They Work Hard for a Ton of Money

May 21, 2012
Posted by Jay Livingston

I’m not very good at looking at a scatterplot and estimating the correlation. 

This morning’s Wall Street Journal had a front-page story  about CEO pay.  Here’s the lede:

Chief executives increasingly are being paid based on their companies' financial results and share prices, according to a Wall Street Journal analysis.

The WSJ even had an outside source check their calculations and conclusions.

Pay was “highly correlated with performance,” says Steven Kaplan, a professor of finance at the University of Chicago's Booth School of Business who reviewed the Journal calculations.

Here’s the scatterplot showing the 300 largest companies:

(Click on the chart for a larger view.  Those wedge-shaped lines point to
very large photographs of individual CEOs, which I cropped out.)

I guess “highly correlated” is a term of art.  Unfortunately, the WSJ does not provide a regression line or correlation coefficient, but apparently the slope is +0.6.

On average, for every additional 1% a company returned to shareholders between 2009 and 2011, the CEO was paid 0.6% more last year, the analysis found. For every 1% decline in shareholder return, the CEO was paid 0.6% less.

I like that idea of considering the profitable CEOs separately from the CEOs whose firms lost money.  Here is the same scatterplot split down the middle. 

If you divide the Pay axis at $20 million, the relation becomes clear.  For every $20M+ CEO in a losing company, there are three in profitable companies. 

But here’s where my inability to look at the dots and estimate correlations messes me up.  To me, it looks as though among the losing firms, there’s no relation between CEO pay and how well the company did (i.e., how small its losses).  Same thing on the profit side, especially if you ignore the three $60M+ outliers.  (Timothy Cook of Apple, at $378M, lies out so far he’s not even on the chart.)  

I’m not sure to who to believe – the Wall Street Journal or my lyin’ eyes. 
The WSJ site has a chart listing the compensation of all 300 – from Apple down to Whole Foods, whose CEO didn’t even snag $1 million.

The story also heralds 2011 as showing huge improvement over the previous year in rationality, or at least the proportionality of pay to profits,

In 2010, there was no correlation; for every 1% decrease in shareholder return, the average CEO was paid 0.02% more.

Yes, you read that correctly.  The correlation was negative  – the smaller the profit (or larger the loss), the higher the CEO pay. 

She Works Hard For No Money

May 20, 2012
Posted by Jay Livingston
Cross posted at Sociological Images

The politics of motherhood reared its head again last month when Hilary Rosen, who the news identified as a “Democratic strategist,” said that Ann Romney (Mrs. Mitt) had “never worked a day in her life.” (A NY Times article is here.)

“Worked” was a bad choice of words.  Raising kids and taking care of a home are work, maybe even if you can hire the kind of help that Mrs. Romney could afford.  Rosen’s comment implied that family work is not as worthwhile as work in the paid labor force.  That’s not such an unreasonable conclusion if you assume that we put our money where our values are and reward work in proportion to what we think it’s worth.  Mitt’s supporters use this value-to-society assumption to justify the huge payoffs Romney derived from those leveraged buyouts at Bain Capital.*

Even Mrs. Romney apparently felt that there must be some truth to the enviability of a career.   Why else would she refer to stay-at-home motherhood as a career?  “My career choice was to be a mother.”

Still, regardless of the truth of Rosen’s remark, it was insulting.**  Stay-at-home motherhood is work – a job. 

But is it a good job? 

A recent Gallup poll provides some more evidence as to why stay-at-home moms might be both envious or resentful of their employed counterparts.  Gallup asked women about the emotions, positive and negative, that they had felt “a lot” in the previous day.  Gallup then compared the stay-at-home moms, employed moms, and employed women who had no children at home. 

The stay-at-home moms came in first on every negative emotion.  Some of the differences are small, but the Gallup sample was more than 60,000 so these differences are statistically significant.   The smallest difference was for Stress – no surprise there, since paid work can be stressful.  Worry and Anger too can be part of the workplace.  The largest differences were for Sadness and Depression.  Stay-home moms were 60% more likely to have been sad or depressed. 

Gallup also asked about positive feelings (Thriving, Smiling or Laughing, Learning, Happiness, Enjoyment), and while the differences were smaller, they went the same way, with stay-at-home moms on the shorter end.  Still it’s encouraging that 86% of them had Experienced Happiness 86%; so had 91% of the employed moms.

Money matters.  As Rosen said,

This isn’t about whether Ann Romney or I or other women of some means can afford to make a choice to stay home and raise kids. Most women in America, let’s face it, don’t have that choice.

Gallup found a small interaction effect.  The stay-at-home mom-employed difference was greater for low-income women.

The Gallup poll does not offer much speculation about why stay-at-home moms have more sadness and less happiness. One in four experienced “a lot” of depression yesterday.  That number should be cause for concern.

Maybe women feel more uncertain and less able to control their lives when they depend on a man, especially one whose income is inadequate.  Maybe stay-at-home moms find themselves more isolated from other adults. Maybe they are at home not by choice but because they cannot find a decent-paying job. Or maybe money talks, and what it says to unpaid stay-at-home moms is society does not value your work.  Nor, in comparison with other wealthy countries, does US society or government provide much non-financial support to make motherhood easier.

The late Donna Summer sang,

She works hard for the money
So you better treat her right

But how right are we treating women who work hard for no money?

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* For example, Edward Conrad is a former partner of Romney.  In a recent article in the Times Magazine, Adam Davidson writes, “If a Wall Street trader or a corporate chief executive is filthy rich, Conrad says that the merciless process of economic selection has assured that they have somehow benefitted society.”

** Hillary Clinton committed a similar gaffe twenty years ago in response to a reporter’s question about work and family “I suppose I could have stayed home and baked cookies and had teas, but what I decided to do was to fulfill my profession which I entered before my husband was in public life”

The Glee of Fielding

May 18, 2012
Posted by Jay Livingston

Wednesday night I had just finished The Art of Fielding.  I closed the book, thought about it for a few moments, and then for some reason I decided to watch “Glee.”  I’ve seen the show only a few times; when I do watch, it’s to see and hear which songs are being covered.  

In one of the first posts in this blog, I watched “Friday Night Lights” and wondered why so many American fictions culminate in some kind of contest or competition that magically resolves or dissolves all problems.  Internal personal troubles, moral dilemmas, social problems, interpersonal conflicts, romantic uncertainties – it all comes down to the big game. And once that’s over, win or lose, everything falls into place. 

Fielding and “Glee” both draw on this theme, though Fielding, a 500-page novel, has much more going on than does a 44-minute TV episode.  They also  trot out the same cliche of the underdog.   McKinley is always going up against a much more affluent, successful, and perhaps talented glee club that looks down their noses at our heroes.  In the championship game in Fielding, the struggling college baseball team meet the well-heeled Amherst, who arrive complete with mean-girl cheerleaders.

“Glee” and Fielding reprise another theme common in American fictions.  It combines “It’s Your Decision”  with “Taking One for the Team.”  A character’s conflict with another member of the team, or perhaps his struggle with his own internal demons, is jeopardizing the team’s chances for success against some powerful and nasty opponent.   Others drop hints, but nobody tells our hero what to do – this is America, after all, and individualism means that each person decides for himself.  But in the end, he or she sacrifices self-based motives and helps the team win (or if they lose, to do so admirably and with nobility). 

The more powerful opponent can be a sports team, a glee club, a gang, a political organization, or even, as in Casablanca, Hitler and the Axis powers.  In the end, Bogart (Rick) sacrifices his love for Ingrid Bergman (Ilsa) in favor of the war effort.  He takes one for the team.  As he explains to  Ilsa at the end on the tarmac,

It doesn't take much to see that the problems of three little people don't amount to a hill of beans in this crazy world. Someday you'll understand that.*

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* As Michael Wood  has pointed out, Bogart here is repeating precisely the idea that Bergman has been trying to convince him of since she arrived in Casablanca

The Mirror of Privilege

May 16, 2012
Posted by Jay Livingston

Privilege is invisible . . . to the privileged, though often not to others.  In the past (here for example ), I’ve used the analogy of “default setting.”   White, Christian, males assume that this is the default setting.  It’s  natural – it’s the way Nature thinks things ought to be. 

John Scalzi does a much better job with the default analogy.  He’s trying to get White males to look in the mirror without their invisibility cloaks and see their own privilege. 

Dudes. Imagine life here in the US . . . is a massive role playing game, like World of Warcraft except appallingly mundane, where most quests involve the acquisition of money, cell phones and donuts, although not always at the same time. Let’s call it The Real World. . . . Got it?

Okay: In the role playing game known as The Real World, “Straight White Male” is the lowest difficulty setting there is.

The default barriers for completions of quests are lower. Your leveling-up thresholds come more quickly. You automatically gain entry to some parts of the map that others have to work for. The game is easier to play, automatically, and when you need help, by default it’s easier to get.

(Read Scalzi’s entire post here.)

I don’t know if his strategy will work.  The privileged man stands in front of one of those distorting carnival mirrors.  He sees his legs and feet of privilege, but they are tiny.  The shoulders and head of his own accomplishment are gigantic.

I keep thinking of Molly Ivins’s line about George W. Bush – that “he was born on third base and thinks he hit a triple.”*

A more recent example comes from the Romney clan.  Mitt himself was born to privilege and then made a ton of money. But he probably does not realize how being the son of a wealthy father, one who had been governor of Michigan and who could send him to fancy schools, had anything to do with his success.

And now the next generation.

Shortly after Mitt Romney's failed 2008 campaign for the Republican nomination his son Tagg set up a private equity fund with the campaign’s top fundraiser. One of the first donors was his mum, Anne. Next came several of his dad's financial backers. Tagg had no experience in the world of finance, but after two years in the middle of a deep recession the company had netted $244m from just 64 investors.

Tagg insists that neither his name nor the fact that his father had made it clear he would run for the presidency again had anything to do with his success. “The reason people invested in us is that they liked our strategies,” he told the New York Times. [emphasis added]

Want a good example of how privilege is invisible to the privileged? – Tagg, you’re it.

The excerpt is from an article in The Guardian  by Gary Younge.  Younge’s real target is not young Tagg but people in the UK who, despite their best efforts, keep having their names crop up in connection with the Murdoch phone hacking scandal. 

Such is the incestuous nature of the British ruling class and the gene puddle from which it draws its stock. Such is their brazen venality, complicity, contempt and mendacity. Eton, Oxford, Bullingdon, Westminster – if you’re looking for a tiny minority who are struggling to integrate, look no further than the cabinet.

This is not to say that class in the US is the same as in the UK.  But in both countries, although personal ties to well-placed people are important, those who use those connections to become wealthy and still more wealthy attribute their success to their own personal virtue. 

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* Ivins has come up with the perfect simile.  If you’re on third, you are very close to scoring – all by yourself.  And of all baseball hits, a triple is the rarest.