Guest Post: “CEOs at the Nation’s Largest Companies Were Paid Better Last Year Than They Were In 2007, When … Unemployment Was Roughly Half What It Is Today”

Washington’s Blog

CNN Money points out:

Just 22% believe the country is on the right track, Rasmussen tells us. According to a new Gallup poll, more than half of us say the economy is in recession or depression, despite the fact that output has been expanding since the summer of 2009. In fact, more of us (29%) say the country is in a depression than say the economy is growing (27%).

There’s a good reason for this: As inflation surges at the store and the gas pump, the economy is stalling. And the heart of the problem could very well be the Federal Reserve’s $600 billion “QE2” money-printing initiative, which was implemented last November to great fanfare on Wall Street and is set to end in June.


Yes, the stock market has posted impressive gains since the idea of QE2 surfaced….

But stock ownership is concentrated among the wealthy: On average, just 12% of households worth $100,000 or less own stocks and mutual fund shares outside their retirement plans — a group that comprises 74% of the total population. While many more own shares through 401ks and IRAs, they’re not in a position to easily tap that wealth for current spending.

At the same time, QE2 has pushed up borrowing costs, pressing down the prices of homes — a much more widely held asset. The Case-Shiller Home Price Index started falling last summer as the idea of QE2 was floated, and it hasn’t stopped since. The broad 20-city index now sits below 2009 levels.

This is a continuation of trends that have been in place since the recession ended in 2009. According to Credit Suisse equity strategist Douglas Cliggott, it suggests the improvement in net worth during the past two and half years “has been heavily skewed towards that relatively small part of the U.S. population that has significant equity holdings.”

While the program has helped push up the cost of living for all of us — sending inflation into the red zone and damaging consumer confidence — evidence suggests its benefits have accrued only to the top tier of the net-worth ladder.

In other words, the Fed’s “stimulus” has made the rich richer, with limited impact in terms of new spending. It’s made the vast majority of people poorer, and less able to spend. It’s this tradeoff that threatens to snuff out the feeble, three-year-old economic recovery.

And salaries have only gone up for the very top. AP notes:

CEOs at the nation’s largest companies were paid better last year than they were in 2007, when the economy was booming, the stock market set a record high and unemployment was roughly half what it is today.

Indeed, the government’s policies have been geared towards redistributing wealth upwards. See this, this, this, this, this and this.

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About George Washington

George Washington is the head writer at Washington’s Blog. A busy professional and former adjunct professor, George’s insatiable curiousity causes him to write on a wide variety of topics, including economics, finance, the environment and politics. For further details, ask Keith Alexander…


  1. Francois T

    The Fed, Congress and the White House do not really care about the majority of the people.

    As long as the unwashed masses do not raise hell, they’ll stay in hell. And it shall be heaven for the top 1%.

  2. acontra

    I agree that policies have been geared to redistribute upwards, but this article doesn’t make sense. QE2 causing a spike in oil? Why has it also spiked in other currencies as well? QE2 pushing up borrowing costs? How?

    1. Yearning to Learn

      but this article doesn’t make sense. QE2 causing a spike in oil? Why has it also spiked in other currencies as well?

      Because oil is fungible, bought across all currencies.
      I don’t buy for one second that the rise in oil from mid 30s to near $115 was all supply/demand driven.

      Rather, much of it was due to floods of money from the Fed, encouraging speculation in all the commodity markets. (not just oil, but gold, silver, corn, rice, etc etc etc)

      yes, all these markets have supply/demand dynamics that went into their rise… but I doubt highly it was enough to cause what we saw.

      Similar to the housing boom… there were all sorts of supply/demand arguments for why housing was going up 10-50% PER YEAR… but most of it was due to insane access to credit.

      QE2 is but one of many insane policies by the Fed/Govt to increase access to money. This increased liquidity is being funneled directly into the equity and commodity markets.

      pushing up borrowing costs? How?

      as for this point, I agree with you. I have no idea why the author thinks QE2 pushed up borrowing costs. we don’t have counterfactual evidence, but I highly doubt that withdrawing QE2 will lead to a LOWERING of mortgage rates.

      QE2 is focused on the longer end of the curve.. and in doing so it raises Treasury prices which drops their yield. Most mortgage products are based on the 10 year treasury (or LIBOR), and thus QE2 in theory will drop mortgage rates. (neglecting risk premia etc on top of benchmark index.)

      1. Stelios Theoharidis

        Push up borrowing costs? I will try to take a stab at this because I think that they may be separate but potentially linked phenomena. QE2 has lowered interest rates, to the detriment of fixed rate products (hitting the elderly particularly hard) and to the benefit of larger corporate and financial actors.

        To small businesses and home owners the cost of credit is as much of an issue as is the availability of it. There has been a big slow down, particularly in the latter case due to a glut in that market, housing price declines, and a higher rates of unemployment in that cohort. Larger financial actors have taken a trouncing on homes loans, small business loans, and credit cards. So they have passed that on to the consumers of these loans in higher rates and fee structures. QE2 has probably failed to abate that rise in general. Higher rates, associated fees, increasing unemployment, rising costs, have probably created a feedback loop that is creating more deliquencies.

        Now if these large financial actors funnel that reduced cost credit into speculative behavior, into commodities in particular, that would increase costs for consumers and businesses that would push that feedback loop, forcing more of the vulnerable off the precipice and into deliquency, thus increasing costs of consumer credit due to financial actors trying to keep their small business and consumer credit businesses profitable.

        Higher consumer costs (QE2 speculation) = more consumers and businesses in the red = more failures in business and consumer lending = higher costs of credit to asborb all those loses.

        Its possible but I don’t know if everything would respond that quickly. Businesses could probably increase their prices due to increased costs, but it would just push down demand for their goods and services further because of the predicament that consumers are in.

  3. Lurker

    Sorry GW but you’re only allowed to say “redistributing wealth” when speaking about taking from the rich and giving to the poor. When taking from the poor to give to the rich you must use a more favorable word like “stimulus” or “quantitative easing.”

    1. Carla

      Actually, in the U.S., any “distribution” of “wealth” toward those who actually need it is called an “entitlement.”

      It is ironic (or perhaps I should say diabolic) that even those who say they favor such distribution have completely bought into applying the term “entitlement” to Social Security, Medicare and Medicaid. Yes, I’m referring to “Democrats.”

      The wealth of the country has already been redistributed to those who have proven themselves to be truly “entitled”: the top 1%.

      Another 10% at the top of the heap are salivating at the idea of becoming entitled enough to join that top 1%.

      So it’s just up to the other 90% of us to change this. Oh, boy. Think we can do it?

      Well, throughout history, peasants the world over have had a very tough time overthrowing their ruling classes. But some of them have managed to do it.

      Could we?

  4. skippy

    When you go from multiples of 40ish times over median wage (80s) for tier one executives to 300ish (present), with in a few decades, the problem is not one of fiscal / monetary disparity, its of fiat oxygen.

    SCOTUS decided to give fiat a voice and those that create it for those that weld it (duplicitous relationship), are inhaling with the lungs of a free diver. The gurgle off the Fed bong by the 500 club reverberates a cross a Republic, Bogart’s (don’t like to share).

    Skippy…a fist full of dollars vs. vaults of…vote your hearts out, then suck it up.

    1. lambert strether

      Skippy: I think it makes sense only to invest in parallel structures, and that includes voting.

      The Ds are doing their level best to decapitate the local activists once again by decoying WI and OH activists, at least of the left, back into the “progressive” roach motel, but for the sake of us all, we can only hope that the Ds do not repeat the success of 2008…

  5. Yearning to Learn

    Of course CEO compensation is up despite an increase in unemployment.

    not sure how to order my thoughts

    the basis of this argument is that CEO compensation should be tied to the general economy, and the general economy is reflected by unemployment figures. I agree that this is the way life “should” be, and it was the way life was decades ago.

    however, what these figures show us is that
    1) CEO compensation is no longer related to the state of the general economy (or even the performance of a specific company)
    2) CEO compensation is not related to unemployment the way we think.

    to expand:
    1) CEO’s have perverse incentive structures now. Their compensation is self-created by captive Boards. As we have seen time and time again, CEO’s often times make MORE money when their companies are FAILING compared to when the company thrives. (“now that the company is failing, we need to pay more to retain talent!”)
    Looking at a chart of CEO compensation since 1975 you see that it just marches upwards almost every year, with only the briefest of pause (or retracement) with recessions.

    IMO CEO compensation is related to other CEO compensation and nothing more. Every CEO goes every year and says “that other CEO made $X million last year so I need $X + Y Million this year”

    it’s a virtuous cycle for CEO compensation forever!

    as for unemployment… remember “To the spoils, go the Victor”.
    If a CEO can head a company that makes a certain amount of revenue, s/he must pay employees first and other bills… then s/he gets compensated based on the remaining cash…

    but if that CEO can “rightsize” his or her company and half the number of employees and make them work 3 times as hard… (it’s a recession, people are desperate)…

    well geez, now overhead is much lower. BONUS!

    so a CEO is heavily encouraged to lay off/fire. sorry… to “right size” or whatever the stupid colliquialism is these days.

    so unemployment = increased CEO compensation.

    god forbid an evil union should get their hands on the employees… that raises costs and then the CEO only gets a small increase in pay as opposed to a mammoth increase.

    obviously this system only works if there is debt for the masses…
    because as the CEOs and Banksters will soon find out, without a middle class there is nobody to buy their products to give them revenue.

    however, it will be a LONG time before they figure out this lesson. First they have to wipe out the middle class. then turn on each other. then maybe they’ll figure it out. after a war or two.

    1. Greg

      Ah, yes, the fall of the Republic and the rise of Caesar.
      Who shall the huddled masses pledge their allegiance to, those who haven’t been bought or sold into slavery?

      It’s enough to warm the cockles of any fundamentalist Christian’s heart. They never really were for ‘democracy.’ Always for the ‘Kingdom of Heaven.’

      Won’t take our masters so long to sort it out, though. In these modern times things move fast.

      And after that?

  6. brian

    Zimbabwe Ben, Summers and Geitner are to Obama what
    Cheney and Rumsfeld were to Bush

  7. F. Beard

    Without the government enforced counterfeiting cartel, the banking system, to borrow from, then corporations might easily have been forced by competitive pressures to pay their workers with common stock.

    Instead, the jobs of the workers have been automated and/or outsourced with their own stolen purchasing power.

    It all goes back to the inherently crooked money system, the root of very many evils.

  8. rd

    One of the reasons for the rise in CEO pay due to improved bottom line is this article in today’s WSJ:

    If you don’t actually have to provide the retirement benefits that you have been telling employees they will get, it sure makes it a lot easier to retain employees during their working years while reducing your costs when they retire. That is a sure-fire recipe for improved bottom-line results.

    Any detailed company benefit document that I have ever seen is almost total legal gibberish based on compliance with the various and numerous laws that now appear to be designed more to protect companies than employees. For the Supreme Court to allow the companies to misinterpret their plan documents for years to employees and then expect the employees to understand the details of documents that are normally difficult to get out of the HR department means that the US government is continuing its long-term trend of abandoning the US worker.

    I am a big fan of my 401k as I know that it is mine when I leave a company. The company that I work for doesn’t provide a pension or promise health care benefits during retirement, so I know that I am on my own with whatever I save and the company contributes that is vested. I think that anyone who is planning on their public or private pensions as their entire retirement package with little or no savings could be in for a very rude awakening.

    The past couple of years should have made it clear to the powers that be that apparent political stability can be quite illusory. We are probably much closer to bonus army marches than most politicians and CEOs think.

  9. F. Beard

    It is interesting that progressives and liberals appeal to what is “fair” while completely overlooking what is dishonest; the money system.

    It seems their desire for collectivism trumps their desire for honesty. What else could it be?

      1. Carla

        Oh, dear, not totally…the “progressives” don’t want to be a collective…they just aspire to the top 1%, or at the very least, the top 10%, of the heap.

        But you’re absolutely right that until we deal with money system, we’ll never get anywhere.

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