compensation committee. His experience suggests that he knows whereof he speaks, and he speaks because he's concerned that corporate leaders are losing respect in the public mind. He says that the business page chatter about CEO salaries being set by the competition for their services in the executive labor market is "bull." As to the claim that CEOs deserve ever higher salaries because they "create wealth," he describes that rationale as a "joke," says the New York Times."

Healthcare and Banking: What do they have in common?

The Banking system collapse due to the excesses of greed and deregulation is well known. But I believe there is a root cause, not readily discussed. The same is true for the abysmal failure of our healthcare system to control the costs of healthcare. I have worked in both systems and will share some insights and thought I have had about these issues.

The For-Profit model of business isn't right for any business and many have been ruined by moving from a Not-for-Profit system, to a For-Profit system of governance. I have consulted over the past 20 years to 7 prominent healthcare company CEO's and their executive teams, as well as to Freddie Mac and Banks. While Healthcare companies don't seem to have anything in common with Freddie Mac and this story, they do. You see, most senior executives were allured, and are still allured, by the idea of making more money than just a good salary for themselves. They wanted their companies to become For-Profit entities and wanted a share in the company's profit through the use of bonuses and, when possible, stock options/grants. What has happened is that many healthcare companies have merged and become Publicly traded companies, such as Anthem Insurance company and then, Wellpoint.

I remembered the time back in 1988 when I was facilItating an Executive retreat with the CEO, the President and senior team. It was just before the Savings and Loan crisis had raised its ugly head to give you a reference point. Initially the team had a low level of energy and I asked what would make them more excited as a team. I was reminded that they were a quasi government appointed and instituted organization. I asked them what that meant to them. They answered that their compensation was set with little room to truly make the kind of money other Executive teams would make in smaller sized financial institutions, and, for the level of responsibility they had versus the compensation they received, they just weren't that excited about things. I asked the group, "What would make you excited and really engaged?" They replied almost to the person, "If we were a Publicly traded company and had a chance at owning stock and truly merit based performance aligned with the level of responsibility and accountability they had." That comment was an eye opener for me. I then asked, "Why don't you become a Publicly traded company?" The reply was, "You don't understand, we are a quasi government organization and therefore they couldn't." I said to them, "That's not the reason you aren't a Publicly traded company. It's because YOU DON'T BELIEVE YOU CAN become a Publicly traded company! I then suggested consideration that they could in fact become a Publicly traded company and asked what would have to be done to start the process. This began the process where Freddie Mac began a Publicly traded company in 1989. The rest is now history.

During that same approximate timeframe, I had Blue Cross and Blue Shield (BCBS) of Kentucky as a client beginning in 1988. It was a Non Profit organization at that time. It went through a major successful turnaround from 1988-1993 with a new CEO (my client) leading the charge. In 1993, it became the first BCBS plan to merge with Anthem Insurance Co. This was the first cross-state merger of two strong Blue plans. In 2001, Anthem became a Publicly traded company. In 2004, Anthem and Wellpoint merge becoming Wellpoint, Inc. and in 2005 Wellpoint, Inc. acquires Lumenos (formerly, another client of mine). To see the other acquisitions of Wellpoint during those years, click on this Wikipedia link.
What these all have in common is the pursuit of profits in the healthcare industry.

I don't know what contribution For-Profit motivation contributed to the increase in healthcare costs. But I am sure it has been substantial. For example, the Anthem/Wellpoint merger reaped the Executive team a total of hundreds of millions of dollars in deferred compensation, salary and bonuses. The exact figure is difficult to determine. But it is enough to say that many people could have been insured for years, had the companies not had these compensation packages. In the words of a former CEO from the Healthcare system, "The biggest mistake I made was going form a Non-profit to a For-Profit company, as everything changed after that. If I could do it over again, I would not have done it!