Amid the mounting hardships and income stagnation faced by tens of millions of Americans, a relative handful of individuals enrich themselves with unfathomable amount of money — just for retirement alone.
According to Bloomberg News:
The retirement savings accumulated by just 100 chief executives are equal to the entire retirement accounts of 41 percent of U.S. families — or more than 116 million people, a new study finds.
In a report scheduled for release today, the Center for Effective Government and Institute for Policy Studies found that the 100 largest chief executive retirement funds are worth an average of about $49.3 million per executive, or a combined $4.9 billion. David C. Novak, the recently departed chief executive officer of Yum! Brands Inc., is at the top of the list, with total retirement savings of $234.2 million.
In recent years, pay and income inequality across different income groups have received increasing attention in the U.S. Significantly less attention has been focused on the growing gulf in retirement savings, a lack of focus that the study’s authors say they are attempting to address.
“This CEO-to-worker retirement gap is a lot bigger than the pay gap and one more indicator of the extreme level of inequality that is really tearing the country apart”, said Sarah Anderson, the report’s co-author and the global economy project director at the Institute for Policy Studies.
And in the usual tragicomic fashion all too common of big business in America, the companies leading the way in excessively enriching their executives are often those taking the diametrically opposite approach with average employees (namely new hires).
Some of the chief executives with the biggest retirement stashes are at companies that have cut retirement benefits for new employees.
Leucadia National Corp., the holding company that owns investment banking firm Jefferies Group Inc., last year cut by half its matching 401(k) contributions for employees hired after January 2014. Those hired prior to that date receive a match of as much as 3 percent of employees’ income; new employees get a match of up to 1.5 percent. Leucadia CEO Richard B. Handler ranked second on the list of biggest retirement assets among executives, with $201.3 million. Except for a $219,739 pension benefit, all of the assets are deferred compensation.
“Mr. Handler does not have a retirement package, golden parachute, or even an employment contract,” said Richard Khaleel, a Leucadia spokesman. “Mr. Handler has voluntarily deferred most of his cumulative compensation over the past 25 years and kept the vast majority of that deferred compensation invested alongside shareholders of Jefferies and, now, Leucadia, in those companies’ common shares. With the exception of charitable donations and tax-payment sales, Mr. Handler has never sold a share of Jefferies or Leucadia.”
Yum Brands, which owns KFC, Taco Bell and Pizza Hut, used to offer pensions to most workers but eliminated that option for employees who joined after 2002, replacing it with 401(k) plans.
So while most companies continue to shirk investing in their workforce — through job training, better pay, and benefits — they are allocating an incredible amount of funds towards giving executives more money than they could possibly know what to do with for their waning years.
Unsurprisingly, this trend is reflective of the wider growth in inequality between a small class of owners, managers, and investors, and everyone else.
For many chief executives, the bulk of their pay often used for retirement comes from deferred compensation plans that permit executives to set aside salaries and bonuses on a pretax basis, with no limits. Lower-paid employees with 401(k) accounts can only set aside $18,000 a year and an additional $5,000 if they’re 50 or older. Many companies offer different investment options to executives for their deferred compensation plans than those offered to 401(k) participants.
In addition to deferred compensation plans, about 30 percent of Fortune 1000 companies in 2013 offered supplemental executive retirement plans, usually calculated by multiplying years of service and the average pay earned during executives’ final years of service.
These benefits weren’t originally intended to be huge wealth generators but they’ve become that as CEO compensation has grown to 200 to 300 times what average workers make,” said Gary Hewitt, director of governance research at Sustainalytics in Amsterdam, which provides research to investors. “They’re harder to justify as companies have abandoned worker pensions.”
I can see neither a moral nor practical justification for aggregating such vastly disproportionate resources towards the retirement of a handful of corporate employees. Sure, give the executives a hefty salary and pension — but tens of millions of dollars, while so many other people on the payroll barely scrape by? What good will that do for worker morale and long-term productivity?
Of course, such questions assume a rational basis for these business decisions, rather than crass short-term considerations that benefit the few at the top.