Top 1% Up $21 Trillion. Bottom 50% Down $900 Billion.

[Loren Pechtel]

You don't put your long term savings in the bank.

Where else except a bank or credit union do you put your savings Loren? Its either the bank or you can buy a government T-bill. Over a long haul, a dollar in a safe and liquid savings account will not be worth much (inflation adjusted) today.

Purchasing a home, stocks, bonds, and your other assets are not savings. Yes, they are long term investments subject to being taken away by an exwife or the IRS, but they are NOT savings.

You invest your long term savings, or as you say, see it eaten by inflation.

 

[Loren Pechtel]

When I graduated from college in 1976 I did so with very little debt. That was possible because if I worked a summer job at one of the local mills I made enough to pay for nearly all of my education. The rest came from grants. Being a college graduate then enabled me to continue to possess higher paying jobs throughout my life compared to someone without the sheepskin.

The point is that the sheepskin was cheap compared to today. Today that same low class bum like me doesn't have the opportunity to graduate debt free just by having a decent paying summer job. It's really stacked against people just like me today.

But I'm 65 now and pretty set. The young people setting out today don't have the same opportunity by a very, very, very long shot. The reason is simply that income (wealth) is not redistributed like it used to be.

I blame that on the government giving out loans too easily. Which has made it too easy and convenient for everyone to go to college. Which in turn has caused colleges not to have to be competitive with their prices. Just like the health industry, it is the price of the actual service that is the problem. College is too expensive right now.

Which came first, the rising college prices or the loans. You seem to feel it was the loans. I don't know.

The data is clear--costs went up first. Except what really happened is that what the state contributed to the colleges went way down. Public university budgets haven't gone up at an unreasonable rate, but tuition is a far bigger chunk that it used to be.

 

[Loren Pechtel]

Here is an excellent article that goes into the meat of the issues:

Yes, some very good points there.

So, as before, how do we deal with positions in a firm that are not scalable in the same manner? When a CEO of a large company improves the bottom line by even the smallest percentages, the overall impact to the entire company can be huge—on the order of hundreds of millions of dollars in revenue. When a janitor in the same company empties a wastebasket, does that carry equal weight? How equal? What’s the metric?

Exactly. Wages aren't about some magical fairness. Companies pay the lesser of what they need to attract the skills they want and some reasonable fraction of the value the employee contributes. At the low end it means if an employee doesn't contribute enough the position goes unfilled--the company simply doesn't do whatever that employee was doing. At the high end small increments in ability translate into large effects on the bottom line so you get competition for those perceived to be the best.

Someone make a cogent argument as to why the receptionist should be paid twice that in salary—taken from the CEOs salary—and be given the possibility of earning a performance based bonus of $10,000 and exactly how that could be measured. What bonus performance does the receptionist do above and beyond their job function that would justify those amounts?

And what happens when the CEO doesn't like the prospects and goes elsewhere instead? The receptionist can't earn the bonus if the company isn't doing well enough to pay such bonuses.

Again, we’re not talking about a more nebulous “the company needs to increase base pay to reflect society.” I agree. A living wage should be the base wage. So, take that as read and in our hypothetical the receptionist is earning a living wage. Why should the company go beyond that based entirely on the employee’s performance of their job?

Here's where I disagree with you. A "living wage" is leftist misdirection--what constitutes enough to live on varies considerably depending on one's situation and thus it's impossible to set a value. It's really a code-word for "more".

Furthermore, such arguments always omit the fact that as you drive wages up you drive unemployment up. The left keeps complaining about income differences yet they are trying to create a very serious one: Workers with decent pay and workers with no pay at all.

I don't have time to read the whole article now so I don't know if it was covered but there's also another factor:

The US is big. We have bigger companies, both because of our size and because there have been so many mergers. This means that the CEO pay comparisons aren't apples-to-apples because the US companies are bigger than their foreign counterparts. As CEO value scales with company size their value is more in the US. One shouldn't compare the top X CEOs, one should compare CEOs of companies of similar size.

 

[Canard DuJour]

.

CEO groupies, take note :

The Highest-Paid CEOs Are The Worst Performers, New Study Says.

Across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive new research. This is true whether they’re CEOs at the highest end of the pay spectrum or the lowest. “The more CEOs are paid, the worse the firm does over the next three years, as far as stock performance and even accounting performance,” says one of the authors of the study, Michael Cooper of the University of Utah’s David Eccles School of Business.

https://www.forbes.com/sites/susana...worst-performers-new-study-says/#141fdbe77e32

Best-Paid CEOs Run Some of Worst-Performing Companies

The best-paid CEOs tend to run some of the worst-performing companies and vice versa—even when pay and performance are measured over the course of many years, according to a new study.

The analysis, from corporate-governance research firm MSCI, examined the pay of some 800 CEOs at 429 large and midsize U.S. companies during the decade ending in 2014, and also looked at the total shareholder return of the companies during the same period.

MSCI found that $100 invested in the 20% of companies with the highest-paid CEOs would have grown to $265 over 10 years. The same amount invested in the companies with the lowest-paid CEOs would have grown to $367.

The results call into question a fundamental tenet of modern CEO pay: the idea that significant slugs of stock options or restricted stock, especially when the size of the award is also tied to company performance in other ways, helps drive better company performance, which in turn will improve results

https://www.wsj.com/articles/best-paid-ceos-run-some-of-worst-performing-companies-1469419262

 

[PyramidHead]

The average fry cook works harder than every Fortune 500 CEO

 

[RVonse]

You don't put your long term savings in the bank.

Where else except a bank or credit union do you put your savings Loren? Its either the bank or you can buy a government T-bill. Over a long haul, a dollar in a safe and liquid savings account will not be worth much (inflation adjusted) today.

Purchasing a home, stocks, bonds, and your other assets are not savings. Yes, they are long term investments subject to being taken away by an exwife or the IRS, but they are NOT savings.

You invest your long term savings, or as you say, see it eaten by inflation.

But that right there is the rub. An investment is not savings. You can not eat a rental house. You can not even trade a rental house to pay your taxes. The US has no savings now, and yes the fed gets the blame for this.

 

[RVonse]

Wages aren't about some magical fairness.

In the case of corporate CEO's its about corruption. The free market does not support paying GM CEO Mary Barra 30 times her workers. And we know this because Volkswagon CEO makes 5 times his workers and Volkswagon is a bigger and more successful auto company.

 

[laughing dog]

But that right there is the rub. An investment is not savings. You can not eat a rental house.

You cannot a certificate if deposit or a savings account. But you can convert an investment into cash, just like you can do with a cd or a deposit in a savings account.

You can not even trade a rental house to pay your taxes. The US has no savings now, and yes the fed gets the blame for this.

How is it the responsibility of the Fed that federal gov’t choose to run deficits?

 

[Loren Pechtel]

It's not a math problem, it's a class problem, a fact that will always escape bourgeois economists and the people who believe what they say. And, in the end, it's not a problem of class in one nation, but of imperialism. Inequality such as this (and concentrated wealth in general) simply cannot exist without an impoverished third world. The wealth doesn't belong to the 1% in America, but it doesn't belong to the 99% in America either, if we're being honest. It belongs primarily to Africans, South Americans, and Asians whose free/underpaid labor is the foundation of commodity capitalism in this century. To the extent that their prospects for survival and social reproduction were stunted by centuries of exploitation, they are owed.

Just because you see no way to wealth other than exploiting doesn't mean there isn't one.

The usual route to the Forbes list is to figure out how to do something better and extract a portion of the value you thus created. A portion--in other words, the result is some of that value got distributed to your customers and thus society at large.

 

[Loren Pechtel]

The average fry cook works harder than every Fortune 500 CEO

Which only makes sense to those who do not engage in activities that require a lot of mental effort.

 

[Loren Pechtel]

You invest your long term savings, or as you say, see it eaten by inflation.

But that right there is the rub. An investment is not savings. You can not eat a rental house. You can not even trade a rental house to pay your taxes. The US has no savings now, and yes the fed gets the blame for this.

And you can't eat a bank statement, either. In either case you have to take the money out in order to eat it.

For most people long term savings is in stock. You can readily buy and sell it.

 

[Koyaanisqatsi]

CEO groupies, take note

The Highest-Paid CEOs Are The Worst Performers, New Study Says.

Across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive new research. This is true whether they’re CEOs at the highest end of the pay spectrum or the lowest. “The more CEOs are paid, the worse the firm does over the next three years, as far as stock performance and even accounting performance,” says one of the authors of the study, Michael Cooper of the University of Utah’s David Eccles School of Business.

https://www.forbes.com/sites/susana...worst-performers-new-study-says/#141fdbe77e32

That article cites this research paper.

And in it they state right up front:

However, the evidence on whether compensation is related to future firm performance is decidedly mixed. For example, Abowd (1990), Lewellen, Loderer, Martin, and Blum (1992), and Tai (2004) find a positive relation between pay and future stock returns. Other papers document an equally strong negative relation between executive pay and future returns (see for example, Core, Holthausen, and Larcker, 1999, or Brick, Palmon, and Wald, 2006). The former set of papers attributes the positive relation between executive compensation and future performance to incentive alignment between the shareholders and the executives, while the latter set of papers attributes the negative relation between compensation and firm performance to agency issues.

Both sets of papers typically assume that managers are rational economic actors who understand the incentives provided by the board and act accordingly, either to maximize shareholder value or their own private benefits. During the past decade however, an increasing number of papers have argued that managers are prone to behavioral biases that have real effects on firm actions and performance. One particular behavioral bias is overconfidence.
...
In this paper, we bring these two streams together. We hypothesize that overconfident CEOs are more likely to accept particular types of pay contracts, those that involve long-term commitments to increasing the value of the firm, and are also significantly more likely to subsequently underperform, creating a negative relationship between pay and future stock performance. In a broad cross-section of Execucomp S&P1500 firms over the 1994-2015 period, we analyze the relation between CEO compensation and future firm performance, using details of the pay contracts, proxies for CEO overconfidence, investment, merger and acquisition data, and controls for measures of potential firm agency problems and show that a negative relation holds in the cross-section of firms over this time period.

We first show that CEO compensation is correlated with variables associated with overconfidence. Using two measures of “excess” incentive compensation (“peer-adjusted incentive compensation”, computed after adjusting pay for industry and size controls and “modeladjusted incentive compensation,” estimated using a model that controls for standard economic determinants of pay), we find that pay is positively correlated with a popular measure of overconfidence, the proportion of unexercised in-the-money options to total compensation, a measure similar to that used in Malmendier and Tate (2005). Managers in the top pay deciles typically exhibit a significantly greater level of overconfidence than do managers in the lower deciles. Further, consistent with the characteristics of overconfident managers in Ben-David, Graham, and Harvey (2013), high paid CEOs, relative to lower paid CEOs, invest more, engage in more mergers, and use more debt.

So, yeah. Not sure what, if anything, that gets us.

And this one:

Best-Paid CEOs Run Some of Worst-Performing Companies

The best-paid CEOs tend to run some of the worst-performing companies and vice versa—even when pay and performance are measured over the course of many years, according to a new study.

The analysis, from corporate-governance research firm MSCI, examined the pay of some 800 CEOs at 429 large and midsize U.S. companies during the decade ending in 2014, and also looked at the total shareholder return of the companies during the same period.

MSCI found that $100 invested in the 20% of companies with the highest-paid CEOs would have grown to $265 over 10 years. The same amount invested in the companies with the lowest-paid CEOs would have grown to $367.

The results call into question a fundamental tenet of modern CEO pay: the idea that significant slugs of stock options or restricted stock, especially when the size of the award is also tied to company performance in other ways, helps drive better company performance, which in turn will improve results

https://www.wsj.com/articles/best-paid-ceos-run-some-of-worst-performing-companies-1469419262

I couldn't access the WSJ article, but this article from Fortune is about the same report (and seems to quote the same thing verbatim), but includes this at the end:

MSCI blames this misalignment, in part, on the Securities and Exchange Commission’s disclosure rules that focus on annual reporting instead of long-term results. It suggests that a CEO’s cumulative pay and performance data over his or her entire tenure should also be taken into account to reduce reliance on figures that only consider the short-term.

Regardless, in BOTH scenarios depicted, returns do go up, so, again, if you're talking about a company worth $1 Billion when a CEO starts and it goes up to $2.65 Billion over the next ten years, even if he is given a 1% performance bonus, we're still talking about a $10 Million bonus in the first year and a $26.5 Million bonus by the tenth.

That's why looking at the numbers only clouds the issue. What he received was only a 1% bonus. The fact that it translates into such a large amount doesn't change the fact that it's still only a 1% bonus.

What happens if you were given a 1% bonus? Not a whole hell of a lot. Why? Because you didn't do jackshit to make the company earn $2.65 Billion dollars.

 

[Koyaanisqatsi]

The average fry cook works harder than every Fortune 500 CEO

And more bumper sticker sophistry.

 

[RVonse]

But that right there is the rub. An investment is not savings. You can not eat a rental house.

You cannot a certificate if deposit or a savings account. But you can convert an investment into cash, just like you can do with a cd or a deposit in a savings account.

There is a huge difference in liquidity.

How is it the responsibility of the Fed that federal gov’t choose to run deficits?

Who decided to do monitary easing? Who has decided that inflation is good for the economy?

Perhaps you may be correct I should be blaming the treasury more than I have the fed. But the fed is still enabling inflation if not the direct actor in doing so.

 

[laughing dog]

There is a huge difference in liquidity.

Yes, there is, but the point is purchasing less than easily convertible assets is savings.

Who decided to do monitary easing? Who has decided that inflation is good for the economy?

Perhaps you may be correct I should be blaming the treasury more than I have the fed. But the fed is still enabling inflation if not the direct actor in doing so.

There is plenty of evidence that most measures of inflation over-estimate actual inflation.

More importantly, inflation and deflation occurred on a regular basis before there was a federal reserve with detrimental effects on the economy. There is a general consensus that if the Fed might have very well ameliorated the Great Depression if it had a modern view of monetary policy goals.

 

[atrib]

You invest your long term savings, or as you say, see it eaten by inflation.

But that right there is the rub. An investment is not savings. You can not eat a rental house. You can not even trade a rental house to pay your taxes. The US has no savings now, and yes the fed gets the blame for this.

If done right, investments in real estate and mutual funds are savings that provide much higher returns over a long investment window (decades, not years) than the returns you make on a cash savings account or CD. And as insurance that protects the long term investments that actually make you money, you also save some money in liquid assets like CDs and money market accounts to cover emergencies.

How the hell do you define savings? Hiding money under your mattress?

 

[RVonse]

How the hell do you define savings? Hiding money under your mattress?

Thats easy. Savings iare funds available for an emergency. Selling long term assets is not so easy to do on a short notice. They say Americans only have around $400 in personal savings right now. Im willing to bet that most Chinese have more than that in personal savings. Yet the gnp/person ratio is probably not that different.

America has become a nation of debt and consumerism. I blame the government for abusing reserve status for most of this.

 

[atrib]

How the hell do you define savings? Hiding money under your mattress?

Thats easy. Savings iare funds available for an emergency. Selling long term assets is not so easy to do on a short notice. They say Americans only have around $400 in personal savings right now. Im willing to bet that most Chinese have more than that in personal savings. Yet the gnp/person ratio is probably not that different.

America has become a nation of debt and consumerism. I blame the government for abusing reserve status for most of this.

And you ignored what I had said immediately above the part you quoted. Namely:

And as insurance that protects the long term investments that actually make you money, you also save some money in liquid assets like CDs and money market accounts to cover emergencies.

You are more interested in debating semantics than talking about the real issue, it would appear.

 

[Canard DuJour]

That article cites this research paper.

And in it they state right up front:

However, the evidence on whether compensation is related to future firm performance is decidedly mixed. For example, Abowd (1990), Lewellen, Loderer, Martin, and Blum (1992), and Tai (2004) find a positive relation between pay and future stock returns. Other papers document an equally strong negative relation between executive pay and future returns (see for example, Core, Holthausen, and Larcker, 1999, or Brick, Palmon, and Wald, 2006). The former set of papers attributes the positive relation between executive compensation and future performance to incentive alignment between the shareholders and the executives, while the latter set of papers attributes the negative relation between compensation and firm performance to agency issues.

Both sets of papers typically assume that managers are rational economic actors who understand the incentives provided by the board and act accordingly, either to maximize shareholder value or their own private benefits. During the past decade however, an increasing number of papers have argued that managers are prone to behavioral biases that have real effects on firm actions and performance. One particular behavioral bias is overconfidence.
...
In this paper, we bring these two streams together. We hypothesize that overconfident CEOs are more likely to accept particular types of pay contracts, those that involve long-term commitments to increasing the value of the firm, and are also significantly more likely to subsequently underperform, creating a negative relationship between pay and future stock performance. In a broad cross-section of Execucomp S&P1500 firms over the 1994-2015 period, we analyze the relation between CEO compensation and future firm performance, using details of the pay contracts, proxies for CEO overconfidence, investment, merger and acquisition data, and controls for measures of potential firm agency problems and show that a negative relation holds in the cross-section of firms over this time period.

We first show that CEO compensation is correlated with variables associated with overconfidence. Using two measures of “excess” incentive compensation (“peer-adjusted incentive compensation”, computed after adjusting pay for industry and size controls and “modeladjusted incentive compensation,” estimated using a model that controls for standard economic determinants of pay), we find that pay is positively correlated with a popular measure of overconfidence, the proportion of unexercised in-the-money options to total compensation, a measure similar to that used in Malmendier and Tate (2005). Managers in the top pay deciles typically exhibit a significantly greater level of overconfidence than do managers in the lower deciles. Further, consistent with the characteristics of overconfident managers in Ben-David, Graham, and Harvey (2013), high paid CEOs, relative to lower paid CEOs, invest more, engage in more mergers, and use more debt.

So, yeah. Not sure what, if anything, that gets us.

And this one:

Best-Paid CEOs Run Some of Worst-Performing Companies

The best-paid CEOs tend to run some of the worst-performing companies and vice versa—even when pay and performance are measured over the course of many years, according to a new study.

The analysis, from corporate-governance research firm MSCI, examined the pay of some 800 CEOs at 429 large and midsize U.S. companies during the decade ending in 2014, and also looked at the total shareholder return of the companies during the same period.

MSCI found that $100 invested in the 20% of companies with the highest-paid CEOs would have grown to $265 over 10 years. The same amount invested in the companies with the lowest-paid CEOs would have grown to $367.

The results call into question a fundamental tenet of modern CEO pay: the idea that significant slugs of stock options or restricted stock, especially when the size of the award is also tied to company performance in other ways, helps drive better company performance, which in turn will improve results

https://www.wsj.com/articles/best-paid-ceos-run-some-of-worst-performing-companies-1469419262

I couldn't access the WSJ article, but this article from Fortune is about the same report (and seems to quote the same thing verbatim), but includes this at the end:

MSCI blames this misalignment, in part, on the Securities and Exchange Commission’s disclosure rules that focus on annual reporting instead of long-term results. It suggests that a CEO’s cumulative pay and performance data over his or her entire tenure should also be taken into account to reduce reliance on figures that only consider the short-term.

Regardless, in BOTH scenarios depicted, returns do go up, so, again, if you're talking about a company worth $1 Billion when a CEO starts and it goes up to $2.65 Billion over the next ten years, even if he is given a 1% performance bonus, we're still talking about a $10 Million bonus in the first year and a $26.5 Million bonus by the tenth.

That's why looking at the numbers only clouds the issue.

It clouds nothing. The fact remains that CEO compensation is, if anything, negatively correlated with performance. Nothing here says otherwise. Firms not making actual losses isn't some miracle that only happens due to CEO magic.

What he received was only a 1% bonus. The fact that it translates into such a large amount doesn't change the fact that it's still only a 1% bonus.

What happens if you were given a 1% bonus? Not a whole hell of a lot. Why? Because you didn't do jackshit to make the company earn $2.65 Billion dollars.

Which is still assuming that any increase is down to the CEO; an assumption undermined by the negative correlation of CEO pay with performance.

 

[RVonse]

You invest your long term savings, or as you say, see it eaten by inflation.

But that right there is the rub. An investment is not savings. You can not eat a rental house. You can not even trade a rental house to pay your taxes. The US has no savings now, and yes the fed gets the blame for this.

And you can't eat a bank statement, either. In either case you have to take the money out in order to eat it.

For most people long term savings is in stock. You can readily buy and sell it.

That can become an issue for people who do not care to tolerate risk though.

The original point (and still the point) is that FED long term policy of constant inflation and demonetizing has been at least partially responsible for such a low savings rate of Americans. Yes, you can barely beat the rate of inflation if you pick the right stocks and willing to risk principal. But generally, you will lose if you save in an insured bank account. Its also true Americans like to consume but when you figure the other choices for their dollars it kind of makes sense to do so. Put your money in a bank account (or even under your mattress) and every year the FED comes in and robs you a little of the labor you spent making the money in the first place.

It should not be that way. If our government did anything at all right, it should be a stable currency. And FED (and treasury) has massively failed on that count. Instead of an economy of hard work and reward they have created an economy of speculation and CEO corruption (stock buybacks).