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On August 31, 2024 Jonathan wrote What We Believed which included the following. How right he is. I experienced it first hand over my near fifty years working for the same employer.
“Employers care. My parents worked for a paternalistic employer, and I certainly thought of my initial employers in those terms. But how many folks today believe that, if they work hard, their employer will return that loyalty and that their job is truly safe? The evisceration of that social contract has, I believe, left us all worse off, both workers and their employers.”
However, there is no such thing as “the employer” or “the Company.” Those terms mask the real culprit – the individuals running the show, the mid-level decision makers looking to make a mark on their careers, those looking for recognition for (mostly) saving money and boosting corporate earnings.
Since I retired my former employer has made several changes that were unnecessary (because gradual cost cutting changes were already in place) and can accurately be described as greed.
Promised future pension benefits were reduced so that the amount anticipated – and shown in company-provided retirement estimators – was significantly reduced thereby disrupting the plans of many employees. Why? A consultant concluded that the combination of pension, Social Security and 401k was providing too much retirement income ignoring the fact that most of the future income was employee or stock market funded.
While working I had negotiated retiree health benefits. I, the unions and retirees believed they were secure. Three years ago that commitment was broken for Medicare eligible retirees. Company medical, dental and Rx coverage was eliminated and replaced with use of a insurance broker to offer insurance and a company Health Reimbursement Account (HRA) to help pay for Medicare supplemental coverage. The HRA contribution increases by 1.5% a year while the premiums retirees pay increase at 6% to 8% per year. The Company now had a defined contribution plan while shifting future increases to retirees who retired (rightly) believing they had coverage for life. The move saved the company billions in future liabilities. Because of the radical change associated with prescription drug coverage many retirees were financially devastated.
Once a company recognized as a great place to work is now frequently maligned as untrustworthy. All because of the actions of individuals with their own short-term personal agendas.
I think it both is and isn’t about people. I think the corporate machine is largely bigger than any indivdual with the exception of certain egomaniacs like Musk and Bezos. But that does mean that execs and CEOs know they are playing a short term game to maximise value ( and their vesting stock/bonuses) over a 3-5 year horizon rather than creating a career long legacy.
And when leadership see themselves as expendable, woe betide any regular employee who expects a more caring and nurturing environment. As investors maybe we should be glad that a relentless and thankless focus on delivering the numbers is so prevalent. As consumers and employees maybe less so.
Leaving aside the fact that executive comp
in the U.S. is a scandal, isn’t it better to
have institutions that manage long term
liabilities in a responsible manner rather
than have them threaten the company’s
future ?
The auto industry was never able to deal
with retiree health care and the result
was bankruptcies at GM and Chrysler and
extreme financial stress at Ford.
Many public sector pension plans
and retiree health plans are huge
headaches as well – will not go into the
causes.
Maybe a good approach for companies
like Mr. Quinn’s would be to provide
some stock options to employees losing
expected but not contractually promised
benefits.
Executives may make final approval for changes, but they rarely come up with the ideas, that is middle and upper managers.
I don’t agree exec comp is a scandal. It’s paid for by shareholders and takes nothing from workers despite the rhetoric claiming otherwise.
The problems of the auto industry were caused by poor management and greedy unions resulting in unsustainable liabilities. The same is true for public sector pensions and benefits – the unholy alliance between unions and politicians. I was on several governor task forces evaluating these arrangements.
I agree, there should be both stock incentives and some profit sharing.
Of course executive compensation is a scandal. In 2018 CEOs in the US made $265 for every $1 an average worker made. And those employees are paying for it. The money could otherwise be used to improve their pay or benefits. That retiree medical benefit you complain about losing, for instance.
Only some of the CEOs of the top 500 corporations are paid like that and most of their compensation is in the form of stock – at risk. The bulk of CEOs are paid about $400,000. The majority of American workers do not work in S&P 500 companies.
CEO compensation is not money that can be used for a long-term commitment to pay or benefits.
Try an exercise for a large S&P company. Divide the CEO compensation by the number of workers and see the impact.
Here is an example I did a few years ago. It came out to seven cents an hour for workers assuming the CEO was not paid.
In addition, the cost of benefits, especially health benefits tend to increase at much higher rates than pay.
What is the dislike on this comment?
I think the number of 400K is
impossible for public company
CEO’s. Median number for
S and P 500 is shown on line as 16.3 million.
Additionally, there may be
Very valuable exit packages.
pls look at Randall Stephenson
of ATT whose pension was
valued at 64 million
this is after engineering two
failed acquisitions –
Direct TV and Warner
i have no problem with rewarding
a CEO who delivers great operating or deal making
results. But comp is often influenced by stock price
and that is subject to many
extraneous factors.
I did not mention public
companies in my initial
comment as I assumed
that your article was about
a public company.
The $400K is for all CEOs and comes from the BLS. We tend to forget that the headline claiming CEO pay is very limited as are the number of workers in those organizations.
I don’t think all those CEOs with huge compensation deserve it or that their results always justify it. But having negotiated such packages I can say you need to be able to attract the talent you need or think you do.
In any case it is an issue for the Boards and shareholders.
https://mclagan.aon.com/aon.mclagan/media/files/2020/2020_07_CEO-pay-for-private-vs-public-companies.pdf?ext=.pdf
Located a 2020 Aon study
indicating CEO pay targets
dramatically above your
BLS indication covering
A broad range of public
and private entities.
Look at the size of the companies in the study. The $400,000 is a much broader group of CEOs
If A.I. Can Do Your Job, Maybe It Can Also Replace Your C.E.O.Nearly half — 47 percent — of the executives surveyed said they believed “most” or “all” of the chief executive role should be completely automated or replaced by A.I. Even executives believe executives are superfluous in the late digital age.
https://www.nytimes.com/2024/05/28/technology/ai-chief-executives.html
Someday. 😊
I am not sure that it is all about people. Capitalism is a very powerful economic system that allocates resources very efficiently. In its purest expression, anything that increases profits is encouraged. Worker safety as in coal mining, for example, was not a priority until it was legislated. Likewise environmental impact, product safety, and many other areas were not important until legislated. Prior to WWII and its shortage of workers, health insurance was not generally offered to employees. Even today, the companies with the best benefits are those who have to compete for scarce, highly skilled workers.
Virtually all public companies reward executives for increasing their share price and market value.
My comments are not intended to be an attack on Capitalism as without it, I would be much poorer. Instead, I think that we need to recognize that there must be some limits to what managers are allowed to do, and that we, collectively, are responsible when we what some might term reprehensible things take place.
People make the decisions do they not. I was closely involved in many such decisions at the executive level. How some people in power think is scary at times.
I was a local union representative at a small company. My relationship with the company’s owner was a little like how congress/senate used to be, with red and blue guys fighting it out on the floor, then having drinks together later in the evening. We were on strike in 2002. Every time the media asked me for comments I always linked the owner’s name to the company’s proposal. The day we settled the strike the owner told me he felt like a villain. So yes, it is all about people.