The reflation of the financial industry continues. Last week, Citigroup’s CEO Vikram Pandit got his salary restored from the recession-related, punitive $1 level. He is now earning $1.75M per year. Goldman Sachs has joined the reflation and then some. Goldman’s CEO Lloyd C. Blankfein got a 2011 pay package including a 233% pay raise to $2M. Other executives were also granted generous increases in their pay packages. For more details see “Goldman Sachs Gives Blankfein a Big Raise.”
While this revival of largess may never trickle down toward the masses of unemployed and underpaid, it is once again difficult to imagine that deflation is an imminent threat when bankers are being restored to previous glory!
Hopefully, by now, you have been disabused of the notion that deflation remains a serious and imminent threat for the U.S. (or global) economy. Certainly, Vikram Pandit, Citigroup CEO, knows all about inflation’s positive benefits.
After reporting an incredible $10.6 billion in profits last year, Pandit was rewarded with a 75% pay hike. His base salary went from a mere $1 to a more appealing $1.75M. Pandit froze his salary at $1 in response to the severe recession that almost wiped out the bank before the U.S. government bailed it out.
More details in Bloomberg: “Citigroup Boosts Pandit’s Base Salary to $1.75 Million From $1.” This article also references the bonuses paid out to several other Citigroup executives.
If Google wants to provide free servants to its employees, that’s fine by me. (Hey, I’m a happy GOOG shareholder.)
But we here at Inflation Watch would be remiss if we didn’t notice that something interesting is going on in the Silicon Valley labor market.
As Gawker reports:
Tech companies in recent months have reported a shortage of programmers as they snap up more and more talent. Google and Facebook are competing so fiercely over some engineers that half-million-dollar retention bonuses are not unheard of. And they’re not the only ones vying for talent; flush with venture capital, Twitter is on a hiring spree, as are Amazon, Foursquare, Zynga and other startups.
Hiring sprees? Free servants? Half-million dollar retention bonuses? Doesn’t sound like a deflationary spiral to me.
The New York Time reports in “Supply Chain for iPhone Highlights Costs in China” that manufacturing costs in China are likely heading upward soon:
“Soaring labor costs caused by worker shortages and unrest, a strengthening Chinese currency that makes exports more expensive, and inflation and rising housing costs are all threatening to sharply increase the cost of making devices like notebook computers, digital cameras and smartphones…
…Wages in China have risen by more than 50 percent since 2005, analysts say, and this year many factories, under pressure from local governments and workers who feel they have been underpaid for too long, have raised wages by an extra 20 to 30 percent.”
Manufacturers in China are already moving production away from the traditional electronic hub in Shenzhen to lower-cost regions in the country.
The article goes on to reveal that the lowest cost components on the iPhone come from the manufacturing and assembly of the various electronic components. This low-margin business is getting tougher and tougher and growing out of favor:
“…there is growing skepticism about China’s manufacturing model after years of pressing workers to toil six or seven days a week, 10 to 12 hours a day.”
Expect soon to pay more for Chinese-made goods at a store near you.
Tuition at colleges and universities are soaring (click here for story about UC schools), but, apparently, faculty are not receiving the benefits, at least not lately. The New York Times reports on the annual salary survey conducted by the American Association of University Professors:
“Over all, salaries for this academic year are 1.2 percent higher than last year, the smallest increase recorded in the survey’s 50 years — and well below the 2.7 percent inflation rate from December 2008 to December 2009.
The survey found that average salary levels actually decreased this academic year at a third of colleges and universities, compared with 9 percent that reported lower average salaries in the previous two surveys. Private and church-related universities reported shrinking average salaries more often than public institutions.”
Of course this leaves us to wonder where all the money is going from tuition hikes. The article notes: “Generally, administrative salaries at colleges and universities have been increasing far more quickly than pay for faculty members.”
The WSJ’s Paul Glader reports that some firms are cautiously rescinding salaary cuts imposed last year:
Hard-drive maker Seagate Technology Inc. and New York Times Co. are among the concerns restoring full salaries for some but not all employees. Hewlett-Packard Co. granted one-time bonuses after cutting pay, though it may not permanently reverse the cuts.
FedEx Corp. is resuming some raises, but from levels that were reduced by pay cuts. Computer-storage giant EMC Corp. fully restored pay in January only after monitoring financial performance for six months.
The tentative approach is part of the reason that wage growth is muted even as the economy starts to rebound. Revenue growth remains shaky, so CEOs are reluctant to increase costs. With unemployment at 9.7%, executives are also betting they can keep employees motivated and productive without boosting wages. In the past 12 months, average hourly earnings have risen 2%; in January, earnings rose 0.2%.
Inflation Watch has been covering this trend for awhile.
Employees who took a hit on their savings last year might finally be in for some welcome news: Companies are stepping up efforts to help them save more for retirement.
Of companies that suspended or reduced 401(k) match programs, 80% planned to restore them this year, according to a survey conducted by Hewitt Associates, a global human resources consulting firm.
This could be a precursor to wage increases.