4-17-06, 9:08 am

When I was a freshman at City College in NYC in 1962, we were given an assignment by a political science professor to interview someone involved in partisan politics. While some of my fellow student interviewed various third party and radical candidates, I went to the Jackson Avenue Democratic Club, a cog in the political machine in the Bronx and interviewed the club vice president. He was a pleasant older gentleman who told me that the Bronx County Democratic Committee elected the US congressman and machine boss Charles F. Buckley as its chair. When I asked who elected the Bronx County Committee, he said, 'The Honorable Charles F. Buckley.'

I thought of that event while reading an article in the New York Times about how CEO pay works. Verizon CEO Ivan Seidenberg received $19.4 million in salary, bonuses, stock options, etc., while the value of Verizon stock dropped 26 percent. This didn’t bother me too much, because I don’t own stock in anything except what the people who manipulate my pension buy.

However, I, like millions of other former and ongoing Verizon customers, watched my phone bills rise sharply for local calls while a deregulated Verizon got into Internet, cell phones, TV, etc., making us pay for both their investments in the new technologies and their discounts to new customers for relatively expensive services.

As an historian, I saw in this a throwback to the unregulated railroads of the 19th century, which sharply increased charges for small local shippers while providing discounts for big shippers and those sending expensive goods over long routes. These practices helped create the Populist movement and stimulate regulatory reforms that reigned in railroad magnates like Cornelius Vanderbilt and Jay Gould who were called 'Robber Barons.' Over the last generation, these reforms have been largely sacrificed before the right-wing’s 'holy trinity' of detaxation, deregulation and privatization that has informed economic faith and policy in the US, Britain and to a lesser extent other major capitalist countries since the beginning of the Reagan-Thatcher era.

Vanderbilt, Gould, et al saw themselves as owners with partners and subordinates rather than 'salaried employees' like Seidenberg with 'human resources' consultants and public relations people. 'Human resources' for the older Robber Barons, if they could have conceived of such a thing, meant the workers who was as much a resource as iron ore or crude oil.

The corporate-bureaucratic system was young then (not better, but less developed), and they had no 'committees' to recommend 'compensation.' Seidenberg does however, and his committee recommended what was in effect a 48 percent increase in his 'compensation' based on his meeting 'challenging' performance benchmarks, a corporate-bureaucratic term with a conveniently vague definition.

While the old Robber Barons divided up markets and spoils, they didn’t sit on each others compensation committees and literally have one hand grease the other. They might have seen that as a bit wimpy, since they liked to think of themselves in terms of what Herbert Hoover later called 'rugged individualism.'

Furthermore, Gould and Vanderbilt did not have 'outside consultants' to provide information to compensation committees, as Verizon has Hewitt Associates, which, according to the press, provided the information that gave Seidenberg his 48 percent raise while earnings dropped 5.5 percent along with the 26 percent drop in stock prices. Hewitt Associates, originally started as an accounting firm in 1940, operates in 31 countries and 'earned' $2.8 billion in revenues in 2005, 71 percent from its outsourcing of actuarial and financial services abroad. In effect, it raises the pay of top executives here (and perhaps abroad), while it outsources good-paying professional jobs.

Of course, Vanderbilt (and other companies like it) routinely bribe people. They had boards of directors in which prominent individuals were given stipends to serve as fronts for their activities, and over time 'interlocking directorates' which enabled them to connect disparate firms and purchase political protection from both anti-monopoly movements and regulatory legislation.

Today, the 'interlocking directorates' often function among chief executive officers (called also by the military term 'captains of industry' in the 19th century) who sit on corporate compensation committees and vote each other large pay raises. For example, Seidenberg formerly sat on the board of Wyeth and helped set the pay for John L Stafford, the former CEO of Wyeth who now sits on the compensation committee that sets Seidenberg’s pay. There are CEOs from Honeywell and other corporations who interact with Seidenberg as they sit on his board and he sits on theirs.

In the US, powerful local politicians often receive large fees for serving as consultants or board members for banks or corporations with whom their towns, townships or counties do major business. University presidents often follow this model by both sitting on various corporate advisory boards for fees and having businessmen who do extensive business with their universities sit on their governing boards, 'vote' them large salary increases, give them enormous expense accounts, and sometimes, houses and condominiums for their personal use.

In our 'deregulated' 21st century capitalism, this is reminiscent of what the colorful nineteenth century Tammany Hall Ward healer, George Washington Plunkitt called 'honest graft,' that is, seeing your opportunities and taking them in contracts and franchises.

Even by Tammany’s Boss Tweed’s standards, though, the 'honest graft' of today is pretty spectacular. Hewitt Associates, for example does extensive business with Verizon and has received over $500 million in revenue from the corporation over the last decade. Individual consultants are often paid as much as $950 an hour and their identities under present SEC rules don’t have to be disclosed. (Boss Tweed in the 1870s 'paid' on the books hundreds of thousands of dollars to unknown carpenters as part of a truly legendary courthouse construction embezzlement, but even he even then ended up fleeing the country and later being extradited and sent to jail.)

The New York Times also interviewed business leaders and analysts who are critical of the system. One independent analyst mentions that Verizon has poured over $6 million in Seidenberg’s retirement package while it has retrenched benefits for its staff. Some corporate leaders, including Warren Buffet, one of the world’s richest men, sneer at the transparent dishonesty of all of this. Despite this criticism, it is as doubtful that corporate leadership can 'self-regulate' what is essentially a form of insider trading.

The corruption is breathtaking and further evidence that monopoly capitalism is in deep decay. The higher up one goes in the corporate leadership, the less rational and the less 'professional,' in the narrow sense of people performing tasks honestly according to recognized rules, big business becomes.

Many corporate leaders cited in the article repeat the old refrain that CEO pay packages are set 'by the market' in a global economy, a claim as rational as John D. Rockefeller’s 19th century comment 'God Gave Me My Money.' To be fair to Rockefeller, he exploited and oppressed workers to create, concentrate and expand a corporate financial empire that he identified with progress and order, not to contract and 'outsource' industry while engaging in managerial looting for himself and his board members and consultants.

In a socialist society, the chief administrators of the 200 largest firms would not have a median compensation of $8.4 million, the going rate for the top 200 CEOs. Administrators would be rewarded for their ability to improve the quality of their products, increase the skill and remuneration of their work force and raise general living standards in society. The incomes earned by administrators would be many times closer to that of the work force than in US capitalism today. The incomes of administrative and technical and professional employees would be far less skewed. Lower and middle administrative personnel would benefit from real productivity, quality improvement and economic growth, not stock price manipulation and paper profits while CEO’s and top managers line their pockets at the expense of crippled pension plans for workers.

We are a long way from a socialist society, of course. But a policy re-regulation, progressive taxation and public sector restoration might get us back on the track of reducing income gaps, which were reduced from the 1930s to the 1970s, at the height of regulation.

Secretary of the Treasury John Snow was recently quoted as saying that the pay of top executives 'in an aggregate sense, it reflects the marginal productivity of CEOs.' Ironically, this statement shows the level of understanding, responsibility and accountability of the highest official dealing with questions of the economy in the Bush administration. I would reply with this adaptation of the wisdom of Woody Allen, a leading 'very post Keynesian thinker: 'in the aggregate sense, it reflects the marginal propensity of CE0s to take the money and run.' And it is money taken from reduced general wages and social benefits with which they are running.



--Norman Markowitz is a contributing editor of Political Affairs and may be reached at