Monday, February 29, 2016

Outrageous CEO Pay

One of the biggest issues being debated on and off the campaign trail is the growing gap between the rich and the poor along with the shrinking of the Middle Class.  A main target of many of the protests and disparaging remarks is the ratio of CEO pay to that of the average worker in the company.  It is one of the statistics invariably mentioned when discussing the disturbing growth of income inequality.

CEO pay is a popular topic among candidates because almost everyone agrees that CEOs are paid outrageous amounts.  “According to the Economic Policy Institute, from 1978 to 2013, CEO pay at American firms rose a stunning 937 percent, compared with a mere 10.2 percent growth in worker compensation over the same period, all adjusted for inflation. In 2013, the average CEO pay at the top 350 U.S. companies was $15.2 million.” Every other week we see headlines like these:  JP Morgan CEO gets 35% pay raise to $27M amid cutbacks” and “Viacom CEO Pay Rose 22 Percent in Year Stock Tumbled.”

Ordinary citizens have trouble even grasping the size of these pay packages, so a convenient way to talk about it is to use this ratio of CEO pay to the pay of the average worker in the company.  One source gives this ratio as “20-to-1 in 1965 and 29.9-to-1 in 1978, growing to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013.  (In most news reports and political speeches the drop since 2000 is not mentioned, nonetheless it still has grown by a factor of 15 times for no apparent reason.)  Other sources have the ratio as high as 475-to-1.

There seems to be nothing to be done short of government intervention, but perhaps there is another solution!  Americans can wait around until the big companies’ lobbyists and our representatives decide what action, if any to take, or they can take some action on their own, immediately – voting with their dollars.

Take business away from some of the top offenders until they get the message.  But is anyone willing to do it?

From another source I got a list and arbitrarily set a ratio of 150:1 as the cutoff.  Of the top 100 companies in US, the worst offenders are:  AFLAC (157), Altria (175), Boeing (198), CVS (422), Deere(150), Goodyear Tire (322), Honeywell (211), Twenty-First Century Fox (268) and Walt Disney (273).

The big question is:  Are enough people really upset enough about high CEO pay to do something about it, or is it something they just like to complain about?  Would we find another insurance company (even if we think the duck is amusing), take our prescriptions to a different pharmacy (even if we admire them for banning tobacco products), buy a different brand tire or – and here’s a big one – stay home from movies like The Revenant and Star Wars, or tell the kids no trip to Disney World and no Frozen or Star Wars memorabilia until the CEO takes a paycut?  I think not.

Just as we don’t mentally group our favorite sports heroes, movies stars, television personalities and music entertainers in with the hated one-percent, I think we would give many of these CEOs a pass and continue to patronize their companies.

Note:  Some of the biggest offending companies listed elsewhere include Discovery Communications, Chipotle, Walmart, Target, Macy’s and Starbucks.  It’s just a matter of who is doing the calculations, but these are a few more to consider.

Friday, February 26, 2016

I'm Not Joking

No, I wasn’t joking back in February 2013 when I wrote, “Will airlines charge based on the total weight of the luggage and passenger?

The subject was whether or not overweight people will begin to feel the same kind of pressure from government and businesses as smokers now do.  Secondhand smoke has been declared a danger, especially to children and otherwise can be very irritating to nonsmokers.  Smoking also adds to medical costs, so it is considered in the public interest that the act of smoking be both isolated and discouraged by restrictions and higher prices.  But obesity has social costs of its own.

Have you ever seen or heard a heath publication or advice to prevent or cure a disease that did not include eating less and exercising more or maintaining a healthy weight?  Not taking care of these basics leads to many diseases and increased healthcare costs.  With economic understanding it is easy to establish that healthcare costs accumulated by one segment of society affect the costs of everyone as the total cost is spread over the entire population to make healthcare affordable to all.

So just yesterday on CBS This Morning this news came:  “Airplane maker Airbus has filed a patent for a new kind of adjustable seat that could…change the seating to make room for larger passengers.”  This would most likely come with a fee, and as they say later in the story, “could usher in a day when the airlines could truly price by your size.”

So there it is, three years after the initial warning here.  Along those lines, the general warning remains the same:  when we don’t improve our behavior, economic and governmental forces tend to take over the job for us through penalties, restrictions and by other methods.  Behavior does have consequences.

Monday, February 22, 2016

Boiling the Frog

There is a story to explain the slow advancement of unpleasant or unacceptable practices into any society or business.  It is the gruesome tale of boiling a frog.  If you take a live frog and drop him into a vat of boiling water, the frog feels the heat and immediately jumps out.  If instead you put the frog in a pan of cold water and slowly turn up the heat, the frog is not distressed at first and slowly gets accustomed to the slightly warmer temperatures until it’s too late.  At that point the frog’s complacency becomes his undoing and he is boiled without any resistance.  This story is probably completely false.  But taken as a fable, the moral is very powerful.

It came to mind when the PBS News Hour reported a new government rule concerning the SNAP Program (formerly known as Food Stamps).  “The U.S. government wants to steer the 46 million Americans who receive food stamps toward healthier food choices. The USDA plans to require retailers that accept those benefits to stock more fresh foods.”  In an interview, they go on to describe how it will affect both the retailers and the customers. 

The retailers will be required to stock at least 168 items of healthier foods, like fruits and vegetables.  They are expected to display them in a way to encourage their purchase – meaning food should be attractive and placed at eye level and all the other tricks grocers use to increase sales of certain products.  Some stores that today accept food stamps don’t have adequate refrigeration capacity to carry the additional products and don’t understand the storage and handling requirements.  They may have to invest in equipment and training, which will push up their costs, costs that most likely get passed along to their customers.  (Remember that grocery stores in poor neighborhoods are already being criticized for their higher prices, a situation partly driven by their lower volume business and partly by the increased risk of doing business in these neighborhoods in the first place.  Now come more regulations to increase the complexity of their business.)

On the customer side, there is not yet any requirement.  “A person using food stamp dollars could still purchase as much junk food as they wanted, but they would at least have more options in the store to buy fruits, vegetables, dairy, meats and bread.”  There is no guarantee that having the option will change behavior.

But officials at the USDA have very good intentions.  They want Food Stamp recipients to eat healthier.  If access to the food doesn’t do the trick, what might be the next steps?  That is the question we should always ask when people with good intentions start making rules.

Just 20 months ago the American Beverage Association fought off a proposed ban on the purchase of sugary soft drinks with Food Stamps.  The ban was based on research at Harvard and the University of California and backed by mayors of 18 major cities and influential elected officials in Washington.  The ABA argued that soft drinks were not the only problem.  Findings of those studies, however, were backed by another study released by Health Affairs showing that “a proposed ban on sugar sweetened beverages purchased with SNAP benefits would significantly reduce obesity in adults ages 18-65.”

Will the junk food industries continue to prevail in this battle with the food police?  Though this affects only Food Stamp users, what are the likely longer-term ramifications on the rest of us?

As I pointed out last time, this always happens when people don’t take responsibility.  Kind people with big hearts and good intentions start limiting options, taking away freedom.  When they can’t put prohibitions in place all at once; they ease into it.

The frog fable always gets a little scarier when you realize that you might be the frog.

Friday, February 19, 2016

Surrendering Our Freedom

At least fifteen times over the past 5 years I have made the point about the link between responsibility and freedom.  In July of last year I wrote that experts often believe:  “when people are not taking responsibility, the responsibility should be taken away from them.”  Later that month I wrote:  “We surrender our freedom for the convenience of not having to deal with [problems].  Many Americans are letting the government, marketing machines, politicians, advocacy groups, and celebrities do their thinking for them.”

Almost one year ago I wrote about health insurance:  “in turning the responsibility of paying your doctor over to others results in having to follow their rules and sometimes fighting with insurance companies or Medicare to receive what you think is due.”  Two years before that I warned of a coming of the “fat tax” on sugary drinks and other items.

Now I find out that I was only partially right.  It’s not just government, marketing machines, politicians, advocacy groups, and celebrities.  We must also add in schools.

I’m not just talking about high schools banning certain foods from vending machines and the cafeteria.  According to the Newser website (with the story later picked up by major news agencies), one university in Oklahoma has been taking it a step further.  As of this year, “freshmen and transfer students at Oklahoma's Oral Roberts University have been told that Fitbits are now mandatory—and failure to log at least 10,000 steps per day will affect their grades.”  Previously, the university set physical fitness requirements for students requiring them to keep a journal to track their fitness points, but now they will use the “fitness-tracking device, which will send data directly to a university computer.”  Data collected will be used as part of their grade in a health and fitness class.  They claim the journal system was “inaccurate and time consuming.”  Apparently no one is protesting about a right to privacy because this is for the students’ health and wellbeing.

From bans or taxes on soft drinks to automatic data collection at college, how far away are we from automatic locks on freezer display doors when someone deemed too large tries to buy ice cream at the grocery store?  Whenever we don’t take responsibility for ourselves, there is no shortage of people ready to step in and make rules and restrictions for our own good.  And as technology advances it just becomes easier.

Monday, February 15, 2016

Who's in Control?

Why do we let other people control our lives, telling us what to do and when to do it?  This question came to mind as I watched a CBS This Morning segment a few days ago reporting how retailers are “price gouging” on Valentine’s Day sales, apparently forcing people to, or at least tricking them into spending an average of $147 this year.  "We're going to spend $20 billion on Valentine's. That's up from $19 billion last year." (Yet we hear of so many people owing tens of thousands in college loan debt and so many others with virtually no retirement savings.)

If that isn’t crazy enough, the story goes on to tell how prices of traditional gifts like flowers, candy, champagne and dinner for two have, in some places, doubled in the past week, with the price of red roses rising three to five fold.  Then they give a list of prices (obviously big-city prices) for the various items.  Fifty dollars for a bottle of champagne?! – For the inside information on the real difference between an expensive bottle and more reasonably priced champagne, see my article from New Year’s Eve 2012.  Hint: no real difference.

The bottom line in the opinion of their expert:  "Men hate it because they feel obligated to top themselves. ... Women hate it because they always hate the gifts they get or, somehow it wasn't up to their expectations. So nobody's happy."  Well, that outcome is surely worth an average of $147!  Get some perspective, people!

It seems to me that the whole concept of Valentines Day, contrived or not, is about relationships; and the bedrock of any solid relationship is the willingness to compromise.  The simple fact is that nobody is holding a gun to your head telling you what you must do for this particular "holiday."  The only wishes or opinions that count are yours and those of your partner in the relationship.  And those wishes should be negotiable.

Why don’t more people take the time to discuss options instead of relying on assumptions about a loved one's expectations, expectations that may be driven by the pressure from society and advertising?  That is a reactive, not a deliberate, approach.  You do have options.  You could ignore Valentine’s Day completely.  You could celebrate it on a different day, before or after retailers have manipulated prices to deceive those among us who muddle through life in a trance, letting other people make the rules for them.  You could give a non-traditional gift.  (I bought my wife a new yoga mat for Valentine's Day, and she was very pleased; because it was exactly what she wanted, and it was on sale, not marked up.)  Is it in any way unreasonable to suggest and discuss a different type of gift or different timing?  Military families, for example, often have to move holidays and special occasions to a more convenient time rather than a specific day on the calendar.

The most important thing is to find a solution that fits your individual relationship, not one dictated by outsiders that, as shown above, often leaves people frustrated and angry, and that gives some unscrupulous retailers another opportunity to rip us off.  It may be too late for this year, but next year get some perspective and take back some control.  You can’t be price-gouged without your permission.