Emily Thornton’s cover story, Roads to Riches, in the May 7th issue of BusinessWeek details the recent trend of State governments selling public assets – toll roads, parking garages, bridges and airports – to financial institutions and other private investors. The governmental bodies that have done this so far, or who are considering, often point to their revenue shortfalls and increasing budget deficits as justification for supporting such moves.
Thornton points out that a number of transactions have been completed over the last few years – the Chicago Skyway , Pocahontas Parkway (Virginia), the Indiana Toll Road and Chicago Downtown Parking System – while others are currently in discussions.
In the short-term this cash influx can greatly benefit the governmental entity as they can eliminate debt and improve social services. The potential long-term issues may very well outweigh the short-term benefits. While a private entity could more easily raise prices in order to pay for upgrades, without the fear of committing “political suicide,” it could effectively price out lower income individuals from being able to take advantage of once publicly owned properties.
While it is fairly obvious to see the immediate benefits to the states and the private investors, the long-term effects of these transactions will not be truly felt for years to come. I would hope that our state governments would proceed cautiously and not recklessly chase the dollars that are in front of their faces. I can’t help but wonder what will happen when the other shoe falls.
I read an article on PC World about the rumored layoffs by IBM – the rumors are reportedly bogus – and I began to reflect on the Douglas Mattern article entitled, CEO Pay is Outrageous and It’s Undemocratic. In particular, the following quote really stuck with me.
Business Week reports that the disparity between the ‘shop floor and the executive suite’ is at an all-time high. In 1980, CEOs made 42 times the average blue-collar worker. By 1990, this disparity rose to 85 times, and by the year 2000 the disparity between worker and CEO climbed to 531 times as much.
This trend is particularly bothersome because while it may motivate those employees who are striving to become CEOs, it mostly de-motivates blue collar and other lower paid employees – those that are most susceptible to layoffs. While the CEOs role is critical and is a very stressful position, in general they are being disproportionately compensated – often with little or no direct ties to the performance of the company. For example, Bob Nardelli when he accepted the position at Home Depot refused to have his compensation tied to the stock price of the organization. Over his six year tenure, he made many moves to make the organization “lean and mean” which both drained morale at this once proud organization and had negative impacts on customer service.
While some organizations are cracking down on CEO pay packages, most still provide lucrative “golden parachutes” to CEOs. The CEO severance package, which are often for multiple millions of dollars, include additional benefits on top of the enormous compensation packages that they received during their tenure with the company. What’s maddening is that these packages are paid out after the organization decides that, based on a lack of performance; they need to replace the CEO. Employees will see the total pay packages of the CEO and also witness hundreds, if not thousands, of their fellow employees get laid off due to budget cuts and restructuring and it is not hard to understand why they would lack motivation.
So while the IBM story may not be accurate, it is nevertheless tough to watch as employees get laid off due to ineffective, grossly overpaid executives.
Filed under Bob Nardelli, CEO, CEO Pay, CEO Salary, Douglas mattern, Executive Excess, Executive Pay, Golden parachute, Home Depot, IBM, PC World