Yes, CEO Pay and Executive Bonuses Matter

by: Daniel De Groot

Fri Aug 14, 2009 at 23:05


My friend Paul Krugman (hey, he linked to me, I can pretend) posts this chart from Emmanuel Saez, which shows that in 2007 the top 0.01% of income earners in America took home 6% of the national income.

Let's get some scale here.  In 2007 there were 301M people in America, which gives us 30,100 people in that top 0.01%.  CIA Factbook says US GDP for 2007 was $14.11T in PPP US dollars.  6% of that is $846B.  So the top 0.01% averaged $28 million dollars in income, each.  Wow.  That isn't quite correct since Saez is actually using "tax units" rather than people for his top 0.01% so this might only represent 12-15K actual IRS tax returns, and you probably can't divide GDP quite that neatly, but we're still talking about a tiny number of people taking an inordinate piece of the pie.

Following Krugman's link to Saez, I found this chart (which I snazzified):

US Income by top 0.1%
[click to enlarge in new window]

Note this is now the top 0.1% (vice top 0.01% in Krugman's post).  Check out the blue (the bottom chunk for the colourblind).  That's employment income.  Contrast the share of their income that salary made up between the classic gilded age (c1929) and the modern one, and see how much bigger a share is coming from salary (and bonus).  Otherwhere in the data (fig4) Saez gives you the percentages of each category of income for the top 0.1%, where you can learn that in 1929, captial gains made up about 65% of the income of the top 0.1ers, and employment income was 20%.  Skip to 2007, and employment now makes up almost 50%, with capital gains down at 20% (remainder is something called "entrepreneurial income" for which I can't locate a definition).

I post this because we are regularly exposed to anecdotal stories of how much this or that CEO makes, or some trader's obscene bonus, but it is important to have some data that shows this is a real phenomenon and not just a few isolated exceptions blown out of proportion.  It turns out that $70 million here and $16 billion there and pretty soon you're talking about real money. Upper management in America's corporations really are emptying the till like never before.  

Daniel De Groot :: Yes, CEO Pay and Executive Bonuses Matter

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Okay, Then (4.00 / 1)
Maybe I won't do a diary about this, after all.  How to compete with a snazzified chart life that?

First time I ever saw anyone go all velvet Elvis on financial data.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


Excel 2007 is dangerous (4.00 / 2)
But the b&w original was a little too austere for my tastes.  

Also I always find it hard to tell which shading pattern represents which part of the graph, particularly when they start using dotted areas with small variation in the sizes of the dots or spacing between them.  Ugh.

The top 0.01% taking 6% of national wealth is tacky enough to warrant some velvet Elvis I think.


[ Parent ]
Can you get data for other countries? (0.00 / 0)
I believe that income inequality is up all over the world, not just in the USA.  I'd like to compare similar data for more progressive / "socialist" states, like Sweden, to get an idea how much is "US specific".

Also, the data really should be after-tax.  I suspect it will look a little less bad, but still bad.


Yes. (0.00 / 0)
In Saez's excel sheet, if you look at figure 12, he has data for the US, UK and France for the top 0.1%.  I almost made the post about that chart instead.

To save you downloading a 4MB document, the latest data he has on each country has the US at 8%, the UK at 4.5% and France at 2.5%.

It's actually a pretty neat chart because you can really see the effects of particular government policies, mostly Reagan and Thatcher.  France never followed suit and kept its high tax brackets high, and its top 0.1% are soaking up significantly less of the national income.

Hmm, I guess whether the data should be before or after tax is debatable, but I suspect the US would look even worse in comparison to the UK and France in that case (though the absolute numbers would decrease) since both of the latter still have higher top tax rates.


[ Parent ]
German bank regulator BaFin puts new limits on bonus payments (4.00 / 1)
Germany, Drawing Crisis Lessons, Tightens Bank Bonus Rules
Aug. 14 (Bloomberg) -- Germany will tie banks' bonus payments to longer-term profitability, drawing lessons from a crisis that pushed the world financial system to the brink of collapse.

Under the new rules to go into effect on Jan. 1, short-term profits can no longer determine bankers' bonuses, the BaFin financial services regulator said in an e-mailed statement today. Bonuses have to be repaid if deals prove too risky in retrospect, BaFin said.
...
Individual bonus payments in future will have to be tied to the performance of departments and the bank as a whole, said BaFin, which shares supervisory authority with the Bundesbank. The new rules implement recommendations of a working group chaired by Bank of Italy Governor Mario Draghi, Bafin said.
...
The Handelsblatt newspaper today reported German banks will have to set up bodies -- staffed by risk-control and human- resources managers -- to supervise bonus regulations. Banks will be given until the end of the year "in principle" to revamp their bonus systems, BaFin said.


http://www.easybourse.com/bour...

I have to say, I'm really a bit proud about my country because of this. Honestly, I didn't hold high expectations that something meaningful could come out of this. But this looks good, and will significantly reduce short term oriented gambling on the financial markets - if properly supervised, which may be the weak point. I guess this new regulation became possible because of the huge public outcry about banks saved with taxpayers Euros giving obscene Boni to managers. Which was really too much, especially now, during the election campaign. Both big parties were forced to get behind tougher rules.

So, folks, public pressure can result in better regulation. Increase the heat on Dem lawmakers to come up with new rules against greedy bankers engaging in speculating for their own good! We all know now that this kind of gambling can literally "break the bank". Put an end to this!


Oops, wrong link attached to the quote! (4.00 / 1)
The quote above is from Bloomberg:
http://www.bloomberg.com/apps/...
However, the easybourse story is good, too. The difference is in the details that are reported.

[ Parent ]
Yikes! (4.00 / 1)
What a luscious display of a circumstance that is nearly (?) obscene.  And, how appropriate that you "snazzified" the chart.  Various sources on the web suggest the etymology of snazzy as a possible combination of snappy and jazzy with its origins in the 1930s.  Well. I could go on about gilded lilies, but you've already determined that I have nothing to add to a speaks for itself post.

Obscene Inequality (4.00 / 1)
So the top 0.01% averaged $28 million dollars in income, each.  Wow.

The minimum wage is now $7.25 or $15,080 annually for someone who works a 40-hour week. At this rate, a minimum-wage earner would make $754,000 over a 50-year worklife. So at $28 million annual income, the average person in the top 0.01% brings in more money in 2 weeks than the minimum-wage earner earns in an entire lifetime.

Given how our society often equates one's worth with one's income, this means that society values two weeks of the life of a super-high earner as more important than the entire life of a minimum-wage earner.

Is it any wonder then that the death of poor people (through war, lack of healthcare, industrial accidents, etc) is valued so little in our society and that the super-rich have so much power.

This level of inequality is truly obscene.

The lcurve also has an interesting way to visualize the enormity of the inequality.


Chart is wonderful (0.00 / 0)
I've never seen income disparity displayed so well. It really helps to have a graphic view of 20th century America like that graph

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