Eric Schmidt, executive chairman of Google.
March 19, 2014
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Economic outcomes aren’t produced in a vacuum. They
reflect the politics, culture and values of the people behind them.
Today those forces aren’t saying good things about us as a society.
Think about it: since when is a failed Silicon Valley executive worth
nearly 2,000 times as much as a teacher?
Yet, sadly,
that’s the kind of economy we live in. The money certain types of people
command in the marketplace tells us something about our society—and
nowadays, it’s not telling us much that’s very good.
Here are six examples of individual incomes which demonstrate that our priorities have gone completely out of whack.
1. Number Two at Yahoo! gets $109 million for 15 months of failure.
Okay,
run this by me one more time: A human resources expert told Forbes
magazine that nine-figure severance packages for Number Twos are “as
scarce as golden hen’s teeth.” But Yahoo! CEO Marissa Mayer still
offered a very sweet one to her short-lived second-in-command, Henrique
De Castro. It’s worth an estimated $64.5 million, according to
published reports,
which means that De Castro’s unsuccessful 15-month tenure will net him
an estimated $109 million. De Castro’s golden parachute is “
one of the biggest ever,” according to Forbes’ Jeff Bercovici.
De
Castro’s severance package, which can be seen as a guarantee against
personal failure, would have been considered large even for the Number
One at a large corporation. It’s especially generous given the fact that
the New York Times
reports
that “Mr. de Castro was particularly ill-suited for the job, according
to ad-industry executives, analysts and people who worked with him at
Google and Yahoo.”
It paid off extremely well for De
Castro, whose parachute unfurled less than 15 months after he was hired.
As Bercovici notes, De Castro was paid $244,000 each day of his Yahoo!
employment, including weekends and his final months, during which he was
reportedly rarely on the premises.
The average
teacher’s salary
in the United States was $56,383 last year. De Castro’s severance
package was more than 1,933 times that amount. He was paid more to go
away than America’s teachers are paid to show up—and to grade papers on
their weekends, too.
2. Former Google CEO is reportedly worth $8 billion (and change).
How did executive worth get so inflated in Silicon Valley? Consider
this:
de Castro’s (and Mayer’s) former boss Eric Schmidt is reportedly worth
$8 billion after serving as Google’s CEO for a number of years. Schmidt
famously earned a $1 salary and negligible bonuses while he was CEO, but
clearly he was being compensated more than fairly.
In
his current, more nebulous position as “executive chairman,” Schmidt has
twice been awarded $100 million in stock. Last month he was also given
$6 million in cash.
Schmidt’s a bright guy. But $8
billion and change in net worth? Why, exactly? Schmidt didn’t invent
Google. Sergey Brin and Larry Page did. He ran it reasonably well, and
deserved to make money for that. But $8 billion? For 10 years’ work?
On
the “teacher scale” (and with a little estimating for inflation),
that’s more than 15,000 times what the average teacher would have made
over the same 10-year period.
3. $19 billion to buy WhatsApp.
WhatsApp
duplicates what instant messaging does, but independently of phone
carriers. It’s a good idea, but it’s not revolutionary. While it was
well-implemented, by all accounts, its design and execution didn’t
require any technical breakthroughs.
Good,
competent engineers and managers deserve a good payday for the work.
And the WhatsApp team deserves some extra payback, karmic as well as
financial, for refusing to accept ads and taking a firmly pro-privacy
and anti-Big Data stance. “People need to differentiate us from
companies like Yahoo! and Facebook that collect your data and have it
sitting on their servers,” said CEO Jan Koum. “We want to know as little
about our users as possible.” (They tell us that won’t change—at least
for now.)
But the 55-person WhatsApp team received a lot
more than a bright payday and a promising rebirth. At least a dozen
business sites have described this deal as “
jaw-dropping.”
Facebook paid a record-shattering $19 billion for the company, despite
the fact that the app is unoriginal in design and would be pretty easy
to replicate. What wouldn’t be easy to replicate is the user base
WhatsApp has developed: 450 million people are paying 99 cents per year
to use the service.
In other words: The biggest chunk of
that payday went, not for the app or the team, but for the users—people
like you and me. We could discuss the wisdom and fairness of that
purchase all day long.
But there’s another reason this
staggering sum was paid out: Facebook, like much of the Silicon Valley,
has too much money for its own good. Why else would it pay roughly 40
times accompanies annual earnings in order to acquire it? Bill Gates,
who has many reasons to remain on friendly terms with Zuckerberg,
struggled to be diplomatic. ”I hope it works out for him,”
said Gates. “Not everybody would’ve done it, I’ll say that for sure.”
You
could have paid nearly half a million teachers for a year with this
money. That would also provide an enormous stimulus to our struggling
economy. Instead it’s going to a company with 55 engineers. Something is
seriously wrong somewhere.
4. Zuckerberg.
That
name says it all. Why wouldn’t Mark Zuckerberg pay $19 billion for
WhatsApp? He probably thinks he’s worth $28.5 billion, which is what
Forbes magazine
estimates
is his net worth. Sure, he’s an aggressive and smart businessman. But
he didn’t invent the Facebook concept, and he had no idea what this
website for new college students would eventually become.
If
you think Mark Zuckerberg is worth more than 523,207 teachers—who, at
an average class size of 20, could teach 10 ½ million kids for a
year—then your priorities are out of whack too.
5. Hedge funders.
Hedge
funders bet against companies’ success at least as much as they bet for
them. Their profession has contributed to the explosive growth of
non-productive financial transactions as a percentage of corporate
profits, a trend that has robbed the economy of jobs and growth.
And they make a lot of money for it. (Details
here.)
Hedge funder Steve Cohen made $2.3 billion last year. Since that’s just
one year’s income, it didn’t hurt him too much when he paid $1.8
billion to settle criminal insider trading charges. In fact, he came out
half a billion ahead last year.
David Tepper made $3.5
billion last year. That puts him ahead of Zuckerberg on an annualized
basis. John Paulson made nearly $2 billion last year. James Simon,
although officially retired, made $1.1 billion. Ray Dalio’s Bridgewater
Associates underperformed compared to the industry, but he made nearly
$1 billion anyway.
The top five hedge funders made a
total of $13.4 billion among them, or nearly a quarter million
teacher-years, in a single year.
6. Quinn Gillespie, lobbyists.
Our
unjust and inequitable economic system is only made possible because
lobbyists have so much influence in Washington. Politicians and
political operatives know they can look forward to a rewarding afterlife
in the lobbying universe if they play their cards right—and most of
them do.
While it’s not the largest lobbying firm, Quinn
Gillespie’s origins reflect the bipartisan nature of the lobbying
machine. It almost sounds like a sitcom: one’s a Republican, one’s a
Democrat, and together they’ll make millions!
Jack Quinn
was a Clinton insider. Ed Gillespie is a former chairman of the
Republican national committee, Bush insider, and cofounded Crossroads
GPS with Karl Rove. (Quinn is on hiatus to run for the U.S. Senate in
Virginia.) Their firm made a total of $160 million
in 2012, of which $4,030,000 was reported as official lobbying.
Their
income is small potatoes compared to the massive sums the billionaires
on this list have been pulling down. But they are making millions off a
profession that was once described as “public service.” That’s
disgraceful.
$4.030,000 for lobbying comes out to 71 ½
teachers. The city of Washington DC could sure use those teachers.
What’s more, those teachers would be doing social good, not social harm.
Lobbyists
may not be billionaires, but they make our billionaire-generating and
billionaire-coddling system possible. And they do it at the expense of
our social values. They may not be the unproductive billionaires who are
draining the lifeblood from our economy, but lobbyists like Quinn and
Gillespie are the wind beneath the billionaires’ wings.
RJ Eskow is a senior fellow with the Campaign for America's Future.
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