Toward a Corporate Greed Index

October 13, 2011 12:50 PM

Corporate Greed Index? Is this helpful/useful?

The current "Occupy Wall Street" type protests seem sincere, but the participants have a broad set of issues; they seem upset but unfocused.

I suggest the following index to measure corporate greed and would like to know if you think it is useful/helpful in the effort.

What I did was calculate the total amount of dollars that were made as profit by all the profitable companies on the various US stock exchanges, took half that money (ie the companies keep half the current profit) and divided the half-profit by $50,000. In other words, if we took half the profit made by the corporations and paid to new employees at $50K each, how many people could be employed instead of out of work.

The answer: about 19,600,000

JP Morgan alone could provide employment for 186,000 people if we halved their 29% profit.

(I recognize that the problem of gaining new employees is more complicated than this, but wanted a simple index.)

Do you think this helps show the size of corporate greed?

posted by gnossos to Society & Culture (24 answers total)

It's an interesting index. I wouldn't use $50,000, though. I would use something that has a more logical basis, like national median FTE income, annualized mean (or merdian) hourly wages, per capita income, or something more like that. Using any of these numbers would, to me, provide a more coherent argument while at the same time resulting in an index score more favorable to workers. If you want to be especially responsible, you should probably look at national mean cost-of-employment for 1 FTE W2 employee. (This takes into account wages, insurance premiums, payroll taxes, etc.)

In trying to quantify corporate greed -- or at least corporate success at the expense of individual worker success -- I would also consider looking at the rate of increase of corporate profits vs. the rate of increase of median income (whether or not you use inflation or non-inflation adjusted dollars in this particular case isn't all that relevant).
posted by GnomeChompsky at 12:59 PM on October 13, 2011

No. At a basic level you're forgetting about benefits, taxes, healthcare costs for the company. Beyond that, what are you asking JP Morgan to do with these people? Have them stay home and pick up a paycheck for not showing up? They'll require office space, computers, furniture, phones, training, supervision. If JP Morgan could make more profit by hiring 186,000 more people, I suspect they'd do it.
posted by IanMorr at 1:00 PM on October 13, 2011

makes absolutely no sense.

P&L profit
1) doesn't represent re-investment/growth in the firm above the cost of maintaining exisiting assets
2) Over a short period of time may differ significantly from actual cash generated by the firm
3) Shareholders are actually due some remunertion for their capital tied up in the firm. If you halve the earnings you are basically shifting the market ROE from 11% to 5.5% - is that a high enough return that shareholders won't demand companies give back their cash? no.
4)Margins are only one of the main inputs into return on capital, sales and capital are the others. Margins alone are a bad way to look at profitability

There is a right way to do this, which is to see what businesses are earning exceptional returns on capital relative to their history and have lower than historic rates of capital reinvestment. Those are the people not reinvesting, not hiring people.
posted by JPD at 1:02 PM on October 13, 2011

right way = rather, perhaps a better approach. there are other decent approaches.

But I think any of this work will show you things aren't actually that good for corporate america at the Net Income line. Not to say that this doesn't mean there are over-compensated execs who get paid higher up on the P&L and what not.
posted by JPD at 1:05 PM on October 13, 2011

To be fair you should take 100% of the losses of the unprofitable companies and divide by $50,000 and determine the approximate number of employees that should be fired so the firm can break even.
posted by otto42 at 1:07 PM on October 13, 2011

This is the type of thing which makes some kind of intuitive sense for those predisposed to thinking that corporations are inherently greedy. But. It ignores the complexity of accounting. JPD's comments about P&L are correct. As are IanMorr's comments about the simplistic nature of the index and its underlying assumptions.
posted by dfriedman at 1:08 PM on October 13, 2011

What about the ratio of executive compensation to earnings? No jobs or growth are going to be created when money is being funneled out to Dubai and Acme Yacht Co.
posted by crapmatic at 1:11 PM on October 13, 2011

what are you asking JP Morgan to do with these people? Have them stay home and pick up a paycheck for not showing up? They'll require office space, computers, furniture, phones, training, supervision.

I work in a financial firm (in a non-financial role) and most of us have old computers and no office space. A lot of the equipment is also several years old, or nonexistant -- recently someone called tech support to report that our fax machine was not working, and the response was simply to remove the fax machine, and not provide a new one.

While it is a good point to calculate the "true" cost of a new employee, it may not be quite so big a gap as one would think, I suspect.
posted by EmpressCallipygos at 1:16 PM on October 13, 2011

Speaking as Joanne Consumer here, I don't think so?

I don't mind corporations getting profits if they are providing a service. I'd rather know what corporations paid off lobbyists, or had to pay fines for screwing up the water/air somewhere, or were involved in any kind of scheme that cheated/deceived the public.

As far as employment goes, it's tough to make any kind of analogy, because so many employers choose to contract overseas for underpaid workers, which isn't right, and we naturally want those workers to have better conditions and also want our workers here to be employed, but that makes quantifying jobs tougher.

And it's complicated in other areas, too, because for me, personally, although I support the concept of unions, which came about to empower employees, I also recognize that unions can be so prohibitive in practice that they drive themselves out of the market. For instance, moving a company headquarters across town can be more expensive, due to having to employer union workers, than flying people across the country to do it who are not in unions. And even though we need to hire more teachers here, the teacher union does not want substitutes or new young people brought in; they want you to stick with an educator in the union already. It's a messed-up situation, and if you could find some way to illustrate that, I'd be seriously impressed.
posted by misha at 1:20 PM on October 13, 2011

No, this is a silly measurement.
posted by pompomtom at 1:22 PM on October 13, 2011

Also, using your methodology, Apple appears to be one of the greediest since they have not use half of the $7.3 billion they made in the second quarter to go out and hire 73,080 new employees.

Moreover, half of the $76.2 billion of cash and investments they have on their balance sheet is obviously going to waste since they could easily hire 761,560 employees.

Either Apple is extremely greedy or they have other plans for their cash. Maybe they plan on buying up smaller under-capitalized company's that are in the process of inventing 8th generation Iphone technology. Maybe they don't have a product to succeed the latest Iphone iteration and are concerned sales in 2014 are going to drop dramatically. Maybe they hate debt, or want to pay a dividend, or do not want to loose talent and plan on paying bonuses this year that are double last years. Maybe they are saving the cash so they won't have to lay off employees if the economy tanks and not as many people by new Iphones as much as they used to no matter how cool the next model might be.

Imagine every greedy company revealed in your metric has similar decisions to make as they pertain to their own business.
posted by otto42 at 1:22 PM on October 13, 2011

EmpressCallipygos, while it may be true that you have 'old computers' at work if 186,000 new employees were hired next month by JP Morgan where would these new hires get computers from? Does the company have several thousand machines stored away some place? Do the math on the cost of just buying new computers....

This idea is ridiculous and absolutely. flawed. Not to mention this entire thread is pretty much Chatfilter
posted by Funky Claude at 1:23 PM on October 13, 2011

Doesn't seem like chatfilter. The OP came up with a concept and seems genuinely interested in whether it is useful or problematic. That is a problem to be solved.
posted by dfriedman at 1:25 PM on October 13, 2011

Can corporations be expanded to include universities and colleges? How much of the tuition paid by students who get loans is actually used in the day-to-day running of the institution--can tuition and fees be lowered?
posted by Ideefixe at 1:36 PM on October 13, 2011

A couple of other approaches:

Add up the total compensation of the top five executives of a company. Divide that by the median pay for the company. That would indicate the proportionality or not of compensation.

Compare productivity growth with growth in wages and salaries.

These could be done about individual companies or figured for a bunch together.

Also, I'm curious how you got data for all the profitable companies on the various US stock exchanges. That sounds very time-consuming.

Any which way, I'm not sure "greed" is the best label. It's antagonistic and speaks to motivation, which we don't know.
posted by maurreen at 1:38 PM on October 13, 2011

And I agree that losses need to be accounted for.
posted by maurreen at 1:39 PM on October 13, 2011

Also, I'm curious how you got data for all the profitable companies on the various US stock exchanges. That sounds very time-consuming.

This data is readily available if you're willing to pay for it.
posted by dfriedman at 1:40 PM on October 13, 2011

Even better.

Take the $2.243 billion that Apple owes in taxes for the second quarter.

Instead of paying the tax, hire 44,860 employees at $50,000 per year.

Assuming no deductions, each employee will owe Federal taxes on their income amounting to $8,625. Add employee portion of payroll tax (4.2% x $50K) and employer portion (6.2% x $50k) for another $5,200. Excluding medicare and state and local taxes, each employee will pay $13,825 in taxes. In aggregate, the total extra taxes paid by employees will approximate $620.2 million.

The taxing authorities would of course be out $1.58 billion, but the total cost to create those jobs is only $35,288.

This is only a one time cost of course. Assuming wages stay at $50k, the taxing authorities would recover their "investment" in only 2.5 years. Not only that, as long as the employee remains employed, the taxing authorities gets to tax the employee in perpetuity.
posted by otto42 at 2:12 PM on October 13, 2011

Accounting profit is not the same as free cash flow to the firm. Furthermore, why do you assume hiring new workers is the opposite of greed? Investing retained earnings into new capital expenditure might actually allow a firm to hire more workers also. You may want to review your system for arbitrariness.
posted by yoyoceramic at 2:19 PM on October 13, 2011

Another concern is what would Apple (to use Otto42's example) do with another 44,860 employees? They'd have to build many more office biuldings/factories etc to put them all in and even they what work would they performing? Lets say they had all thise peole making iPhones at 10x the rate the currently do, who would buy them? Is there a market for 10x as many iPhones in the world?
posted by Confess, Fletch at 2:20 PM on October 13, 2011

No jobs or growth are going to be created when money is being funneled out to Dubai

Do jobs and growth not exist or matter in Dubai?
posted by John Cohen at 3:03 PM on October 13, 2011

I have a very big problem with the saying "Corporate Greed". What are corporations? Who is behind them?

Investors want to see profit. People love to say that companies are greedy, but have no problem buying shares and expecting the utmost profit profit from the same shares.
If you make $10M. this year, would you hire more people to work for you just because you have the money - and there are unemployed people in the market?

A company that does its best to avoid paying taxes (thus saving investors' money) is greedy, but an individual that does his best to avoid paying taxes is acceptable?
Now, the whole tax rate thing (and whether that is fair or not) is a whole different topic, that needs to be addressed.
posted by helloworlditsme at 3:09 PM on October 13, 2011

Although this is an interesting stab at defining corporate responsibility, or lack thereof, it is very problematic as an implementation. For a simple instance, charitable donations come out of profit, and are often seen as improving the public image of a corporation -- frequently enough in a cynical sense, such as oil companies promoting green energy and wildlife reserves. It's quite possible, and even common, to game any P&L in this manner to deal with a spate of poor publicity. You would need to dig deeper.

In other words, if we took half the profit made by the corporations and paid to new employees at $50K each, how many people could be employed instead of out of work.

But the problem isn't a shortage of jobs per se in the absence of any other factors. The problem is a slump in demand. While employing more workers would circulate more cash, in the same manner as s the "soft stimulus" of extended unemployment benefits, it's next to impossible to force a company to employ more people than it thinks it needs to handle its current level of sales. (And when you do, as in the recent discussion of German job-sharing rules, you need to make sure you aren't violating labor contracts or undercutting the wages or job justification of existing workers.)

It is really striking to me how what seemed like a quaint bit of 19th century rhetoric -- idle capital -- has suddenly become very relevant. But solving it is going to involve a lot of different approaches, and corporation-shaming isn't likely to be a very effective one.
posted by dhartung at 4:05 PM on October 13, 2011

Companies and corporations don't make profits. People do. A corporation is a technology that is designed to convert inputs into outputs, no different than your toaster is a machine that converts bread into toast. Would it make sense to be mad at toasters for "using up" all the bread? You could legitimately be angry at the people putting the bread into the toasters if you wanted the bread to be used for other purposes, but all this uproar about "greedy corporations" to me conveys more a failure of our educational system to give citizens a basic understanding of how a market economy works than anything else.

The broader public might be interested in knowing how the company's profits are divided among all the various stakeholders (blue collar, white collar, investors, etc.). A simple gini coefficient would provide a number telling you how equally the profits are divided among those groups, for instance, but why would this knowledge be particularly valuable? Putting flawed or imperfect data in the hands of those that are unable to use it appropriately--however well intended-- is not much different than spreading propaganda. I genuinely believe that much of the reason we are in the mess we are in today is because a lot of us (voters, politicians, everybody) were acting in ways that we truly believed (or were told by people we trusted) were helpful but in fact caused more problems than they solved.

If you really want to help (and it sounds like you do), study up on how the economy truly works and hows and whys of the government's involvement in it, and help inform those that are angry about how we can move past being angry and genuinely start to fix things. I can understand why people are so angry. There are a lot of things going on today that are frustrating. But as many have already said, corporate shaming isn't going to fix things, and promoting a de facto 50% tax on corporate profits to be redistributed to the unemployed seems unlikely to help either.
posted by jtfowl0 at 7:16 PM on October 13, 2011