Labor: Over- and Under-Compensated, Unrelated to Performance

Two items seem to me to be related.

First, on Le Monde’s financial blog, Demystifier La Finance, George Ugeux reviews the compensation of American CEOs over the past ten years and notes the absence of correlation between compensation (astronomical) and performance (variable, from very profitable in the case of Steve Jobs, to abysmal in the case of Lehman Brothers or Countrywide, to stagnant in the case of Colgate or Starbucks).

As Ugeux notes, these 25 individual CEOs collectively received $14 billion (a little less than the GNP of Ivory Coast or Cameroon), but they have not created value, which means that, based on the data, the correlation between value creation and CEO compensation is not significant, random. Only 5 of the 25 companies that provided such extravagant compensation did better than the Dow Jones. Which means that corporate governance structures either have abdicated their responsibility or are marked by what the French would call “copinage” (a mix of interlocking directorates and “old boys network”, you scratch my back, I’ll scratch yours… yes, they’re all men).

Interestingly, one of the commenters to the post notes that French CEOs often argue that their also, but not quite as extravagant compensation is due to the fact that they need to remain competitive internationally. Except that, for them, “internationally” only means copying American practices. After all, if they chose a different standard of comparison for international competition, for instance, Japan, they would find that compensation is not the same at all.

On the same topic, ChartPorn reports on major CEO payouts (the infamous Golden Parachutes):

This is what should be mentioned every time someone gripes about merit pay for teachers and complains about how tenure protects bad teachers from being fired and how, in the private, non-unionized sector, where real performance is rewarded and poor performance not tolerated, things are so much more fair and just and profitable.

In these discussions, it is as if (1) 100% of education personnel was tenured (not really) and (2) as if tenure was unique to education and higher education (not really either).

But that is what goes on at the top of the social ladder. What about other categories of labor? Let’s talk about wage theft:

“Billions of dollars in wages are being illegally stolen from millions of workers each and every year. The employers range from small neighborhood businesses to some of the nation’s largest employers—Wal-Mart, Tyson, McDonald’s, Target, Pulte Homes, federal, state, and local governments and many more.

Wage theft occurs when workers are not paid all their wages, workers are denied overtime when they should be paid it, or workers aren’t paid at all for work they’ve performed. Wage theft is when an employer violates the law and deprives a worker of legally mandated wages.

Wage theft is widespread and pervasive across all types of companies. Various surveys have found that:

• 60 percent of nursing homes stole workers’ wages.
• 89 percent of nonmonitored garment factories in Los Angeles and 67 percent of nonmonitored garment factories in New York City stole workers’ wages.
• 25 percent of tomato producers, 35 percent of lettuce producers, 51 percent of cucumber producers, 58 percent of onion producers, and 62 percent of garlic producers hiring farm workers stole workers’ wages.
• 78 percent of restaurants in New Orleans stole workers’ wages.
• Almost half of day laborers, who tend to focus on construction work, have had their wages stolen.
• 100 percent of poultry plants steal workers’ wages.

Although wage theft is the most pernicious when employers steal money from workers earning low wages, wage theft affects many middle-income workers too, including construction workers, nurses, dieticians, writers, bookkeepers, and many more. Wage theft affects young workers, mid-career workers, and older workers. Although some of the worst wage theft occurs when immigrant workers aren’t paid minimum wage or aren’t paid at all, the largest dollar amounts are stolen from native-born white and black workers in unpaid overtime.

Millions of workers are having their wages stolen. Two, possibly as many as 3, million workers aren’t being paid the minimum wage. More than 3 million workers are misclassified by their employers as independent contractors when they are really employees, which means their employers aren’t paying their share of payroll taxes and many workers are being illegally denied overtime pay. Untold millions more aren’t being paid overtime because their employers claim they are exempt from the overtime laws, when they really aren’t. Several million more aren’t being paid for their breaks or have illegal deductions made from paychecks. The scope of these abuses is staggering.”

So, over-compensation, not related to performance at the top, and under-compensation at the bottom. That is a structural feature of the American labor system.

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