Friday, September 24, 2010

The Great Divide

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The Grand Canyon (west rim) There is an alarming and growing divide between the top of the org chart in Corporate America, and the bottom. The Senior Executives – the CEO and those within one or two steps of that position, are becoming an increasingly elitist group.

The Institute for Policy Studies recently released the 17th Annual Executive Pay Compensation Report, which shows that CEO pay has skyrocketed since the early 90’s (shortly after many corporations abandoned their full employment policies). When adjusted for inflation, CEO pay more than doubled from the 80’s to the 90’s, and more than doubled again from the 90’s to the 2000’s. In 2009, median CEO pay was $8.5 million, compared with $1.8 million in the 1980’s.

But what abut the employees of these companies?

The study notes that workers are taking home less in real wages than they did in the 1970’s. And then there is the nearly 10% unemployment rate, a fact that these outrageously overpaid CEOs have contributed to – big time. Fact: the most highly compensated CEOs laid off the most workers.

What does this great divide look like? Here are a few examples:
  • The senior executive is worried about whether he will get his entire multi-million dollar bonus this year, while the employee is worried about how he is going to pay off his debt.
  • The senior executive is worried about how well-positioned he is for the next CEO job, while the employee is worried about how long he will be able to keep his job.
  • While the senior executive is comfortable in his lavish gated community home, the employee is struggling to save enough for a down payment on a house.
  • Disgraced CEOs leave their posts with multi-million dollar severance packages, while the laid-off worker is left to scrape by with unemployment payments and a few months of salary – if they are lucky.
The view from the top of the org chart has become far removed from the reality of the bottom. Isn’t it time for CEO responsibility to include their employees?

Photo by Kyle Simourd

Friday, September 17, 2010

Moffat’s True Crime

Earlier this week Bob Moffat (formerly of IBM) was sentenced to six months in jail and a $50,000 fine for his role in the Galleon Insider Trading Scandal, to which he pleaded guilty earlier this year.

Have I written enough about this topic yet? I don’t think so.

Based on news reports, Moffat did indeed appear to be contrite as he wept in court, taking responsibility for his actions and noting that he made terrible mistakes in judgment.

Moffat was respected within IBM because his position commanded it. In some circles he was revered for restoring flailing business units to profit, and in others he was feared. He had a reputation for cutting budgets and expense – including headcount – to the bone. Thousands of employees received those pink slips in the form of a 30-plus-page package with a cover letter signed by Moffat himself that begins, "As your business leader, I make decisions every day with the objective that IBM remains at the forefront of its competitors.” (Hmmm... not every day.)

Is Moffat’s true crime that he had a personal relationship with Danielle Chiesi? He has a convenient explanation for this, saying it wasn’t about sex but about, “Clarity in the business environment”. So maybe Moffat’s true crime is that he passed along inside information to Chiesi? That is indeed what he will serve six months in jail for.

No, in my opinion Moffat’s true crime was betrayal – betrayal of the tens of thousands of employees and ex-employees of IBM who worked for him, trusted him, and some who would even lay down on the railroad tracks for him – even when their jobs were being cut.

Yes, I suppose Moffat now knows what it feels like to lose his job after thirty years of loyalty and hard work for the same company. The difference between his job loss and the losses thousands of others suffered is that Moffat created his own demise, while the employees that worked for him lost their jobs due to no fault of their own.

Is six months in jail and $50,000 dollars punishment enough?

Monday, September 13, 2010

Galleon Watch - Moffat Sentenced to Six Months in Jail

Bloomberg Businessweek and other news sources reported today that Bob Moffat has been sentenced to six months in jail for his role in the Galleon insider trading scandal.

Moffat pleaded guilty earlier this year, admitting to leaking confidential information to Danielle Chiesi. Moffat also admitted to a personal relationship with Chiesi, who awaits trial.

Moffat will begin his jail time on June 30, 2011, having been granted a request to remain free to attend his child’s college graduation next year.

Did he get what he deserved? What do you think?

If you missed the prior stories, you can catch up here.

Friday, September 10, 2010

Who is Stealing Your Retirement?

A few weeks ago I wrote a tale about Jack, an employee in Corporate America who has seen his pension whittled away over the past two decades. Jack, and Jill, and many others like them who work in the private sector, have had to adjust to a new world where 401K plans and their own savings will need to carry them through their retirement. If they will get any pension at all, it will be significantly less than what they were counting on when they started working twenty or thirty years ago.

But there’s another side to this story that is begging to be addressed – there are still workers who will be getting a pension.

Yes, many employees in the public sector – including teachers, cops, and politicians – are still guaranteed pensions that will replace a very healthy amount of their salary in retirement.

Consider the story of The Millionaire Cop Next Door, written by Rich Karlgaard for Forbes. Karlgaard writes that government workers are “America’s fastest-growing group of millionaires.” He estimates the value of an $80000 annual pension plus full medical benefits to be worth about $2 million.

The New York Times Ron Lieber writes that there is a war looming over public pensions. Lieber lays out the case for states to scale back their pension commitments. He cites a study by the Pew center that estimates the gap between the pension commitments and the pension funds to be one trillion dollars.

I say, bring the war on.

At least two states, Colorado and Minnesota, have started the war by taking steps to bring their pension deficits in line. They have passed laws that would (among other things) eliminate cost of living increases for retirees and increase employee contributions. Their retirees are suing the states.

There is no doubt that these public sector employees have lived up to their end of the bargain. And yes, this means they won’t be getting what they were promised. But this inequity between private sector and public sector employees (who have worked equally hard for what they have) is essentially a re-distribution of wealth.

These are pensions that are funded with tax dollars.

So while the private sector employee is struggling to invest money from his own $76 thousand dollar salary in an effort to retire in his late sixties, his taxes are being raised so that he can fund his neighbor’s government pension. I am not at all undermining the job that our teachers and public servants do – they are well appreciated. But is it equitable that the cop in Carlsbad, California that Karlgaard writes about should be able to retire at age 50 with an annual pension of more than $76 thousand dollars for the remainder of his life?

Sound fair? It’s not.

How long will it be before our lawmakers have the guts to take their own pensions and benefits to task? How long can this inequity between private sector and public sector continue? What’s your take?

Friday, September 3, 2010

The Great Job Heist... Offshoring

Special note: If you are visiting for the first time, or popping over from Karen's Labor Day blog party – welcome! If you are a regular visitor, I’d love to know how you like my new blog design. As always, thanks for reading.

call center

It started with the call center.

Corporations learned that they could take advantage of cheap labor pools overseas for lower skilled jobs. Before we knew it, it was rare to call a customer support number that didn’t land us in India.

It made sense. With constant pressure to improve profitability, companies needed to reduce expenses, and labor is a top expense. Having the ability to leverage cheaper skills gives the company flexibility and options in a tough economy.

But it didn’t stop with the call center.

In the past few years we have seen more highly skilled jobs moving overseas. Computer programmers, engineers, and accountants are just some of the professionals who have lost their jobs to offshoring. Some employees have even had the unenviable task of having to document their roles in detail, just so their jobs can be eliminated. Worse yet, some employees have had to train the overseas organizations that were taking over their roles, getting the pink slip upon completion.

Jobs in the IT industry appear to be among the most at risk.

The Times of India recently reported that IBM was now the country’s second largest employer. In 2007, IBM had 73,000 employees in India, a 43% increase from 2006. The Wall Street Journal estimates that IBM’s workforce in India could be as high as 100,000 today.

Earlier this year, IBM stopped reporting the number of employees by country, making it extremely difficult to know how many jobs are left in the United States. Nevertheless, data as recent as last fall suggests that of IBM’s reported 400,000 workforce at the end of 2009, only 105,000 jobs remained in the United States. It appears that soon – possibly very soon – IBM will employ fewer people in the US than in India.

Is your job safe from offshoring? I don’t think so. As long as there is someone willing to do the same work for less money, corporations will continue to look for ways to move jobs elsewhere.

The Institute for Policy Studies released a report this week that says, “CEOs of the 50 firms that have laid off the most workers since the onset of the economic crisis took home 42 percent more pay in 2009 than their peers.” This data clearly demonstrates how the CEO’s responsibility to their shareholders and their responsibility to their employees are in conflict.

Where has your job gone? And what message would you like to send to these CEOs?

Photo by Vitor Lima