[Note: This item comes from friend David Rosenthal. DLH]
A Tale of Two Retirements: The Great Divide Between CEOs and Everyone Else
By Jerri-Lynn Scofield
Dec 28 2016
By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends most of her time in Asia researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as writes occasional travel pieces for The National.
The Institute for Policy Studies (IPS) earlier this month released its second annual report on the CEO-worker retirement benefit gap. A Tale of Two Retirements analyzes how CEOs are provided with colossal nest eggs– monthly retirement checks ranging from more than $100,000 to more than $1,000,000– while at the same time many of their companies pursue strategies that erode retirement security for their employees.
The CEO-worker retirement benefit gap has become such a chasm, not as the result of executives working harder or investing more wisely, but as “yet one more example of rule-rigging in favor of the 1%,” according to the IPS.
Benefits Go Disproportionately to Those at the Top
As an aside, I should mention another item in yesterday’s news: the phenomenon that the IPS report discusses is not just confined to the US, nor is it limited solely to CEO retirement benefits. The Financial Times reported in ‘Negligible’ link found between executive pay and performance on a similar disconnect in Britain, this documented in a Lancaster University Management School study. From the pink paper:
The correlation between high executive pay and good performance is “negligible”, a new academic study has found, providing reformers with fresh evidence that a shake-up of Britain’s corporate remuneration systems is overdue.
Although big company bosses enjoyed pay rises of more than 80 per cent in a decade, performance as measured by economic returns on invested capital was less than 1 per cent over the period, the paper by Lancaster University Management School says.
“Our findings suggest a material disconnect between pay and fundamental value generation for, and returns to, capital providers,” the authors of the report said.
In a study of more than a decade of data on the pay and performance of Britain’s 350 biggest listed companies, Weijia Li and Steven Young found that remuneration had increased 82 per cent in real terms over the 11 years to 2014.
Much of the increase was the result of performance-based pay. But, the report’s authors say, the metrics used to assess performance — such as total shareholder return and earnings per share growth — are unsophisticated and short-termist, acting against the interests of long-term investors. The research found that the median economic return on invested capital, a preferable measure, was less than 1 per cent over the same period.
CEO Retirement Benefits Compared to Ordinary Workers
As the IPS study summarizes:
The sum of the 100 largest CEO company retirement funds — $4.7 billion — is equal to the entire retirement account savings of the 41 percent of American families that have the least amount of retirement savings (this represents 50 million families and 116 million people).
On average, the CEOs’ nest eggs are worth nearly $47.5 million. If converted to an annuity at age 65, this would be enough to generate a $253,088 monthly retirement check for the rest of their lives. Contrast that with the situation for ordinary workers. For those lucky enough to have a 401(k) plan, the median balance at the end of 2013 was just $18,433, enough for a monthly retirement check of just $101 (IPS report, p. 5)
Over the last several decades, the trend has been for retirement plans for ordinary US workers to shift from defined benefit to defined contribution plans (for those workers lucky enough to have any retirement plan). The IPS study notes that according to the Economic Policy Institute, the share of prime working age families covered by a defined benefit pension plan plummeted from 41 percent in 1989 to 21 percent in 2013. Even worse, among the baby boomer generation, 39 percent of workers aged 56-61 years old have no employer-sponsored retirement plan whatsoever, leaving them dependent on Social Security, which pays out average benefits of $1,239 per month per beneficiary (IPS report p. 5).
The IPS study discusses some of the many rules and regulations that disadvantage ordinary workers, compared to those that apply to CEOs (and by extension other privileged members of the C-suite– although this aspect is not discussed in the IPS report) in three key areas: pension rules, compensation rules, and tax rules.