Corporate Chieftains Should Talk Less, Pay More: Kaissar

founder also of Union adviser's asset management firm. Uh. He's on the phone from Washington, d C. Near, Thanks so much for joining us here. You and your colleague Tim O'Brien from Bloomberg Opinion out with a really interesting column here talking about the pay disparity within corporate America. It seems like CEOs are having uh seeing you know, rising incomes year after year after year in terms of their total compensation, but reck and find employees not so much.

What'd you find right, Well, I think I think CEOs um have a real problem on their hands because you know what or what we're finding out from the data is that we have millions, millions of workers in America

that are just not making a living wage. You know, there are a number of reliable living wage calculators UM that are there, available to anyone with internet connection, and they all basically say the same thing, which is, in the cheapest places in America, a family requires about sixty to seventy thousand dollars a year to just pay for basic necessities, and probably double that in expensive places like San Francisco and New York. And yet millions of workers

are making a fraction of that. So people are getting up, going to going to work, uh, and just not able to afford the basic necessities of life. And it just seems to me that that's just inherently sustainable situation and UM, and I think it's something that that corporate chief should be more concerned about. Yeah, even in normal times near it. It seems like that's something that would be obviously something

they should be caring about, but clearly they don't. Can you tell us some metrics and why it should be very obvious to leaders at the business round table that it's not good enough for the richest country in the world. Yeah, Well, I mean, you know, there are there are a number of um, there are a number of metrics that we can point to UM. A lot of it comes from

a few years ago. UH the SEC in the US basically past the regulation that required companies to disclose UM their their pay ratio, in other words, the pay of

their CEO relative to their workers. And this created a trope of data around what what the median worker is actually making it many of these public companies, and what we're finding is, you know, the depending on you know who, which companies you put in the category, the media numbers can be anywhere between you know, twenty thousand dollars a year on the low end of forty thousand dollars a year on the high end, But there's somewhere in that range.

The median pay for full time workers, for example, on Amazon is roughly thirty six thousand. At Walmart, which also includes part time workers, is roughly twenty two thousand. So you know, in in many of these cases, what you're seeing is the salary are are wholly inadequate to what actual Americans actually need to put food on the table.

So near worst, you know, where's organized labor in all of this, I mean, this has been an issue we've seen you know, employee UH incomes, earnings take home earnings kind of flat to declining on a real basis for decades. Here is this reflective of the decline of unions in America? You know, that's a good question because a lot of people want to know why this is happening, and the truth is, we don't really know. We don't know exactly why.

There are some popular theories, all of which have some merits. One is the weakening of labor unions. That's clearly something that's driving this. Some people point to lower productivity growth in the US over the decades and that that is keeping wages down. Some people point to shareholder primacy, the idea that companies should really exist for the benefit of shareholders and not necessarily their customers, employee suppliers and the like.

And the last one is automation. A lot of some people are pointing to audition and saying, you know, there's been a bifurcation of jobs. High skilled jobs are getting higher wages. Low skilled jobs are just falling off a cliff in terms of wages, and that that's driving this. But you know, one thing that I would note is I don't know that the why really matters so much as the identifying the problem and finding a way to fix it, because ultimately it's hard to imagine a scenario

where healthy economy can sustain itself. Like I said, when you have millions of people who aren't just not making a living, so obviously, you know, you would hope near that the round table will read this opinion beast by yourself and Timothy O'Brien. But if they were too busy, let's say, or if they said they were too busy, and you had to distill it into a point or

two for them, what would that be. Well, you know, I would say to them that that many of the things that they're worried about, and they if you appear to be worried about a host of social and political issues, what I would say to them is a lot of those issues are informed, are set, and in some cases triggered by the fact that you have so many people in this country that aren't making a living, and that

you know they are sitting on record profitability. It's not as if they can't afford to raise wages, and that that would be a good investment not only in their own workers, but also in the health of the country. Um and in many and indeed in many of the issues that they care about. This is something they can do something about. This isn't almost entirely within their control. It would have enormous positive knock on effects. And uh, and it's a good place for them to start, is

what I would say. Well, near on the other side of the equation is CEO pay And we've heard about this for years about CEO pay is just you know, going, uh, it's just out of control. Is there any way to get a rain on that? Or is it just not really that much? You know, I guess political will for that.

You know, it's it's sort of it's an interesting question, and it's sort of strange because, um, you know, on the one hand, it's not a good look for ceo s to make you know, in some cases a thousand times with their median worker makes you know, in any the averages are roughly two to three two three four under time, um, but in some cases there are more

than that. On the other hand, that alone is not going to fix the problem because if you just take the CEO pay and distributed it to all the workers in the company, it's probably not going to bring them up to a living wage. So, you know, I would say I would say that we first have to start with a substantive problem, which is, I think companies have to say, we're gonna use some of our profits. We invest in many things as company, we should invest in our workers. We have the profits to do it, and

we should do it. But I think also CEO should think about the optics of what they're um. Their paycheck looks like in you know, in the tens of millions of dollars relative to what their workers make, and I think, just as a matter of good let's just call it public relations, I think that they ought to be more careful about having a pay ratio that is a little

bit more reasonable. It used to be a lot lower in the nineteen fifties and nineteen sixties, and it's just skyrocket in the interweeding decade near Do you see inequality changing in any way in terms of you know, percentages and so on in the coming years, And if not, when is breaking point? Well, you know, I'm worry that we're seeing breaking point now. And you know, if I might say this, this I think is really this should really come to everyone's attention. Based on these conversations that

policymakers about are having about bailout. We're having these conversations about whether you know workers are getting the the the relief uh that that Congress is putting together is so much that it's disincentivizing people to work. And what that really should be telling people is that the relase is meant to put food on the table while COVID is going on UM and if that number is higher than what people are making on their job, then we have

a fundamental problem. And and I and that coupled with a lot of the protests that you're seeing, like I said, many of them fed by UM, by these low wages, and in some cases instigated by the low wages, I think that should be a signal to us that we are pretty close and that we should do something about this before before you know, the fire gets higher. Yeah. Near, It's a point well taken and spoken about often these days. Near Casar and Timothy O'Brien have written a wonderful Bloomberg

opinion piece today. It's called Corporate Chieftains Can Talk Less, pay More. Sure those a lot of people, especially in the work of ranks, that would hardly agree without even reading it, But I do urge everybody to read it. Our thanks to Near Casar of Bloomberg Opinion. Fascinating story I found on the terminal this morning, UH, with the headline busted retailers used bankruptcy to break leases by the thousands. The authors with us right now. Cat Doherty, high yield,

distressed debt and bankruptcy reporter for Bloomberg News. Cat, thanks so much for joining us here. You know, I'm in the city today as first, one of the first times I've been here since March, and I'm just shocked by the number of empty stores and stores for rent where I know back in March, the last time I was here, they were thriving retailers there, at least I thought they were thriving. But your story is just amazing. They're using bankruptcy in certain cases to break the leases. Tell us

about that. Yeah, that's right, um. And a lot of these retailers that have filed, we should note that they were experiencing troubles even before the pandemic. Um, So companies like Jay Crew, Neiman Marcus, they were already on a lot of investors watch list, Um, But the pandemic was really the point that pushed them towards the bankruptcy court and they've used the bankruptcy court and all of the the laws and the negotiation power that they have with

the judges permission to get out of these leases. UM. But we've seen major retailers UM at least twenty five of note UM, including Men's Warehouse, UM, the parent tailored brands which filed recently UM, and also J. C. Penny. So what we're seeing is these companies that were experiencing financial strains UM and also seen their brick and mortar stores UH Clothes UM and and trying to figure out

how to get out of these leases. So bankruptcy basically gives them a quicker option UM, and it allows them to cut these leases or renegotiate with their landlords if they're able to get a lower rent. It seems like everything about this pandemic has been set up for creditors benefits, because if you look at these retailers, they were they were headed for the exits, right they were. I mean it was it was going to be a difficult, protracted, you know, maybe effort, but many of them are going

to go away under this scenario. Some of them have even got P P P loans in order to help them through the bankruptcy process, and their creditors also don't end up with the you know, the rest of the lease to pay up or whatever that that would add to the discussions or the negotiations. Am I reading that right? So it really depends on the situation UM. These A lot of the main retailers UM that we've been focused on did not actually receive PPP loans UM. Some of

the smaller ones have. But UM as you as you note, these retailers were already kind of UM on a on a fine line UM and and could have filed for bankruptcy even without the pandemic. Uh So, the the closures UM that are tied to these bankruptcy is a lot of it is because we're just seeing less folks shopping in store, and that was happening even before you had

UM stay at home orders. So now that companies have filed a big part of their plans for reorganizing is which stores UM can we close down, which leases can we get out of? And on the note of what the creditors are getting, a lot of them are becoming the owners of these companies. A lot of them are able to negotiate so that they can get an equity stake where they will eventually take over and can in some cases also UH dictate who in management is staying,

who in management leave is leaving. Uh. They basically get a larger seat at the table. So kind we got about thirty seconds here. It seems like the landlords are holding the bag here. What's their recourse? It's a it's a good question. Often they don't have as big of a recourse or or any recourse in bankruptcy. UM. But I've also seen situations where retailers will go to their

landlords and say, hey, look, we need to renegotiate. If we can't get a lower rent, or if we can't get out of these costly leases, we're going to be forced to file, or we're going to choose to file. So it's up to you what you want to do with that information. That is a strategy that I think will will continue, um, even when the stores start to reopen. There's a bit of a test case in the course

as well. Isn't there a pull between Starbucks and some other retailers, And I think it's yet to be decided. He really is going to be left holding the bat absolutely all right, Katherine, Thank you Katherine Dougherty covers all things really credit related, bankruptcy related, retail related these days, all the fun stuff, and boy has she been busy. Katherine Dougherty with a K on your Bloomberg or at

Bloomberg dot com. Paul, you know, there's going to be many, many years of stories that will emerge from this pandemic. It's going to be a bit like the financial crisis, where in you know, five years later, you're still discovering things. Yeah, I think the economic impact here, what we're hearing from a lot of economists, it's it's certainly not a v and it's going to be a very long recovery here on the back end of this. Yeah, we should suggest

not just financially, but also personally as well. The toll will be a long time coming. Well, as we know now, ammonium nitrate equivalent to eight hundred tons of T and T was unloaded from a cargo ship back in two thousand and fourteen out of port just on the side of Lebanon. The major city in Lebanon now in devastation, and we want to bring in I'm in camel to talk to us a little bit about what happens next. Obviously you know deaths and injuries and serious loads on

the emergency departments in the entire country. But I'm in now. We have the French president, you know, on his way to Beirute, and it's just really interesting because is he welcome there? I think so. I think it's a humanitarian catastrophy that the world hasn't seen for very for for many years, and it's I think for the Lebanese people, it's good to see that France is interested in supporting

the people. I think to visit UH is symbolic in many ways, but the destruction, I think anyone that has seen the picture, I think across the world will will feel some level of sympathy here, even though there are many incompetent government officials that have basically been the reason

why we have this crisis in the first place. Just clarify, though, what is the point in the former colonists visiting Lebanon if it's not to come with aid and even unconditional aid about no, I think I would divide it up into two. I think the human human here and aid is coming, that that will happen, that is happening for many nations in the international community at large, regional countries

as well. Everyone is supporting that aid effort. But I think here France is willing to do its part in terms of eight but it will be conditional of on the Lebanese government doing reforms. That is really when we're talking about a non humanitarian aid, financial support, long term support, and I think each country will have to decide up decide on its own what what what its policy will be. Diams has its own view of Francis or has its own view in many Arab countries have their own requirements.

But the key thing is that there is a consensus within the international community that they do not want to see any form of financial support over the long term go into corruption, into corrupt network. They would like to see some of this money end up in really use constructing the reconstructing actually at this stage the Lebanese economy.

So I um, I've just over the last couple of days, like many people, I've read a lot of social media posts from Lebanese folks in Beirut and it's just the rage they feel towards the corruption of the government is just palatable. Is this an agent of change for in the political structure of Lebanandi thing. Well, I think anger is very legitimate the station most people are angry. I think it is different this time. It will create the seeds of some change in the political system. But really

the country in essence is still divided. Here. It is divided amongst different religious groups. And although there is anger, at the end, what really happens is each sectarian leader blames another one from a different religious group and we get into it an endless cycle of of blame. Really

not not a constructive approach. Real change in lebon And I think we'll have to come through a new process elections or or some real change in in in government, something in much more institutional The real opportunity will not be will not happen now. I think it will have to be a new team of parliamentarians that are able to equities, new voices in the Lebanese community. But society at large, I think even today is very divided. I am who is Lebanon aligned with in the so called

Middle East these days? And and and and for real, I mean obviously there are so many you know, different coalitions within you know government and in the country. But in the main who is Lebanon alined with well, I think that's part of the problem. Lebanon isn't aligned with anyone is aligned. There are parties in Lebanon that are aligned with different countries in the Middle East, so the state in many respects is not independent. Soon these are

allied with Saudi Arabia, she has are allied with. You want some Christians allied with France, and of course that's that's to a certain extent and oversimplification of the reality. But Lebanon as a state does not have a firm policy of who it is allied with. The major problem in the last few years has been that his Bollah Lebanese Shia group has been indirectly involved in conflict in many Middle Eastern countries. That has made Arab aids to Lebanon,

which which was always forthcoming, much more difficult. Uh. That's part of the problem that we see today. Unless Lebanon or his Balla becomes in some way more constrained, very difficult to see international polities and regional towers as well give robust support over the long term. I thank you so much for that. We appreciate your perspective and your experience on that very dangerous and unsettled part of the war world, which is obviously still reeling from that explosion.

I have Kamal Practice head Middle East and North Africa for the Eurasia Group, giving us his perspective there and Van. You know, having read a lot just over the last couple of days about this explosion, you just get that background information about how difficult things are in that country even before this catastrophe and this it's just, as I am suggested, very fool to see some change there. It's just heartbreaking. I mean, we don't concentrate on that part

of the world enough. But the financial impact of this, beyond the devastation that Lebanon was already feeling economic and financially, is just going to be decades in the undoing. Yeah, absolutely so, we'll certainly fall up on this important story. But discussion we've had pretty often over the last several months is why is the stock market going up when the economy is in such peril? And Barry rid Holtz had a great column on this and it really opened my eyes to a lot of the math behind that.

Barry Ridholts Bloomberg opinion columnists and host of Masters in Business on Bloomberg Radio, also chairman and chief investment officer of Ridholtz Wealth Management, Barry, your column was fascinating. Give us kind of your key takeaways here As we try to reconcile a strong risk on risky asset markets, including the stock market, and an economy that's anything but sure, this is the one single question that bubbles up from

clients more than anything else. We don't understand the economy is so terrible, how is the stock market continuing to go up? So based on that constant question, we had to come up with a good answer. And so first place you go to is dive into the data, and the data is pretty compelling. Some of the worst sectors in the economy turn out to be really tiny as a component of major indices like the SMP five hundred or the NASDAQ one hundred. I'll give you a couple

of quick examples. Everybody knows department stores have been under a lot of pressure before the pandemic. The lockdown just made it worse. They're down sixty something percent for the year. They're turn out to be one one of a percent of the SMPI index. Airlines barely any bigger. They're a quarter of a percent of the SMP five hundred, and you work your way down some of the word performing industry sectors hotels and casinos, travel services, oil and gas.

Just work your way down. If you take the thirty worst sectors um subsectors of the SMP five hundred, if we were to delist all of them tonight tomorrow morning, it would barely shave two off the entire index. That's fascinating, but very you know, that's one explanation. But the other explanation is that this pandemic is not hurting the people that that companies need, if you like, for the most part.

So yes, consumer companies, of course, But you know those with wealth will continue to have wealth post pandemic, and that's great for the stock market. Well yes, and no, if if you look at the savings rate, it's gone up. If you look at consumer spending, it's off the lows, but it's still down dramatically. I mean, the g d P is off by a third. It's down um from from quarter to quarter. So while wealthy people still have money, overall,

as an economy, we are spending much less money. We're not going to entertainment, we're not going to the theme parks, we're not going to movies or plays or concerts or anything like that. We're not going out to eat, and we're not shopping at retail, and so in terms of the broad economy, a lot of these things they're not publicly traded. If they are, they're very small relatively speaking.

But the disconnect is a form of denominator blindness. You see your local personal um economy and it's not doing especially well. But most people's local personal economy is not publicly traded. And where all the strength in the market is coming from are the biggest companies, and these tend to be global in nature. Take the ten biggest tech companies in the smp fid UH. They're up thirty seven for the year, and none of them are heard in

because of of the lockdown. If anything, they're thriving. Look look at Netflix, look at Microsoft, look at Amazon. They're all doing really well because what other options do people have? So, Barry, you've been in the markets for a long time, how concerned are you that there's really a lack of breath in this market? As you're just highlighting here that if you take a look at just the indices, it's literally a half a dozen names or something driving most of

the performance. Technically, that's not a healthy UH component or healthy development for the market. So we we like to see breath, meaning more companies participating in the upside the advanced decline line. We want to see more advancers than decliners, and we want that to be significant. The exception being what happens when there's an externality and and really the only thing that's comparable to the pandemic. Look at Fukushima, Look at the tsunami in Japan, how that impacted their market.

You had specific sectors that just were temporarily on hiatus until the country got back to normal six months later. This is probably gonna last much longer than that. Another parallel is look at seven You had something that wasn't from within the economy. You had portfolio insurance and a lot of um internal problems that the stock exchange that led to the one day crash. It was really aberrational and not driven by a weakening UM either employment or

GDP or retail spending or anything like that. It was its own, its own externality. So I think we have to look at this from a perspective. Investors are giving UM the market sort of the benefit of the doubt in terms of revenue and profits for this year. There seemed to be looking over the valley towards UH and everybody is hoping for a vaccine or a treatment before the year's out, that that's going to be the big variable. Sorry, we're almost at a time. But are you in Maine, pertense, No,

this year, I am not in Maine. And in fact, when I went when I was preparing this column and looking at various sectors, I looked at travel services and airlines down as much as they were. And then I went back and looked at all of the events, conferences, speaking engagements, all that thing, those things I had, and literally everything was canceled from March two thousand through June,

every event that I have scheduled. So makes perfect sense that the airlines are getting hurt, the hotels are getting hurt. They are not going to be able to recover until people feel comfortable being in crowds again, and that's probably lee a solid year away, right. Well, it's just that because this would be the time of the year for camp co talk David Kotalk camp and is it happening virtually Barry Um. A handful of people went up, but it's probably five percent of the usual crowd. Chris Whalen

is up there. I know David Kotak is not there. Normally I would be arriving yesterday, the Wednesday before the Friday jobs report, and this is going to be the first August jobs report that I will be seeing away from the state of Maine in probably twelve years. It's amazing how we we measure our years and things like Jackson Holes and camp Co talks and you know, souls conferences. Barry, thanks for joining. It's always a fun time speaking with

Barry Riddles, founder of course of Riddles Oath Management. But we know him maybe more so for Masters in Business and also his Bloomberg opinion columns and Paul, you were talking about his opinion column earlier. They always make some kind of an impression. Yeah. Absolutely. This one kind of broke down the math and really showed where the performance and lack of performances in this market. Thanks for listening

to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney Before the podcast, you can always catch us worldwide at Bloomberg Radio