Social Security: Immigration bill would boost economy

Story originally appeared on USA Today.

The Social Security Administration estimated Wednesday that a Senate bill to overhaul immigration laws and legalize 11 million unauthorized immigrants would boost the retirement program's trust fund and help the economy.

In a letter to Sen. Marco Rubio, R-Fla., one of the members of the Senate "Gang of Eight" that is pushing for the overhaul, Social Security Chief Actuary Stephen Goss estimated the bill would add 3.2 million jobs, increase the country's gross domestic product (GDP) by 1.63% and bolster the Social Security trust fund over the next 10 years.

Goss stated that many are working in an "underground economy" and don't pay taxes, so adding them to the tax rolls will bolster the nation's coffers. And if the security provisions of the bill reduce illegal immigration in the future by half a million people per year, Goss predicted a net positive for the country's retirement program.

"We estimate a significant increase in both the population and the number of workers paying taxes in the United States as as result of these changes in legal immigration limits," Goss wrote. "Overall, we anticipate that the net effect of this bill on the long-range (Social Security trust fund) actuarial balance will be positive."

However, those who oppose legalization of unauthorized immigrants, such as the Heritage Foundation, say allowing 11 million people who are largely low-skilled to access U.S. taxpayer-funded social benefits will cost more than it generates. A recent Heritage study predicted the bill would cost the country $6.3 trillion over the next 50 years.

The proposal from the Gang of Eight expands immigrant visa programs to attract more highly-skilled foreigners trained in science, technology, engineering and mathematics but also creates a new class of visas for lower-skilled immigrants to work in retail, hospitality, janitorial and construction work.

Queen's Speech: Immigrants face tougher rules

Story originally appeared on BBC News.

A fresh attempt to curb immigration is the centre piece of the government's planned new laws, set out by the Queen at the State Opening of Parliament.

Short-term migrants will pay for NHS care, landlords will be forced to check immigration status and illegal migrants will not get driving licences.

Laws on cheap alcohol and monitoring web use were not among the 15 bills.

David Cameron said the package would boost recovery, but Ed Miliband said the coalition had "run out of ideas".

The Queen set out what the government plans to do over the next year amid the traditional pomp and ceremony of the state opening.

The Prince of Wales, joined by his wife the Duchess of Cornwall, attended the ceremony for the first time since 1996.

In a speech written for her by ministers, the Queen said her government's "first priority" remained cutting the deficit and strengthening Britain's economy.

But the government says it is also determined to do more to tackle illegal immigration and demonstrate that it is backing families who "want to work hard and get on".

The Queen said an immigration bill would aim to "ensure that this country attracts people who will contribute, and deter those who will not".

If passed, the bill would ensure illegal immigrants cannot get driving licences, and change the rules so private landlords have to check their tenants' immigration status.

UKIP surge
It would also allow foreign criminals to be deported more easily, as well as people who are in the UK illegally, after the government's repeated setbacks in its efforts to deport the radical cleric Abu Qatada.

Businesses caught employing illegal foreign labour would face bigger fines.

Migrants' access to the NHS would be restricted and temporary visitors would have to "make a contribution" to the cost of their care, either with their own money or through their government.

Asked on BBC Radio 4's The World at One whether this would mean GPs having to check patients' passports before agreeing to treat them, Business Secretary Vince Cable said "checks of various kinds" were one option being considered but the details had yet to be finalised.

The planned immigration crackdown follows a surge in support for UKIP, which campaigns for a reduction in net migration, but ministers insist the measures had been decided before last week's local election results.

Prime Minister David Cameron said the immigration measures were the "centre piece" of his government's plans for the year ahead, as they "go right across government".

He told MPs: "Put simply, our immigration bill will back aspiration and end the legacy of the last government, where people could come here and expect something for nothing."

Downing Street said it could not promise the new laws would come into effect before work restrictions on Romanians and Bulgarians are lifted in January.

The prime minister's spokesman said there was a "determination to do this thoroughly". There will be a consultation on new responsibilities for private landlords and a separate one on migrants' access to the NHS, with the emphasis on systems to ensure people "pay what they should".

Other measures announced in the Queen's Speech include:

• Exempting employers from the first £2,000 of their National Insurance payments in an effort to support jobs and help small businesses
• A bill paving the way for the second tier of funding for the High Speed 2 rail line and another to give government the power to compulsorily purchase land
• Tightening up consumer protection to make it easier to claim refunds for items such as faulty mobile phone apps
• A cap on social care costs in England, although there is no indication of the level at which it will be set, and people caring for elderly relatives will get the right to support from their local councils
• A pensions bill will introduce a single-tier pension, worth around £144 a week at today's prices, and will bring forward to 2026 the date at which the retirement age rises to 67
• Tougher controls on dangerous dogs and a new "community trigger" to ensure action is taken on persistent anti-social behaviour
• Ofsted-style ratings for hospitals and care homes will be introduced and a new chief inspector of hospitals given more powers, in response to the Mid-Staffordshire health scandal.

Another bill would increase supervision and drug testing of offenders after release from jails in England and Wales and open up the Probation Service to private competition in an effort to cut reoffending rates.

'Snooper's charter'

There was no place in the Queen's Speech for proposals to introduce plain packaging for cigarettes or legislation on minimum alcohol pricing, although Health Secretary Jeremy Hunt has insisted both plans are still under consideration.

Demands by some Conservative MPs for legislation paving the way for a referendum on Britain's membership of the EU were ignored, as were calls from charities to enshrine in law David Cameron's pledge to spend 0.7% of national income on foreign aid.

The Queen's Speech had also been due to include a communications data bill, dubbed a "snooper's charter" by opponents, which would have allowed the monitoring of UK citizens' online and mobile communications.

But the plans were blocked by Deputy Prime Minister Nick Clegg on civil liberties grounds, despite warnings the legislation was needed to help detect terror plots.

The government is now considering forcing internet service providers and mobile phone companies to store more data about the devices used for emails, Skype calls and other messages to help police identify the sender, if necessary.

The Home Office had previously rejected this option, which may not need new legislation to implement, on technical and cost grounds.

Immigration

Giving his response to the government's package, Labour leader Ed Miliband said it would do nothing to boost growth, cut youth unemployment or tackle rising living costs.

"You are not dealing with the problems of the country," he told the prime minister.

"No wonder this Queen's Speech has no answers. Three wasted years, today another wasted chance. A no-answers Queen's Speech from a tired and failing government.

"Out of touch, out of ideas, standing up for the wrong people and unable to bring the change the country needs."

Mr Miliband accused Mr Cameron of caving in to vested interests and his own backbenchers by ditching planned legislation on plain cigarette packaging, a communications bill on media monopolies and a statutory register of lobbyists. He said Labour would be willing to back these measures if the PM wanted to get them through Parliament.

On immigration, he said Labour would "look at" the government's proposals but would also push for a crackdown on employers who flout the minimum wage and use "cheap" foreign labour - legal and illegal - to undercut wages.

Business lobby group the CBI welcomed progress on High Speed 2 but called for more investment in the existing transport network, adding that they wanted to see "delivery on the ground not time-consuming new bills that will have little or no impact before 2015".

The TUC said the government should have used the Queen's Speech to ditch its "failed austerity experiment" and "instead of making people work for longer the government should be focusing on creating more jobs".

SNP MP Angus Robertson said the speech, which included a commitment by the government to "continue to make the case for Scotland to remain part of the United Kingdom", demonstrated why it should be independent.

"The speech shows that Westminster isn't working for Scotland. Instead of boosting economic growth it is focusing on a lurch to the right politically," he said.

Plaid Cymru MP Elfyn Llwyd welcomed proposals to reform the Welsh Assembly electoral system, but described the Queen's Speech overall as disappointing, as it showed "Wales remains far down Westminster's list of priorities".

UKIP leader Nigel Farage said the planned immigration measures were aimed at reassuring UKIP voters but would be undermined by EU legislation.

Hantz suit on hold; class action mulled

Story originally appeared on Crain's Detroit Business.

A lawsuit against Southfield-based Hantz Financial Services Inc. and several of its senior executives is on hold until the Michigan Court of Appeals decides whether to certify it as a class action on behalf of 300 investors.

A three-judge appellate court panel late last month put a stay on the court case before Oakland County Circuit Judge Leo Bowman, who had denied a request to certify a class of investors who purchased promissory notes from Medical Capital Holdings Inc. through Hantz.

Bowman, in his Jan. 28 dismissal order, said he was "left with the distinct impression" that attorneys for plaintiff-investor Anne Hanton filed her lawsuit mainly to get around his ruling in their previous court case, where he already denied class certification for another client.

The appeals court agreed to review that decision and put a stay on the case until it could decide the certification question on its own. Attorneys for Hanton have told Crain's a class of claims would exceed $20 million in potential damages, while Hanton's case taken alone has less than a $250,000 value.

"We've gone two for two, since this is the second action against us where class certification was denied by the courts," said David Shea, attorney and general counsel for Hantz Financial. "Our position is the courts have gotten it right, and we were never attached to any allegations that were made against Medical Capital. This is purely a plaintiff attorney-driven action."

Med Cap, an Anaheim, Calif.-based medical receivables financing company, is in receivership after raising about $2.2 billion from among 20,000 investors through nine private placement offerings of promissory notes between 2001 and 2009.

Those sales stopped when the U.S. Securities and Exchange Commission brought a civil action alleging securities fraud and obtained a court injunction. The Financial Industry Regulatory Authority has sanctioned more than 10 brokerage firms and several individuals for selling interests in Med Cap through private placements without a reasonable investigation -- but Hantz Financial was not one of them.

The company did sell promissory notes in the fifth Med Cap securities offering to about 300 customers, but Shea said Hantz had done its due diligence and the notes were still performing at the time it sold them. It stopped selling Med Cap in 2008 after learning one of the previous sales had defaulted.

No date is set for the appellate court to decide about class certification.

Corporations Find a Friend in the Supreme Court

Story originally appeared on the New York Times.

NOT long after 10 a.m. on March 27, a restless audience waited for the Supreme Court to hear arguments in the second of two historic cases involving same-sex marriage. First, however, Justice Antonin Scalia attended to another matter. He announced that the court was throwing out an antitrust class action that subscribers brought against Comcast, the nation’s largest cable company.

Almost no one in the courtroom paid attention, despite Justice Scalia’s characteristically animated delivery, and the next day’s news coverage was dominated by accounts of the arguments on same-sex marriage. That was no surprise: the Supreme Court’s business decisions are almost always overshadowed by cases on controversial social issues.

But the business docket reflects something truly distinctive about the court led by Chief Justice John G. Roberts Jr. While the current court’s decisions, over all, are only slightly more conservative than those from the courts led by Chief Justices Warren E. Burger and William H. Rehnquist, according to political scientists who study the court, its business rulings are another matter. They have been, a new study finds, far friendlier to business than those of any court since at least World War II.

In the eight years since Chief Justice Roberts joined the court, it has allowed corporations to spend freely in elections in the Citizens United case, has shielded them from class actions and human rights suits, and has made arbitration the favored way to resolve many disputes. Business groups say the Roberts court’s decisions have helped combat frivolous lawsuits, while plaintiffs’ lawyers say the rulings have destroyed legitimate claims for harm from faulty products, discriminatory practices and fraud.

Whether the Roberts court is unusually friendly to business has been the subject of repeated discussion, much of it based on anecdotes and studies based on small slices of empirical evidence. The new study, by contrast, takes a careful and comprehensive look at some 2,000 decisions from 1946 to 2011.

Published last month in The Minnesota Law Review, the study ranked the 36 justices who served on the court over those 65 years by the proportion of their pro-business votes; all five of the current court’s more conservative members were in the top 10. But the study’s most striking finding was that the two justices most likely to vote in favor of business interests since 1946 are the most recent conservative additions to the court, Chief Justice Roberts and Justice Samuel A. Alito Jr., both appointed by President George W. Bush.

The study was prepared by Lee Epstein, who teaches law and political science at the University of Southern California; William M. Landes, an economist at the University of Chicago; and Judge Richard A. Posner, of the federal appeals court in Chicago, who teaches law at the University of Chicago.

In the Comcast case, subscribers seeking $875 million in damages charged that the company had swapped territory with other cable companies to gain market power and raise prices. But the legal issue before the court was technical. It concerned the sort of evidence needed to allow two million subscribers in the Philadelphia area to band together as a class.

Justice Scalia said the plaintiffs’ evidence was not enough to allow them to proceed as a class. They could still, he said, pursue their complaints individually. But the difficulty of mounting such suits over insignificant sums would not make them very attractive to most lawyers.

The decision, however, went far beyond the Comcast subscribers. By reaffirming Wal-Mart v. Dukes, a 2011 blockbuster case in which the court threw out a large employment sex discrimination class, the Comcast case limited class actions more broadly.

The question of whether plaintiffs have enough in common to sue as a class is different from whether they deserve to win. The first question is generally resolved early in the case. The second one may await trial.

But the Wal-Mart and Comcast decisions said the two questions often overlap and may call for an early answer. The decisions essentially required early scrutiny — by a judge, not a jury — of the ultimate legal question in high-stakes cases, sometimes before all the relevant evidence has been gathered. This delighted business groups, which have pushed to limit class actions.

“The court is telling lower courts across the country they really do have to fulfill their gate-keeping function and keep these meritless classes out of the courts,” said Kate Comerford Todd, a lawyer with the litigation unit of the United States Chamber of Commerce.

Justices deeply unhappy with a decision sometimes read their dissents from the bench. It happens perhaps three times a year. Justice Scalia, in remarks at George Washington University in February, said such oral dissents were a way to call attention to a grave misstep.

“I only do it in really significant cases,” he said, “where I think the court’s decision is going to have a really bad effect upon the law and upon society, a really, really big case.”

By that standard, the dissenters thought the Comcast decision was very bad indeed. It gave rise to two oral dissents, from the two senior members of the court’s liberal wing, Justices Ruth Bader Ginsburg and Stephen G. Breyer.

House panel OKs $1M cap on medical benefits for auto victims

Story originally appeared on the Detroit News.

Lansing — A House committee Thursday approved sweeping changes to Michigan's generous medical benefits for auto accident victims in a move critics say will bankrupt severely injured drivers, shift costs to taxpayers and deny the injured long-term care.

In a party-line vote, the Republican-controlled House Insurance Committee approved capping lifetime medical benefits for auto victims at $1 million and $250,000 for injured motorcycle riders. The $1 million cap would remain the highest amount of any state in the nation.

The legislation, backed by Gov. Rick Snyder, faces political obstacles as it heads to the House floor.

The Democratic caucus passed a resolution Thursday opposed to the bill, and Oakland County Executive L. Brooks Patterson and at least 10 Republican House members said they don't want to change Michigan's personal injury protection law.

"I have major, major problems with this bill," said state Rep. Martin Howrylak, R-Troy. "Unfortunately, a million dollars doesn't get you anything in health care these days."

The committee heard two days of testimony from insurance industry executives who want medical expenses reined in and impassioned pleas from accident victims and their families worried about losing their care.

The legislation aims to give auto insurance companies the power to negotiate lower payments with doctors and hospitals.

"If the cost of delivering the MRI is $3,200, then everybody should have to pay $3,200," said Heather Drake, vice president of government relations for AAA Michigan.

The legislation will not affect drivers injured before Dec. 31 or those whose medical bills exceeding $500,000 are covered by the Michigan Catastrophic Claims Association, said the bill's sponsor, state Rep. Pete Lund, R-Shelby Township.

"The intent of this bill is, has been and will remain that people who are currently in the system will continue to receive the benefits that they receive," said Lund, the insurance committee chairman.

The legislation changes the definition of the type of medical care auto insurance companies will pay for from what is defined as "reasonably necessary" to "medically appropriate."

"We fear for many patients that's going to be a one-way ticket to the nursing home," said George Sinas, general counsel for the Coalition Protecting Auto No-Fault, a group opposed to the bill.

Sinas said most accident victims would likely go on the Medicaid health insurance rolls for the poor after breaking the $1 million cap.

The legislation contains some curbs on payments to family members who care for loved ones at home, though the committee restored 24-hour coverage for the severely disabled.

The committee's amended version of the bill eliminates a $50,000 cap on expenses insurers pay for accident victims to make their homes handicap accessible.

Under the proposal, rehabilitation services would be limited to "meaningful and measureable lasting improvement in the injured person's functional status."

Lund on Thursday said he doesn't know who would determine an auto accident victim's meaningful and measureable improvement.

Erica Coulston, 34, of Bloomfield Hills, who was paralyzed in a 2001 car accident, said the effort "is a mechanism for denial."

Coulston, co-founder of a spinal cord injury program in Southfield, testified her rehabilitative therapies paid for by her auto insurance have slowly improved her respiratory, digestive and mental health.

The legislation would require auto insurers cut premiums for all drivers next year by $125, though critics argue there's no guarantee premiums won't rise in 2015.

Unions That Built Germany Eroded by Rules Buoying Economy

Story originally appeared on Bloomberg.

Germany’s top trade unionist, Michael Sommer, looked out on a May Day crowd of workers and told them that a proposed labor flexibility plan wouldn’t create a single job.

Ten years later, the plan is law. Joblessness is close to a two-decade low and employment has increased by more than 3 million.

It’s unions whose numbers are diminishing. As more and more employees work for temporary agencies or on project-driven contracts, the jobs being created are mostly non-union, in a country whose modern form was built by organized labor.

Founded in the mid-19th century, German unions rose to power in the 1950s, when they were crucial in turning an economy shattered by World War II into an economic miracle. Their impact is waning at a time when Germany is being held up as a model for debt-stricken Europe.

“The influence of labor unions has diminished significantly as a result of those reforms,” said Thomas Harjes, senior European economist at Barclays Bank Plc in Frankfurt. “They’re fighting hard to win back some sway.”

Labor’s latest woes are being heard by Germany’s leadership. Chancellor Angela Merkel, who’s running for re- election this year from the Christian Democratic Union, said in January after meeting with the DGB union federation’s Sommer that Germany needed to “keep an eye” on contract work. It “can increasingly turn into circumvention of sensible union agreements,” she said.

Schroeder’s Plan

Unions represented 25 percent of the German workforce in 2000, three years before then-Chancellor Gerhard Schroeder started implementing a program for labor-market flexibility.

That number dropped to 18 percent in 2011, according to the Organization for Economic Cooperation and Development, as less generous jobless benefits and easier rules on firing pushed workers into lower-paid temporary jobs. The absolute number of union members fell by 21 percent.

At the same time, the new flexibility helped the German economy, Europe’s largest, contain unemployment during the 2009 crisis and emerge faster and stronger from the recession than most of its euro-region peers.

“Germany was a decade ago called the ‘sick man’ of Europe,” European Central Bank Executive Board member Joerg Asmussen said in a Frankfurt speech last month. “Since then, the country has become a showcase of how well-designed reforms can turn the situation around.”

Unemployed Youth

German employment was almost 42 million in February, the most on record. Unemployment, at 5.4 percent on an EU-harmonized basis, is the lowest in the euro area after Austria and less than half of the average in the 17-nation region. Youth joblessness of 7.7 percent in Germany compares with 23.9 percent in the euro area.

Temporary work is one way for them to find employment. In Germany, about 7,500 agencies offer workers a job via that channel. ManpowerGroup Deutschland, the third-largest, employed about 20,000 people last year, twice as many as 2002.

“Temporary work has a reputation problem, which is unfortunate,” said Stephan Rathgeber, spokesman for the Eschborn, Germany-based company. “It facilitates the entry into the labor market, protects against unemployment in times of crises and is especially attractive for qualified workers.”

For Benjamin Fendt, 21, temporary work meant posts at 18 different companies after he finished his apprenticeship as an industrial and precision machinist in 2010. Sometimes the turnover was just over a week.

Too Qualified

“Temporary work was the only option to make some money,” he said in a phone interview from Landshut, Germany. “I had hoped to stay somewhere longer. All I wanted was a secure job.”

What he got was work he was overqualified or not trained for, long commutes and trouble with pay; and after an odyssey of more than two years a permanent job at plastics company Riedl Kunststofftechnik und Formenbau GmbH & Co.KG in Erding, Germany.

Fendt has been a member of IG Metall, Germany’s biggest union, since 2011, an example of how unions are beginning to court temp workers. Today, about 20 percent of all workers on loan in the metal industry are members, compared with almost 50 percent of permanent staff.

Another sector with union representation is contract work, which grew last year after unions and employers began agreeing to introduce minimum wages for temporary workers. While employees in temporary work are lent to a company for a specific period of time, contract workers are employed for a specific project, with pay often falling short of hourly wage minimums.

Fewer Accords

The share of companies following collective wage agreements fell to 47 percent in 2006 from 63 percent in 2001, according to an OECD report published in September.

“We have to adapt to a changing environment,” said Peter Donath, who heads the operations and participation-policy division at IG Metall in Frankfurt. “For a long time, we haven’t paid attention to temporary and contract work because we were focusing on our core factories.”

While IG Metall membership has edged higher in the past two years, at 2.26 million it is still almost 500,000 lower than at the beginning of the century.

Similarly, Ver.di, Germany’s biggest union when it was founded in 2001, has lost more than a quarter of its force since then and has ranked second behind IG Metall since 2005.

“Since the crisis, sentiment has changed,” said Christoph Schmitz, spokesman for Ver.di in Berlin. “The feeling among workers that somebody needs to represent their interests has increased.” In the first quarter, more people joined Ver.di, which represents services workers, than left the union.

Rising Rarely

Elsewhere in Europe, union membership has risen in seven euro countries studied by the OECD and declined in eight in the past decade. As a percent of the work force membership has risen in only two: Belgium and Italy.

Schroeder, from the Social Democratic Party, first outlined his intentions to change the labor system in March 2003, six months after his government was re-elected by the narrowest margin since 1945. At that time, the economy was contracting at the fastest pace in seven years and unemployment was approaching 10 percent, tied with Greece for second-highest after Spain.

The laws lowered welfare payments for long-term unemployed, withheld benefits from unemployed people who reject job offers and shortened the period for assistance. The measures also reduced early-retirement options and made it easier for companies to lay off employees in a country with employment protection stronger than the OECD average.

Two Classes?

Temporary and contract work spiraled in response. In June last year, 908,000 people were working on loan, one third of them in the metal and electrical industries, a traditional union stronghold, according to data by Germany’s Labor Agency. In 2000, temporary work had encompassed 338,000 workers.

“New forms of work have created two classes of employment, with different conditions for core and temporary workers,” said Ulrich Walwei, deputy director of Germany’s Institute for Employment Research in Nuremberg. “If temporary contracts were a transition into perpetual work, unions could probably live with it. But unfortunately, they’re sometimes just revolving doors.”

Almost half of all temporary contracts end after less than three months and, at 1,419 euros ($1,858) per month on average, pay little more than half of regular employment in 2010, according to labor-agency data.

Still, wage disparity narrowed last year with the introduction of industry premiums in pay. They add as much as 50 percent to hourly wages of temporary workers in the metal and electrical industries, according to IG Metall data.

More Strikes

At the same time, labor unrest has increased during the crisis. Deutsche Lufthansa AG (LHA) had to suspend almost its entire flight timetable on April 22 as workers struck over pay, and auto workers may strike across the country this month. German unemployment rose for a second month in April, to a seasonally adjusted 2.94 million, the government said today.

Union leader Sommer, who characterized his ties to Schroeder as a “civilized non-relationship” in an interview with German newspaper Die Welt this month, hasn’t changed his view that the success of the economy isn’t related to the labor- market reform of the early 2000s.

“It was and is our strong export economy, flexible work models, co-management, free collective bargaining and last but not least wise crisis politics in 2008 and 2009,” he said. The labor changes mean “dumping wages, precarious employment, a low-wage sector and old-age poverty.”

Electric-Car Maker Coda Files for Bankruptcy to Seek Sale

Story originally appeared on Bloomberg.

Coda Holdings Inc., parent of the electric-car maker backed by billionaire Philip Falcone, filed for bankruptcy and will seek to sell its assets to a group led by a Fortress Investment Group LLC (FIG) unit.

Coda Holdings will focus on its energy storage business, Phil Murtaugh, the Los Angeles-based company’s chief executive officer, said in a statement.

The closely held company’s Coda Automotive unit listed assets of as much as $50 million and liabilities of as much as $100 million in the Chapter 11 filing in Wilmington, Delaware, today. The company said it would separately try to sell the unit within 45 days.

A U.S. congressional committee is investigating the Energy Department’s loans for alternative-fuel vehicles after the manufacturers have been plagued by financial problems. Fisker Automotive Inc., another California-based battery powered carmaker, fired three quarters of its work force last month and missed its first payment on a U.S. government loan.

About 87,000 electric and plug-in hybrid cars have been sold in the U.S., with two years until the deadline for President Barack Obama’s target of 1 million sales for the industry.

The case is In re Coda Automotive, 13-11154, U.S. Bankruptcy Court, District of Delaware.

CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law

Story originally appeared on Bloomberg.

Former fashion jewelry saleswoman Rebecca Gonzales and former Chief Executive Officer Ron Johnson have one thing in common: J.C. Penney Co. (JCP) no longer employs either.

The similarity ends there. Johnson, 54, got a compensation package worth 1,795 times the average wage and benefits of a U.S. department store worker when he was hired in November 2011, according to data compiled by Bloomberg. Gonzales’s hourly wage was $8.30 that year.

Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, the data show. The numbers are based on industry-specific estimates for worker compensation.

Almost three years after Congress ordered public companies to reveal actual CEO-to-worker pay ratios under the Dodd-Frank law, the numbers remain unknown. As the Occupy Wall Street movement and 2012 election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which hasn’t yet drawn up the rules to implement it. Some of America’s biggest companies are lobbying against the requirement.

“It’s a simple piece of information shareholders ought to have,” said Phil Angelides, who led the Financial Crisis Inquiry Commission, which investigated the economic collapse of 2008. “The fact that corporate executives wouldn’t want to display the number speaks volumes.” The lobbying is part of “a street-by-street, block-by-block fight waged by large corporations and their Wall Street colleagues” to obstruct the Dodd-Frank law, he said.

Brand-Name Opposition

The leading opponent of mandatory pay-ratio disclosure is a Washington-based non-profit called the HR Policy Association, which represents top human resources executives at about 335 large corporations.

“We don’t believe the information would be material to investors,” said Tim Bartl, president of the group’s advocacy arm, the Center on Executive Compensation. Accounting for country-to-country differences in wages and benefits at global companies would be costly, time-consuming and all but impossible, he said in an interview.

The group has brand names behind it: 17 companies on HR Policy’s board of directors have CEO pay ratios in the top 20 percent of S&P 500 corporations, Bloomberg data show. They include General Electric Co. (GE), with a ratio of 491; McDonald’s Corp. (MCD), at 351; and AT&T Inc. (T), at 339.

Growing Ratio

These multiples are based on CEO pay for either the fiscal year ending in 2011 or 2012, as disclosed in the companies’ most recent filings before noon on March 26. Because most companies don’t disclose their average workers’ pay, Bloomberg used U.S. government data on worker compensation by industry. The average ratio for the S&P 500 companies is up from 170 in 2009, when the financial crisis reduced many compensation packages. Estimates by academics and trade-union groups put the number at 20-to-1 in the 1950s, rising to 42-to-1 in 1980 and 120-to-1 by 2000.

“When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel,” said Roger Martin, dean of the University of Toronto’s Rotman School of Management, in an interview. “It’s not that either hates labor, or wants to crush their lives. They just don’t care.”

Johnson’s Multiple

J.C. Penney’s Johnson, who was replaced on April 8 after less than 18 months on the job, had the highest pay multiple, based on $53.3 million in compensation reported in the company’s 2012 proxy. The former retailing executive at Apple Inc. (AAPL) took the top job after agreeing to walk away from unvested Apple shares valued at about $80 million.

“The money I earned at Penney’s in 2012 was entirely to replace money earned at Apple,” Johnson said in a telephone interview. “If Penney’s had waited until April 2012, they wouldn’t have had to pay me a penny. The board wanted me to start sooner.”

Comparing his earnings to the $29,688 average compensation for a department store worker is the equivalent of stacking the length of a loaf of bread -- give or take a few slices -- against the height of the Empire State Building.

Johnson, who says he resigned, was replaced on April 8 after less than 18 months on the job. Six days earlier, the Plano, Texas-based chain filed its 2013 proxy reporting his most recent annual compensation as $1.9 million, with no bonus, stock, options or incentive pay. The company declined to comment, said Joey Thomas, a spokesman.

Worsening Morale

Pay-ratio supporters, led by activist investors and trade unions including the AFL-CIO and the $52.4 billion United Auto Workers Retiree Medical Benefits Trust, say mandatory disclosure would help inform shareholders on advisory say-on-pay votes at companies’ annual meetings.

“Executive pay at some companies is excessive and leads to a number of risks, in particular the risk of damage to the company’s social license to operate and the risk of worsening employee morale,” said Tim Macready, chief investment officer of the Christian Super pension fund in Australia, which has about $700 million under management. The pay ratio is a “useful metric in identifying and dealing with both of these risks.”

Abercrombie & Fitch Co. (ANF), the clothing retailer, and Simon Property Group Inc., the real estate investment trust that owns and manages shopping malls, had the second- and third-highest ratios. Ninety percent or more of the CEO compensation at each company was in stock or option awards that vest over time -- in Simon’s case, eight years -- yet are required to be reported in the year granted. If such multiyear awards were reported in the years they vested, the ratios would drop.

Say-on-Pay Votes

Both companies lost say-on-pay votes last year, getting 24 percent and 26 percent of voting shareholders’ support respectively, according to proxy solicitor Georgeson Inc. Typically, more than 90 percent of voting shareholders back the non-binding resolutions at S&P 500 corporations.

Abercrombie CEO Michael Jeffries got $48.1 million, according to the New Albany, Ohio-based company’s 2012 proxy. That’s 1,640 times the average clothing-store worker’s $29,310 in pay and benefits. Jeffries’ stock-appreciation rights -- valued at $43.2 million in the proxy -- had no realizable value as of April 25 because the share price fell.

His next compensation report won’t include any equity awards and “will be a fraction of the number reported in 2012,” Phil Denning, a company spokesman, said in an e-mail.

At No. 3, Simon Property Group, CEO David Simon’s $137.2 million in compensation for 2011 was 1,594 times the average pay of $86,033 among employees of funds, trusts and other financial vehicles.

Method Criticized

Investors thought the package “too large,” according to the company’s April 4 proxy. In response, the CEO and the board compensation committee reduced the amounts he qualified for in the early and final years of the eight-year agreement. The committee also tied annual incentive awards more closely to a performance measure called funds from operations and created a peer group of companies for comparing results.

Simon Property’s latest proxy, filed after the cutoff for Bloomberg’s analysis, reported the CEO’s 2012 compensation at $17.2 million, which would have reduced his pay ratio to about 168.

Hugh Burns, a spokesman for the Indianapolis-based company, criticized Bloomberg’s analysis as outdated. It “creates a completely misleading result that grossly overstates and inaccurately portrays David Simon’s compensation and makes any comparison meaningless,” he said.

Dodd-Frank Differences

Bloomberg’s ratio is based on the SEC-required summary compensation table that companies publish in their shareholder proxy statements. It includes the CEO’s salary, bonus, perks, changes in pension accruals and the current value of stock-based awards made in the disclosure year.

The ratio differs from what Dodd-Frank requires in at least two respects: It’s drawn from government pay-and-benefits data aggregated by industry instead of from each company’s actual payroll; and it compares CEO pay to the average for all non- supervisory employees in the U.S. The law calls for the ratio to be based on the median of all employees worldwide, including managers and executives other than the CEO.

Bloomberg’s method is similar to one the Center on Executive Compensation suggested as an alternative to Dodd- Frank’s in a Nov. 11, 2011, letter to the SEC.

U.S. Senator Robert Menendez, the New Jersey Democrat who authored Dodd-Frank’s pay-ratio requirement, heard little objection when he proposed it in March 2010, said Michael Passante, a former legislative aide -- “except for one group,” the center.

Five Meetings

Since then, HR Policy Association representatives have conferred with SEC officials on the pay-ratio rule at least five times and the center has addressed at least four letters to the agency opposing it, the regulators’ records show.

The non-profit group shares offices and staff with the Washington law firm of McGuiness & Yager, which lobbies Congress and federal agencies on compensation and benefits issues. Senior partner Jeffrey McGuiness is listed as the association’s CEO. Bartl, at the compensation center, is a partner in the firm.

McGuiness didn’t respond to requests for comment. Bartl declined to answer questions after an initial interview.

HR Policy took in $7.2 million from members and conferences in 2011 and turned over $1.2 million to the compensation center, according to its 2011 tax filing.

McDonald’s Chair

Richard Floersch, chief human resources officer of Oak Brook, Illinois-based McDonald’s, has chaired the board committee that oversees the executive-compensation center, according to an entry that appeared on HR Policy’s website earlier this month. It has since been deleted.

Former McDonald’s CEO James Skinner, who retired in June, was No. 66 on the Bloomberg list with a CEO-to-worker pay ratio of 351 in 2011.

“We’re proud that more than 40 percent of McDonald’s leadership, including three former CEOs, started their careers working in our restaurants,” said McDonald’s spokeswoman Rebecca Hary in an e-mail.

Honeywell International Inc. (HON), No. 16 on Bloomberg’s list with a ratio of 633, joined HR Policy’s board this year. The association “discusses a wide variety of topics, not all of which Honeywell supports and not all of which are relevant to Honeywell,” said spokesman Rob Ferris in an e-mail.

The SEC, which has so far written 39 of 94 rules called for under Dodd-Frank, has no deadline for completing the pay-ratio provision. In February, Commissioner Luis Aguilar suggested that companies voluntarily disclose their ratios until the agency can develop its rule.

Repeal Sought

“Companies that can justify the amount that they are paying their CEOs and employees shouldn’t be fearful of the ratio,” Aguilar, a Democrat, said in an interview. Bartl, at the compensation center, responded with a letter asking Aguilar to “retract” his statement.

SEC Chairman Mary Jo White, who took office this month, and the three other commissioners declined to comment.

U.S. Representative Bill Huizenga, a Michigan Republican, is sponsoring legislation to repeal the pay-ratio requirement. It “doesn’t do anything other than play politics,” he said in an interview. “It doesn’t lend any useful, helpful, analytical type of information.”

The bill reprises one filed in March 2011 by former Representative Nan Hayworth, a New York Republican, who lost re- election last year. Political action committees associated with companies on the HR Policy board gave $78,416 to Hayworth’s 2012 campaign. Her contributions from the same companies totaled $22,000 in the 2010 cycle, Federal Election Commission records show. She didn’t respond to a request for comment.

Registered Lobbyists

Seven companies with pay ratios in the top 20 percent of all S&P 500 corporations registered to lobby on the measure: Tyco International Ltd. (TYC), GE, Johnson Controls Inc. (JCI), Prudential Financial Inc. (PRU), McDonalds, AT&T and Lowe’s Cos. Each was also represented on HR Policy’s board last year. Except for McDonald’s, none responded to requests for comment.

Pay-disclosure rules have been controversial since the Securities Exchange Act of 1934 imposed requirements for regular reporting of executives’ compensation on public companies.

The rank and file were sure to seethe with discontent, wrote National Biscuit Co., later Nabisco, in a 1936 petition to the SEC. Only “criminal curiosity” underlies such interest, wrote Congoleum-Nairn Inc., a manufacturer of linoleum flooring. The comments are cited in a history of the era’s corporate-pay debates by Harwell Wells, an associate law professor at Temple University in Philadelphia.

Suggestion Rejected

James Cotton, a retired securities attorney for International Business Machines Corp. (IBM), may have been the first to propose mandatory disclosure of the CEO pay ratio. He said it would have “a significant impact by either lowering the excessive executives’ compensation or raising the average compensation of employees and managers” in a 1997 article in the Northern Illinois University Law Review. He got the idea shortly after joining IBM in 1970, Cotton said in an interview.

The young attorney, an Army captain during the Vietnam War, said he was listening to managers discuss how to handle the company’s cash when he proposed giving out raises.

“They looked at me like there was something wrong with me,” Cotton recounted. “They said, ‘We can’t do that.’” For years after that, he said, he kept an eye on the CEO’s pay and IBM’s cash holdings, both of which increased.

Informing Workers

Cotton said he mailed his law review paper to the SEC, members of Congress and some unions, including the AFL-CIO, and then forgot about it. Now retired at 73 and almost blind from glaucoma, he didn’t know until recently that the ratio’s disclosure was included in the Dodd-Frank Act.

The ratios will help inform workers, he said. “‘Am I going to get ripped off? Or am I going to get a fair price for my labor?’ If there’s anything I want to happen, it’s that.”

Nowhere was the pay multiple higher last year than at J.C. Penney, where Rebecca Gonzales made $13,797.15 at a store in Tulsa, Oklahoma, according to her 2011 wage and tax statement.

One month after Johnson joined the company as CEO, during the December 2011 holiday rush, Gonzales fell over a box of hangers at work, and said she couldn’t immediately stand up.

“All I remember is seeing black,” she said.

A doctor at an urgent care clinic ordered her to stay off her swollen knee, she said. When she returned to work, she ran a cash register from a chair until a manager took the seat away, she said. Unable to work, she filed a claim for temporary disability benefits in state Workers’ Compensation Court in February 2012. She’s the sole wage earner for her disabled husband and two school-age children.

Thank-You Note

A month later, the company warned she’d lose her job if she didn’t return within 30 days, according to a letter she received. Two weeks later, it wrote again.

“Your employment with jcpenney has been terminated,” the letter stated. “Thank you for joining the jcpenney team!”

A judge ordered the company to pay Gonzales $1,516 for the temporary total disability. She filed a wrongful-termination claim in federal court seeking at least $75,000 more. That suit is pending.

Hers was one of 43,000 jobs the company cut last year as Johnson’s retailing strategy failed to take hold. The share price fell by half between the time he took the CEO post and left it.

In January 2012, Johnson sold almost half the 1,660,578 shares he’d been granted, for $32.2 million. He still owned almost 893,000 shares, with warrants on 7.3 million more, as of J.C. Penney’s April 2 proxy. He made the sales “entirely to pay taxes,” Johnson said.

Top Six

In all, the company awarded six top executives $190 million for the fiscal year that ended in January 2012, according to its proxy. All subsequently left the company.

Johnson’s predecessor, Myron E. Ullman -- who received $34.6 million in pay and retirement benefits in his final year -- got $1 million to come back, a recent filing shows.

“The irony of the CEO pay ratio is that most people’s experience of J.C. Penney will be the people who are paid the least, and treated most like commodities,” said Harvard Business School professor Rakesh Khurana.

For now, Johnson and Gonzales are unemployed. The former cashier says she’s looking for work.