Leave My PIP Alone!

Michigan’s automobile insurance companies would like to crimp motorist personal injury protection (PIP) benefits. The Republican majority claims that the expense of providing this coverage is crippling the Michigan economy, driving employers out the state, poisoning the air and water, increasing obesity, cancer and heart disease, allowing children to drop out of school earlier and earlier, causing telemarketers to call right at dinner time, and raising the television volume during commercials. In short, all of Michigan’s problems are caused by requiring unlimited PIP benefits.

Although Michigan voters have endorsed unlimited PIP benefits by referendum, the Michigan Chamber of Commerce and the insurance lobby have bought enough legislators to endanger the law. Michigan Rep. Harvey Santana offers a concise explanation of why such a change would be wrongheaded in “Rep. Santana on HB4936 and SB649.”

Gov. Rick Snyder and the legislature want to avoid the embarrassment of citizen review. The legislature attached an “appropriations” measure so that the law will not be subject to challenge by the people. This loophole allows the legislature and governor to pass laws that are not subject to referendum. The PIP-elimination bill includes an appropriation of chump change to print some brochures — a cheap trick to stymie the democratic process. If you read to the bottom of the bill, you find that $50,000 is appropriated to the Office of Insurance and Financial Servises “to implement this section.” That is like putting a thumb bell on the steering wheel of a 450 hp. Peterbilt flat-top sleeper and calling it a tricycle.

Proponents of this measure claim that it will reduce auto insurance premiums. Have you ever seen insurance companies reduce rates in response to favorable changes in the law? That is about as likely as the AFLAC goose showing up in your leaky rowboat. Consumers will not see any benefit from this bill, but it will drastically reduce the coverage for those who are seriously injured in auto accidents.

As a case in point, a Pennsylvania colleague was contacted by the wife of a seriously injured 50-year-old man. The accident was caused by an impaired driver. The husband received very severe head injuries and will be permanently disabled. The driver who caused the accident had minimal insurance and only $15,000 can be obtained. The husband owned three vehicles at the time of the accident, but his uninsured-motorist coverage was limited to $100,000 per vehicle. The cost of treatment for injuries has greatly exceeded the $315,000 available, so there is nothing for long-term care. This family, which includes two middle-school aged children will be financially ruined.

If this case were in Michigan, the husband would have unlimited PIP benefits to cover his lost wages and care needs of about $10,000 per month. Our legislature wants to eliminate this protection. The insurance lobby claims that the new law would still cover 99% of injured motorists, but 1% of motor-vehicle injury claims make up a lot of seriously-injured Michigan citizens. Tell your governor and legislators to leave our no-fault auto insurance coverage intact.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Bank Piggies

According to the New York Times, bank stocks and profits took a beating in 2011; but not their chief executives. Susanne Craig, “Bad Year for Wall St. Not Reflected in Chiefs’ Pay, New York Times, B-7 (January 20, 2012). Three big banks disclosed on Friday, January 20, 2012, that their top executives will receive massive awards of deferred stock for occupying their offices in 2011. You can talk about “Occupy” movements, but these pigs are not moving anywhere as long as they can wallow in their trough of money.

Banks are ramping up deferred stock awards to the top porkers while those further down th snorting order – those who really do the work – are finding their pickings are slimmer than a year ago. That does not mean that those excluded from the more succulent feeding bins are getting along on stems and seeds, but the banks’ boards could spread the loot more fairly.

Top executives’ pay packages are largely unrelated to stock performance. Corporate boards seem to think that the CEO should get the credit for a bank’s high profitability in good times, but “It’s the economy, Stupid” when a bank has a bad year. Boards of directors, unlike opposition politicians, are willing to assume that the bank would have been worse off if the CEO hadn’t done such a good job. Here are three hogs who can neither spell nor define “enough.”

Citigroup’s CEO, Vikram S. Pandit, sucked up $3.7 million in deferred stock in addition to his base salary of $1.75 million. As if $5.45 million is not enough for a piggie banker to live on, Mr. Pandit received a $16.7 million retention bonus, plus another $6.5 million in stock options. It is hard to justify such monstrous generosity to Mr. Pandit. Citigroup’s stock fell 44 percent in 2011, and bonuses for real employees amounted to chump change, if they received anything.

JPMorgan Chase, also had a rough year, with a 22% decline in share price. That did not restrain Chase’s board from slopping the chief executive, Jamie Dimon. He received $17 million in equity-linked stock for his work in 2010 and a similar amount for 2011.

Poor James P. Gorman of Morgan Stanley will take a 25% cut in his pay. Still, he will receive $9.7 in deferred compensation on top of his $800,000 base salary. He probably earned $8,000 of it.

Why are we ignoring the 1,200 lb. Yorksire boar in the room? It is bigger than the couch! The Yorkie being ignored is the fact that the upper echelons of corporate governance are not achieved through merit. Corporate CEOs and directors are appointed based on family and personal connections. It is nepotism and cronyism. See “Not All Pirates are in Somalia.”

We let these bank piggies loot their corporations and then give them favored tax treatment. While their paychecks are taxed as ordinary income, their immense awards of deferred stock end up as appreciation, not compensation and are taxed at the low, low capital gains tax rate.

It is an unfortunate fact that shareholders are sheep. As long as share prices stay reasonable and there are some dividends being paid, shareholders approve whatever corporate management puts on the proxy form. However, our economy would be healthier and those who do the work to keep the wheels of commerce turning would be better compensated if we no longer tolerated the current system of corporate governance based on banditry.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Inflatables on Car Dealerships

Driving in to the office this morning, I passed a car dealership with a huge inflated angel on its roof. Seeing that I had to ask myself, “Whatever possessed the car dealer to put an angel on its roof?” An angel would make me think of death. The last thing I would want to think about when buying a car is death. I would be scared away.

Although an angel would discourage me from buying a car, seeing a huge inflated dinosaur always gives me powerful urge to buy a car immediately. It’s the dinosaur-petroleum connection. Inflated leprechauns, bunnies, raccoons, spiders, turkeys, and reindeer do not compel me to buy a car the way dinosaurs do. However, maybe others have a different preference.

In the interest of scientific inquiry, please answer the following question: “What giant inflated thing on a car dealer’s roof would most compel you to buy a car?”

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Labor Day Rant

It is too bad that so many groups of people in this country – mothers, fathers, secretaries, workers – get a day in their honor, when they deserve 24/7 respect and more concrete benefits. Today is supposed to be Labor Day. Wow! Labor has been losing economic ground since the Trickle-Down years.

It might be helpful if we assigned some objective measures to terms we throw around – lower class, middle class, upper-middle class, rich, poor. I have only met a handful of rich people in my life. I was once backstage at a big-name concert and met the performers; I once shook hands with Alex Manoogian at a Masco function. I never met a Kennedy, a Bush, or a Heinz. I may have served a few rich people when I was a cocktail server at a private club while in college, but they certainly did not pay any attention to me. I do not travel in those crowds. I would not be welcome at their parties.

If half the privately-held wealth in this country reposes in 400 households those are the mega-rich. If we expand the definition of “rich” to the group of households that own 75% of the wealth, what would that be, a couple thousand households, at most? The 2007 median household net worth in the United States was $120,000, but the mean was more than four times that, at $556,000. 2007 family value Furthermore, the median and mean for Caucasian households like mine are three times the median and mean for African-American and Latino households.

We also have to factor in the housing bubble and the decline in the stock market. If you compare home owners to renters, it is apparent that much of household wealth is home equity. Granted, there are other factors in play. Homeowners probably have a higher educational level and earn more generally, but the upward trend in both median and mean tracks the housing bubble. Family wealth in 2011 is probably close 2001 levels. If the middle class falls between the median net worth of $101,000 and the average of $464,000, they are the producers in this country. They do the work, but the TEA Party has convinced many of them to let the wealthy skate on their taxes.

United States tax policy should be based on two general proposition: A) No household needs more than $250,000 per year. B) No one earns more than $250,000 per year. These figures can be adjusted for inflation. In 1950, $250,000 would have bought ten four-bedroom houses. In 2050, $250,000 might be the price of cheap refrigerator, but for the sake of discussion, lets stick with a quarter of a million.

In 2011, $250,000 per year can support a lavish standard of living for a family of four. With good credit, a family with that much income can afford a million-dollar house, two cars, a country club membership, a boat, and private-school tuition for two children. That is your basic middle-class lifestyle. Beyond that, they are buying bragging rights. Why not levy a 50% income tax on income beyond $250,000? Instead of buying a million-dollar vacation home, the family with $500,000 of before-tax income would be forced to settle for a $500,000 vacation home. However, they would have bragging rights about their support of our country.

A few extremely talented and ambitious professionals bring home more than $250,000 per year. Some of them actually earn that much by starting new enterprises that are profitable. A doctor might see a dozen patients an hour and “earn” $500,000 or more per year, but he or she will have a large support system comprised of underpaid staff.

Most highly compensated executives do not earn their absurd pay. They receive eight-figure compensation packages because these CEOs pack their corporate boards with colleagues for whom they support similar packages as members of their boards.

General Electric Co. Chairman and CEO Jeffrey R. Immelt’s 2010 compensation more than doubled to $15.2 million as the company benefited from a recovering economy, equalling the annual pay of 1,000 minimum-wage workers (MWW). The 2010 record holder is Philippe Dauman of Viacom, who was paid $84.5 million–that’s equal to 5,600 MWW–for just nine months as C.E.O. Other CEOs who received bloated paychecks included Ray R. Irani of Occidental Petroleum,$76.1 million or 5,000 MWW; Lawrence J. Ellison of Oracle, $70.1 million or 4,600 MWW; John F. Lundgren, of Stanley Black & Decker,$32.57 million or 2,150 MWW; and David N. Farr, of Emerson Electric, $22.9 million or 1,500 MWW. There is no rational argument that these CEOs earned that much for their companies, let alone deserved it.

Since all of this compensation is deductible on the corporate tax return, the U.S. taxpayer absorbed 35% of the outrageous compensation packages for Immelt and his cohorts. It would not be necessary to increase the income tax on these corporate pirates for the government to get a piece of the pie. Just take away the corporate deduction!

Did these bandits earn that much? Historically, CEO pay is not based on performance. The median compensation for chief executives at roughly 200 large companies rose to $8.4 million in 2005, from $8.2 million in 2004, according to Equilar Inc., a compensation analysis firm in San Mateo, Calif. The median was $7.2 million in 2003. Over just these two years, executive compensation rose at more than three times the inflation rate. Compare this to stagnant wages in the lower 99% of the workforce. A study by the Corporate Library, “Pay for Failure: The Compensation Committees Responsible,” named 11 public corporations whose chief executives’ pay had exceeded $15 million during the last two years despite five-year shareholder losses. By packing their boards of directors with cronies and ensuring that their “independent” consultants will provide the advice they desire, many corporate CEOs have persuaded their boards to award them immense wealth. Corporate executives are literally sucking the money out of the pockets of the workers who build corporate wealth.

Let us celebrate this Labor Day by resolving to close the gap between the rich and the rest of us. Increase the income tax rate on Adjusted Gross Income over $250,000 and eliminate the corporate tax deduction for compensation over that amount. It is time for ordinary citizens like us to get the rich off our backs.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Not Taxed Enough

Standard & Poor’s downgrade of the United State’s credit rating, if not the economy in general, should clue in TEA Partiers and disciples of Grover Norquist that the deficit cannot be brought down through spending cuts alone. The government needs more revenue and more economic stimulus through government spending. However, it is time to stop whining about all the taxes we pay and start bragging about our investment in our country.

Congress has to forget about extending the Bush-Era tax cuts for the wealthy and consider the additional revenue an infrastructure investment. Those funds can be directed at improving the nation’s roads, railroads and airports, energy and communication systems, water and resource conservation programs, and border security.

How often do you hear the wealthy mewl about high taxes, anyway? Never! It’s the TEA Partiers and conservative elected officials doing the kvetching. They are generally lower-middle- to middle-class schmucks like the rest of us. They just think that they will get more butter on their toast from the rich if they oppose taxing them. The Fox News Gang are just reading out of Rupert Murdoch’s right-wing script.

Smart homeowners know that they cannot keep putting off repairs. It is common for homeowners to keep putting off upgrades and improvement. A couple who raised their family in a home they bought in the ’60s may have 30-year old avocado appliances, gold-colored shag carpet and an analog-digital converter so they would not have to replace their 13-inch Zenith TV. That’s fine if they feel more comfortable surrounded by outdated furnishings. However, they need to take action if the roof is leaking or termites are making lunch out of their studs and joists. We are beyond fashion considerations in our infrastructure.

We have bridges that are on the verge of collapse and civic buildings that are unsafe due to asbestos and formaldehyde. Our power grid is outdated and dangerous and lack of inspection of cargo and cargo vessels leaves us vulnerable to terrorist attacks, inadvertent importation of invasive species and food-born illnesses.

We have dire needs that could be addressed by a Congress that is not afraid to ask us to pay for what we need. They do not even have to call it a tax increase. Call it an investment in our nation’s future.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Money (That’s What I Want) II

This morning, Renee Montagne of NPR’s Morning Edition interviewed economics editor David Wessel at The Wall Street Journal, who said of yesterday’s market plunge, “Look at it this way, over the last week the Standard & Poor’s 500 index and the stock market has lost about 10%; that means about two trillion dollars in wealth has evaporated.” Mr. Wessel should read my blog more often. On October 10, 2008, after another big drop, I explained in “Money (That’s What I Want)” that wealth does not evaporate when the market goes down.

The wealth in the stock market is real, not virtual or hypothetical. In October of 2008, 2,000 shares of Bank of America stock would have bought a new, fully-loaded Lincoln Navigator. Now, those shares wouldn’t buy a fully-loaded Ford Focus. For Mr. Wessel’s benefit, I will repeat, with a few changes, what I said then:

For an investor who buys and holds stock for a period of time, it seems that appreciation and depreciation come out of nowhere. Let’s say that Rosco buys a share of Youngstown Universal Cotter Keys, Inc. for one dollar. He holds the share of YUCK for a year and he gets $10 when he sells it. As far as Rosco is concerned, he just received nine dollars for nothing. Conversely, if Rudy bought that share from Rosco for $10 and it dropped to one, Rudy’s nine dollars just vanished like civil servants at quitting time. What if Rosco had not sold his share of YUCK and it went from one to ten and back down again? Were these virtual dollars with no more substance than my idle musings?

The money is real and even if Rosco bought and sold his share of stock for the same price, the fact that it rose and then fell nine dollars means that there were real money flows that enriched some investors and impoverished others. The money that the rise and fall of Rosco’s share of YUCK represents was real money that flowed into and out of the market, but was not gained or lost in the broader economy.

The first step to understanding how the money comes into and goes out of the stock market, is to consider that the rise and fall of the value of Rosco’s single share of stock is not an isolated event. If shares of YUCK go $1.00 to $2.00, it is because tens or hundreds of thousands of shares were traded and the final sales were for $2.00 at the end of the trading period. However, for the sake of simplicity, consider the situation where YUCK is being sold one share at a time.

Everyone who bought for a dollar and sold for two took a dollar in profit out of the market. If Rosco receives $2.00 from Rosie for a share of YUCK that he purchased for $1.00, Rosie puts two dollars into the market and Rosco takes two dollars out–his initial investment and a dollar of profit. If Rosie then sells to Reginald for $3.00, he puts that much in and Rosie gets back her investment plus a dollar in profit. Tracing a series of transactions up to the $10.00 price, then back to $1.00, it becomes obvious that the rise and fall of YUCK reflects the change in what investors are willing to pay for YUCK shares, but no money disappeared. In this hyper -simplified economic picture, every dollar that went into the market came from an investor’s cash account and every dollar that came out went back into a cash account. Therefore, all of the money that pours out of the stock market stays in the economy!

Expansion and contraction of the stock markets makes some poor investors rich and some rich investors poor, but the wealth of the country does not rise and fall with the stock markets. It just gets relocated within the economy.

A portion of the change in share prices reflects real growth or lack of profitability of individual companies. Investors scurriie away from U.S. auto manufacturers like dexedrine-dosed lemmings in 2008 because the car companies did not foresee rising gas prices–like, Who would have thought that the price of a limited resource would go up as supplies diminish?–and produce fuel-efficient vehicles. However, the shares were high a few years ago because Ford, GM and Chrysler had a big line-up of popular gas-guzzlers that yielded high profits. Some of the drop in U.S. auto stocks is therefore related to the companies’ market strength, but not all of it.

The price of YUCK shares may go up or down, based on YUCK’s profitability and financial health, but it may also go up or down based on investors’ perceptions of the cotter key industry specifically or the U.S. economy in general. Although some change in the market indices will be reflective of the health of the corporate sector, wild swings, such as yesterday’s dramatic drop, are not due to rapid variations in corporate financial viability. If the Dow drops 6% today, is the U.S. business climate 6% colder today than it was yesterday? As the Dow declined from 12,700 to 11,500, the country did not lose 9.5% of its value, or even 9.5% of the value of its businesses. The Dow fell due to a dramatic mood swing in the investing public away from stocks. That deflated stock values, but all that money is still out there in the U.S. economy.

Don’t panic! Although there will be cutbacks and business failures, the money that left the stock market is still out there. Sooner or later, investors will realize that they cannot make money on their money unless they put it where profits are being generated. That’s the stock market; and when money starts flowing back into stock, the markets shall rise again.

John B. Payne, Attorney

Dearborn, Michigan & Pittsburgh, Pennsylvania

(800) 220 7200

FAX (313) 583 3100

©2011 John B. Payne, Attorney

www.law-business.com

The Sound of the Sawdust, the Smell of the Chainsaw

Morning in Dearborn: Chainsaws buzzing on fallen trees and limbs, traffic moving through major intersections where the traffic lights are out. It was a Hell of a storm yesterday. Many streets were blocked by trees that were uprooted or shattered. A long-time friend had his house completely destroyed by a fire that was started by lightning or a downed wire. He had to watch his home burn for over an hour, waiting for the fire department. My wife and I consider ourselves very lucky that our house was not damaged. We even have electricity!

My friend’s tragedy is a wake-up call to check our insurance coverage and make sure that my business and personal computers are adequately backed up. I have a back-up internal hard drive on my server at the office and I also do backups on portable drives that I switch out and take home. However, I have been lax recently. This morning, I took a portable hard drive to the office and ran a special back-up. Whatever you think is unthinkable can happen. A colleague was the victim of arson–then was accused of torching his own law office.

As an attorney, I have a special responsibility to my clients to preserve their documents and information. There is no failsafe protection against a disaster at my office. It could burn down or be destroyed by a tornado at any time. Therefore, I try to keep multiple back-ups so I have one at home and one at the office. It would be possible for both my home and my office to be destroyed at the same time, but there is no way to protect against that kind of statistical fluke. Keeping copies of my office server and laptop at both places is a reasonable precaution that is a very minor expense.

One can purchase a couple of 1.0TB portable hard drives for less than the cost of a pretty-good sofa or new tires for your Gremlin. It would certainly be less than a decent set of golf clubs, or 18 holes at Pebble Beach. The peace of mind that comes from having a good back-up is worth more than all of those together.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

It’s Summer: Where are the Summer Jobs?

Here we are, a week away from the solstice. Most of the high schools are out for the summer and where are our young people to find jobs? The parents and grandparents have grabbed the jobs that usually keep high school juniors and seniors off the streets in the summer. The jobs are not there for our teenagers. We have been trying to jumpstart the economy since Bush XLIII, but every time we start to really pump some job juice into the economy, we back off. What we need to do is raise the debt limit, stop worrying about the deficit, and put people to work on infrastructure.

If people started buying new cars and refrigerators and hot tubs and houses, we could turn this recession around. Unfortunately, consumer confidence is not that strong. I would wager that the average age of the cars in people’s garages and the refrigerators in their kitchens is two or three years higher than it was in 1999. When the marketplace falls flat, the government needs to step in. The problem here is that consumers are not consuming so the government must do so.

This solution is intensely disagreeable to fiscal Conservatives. They will decry a “tax-and-spend” mentality and oppose government handouts (unless they are to corporations). However, expanding the welfare system or hiring more regulators or paying unemployment compensation over an extended period is not what I have in mind.

Our roads and bridges are in deplorable shape. Public transportation is unreliable and unsafe. Many of our municipal buildings are rundown and ugly. Spending money on infrastruction is not wasted. When the government fixes a road or builds a levee, the country goes up in value.

When your roof is leaking, you do not ask whether you can afford to fix it. You take out a loan and put a new roof on the house. This protects and improves the value of your house. It is the same with a country. You don’t wait until a Minnsota freeway bridge falls down, you inspect all the essential bridges and fix them as necessary. If a new bridge over the Detroit River is needed, build it now, when the unemployment rate in Detroit is terrible. However, be absolutely certain that the projects are need. Tossing pork around is the last thing you want to do when deficit spending is necessary.

A bi-partisan committee could apportion new stimulus funds where they are most needed and where the investment value would be highest. The only problem is finding senators and representatives who would be willing to put the country’s interests ahead of their party’s.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Not All Pirates Are in Somalia

General Electric Co. made news last month when it reported U.S. profits of $5.1 billion and worldwide profits of $14.2 billion, but paid no federal corporate income tax. GE even reaped a net tax benefit of $3.2 billion. What the newsies do not mention is that the government additionally subsidized the ridiculous wealth GE and other corporations lavish on their executives. Uncle Sam must miss a lot of sleep staying up nights to figure out how to pour tax dollars into corporate treasuries.

We Bring Good Things to Immelt
General Electric Co. Chairman and CEO Jeffrey R. Immelt’s 2010 compensation more than doubled to $15.2 million as the company benefited from a recovering economy, equalling the annual pay of 1,000 minimum-wage workers (MWW). Since all of this compensation is deductible on the corporate tax return, the U.S. taxpayer absorbed 35% of the outrageous compensation packages for Immelt and his cohorts.

The 2010 record holder is Philippe Dauman of Viacom, who was paid $84.5 million–that’s equal to 5,600 MWW–for just nine months as C.E.O. Other CEOs who received bloated paychecks included Ray R. Irani of Occidental Petroleum,$76.1 million or 5,000 MWW; Lawrence J. Ellison of Oracle, $70.1 million or 4,600 MWW; John F. Lundgren, of Stanley Black & Decker,$32.57 million or 2,150 MWW; and David N. Farr, of Emerson Electric, $22.9 million or 1,500 MWW.

A small change in the tax code could address an economic problem that is syphoning corporate wealth into the pockets of top executives–impoverishing stockholders, employees, and the public at large. The median compensation for chief executives has risen at several times the inflation rate since the beginning of the century. Compare this to stagnant wages in the lower 99% of the workforce. The gains by these mercenary managers might be defensible if their pay were in proportion to their achievements. It is not.

Overcompensating Underachievers
A 2006 study by the Corporate Library, “Pay for Failure: The Compensation Committees Responsible,” named 11 public corporations whose chief executives’ pay had exceeded $15 million during the last two years despite five-year shareholder losses. “The disconnect between pay and performance is particularly stark” at Verizon, AT&T, BellSouth, Hewlett-Packard, Home Depot, Lucent Technologies, Merck, Pfizer, Safeway, Time Warner and Wal-Mart. For example, Ivan G. Seidenberg, chief executive of Verizon Communications, received $19.4 million in salary, bonus, restricted stock and other compensation in 2005. This was 48% more than in the previous year. As his compensation nearly doubled, the stock fell 26%, bondholders lost value as the company’s debt was downgraded by credit agencies, and 50,000 managers saw their pensions frozen. Verizon closed its books with 5.5% earnings. Mr. Seidenberg’s $75 million five-year total pay is an egregious affront to shareholders, who stood a loss of more than 26% in the period.

You Scribble my Check and I’ll Scribble Yours
Verizon’s board received a grade of D from the Corporate Library. One reason was that Verizon’s compensation committee–the group of board members who recommend what executives should receive–consists entirely of chief executives or former chief executives. Three of the four members sat on other boards with Mr. Seidenberg. On Wyeth’s board, Seidenberg helped set the pay of John L. Stafford, a member of Verizon’s compensation committee. He is past chairman and chief executive of Wyeth.

Verizon’s compensation committee was led by Walter V. Shipley, former chief executive of the Chase Manhattan Corporation, and was made up of Richard L. Carrión, chief executive of Banco Popular de Puerto Rico; Robert W. Lane, chief executive of Deere & Company; and Mr. Stafford, formerly of Wyeth.

Many of the Verizon directors who were on its compensation committee also met Mr. Seidenberg at board meetings of other public companies. At Wyeth meetings, Mr. Seidenberg encountered Mr. Shipley, who was the chairman of Verizon’s compensation committee and who was a member of Wyeth’s committee, sitting with Mr. Carrión, at least until 2006.

Mr. Seidenberg saw Mr. Stafford when the board of Honeywell International met. Mr. Stafford was chairman of Honeywell’s compensation committee, which included Mr. Seidenberg. A tally of the 29 directors of Exxon and Verizon who sat on multiple public corporation boards showed that the two boards were very tightly interlocked. Ten of the 29 were Exxon board members and 12 sat on the Verizon board, with three sitting on both boards. However, another interesting connection crops up–11 of these same board members sat on the board of Wyeth. Three were Verizon/Wyeth directors and two were Exxon/Wyeth directors. One director, Walter V. Shipley, sat on all three boards. This concentration of board seats ensured that these 29 directors who held down 92 public corporation board seats controlled all three companies.

Friendly Persuasion
Another factor that helped Seidenberg fatten his paycheck was that Verizon’s executive team had its “outside consultant,” Hewitt Associates of Lincolnshire, Ill, firmly in its pocket. Outside consultants are supposed to be independent and objective, but Hewitt, a provider of employee benefits management and consulting services with $2.8 billion in annual revenue, did much more for Verizon than advise it on compensation matters. Verizon was one of Hewitt’s biggest customers in the far more profitable businesses of running the company’s employee benefit plans, providing actuarial services to its pension plans and advising it on human resources management. Hewitt received more than a half-billion dollars in revenue from Verizon and its predecessor companies between 1997 and 2007. Hewitt was all over Verizon, operating its employee benefits Web sites and acting as actuary for three of Verizon’s pension plans. Hewitt also performed extensive work for Verizon’s predessor companies. Objectivity is compromised when the firm evaluating the executive’s compensation depends on its relationship with the executive for a large portion of its revenue.

By packing their boards of directors with cronies and ensuring that their “independent” consultants will provide the advice they desire, corporate CEOs persuade their boards to award them immense wealth. These graspers get writer’s cramp from signing so many checks to one another. Think of it this way: It is as if bank robbers formed a guild and then were allowed to elect one another as bank presidents. The story of corporate gluttony would be an amusement piece, like “Lifestyles of the Rich and Greedy,” but for the fact that these bloated compensation packages are being subsidized by lower and middle class investors and taxpayers.

Welfare for the Truly Greedy
We also subsidize these rapacious managers with a tax deduction. The corporate income tax rate is 35%. Therefore, for every million dollars the board votes to give the CEO, it only costs the corporation $650,000. The other $350,000 is paid by the government–that is the American taxpayer.

Stem the Hemorrhage
It is time to put these robber barons in the “time-out chair.” Send a message to the pirates of the big board that it is time to curb this fiscal abuse. One way would be to limit the corporate deduction for executive compensation to 100 MWW. If the minimum wage is $7.50, that would be $15,600 per year for full time employment. The corporation could deduct up to $1,560,000 per year in executive compensation. Executive pay could be more than that, but it would not be deductible.

This modest change in the tax code may have little effect on executive pay, but it would at least trim the public subsidy. However, cutting the deduction may have a profound effect. It is a government guideline as to the maximum reasonable paycheck for one person, no matter how prideful and self-important. CEOs who are used to receiving whatever outrageous compensation package they have the gall to demand will be given the message that they are committing the second deadly sin.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Trust the Government to Do It Right

Why do TEA Partiers and other neo-Cons point to government programs like Medicare, the Postal Service, and Amtrak to “prove” that anything the government tries to do is doomed to failure? In the first place, Medicare is an astonishing success. Just ask any of your relatives who are over 65, and they will tell you how great Medicare is. Government programs work the way they are supposed to 98.36% of the time, according to the U.S. Department of Hypothetical Statistics, and they are much less likely to cheat us than private businesses. Any government role in providing health care is more likely to improve quality and availability than to cause deterioration.

Amtrak loses money now, but this nation was built on economical rail transportation. If we got smart, we would stop relying on cars and trucks so much and go back to rail transportation. The Postal Service may not make money, but to whom do you turn when you have to send a letter to Aunt Alice in Ass-End-of-Elsewhere, Alaska?

Whether Amtrak and the Postal Service make money is not the only measure of their success. Police and fire departments don’t turn a profit, either; should we do away with them? If we served up public services the way we do health care, only a dues-paying member of municipal services could get the fire department to come and put out their fire or the police department to investigate the arson. Get real!

I do not want my neighbor to lack health insurance any more than I want him or her to lack fire protection. In the absence of fire protection, if my neighbor’s house catches fire and burns to the ground, that hurts my property values. Furthermore, if the fire department won’t come put out his fire, it will spread to my house.

If my neighbor lacks health insurance, he or she has to rely on the emergency room for the unpaid emergency services that I pay for. Furthermore, if my neighbor doesn’t get treated for communicable diseases, they will be passed on to me.

Mandatory health care coverage is the only fair answer. If some of that coverage is under a government-run plan, I’d sign up in a minute. Wait, I already have a government plan. I have Medicare, and I’m damned glad I do!

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022