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In 2012 Larry Ellison, CEO of the Redwood City-based Oracle Corporation, was awarded a compensation package worth ($96.1 million) nearly as much as the entire healthcare and pension costs of all BART employees ($101 million).

Are Bay Area Rapid Transit employees paid too much? It’s amazing that the question is even being asked. BART’s board of directors, general manager, and chief negotiator put this rhetorical query in front of the public during the strike two weeks ago as part of their strategy to undermine sympathy for BART workers. BART even set up a web site to spread it’s narrative of greedy employees, http://bartlabornews.com, where “Bart Rider” is soberly informed that “BART employees contribute $0 toward their pension plan, BART riders and taxpayers fund their retirement plans.” The point of public relations communiques like this are clear: in the Bay Area’s economy BART employees consume too many tax dollars and don’t have a legitimate need to maintain their existing pay and benefits.

BART management added pension and healthcare contributions to their tally of employee pay to claim that their employees “earn an average of $134,000,” even though pension and healthcare expenses are not cash equivalents for BART employees, and even though the healthcare expenses actually benefit BART as an employer by keeping their workforce healthy and productive. Even so most news outlets dutifully reported the average pay of BART employees and included health and pension costs as if this were cash, erroneously implying that the train system’s workers take home six figure salaries.

BARTLaborCosts2012

BART’s labor costs. Source: BART, Fiscal Year 2013 Preliminary Budget Memo, March 30, 2012.

It’s amazing that the pay of BART’s employees has gained so much attention from the regional media in the first place. For over a decade the Bay Area’s major newspapers and TV news stations have been guilty of failing to adequately cover one of the most important stories of our time: rising income and wealth inequality, and the decline of middle class jobs in the face of inflation, globalization, automation, and the tax revolt that has scaled back the public sector. And now that most of the Bay Area’s news outlets finally reported a story about the pay of middle class public employees they bungled the story by framing it inside a question pre-packaged for them by an anti-labor consultant from Ohio: don’t BART employees make too much already?

The BART strike readily tells the big-picture story of austerity for millions of workers and exponentially growing incomes for the wealthy few. Let’s therefore re-frame the question of how much BART employees are paid and consider their compensation, its source and impact on the wider economy, to that of the top 1% of California’s income earners.

The average BART train operator has a base salary of $47,000, and takes home about $66,000 in cash when overtime is accounted for. Station agents have a base salary of $52,000 on average, and take home about $68,000 when overtime is included. Because BART employees have their healthcare and retirement costs currently covered, this means that their decent salaries are largely spent on housing, food, recreation, and other goods. All of this spending, including healthcare and eventually purchases made using retirement income, happens almost entirely within the Bay Area. What goes around, comes around, with $275 million in wages for BART workers fueling sales and profits for businesses in the Bay Area, feeding back into the budgets of other cities and local agencies.

Let’s now compare what BART employees make to the compensation of the region’s top one percent of income earners, the CEOs of Silicon Valley’s tech companies, and San Francisco’s financial institutions.

In 2012 Larry Ellison, CEO of the Redwood City-based Oracle Corporation, was awarded a compensation package worth ($96.1 million) nearly as much as the entire healthcare and pension costs of all BART employees ($101 million). Ellison has been raking in this kind of cash for decades and is one of the wealthiest men in the world. Last year he spent $300 million to buy an island in Hawaii. For that same sum of money Ellison could have bought every single BART train car and still had $44 million left over, enough to pay the overtime clocked by every single BART employee, and still he’d have $13 million left to buy a couple more trophy homes like his house on Broadway in San Francisco’s Pacific Heights, but truth be told in spite of the America’s Cup, most of Ellison’s fortune doesn’t get spent in the Bay Area. It sits in bank accounts, or is held as shares in corporations, or goes toward acquisitions of boutique real estate in distant enclaves of global wealth.

last year Ebay’s CEO John Donahoe was paid a lot more ($29.7 million) than all of BART’s 348 station agents combined ($23.6 million). His pay package could have covered their salaries and overtime, and picked up 2/3 of their healthcare and pension costs.

Wells Fargo’s CEO John Stumpf was paid ($19.3 million) almost enough to cover the total pension and healthcare costs of all BART train operators and station agents ($20.8 million), a combined workforce of 832 employees. It’s hard to imagine Stumpf spending even five or ten million in one year on groceries, transportation, and other goods from Bay Area businesses.

Meg Whitman, CEO of electronics giant Hewlett Packard, was paid ($15.3 million) more than double the total cash earnings of BART’s 131 utility workers ($6.4 million).

John Martin, the CEO of Gilead Sciences, was paid a bonus ($3.37 million) that exceeded the total healthcare costs of BART’s utility workers ($3.09 million).

So who’s paid too much? What is “enough” when it comes to the amount of money a person needs to live with dignity in California’s Bay Area.

Keep in mind that the above described levels of executive compensation are not determined by “natural” market forces. Nor are these spoils calculated by sober boards of directors mulling over the services these executives provide.

Pay at the top of the corporate food chain is as much a matter of culture, power, and politics, as it is the outcome of a supply and demand curve for managerial talent. That’s the lesson of the BART strike. The wages and benefits that will be afforded to BART’s employees are being struggled over in a political fight, not determined by mathematical economic principles.

When it comes to the eight figure pay packages afforded to CEOs today, on the culture side America has simply slipped further into an ethical quagmire that allows the polarization of classes between an elite few who are hoarding immense fortunes, and the many who live increasingly in debt. In political terms, those at the top of the economy engage constantly in their own version of collective bargaining, but instead of trying to wrest pay and benefits from management through unions, their focus is set instead on the U.S. federal tax code. As the management, holding the financial and legal resources necessary to lobby and influence legislators and regulators to write favorable legislation and to look the other way, these men (mostly they are men) have the power to often get what they want. And the decline of labor unions over the past four decades means that there is virtually no serious counter-force to fight them, to demand a more equitable economic regime.

The pervasive use of stock grants and stock options to pay company executives is now the top cause of massive pay packages for management, including those outlined above. Corporations shifted from simply paying their executives seven figure salaries to paying seven and eight figure stock grants and options packages when Congress disallowed tax deductions on salary expenses above $1 million in 1993. The law that disallowed deductions on salaries in excess of $1 million was an ethical rule resulting from the scandalous damages caused by excessive greed at the top of the economy in the 1980s and early 1990s. Management raided corporate wealth, crashed entire companies, and the response was to regulate the tax benefits they were gaming to enrich themselves.

Larry Ellison’s $96.1 million in pay primarily comes in the form of $90.6 million in options to purchase shares of Oracle Corporation at a set future date for a set price. One of the reasons companies like Oracle pay their CEOs this way is that they can deduct this sum from their federal corporate income taxes, along with bonus payments and stock grants. If a form of compensation other than base salary can be characterized as “performance-based,” then it can earn a corporation a tax benefit. Ellison’s compensation last year in the form of stock options therefore may have sliced upwards of $32 million off Oracle’s federal tax bill.

Ellison will have to pay taxes on his $90.6 million (or more if Oracle’s stock price outperforms the options pricing model they used to guess the value of the shares he may purchase), but until he exercises the options it’s all deferred. So last year Oracle and Ellison temporarily sheltered $90.6 million from the tax man.

When Ellison exercises his options he pays federal income tax on their value, and he’s likely in the top marginal bracket, but that bracket is at a historical low point. Massive reductions in income tax rates for the wealthy are part of the reason people like Ellison have become so enormously wealthy in recent years while the federal budget has run continuous deficits.

If Ellison holds the shares and they appreciate further in value, he can later sell them for a capital gain. Capital gains are taxed also at historically low rates of about 23.8 percent for the wealthiest handful of people like Ellison who currently own more than half of all stock in publicly traded companies. So although federal taxpayers supposedly “make up” for the loss of revenue deducted by Oracle when Ellison pays taxes on his stock options, the taxes Ellison is paying are quite low.

The other Bay Area CEOs you likely wont see riding BART because they can afford their own private jets are also paid mostly in the form of stock grants and options, creating valuable tax deductible expenses for their firms, and providing the executives with securities that can be held for years and sold for quite large capital gains.

Earlier this year Citizens for Tax Justice, a research organization that studies inequity in the tax system, found that 280 of the largest U.S. corporations used stock option executive pay to reduce their tax bills by $27.3 billion over three years.

A good chunk of these deductions are potentially retained by corporate America as a kind of arbitraged profit because of the quirky accounting rules that allow them to basically guess the value of the stock they’re granting when they report their income to shareholders, but to then use the actual cost of the stock options to determine their eligible deduction when they’re exercised by the executive. The difference between that guess and the real price when exercised is all gravy. This quirk is entirely the product of lobbying by corporations and the wealthy to maintain a loop-hole permeated tax system set up for them to game.

ExcessStockOptionsCorpsTPJ

Silicon Valley tech companies are among the biggest users of stock option compensation awarded to CEOs. Apple, Facebook, HP, Oracle, Google, Cisco and others therefore also reduce their federal taxes by billions each year. Source: Citizens for Tax Justice, “Executive Pay Tax Break Saved Fortune 500 Corporations $27 billion Over the Past Three Years,” April 24, 2013.

So what’s the connection back to BART?

A lot of BART’s funding for capital improvements comes from the federal government, and once upon a time transportation funds for operations were also available from the federal government, but these were mostly eliminated beginning in the Reagan administration. The loss of federal funds for operations and maintenance is a serious crisis for many of the nation’s bigger transit agencies like BART, and few think operations assistance will return due to the chronic federal budget crisis.

The squeeze on federal funds available for capital expansion also mean that transit agencies have to raid their own fares and tax dollars to come up with funds to pay for expansions. All of this creates the pressure that leads to the politics of austerity and demands that workers take cuts to shoulder more of the burden of funding public goods. When you zoom out and look at the entire system by which transit is funded, it’s clear that the political victories of the wealthy and corporate America to reduce statutory tax rates, and avoid taxes through numerous loopholes, sets the stage for conflicts between public sector workers, transit riders, and local government managers.

Bay Area’s Top Executive Pay in 2012:

Larry Ellison, Oracle Corporation

Salary: $1

Bonus: $3.9 million

Perks: $1.5 million

Options: $90.6 million

John Donahoe, Ebay

Salary: $970,000

Bonus: $2.8 million

Perks: $160,000

Stock: $23.7 million

Options: $2 million

John Stumpf, Wells Fargo

Salary: $2.8 million

Bonus: $4 million

Perks: $15,000

Stock: $12.5 million

Meg Whitman, Hewlett Packard

Salary: $1

Bonus: $1.68 million

Perks: $220,000

Stock: $7 million

Options: $6.4 million

John Martin, Gilead Sciences

Salary: $1.4 million

Bonus: $3.37 million

Perks:$7,500

Stock: $4.94 million

Options: $5.43 million

John Chambers, Cisco

Salary: $375,000

Bonus: $3.95 million

Perks: $11,000

Stock: $7.34 million

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BART board member Zakhary Mallett has taken one of the harshest positions against BART workers during contract negotiations and the strike.

BART board member Zakhary Mallett has taken one of the harshest positions against BART workers during contract negotiations and the strike.

The BART board of directors has kept their reasons for selecting Veolia’s Thomas Hock as their lead negotiator a secret in spite of growing outrage from the train system’s workforce who call Mr. Hock a “union buster.” The unions are now demanding that Hock be fired and that the board retreat from its position to take away pay and benefits from their members. Still it’s not clear what the board’s strategy has been and why it hired Hock.

Communications that BART’s directors have had with one Richmond city council member seem to indicate, however, that BART’s management selected Hock to take actions that they were unprepared, or unwilling to undertake themselves.

On May 21 Richmond council member Jovanka Beckles wrote BART board member Zakhary Mallett (who represents Richmond on the BART board) to inquire about the hiring of the Veolia lawyer Hock to lead BART’s labor strategy. Beckles express concern bordering on opposition to this move:

“I understand that the BART Board is paying $400,000 to Thomas Hock, VP of Labor Relations at Veolia who has a reputation for union busting and discrimination,” Beckles wrote. “I would like to know how the Board justifies this expenditure and this approach in dealing with our public employees who are also residents of the region.”

Mallett, in a response to Beckles said he unsuccessfully attempted to contact the  council member  by phone, according to copies of the e-mails supplied by Beckles. He responded ten days later via e-mail:

“Due to the nature of your inquiry, BART staff is not comfortable having an email discussion on the matter; a verbal discussion is preferred.”

Two days after the four day strike ended Mallett told the San Francisco Chronicle’s Matier and Ross that his goal was to drive down the workers’ wages. “If someone is making $1,000 an hour for a job that can be done for $20 an hour, then they don’t need a raise,” said Mallett.

Mallett’s hyperbolic characterization of BART employee compensation was far off the mark, however. The average BART employee (including management and executives like general manager Crunican who earns $320,000 a year) is $83,000. Hourly that’s about $40. Many BART workers in fact already make Mallett’s prescribed $20 an hour.

Beckles tells me that without further explanation from BART’s management the selection of Hock appears to her a reflection of a concerted strategy to break the unions. “It seemed clear that in selecting [Hock], BART management was planning for a strike,” said Beckles.

radulovich2012BART president Tom Radulovich wrote to Beckles on May 31 to clarify the BART board’s stance:

“BART is currently at a critical juncture in its 40-year history,” wrote Radulovich. “While enjoying record ridership, we also face enormous reinvestment needs that will define whether we thrive or deteriorate in the decades ahead.”

The BART system’s regressive funding structure and lack of revenue for maintenance and expansion is essentially the root cause of the conflict between the workers and BART board, an otherwise mostly progressive collection of politicians, a majority of whom were elected with support from the unions. BART has too little funding to upkeep the system and expand it, and therefore has been stretching funds used to operate the system, including worker pay and benefits.

In conclusion Radulovich explained the board’s rationale for why they have chosen to go on the offensive against the unions and seek concessions in spite of the improving economy:

“BART workers do not pay any portion of their pension costs and they pay less than 5% of their medical costs. Recently at the bargaining table, you asked your workers to share a greater portion of responsibility for these growing costs. This year, we are asking the same from BART workers. In a recent poll, 72% of the residents of the three-county BART district agreed that workers should assume some of the costs of their pension and health care packages.

In these times of shrinking resources, none of us has a budget which is robust enough to compensate public employees in the manner that they desire and deserve. Hard choices are the rule of the day. We are making progress at the bargaining table, and appreciate your interest and support as we work to resolve these issues fairly and equitably.”

Beckles tells me she thinks this stance will lead to another strike.

“I am not close enough to the negotiations to know how they are going,” said Beckles in an e-mail. “I would hope that there can be a settlement that avoids a strike and is fair for BART’s employees because it will set a standard of good wages for other contracts and other workers. I do not think that is likely if the management negotiators keep trying to break the unions.”

hock

Thomas P. Hock, Veolia Transportation’s vice president for labor relations, former president and CEO of Professional Transit Management.

An under-reported facet of the BART strike concerns the private consultants hired by BART to negotiate with its major unions, SEIU and ATU. BART’s most important, and most expensive consultant is Thomas Hock, a lawyer from Ohio who is the vice president of labor relations for the Veolia Transportation company.

In this week’s East Bay Express I’ll be providing a report on Hock’s record as a consultant and contract negotiator to both public transit authorities and private transit corporations in their recent bargaining sessions with employees. Be sure to check that story out. What follows is some extra information I didn’t fit into that report.

In addition to Hock’s record at Veolia, his past as a businessman is also relevant to his role in the current BART negotiations. Before he was employed by Veolia Hock owned and managed his own private transit corporation called Professional Transit Management, or PTM.

PTM obtained contracts to operate transit systems in over a dozen U.S. cities in the 2000s, including the city buses in Cincinnati, and paratransit buses in as far flung locations as Racine, Wisconsin and Tucson, Arizona.

Veolia purchased PTM from Hock in 2008, folding PTM into its U.S. transit operations. Prior to Veolia’s purchase of PTM, Hock’s company had already garnered a controversial reputation among workers, a reputation that has stuck to Hock personally.

Hock’s controversial reputation stems partly from allegations of racism and discrimination made against PTM by its bus drivers and other employees. The most serious case involved PTM’s Springs Transit facility in Colorado Springs, Colorado. PTM ran the city’s bus system under contract. Hock oversaw the operation from his office in Ohio.

PTM’s managers fostered a racist work environment at the Colorado Springs facility, according to records from an official investigation. Latino, African American, and Asian employees of PTM eventually filed complaints with the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC investigated and found that PTM’s managers and white employees were making egregious threats against Latino, Black, and Asian employees. A lawyer for the EEOC called the level of racial harassment “stunning.” An EEOC press release from May of 2007 describes PTM’s civil rights violations in detail:

“In particular, several employees, including supervisors, routinely used egregious ethnic slurs for African Americans, Hispanics, and Asians in the workplace. On one occasion, a co-worker commented that it should not be against the law to shoot Mexican men, women and children or to shoot African Americans and Chinese people. This employee also allegedly stated, “If I had my way I’d gas them [referring to Black employees] like Hitler did the Jews.” There were other threats of violence against minorities including references to “shooting” them and “gassing” them or “killing” them. Many of these remarks were made in front of supervisors who did nothing to stop it and sometimes participated in the abusive behavior. Likewise, management was aware of the hostile environment and did nothing to end it.”

HockAddress_EEOCLawsuit_Colorado

Professional Transit Management, Thomas Hock’s company, was the Defendant in an EEOC lawsuit that found “egregious” discrimination against Latino, Black, and Asian employees in the company’s transit facility in Colorado Springs, CO.

The EEOC sued Thomas Hock and his company and obtained a consent decree from the United States District Court for the District of Colorado in 2007. The consent decree required PTM to implement numerous changes at the Colorado Springs facility in order to wipe away the environment of racist hostility that managers had allowed to flourish. The judge also ordered PTM to pay six employees $450,000 in damages.

Download a copy of the Consent Decree obtained by the EEOC here.

Check this week’s EBX for further background on BART’s chief negotiator, Thomas Hock, and his former company PTM.