Sunday, June 19, 2011

The WAPO Beats The Class Warfare Drum

I was amused to see a feature article in today's Washington Post entitled, "With executive pay, rich pull away from rest of America". Of course, it's essentially an Obama campaign ad cleverly disguised as a news feature.

The article focuses on what it refers to as 'the evolution of executive grandeur' as a major reason 'that the gap between those with the highest incomes and everyone else is widening.'

As the horrible example, it compares the compensation given to the former CEO of Dean Foods, a dairy firm, with the huge salary given to the current CEO,Gregg L. Engles, "..who averages 10 times as much in compensation as Douglas did, or about $10 million in a typical year. He owns a $6 million home in an elite suburb of Dallas and 64 acres near Vail, Colo., an area he frequently visits. He belongs to as many as four golf clubs at a time — two in Texas and two in Colorado. While Douglas’s office sat on the second floor of a milk distribution center, Engles’s stylish new headquarters occupies the top nine floors of a 41-story Dallas office tower. When Engles leaves town, he takes the company’s $10 million Challenger 604 jet, which is largely dedicated to his needs, both business and personal."

It then compares Engle's compensation with that of his unionized employees, who apparently average around $23 per hour, not including their benefits.

OOOOOH! Eat the rich! They make too much money! Tax them up the wazoo! Spread the wealth around!'

Perhaps CEO Gregg L. Engles isn't worth $10 million per year and all the perks. Perhaps the professors and sociologists liberally quoted in this 6 page article aren't worth what they make. And I bet there's even an argument that Peter Whoriskey, the WAPO writer who put this piece together isn't worth what he makes.Can anyone seriously tell me that there isn't an underemployed writer out there capable of redacting stuff from the AP and knocking a feature like this together for a lot less than Whoriskey's being paid?

Of course in Engle's case, there's really only one group of people who ought to give a damn what Mr. Engles is paid, and that the people who pay his salary - the stockholders of Dean Foods.

Business exists to make a profit, nothing else. If the board and stockholders of Dean Foods feel that Gregg L. Engles doesn't contribute enough management skills, expertise and value added to make him worth what they're paying, then they're fools to be paying him so much.

But maybe, just maybe, they do.

It's a cinch that the writer of this piece has never had to run something as complex as a large, competitive corporation and make multimillion dollar decisions on items like juggling tax positions, union demands, cost accounting, marketing, government regulations or vendor contracts, and it's also a cinch that if he were hired to do so, he'd make a complete travesty of it.

What Dean Foods is likely doing is paying for what they feel is a unique set of skills at what they feel is a rate competitive enough to attract top talent..rather like a sports team. And you know what? Mr. Whoriskey gets paid based on exactly the same scale, unless there's a situation where other factors are involved like there was with Barney Franks' old boyfriend and Fannie Mae.

Another aspect of this that the class warfare groupies always overlook is that someone like Greg Engles and his $10 million dollar salary provides employment and growth for the economy aside from whatever profits he's helping create at Dean Foods, unless he's burying the money in his backyard.

Money by its very nature can be used for only two things - the purchase of goods and services or investment. Whether he's using his money to buy a set of expensive golf clubs, purchase some steaks for this weekend's barbecue, pay the gardener who cuts his grass, buy an annuity or some stocks for his portfolio or simply sticks it in his bank account, a portion of that money goes into someone else's pocket..who likewise pays for goods and services or for an investment.

That's the real and healthy way to spread the wealth around, because it provides an incentive for people to keep on working to create more wealth..which all goes to enrich the economy.

It's high time the class warfare groupies realized it and dispensed with the politics of envy.

please helps me write more gooder!


Anonymous said...

And how many combined hours of work have the Dean Foods front-line workers put into the company? That doesn't count for anything? Sure they may look like replaceable ants in the eyes of some, but any fair business person knows their human capital will perform even better when they get a share of the success that they contribute to. I agree Engles probably puts much of his $10million/yr. back into the economy or investments. But so would the lower wage workers if they were paid more fairly, or if more of them were hired.

The point of the article is that the top execs are earning a disproportionate amount compared to the average worker, whose salaries have been essentially flat for years. This happens not because of market forces, but because other top execs sit on the board and determine compensation - and who wouldn't want to have a hand in raising the average salary in their "job market". Particularly at a time when so many people are suffering, skyrocketing exec salaries make their greed even more revolting and unpatriotic. To me, it sounds like Mr. Douglas was an American leader to be proud of - and was probably at least as effective as Engles.

Rob said...

I'm afraid you're obviously unfamiliar with the concept of 'value added' when it comes to market economics, Anonymous.

Let's revue.

Alex Rodriquez of the New York Yankees is being paid $32 million for his contribution to their efforts this year. The head groundskeeper ( they call them turf managers in MBL) makes approximately $150,000 + per year.

Both contribute a great deal of time and effort to Yankees baseball, and both do vital jobs, so why the disparity?

Simple, really. A-Rod actually creates business by drawing people to the ball park and helping to win games, which likewise increases attendance. Plus, he is one of a comparatively small group of professional baseball players who are capable of performing at MLB level, and one of an even smaller group who has sufficient skill to perform exceptionally well, help win games and as we've noted, increase business.

The groundskeeper likewise does a superb job, but his particular skill set is NOT particularly what people come to the ball park to watch, nor are the skills he has as rare.

A-Rod gets paid what he does because of the concept of value added.

It's exactly the same at Dean Foods, or any other major corporation.

You can bitch all you want about the board being peopled by cronies who scratch each others' backs, but the reality is that the board is still responsible to the stockholders, AKA the investors. For that matter, the CEOs normally receive a portion of their compensation in the form of stock as an incentive for exactly this reason. If the CEO doesn't perform and create value added inline with his compensation, they fire him.

Actually, if you adjust for inflation, the $1M compensation 40 years ago versus $10M today aren't that far apart at all, especially when you consider the increasing regulation and complexity of business today.

Of course, you could make fools out of the overpaying idiots at Dean. Start your own dairy company, and offer to pay top executive management as well as your other workers what YOU think they're worth.

I certainly wish you success in the endeavor.


Jackie @AuburnMeadowFarm said...

Sometimes a situation is more complex than it appears.

Using the CEO of Dean Foods as an example is a poor illustration for several reasons.

I'm all for an open job market and the ability to make whatever you can command.

But, are you aware that the government controls the amount the dairy farmer is paid for the milk?

Dean Foods buys raw milk from farmers at government set prices.

Dairy prices are not meeting production expenses and companies like Dean Foods are obtaining their milk at less than cost.

If the farmer isn't free to set his/her own market, why is it appropriate for Engles' salary to be so outrageous?

Is killing the source that supplies your company really being responsible to shareholders? Only if you want to intentionally drive out the diverse suppliers and create a monopoly....

Maybe Engle should have to personally reimburse the shareholders for the legal fees generated by those leadership decisions.

BTW, I think the article already adjusted the compensation up to 1M for inflation.

Rob said...

Hello Jackie,
I'm afraid I don't see how your point applies.

Dean Foods isn't setting prices,the Feds are, according to what you're saying. So, if there are mandated prices that farmers are forced to sell at, how is Dean Foods to blame for following federal law? Or Engels?

In fact, it appears that the feds may actually be subsidizing dairy farmers, rather than mandating low prices, something a lot more in line with the information I have on farm subsidies.

And I don't understand this bit at all: "Maybe Engle should have to personally reimburse the shareholders for the legal fees generated by those leadership decisions."

What possible 'legal fees' would result from following federal law..if your information about mandated low producer prices is correct which it appears it isn't because of the federal dairy subsidies??


Rob said...

Another point. No one stays inbusiness if th eprice paid for good and services isn't meeting cocts. If, as you claim, the Feds are mandating that you sell your dairy products at below cost prices, why would you stay in business?

And if Dean isn't able to purchase Dairy products to sell because you and other farmers go out of business, how do THEY stay in business?

Are you suggesting that the feds are forcing you to work and there are armed guards posted at the milking machines to keep you at it?

I don't think your argument holds together frankly.