how about those pay ratios....

["Ian Murray" <seamus2001@xxxxxxxxx>]

[From the New York Observer]

The Coming Collapse Of American Retirement

by Nicholas von Hoffman

"J.P. Morgan, no enemy of wealth, once said that a reasonable ratio of
management pay to that of the average worker would be 20 to 1. But in
the
U.S. business today, it is 500 to 1," quoth Peter F. Drucker. The
92-year-old Drucker, whom business reveres as its most respected
student and
thinker, did not make the remark out of admiration for managers, but
disgust.

Whenever the question of disproportionate compensation for managers is
broached, the increasingly vindictive editorial voices on the right
start
their banshee squawking about class warfare. (We should only be so
lucky to
have a dollop of old-fashioned class resentment in our politically
supine
electorate!) Class warfare doesn't exist in the United States in any
way,
shape or form-just a mewling about "fairness," a milksoppy word that
reactionaries rightly jeer at. Screw fairness. Leave that to those
politically correct pedants who spend their lives writing monographs
about
the transformation of gender roles on the Northwest frontier.

The first thing that pisses people off about the gigantic compensation
awarded corporate executives is that it's so insulting to the rest of
us. In
a society where you're worth what you're paid, it's a slap in the face
of
the millions who do the necessary and indispensable work of daily life
to be
told, in effect, that their labor, their efforts, their accomplishments
are
next to worthless. The Brobdingnagian paychecks managers have gotten
for
themselves have created more anger as people, in the wake of the Enron
disgrace, realized how the company's managers-their guts stuffed with
money
not properly theirs-had left the ordinary employees face-to-face with a
penurious old age. It has brought home as nothing else how mediocre,
how
incompetent, how antisocially selfish, how incapable so many of these
overpaid rotters are. And they are scarcely the only ones. In ordinary

business, on Wall Street, in sports and entertainment, there are men
and
women who only stand out because of the fatness of their paychecks. The
millions who do their jobs better-whose jobs are often more important
and
necessary-look at this spectacle and ask each other, "What the hell are
we?"
The salaries paid to the nation's corporate managers (I exempt from
this
effusion those who made their money like Bill Gates) are an insult to
the
worth and dignity of the millions who do the indispensable tasks and
get
paid literally one-hundredth to one-thousandth of what the
executive-suite/private-jet bums get. People see these stories and feel
as
if they'd had their noses rubbed in dog poop.

The second thing that pisses people off is the haunting suspicion,
reinforced by Enron, that they will have little or no retirement. The
Enron
collapse has been the event which has finally made many take a
suspicious
look at the 401(k) or defined-contribution retirement program waiting
to
take care of them in their old age. More or less the same thing
happened at
Polaroid when it went down. Polaroid not only prevented its employees
from
selling the company stock in their 401(k)'s, it made them buy the
stuff. At
the time of bankruptcy, the employees were left holding 17 percent of
the
company's stock. Similar stories can be told of what happened to Global
Crossing, Lucent and Kmart employees.

Wall Street and the politicians on its payroll have been telling
everyone
who will listen that the problem with 401(k)'s is the lack of diversity
in
people's investment portfolios. Some rocks-in-the-head Democrats want
to
pass a law preventing people from owning more than a certain amount of
stock
in the company they work for. And what if the company's stock is
golden?
Andrew Carnegie, no slouch in these matters, is reported to have said
there
is nothing wrong with putting all your eggs in one basket as long as
you
watch the basket. The nub here is not diversity of investments, but bad

investments.

A professor at New York University, Edward N. Wolff, has been looking
into
how good or not so good these retirement programs are. His findings
confirm
the fear that Enron may be the least of our problems. He figured that
the
retirement wealth of the average family had dropped about 13 percent in
the
15 years prior to 1998. What with the subsequent stock-market slide,
there's
no reason to think that things have improved in the last three years.
If you
throw in Social Security and the value of the real estate the family
owns
and subtract the debts, on average families on or near the cusp of
retirement will have 17 percent less money for their golden years than
those
in that age group once did.

The top 5 percent of heads of households did better. Their retirement
wealth
grew by a modest 176 percent. It's surprising they haven't gotten more,
given how tax and retirement rules are built to favor them. Company
contributions to 401(k)'s-usually a fixed percentage of income-will
give the
top dogs the same kind of 500 to 1 advantage that Mr. Drucker was
complaining about. It also doesn't hurt that the payroll tax for
executives
making anywhere from $2 million to $200 million is applied to 1 percent
or
less of their incomes.

Based on the professor's figures, 70 percent of families could once
look
forward to a retirement income of half or more what they'd been making.
That
number is now down to 57 percent, but that's not the whole story. Even
with
their Social Security checks, only a fraction of our households-just a
quarter of them-will have monthly incomes over $1,000.

Let's hope the professor is erring on the side of pessimism, but he
can't be
wrong by very much. We know that the Social Security system will be
going
into the red in 14 years; we know that private-sector pension plans are
either disappearing or going into bankruptcy. We know that a 401(k) is
as
much of a crap shoot as a retirement program. The only sure thing about
it
is the brokers' and management fees.

On the other hand, if you're only worth one-five-hundredth of 1 percent
of
the C.E.O. who took your company into bankruptcy and destroyed your
retirement, what do you think you have a right to expect?

You may reach Nicholas von Hoffman via email at:
nvonhoffman@xxxxxxxxxxxxx