A guest post today by Steve Fine (my dad) on the insurance industry and Executive pay…
I was a part of the problem – well not a direct part, but in the industry. In the late 80’s, early 90’s, I found myself in the insurance industry. It was a time of innovation, probably still is and probably always will be. From my perspective it seemed like a game of cat and mouse. Laws were created by congress to create a sense of fairness and the brilliant minds of actuaries and lawyers would work to find loop holes.
A law or ruling that limited the amount of benefits, (i.e. deferred compensation, company paid health plans etc), that the top earners of a company could be given different than the benefits given to the rank and file would be passed. Before most people were aware of the law the insurance and financial services industry would create a plan or program that could bypass the new law using a loop hole the legal department discovered. Would it be wrong to assume the law was created with the loop hole in mind?
This game laid the foundation for the disparity between top executives and regular workers. The following is from the website of the House Committee on Financial Services:
“CEOs have seen increases in their earnings at a rate far greater than that of the average worker. In 1965, U.S. CEOs at major companies made 24 times a worker’s pay-by 2004, CEOs earned 431 times the pay of an average worker. From 1995 to 2005, average CEO pay increased five times faster than that of average workers. While CEO pay continues to increase at rates far exceeding inflation, wages for the vast majority of American workers have failed to keep up with rising prices. In fact, real wages for the 90% of Americans who earn under $92,000 a year have actually fallen since 2001.
When comparing CEOs to minimum-wage earners, the contrast is even starker. In 2005, median pay for CEOs of the 100 largest companies rose 25% from the previous year. Minimum-wage earners this year, on the other hand, made the same amount as last year, and every year before that since the 1996-1997 increase-adjusting for inflation they actually made less than then (in inflation-adjusted dollars, $5.15 today is the equivalent of only $3.95 in 1995).  CEOs, on average, take home 821 times as much as a person working for minimum wage. With this extraordinary ratio, an average CEO makes more before lunch on his first day of work than a minimum-wage earner will make all year.”
While the insurance and financial services industry created the instruments which allowed legal manipulation of the laws, it instilled a sense of greed and changed the focus of business owners. Where once was pride of ownership, pride of making a product or providing a service and creating employment opportunities, now there is only a sense of making money, the more the better and the rest be damned.
Stay educated on all the reasons that the foundation of our free market economy is crumbling. That way you will know where to throw stones and when to duck.