The International Longshoremen’s Association is set to go on strike next week if talks with port operators don’t resolve their remaining grievances over automation. A shutdown of container ports from Maine to Texas could have serious consequences for companies and the economy if it were to last more than a few days. (Photo: Shutterstock/Arthur Mansavage)
By Satish Jindel
The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
The 50,000 members of the International Longshoremen’s Association are expected to resume their work stoppage on Jan. 15, following a brief three-day strike in October — and this time it could last much longer.
Responsibility would rest squarely on the container lines and cargo handling companies that operate the ports from Maine to Texas and are negotiating collectively as the United States Maritime Alliance.
In the aftermath of the horrific killing of UnitedHealthcare CEO Brian Thompson, Wall Street’s single-minded focus on shareholder value and eye-popping increases in CEO compensation is getting new attention.
Few people are aware that UnitedHealth Group’s board awarded its former CEO, William McGuire, with $1.6 billion in stock options over 15 years ($106 million per year), which was on top of millions of dollars in salary, bonus and other forms of compensation. Unlike other businesses, health insurance companies generate shareholder value mainly from managing the cost.
The staggering increase in executive compensation has fueled workers’ resolve to hold fast to demands for better wages and benefits — even if it means walking off the job and losing paychecks.
The ILA wants something in return for helping the USMX increase the value of ports and ocean carriers, especially if technology decreases the need for new hires. The container shipping lines received windfalls during the coronavirus crisis when container rates shot up from $2,500 to more than $12,000 per box. Companies like Maersk were able to fund many acquisitions and reward executives from the enormous creation of corporate wealth.
Thanks to the internet, workers and union leaders now have data on how CEOs have leveraged their position to gain staggering compensation packages over several decades. In addition to salary and bonuses, CEOs get long-term payouts, restricted stock options and other perks such as reimbursement for security, tax preparation and a car. Sometimes the value of perks is even grossed up to cover a CEO’s tax liability.
According to Economic Policy Institute research, since 1978, CEO compensation, adjusted for inflation, has skyrocketed 1,085% compared to just 24% for the typical worker. That amounts to 24% per year for CEOs and a meager 0.5% per year for workers.
Chart: Economic Policy Institute
Other data sources show that the ratio of CEO compensation to the median wage of company employees is 300 times today compared to 50 times 20 years ago.
In 2017, when President Donald Trump and Congress reduced corporate taxes, top executives at public companies received billions of dollars in extra compensation even though their actions did not contribute to the increase in their stock price.
The recent strike by aircraft mechanics at Boeing, which lasted for seven weeks, is a great example of how fed up workers brought the world’s second-largest aerospace manufacturer to a grinding halt. Ignoring demands for a 9.5% annual pay increase over four years resulted in a loss for Boeing of $10 billion, a 25% drop in the stock price and a bond rating that got degraded to near junk level before it raised $21 billion to shore up the balance sheet.
It also illustrated that corporate leaders, rewarded with huge compensation for increasing shareholder value, were unable to assemble a single aircraft for nearly two months and could not protect the stock price from dropping by 29% while the broad market went up 9%.
While USMX has agreed to award a 61.5% increase in wages over the next six years, or 10.25% per year, it still needs ILA approval to introduce more automation at the ports to increase capacity and reduce labor cost.
For most dockworkers at the high end of the payscale, a 10% increase could amount to $10,000 per year. Contrast that to a 10% increase in compensation for CEOs who earn millions of dollars per year. The employee will spend that $10,000 on daily expenses for food, rent, transportation, vacation and household necessities — which circulates money throughout the economy and back to corporations. CEOs put their financial windfall in investments for future returns.
Fred Smith realized the importance of employees in creating shareholder value when he founded Federal Express in 1970 on the PSP principle — People, Service, Profit. If the company takes care of its people (employees), they will provide great service (to customers), and that will generate profit (for shareholders). It was such a powerful concept that many corporations embraced it.
During recent decades, PSP has been flipped upside down to stand for Profit, Service, People. Corporate boards have adopted the misguided belief that shareholders are the most important stakeholders. They fail to realize that of the three stakeholders, employees will show the greatest loyalty to the company. Shareholders don’t have any loyalty to a company’s long-term mission. They will buy and sell stocks at a moment’s notice.
Corporate boards need to acknowledge that rank-and-file workers are equally as important as management for generating shareholder value.
If the USMX wants to avoid a protracted work stoppage, it needs to recognize the ILA’s leverage and reward its members with gains realized from more automation.
The failure of corporate boards to recognize the huge gap in compensation between CEOs and average workers will lead to more unionization and more work stoppages that hurt shareholders, workers, customers and the economy.
Through their aggressive bargaining stances, workers at the ILA and other unions, including now at Starbucks, are sending a clear message that they are willing to leverage their collective value to shareholders just as CEOs have been doing to get significantly higher increases in their total compensation.
Satish Jindel is president of ShipMatrix Inc., a freight transportation and logistics consultancy. Jindel has 40 years of experience in the transportation industry and a track record of forecasting industry trends.
