Employee Costs

Leave a comment

The top editorial in the WSJ on 3/16/09 was a review of OECD (Organisation for Economic Co-operation and Development) data on the “tax wedge” as a percentage of labor costs. In an accompanying chart graphic Germany is shown at 52.2%. The U.S. is shown at 30.0%. The countries in the European Union have an average tax wedge cost of 42.5%. The editorial uses this data to argue against the Employee Free Choice Act, unionization, universal health care and the “Obama revolution” and warns of the impending transition of the U.S. into a “European Model” economy.

What is the “tax wedge”? According to the OECD it is the personal income tax, employer and employee Social Security contributions for a single worker without children making the average wage in a particular country.

The OECD warns that they are simply reporting the data that was reported to the organization by the various countries.

As a small employer, the 30.0% tax wedge figure for the U.S. struck me as incorrect.
In May 2007, the Bureau of Labor Statistics (BLS) reported that the average annual income was $40,690, or about $3391 a month. The IRS withholding tables for 2007 show $431 withholding for a single person with one exemption, or 12.7%. The OECD Table 0.2 shows 15.7% income tax, a 3% discrepancy.

In the U.S., the employer and employee each pay 7.65% in Social Security (SS) and Medicare (MC) tax for a combined 15.3%. 15.3% + 15.7% (as reported to OECD) should equal 31.0%. OECD shows it as 30.0%.

I then checked on Germany’s data as reported to the OECD. Table O.2 shows an 18.4% income tax, and a 33.8% combined social security contribution by the employee and employer for a total of 52.2%.

I found some easier to read (I don’t read German) data on employer, employee costs at Sonnenberg Law Firm. In Germany, pension insurance (SS insurance in the U.S.) is 19.5% of gross and is split between the employer and employee. Nursing care insurance is mandatory (I am cautiously presuming this is similar to Medicare in the U.S. but it may be a long term care insurance?) is 1.7, split between employer and employee. This gives a total of 21.2% plus 18.4% income tax for a total of 39.6% cost compared to the 30.0% in the U.S. But what did Germany report to the OECD? 52.2% – almost 13% higher. Sonnenberg reports that basic mandatory health care insurance in Germany is 12-15% so I can only guess that Germany reported 13% in health care costs as a “Social Security” benefit.

Different countries have different definitions of what “Social Security” means. In the U.S., it does not include health care insurance. In Germany, it does. The OECD data is flawed because it is comparing apples to oranges to pears. I have not taken the time to check the other countries in the OECD data set.

Let’s consider adding in U.S. health care costs. The Kaiser Family Foundation’s 2008 survey of health care costs found that an employer paid $9325 and an employee paid $3354 annually for their health insurance. That is a total of $12679, or 31.2% of average income.

How To Germany reports that “benefits include in-patient (hospital) care as a ward patient with doctor on duty at your nearest hospital, out-patient care with registered doctors (Kassenärzte) and basic dental care. Your non-working dependents resident at your address in Germany are included in your insurance at no additional cost.” In 2008, a Kaiser family plan HMO in Colorado with a $30 copay for a 45 year old employee was just under $12,000, including basic dental with a $1000 benefit cap.

Add that 31.2% health care cost to the reported 30.0% for the U.S. and the comparable tax wedge percentage is about 61.2%. But the tax wedge concept is based on a single person with no children. The same Kaiser HMO plan was $3600 annually for a single 40 year old employee. That is only 8.8%, far less than the 13% health care costs reported by Germany to the OECD.

In Germany, you pay for coverage for non-working dependents, whether you have them or not. In the U.S., you pay for the dependents you have and that you can afford. If you have a family and a non-working spouse, your health care costs are lower in Germany. If you are single, your health care costs are lower in the U.S. However, because of the way health care costs are structured differently in the U.S. and other countries, it is difficult to make a good comparison of averages.

What we do know is that Social Security and Medicare contributions are about 4% of income less in the U.S. than they are in Germany and that the Social Security benefit is better in the U.S. than it is in Germany. In the U.S. “Social Security replaces 43 percent, slightly more than two-fifths, of the amount that someone retiring at normal retirement age in 2006 (age 65 and 8 months) was earning before retirement.” Source here. Germany pays about 33% on average.

Data sets taken at face value can be deceiving. When data seems to confirm our beliefs, our ideologies, we are less likely to question that data.

Depression

Leave a comment

Harold L. Cole and Lee E. Ohanian, two economics professors, relate some employment numbers during the 1930s depression in a Feb. 2nd, 2009 op-ed in the WSJ “How Gov’t Prolonged the Depression.”

“Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between 1930-32.” They ask why there wasn’t a vigorous recovery, noting that “Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful.”

They acknowledge the benefits of a “basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and Securities Exchange Commission.” But those benefits were offset by “suppressing competition, and setting prices and wages in many sectors well above their normal levels.” These latter policies “choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s”.

These recovery forces included expansionary [see my note at the end of this blog entry] Federal Reserve policy and productivity growth. They note that the National Industrial Recovery Act (NIRA) voided existing antitrust laws and “permitted industries to collusively raise prices” as long as they paid their workers above average wages, in effect, gaming the system. The NIRA codes detailed conduct for 500 industries that were designed to eliminate “excessive competition”, which Roosevelt believed to be the cause of the depression. “These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment.” NIRA was declared unconstitutional in 1935 but the practices continued.

At the end of 1938, with the reversal of some of these New Deal policies, the economy began to recover. The main lesson to be learned, the writers contend, from the policies of the 1930s and price controls introduced in the 1970s, is that government intervention on a large scale can have unintended consequences. The professors call for reforms including updated bank regulations, tax changes that “broaden rather than narrow the tax base”, as well as savings and investment incentives.

A person reading Milton Friedman’s analysis of Federal Reserve policy during the depression years would hardly call that policy “expansionary”, as these two authors do. Here is a more detailed telling of the Federal Reserve’s role in the depression. There is also a book of essays by the current Fed chairman, Ben Bernanke.

Nationalize Banks?

Leave a comment

In Turku Varadarajan’s Weekend Interview in WSJ 2/21/09 with the economist nicknamed “Dr. Doom”, Nouriel Roubini: Roubini makes a case for temporary and quick nationalization of some of the largest U.S. banks in order to “clean them up, and you sell them in rapid order to the private sector”.

Roubini is a believer in market economies as being the best of a lot of bad alternatives. He notes that “paradoxically, the proposal [of nationalization] is more market-friendly than the alternative of zombie banks.” Lindsey Graham, the conversative Republican senator, said he wouldn’t take the idea off the table. Alan Greenspan concurred that it might be necessary to “facilitate a swift and orderly restructuring.”

Banks that were too big to fail have become “even-bigger-to-fail” as one bank giant swallows up another bank on the verge of collapse. Roubini proposes a hypothetical takeover of one of the giant banks, splitting it into 3 or 4 pieces, making each piece a regional or national bank and selling them.

The more troubling question to Roubini is that we repeatedly get into periods of asset and credit bubbles, bubbles that a lot of people believe are sustainable until they implode. He criticizes Greenspan for losing sight of his central mission: as head of the central bank in the U.S., his job was to provide financial stability. Roubini believes that Greenspan kept a rigid ideological adherence to Ayn Rand’s philosophy, a belief that “there are no market failures, and no issues of distortions on incentives.”

Roubini characterizes the last decade as one of self-regulation which created a “law of the jungle”, where greed is untempered by either supervision or fear of loss. Lastly, he criticizes the media: “in the bubble years, everyone becomes a cheerleader, including the media.”

Get It Right

1 Comment

As the economy worsens, the number of people in need is increasing. They turn to their local government agencies and find that these large agencies have the same problems as the cable company and the telephone company, as Citigroup and large private companies. They become so large that they become difficult to manage, stressing their systems infrastructure, their database managment, their customer service. In short, they fail to execute.

In Colorado, the Denver Post reported increasing delays in administering their food stamp program, a program that has had problems since 2004 because of a faulty software program, the Colorado Benefits Management System. A lawsuit was recently settled with the Colorado Center on Law and Policy (CCLP) and plaintiffs, but the problems continue.

For avowed capitalists who believe that government is the problem, incidents of this kind of government incompetence will add fuel to their fiery denouncements of government “solutions”. Capitalists will point to the advantages of a competitive marketplace where a dissatisfied consumer can shop elsewhere. For a dissatisfied citizen, there is no competition to their local, state or federal government.

Over the past decades, however, the ideal of the free and competitive marketplace has become less a reality as cable companies, like the telephone companies of an earlier age, have been given exclusive franchises to charge high fees while providing inferior service. In an attempt to be competitive, many banks and credit card companies have adopted similar cost cutting customer service systems. A bank customer dissatisfied with $40 fees and a phone labyrinth for customer service can take their money elsewhere only to find a similar level of service at the new bank. Credit card companies abound like ladies in a red light district, teasing new customers with low, low rates on transfer balances. The unwary customer who neglects the fine print discovers that subsequent purchases are charged at a rate exceeding 25%.

Google’s corporate motto is “Don’t be evil,” and to the folks at Google, “it’s about providing our users unbiased access to information, focusing on their needs and giving them the best products and services that we can. But it’s also about doing the right thing more generally – following the law, acting honorably and treating each other with respect.”

The recent and ongoing real estate and credit meltdown was not only a failure of honor and respect, but a failure of good sense by many parties. A lot of smart and not so smart people did some really stupid things. Our new American motto, both in the private market and the government sector, should be “Don’t be stupid!”

Debt, Household

Leave a comment

In his “Ahead of the Tape” column in WSJ 3/11/09, Mark Gongloff reports that 3rd quarter household debt recorded its first decline since recordkeeping began in 1952. Even with the decline, household debt was a whopping 96% of GDP. In 1998, it was 66% of GDP. The Fed releases 4th quarter data on 3/12/09.

Why were many of us taking on more debt? Easy credit is one answer. The other is less income. The median income has been decreasing, not increasing. The Grandfather Economic Report presents several pictorial and informative analyses of economic trends for families by a NASA physicist with postgraduate work in business and economics. Milton Friedman liked it.

In an op-ed in WSJ 3/12/09, Daniel Henninger reviews a “Top 1% earners” chart that shows the net that the top 1% of earners took home over the past decades. It is a part of Obama’s recently released budget. Henninger notes some of the flaws of this chart, it’s primary flaw being that it is a tool of “progressives.” Whatever its flaws, this summary of median income data shows that the trend is real. Henninger says that the “primary goal [of the Obama budget] is a massive re-flowing of ‘wealth’ from the top toward the bottom.” Henninger denies any “reflowing” of wealth from the bottom to the top in the past few decades.

There is no set of facts that can sway the path of a herd ideology, whether it be on the right or left.

Income Redistribution

Leave a comment

Dodge ball is a game where two teams on either side of center line throw a soccer ball at each other, trying to hit a member of the opposite team. In the playing field of political punditry, those on the left and right of the center line throw the epithet of “income redistribution” at the other team, accusing them of this heinous crime.

According to a June 27th, 2008 Gallup Poll “Americans’ lack of support for redistributing wealth to fix the economy spans political parties: Republicans (by 90% to 9%) prefer that the government focus on improving the economy, as do independents (by 85% to 13%) and Democrats (by 77% to 19%). This sentiment also extends across income groups: upper-income Americans prefer that the government focus on improving the economy and jobs by 88% to 10%, concurring with middle-income (83% to 16%) and lower-income (78% to 17%) Americans.”

In their “Currents” feature of 3/10/09, the WSJ reported that “In a recent WSJ/NBC News poll, the highest-ranked peeve, named by 35% of those polled, was bank executives taking large bonuses while receiving taxpayer funds.” This is income redistribution to the rich. However, IRS data shows that the top 25% of income earners paid 86.3% of income taxes, so it is more a case of redistribution of income from some well off people to other very well off people.

Some conservatives rail at Obama’s tax hikes, accusing him of Robin Hood economics and warning of a descent into European socialism. Under Obama’s plan, a person earning $300,000 would pay an additional $1200 in taxes than under the current system. It is a relatively paltry sum hardly deserving the degree of complaint from these conservative critics, but it is true that some of that money would go to lower income earners so this is income redistribution to the poor.

By nature, progressive tax systems are redistributive. A redistribution of a tax burden is a redistribution of income. An overwhelming majority of people do not favor redistributive schemes. It has been almost 100 years that the progressive income tax has been in effect.

Housing Crisis

Leave a comment

Blame for the housing crisis rests with George Bush, who pushed for an “ownership society” and simultaneously underfunded regulatory agencies. No, wait. It was the Democrats, particularly Maxine Waters and Barney Frank, who resisted regulation of Fannie Mae and Freddie Mac, and wanted relaxed lending criteria for people with marginal credit. No, the blame is on the homeowners who bought houses they couldn’t afford. No way! It was the Federal Reserve’s policy of low interest rates that were kept low for too long after 9/11. No, it was the unscrupulous mortgage brokers who conned homebuyers into dangerous mortgages that were ticking time bombs. No, wait! It was the Wall Street fat cats who made a killing by bundling all these bad mortgages. No! It was Fannie and Freddie that distorted the private marketplace and forced Wall Street to take risks that they normally wouldn’t have! No, it was the Republicans who repealed the Glass-Steagall Act and let the Wall Street banks put this garbage together in the first place!
Or maybe, just maybe, it was all of the above.

A little background. Fannie Mae and Freddie Mac are government sponsored enterprises (GSE) that were created to underwrite mortgages. How do they work?

Fannie Mae and Freddie Mac stand behind mortgages in two ways: The first method is to purchase mortgages, bundle them together, and then sell claims on the cash flows to be generated by these bundles. These claims are known as mortgage-backed securities (MBS). The second method involves Fannie’s and Freddie’s purchasing mortgages or their own mortgage-backed securities outright and financing those purchases by selling debt directly in the name of the GSE. Both methods create publicly traded securities and thus permit a wide variety and large number of purely private investors to fund mortgages. (Footnote to a Fed Reserve testimony)

Here’s Alan Greenspan, then Chairman of the Federal Reserve, before a Committee on Banking, Housing, and Urban Affairs hearing on Feb. 24, 2004:
“The expansion of homeownership is a widely supported goal in this country. A sense of ownership and commitment to our communities imparts a degree of stability that is particularly valuable to society. But there are many ways to enhance the attractiveness of homeownership at significantly less potential cost to taxpayers than through the opaque and circuitous GSE paradigm currently in place.”

Alan Greenspan cheered on the role of GSEs in the mortgage market : “Securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending.” Mr. Greenspan thought this was a good idea at the time. He has probably revised this opinion.

“The GSEs’ special advantage arises because, despite the explicit statement on the prospectus … that they are not backed by the full faith and credit of the U.S. government, most investors have apparently concluded that during a crisis the federal government will prevent the GSEs from defaulting on their debt.”

“…the existence, or even the perception, of government backing undermines the effectiveness of market discipline.”

“Because Fannie and Freddie can borrow at a subsidized rate, they have been able to pay higher prices to originators for their mortgages than can potential competitors and to gradually but inexorably take over the market for conforming mortgages.”

“While the rate of return reflects the implicit subsidy, a smaller amount of Fannie’s and Freddie’s overall profit comes from securitizing and selling mortgage-backed securities (MBS). “
Later in the year, Fannie and Freddie were about to gobble up the MBS market.

Greenspan then cited a study by Fed Reserve economist, Wayne Passmore, which “suggests that [Fannie and Freddie] pass little of the benefit of their government-sponsored status to homeowners in the form of lower mortgage rates.”

“A substantial portion of these GSEs’ implicit subsidy accrues to GSE shareholders in the form of increased dividends and stock market value. “

“Unlike many well-capitalized savings and loans and commercial banks, Fannie and Freddie have chosen not to manage that risk by holding greater capital. Instead, they have chosen heightened leverage.”

“I should emphasize that Fannie and Freddie, to date, appear to have managed these risks well and that we see nothing on the immediate horizon that is likely to create a systemic problem. But to fend off possible future systemic difficulties, which we assess as likely if GSE expansion continues unabated, preventive actions are required sooner rather than later. “
“…the GSE regulator must have authority similar to that of the banking regulators.”

Barney Frank, of Massachusetts, summed up the problem at a hearing in 2004, “the tension is between safety and soundness on the one hand, financial stability, and on the other hand getting into housing.”

Later in this blog entry, you’ll read a quote from Ron Paul that may prompt you to ask for his pick to win in the upcoming March Madness basketball tournament.

The following is from a clip of a congressional hearing, probably in 2004. There had been an accounting scandal at Freddie Mac in 2003. The Offfice of Federal Housing Enterprise Oversight, which regulates Fannie Mae, had also found some irregularities and improper campaign contributions. I haven’t been able to find the date or transcript of the hearing.

Chris Shays of Connecticut expressed his concerns that Fan Mae had a capital withholding reserve of 3%, less than the 4% minimum required of banks and savings and loans.
Franklin Raines, then Chariman and CEO of Fannie Mae, responded: “These assets [houses] are so riskless that their capital withholding should be under 2%.” In hindsight, we laugh at this “riskless” assessment but Raines’ comment reflects the thinking of many who thought that housing prices simply would not go down.

Maxine Waters, of California, has been a tireless fighter for affordable housing. Her passion for affordability often outweighs any doubts about the financial stability of a program: “We do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Franklin Raines.”
Lacy Clay, of Missouri, called the hearing a lynching of Raines.

This is an example of blind allegiance. Frank Raines stepped down in the latter part of 2004. In 2006, he was charged with “accounting irregularities” that falsely inflated Fannie Mae’s earnings. In 2008, he settled with the government for a small fraction of the $90 million that he “earned” in bonuses as head of the company.

Barney Frank, of Massachusetts, is more mindful of financial soundness than Waters, but said “I don’t see anything in this report that raises safety and soundness problems.”

Maxine Waters: “What we need to do today is focus on the regulator and this must be done in a manner so as not to impede [Fannie and Freddie’s] affordable housing mission, a mission that has seen innovation flourish, from desktop underwriting to 100% loans.” Like Greenspan, Ms. Waters may have revised her opinion somewhat on loose underwriting standards and 100% loans.

At an oversight hearing of the Dept of Housing and Urban Development on May 20, 2004, Ms. Waters again asserts her full commitment to affordability at the expense of financial soundness,
“I join with anybody who is interested in expanding low-income housing opportunities. Let me must say that the no downpayment, low downpayment, all of that, that is good stuff, but it is a drop in the bucket.”

At a House Review of OFHEO, the regulator of Fannie Mae, on 7/13/04, the Republicans renewed their call for regulation.
Sue Kelly, of New York: “While we are pleased with the tremendous strides that OFHEO and the Finance Board have taken to strengthen their oversight role, the two agencies really remain ill-equipped to handle the oversight of the GSEs.” She is echoing the view of Alan Greenspan and others that their needs to be a banking regulator overseeing the GSEs.

Paul Kanjorski, of Pennsylvania: “I am very concerned about the failure of the Bush Administration to appoint directors to serve on Fannie Mae’s and Freddie Mac’s boards. As a result of this decision, each board has five fewer individuals to serve than they usually had.” Had the board positions been filled, there would presumably been greater board oversight of Fannie and Freddie. As Thomas Frank has documented in “The Wrecking Crew”, Bush regularly understaffed federal agencies.

David Scott, of Georgia: “There is general agreement that OFHEO needs to be strengthened in order to ensure the safety and soundness of these GSEs as they expand rapidly and rely on complicated accounting methods. As we know, legislation has stalled which would consolidate the
functions of OFHEO and the Federal Housing Finance Board at the direction of the Administration.

Richard Baker, of Louisiana: “GSEs credit loss ratios have declined due to improvements in their underwriting and risk management, meaning they are not taking as many poor people as they used to take, apparently,while loan loss reserves in the same period of review have declined principally attributable to reduced losses.”

Barney Frank, of Massachusetts: “the tension is between safety and soundness on the one hand, financial stability, and on the other hand getting into housing.” Frank is pushing for more lending in manufactured housing, even though it is more likely to be financially vulnerable. “I do not think every individual product line has to be profitable. We want a cumulative profit, so I hope we would also say, look, if there is a danger of things not going too well in the one area in the affordable housing area, that can be made up for elsewhere.”

Ron Paul, of Texas, is eerily prescient: “The only discouraging thing about our discussions that we have here in the committee is for the most part we talk about the technical solutions, the job you have as regulators, and believing that it is a technical problem. I think it is much, much more fundamental.”

Ron Paul continues: “your responsibility is to provide safety and soundness, I mean, I see it as practically an impossible task if this things starts to unwind, and I believe it is going to unwind. It involves trillions of dollars and derivatives. It is just a huge monstrosity.”

Later, Paul asks the regulators: “do you think there is a possibility of a puncture of a bubble?”
Armando Falcon, Director of OFHEO, answers: “Our economists do track it and are aware of the historical trends and causes of price bubbles. My economists who have looked at this with lots of experience, believe that we do not currently have a price bubble in home prices.”

Kanjorski asks about the criteria for selecting directors of the regulatory boards.
Alicia Castaneda, Chairman of the Federal Housing Finance Board, responds: “I think those appointments should be based on the qualifications and the skills of the individuals.”
Kanjorski responds: “Is it peculiar in your mind that maybe out of 60 or 70 appointments, that 97 percent come from one party and only about 3 percent from the other party?”
Castaneda responds that she is not aware of those figures.

Edward Royce, of California, continues his push for more regulation: “Over the past year or so, this committee has spent a great deal of its time looking at the 14 housing government-sponsored enterprises. Last year, I authored legislation to create one regulator for Fannie Mae and Freddie Mac and the federal home loan banks. I felt such legislation was needed because the GSEs are too large and too important to our nation’s housing and financial markets not to have world-class regulation.”

In 2003, the Bush Administration had called for more regulation. Republicans at these hearings in 2004 were calling for more regulation. The Republicans controlled both houses of Congress and the White House. Bills were introduced and referred to committee. None made it into law.

Broadband

Leave a comment

This from a Jan. 2009 position paper by the IEEE:

Studies establish that current policies have let U.S. network penetration,speeds, and prices lag other developed countries by a significant degree. For example,using OECD data, Atkinson, et.al. (2008, p.6) report household penetration (fraction of households that subscribe) in South Korea, France, and the United States as 0.93, 0.54,and 0.57 respectively. They report average download speed (Mb/s) in those countries as 50, 18, and 5 respectively. They further report lowest monthly price per megabit per second (U.S. dollars) as 0.37, 0.33, and 2.83 respectively. (Note that these figures come from European studies. The United States doesn’t even have its own method for measuring broadband usage.)

My comment: Note that a US broadband subscriber has a 10th of the download speed as a S. Korean subscriber, but pays almost 8 times as much as the S. Korean subscriber. The IEEE goes on to note “The market is advancing U.S. broadband deployment, but at a pace limited by each individual provider’s perceived return on investment.”

White House Press Releases

Leave a comment

When checking a link to a White House press release last October, I was surprised to find that the page link at whitehouse.gov defaults to the main page. A search for some of the names contained in the news release produced results after, not before, the recent Obama inauguration. A click on the Press Release button at whitehouse.gov took me to a section of all the press releases since Jan. 22, 2009. History has been erased! For those of you who wished that the Bush years had never happened, your wish has come true.

There must be an archive somewhere. Perhaps Dick Cheney has it.

CEO Pay

2 Comments

The Law of Unintended Consequences is older than Murphy’s Law. The struggle to limit the severance and other pay of CEOs at publicly held companies is an example of this law at work.

In the early eighties, the U.S. economy experienced two recessions, one of them deep, which led to a large number of company mergers and takeovers. Several high profile executive severance packages prompted Congress to enact a change in the tax code, known as a “golden parachute”, that subjected excess payouts to additonal taxes. Executives who received more than three times their annual salary in severance were subject to a 20% tax on that excess income. Before the enactment of this law, most companies paid their executives one year’s salary as severance. After the law passed, companies began to use the “3 times rule” as a benchmark. A study of CEO severance pay in the mid-nineties found that the median payout was two times annual salary. This increase in severance pay was hardly what Congress intended.

In 1993, President Clinton led a populist campaign to limit executive salaries by limiting the deductibility of salaries greater than $1M. Executives at the companies responded by designing pay packages that included stock options. The total CEO pay package grew from 100 times the average worker’s salary in 1993 to 300 times the average worker’s salary in 2000. By 2007, total CEO pay was 344 times that of the average U.S. worker.

I have been involved in several shareholder campaigns to have a greater say in executive compensation. As stock dividend returns decreased and executive pay increased in the past decade or more, the amount paid to executives seemed to come directly out of the dividends paid to shareholders. Some companies have allowed non-binding shareholder resolutions on executive pay but it has been my experience that management traditionally offers little more than a polite acknowledgment to these types of resolutions.

However, Congress would do well to pay attention to history and not make any law or rule that directly limits executive pay. Corporate law is a state issue and I don’t think that Congress could enact any changes in corporate law that would allow shareholders to have a binding vote on executive pay. Perhaps the first move Congress could make is to change the relationship between the federal government and states on corporate law. Large publicly held corporations typically incorporate in whatever state affords them the greatest operating flexibility. Unfortunately, this flexibility allows management to disregard the wishes of a majority of the owners, the shareholders.