(I am writing this draft on April 19, 2020, several weeks into the stay-at-home order for the COVID-19 Pandemic. I’ll largely be citing from this Buzzfeed News article.)

I enjoy a nice pizza slice. During these weeks at home, I’ve got my Friday lunches from a local pizza place down the street. $20 gets me lunch for my wife and I. A pepperoni slice, a buffalo chicken slice, two orders of garlic sticks, and a Caesar salad. The buffalo chicken slice is to die for, but the stand out are the garlic sticks – super garlic-y. It’s a local spot, just one location in California – the family owns another in NYC. A little pricier than Domino’s, which has a franchise store also just a block away, but well worth it, in my opinion.

Like many small business, they’ve been hurting, with much less pedestrian traffic on the main street. They remain open, as an essential business, but there is rarely more than two customers picking up an order at any one time. It’s sad. I want them to survive.

It’s small businesses like my local pizza spot that were the intended beneficiaries of the Coronavirus Air, Relief, and Economic Security Act, aka, the CARES Act.

“The act provided up to $350 billion in loans to businesses with 500 employees or less for payroll purposes….Under the Paycheck Protection Program (PPP), the government will forgive the loans if the money is used on payroll, rent, or utilities — and workers aren’t laid off.” (Buzzfeed).

My local pizza place, with 5, maybe 10 employees; assuming $20/hour for 3 months of hard times: that’s around $50K to $100K needed to cover payroll, leaving their revenue to cover rent and other expenses.

As you can imagine, there was a lot of demand for these loans, and as I write this, on Sunday, April 19th, the funds ran out last Thursday after making over a million loans (an average loan being less than $350,000).

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Now, I also like a good steak. My wife cooks a very nice steak at home, maybe once a month. We might go out and get steak two or three times a year. There is a higher end local spot nearby that does a great steak for two.

Another higher end steak place that you may be familiar with is Ruth’s Chris. I have eaten there two or three times. It was good.

Ruth’s Chris is a chain restaurant with 159 locations. The Beverly Hills location currently has its 16 oz. Ribeye steak available for pick up/delivery for $62. Ruth’s Chris is owned by Ruth’s Hospitality Group, Inc., a publicly trade company.

Now, I don’t know whether my local pizza place applied for a PPP loan. They are most definitely a private held enterprise, and thus, such information isn’t public.

On the other hand, Ruth’s Hospital Group, Inc. (NASDAQ: RUTH), as a publicly traded company — I know whether or not they applied for a PPP loan.

Did RUTH apply for a small business loan? Not only did RUTH, a company currently valued at $249 Million (market capitalization), apply for a small business PPP loan, but they received a $20 Million loan. (Again, the average loan was less than $350,000.)

Per Buzzfeed: “All loans were from JP Morgan bank but will be backed by the US government.” That means, you and I, as tax payers, are paying JP Morgan its profit margin on all loans that are forgiven. I.e., if RUTH gets its $20 Million loan forgiven, then that amount – plus interest – gets paid by you and me.

Before I get upset, maybe RUTH and its shareholders are well deserving of this loan eligible for forgiveness, right? Maybe RUTH’s shareholders have responsibly compensated their executive team. Say, no more than $1 Million a year? Or a CEO pay ratio less than x30?

NOPE. They haven’t released their filings for 2019 yet, but according to last year’s proxy filing, RUTH CEO Cheryl Henry made $6.1 Million in 2018. Their top four executives, including Ms. Henry, made around $11 Million. Their CEO Pay Ratio – how much more their CEO makes compared to their median (average) employee: on Page 37 of their Proxy, was 193 to 1. ($32,504 is the reported median employee annual income.)

Alright, so their executives aren’t poor. Well maybe the shareholders really hurt last year? Maybe, since they needed this $20 Million loan, they were hurting last year?

WRONG AGAIN. Per the RUTH 10-K, Page 28, RUTH paid $15 Million to $16 Million to its shareholders in dividends in 2019. From their proxy, it looks like the RUTH executive team holds about 3% of publicly available shares in RUTH, so they were paid around $450,000 in 2019 on dividends alone.

In fairness, that’s not terrible compared to Simon Property Group, a company I wrote about in my last post, who paid $3 Billion (with a “B”) in dividends to its shareholders last year. Also, in fairness, the dividends and executive pay are less than x2 of the amount of their loan. So maybe they really didn’t have the means to otherwise get the $20 Million that are guaranteed by you and me?

STRIKE THREE. First, RUTH discloses in its annual report, Page 28, that it used $25.8 Million to buy back stock, i.e., another way it paid its shareholders. It’s authorized itself (?) to buy back another $54.8 Million, for a total of $70 Million it can indirectly use to pay shareholders. Second, RUTH already has a credit facility – i.e., credit line – of $120 Million (or 6 times the loan). (Also Page 28 of the annual report.)

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Going back to my local pizza spot. Again, I hope they can stay open. I hope their employees continued to get paid. If their owner made $115,000/year (about what RUTH’s executive got paid in dividends alone) I’d be more than fine with that. But who knows. Right now, there’s no date certain that Los Angeles opens back up.

Another thing I hope, that the $20 Million that went to Ruth’s Chris Steakhouse wasn’t money that could have gone to that pizza place or my local steakhouse. I hope that my tax dollars aren’t helping a public company keep its shareholders and executives afloat instead of the makers of my favorite slice.

One final hope: that Ruth’s Chris pays back that $20 Million, and that you and me, dear reader, aren’t lining the pockets of Ruth’s Chris and JP Morgan.

Power to the people,
The Anxious, Amateur Economist

I’m writing the draft of this post on April 5, 2020, the end of the third week of quarantine in Los Angeles. COVID-19 has infected the word. Millions are sick from the virus. “Unprecedented” is the world I’ve seen most often. I’m very sad about a lot of things: people being laid off, being in another recession, and people dying.

Economically: again, the layoffs; there has been an insane amount of unemployment claims in the U.S.

I’ll talk about one company in this post. Simon Property Group. I’ve worked in the real estate industry for just over four years, so they particularly caught my eye. (Full disclosure: Simon is a competitor of my current employer.) The talk throughout calls with coworkers was Simon’s announcement that it was furloughing 30% of its workforce due to the pandemic. 3-in-10 people, effectively unemployed when business has stopped for three weeks.

Being laid off has terrified me for the last ten years, since I graduated into the bottom of the Great Recession. The ultimate feeling of unsettled, not being able to pay my bills, (including my student loans), pay rent (now a mortgage), and generally providing for myself and my family. Never mind the shame of it all, as undeserved as it may be. This all made me think, was this furlough necessary?

The Baseline Information:
From Page 45 of Simon’s 2019 Proxy Statement, Simon employed 3,500 people, with a median employee salary of $62,457. Thirty percent of the employee force = 1,050 individuals. Projections of public places being closed is for just under 3 months, or 25% of a year. Twenty-five percent of $62,457 is $15,636.75. Multiply that by 1,050 people, and you get $16,418,587.50; call it $16.5 Million.

Executive Compensation:
From Page 39 of their Proxy Statement, Simon’s top 5 executives, in 2019, made just under $21 Million. That is to say, Simon could have paid its top 5 executives $900,000/year in 2019, and had enough to cover its furloughed employees for 3 months. Of course, Simon didn’t do that.

Dividend:
Simon is a Real Estate Investment Trust (REIT), which is a legal entity that receives very favorable tax treatment, and in exchange has to pay a dividend (cash) to is shareholders. Do you know much Simon paid its stockholders in dividends (again, cash) in 2019? (I looked this up before writing the next sentence, and it’s absurd.) From Page 63 of its 2019 Annual Report, Simon paid just under $3 BILLION, with a “B”, in dividends/cash. That is to say, $828,571 per employee, and One Hundred Seventy-Five times more than the cost (savings) of their furlough.

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A friend of mine posted on her Instagram story, a mock interview with a landlord, who was thinking about evicting their tenants who had lost their job and couldn’t pay rent. One of the points raised was that the landlord’s property was an investment, and subject to risk. You’re welcome to a different opinion, but I hold this (subjective) opinion – the transfer of risk to the tenant, who did not hold the investment, was unfair. The tenant has no additional upside – they get a steady roof over their head, no potential for profit. I think this example can be translated to a company/shareholder-employee situation. Is it fair for shareholders to transfer the risk of their investment to a company’s employees? I say – NO.

So did Simon have no other choice, but to furlough 30% of its workforce? That is – I guess – a personal question. I think their financial statements pretty strongly indicate that the furlough was not necessary. Instead, management chose to shift less than 1% of their shareholders return on to over 1,000 people. That’s fucked.

(For all of my more conservative readers, if any of those 1,000 individuals claimed unemployment benefits, the company and its shareholders effectively shifted their investment risk not only to their employees, but also to taxpayers.)

–The Anxious, Amateur Economist

Back to Boeing…

On December 23, 2019, Dennis Muilenburg , CEO of Boeing resigned. All Boeing 737MAX airplanes were grounded after flights of the airplane crashed due to equipment failure, taking with them countless lives. A tragedy. Full stop.

Emails from a Boeing employee noted that key safety systems were being deleted, indicating that this issue was known and ignored by the company.

As the CEO, the buck should stop at Dennis Muilenburg. And it…did?

If you’re lucky, if you’re laid off, you get severance – additional money for your time served to hold you over until you find another job. It may be on the order of one or two months’ of salary/wages, which, if you make the median U.S. annual income of $63,000, gets you about $5,250 to $10,000.

No surprise, corporate executives also get severance – including Mr. Muilenburg. Per Page 47 of the latest Boeing proxy statement, Mr. Muilenburg is entitled to $6.6 Million in cash following a layoff (or 100x time the median U.S. annual income). But the cash is only one component of his severance package. The proxy statement values his total severance package, which includes stock awards, at over $30 Million.

For screwing up.

I personally believe in the social safety net, including unemployment benefits. I think we’re all better off, and that it’s the right thing to do – to help people who find themselves in an unfortunate circumstance. In California, unemployment insurance is based on your previous employment, but capped. It’s capped at $450/week for 26 weeks, or $11,700.

Given that Mr. Muilenberg made over $50 million dollars as Boeing’s CEO in the last three years, I think he’s going to be fine. Hard to imagine why he should receive another $30 Million dollars – over two and a half THOUSAND times more than unemployment insurance – for doing worse than nothing.

Pay your people – fairly,
The Anxious Amateur Economist

My wife and I hosted brunch with our friends the other weekend. They’re big campers and had come back from a trip to Yosemite. As it is a significant drive away, they stopped for food on the way there. They stopped at McDonald’s, but, to my surprise, said they would never go again because of how expensive it was for their breakfast.

This was surprising to me because I love McDonald’s. Much to my wife’s chagrin, I stop there for breakfast on the way to work at least once a week. Sausage McMuffin with Egg and a Large Diet Coke, please. $5.63 at the first window.

I have no qualms with saying: it is delicious.

I understand that prices differ from franchise to franchise and if you’re not a savvy order, it’s possible to ring up a big (?) bill. Nevertheless, it got me thinking about how those extra dollars and cents flow to executives and employees.

We all know, McDonald’s is practically shorthand for Minimum Wage. McDonald’s pretty much owns it. In 2016, they ran an advertising campaign on the premise that working at McDonald’s was the best FIRST (entry-level) job someone could have.

I’m actually doing this calculation before looking at their disclosures. Assuming about half their workforce makes minimum wage, and half of them (1/4) work part-time, what should we expect their median income to be? California’s minimum wage is $12/hour. Assuming part-time equals 20 hours/week, that means the bottom quarter of employees would make $12,000/year from McDonald’s, and the other next quarter of employees, would make $24,000/year from McDonald’s. Median does not equal mean, so I would hope (?) McDonald’s median employee compensation would be about $24,000.

Apply that figure to the generous, somewhat reasonable CEO compensation factor from the very first post on this mediocre blog of x80, I get $1,920,000. Now time to check…

Googling, googling, googling. Scrolling, scrolling, scrolling. Reading, reading, reading…and wrong on both counts.

Per their latest proxy filing, median employee salary, who they say is a part-time employee in Hungary, is only $7,473. Assuming a 20/week job, that’s about $7.50/hour. Given that the median (the half-way point) employee is part-time, that indicates that more than 50% of the workforce is part-time. Unfortunately, I can’t tell from their disclosures whether that’s by choice, or if they would want to work full-time.

So I well overestimated their median employee, and unfortunately underestimated their CEO compensation. Per their latest proxy filing, in 2018, McDonald’s CEO STEPHEN EASTERBROOK made $15,876,116 or 2,124 times the median employee. (That’s actually down from the $21 Million Easterbrook made in 2017.) I’ll look back, but I think that is the worst ratio I have ever come across. The McDonald’s CEO makes in ONE DAY almost six times what their median employee makes all year.

Will this make me stop ordering my Egg McMuffin? Probably not. Will it taste as good? No, I don’t think so.

Pay your people,
The Anxious Amatuer Economist

P.S. – an update on the Business Roundtable, the group of companies and CEOs who claimed they would do better and be better corporate citizens. Last time we checked in, the least worst offender of bad CEO pay ratios was water heater manufacturer AO Smith’s CEO, Kevin Wheeler, whose $3.8M compensation package was x200 their median employee. The WORST offender was the consulting firm, Accenture’s group CEO Pierre Nanterme, whose $22M in 2018 was x555 their median employee. Let’s look at the next five signatories to the new Statement on the Purpose of a Corporation…

Number Six: The AES Corporation, an energy company. Their median employee income for 2018 was (!) $109,297. President and CEO, Andres Gluski’s 2018 income was $9.7 Million, resulting in a ratio of 144:1 for their global employee base and an astounding 89:1 for their US employees. HOLY CRAP. I have to admit, that is pretty responsible. Also checking his income over the last two years, it has largely remained unchanged – this is not a fluke.

Number Seven: Aflac, the duck insurance company. Their median employee income for 2018 was $52,756. Chairman and CEO, Daniel Amos’s 2018 income was $17.5 Million, resulting in a ratio of 332:1.

Number Eight: AK Steel Corporation. There median employee income for 2018 was $86,804. CEO, Roger K. Newport’s 2018 income was $8.6M, resulting in a ratio of 88:1. BOOM. This is giving me life on a Saturday morning. This is a high since 2016, where his income was reported as $4.1M. Hopefully, it doesn’t continue to rise over their median income.

Number Nine: Allergan PLC, a pharmaceutical company known for being the manufacturer for Botox. Their median employee income for 2018 was $89,976. Chairman and CEO Brent Saunders’s 2018 income was $6.6M, resulting in a ratio of 74:1!!! BUT WAIT. In 2017, Mr. Saunders’s reported income was $32.8M, which would result in about a 364:1 ratio….

Number Ten: Alliant Energy, a public utility based in the MidWest. Their median income was $98,700. Chairman, President, and CEO, John Larsen’s 2018 income is reported as $6,520,709 (which has largely been unchanged in the last two years), resulting in a ratio of 66:1. DING DING DING.

So now looking at the first 10 (alphabetical) signatories to the new Statement on the purpose of a Corporation: (A) AO Smith gets knocked out of the least worst and is replaced by Alliant Energy, with a 66:1 ratio. (B) Accenture remains the grossest with a staggering 555:1 (though not as bad as McDonald’s). And adding a new tracker: (C) We now have three members of what I’ll call the Below 100 Club: (1) Alliant Energy; (2) The AES Corporation; and (3) AK Steel Corporation.

Thanks for joining me on this journey.

The cars I’ve driven: 1990s Honda Accord station wagon, 2000s Ford Aerostar van, 2000s fullsize Toyota Camry, 2000s compact Toyota hybrid Prius, 2000s Toyota Camry, and a 2010s compact Honda Civic. I’ve never driven a GM (maybe as a rental), and I don’t think I will be.

Back in March (2019), GM announced layoffs and forced relocations at factories around the U.S. The Marketplace story I’ve hyperlinked tells of a factory worker who worked at the GM factory in Lordstown, Ohio. GM closed the plant in March. The worker was offered a job in Missouri, which if he didn’t take, he would be laid off. Lordstown, OH to St. Louis, MO? Just under 580 miles, an 8.5 hour drive.

I don’t know about you, but I hate moving. I’ve moved out of state three times. I hated it every time. The stress and anxiety are terrible. I think I cried each time. I freaked out just moving one county over. I would not want have to move for a job, alone, leaving my family several states away, which many GM factory workers are doing. I’ve never HAD to move for a job, so I can only imagine how trying this must be for these people.

Surely, GM’s CEO, Mary Barra, is sharing in that pain, right?

Not so much. Per GM’s public filings, Ms. Barra made over $21 Million in 2018, and made over $21 Million in 2017 and 2016. Ms. Barra’s compensation is 281 times GM’s median salary of just under $78,000. (Compare to Boeing’s x166 and Honda’s CEO salary of less than $2 Million.)

Pay your people and maybe try not to upend their lives,
The Anxious, Amateur Economist