It’s the weekend, and a good time to take a closer look at some recent newsworthy developments that should be of at least fringe interest to 401(k) advisors.
In this edition of weekend random notes, we touch on the CEO pay issue and whether a new “Purpose of a Corporation” will really make a dent (and what Bernie has to say on CEO pay); BlackRock’s recent huge investment in Sports Illustrated’s owner; why pension obligations eat up such a large portion of education dollars in Illinois; a big rise in cyberattacks on financial services companies; and finally, a whacked-out pipe dream of a plan in Pennsylvania one state lawmaker wants to inflict on retirees.
Have a great weekend!
– Brian Anderson, Managing Editor, 401(k) Specialist
CEOs earn 278 times more than employees
On Aug. 19, the Business Roundtable unveiled its new “Purpose of a Corporation” statement, marking a dramatic departure from the long-held mantra that corporations exist principally to serve shareholders, and must now also invest in their employees, protect the environment and deal fairly and ethically with suppliers.
If these large, prominent corporations were actually to take these new principles to heart and put a greater emphasis on the overall wellbeing of employees, it would indeed mark a dramatic departure from recent history.
It comes as little surprise that a recent Federal Reserve Bank of St. Louis analysis found corporate profits have far outpaced employee compensation since the early 2000s. Companies are paying employees less and outsourcing more or hiring workers as contractors; and also have prioritized shareholders over employees. Their focus has increasingly been to demonstrate corporate efficiency and return value to shareholders.
And will the new “Purpose of a Corporation” have any impact on what has been an ever-widening gap between CEO and employee compensation?
The median pay of CEOs of companies in the S&P 500 index who have been in their job for at least two years jumped from $9.6 million in 2011 to $12 million last year. To earn as much as the CEO, a typical employee at most big companies in 2018 would have to work for 158 years.
An Aug. 14 Newsweek article notes that CEOs at America’s 350 top public firms earned 278 times more than their typical employee in 2018, according to a new study from the Economic Policy Institute.
The study emphasized the widening gulf between compensation given to employees and CEOs at the country’s top firms. While inflation-adjusted CEO compensation has risen 940% since 1978, worker compensation had only increased 11.9%, the report said. Its findings highlight the decades-long bifurcation of CEO and employee pay, which in 1965 was at a much lower ratio of 20-1.
“The American people are sick and tired of corporate CEOs who now make 278 times more than their average employees, while they give themselves huge bonuses and cut back on the healthcare benefits of their employees,” Vermont Senator and 2020 presidential candidate Bernie Sanders told Newsweek recently.
“We need an economy and a government that works for all of us, not just the top 1%. That means, among other things, raising the minimum wage to at least $15 an hour, making it easier for workers to join unions, guaranteeing healthcare as a right, and demanding that the wealthiest people and most profitable corporations pay their fair share of taxes,” Sanders said.
In June, an AFL-CIO report said that America’s 60 largest companies paid $0 in federal income taxes last year.
BlackRock’s $875M bet on Sports Illustrated backer
BlackRock, the world’s largest asset manager, is now the biggest shareholder in Authentic Brands Group (ABG), after agreeing to invest $875 million in a deal that reportedly values the brand management company at more than $4 billion.
ABG owns Sports Illustrated, Nine West, Aeropostale, Juicy Couture and dozens of other brands, plus the likenesses of celebrities including Elvis Presley, Muhammad Ali and Shaquille O’Neal. The company generates nearly $10 billion in annual revenue from its portfolio of brands spanning over 70 countries.
“BlackRock’s scale, global footprint and digital capabilities will enable us to build out our organization and continue our domestic and international growth trajectory,” ABG CEO and founder Jamie Salter said in a press release.
The deal, which closed on Aug. 9, marked the first investment for BlackRock’s inaugural Long-Term Private Capital fund, a private equity vehicle that’s expected to hold companies for at least 10 years. BlackRock announced back in April the new fund was ready to start investing after securing $2.75 billion.
Media coverage of the deal noted some analysts think the new fund could change the landscape of private-equity investing. Most private-equity funds are expected to generate relatively short-term returns for investors through a buyout or public listing. But the Long Term Private Capital fund will provide “long-term private ownership” for “strong, stable companies,” the fund’s managing director André Bourbonnais said in a statement in April.
36% of Illinois education spending goes to pensions
According to an Aug. 20 article by the Illinois Policy Institute, 36 cents of every dollar the state allocates to education this year will bypass the classroom to cover required pension payments for retirees.
This represents a 200% increase in spending on teacher pensions since 2000, compared with a 20% increase on classroom spending during that period.
The article says this massive growth in pension spending is especially concerning for younger teachers new to the workforce and parents with children enrolled in public schools, whose needs will be put on the back burner to make room for rising retirement costs.
Since 2010 alone, spending on educators’ pensions more than doubled, jumping to over $5 billion from less than $2.5 billion. Classroom spending, meanwhile, grew modestly to $8.8 billion from $8.5 billion.
Cyberattacks against financial services firms up 56%
There has been a 56% year-over-year increase in digital threats targeting the financial space, according to ZeroFOX’s “Financial Services Digital Threat Report 2019,” released Aug. 14.
Researchers scanned 2.9 billion pieces of content and found more than 8.9 million security events in a 12-month period. Brand abuse and manipulation was the most common threat, and 90% of those involved name impersonations, often not easily detected due to disguising tactics.
Financial services firms are more prone to corporate social media account takeover, researchers found: Attempts occur nearly 30 times per year on average for each company. Each executive is hit with an average of four credential compromises per year, 2.3 of which stem from breached databases. Each financial services company has an average of 30 targeted execs.
Fraud made up 40% of all cyberattack activity against financial services firms, and 75% of those scams occurred on mobile apps and social media. Researchers also discovered 489 fake mobile apps.
Pennsylvania lawmaker wants to tax retirement income
A Pennsylvania state house lawmaker wants to slap a nearly 5% tax on all retirement income except Social Security in an effort to slash the state’s reliance on school property taxes, according to an Aug. 20 report on public broadcaster WITF.
Republican Representative Frank Ryan acknowledged his still-unintroduced property tax elimination plan would be a big, difficult pill for the commonwealth to swallow.
“This is not going to be an easy sell,” he said. “It’s controversial. It’s never been done before.”
Along with the retiree tax, Ryan’s plan would assess a 1.85% local personal income tax and a two percent local sales levy, which would extend to food and clothes.
Berks County GOP Senator David Argall, the head of the Senate Majority Policy Committee and one of the state legislature’s key voices on property tax elimination, has said Ryan’s retiree tax is politically unfeasible and “very, very unpopular with the people that I represent.”
Per WITF, Ryan said he has been busy shopping his proposal around to his own constituents—particularly retirees, without whose support he said the bill will crash and burn.
That support currently stands at about 50% percent, he estimated. Retirees who live solely on Social Security tend to back it, and those with pensions or equivalents do not.
“Never would I have designed a system from scratch that looks like the bill I’m proposing,” he said. “But I didn’t design the system that I have to fix.”
More offbeat content:
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- Weekend Wackiness: Lottery Retirement Plans, Dave Ramsey Fanatics and More
- Holiday Weekend Wackiness: Apocalyptic 401k Fears, Anderson Cooper and More
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
