Shareholder rights

Corporate and Financial Institution Compensation Fairness Act of 2009

hmoroz — Tue, 04 Aug 2009 11:32:32 -0400

Legislation

The middle class

Supports

Video Summary

Injustice Facts

Combined compensation received in 2008 by 11 executives at Citigroup, a primary recipient of financial bailout funds: $77.25 million

Net losses of Citigroup in 2008: $27.7 billion

Factor by which the average CEO pay exceeded that of the American worker in 2007: 344 times

Average value of perks like private jets given to executives in 2008: $336,248

Payment included in an executive compensation package that the heirs of James Bernhard, Chairman and CEO of the Shaw Group, were to receive from the construction giant upon his death: $40 million

Percentage of Shaw shareholders who voted in favor of having a say on executive compensation packages that include such payments to heirs: 66.7%

Overview/Summary

Middle Class Position Analysis

Middle Class Supports. Today nearly half of Americans own some stock, with many middle-class families relying on 401(k)s and other investments to finance their retirement security or help their children afford college. Workers with traditional pension plans, including many public employees, also have a stake in the long-term financial performance of companies their pensions are invested in. As a result, the retirement security middle-class Americans work a lifetime to earn can be thrown into jeopardy by lavish CEO pay and retirement packages that reward executives with hundreds of millions of dollars even if they perform poorly, behave unethically, or manipulate pay through a biased compensation committee. As the financial crisis demonstrates, excessive pay can provide incentives for executives to take on excessive risk, endangering both shareholder value and the entire economy.

When executives get sumptuous rewards for inferior or mediocre work, middle-class Americans get shortchanged on the retirement benefits they have earned. Yet there is little shareholders can do to curb the excesses of companies in which they have a vital stake. This bill would introduce an important element of accountability, giving all shareholders “a say on pay” in the form of a nonbinding advisory vote to the Board of Directors. Although the vote is nonbinding, knowing they have option to vote increases shareholders’ scrutiny of executive pay and provides regular shareholder feedback to Boards of Directors. The mechanism of a nonbinding vote on compensation has been used successfully in other countries to put the brakes on questionable compensation plans and tie CEO pay more closely to performance. Some U.S. companies, such as Blockbuster, have also voluntarily adopted a shareholder vote on executive compensation, which they regard as a “best practice” in corporate governance. The improved independence of compensation committees, which can be heavily influenced by management and compensation consultants overly favorable to the interests of executives, and federal oversight of the riskiness of pay schemes will further improve accountability.

Quotes from Experts

Beyond this Bill

Additional Resources

“Giving Shareholders a ‘Say on Pay’ with Blockbuster Inc. Chairman and CEO James Keyes,” from the Drum Major Institute for Public Policy

“2009 Executive PayWatch,” from the AFL-CIO

“Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay,” from United for a Fair Economy

American Recovery and Reinvestment Act of 2009 - Conference Report

hmoroz — Tue, 17 Feb 2009 19:06:44 -0500

Legislation

The middle class

Supports

Video Summary

Injustice Facts

Unemployment rate in early 2010, if current laws and policies governing federal spending and taxes do not change, according to the Congressional Budget Office: 9.2%

Reduction in unemployment rate in 2010 if the American Recovery and Reinvestment Act is enacted, according to the Congressional Budget Office, Mark Zandi of Moody’s Economy.com, and White House economic advisers, respectively: 1.9%, 2.1%, 1.8%

Increase in GDP from spending $1 on extended unemployment insurance benefits, in dollars: 1.63

Increase in GDP from spending $1 on accelerated depreciation, which provides businesses a tax break for new investment, in dollars: 0.25

Percentage of spending and tax cuts that will take effect by the end of 2010, according to the Congressional Budget Office: 74%

Percentage reduction in aid to states made by the conference report of the American Recovery and Reinvestment Act compared to the House version: 32%

Overview/Summary

Middle Class Position Analysis

Middle Class Supports.Economic conditions are bleak. The Congressional Budget Office estimates that if the economy continues on its current course, both the length and depth of the current downturn will be the worst since the Great Depression. For middle-class Americans, this means job and wage cuts, loss of health insurance, and, simply, a daily struggle to keep up with everyday costs like mortgage payments and college tuition.

The Congressional Budget Office estimates that if current economic conditions persist the unemployment rate could reach as high as 9.2% by 2010. With 46 million Americans already uninsured, the Kaiser Family Foundation reckons that if unemployment averages just 7% in 2009 (the current rate is 7.2%), the number of uninsured will increase by 2.6 million with an additional 2.4 million individuals enrolled in Medicaid and SCHIP. Indeed, state governments are struggling to provide the increased services needed to keep the swelling ranks of unemployed, uninsured individuals from falling out of the middle class. But the current economic climate has left states with decreased revenue from income, sales, and property taxes: 46 states face budget shortfalls with combined budget gaps of $350 billion through 2011. To confront these gaping budget holes, more than 20 states have implemented or are considering cuts to health insurance programs; the same is true of K-12 and early education programs and of funds for public colleges and universities.

Beyond the decidedly dire short-term outlook, economic improvement is probably quite far off. Douglas Elmendorf, director of the Congressional Budget Office, has testified that “economic recovery is likely to be slow and protracted.” Thus, programs that address longer-term concerns – investment in infrastructure and green technology are two primary examples – are as important as an immediate, stimulative jolt to the economy.

The American Recovery and Reinvestment Act ties together measures designed to assist middle-class households struggling to make ends meet, provisions that will provide an immediate economic stimulus, and investment that can help set the stage for an economy built on energy efficiency and durable infrastructure. Economists generally agree that the legislation will save around 3 or 4 million jobs by 2010, while increasing economic output. Indeed, the Congressional Budget Office, Mark Zandi of Moody’s Economy.com, and White House economic advisers all project that the legislation will reduce the unemployment rate by around 2%. Extended unemployment insurance will allow 6.7 million people to collect benefits. Importantly, aid to state governments for Medicaid and education programs would shore up budget gaps and help prevent cuts to vital services.

While assisting those most at need during the economic downturn, extended unemployment insurance and state fiscal assistance also generate the most “bang for their buck” in terms of stimulus because they funnel money into the hands of the people most likely to spend it. Extended unemployment insurance generates an estimated $1.63 in economic activity for each dollar spent; aid to state governments generates $1.38. In contrast, though they act more quickly than spending measures, tax cuts generate less stimulus. The Making Work Pay, Child, and Earned Income tax credits will help keep more than 2.3 million Americans out of poverty and the American Opportunity credit will make 3.8 million more students eligible for a higher education tax break. These are important measures that will assist aspiring middle-class and middle-class Americans struggling to make ends meet. But the expansions are temporary and tax cuts, even when refundable and directed at the low-income individuals most likely to spend them, are less effective stimulus measures. Worst of all, though, are tax cuts for businesses like accelerated depreciation and carryback loss provisions that have little economic benefit.

Despite concern that the spending included in the American Recovery and Reinvestment Act will be delayed, perhaps a valid concern due to the legislation’s size and complexity, the Congressional Budget Office estimates that 74% of spending would occur between 2009 and 2010. Indeed, funds for investment in infrastructure and energy efficiency, though perhaps more complicated to spend, are a critical step in longer term economic recovery. Beyond its stimulative value – infrastructure spending’s “bang for the buck” is $1.59 – the United States desperately needs new infrastructure to compete in the global economy. The American Society of Civil Engineers estimates that $2.2 trillion in infrastructure spending is now necessary. The funding for infrastructure projects included in the legislation is a first step in addressing this deficiency and funds devoted to high-speed rail are particularly welcome. Similarly, spending on a modernized electricity grid, retrofitted low-income housing, and weatherized homes creates the framework for a future economy less reliant on fossil fuels and, indeed, based on green technology.

Limitations on executive compensation and bonuses are a first step in establishing the accountability that has been missing from the financial bailout. Still, the bill does not set forth a comprehensive plan to address the foreclosure crisis that includes a moratorium on foreclosures, a mechanism to require modification of mortgages, and a change to the bankruptcy code to permit modification of mortgages on primary residences. Funds for the Neighborhood Stabilization Program are a necessary, but insufficient, step in mitigating the widespread negative effects that foreclosures can have on entire neighborhoods and communities.

Quotes from Experts

Beyond this Bill

Additional Resources

Recovery.gov, the official website of the American Recovery and Reinvestment Act

“Recession and Recovery,” from the Center on Budget and Policy Priorities

“Impact of Economic Turmoil on Health Coverage and State Medicaid Programs,” from the Kaiser Commission on Medicaid and the Uninsured

American Recovery and Reinvestment Act of 2009 - Senate Version

hmoroz — Tue, 10 Feb 2009 16:24:04 -0500

Legislation

The middle class

Supports

Video Summary

Injustice Facts

Unemployment rate in early 2010, if current laws and policies governing federal spending and taxes do not change, according to the Congressional Budget Office: 9.2%

Increase in GDP from spending $1 on extended unemployment insurance benefits, in dollars: 1.63

Increase in GDP from spending $1 on accelerated depreciation, which provides businesses a tax break for new investment, in dollars: 0.25

Percentage reduction in aid to states made by the Senate version of the American Recovery and Reinvestment Act: 50.1%

Percentage reduction in Head Start and Early Head Start funds made by the Senate version of the American Recovery and Reinvestment Act: 50%

Overview/Summary

Middle Class Position Analysis

Middle Class Supports. Economic conditions are bleak. The Congressional Budget Office estimates that if the economy continues on its current course, both the length and depth of the current downturn will be the worst since the Great Depression. For middle-class Americans, this means job and wage cuts, loss of health insurance, and, simply, a daily struggle to keep up with everyday costs like mortgage payments and college tuition.

The Congressional Budget Office estimates that if current economic conditions persist the unemployment rate could reach as high as 9.2% by 2010. With 46 million Americans already uninsured, the Kaiser Family Foundation reckons that if unemployment averages just 7% in 2009 (the current rate is 7.2%), the number of uninsured will increase by 2.6 million with an additional 2.4 million individuals enrolled in Medicaid and SCHIP. Indeed, state governments are struggling to provide the increased services needed to keep the swelling ranks of unemployed, uninsured individuals from falling out of the middle class. But the current economic climate has left states with decreased revenue from income, sales, and property taxes: 45 states face budget shortfalls with combined budget gaps of $350 billion through 2011. To confront these gaping budget holes, more than 20 states have implemented or are considering cuts to health insurance programs; the same is true of K-12 and early education programs and of funds for public colleges and universities.

The American Recovery and Reinvestment Act ties together measures designed to assist middle-class households struggling to make ends meet, provisions that will provide an immediate economic stimulus, and investment that can help set the stage for an economy built on energy efficiency and durable infrastructure. Economists generally agree that the legislation will save around 3 or 4 million jobs by 2010, while increasing economic output. Indeed, the Congressional Budget Office , Mark Zandi of Moody’s Economy.com, and White House economic advisers all project that the legislation will reduce the unemployment rate by around 2%. Extended unemployment insurance will allow 6.7 million people to collect benefits. Importantly, aid to state governments for Medicaid and education programs would shore up budget gaps and help prevent cuts to vital services.

While assisting those most at need during the economic downturn, extended unemployment insurance and state fiscal assistance also generate the most “bang for their buck” in terms of stimulus because they funnel money into the hands of the people most likely to spend it. Extended unemployment insurance generates an estimated $1.63 in economic activity for each dollar spent; aid to state governments generates $1.38. In contrast, though they act more quickly than spending measures, tax cuts generate less stimulus. The Making Work Pay, Child, and Earned Income tax credits will help keep more than 2.1 million Americans out of poverty and the American Opportunity credit will make 3.8 million more students eligible for a higher education tax break. These are important measures that will assist aspiring middle-class and middle-class Americans struggling to make ends meet. But the expansions are temporary and tax cuts, even when refundable and directed at the low-income individuals most likely to spend them, are less effective stimulus measures. Worst of all, though, are tax cuts for businesses like accelerated depreciation and carryback loss provisions that have little economic benefit.

Despite concern that the spending included in the American Recovery and Reinvestment Act will be delayed, perhaps a valid concern due to the legislation’s size and complexity, the Congressional Budget Office estimates that 78% of spending would occur between 2009 and 2010. Indeed, funds for investment in infrastructure and energy efficiency, though perhaps more complicated to spend, are a critical step in longer term economic recovery. Beyond its stimulative value – infrastructure spending’s “bang for the buck” is $1.59 – the United States desperately needs new infrastructure to compete in the global economy. The American Society of Civil Engineers estimates that $2.2 trillion in infrastructure spending is now necessary. The funding for infrastructure projects included in the legislation is a first step in addressing this deficiency. Similarly, spending on a modernized electricity grid, retrofitted low-income housing, and weatherized homes creates the framework for a future economy less reliant on fossil fuels and, indeed, based on green technology.

Requirements for application of TARP funds to foreclosure prevention and for limitations on executive compensation and bonuses are first steps in establishing the accountability that has been missing from the financial bailout. Still, the bill does not set forth a comprehensive plan to address the foreclosure crisis that includes a moratorium on foreclosures, a mechanism to require modification of mortgages, and a change to the bankruptcy code to permit modification of mortgages on primary residences.

Quotes from Experts

Beyond this Bill

Additional Resources

“Recession and Recovery,” from the Center on Budget and Policy Priorities

“The State of the Economy and Issues in Developing an Effective Policy Response,” Statement of Douglas W. Elmendorf before the House Committee on the Budget

“Impact of Economic Turmoil on Health Coverage and State Medicaid Programs,” from the Kaiser Commission on Medicaid and the Uninsured

Shareholder Vote on Executive Compensation Act of 2007

atraub — Wed, 26 Sep 2007 16:47:03 -0400

Legislation

The middle class

Supports

Video Summary

Injustice Facts

Total 2006 profits of California tech company Synnex Corp.: $51.4 million

Approximate ratio of every dollar Synnex earned that went directly into the pocket of CEO Robert Huang, according to the Los Angeles Times’s California Executive Pay Report: 1:7

Amount that Huang’s outsized pay package reduced the value of each company share, according to the Los Angeles Times: $2.90

Proportion of Americans who say CEOs are overpaid: 8 in 10

Average percentage of company profits paid to the top five executives at U.S. companies in 1993: 5

Average percentage paid to the top five executives in 2003: 10

Overview/Summary

Middle Class Position Analysis

The Middle Class Supports. Today nearly half of Americans own some stock, with many middle-class families relying on 401(k)s and other investments to finance their retirement security or help their children afford college. Workers with traditional pension plans, including many public employees, also have a stake in the long-term financial performance of companies their pensions are invested in. As a result, the retirement security middle-class Americans work a lifetime to earn can be thrown into jeopardy by lavish CEO pay and retirement packages that reward executives with hundreds of millions of dollars even if they perform poorly or behave unethically. Excessive CEO pay not only cuts into the company’s bottom line, but can also provide incentives for CEOs to manipulate earnings or encourage mergers that pump up their compensation packages but are unprofitable for the company as a whole – directly undermining shareholder value.

Simply put: when CEOs get sumptuous rewards for inferior or mediocre work, middle-class Americans get short-changed on the retirement benefits they’ve earned. Yet so far there is little shareholders can do to curb the excesses of companies in which they have a vital stake. This bill would introduce an important element of accountability, giving all shareholders “a say on pay” in the form of a non-binding advisory vote to the Board of Directors. Although the vote is non-binding, knowing they have option to vote increases shareholders’ scrutiny of CEO pay and provides regular shareholder feedback to Boards of Directors. The mechanism of a non-binding vote on compensation has been used successfully in Britain, Australia, and other countries to put the brakes on questionable compensation plans and tie CEO pay more closely to performance. Some U.S. companies, such as the health insurer AFLAC, have also voluntarily adopted a shareholder vote on executive compensation, which they regard as a “best practice” in corporate governance.

Quotes from Experts

Beyond this Bill

Additional Resources

"What International Markets Say on Pay: An Investor Perspective,” from Institutional Shareholder Services

“Executive Pay Watch,” from the AFL-CIO

“Executive Compensation,” from CorpWatch

Shareholder rights

Corporate and Financial Institution Compensation Fairness Act of 2009

Legislation

The middle class

Video Summary

Injustice Facts

Overview/Summary

Middle Class Position Analysis

Related Blog: Header

Quotes from Experts

Related Blog: Text

Beyond this Bill

Related Blog: Link

Additional Resources

American Recovery and Reinvestment Act of 2009 - Conference Report

Legislation

The middle class

Video Summary

Injustice Facts

Overview/Summary

Middle Class Position Analysis

Related Blog: Header

Quotes from Experts

Related Blog: Text

Beyond this Bill

Related Blog: Link

Additional Resources

American Recovery and Reinvestment Act of 2009 - Senate Version

Legislation

The middle class

Video Summary

Injustice Facts

Overview/Summary

Middle Class Position Analysis

Related Blog: Header

Quotes from Experts

Related Blog: Text

Beyond this Bill

Related Blog: Link

Additional Resources

Shareholder Vote on Executive Compensation Act of 2007

Legislation

The middle class

Video Summary

Injustice Facts

Overview/Summary

Middle Class Position Analysis

Related Blog: Header

Quotes from Experts

Related Blog: Text

Beyond this Bill

Related Blog: Link

Additional Resources