Here is how the rhetoric, which we see in every defense of the stupendous salaries paid to the financial leaders (and, it needs to be said, corporate CEOs and top managers generally), goes: there is a competitive market out there. If we [insert any name here] don't pay millions of dollars to this particular worker, s/he will go off to another firm, perhaps, perish the thought, to a foreign competitor [note here: it is always good to sprinkle this rhetoric with a little xenophobia to get your way]. So, that's why pay goes up and up and up. It's the "market" that decides.

  So, here is how it really works. I want to illustrate this with an excerpt from a book I recently wrote called The Audacity of Greed. I had a chance to talk to one of the pioneers in the area of executive compensation--Graef "Bud" Crystal. If you Google him, you will find a pile of info about him. Here is what he explained:

Probably one of the best observers of the stock options’ scam
is Graef "Bud" Crystal. Now semi-retired and living north of San
Francisco, Crystal was once one of the country’s premier compensation
consultants—the outside fixers that CEOs and their boards
bring in to give their robbery of shareholders a veneer of respectability.
According to Crystal, the original notion of CEO compensation
was simple: you pitched your pay level to that of other CEOs.

But that notion didn’t last long. "In 1970, one CEO hired me and said,
‘we don’t have a bonus plan and do we need one?’" recalls Crystal.
"I did the study and I went back to the CEO and said ‘yes you do
need a bonus plan. But we have a problem area. You are making
$150,000-a year and the problem is that the $150,000 is equal to
the salary and the bonus to what your competitors are paying so we
have to cut your pay to $100,000-a-year and then we can put in a
bonus.’" Crystal laughs. "It was like a scene from The Exorcist where
ice formed on the windows...he started arguing about the findings
and he finally said ‘let me say this to you this way: who do you think
is paying your bills anyway?’ I replied, ‘If I recall correctly the checks
were drawn on the corporate account, not your personal account so
the shareholders are paying me, not you.’ The meeting ended quite
quickly."

  One of Crystal’s early clients was the H.J. Heinz Company. "In
1973, at first, the CEO was in a non-descript building nestled in a
big factory. I would come to meet with him, and I would be assaulted
by the smells when I walked in," Crystal remembers. "I observed real
work going on, their testing lab was there." Then, says Crystal, the
CEO retired, and was succeeded in 1979 by Anthony J.F. O’Reilly,
a very flamboyant, bon vivant Irishman. "He was a renowned rugby
star of his time, handsome, smart. He didn’t take kindly to his little
office building. U.S. Steel had built the largest building in Pittsburgh
and was just going bankrupt. O’Reilly decided he wanted that space
[in the U.S. steel building]. In there, you would ride in a very fancy
elevator, you’d get out on the 60th floor and you’d have to almost use a machete to get through the thick carpet and everyone would be speaking in hushed tones and no one but the secretaries made less than a million dollars a year. They didn’t care what the workers were paid because they never saw the workers."

  Crystal, then. told me about the massive pay package O'Reilly received and the trend that ignited:

However, O’Reilly was one-upped in 1996 by then Walt Disney
CEO Michael Eisner, who, according to Crystal (who was Disney’s
compensation consultant at the time), received "an enormous grant
of 24 million shares in a single day, the largest ever seen then. I said
that if you are going to get this grant, we need to put some teeth in
it, we should set the strike price much higher than the market price
so you have to make quite a bit of progress to make a buck. I pushed
and shoved and the compromise was: he’d get 15 million where the
market price was equal to the strike price, 3 million shares where
the strike price was set 25 percent higher than the market, 3 million
where the strike would be 50 percent higher than the market; and
the last 3 million share where it was set 100 percent higher than the
market price."

   At the time, Crystal says that the value of that one-time grant
was $170 million. "Those numbers went into everyone’s comparative
databases, including car companies and others that were not even
in the same [movie] industry," he recalls with amazement. "I could
almost hear the consultants calling up and asking, ‘Where are the
compensation committees?’ and, if they were told they were on the
way to the plane, they would say, ‘Stop the plane. Michael Eisner
just got this huge grant and you are way behind.’" To help mitigate
the risk to Michael Eisner—the risk of having a package that was
worth $170 million—the board of Disney agreed that the premium
priced options (the ones Eisner got that were set above the level of
the market price on the day the options were granted) would exist
for 15 years, not 10 years as was typical.[emphasis added]

  The point is that this is entirely a scam.

  Pay has nothing to do with the "free market". It is entirely a function of a small group of people conspiring to bootstrap one person's pay over another person's pay--having nothing to do with the larger, and mythical, "free market".

  The compensation consultant only gets paid--and only gets hired for future jobs--when he or she successfully boosts the pay of the CEO (thanks, of course, to complaint boards of directors). It has virtually nothing to do with competence or past performance of the company. It is a scam.

  Yes, we can tax banks to recoup money from banks who took taxpayer money to bail themselves out partly because they paid outrageous sums of money to CEOs who acted in their own greedy self-interest (a tax I support).

  Yes, we need to stop the corrupting influence of money that lets these folks stop any real reform.

  But, above all, we need to entirely change the dialogue. Every time we hear the slogan "market rates" or "competitive pay", we should ask how that pay was set and whether there is some independent way of actually assessing why a single person deserves pay that gobbles up an outsized share of the money paid out to workers.

  And we need to demand from our elected officials that they stop regurgitating the idea of "market rates" without thinking what that means. If they profess to represent the people, politicians have to get some spine and stand up to the people who have robbed America and crippled the livelihoods and futures of millions of hard-working people.

  Here is an example, via The Wall Street Journal:

Michigan Governor Jennifer Granholm on Sunday welcomed the White House push for a new jobs program. "It's overdue, like a million jobs overdue, you bet it's overdue," she told CNN.

Michigan has been among the hardest-hit states in the economic downturn. The jobless rate in the state reached 14.6% in December, the highest in the country.

Sen. Byron Dorgan (D., N.D.) said on Cspan's "The Newsmakers" that the president made a mistake by pushing for an overhaul of the health-care system in his first year in office. "A year ago, it should have been all the economy all the time," Mr. Dorgan said.

  I have respected Byron Dorgan's work on many issues, particularly on trade. But, he is, respectfully, way off the mark here.

  HEALTH CARE AND JOBS CANNOT BE SEEN AS TWO DIFFERENT ISSUES.

  The problem, as I suggest in this video, is not that the president tried to do too much. It is that he did too little--and what little was done was done in half-measures, or in ways that the people saw as the insiders way of doing business (for example, making secret deals with the drug industry).

  Let's be clear: jobs and health care could have been done effectively together if the insiders' had not seized control over the debate.

  First, the economy needed--and still needs--another one trillion dollars of stimulus beyond the $787 billion approved in the stimulus bill.

  The greatest crisis we face today is not the deficit--it is that one in five Americans do not have decent, full-paying work. While the recent financial crisis highlighted the jobs crisis in the country, the wage and job crisis has been 30 years in the making.

  Second, health care costs jobs. Period. I have made this point before, using the auto industry as an example: UAW members could work for free and the American-based auto industry would still be crippled because of the tens of billions of dollars in health care costs that its foreign competitors do not carry. You can't create lasting good-paying auto jobs--or jobs in other large companies and small businesses--until we rid the bottom line of the burden of health care.

  Now, the Administration, I believe, created the conditions for the health care debacle by seeding a feeding frenzy for lobbyists and supporting an approach that would hand a windfall of profits to the very industries that spawned the health care crisis.

  But, let us not confuse our disagreements with how this was handled--and botched--with the need to continue to argue that health care and jobs could have been--and should have been--addressed together.

  To make these points crystal clear:

1. We needed a much bigger stimulus which would have aided the economy--but we didn't get that because of the insiders in both parties buying the foolish argument that we faced a near-term threat from the deficit. We let the bond markets and the corporatists bully people and win--again--to the great detriment of the American people. We did too little--not too much.

2. A combination of the Party of No, the drug companies and the insurance industries, their paid representatives in the Senate, and, respectfully, an Administration that did not want to take on, on behalf of the American people, all the aforementioned players, produced an awful bill. We did too little--not too much.

  Real change can't wait.

  Yes, we have a massive jobs crisis. I have been pretty clearly supporting the idea that we need far bigger stimulus and that the deficit is not our immediate problem (hat tip to McJoan who has been on the mark criticizing the undemocratic deficit-cutting commission--which would cut Medicare and Social Security)

  But, the real question is: what do we do to raise wages in this country? We can create all the jobs we want. But, it will not matter if people cannot make a decent living working at the jobs they have. To paraphrase Jesse Jackson, even slaves had jobs.

  The GDP numbers underscore this. The GDP went up for mainly because companies had slashed costs--that means workers--so deeply and had used up what they had already produced (inventories) that they had nowhere to go but up in terms of making things. Consumer spending--two-thirds of the economy--is still weak. Which is obvious--people don't have jobs AND they do not have money, either in cash or credit.

  Wages. Wages. Wages.

  This isn't just a crisis of the the past few years. This is a crisis that has gone on for 30 years, during which productivity has risen dramatically (only partly because of technology advances) but wages have been flat--at least for average Americans, not for CEOs.

  For that reason, I think it was of great concern that the words "labor union" did not pass the president's lips during the State of the Union (not to mention the priority of passing the Employee Free Choice Act). Instead, he said this:

In the 21st century, the best anti-poverty program around is a world-class education. And in this country, the success of our children cannot depend more on where they live than on their potential.

  Respectfully, that is not correct. You can have all the education you want and all the potential--but if you cannot make a decent wage, it won't matter. And the best anti-poverty program is the labor movement.

  As well, the president was vague about where he was going on the question of our failed trade policy. In a remark that drew huge ovations from Republicans but virtually no support from Democrats, the president said:

And that's why we'll continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea and Panama and Colombia.

  It is my hope that the president understands that our so-called "free trade" agreements are directly connected to the decline in wages--both because they encourage the movement of high-wage jobs to lower-wage countries (though, let's be clear that such movement can happen without these trade deals--the deals just make it easier) AND because so-called "free trade" is based on the fundamental principle of the race to the bottom on wages.

  I have pointed out for a very long time that the minimum wage is a scandal. It is a wage that obscures the deep poverty in America. For that reason, I believe the minimum wage must rise immediately to $10 an hour, and in a very short order, reach $15-$20 an hour. That is what hard-working Americans deserve: if the minimum wage truly reflected productivity gains over the past 30 years, the minimum wage would be, today, more than $19 an hour.

  To raise wages for seniors, we have to INCREASE Social Security benefits, not freeze or cut them. Unlike my opponent who supports a Commission that would clearly cut Social Security, I am advocating that we increase Social Security benefits by 15 percent for at least the next 20 years to make up for the trillions of dollars in wealth lost by average people in the recent financial and housing collapse. Over the next two decades, Social Security costs are expected to rise from 4 percent to 6 percent of Gross Domestic Product. So, by 2020, with a 15 percent hike, the cost would be $105 billion—-which we will pay for, in part, via the Financial Transactions Tax on Wall Street (which will raise at least $150 billion and perhaps as much as $200 billion per year)--a tax that I have advocated.

  So, without a serious rise in wages, which will only come with a larger, more powerful labor movement, all the rest of the numbers won't matter much when we look at whether the American Dream will be a reality for our children and generations to come.