More people forced into ER and early social security

[ziggy29]

Excessive executive compensation distorts the essence of capitalism itself. We no longer have corporations run as profit maximizing enterprises for the benefit of the equity owners/shareholders, but as wage and bonus maximizing enterprises for senior management. This can and does lead to suboptimal allocations of capital and substantial inefficiencies in operations.

I agree for the most part, and part of the problem is the incestuous relationship so many execs have with each other in terms of appointing each other to the other's boardrooms to rubber stamp excessive compensation.

Having said that, a handful of execs earn everything they get and then some. So I'm not sure any "cap" is a good idea, even though most are way overpaid relative to how much (or little) they add value compared to those just below them willing to do it for a lot less.

 

[dex]

Excessive executive compensation distorts the essence of capitalism itself. We no longer have corporations run as profit maximizing enterprises for the benefit of the equity owners/shareholders, but as wage and bonus maximizing enterprises for senior management. This can and does lead to suboptimal allocations of capital and substantial inefficiencies in operations.

There are two other aspects in that equation - dissolution of ownership and investors rather than owners. Due to the number of shares outstanding no one person owns a significant percentage of the company so, no one person or persons has clout with management. The ease of buying and selling shares has turned people into investors not owners with a commitment to the company.

While we are at it we might as well put some of the blame on the Board of Directors. They approve the compensation packages and approve major decisions of management.

 

[wildcat]

Very well stated SunsetSail. Good to see that you 'get it'. All of us should do what we can to make sure our kids, or other young people in our life 'get it', too. Personally, I'd like to see some sort of annual or quarterly training class that all employees would need to take, so that this sinks in.

-ERD50

From my observation, most of my friends and contacts around my age seem to have learned personal finance 101 from their parents - as in if their parents are/were poor savers, they are too.

I think most could say they participate in a 401k or company retirement plan but those who do don't save nearly enough. Most I know stop @ the matching contribution (thinking that is the max?) and no nothing about Roth IRAs.

 

[traineeinvestor]

From my observation, most of my friends and contacts around my age seem to have learned personal finance 101 from their parents - as in if their parents are/were poor savers, they are too.

While I can think of many contacts and friends who seemed to have followed in their parents footsteps in terms of financial habist and knowledge, I also know many people who are the opposite - good savers whose parents were poor savers, poor savers whose parents where good savers.

I'm already begining to worry about my own children

 

[chinaco]

This is an incredibly poorly informed and complacent post. I am really surprised at your lack of understanding.

Many of these people never had any money to save- if there ever was anything left after rent and food and a little beer to make Dad's life endurable, it went to getting some child's rotting teeth fixed.

I realize that the "disadvantaged" groups with political power, or the power to scare municipal governements with threats of violence will do better, but there will alwys be people who really cannot make it in the modern world, which demands intellectual and behavioral traits and skills that are way beyond these groups. Some from thse groups will always make it in the world, but let us not forget the bell curve; it is real.

I am not saying that we should necessarily try to do anything about this, but why heap scorn on people who are already downtrodden and hapless?

Ha

Wow! I am not sure what you think I was communicating... or how you are interpreting it. You are bordering on a non sequitur leap....

Obviously there are people that live in poverty?? It is a problem, often rooted in a cycle of failure to thrive in our society... often passed from parent to child. In some cases, there is institutional bigotry and racism that is a root cause. Yes some people experience health problems that were no fault of their own.

That particular issue was not my point.

My point: Many middle class people have not saved for retirement. They are at the age where the balance sheet of their life's earning potential will be reconciled. Their lifestyle is going to drop because they spent it in their early years.... instead of saving for later. Consumption smoothing.

Are there some exceptions to what happened to the group? Sure! But I think we can see from studies that many did not save enough.

It is not intended to be an insensitive statement, rather a statement of fact.

Perhaps I should have include the middle class statement.

 

[MichaelB]

Excessive executive compensation distorts the essence of capitalism itself. We no longer have corporations run as profit maximizing enterprises for the benefit of the equity owners/shareholders, but as wage and bonus maximizing enterprises for senior management. This can and does lead to suboptimal allocations of capital and substantial inefficiencies in operations.

. Right. It also creates conflict of interest.

There are two other aspects in that equation - dissolution of ownership and investors rather than owners. Due to the number of shares outstanding no one person owns a significant percentage of the company so, no one person or persons has clout with management. The ease of buying and selling shares has turned people into investors not owners with a commitment to the company.

While we are at it we might as well put some of the blame on the Board of Directors. They approve the compensation packages and approve major decisions of management.

Having said that, a handful of execs earn everything they get and then some. So I'm not sure any "cap" is a good idea, even though most are way overpaid relative to how much (or little) they add value compared to those just below them willing to do it for a lot less.

Don’t need caps or more complex regulations. Lack of transparency and lack of competition at the top has allowed this to happen. Four things would lead to significant change here (IMHO).

People receiving this income need to pay taxes on the entire amount when it is given. Full payroll and ordinary income tax with no limits and no exceptions. After all, it is compensation.

The roles of Chairman and CEO need to be separated, the Chairman nominates and manages the BoD. The CEO reports to the BoD.

Shareholders need more direct influence in governance and compensation choices.

All financial transactions by corporations and individuals must be processed and recorded publicly, especially derivatives.

 

[landonew]

There appears to be a lot of entitlement in this thread (not all, but many). Since when did an employee's retirement feasibility become the responsibility of the employer?

IMO, the "package" should be left out of "compensation package", and employees should receive cash in lui of health-insurance, pensions, 401(k)s, etc. Employees could then purchase these "benefits" independently. This would eliminate many entangling obligations, and increase labor liquidity.

Of course, the current tax structure prevents cash equivalency compensation. Like so many other things, government meddling produces inefficiencies that inhibit free market capitalism.

What's truly Ironic is that most of these "benefits" arose out of government intervention in 1940s-1950s.

Employer-Sponsored Health Insurance and Health Reform

the link between employment and private health insurance was strengthened by three key government decisions in the 1940s and 1950s. First, during World War II the War Labor Board ruled that wage and price controls did not apply to fringe benefits such as health insurance, leading many employers to institute ESI. Second, in the late 1940s the National Labor Relations Board ruled that health insurance and other employee benefit plans were subject to collective bargaining. Third, in 1954 the Internal Revenue Service decreed that health insurance premiums paid by employers were exempt from income taxation.

 

[ziggy29]

There appears to be a lot of entitlement in this thread (not all, but many). Since when did an employee's retirement feasibility become the responsibility of the employer?

...

Of course, the current tax structure prevents cash equivalency compensation. Like so many other things, government meddling produces inefficiencies that inhibit free market capitalism.

I think you just answered your own question. The sense of "entitlement" only came when non-cash employee benefits became the norm, largely due to tax policy and government mandates.

 

[landonew]

I think you just answered your own question. The sense of "entitlement" only came when non-cash employee benefits became the norm, largely due to tax policy and government mandates.

Reasons preventing true cash equivalency compensation do not justify feelings of entitlement, IMO.

Nobody stole the American worker’s ability to retire comfortably. Defined benefit plans were/are merely one vehicle for achieving financial independence (i.e. a comfortable retirement). Others remain available, even if they are (arguably) less effective. Ultimately, the American worker must take responsibility for his own retirement, not his Employer or the FED. If that means decreasing his SOL to increase after-tax retirement savings, then so be it.

Obviously, the majority of this forum has been diligent in this regard. So please don’t be offended, these are just my opinions (which are obviously open to criticism) concerning defined benefit plans and other forms of non-monetary compensation.

 

[rescueme]

Since when did an employee's retirement feasibility become the responsibility of the employer?

Since the employer started using benefit packages to lure future employees to their respective firms. Many (like me) took the bait.

In my early employment years (late 60's - early 70's), a defined benefit (pension) program trumped no pension.

Of course, for today's young person a 401(k) - either tax deferred or Roth trumps no pension, since pensions (execpt for government workers or private union workers) went the way of the do-do bird.

If I knew then what I know now ...

 

[MichaelB]

There appears to be a lot of entitlement in this thread (not all, but many). Since when did an employee's retirement feasibility become the responsibility of the employer?

I don't see a lot of entitlement attitude here. More like disappointment over unfulfilled agreements.

Nobody stole the American worker’s ability to retire comfortably. Defined benefit plans were/are merely one vehicle for achieving financial independence (i.e. a comfortable retirement). Others remain available, even if they are (arguably) less effective. Ultimately, the American worker must take responsibility for his own retirement, not his Employer or the FED. If that means decreasing his SOL to increase after-tax retirement savings, then so be it.

Not stealing. More like deceiving. Bait and switch. I fully agree people need to take charge - but they also need knowledge, tools, guidance and legitimate options.
Still, IMHO the biggest "pension problem" is lack of employment. More jobs would certainly help.

 

[harley]

Perhaps I should have include the middle class statement.

Perhaps. I interpreted your comment the same way Haha did, so clarifying it is helpful. I don't know if you can seperate what you read from what you meant, but if you could I think you would see how judgemental your comment sounds. There's no body language on the web.

There appears to be a lot of entitlement in this thread (not all, but many). Since when did an employee's retirement feasibility become the responsibility of the employer?

IMO, <snip>

And therein lies the problem. In Your Opinion. But that doesn't have anything to do with reality and current conditions. I tend to agree that it would be nice if people were paid what the market bears without significant bennies (other than paid vacation maybe) and bought the rest of the stuff on the open market. But that's not the way it is or has been, and those of us who were led to believe things would be one way only to have the rug jerked out are rightfully annoyed.

I don't see a lot of entitlement attitude here. More like disappointment over unfulfilled agreements.

Not stealing. More like deceiving. Bait and switch. I fully agree people need to take charge - but they also need knowledge, tools, guidance and legitimate options.

Yeah, like that. +1

 

[landonew]

I don't see a lot of entitlement attitude here. More like disappointment over unfulfilled agreements.

Not stealing. More like deceiving. Bait and switch. I fully agree people need to take charge - but they also need knowledge, tools, guidance and legitimate options.
Still, IMHO the biggest "pension problem" is lack of employment. More jobs would certainly help.

And who is supposed to provide them with this? The government? Employers? God?

At some point, people need to become adults and take personal responsibility for their financial situation.

And how is it a bait and switch? Did they usurp a vested interest? Seems people had notice about the pensions disappearing. It isn't like people lost their pensions the day before they retired.

And therein lies the problem. In Your Opinion. But that doesn't have anything to do with reality and current conditions. I tend to agree that it would be nice if people were paid what the market bears without significant bennies (other than paid vacation maybe) and bought the rest of the stuff on the open market. But that's not the way it is or has been, and those of us who were led to believe things would be one way only to have the rug jerked out are rightfully annoyed.

Explain how the rug was jerked out from under you. Admittedly, I was not around when the defined benefit plan went the way of the buggy whip.

But the general claim has been that a pension was promised as an incentive to potential employees, and then somehow didn't materialize or was replaced by the 401k before the benefit vested (say within 10 years). However, how is that any different than getting fired before the benefit vested? Surely they could have renegotiated their contracts or moved onto greener pastures. After all, it is still a free labor market.

 

[Gumby]

And who is supposed to provide them with this? The government? Employers? God?

At some point, people need to become adults and take personal responsibility for their financial situation.

And how is it a bait and switch? Did they usurp a vested interest? Seems people had notice about the pensions disappearing. It isn't like people lost their pensions the day before they retired.

Hey yall,
I am young and about to enter the work force.

Why don't you check back with us after you have a few years of work experience under your belt? You might possibly know something then.

 

[harley]

Why don't you check back with us after you have a few years of work experience under your belt? You might possibly know something then.

Good catch. I was having trouble understanding how anyone with experience or empathy could be so oblivious. But I remember when I used to know it all too. You definitely get dumber as you get older.

 

[chinaco]

Perhaps. I interpreted your comment the same way Haha did, so clarifying it is helpful. I don't know if you can seperate what you read from what you meant, but if you could I think you would see how judgemental your comment sounds. There's no body language on the web.


...

I see. No... not judgmental. Perhaps it sounds harsh or insensitive.

But those words are not the problem. The problem is going to be the real outcome.

We are talking "middle class"!! and of course I exclude those that got ripped off (e.g. madoff). They made mistakes taking too much risk, but were trying to prepare.


The majority of baby boomer middle-class Americans just spent every cent and didn't save. They choose to enjoyed it back when they spent it. Because they choose to do that, they are in for a reduction in standard of living far below the average they could have experienced if they saved.


To contrast that with another group of middle class Americans... (many of us on this forum) that LBYM along the way and saved. I am in that group. I did not get the (incremental) enjoyment of spending every cent of my paycheck over those years. I gave up that experience or enjoyment and put it back for later.

While I would not make the statement above to anyone face to face for fear of insulting them or being hurtful... on this forum, there is frank discussion about retirement related issues.

I have some family members that squandered their money. While I see what is happening and am concerned for them. I know they are making their decisions.

I have "gently" offered advice... but have been given responses like "can't take it with you". I will not bore you with my interpretation of the flaw in that sort of thinking.

By and large, those people have set their own destiny. I certainly feel no obligation to "bail them out". That goes for family or other Americans for that matter.

While I believe in some sort of social balance. I have little sympathy for the spend thrifts that blew all of the their money. Pension, no pension, SS, whatever.

They did it to themselves!

 

[rescueme]

Good catch. I was having trouble understanding how anyone with experience or empathy could be so oblivious. But I remember when I used to know it all too. You definitely get dumber as you get older.

"If I knew then, what I know now"...

 

[landonew]

Why don't you check back with us after you have a few years of work experience under your belt? You might possibly know something then.

Fair enough.

 

[MichaelB]

Why don't you check back with us after you have a few years of work experience under your belt? You might possibly know something then.

You definitely get dumber as you get older

"If I knew then, what I know now"...

Well said, gentlemen ... .

And who is supposed to provide them with this? The government? Employers? God?

Who provided you with your education? This sounds like a Dickens novel.

Explain how the rug was jerked out from under you. Admittedly, I was not around when the defined benefit plan went the way of the buggy whip.

Please notice folks here are being more respectful to you than you are to them.

And how is it a bait and switch? Did they usurp a vested interest? Seems people had notice about the pensions disappearing. It isn't like people lost their pensions the day before they retired.

So, let’s assume you are just starting out. You have to pay into a pension plan for the next 40 years. Your employer will to. No choice for you. You are guaranteed a specific payout amount. You do your numbers, see you need more, and save on the side for your retirement.

25 years later, your employer says – things have changed. Can’t afford this anymore. For you, at least. So, here’s what we’re gonna do. Take this lump sum payment, which is our calculation of the current value of our future penison obligation to you. It’s yours. Go ahead and invest it. Now you have to provide for 100% of your retirement. Oh, and by the way, if you don’t agree, you’re fired.

So you take it, check the numbers, and see that the amount given to you is far too little to provide the promised pension. You complain, and the explanation given is: well, on average, it is enough. And for employees just starting out, it’s even better. There may be a few individuals less well off. Just a couple. It all depends on the assumptions. You just need to invest it well – you know, get more than 10% a year return for the next 25 years and it’ll do the job. We did. If you can’t, it’s your tough luck. Go suck an egg. So you say, wait a minute. There’s more money in the pension plan – I checked. Give me my share.

The company pension fund is then split into three pieces. The smallest is given back to the employees in this process. Another piece is transferred to the executive pension plan. Now it has enough to cover years of future growth with no more contributions. The final part of the pension plan is clawed back into the company and booked as profit (even though that’s not legal) . The CEO gets a $10M bonus and $50M in stock options for that while the regulators and tax authorities look the other way.

You see the pension math and complain. So the company announces layoffs. Outsourcing jobs to India. Relocating production to China. You’re fired. More stock options to the executive committee.

So, now you’re screwed. Not enough to retire. Gonna have to work 10 more years, maybe more, and accept a lower standard of living – if you can find a job. But now you’re 50 and nobody will hire you – except Wal-Mart. They say you don’t have the right skills. Not the right fit.

So here we are. Should you have saved more. Yes. Should you have trusted your financial future to a company? No. So it’s your fault. Make better choices next time.

Mr. Landonew (et.al.), you probably think this can’t happen to you, ‘cause you know better. Good luck.

 

[ziggy29]

"If I knew then, what I know now"...

Precisely. If I knew in 1987 what I knew today, there would have been several changes in terms of my choice of career and employer.

 

[dex]

I see. No... not judgmental. Perhaps it sounds harsh or insensitive.

I read your post and got the general point of it. That is the key to me. A person could put in all the caveats in a post but why should they have to. We are not writing dissertations here. General concepts are fine with me.

In addition to the points you make about the average poster here LBYMs I would add they are probably better educated and possibly more intelligent than the average American.

Here is one of the causes - public schools
USATODAY.com - Big-city schools struggle with graduation rates

Since I was was in grammar school in the '60s it was know that going to NYC public schools was a path to nowhere. Bad schools produced bad teachers which produced worse students - repeat the cycle.

Life experience probably plays into the equation that goes something like this - first generation saves becuause they experienced hard times, second generation maintains wealth because they were taught to save by their parents, the third generation spends because the saving/hard times lesson was lost.

 

[NW-Bound]

Precisely. If I knew in 1987 what I knew today, there would have been several changes in terms of my choice of career and employer.

No point in looking back!

At the age of 40, I left my job (a staff position) at a megacorp to pursue some business ventures that failed despite our hard work. I was treated very well at that megacorp, which provided both a 401k with matching, AND a pension. Though it took away the medical benefits for retirees, many of the people I worked with have retired very comfortably. And early too!

All I had was some "life enriching" experiences from those start-ups. But if I did not do it, would spend the rest of my life like another Dilbert, wondering what could have been, what life was like outside the megacorp cocoon. I found out; it's dog-eat-dog out there!

 

[dex]

Precisely. If I knew in 1987 what I knew today, there would have been several changes in terms of my choice of career and employer.

Generally, I think we human beings always rediscover the wheel. If we didn't do that; world society would be much more advanced than it is today.

There are many things, that when staring us in the face we miss the opportunity. It has happened in the past, it is happening now and will happen in the future. I didn't buy Microsoft stock when it was introduced into the company I was working for at the time.

 

[ziggy29]

Life experience probably plays into the equation that goes something like this - first generation saves becuause they experienced hard times, second generation maintains wealth because they were taught to save by their parents, the third generation spends because the saving/hard times lesson was lost.

Sociologists Strauss and Howe have written and studied generations and generational trends and their theory is that we go through 70-80 year periods (each called a "saeculum" not coincidentally about the length of the human lifespan) whereby, to play fast and loose for brevity, history more or less repeats itself -- largely because we have to "re-learn" the lessons of the past as those who remember how it played out last time have mostly died off.

They write of this in a book called "The Fourth Turning." It holds there are four periods or "turnings" in each saeculum -- the new "high" which is a highly conformist economic boom coming off of a crisis, an "awakening" period where there is less conformity to social order, an "unraveling" that produces fragmentation and increased individualism, and finally the "crisis" -- the "fourth turning" -- economic, military and/or political chaos in which society basically hits the reset button and must be rebuilt or reinvented.

We had such a "fourth turning" in the American Revolution, the Civil War, the Great Depression and WW2 -- and probably now. The last "first turning" or High was the first 20 years or so after WW2. The '60s and '70s largely produced an Awakening period, and the '80s and '90s (and possibly early '00s) an Unraveling. At some point we probably crossed into crisis, with the collapse of Lehman in September 2008 and subsequent near-collapse of the economic system being a popular choice for that moment.

If the theory holds, we'll have to hit bottom, scuffle amongst ourselves economically and politically for a while, and make a lot of sweeping changes before things return to prosperity in (perhaps) a decade or so.

 

[landonew]

Well said, gentlemen ... .

Who provided you with your education? This sounds like a Dickens novel.

Please notice folks here are being more respectful to you than you are to them.

I am truly sorry if you, or anyone else, found my post to be disrespectful. It certainly was not my intention.

So, let’s assume you are just starting out. You have to pay into a pension plan for the next 40 years. Your employer will to. No choice for you. You are guaranteed a specific payout amount. You do your numbers, see you need more, and save on the side for your retirement.

25 years later, your employer says – things have changed. Can’t afford this anymore. For you, at least. So, here’s what we’re gonna do. Take this lump sum payment, which is our calculation of the current value of our future penison obligation to you. It’s yours. Go ahead and invest it. Now you have to provide for 100% of your retirement. Oh, and by the way, if you don’t agree, you’re fired.

So you take it, check the numbers, and see that the amount given to you is far too little to provide the promised pension. You complain, and the explanation given is: well, on average, it is enough. And for employees just starting out, it’s even better. There may be a few individuals less well off. Just a couple. It all depends on the assumptions. You just need to invest it well – you know, get more than 10% a year return for the next 25 years and it’ll do the job. We did. If you can’t, it’s your tough luck. Go suck an egg. So you say, wait a minute. There’s more money in the pension plan – I checked. Give me my share.

The company pension fund is then split into three pieces. The smallest is given back to the employees in this process. Another piece is transferred to the executive pension plan. Now it has enough to cover years of future growth with no more contributions. The final part of the pension plan is clawed back into the company and booked as profit (even though that’s not legal) . The CEO gets a $10M bonus and $50M in stock options for that while the regulators and tax authorities look the other way.

You see the pension math and complain. So the company announces layoffs. Outsourcing jobs to India. Relocating production to China. You’re fired. More stock options to the executive committee.

So, now you’re screwed. Not enough to retire. Gonna have to work 10 more years, maybe more, and accept a lower standard of living – if you can find a job. But now you’re 50 and nobody will hire you – except Wal-Mart. They say you don’t have the right skills. Not the right fit.

So here we are. Should you have saved more. Yes. Should you have trusted your financial future to a company? No. So it’s your fault. Make better choices next time.

Mr. Landonew (et.al.), you probably think this can’t happen to you, ‘cause you know better. Good luck.

That certainly sounds like a Raw deal. I have very little practical experience, but I generally feel like I have a pretty good grasp of the various theoretical concepts. In my mind, I didn’t consider that kind of manipulation to be possible - I assumed that there are/were protections in place to prevent that type of thing.

However, perhaps it is time that I appreciate the limitations of theoretical concepts. Maybe it is naïve to think that Employers (for the most part) treat Employees fairly, and that, when necessary, laws are generally enforced to prevent the type abuses mentioned above. Anyhow, thanks for taking the time to provide a more detailed explanation of your point of view.