Richard Kirsch

Roosevelt Institute Senior Fellow

Recent Posts by Richard Kirsch

  • CEO Performance Pay is Bad for Everyone Except CEOs

    Jun 5, 2014Richard Kirsch

    Executive compensation is soaring while workers and taxpayers feel the squeeze. A new Roosevelt Institute white paper explains why.

    Executive compensation is soaring while workers and taxpayers feel the squeeze. A new Roosevelt Institute white paper explains why.

    Americans hate the fact that CEOs of big corporations keep raking in millions while the incomes of most American households are sinking. Now a new Roosevelt Institute white paper by University of Massachusetts economist William Lazonick adds to the growing case that soaring CEO pay is not just unfair, but harmful. It’s bad for businesses, workers, and taxpayers, and it’s one of the reasons that the economy remains sluggish.

    Lazonick details the myriad ways that CEOs pump up their wages, painting a picture of crony capitalism in the board room and at the SEC. CEOs pad their boards of directors with other CEOs, who are all eager to hike each other’s pay. They hire from the same pool of compensation consultants, who then recommend to all of their boards why each of them deserves to be paid more.

    Almost all executive pay, which was back to its pre-recession average high of $30 million a year by 2012, is delivered in the form of stock. This exploits a policy loophole that taxes compensation of more than $1 million unless it falls into the category known as “performance pay.” Meanwhile, the CEOs and their teams of lobbyists and lawyers have gotten a compliant SEC to issue a host of rulings that invite stock price manipulation. The resulting higher prices are considered proof of better performance, and also instantly deliver millions to the CEOs through their stock options. Very neat. 

    Lazonick explains that corporations’ favorite method of boosting stock prices is buying back their own stock. While a firm is required to notify the public of its intention to buy back its stock, it doesn’t have to say when it will do so, which fuels price-boosting speculation and allows the firm to time its repurchases to maximize the CEO’s gains.

    The justification given by economists for stock-based performance pay is that corporations should be run to maximize shareholder value, and paying CEOs in stock aligns their performance with the purpose of their firm. But as my business school finance professor told a shocked classroom of my fellow students, the economic purpose of the firm does not have to be maximizing value for shareholders. The firm could just as easily be dedicated to maximizing the value for workers or communities or society at large.

    Lazonick’s version of this fundamental critique of corporate capitalism is that it is not only shareholders who have an investment in a corporation. Taxpayers invest in corporations through the public infrastructure and educated workforce corporations depend on. Workers invest through their contributions to corporate innovation. Taxpayers and workers lose if the corporation’s core economic performance – as opposed to the price of its stock – declines. The result is fewer people working, less tax revenue, and diminished community life. But CEO pay just keeps going up regardless.

    Lazonick argues that the CEO focus on stock buybacks has distracted them from investing in innovation to sustain their companies over the long run. It may also be true that in the absence of consumer demand, the CEOs see no better use for excess cash than to reward themselves and shareholders. But in fact, the stock market focus of U.S. industrial corporations, which has eroded middle-class wages and employment, is a big reason for lower domestic consumer demand. In contrast, Lazonick points out that Apple, which did minimal buybacks from 1994 through 2011, found no lack of consumer demand for its innovative products.

    The alternate economic paradigm laid out by Lazonick is to reward workers and taxpayers for their investments in a firm. That would not only be more just, it would also move the economy forward. If workers got paid more, it would increase consumer demand. The government could use the taxes collected to create jobs that would enhance infrastructure, improve education, and strengthen community services, all of which would add directly to economic progress. And innovative companies would benefit from tax-supported government spending and motivated, experienced workers.

    Lazonick lays out steps the SEC could take to reduce the use of buybacks to manipulate stock prices. He would also give workers significant representation on corporate boards. That makes great sense in theory, but would only work if we first dramatically strengthen labor law.

    Taxpayers would benefit from legislation proposed in both the House (HR 3970) and Senate (S 1476), which would close the performance pay loophole and cap the deductibility of CEO compensation at $1 million. That would increase federal tax revenue by several billion dollars a year. But even if all that money were invested in job creation, it would not be enough to generate the kind growth we need to spur significant demand. I think it would be unlikely to decrease compensation much either. It is more likely that corporate boards would consider the taxes part of the cost of doing business rather than reduce pay for their fellow conspirators.

    All of which is to say that, as with so many issues related to the core problem facing our economy – the concentration of wealth among a select few – it will take a seismic political shift to enact the kind of policies we need not only to limit CEO pay, but to build an economy driven by broadly shared prosperity. 

    Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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  • Working Families Party Endorsement of Cuomo Shows Progressive Political Power

    Jun 3, 2014Richard Kirsch

    If the goal is to achieve real progressive change that improves lives, then New York Governor Cuomo's deal with the Working Families Party is on the right track.

    It would be a mistake to think that the New York Working Families Party's endorsement of a Wall Street, austerity Democrat – Andrew Cuomo – is a defeat for the surging progressive wing of the Democratic Party. In fact, just the opposite is true. The endorsement was a demonstration of how to build power to do what progressive politics is ultimately about: delivering real improvements in people’s lives.

    If the goal is to achieve real progressive change that improves lives, then New York Governor Cuomo's deal with the Working Families Party is on the right track.

    It would be a mistake to think that the New York Working Families Party's endorsement of a Wall Street, austerity Democrat – Andrew Cuomo – is a defeat for the surging progressive wing of the Democratic Party. In fact, just the opposite is true. The endorsement was a demonstration of how to build power to do what progressive politics is ultimately about: delivering real improvements in people’s lives.

    Up to 24 hours before the WFP’s Saturday convention, it looked like the Party would nominate Zephyr Teachout, a law professor and activist leader in the fight to reverse Citizens United and enact robust public campaign financing, who ran Howard Dean’s breakthrough online organizing and fundraising campaign for president. Public opinion polls taken earlier in May showed that a progressive WFP candidate could get more than 20% of the popular vote, radically shrinking Cuomo’s victory margin and his quest to demonstrate nationally that he would be a credible candidate for president.

    That threat forced Cuomo to agree to make a u-turn in the way he has dealt with the New York State Senate and to agree to push for the passage of six very important progressive priorities in the legislature. After Cuomo, looking to me like a cornered man, made those pledges by video and phone to the WFP convention, a majority of delegates (58 percent), including me – I’m a member of the WFP State Committee – approved his endorsement.

    Cuomo’s key concession was to end his support for the coalition between Republican state senators and a handful of breakaway Democratic state senators, which effectively had maintained Republican control of the State Senate. With the exception of a brief period four years ago, Republicans have controlled the New York’s State Senate for decades, blocking an Empire State Building-high pile of progressive bills passed by the State Assembly.

    Cuomo agreed to join New York City Mayor Bill de Blasio and New York unions active in the WFP – including SEIU, New York City’s United Federation of Teachers, CWA, and UAW – to create a well-funded campaign to elect Democrats and to run primaries against any Democrats who do not agree to fully support Democratic control of the state senate.

    But what swayed my vote and the vote of other delegates is the specific package of legislation that Cuomo agreed to push for, should the campaign be successful in putting Democrats in control of the Senate.

    One is immediately raising the minimum wage in New York to $10.10, indexed to inflation, and agreeing to allow local governments to raise wages 30% higher. Cuomo has been strongly opposed to giving local governments the authority to do that. This alone is a huge victory for the fast-food workers’ movement, which originated in the city, as there is little doubt that Mayor de Blasio and the progressive City Council majority elected with him will quickly take advantage of their new power if given the opportunity.

    A second bill would decriminalize marijuana. New York would become the first state to do so legislatively, rather than by referendum. Given the huge racial imbalance of pot arrests in the city, which continues to ruin the futures of generations of young Black and Latino men, this is an enormous step forward for racial justice and against mass incarceration.

    The New York Dream Act is on the list, which would provide tuition assistance to DREAM kids, aspiring immigrant college students who were brought to the United States as children. The Governor also committed to support funding of 100 community schools in low-income communities outside of NYS, which provide social, health and emotional services and act as community centers. Mayor de Blasio will support funding another 100 in New York City.

    Another bill is the Women’s Equality Act, with ten provisions including one that the Republican controlled State Senate has opposed – codifying the right for women to determine whether to have an abortion. The Act would includes measures on promoting pay equity, stopping sexual harassment, preventing pregnancy discrimination in all workplaces, strengthening human trafficking laws, bolstering protections for domestic violence victims, and ending family status discrimination.

    Last but absolutely not least is finally a robust small-donor public financing bill for statewide and legislative races. In the long run, if this becomes law, it will be the most significant part of the agreement. As Mayor de Blasio pointed out in his speech urging the WFP delegates to give Cuomo their votes in return with this agreement, he could not have been elected mayor without the New York City public financing law, which is the model for the state bill.

    De Blasio began his remarks reminding the WFP delegates that he had been a founder of the Party. De Blasio brokered the deal between the WFP and the Governor, saying that he could not deliver on a progressive agenda in New York City unless Democrats gained control of the state senate.

    The delegates who voted for Teachout were motivated by two factors, which were shared by almost everyone who attended the convention. One is a strong distaste and distrust for Cuomo. The second is the heartfelt pull to vote for Teachout as a candidate who shares our values and worldview. Particularly in the context of the national debate within the Democratic Party over whether it will become the Party of Elizabeth Warren and Bill de Blasio, this was a powerful attraction for Teachout’s candidacy.

    As those of you who follow my writing know, I work a lot on helping progressives promote our ideology, our worldview. As such, you might have expected me to decide that Teachout’s campaign – which would have given voice to that worldview – would have been where I stood. But for me, the reason I focus on changing worldviews is not just because I want people to agree with us. It is because when people share our worldview, they are much more likely to support candidates and policies that deliver on our core beliefs.

    For me, this is the ultimate purpose of politics: to enact laws that deliver concrete improvements in people’s lives, that help them care for and support their families and live in dignity, that protect us and our planet.

     

    On Saturday, WFP used its political muscle – built through a 16 year process of organizing, coalition building, and electing progressives to higher and higher offices – to take what could be a game-changing step in New York to winning real improvements in people’s lives and making it possible for candidates in New York to win office without relying on big campaign contributions. That’s what political power should be used for. And like any muscle, using it just makes it – and in this case progressive political power – stronger.

    Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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  • The Minimum Wage Index: Why the GOP's Filibuster Will Hurt Workers

    May 2, 2014Richard Kirsch

    Opponents of a higher minimum wage claim it would have a negative impact on the economy and workers. The numbers tell a different story.

    Opponents of a higher minimum wage claim it would have a negative impact on the economy and workers. The numbers tell a different story.

    This week, a minority of United States senators blocked a bill to raise the federal minimum wage to $10.10 per hour from coming to a vote, overruling the 54 senators who supported the bill. If the bill had passed, it would have been only the fourth time the minimum wage was raised in the last 30 years. The Republicans who led this filibuster effort will claim a higher minimum wage would hurt the economy, but don’t let them fool you: American workers are the ones left hurting as a result of their actions. Here are the real dollars and cents of the minimum wage debate.

    $7.25: The current federal minimum wage, established in 2007.

    725%: The increase in CEO compensation from 1978 to 2011.

    $10.86: How much the federal minimum wage would be if it had kept up with inflation over the past 40 years.

    $21.72: How much the federal minimum wage would be if it had kept up with productivity since 1968.

    $16.62: The hourly wage needed to meet the basic needs of an average person.

    $32.19: The hourly wage needed to meet the basic needs of one adult with two children in Philadelphia.

    $2.13: The federal minimum wage for tipped employees, established in 1991.

    $5,915,186: Average net worth of U.S. Senators who blocked a vote on the minimum wage. 

    Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

    Image via Thinkstock

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  • Post Office Piles on Shift to Low Wage Economy with Staples Deal

    Apr 29, 2014Richard Kirsch

    The U.S. Postal Service is making changes that will add low wage jobs to our economy, rather than the middle-class jobs it's known for that we really need.

    The U.S. Postal Service is making changes that will add low wage jobs to our economy, rather than the middle-class jobs it's known for that we really need.

    The National Employment Law Project (NELP) has just come out with its latest report on the wage-levels of jobs added as the nation has emerged from the Great Recession. As with NELP’s previous reports, which continue to garner national attention, the news was pretty simple: we’re only adding low wage jobs. Some 1.85 million more low-wage workers – defined by under $13.33 an hour – are employed by low-wage industries now then in 2008.  About the same number, 1.93 million workers – fewer workers are now employed in mid-wage and higher-wage industries. 

    The U.S. Postal Service has historically been one of those higher-wage industries, with average pay just under $25 an hour. For generations, postal jobs have been a ticket to the middle-class, including as one of the few employers who hired African-Americans at good wages earlier in the 20th Century.  But the post office is accelerating a new strategy to increase sales and shed labor costs by opening up mini-post offices at Staples stores.

    Staples is one of those low-wage employers, with Staples workers reporting that retail clerks average around $8.50 an hour. After piloting the mini-post offices in 82 Staples stores, the post office announced it would expand the program, prompting the American Postal Workers Union to organize more than 50 protest rallies outside Staples stores around the country.

    Of course, Postmaster General Patrick Donahoe said that no postal jobs would be lost because of the Staples program and that the motivation was “growing our business.” But the same Wall Street Journal article with Donohoe’s statement revealed the real motivation. It quoted an internal postal service memo, which said that the Staples pilot program was to determine “if lower costs can be realized with retail partner labor instead of the labor traditionally associated with retail window at Post Offices.” Oops!

    The Staples arrangement is a huge expansion of the arrangement with retailers like WalMart and CVS around the country to sell stamps and other limited services. If the Staples pilot takes hold, it could pave the way for a huge collapse in the number of post offices outside rural areas. 

    It’s good to see that the American Postal Workers Union is loudly protesting the Staples deal. Workers in 27 states carried signs saying “Stop Staples: The U.S. Mail is Not for Sale” at the protests held on Thursday. The postal union is looking for allies. The California Federation of Teachers, which has 120,000 members, is considering a resolution to boycott buying school supplies at Staples.

    What’s at stake is not just the jobs of postal workers; it’s the American economy. We built the economy with middle-class jobs and the more we destroy them, the bleaker the prospects of economic prosperity for all but the richest of us.

    I’ll be looking for a new source of office supplies too.

    Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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  • Labor Law for All Workers: Empowering Workers to Challenge Corporate Decision Making

    Apr 4, 2014Richard Kirsch

    This is the sixth and last in a series of posts summarizing a new Roosevelt Institute report by Senior Fellow Richard Kirsch, entitled "The Future of Work in America: Policies to Empower American Workers to Ensure Prosperity for All." The report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class.  Today’s post outlines possible policy solut

    This is the sixth and last in a series of posts summarizing a new Roosevelt Institute report by Senior Fellow Richard Kirsch, entitled "The Future of Work in America: Policies to Empower American Workers to Ensure Prosperity for All." The report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class.  Today’s post outlines possible policy solutions to several major challenges to organizing workers in today’s economy. Over the next year, the Future of Work project will be exploring many of these ideas in depth. Their inclusion here is to begin surfacing ideas, rather than as final recommendations for reform.

    If we are to give American workers the ability to bargain for a fair share of the wealth they create, we need strengthen labor law – as discussed in my last post – and bring in 34 millions workers (one-in-four) who are now excluded from the National Labor Relations Act.  These include domestic workers, farmworkers, front-line workers with minimum supervisory responsibilities, and public employees. The law should also be extended to include many workers now considered “independent contractors, ” even though an employer effectively determines their pay and working conditions. Examples range from truck drivers and cab drivers to adjunct faculty.

    Some of the most innovative and effective organizing of low-wage workers is being done by new types of worker organizations. Worker centers and other groups can and often do perform public services, such as job training, occupational safety and health training, monitoring compliance with labor laws and enrolling workers in a variety of public programs. Government funding should be awarded to the worker groups for these services. Public entities could also bargain directly with worker groups, such as those representing home health care workers. And when government directly or indirectly pays for workers – for example home health care workers are funded by Medicare and Medicaid, – it should require that workers have decent wages and benefits, and provide sufficient funding.

    We should also imagine broadening the scope of traditional labor law in the United States, to challenge traditional corporate prerogatives in the economy. When corporate growth comes at the expense of workers, it slows down the economy, because workers have less to spend. Corporations hurt communities when they relocate to seek lower paid workforces and lower taxes, or lobby against worker protections. When corporations lobby for lower taxes, they shirk their responsibility to pay for public services – from the roads on which they transport their goods, to the schools that educate their workers – resulting in deteriorating services and higher taxes on individuals and other businesses that do not get tax breaks.

    Organized workers can serve as a powerful antidote to the concentration of corporate power. The law should block corporations from transferring jobs from unionized to non-unionized facilities and from making long-term investment decisions that modernize non-union facilities at the expense of union facilities. Under current law, these practices are banned only when the NLRB can prove that the employer was motivated by anti-union bias, a high bar that is difficult to reach.

    The law should require unionized employers to recognize the union as the representative of new workers at any new facilities that the employer establishes or acquires. Unionized employers should not be allowed to close their business or specific facilities without first offering them for sale on the market. Bankruptcy courts should not be able to change union contracts without permission from the union.

    The scope of subjects over which employers are currently required to bargain with their employees could be expanded to a number of other subjects that impact workers and communities, including the introduction of new products, decisions to invest in new facilities, pricing, and marketing. In that way, the welfare of workers - not just the interests of shareholders and executives – would be considered in business decisions. Strikes could also be allowed over a broader range of corporate policies, including decisions that impact communities and consumers.

    Workers could also be given more of a role in corporate decision-making by requiring employers to allow the formation of “works councils,” an organizational form common in European countries. Works councils are established jointly by employers and worker organizations to represent workers in decisions in the workplace, ranging from personnel and management decisions to policies governing working conditions and major investments and locations. The current provisions in the NLRA, which are designed to block the formation of employer-controlled unions, may need to be amended to clarify that works councils may be set up when the workers approve of the councils and are not objectively dominated by the employer. Another measure would require that corporate boards of directors include representatives of unions, who would have full access to all corporate data.

    Local, state, and federal governments could leverage public contracts and subsidies to require employers to comply with workers’ rights to organize. For example, they could prohibit employers from running anti-union campaigns and they could require the recognition of card check elections or other forms of establishing majority support. Government could also require that firms that receive public contracts and subsidies meet standards for pay and benefits, as President Obama has done with his recent executive order establishing a $10.10 minimum wage for workers of federal government contractors.

    I’ll conclude with an observation about the politics of the variety of purposely-ambitious policy ideas I’ve outlined in the last two posts in this series. Good ideas can play a key role in organizing workers and in the other ways of making change. It is much easier to get where you want to go if you know where you want to go. Good ideas give people hope that there can be a better world and help them see the way forward.

    But the power to win these policies will come through organizing people at work and in their communities, through changing culture and the public’s understanding of the importance of organized workers in moving the economy forward. The most important of these will be organizing workers to demand that they receive a fair share of the wealth they help create.

    We hope that the ideas and discussion generated by the Future of Work in America will inspire Americans to ensure that every job respects the dignity and value of every worker, as we build an America of broadly shared prosperity.

    Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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