Archives: 11/2009

Some Facts on Executive Compensation

All too often policy debates regarding executive compensation appear driven more by populist politics than any real basis in fact.   In order to add some light to this debate, two professors at New York University’s Stern School of Business, Gian Luca Clementi and Thomas Cooley, recently released a working paper, offering their findings on trends in executive compensation, many of which I found surprising.

First off, Professors Clementi and Cooley measure executive compensation more broadly than just salary, perks and bonuses.  They include annual change in value of own company stock and option holdings, as well as the value of own company stock sales and newly awarded securities.  This broader measure is intended to give a fuller picture of how closely an executive’s wealth is tied to the performance of their firm.   Not too surprising given this broader measure, the professors find that salary and bonuses are actually a small faction of overall compensation.  Stock holdings, awards and options are far larger shares of compensation.

Among their other findings:  A $1,000 increase in shareholder wealth is associated with about a $35 rise in CEO wealth.  One factor behind this relationship is the relatively high own company stock holdings of CEOs.  For 2006, about a fourth of CEOs held more than 1% of their company’s stock, while 10% held more than 5%.

A surprisingly finding was that it was quite common for CEOs to actually see negative compensation.  For instance in 2002, the professors find that 40% of CEOs lost money, driven many by their own company stock and option losses.  These are just a few of the paper’s findings.  Hopefully this research, and others, will provide a more factual basis for debates surrounding executive compensation.

Battle of the Ilyas and More on the Chicago Gun Case

Josh Blackman, my coauthor on “Opening Pandora’s Box? Privileges or Immunities, The Constitution in 2020, and Properly Incorporating the Second Amendment,” has inaugurated a series of podcasts devoted to law and liberty. He’s already has an interview with PLF’s Timothy Sandefur (also a Cato adjunct scholar) and the Independence Institute’s David Kopel (also a Cato associate policy analyst).  Tim authored Cato’s brief in McDonald v. City of Chicago, the case seeking to extend Second Amendment protections to the states – and about which I blogged yesterday.

Well, now Josh has come up with a bit of a twist on the podcast medium: he invited George Mason law prof Ilya Somin (also a Cato adjunct scholar) and me to engage in a contest based on the trivia challenge Sixth Circuit Judge Danny Boggs issues his clerkship applicants. The winner of this “Battle of the Ilyas” would receive the free and exclusive right to the Ilya name – because apparently it’s too confusing to have two libertarian lawyers named Ilya in the same metropolitan area/professional circle. It was a lot of fun, and while I won’t tell you the outcome here, you can easily find that out and listen to the conference call we had about it.

Finally, after this “Battle of the Ilyas,” Josh asked me to record a podcast about McDonald – which inspired our article – and United States v. Comstock (another important case in which Cato filed a brief, and which I blogged about here).  Happy listening!

A Surveillance Newsflash from Planet Hopeychange

Climb aboard the TARDIS campers, we’re going to take a magic YouTube voyage to a strange parallel universe, very much like ours, except Barack Obama sports a dashing goatee and… Sorry, what’s that?  Not a parallel universe, you say? August of 2007, you say?

Wait, that can’t be right. Because right around 20 seconds in, Barack Obama says that under his administration, there would be “no more National Security Letters to spy on citizens who are not suspected of a crime.” That’s not who we are, he says! Not what’s needed to fight terrorists, he says!

And yet his Justice Department has quietly but steadfastly fought any effort to limit the use of National Security Letters. When Democratic lawmakers attempted to require that these administrative subpoenas, issued by FBI agents without judicial supervision, be issued only to obtain the records of suspected terrorists or foreign agents or people they’d been in contact with—or if necessary to obtain records relevant to the activities of suspected terrorists in the interest of identifying specific individuals—the administration worked behind the scenes to rally Republicans and Blue Dogs against those changes.

You know, a few more years like this, I’m liable to run right out of Hope™.

Higher Immigration, Lower Crime

Yes, you read that right. The story is more complicated than a short headline can covey, but that is the gist of an article of mine in the just-out December issue of Commentary magazine. [Subscription needed.]

The past 15 years have witnessed two undeniable trends: dramatically rising levels of immigration, both low-skilled and high-skilled, and an equally dramatic plunge in crime rates nationally. I don’t argue that increased immigration in the past 15 years is the primary cause of falling crime rates, but I do argue that the evidence punches a gaping hole in the Lou-Dobbs contention that immigrants have clogged our prisons and unleashed a new wave of crime.

In the Commentary article, and in an earlier Cato Free Trade Bulletin, I cite Census data that show that incarceration rates for immigrants are significantly lower than for native-born Americans. The contrast is especially sharp between immigrants without a high-school diploma and their native-born counterparts. Along with their lower propensity to commit crimes, immigrants are also more likely to be employed than similarly educated Americans.

Or as the subhead of the magazine article nicely puts it, “Today’s ‘underclass’ of newcomers seeks a day’s work, not a drug deal.”

On What Planet Is Lindsey Graham a Free-Trader?

I’ve just started reading a new article by economists at the World Bank and the Peterson Insititute. The gist of the paper is that greenhouse gas emission targets will have little effect on “carbon leakage”, the apparently-largely-theoretical phenomenon whereby carbon-intensive industries move to less regulated jurisdictions in response to stringent emissions regulations in their original home.  So we can strike that off our list of worries.

The authors do reach the conclusion, though, that output of energy-intensive products will decline in response to emissions caps and the political temptation for “carbon tariffs” will be strong (see here why that is a bad idea). Basing the carbon tariffs on the carbon content of imports–as opposed to, say, the carbon content of domestic production displaced– will lead to significant falls in developing country exports. Music to protectionists’ ears, perhaps, but not exactly a recipe for international cooperation or global prosperity.

I’m still digesting the substance of the paper, but I was struck by what I think is a pretty large oversight/mischaracterization in the second paragraph.  The authors refer to the “internationally-minded” Sen. John Kerry (true in the serves-on-the-foreign-relations-committee-and-speaks-French sense, I guess) and the “free-trade oriented” Senator Lindsey Graham (R, SC).

Huh? A cursory glance at Senator Graham’s record indicates that in no serious sense could he be deemed “free-trade oriented.” Senator Graham has voted to lower trade barriers less than half (43 percent) of the time and has taken only 20 percent of opportunities to cut subsidies. That puts him in the “interventionist/internationalist” camp. Maybe the authors didn’t know about the Center for Trade Policy Studies’ “Free Trade, Free Markets: Rating Congress” tool, but surely Senator Graham’s co-sponsorship of the notorious Schumer-Graham legislation, among other transgressions, should have tipped them off.

Right and Left Take on Feds

The New York Times has a good article about how lawyers on both the right and left are working together to try and roll back state power in the criminal justice system. Here is an excerpt:

“It’s a remarkable phenomenon,” said Norman L. Reimer, executive director of the National Association of Criminal Defense Lawyers. “The left and the right have bent to the point where they are now in agreement on many issues. In the area of criminal justice, the whole idea of less government, less intrusion, less regulation has taken hold.”

There’s plenty to be concerned about – overcriminalization, federalization of crime, and the militarization of police tactics.  I told the reporter that Cato has been uniquely positioned on this subject – that is, we remind our friends on the left that businesspeople have their rights violated all the time.  And we remind our friends on the right that police and prosecutors abuse their powers in the “blue collar” context as well.  It is encouraging that more organizations are taking a more skeptical view of government power generally and are embracing more principled positions with respect to the rights of the accused set forth in the Constitution.

Other blogs are covering this article and subject too – go here, here, and here.

It was also nice to see that our friend Harvey Silverglate’s new book (Three Felonies a Day) was mentioned.  We had a book forum for Harvey a few weeks ago and C-Span was here to cover it.

For additional Cato work on criminal justice, go here,  here, and here.

ObamaCare Cost-Estimate Watch: Day #158

House Democrats introduced the first complete draft of President Obama’s health plan on June 19.

Since then, Congress has spent 158 days considering the Obama health plan without ever laying eyes on a complete cost estimate.

The House passed its version without one. And the Senate has begun floor consideration without one.  (Shouldn’t these eight Democratic-caucusing senators be upset about that?)

(Cross-posted at National Journal’s Health Care Experts Blog.)