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Are CEOs Overpaid? Does it Matter?

By Stan Coombs, Director

Rereading “The Concentration of Wealth” in the March 2019 NETWORK, restarted the journalistic juices. We reported there, that the average pay of Chief Executive Officers (CEOs) in the 350 largest American firms was well over 300 times the pay of average factory workers. The article wasn’t about CEO pay, but a broader look at the increasing concentration of wealth in the general population, and we carried the CEO pay issue no further.

But what’s the fuller picture? How does CEO compensation compare to ordinary incomes over time? The following comes mainly from a 2017 report of the Economic Policy Institute (EPI), a non-profit American think tank based in Washington D.C., reported to be affiliated with the labor movement.

EPI examined CEO compensation paid by the 350 largest U.S. firms, including stock options both granted and realized, salaries, bonuses, restricted stock grants and long-term incentive payouts. Stock options “granted” means rights to stock only transferred to the CEOs, and stock options “realized” means stock recipient CEOs had actually cashed in, a decision obviously dependent on market trends. It’s no surprise that surges in CEO pay are principally driven by stock options, not changes in salaries.

Regardless, modern era growth in CEO pay seems phenomenal by any standard. Extrapolating from EPI’s charts, average annual CEO pay within the 350 surveyed firms, based on stock options realized, was $902,000 in 1965, about 22 times (22x) the average $40,900 paid to all private sector workers. And 1965 pay to surveyed CEOs who had not cashed in their stock options averaged $688,000, about 17x the average paid to workers.

But by 2017, average CEO pay, based on stock options realized, had surged to nearly $18.9 million, 346x the average $54,600 paid to workers, and an increase of 1,995% over the 52 years. CEO pay based on stock options only granted had increased to $13.3 million, about 244x average worker pay. Average worker pay had increased 33.5% over the same period.

Easy arithmetic shows that it took those average U.S. CEOs a little more than one day during 2017 to receive as much income as the average U.S. worker earned that whole year. Said differently, it would take the average worker 346 years to match the CEO’s annual earnings.

CPI also reports that CEO compensation increased faster than stock prices, corporate profits, or salaries of other high-level corporate earners, and therefore “CEOs are getting more because of their power to set pay, not because they are more productive or have special talent or have more education.”

Yale School of Management Dean, Jeff Sonnenfeld, provides examples of this disconnect. Parcel Post was a very strong company, yet their CEO pay “ranks low,” and Viacom “was a disaster,” while their CEO was “paid more than the very high performing CEOs of Disney and Time Warner combined.”

And CPI’s Lawrence Mishel and Jessica Schneider describe the disconnect between the stock market and CEO pay. The S&P Index grew 637% between 1978 and 2017, they note, while CEO compensation, based on stock options realized, grew 1,070%. Worker pay increased 11.2%.

But it’s wrong to assume that CEO pay and the CEO/worker pay ratio always rise, or that market performance never affects the two.

Survey data shows income for CEOs, with stock options realized, rose from $902,000 in 1965 to a $21 million peak of sorts, in 2000, then fell off nearly 48%, to $10,983,000, in 2009, the year of the great recession. CEO pay then rapidly built back to $18.9 million in 2017, an increase of 72% over just five years. The CEO/worker pay ratio followed a similarly uneven path, rising from 22x, in 1965, to 426.1x in 2000, falling off to 205.7x in 2009, and then irregularly rising and falling, to 345x in 2017.

U.S. CEOs are also highly paid globally. A Bloomberg analysis of 22 nations lists the highest paid CEOs; the U.S. on top, then Switzerland trailing by 42%, and the rest.

What’s wrong with high CEO pay? Experts come down on both sides. Management icon Peter Drucker believed CEO/worker pay ratios should be about 20-to-1, not exactly an endorsement of current levels. That would mean 2017 CEO’s would be making about $1.1 million instead of the reported $18.9 million.

Manfred Kets de Vries, Distinguished Professor, at the INSEAD Business School in Fontainebleau, France, declares inflated CEO pay “a sign of impeding rot,” leading to high turnover rates and low employee moral that can affect competitiveness, creativity and innovation.

Stanford economics professor Nicholas Bloom, on the other hand, tacitly defends corporate CEO pay. It’s “a hundred-hour-a-week job.” “It consumes your life.” “It consumes your weekend.” “It’s super-stressful.” “You really want to make sure they’re motivated and also rewarded.” Even so, he finds it hard to defend those compensation amounts.

And against this backdrop, the U.S. federal minimum wage has stood at $7.25 per hour since 2009, about $14,500 annually, with some jobs exempted from coverage. ◾

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Coming Home!
You’re Invited!
Coming Home to the San Diego County Sheriff’s Department
Las Colinas Detention and Reentry Facility

When:    Thursday, October 3, 2019 at 11:00 am

Where:   San Diego County Sheriff’s Department
Las Colinas Detention and Reentry Facility
451 Riverview Parkway, Santee, CA 92071

Details:  Advanced registration is required. This free event is limited to 80 attendees.

Register: Online by clicking here or by calling (619) 688-9229.

Our annual “Coming Home” event invites retired employees of San Diego County to celebrate County sites.  On October 3^rd, we invite you to join your fellow RESDC members in “coming home” to the new Las Colinas Detention and Reentry Facility.

Located in Santee, the Las Colinas Detention and Reentry Facility (LCDRF) serves as the primary point of intake for women prisoners in San Diego County. The new LCDRF opened in August of 2014, with its second and final phase completed just two years later. The facility was built with a campus-style design, combining a focus on outdoor space and ample natural light indoors. The new facility boasts a 45-acre campus, 450,000 square feet of building space, a recreation/fitness room, library, industrial kitchen and laundry, nine inmate classrooms, and room to house over 1,200 inmates.

The operational philosophy of the new women’s custody facility runs in stark contrast to the philosophy of the nearly 40 year old facility it replaced. The new Las Colinas focuses heavily on inmate programming and reentry services; low-level inmates walk unescorted to classes and have recreation time in unconfined outdoor spaces.

Event Highlights
11:00 am – Reception & light hors d’oeuvres and refreshments available
11:20 am – Welcoming remarks by RESDC President John McTighe
11:25 am – Overview of facility by Las Colinas leadership
11:45 am – Guided tours – Please note:  The tour will last 45 minutes and cover 1.5 miles. Comfortable shoes are recommended.  Open toed shoes are not recommended.

Additional tour rules include:

• Dress code should be business casual. Examples of appropriate attire:
  • Pants (no holes, fraying, or overly distressed): casual slacks or denim pants.
  • Tops: long or short sleeved shirt, polo shirt, blouse, sweatshirt, or sweater; dresses are also acceptable.
  • Shoes (must be clean and without holes; wear comfortable and reasonable shoes): dress shoes, athletic shoes, or hiking boots.
• Bring the bare minimum: ID and car key (ideally only one key). No cell phones, cameras, tablets or laptops. No purses or backpacks.
• Personal Belongings (cannot be brought on the tour). No weapons, knives, pepper spray, tasers, tools, etc. You may leave personal items in the presentation room.
• Secure keys and ID card out of reach from inmates (Never leave unattended).
• Do not disclose personal information to inmates. Do not discuss other people’s personal information with inmates.
• Be mindful of your surroundings, you are under constant observation.
• Do not contact inmates outside of your tour. This includes email, telephone, or visits.
• Never physically touch the inmates.
• If something is lost during your tour, don’t wait, report it immediately.
• If you experience any medical issues, notify any sworn staff member.
• If you have any doubts or questions, ask a Deputy. ◾

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Pension Facts
Criticism of Public Retirement Systems Abounds

By Chris Heiserman, Director

There is a never-ending stream of shoddy analysis and deliberately misleading information from self-described “policy” groups that want to trash traditional public pensions. An especially lame example came recently from the Illinois Policy Institute, a libertarian and conservative non-profit think tank that advocates for smaller government and lower taxes, and against labor unions.

In a brief commentary article with large headlines, the group announced that dozens of recent government retirees in Illinois would receive an average of $2 million in lifetime pension checks after only paying in average career contributors of $146,000. This is meant to sound like taxpayers are getting ripped off to pay out lucrative public pensions. However, if we dig a little deeper into this superficial report, we find the total earnings for the career retirees (worked at least 30 years and expected to live to age 85) are not extraordinary. If they retired at age 60 with a reasonable public sector salary and cost of living increases over 25 years, the total could easily be more than $2 million.

But the most telling flaw in this manufactured criticism of public pensions is focusing only on the employee contributions to retirement funds. In their zeal to highlight that payouts far exceed the individual payroll deductions on the pension financing side of the ledger, this “policy” group conveniently ignores the basic tenets of Public Retirement Funding 101. Public pensions are derived from three sources: worker contributions from every paycheck, employer contributions which usually match or exceed the individual ones, and investment earnings on the pooled funds. And typically, half to two-thirds of all distributions (retiree monthly checks) from retirement funds come from investment returns.

This is not a big secret in an era of intense media scrutiny and national, state and local legislative attention to growing concerns about retirement for a large segment of American families in both the public and private sectors. Newspaper articles, studies and surveys appear regularly documenting the woeful inadequacy of retirement savings for most workers with 401(k) savings accounts and reporting that millions of American employees have no workplace mechanism at all to save for retirement.

And yet “think tanks” like the Illinois Policy Institute spend their time and resources exaggerating pension data to conjure up the appearance of lavish retirements and undue burden on taxpayers. Interestingly they don’t blame the workers or retirees for the problem but lay it at the feet of Illinois state government for creating an “unsustainable” retirement system; however, their solution is “constitutional pension reform” which, ironically, would mean allowing the state to drastically cut and change benefits.

Realistically, Illinois State retirement systems are some of the most underfunded and troubled in the nation (Illinois State Employees Retirement System is only about 35% funded). Still, finding ways to reasonably tackle the seemingly insurmountable challenges of restoring fiscal viability to these faltering pension plans will require sincere, honest and candid dialogue from all parties. It isn’t the least bit constructive to have anti-public pension “think tanks” lobbing nonsensical data comparison grenades into the public arena.

NEXT MONTH: Public Pension Criticism from Closer to Home. ◾

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Recent Events

• SDCERA Reports Preliminary Investment Returns for Fiscal Year 2019
  San Diego County Employees Retirement Association (SDCERA) reported a preliminary investment return of 5.5% for the fiscal year ended June 30, 2019 (FY 2019). As of June 30, 2019, SDCERA’s assets under management (AUM) were $12.9 billion, an all-time high.

  Based on FY 2019’s preliminary return of 5.5%, SDCERA’s estimated three-year investment return would be 8.4%, the five-year return would be 5.6%, and the 10-year return would be 8.8%, all as of June 30, 2019. These preliminary and estimated investment returns are annualized and net of fees. SDCERA’s final FY 2019 investment return data is expected to be reported in September.

• New Research Paper — The Sustainability of State and Local Government Pensions: A Public Finance Approach
  This paper explores the fiscal sustainability of U.S. state and local government pensions plans. In contrast to much of the recent work on state and local pensions, which has proceeded from the vantage point of financial economics and focused on valuing pension liabilities, the authors adopt a methodological perspective relatively more rooted in the public finance tradition and assess the sustainability of these pensions on a pay-as-you-go basis and from the standpoint of public debt sustainability.

  To access the research, visit: https://www.brookings.edu/wp-content/uploads/2019/07/lenney_lutz_sheiner_MFC_Final.pdf. ◾

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Join Team RESDC in 2019 Walk4ALZ San Diego
October 19, 2019

By Laurie Pennington, Member

I am honored to be once again asked to act as the team captain for Team RESDC for the 2019 Walk4ALZ in Balboa Park.

Today more than 84,000 San Diegans live with Alzheimer’s Disease, and another 200,000 care for them locally and I’m sure it’s touched your loved ones as well. It’s made its way into our family and in July, we lost David Martin, age 75. It is very emotional watching someone we love lose their memory and struggle with day to day simple tasks and conversations!

Last year, Walk4ALZ non-profit raised $650,000 and 100% of all funds raised stayed in San Diego. Yes, it stays in San Diego to help San Diego residents. Team RESDC raised over $1,200 in 2018 and we’re hoping to exceed that total and we hope to have team walkers too.

I’m very excited to once again have my now 11-year-old grandson, Franco, joining me on the walk and we hope that you’ll consider bringing your kids and/or grandkids to introduce them to the wonderful experience of walking for a cause to help others.

We hope that you’ll consider joining Team RESDC on Saturday, October 19^th at 8 am in Balboa Park for the biggest and best Alzheimer’s walk ever. Simply visit the link provided below, and sign up to walk with us and raise donations.

To register, simply visit the Team RESDC Walk4ALZ team page at: www.resdc.net/community-events to join my team. If you’re unable to participate, please consider making a $35 donation to our team fundraising campaign.

Team RESDC walked in the Walk4ALZ in October 2018.

Let’s make this year the last year anyone must go through Alzheimer’s with no hope of a cure! Help to stomp out Alzheimer’s. It starts with each one of us, helping – either by walking and raising monies, or just donating!  Thank you!

Walk4ALZ 2019 – Balboa Park:

Date:  Saturday, October, 19, 2019

Where:  Balboa Park, start near the corner of Park and Presidents Way.  2131 Pan American Plaza, San Diego, CA 92101

Registration and Check-in at 6:30 am. Walk at 8:00am. ◾

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RESDC Membership Survey

While we are not conducting a full survey this year, we always value input and feedback from our members. Please take a moment to let us know how we’re doing – what’s working well, what could be improved – so that we can better serve our members.

Go online to: https://www.resdc.net/feedback to submit your comments electronically. Or mail your feedback to RESDC, 8825 Aero Drive, Suite 205, San Diego, CA 92123.

We appreciate your membership and look forward to serving you in the years to come! ◾

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Theatre Outing
Sunday, November 17, 2019 at 2:00pm
Ring Round the Moon at Lamb’s Players Theatre, Coronado

We invite you to join your fellow RESDC members for a Theatre Outing on Sunday, November 17th at Lamb’s Players Theatre in Coronado! We will be attending Ring Round the Moon, a delightful romantic adventure. Identical twins Hugo & Fredrick each meet their match in this intriguing, uproarious and surprisingly wise look at Love and Money. Christopher Fry’s brilliant adaptation of Jean Anouilh’s classic Invitation to the Castle. Age Advisability: This production will be enjoyed by ages 10 and above.

A limited number of group-rate $37 tickets are available on a first-come, first-serve basis for purchase through RESDC (regular price $78). Tickets can be purchased online at: www.resdc.net/events, by calling the RESDC Office at (619) 688-9229 during our hours of Mon-Fri 9am – 2pm, or by mailing the Registration Form and a check payable to RESDC to 8825 Aero Dr. Suite 205, San Diego, CA 92123. Please inform us of any special requirements, e.g. wheelchair or difficulty with stairs.

Tickets will not be mailed. Tickets will be available for pick up from a RESDC representative adjacent to the theatre starting one hour prior to show time (look for the blue RESDC shirt or ask a Box Office representative where we are located).

When
Sunday, November 17, 2019 at 2:00pm
Coronado is a very popular year-round destination. Please give yourself plenty of time to find parking and pick up your tickets from the RESDC representative.

Where
Lamb’s Players Theatre
1142 Orange Ave, Coronado, CA 92118
For directions & parking info, visit https://www.lambsplayers.org/directions-parking-tips

Directions

From East: Follow Intestate CA 94 West to CA 15 South. Follow to Interstate 5 North. Take exit 14 A to Coronado, CA 75 South onto the bridge. After the bridge, use the left 2 lanes to turn left on Orange Avenue. The theatre will on the right, 1/2 mile after the 10th Street light. There’s a drop off zone in the front.

From South: Follow Interstate 5 North. Take exit 14 A to Coronado, CA 75 South onto the bridge. After the bridge, use the left 2 lanes to turn left on Orange Avenue. The theatre will on the right, 1/2 mile after the 10th Street light. There’s a drop off zone in the front.

From North: Follow Interstate 5 South. Take exit 14A Coronado, CA75 South onto the bridge. After the bridge, use the left 2 lanes to turn left on Orange Avenue. The theatre will on the right, 1/2 mile after the 10th Street light. There’s a drop off zone in the front. ◾

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Annual RESDC Health Fair Picnic

When: Wednesday, October 16, 2019, 10:00 am—1:00 pm
Lunch Served 11:30 am—12:30 pm

Where: Admiral Baker Field, 2400 Admiral Baker Rd, San Diego, 92124
Driving directions will appear in the October NETWORK.

What: 20+ resource booths, picnic lunch, and opportunity drawing. This is an outdoor event. Information available about: Ameritas Dental, Cigna Dental, Health Net, Kaiser Permanente, Pacific Group Agencies, Inc., San Diego County Credit Union, United HealthCare, and My Senior Health Plan.

Menu:      Barbecued beef, baked beans, green beans, fruit, coleslaw, rolls, beverages, and dessert.

Registration:  EVERYONE, INCLUDING MEMBERS, MUST REGISTER IN ADVANCE
This ensures we order enough food for everyone and are in compliance with the policy of Admiral Baker Field      to not complete financial transactions onsite. Thank you for your cooperation!
RESDC Members:  $0
Non-Members:  $5
Spouses, guests, retirees who have not joined RESDC, etc. are required to  pay $5 each.

Registration forms and payment must be received in the RESDC office by Friday, October 11. There are no refunds. Name badges and opportunity drawing tickets should be picked up at the Check-In table. They will not be mailed. No pets are allowed except Service Animals. No smoking or vaping.

Choose Registration Method:

• Register by Phone: Call the RESDC Office at (619) 688-9229 during our hours of 9 am – 2 pm Mon-Fri.
• Register by Mail: Fill out the Registration Form. Make a check payable to RESDC for $5 per non-member in your group. Mail form and check (if applicable) to RESDC, 8825 Aero Dr., Suite 205, San Diego, CA 92123.
• Register Online: Go to www.resdc.net/events and click the green “Register” button. To access the free RESDC member price, use the email associated with your member account. Click “Add guest” to add non-member attendees for $5 each. To pay for non-member attendees, click “Pay Online” and pay with credit card; otherwise, click “Confirm.” To add another RESDC member, please call RESDC at (619) 688-9229. ◾

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Welcome New Members

Moises R. Acuna – Health & Human Services
Mary P. Horning – Health & Human Services
Salvacion A. Jabinal
Gisela E. Lauer – Health & Human Services
Cheri A. Schwebel
Monica R. Scott – Health & Human Services
Carlie L. Svinth – Social Services
Jesus G. Tapia – Sheriff

The surviving Spouse of a member is eligible for RESDC membership. For enrollment assistance, please call: (866) 688-9229. ◾

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