A blog about business and economics.

Oct. 1 2014 2:16 PM

Wall Street Tackles Chat Services, Shies Away From Diversity Issues 

A couple of updates on Wall Street today. First, how bankers communicate. Chat services have been a major headache for big banks, with indiscreet instant messages playing key roles in documenting the Libor scandal and capturing stereotypical Wall Street vulgarity. So it's not surprising that Goldman Sachs has spent the better part of two years working with other financial institutions to develop a better, more secure communications platform for the financial world.

Now, Reuters reports that Goldman and its 13 partners in the project have made a $66 million investment in Symphony Communication Services Holdings. The open-source platform is designed to let finance professionals and their customers centralize digital communications; chat messages, texts, emails, and tweets will all appear in the same place. Darren Cohen, Goldman's global co-head of principal strategic investments, described chat functions to Reuters as "the core nervous system of the financial markets." Symphony, he explained, was "about creating one platform that allowed the silos to communicate effectively." And, presumably, to make it easier for banks to track every kind of communication made by their employees.

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As for the other finance news: diversity! The numbers on Wall Street's youngest members are in, and at big banks they're still mostly white men. The newest class of first-year bankers is 77.5 percent male and 65 percent white, according to data from startup recruiting firm Vettery. Twenty-nine percent are Asian and just 6 percent are black or Hispanic. Vettery did not check its findings with the banks, and some of them dismissed its data as misinformed. Deutsche Bank, which had 70 percent white first-year analysts, the highest among big investment banks, told the New York Times in a statement that Vettery's findings were "inaccurate and do not reflect the true diversity of our 2014 analyst class."

Assuming Vettery's figures are true, the diversity problem on Wall Street is even worse than in Silicon Valley, where big tech firms are also by-and-large male, white, and Asian. And the fact that the numbers are so skewed at the entry level doesn't bode well for making progress overall.

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Oct. 1 2014 1:11 PM

This Company Wants to Fight World Hunger With Flies 

This article originally appeared in Inc.

Inside Glen Courtright's 20,000-square-foot complex on the outskirts of Dayton, Ohio, there are rows and rows of large bins. From a short distance, these bins appear to be full of loose grains, but get a bit closer, and you'll see that the grains are actually thousands upon thousands of squirming, wriggling larvae. With a bare hand, Courtright grabs a heaping scoop of the critters and delicately pours them back in. They immediately go back to work, munching on food scraps. "They really are little miracles," he says.

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Courtright isn't just an insect enthusiast. His company, EnviroFlight, aims to turn these black soldier fly larvae into a low-cost, high-protein feed for livestock, starting with fish. "Each bin will produce upwards of 40 pounds of live insects every 10 days," says Courtright. Because these can be stacked five tall, "every 10 days, we produce the protein equivalent of one pig in a 7-square-foot space," he says with a satisfied grin. If Courtright can succeed at breeding these bugs on an industrial scale—and convince regulators to approve his bug-based livestock feed—he could transform the food industry.

Once you get past the ick factor, the idea is logical. Much of the traditional livestock feed produced by the $370 billion global industry is composed of crops such as corn and soybeans, which are expensive and compete for resources with human food. Livestock feed accounts for 60 percent to 70 percent of food production costs. Even fishmeal, a fish-based ingredient used for farmed fish, pigs, and chickens, can be costly. In the past 10 years, the price has increased by 200 percent, according to World Bank data. "It takes three tons of fishmeal to raise one ton of fish," says Paul Jones, who scouts for agriculture innovations at Mars, a $35 billion food company that is also the world's largest manufacturer of pet food. "The economics don't make sense long term."

Replacing this feed with one made from insects would be cheaper and more sustainable. "Even if we were to get 100,000 tons of additional fish food supply from insects" (or less than 1 percent of global demand), says Jones, "that would be a fantastic thing."

It might also be a partial fix to an impending food shortage: In order to feed the world in the year 2050, food production levels will need to rise by roughly 70 percent. Today's food industry can't handle the load. If insects were to enter the global food chain as feed, it could have a meaningful impact on food prices. That's why the U.S. Department of Agriculture, large farming corporations, and even the United Nations are all paying extraordinary attention to Courtright's little company in Ohio.

Courtright's path to the bug business began about nine years ago in one of the most remote places on Earth. After 22 years in the military—first as a signals analyst in the United States Air Force, then as an intelligence officer in the Navy Reserve—he had become an expert at designing and troubleshooting high-tech systems. When not on active duty, Courtright worked as a systems engineer and manager for government contractors, designing and building sophisticated electronics systems for defense, automotive, telecommunications, and oil and gas companies.

In the winter of 2006, four years after leaving the Navy, Courtright was on the North Slope of Alaska consulting for an oil company client. As he watched the towering gas flares light up the night sky, it hit him. "I thought, shit, this place is going to melt if we continue burning fossil fuels at this rate," he recalls. "I have to do something about it."

His first idea: launch a biodiesel business. He would make fuel out of oil from local restaurants and food-processing plants. But after researching the idea, raising capital, and building a production facility, Courtright pulled the plug in 2008, when availability of the oil proved unreliable.

But Courtright kept turning the idea over in his mind. What else on the planet makes fats and oils for biodiesel? "I looked at enzymes," he recalls. "Nah, too hard. I'm not a bacteriologist. I looked at algae. That was probably a 20-minute no-go decision. Then it hit me: bugs. They're easy to grow. At least, I thought they were." But after toying with the notion of using bugs for fuel, Courtright got a better idea: use the protein and fat in bugs to feed the planet, not power it.

The obvious bug of choice was black soldier flies. These insects live in many temperate climates around the world. As larvae, they are extremely efficient at reducing organic materials like food scraps into protein, oil, and fertilizer. And, unlike some breeds of flies, adult black soldier flies don't bite or spread disease. There was just one, big problem: breeding them on a large scale.

Black soldier flies like to mate on hot, sultry days. Getting them to breed in captivity is difficult, particularly in colder seasons. But Courtright was determined to figure it out. He turned a former seed storage facility in Yellow Springs, Ohio, into a research lab. There, he painstakingly tested the latest academic theories on black soldier fly rearing. "I realized early on that all the documented research in this area was incomplete," says Courtright. "The universities that were at the forefront of black soldier fly rearing—their research never scaled. You need process engineering, systems analysis, to get this to scale."

Courtright mostly worked alone. "I'm self-reliant by nature," he says. "I'm not easily daunted, and I'm comfortable solving big problems by myself." He repeatedly tweaked the temperature and humidity, as well as the lighting, a key factor if the female black soldier fly is ever to notice her potential mate and make the first move. He even installed a telemetry system to calibrate tiny environmental changes to the habitat, a technique he had picked up during his years of designing sophisticated electronics systems. That way, he could analyze the data and diagnose problems. "I even performed a kind of autopsy to figure out why the things died," he says. "It was like a one-man CSI for bugs."

Courtright was alone with the flies on a cold, overcast winter day when it finally happened. As he had done countless times, he adjusted the instruments and watched. Suddenly, the flies started to pair up and fall to the floor. "When they mate, they move in tail to tail," he explains. "You know it's working if you see them drop. Boop, boop. It looks like little black rain drops."

Courtright was so excited that he had trouble articulating the big news. When one of his contractors walked by, Courtright gave him the "OK" sign with his left hand and penetrated it with the index finger of his right hand, adding a few pumps for emphasis.

A week later, the whole thing burned up in an electrical fire. "The lights exploded. I killed everything," he says, shaking his head. "I burnt down the love shack."

It was a small setback. Within two weeks, Courtright had rebuilt the mating chambers and was rearing flies again. It was a hard lesson, but it proved he could replicate the crucial mating process. By the end of 2010, he began staffing up, pitching customers, and taking on investors. (So far, the company has raised about $5 million.)

In May, EnviroFlight was awarded a patent for that "love shack." The design, which has since been modified, had included a multichamber stainless steel unit—with an air pipe running through each chamber. The fly pupae reside on the bottom level. When they become adults, they fly up the air pipe to a caged mating chamber with thousands of frisky adult flies.

After mating, the eggs are harvested in a basin below and taken to "the nursery," large bins where larvae bulk up on a special diet of vitamins, minerals, and plant-based feed. After that, the larvae chow round-the-clock for up to two weeks on food byproducts from local processing plants or spent grains from the Yellow Springs Brewery across the street. (Courtright reserves about 10 percent of the larvae to replenish his stock of adult breeders. Each summer, he adds additional black soldier flies, caught in the wild, to prevent genetic drift and to keep the colony healthy.)

When the larvae reach about 2 centimeters in length, workers cook them in industrial-size ovens and grind them into a powder for feed meal. EnviroFlight has been working for the past year on improving density—getting more feeding chambers into a space, stacked one on top of the other. "I think I've cracked the code on how to do this in a high-density factory building. You could do this anywhere—in Brooklyn, in Nairobi," he says.

The costs to run the operation are relatively low. Courtright typically gets food scraps for little or no cost—and in some cases is even paid to take leftover trimmings from food-processing plants. Although EnviroFlight is still awaiting approval from federal regulators to sell black soldier fly-based feed for the animals we eat, the company has been operating at a profit since the fall of 2013, selling insect-based meal to zoos and pet-food makers. (A Florida company, Tasty Worms Nutrition, sells dried, whole fly larvae from EnviroFlight to owners of backyard chickens and exotic lizards, under the brand name Tasty Grubs, at $50 for a five-pound bag.) EnviroFlight also packages and sells the larvae waste as an all-natural fertilizer.

As for the livestock feed, Courtright hopes to get the green light from the Food and Drug Administration by the end of next year. (FDA spokeswoman Jennifer Corbett Dooren refused to comment on pending petitions, citing agency policy.) In the meantime, with approval from the Ohio Department of Agriculture, EnviroFlight has been running tests with select fish farmers. Results have been positive. In one research trial run jointly by Ohio State and Kentucky State universities in 2012, freshwater prawns were raised on a diet of either EnviroFlight's fly-based meal or a traditional feed made for catfish. The prawns grew to be nearly identical in size and taste, says head researcher and aquaculture specialist Laura Tiu. One difference was that the prawns fed on fly larvae were "lighter in color, more like saltwater prawns," she says, not necessarily a bad thing. The other big difference? EnviroFlight's feed was 16 percent cheaper.

The company is also conducting its own research and trials to get black soldier fly larvae meal registered in the Association of American Feed Control Officials rule book for approved animal feeds, the bible of the industry. Once Courtright has AAFCO approval, which he expects to get next year, EnviroFlight should be able to start selling fly-based meal to farmers of trout, yellow tail, and salmon, and consumers will begin to see fly-fed fish on restaurant menus. EnviroFlight will also be able to sell its insect meal as an additive for pig and chicken feeds.

Courtright estimates he can produce around 300 tons of black soldier fly larvae feed per year in his 3,600-square-foot production space. But his ultimate plan is to license his technology and know-how to businesses that want to convert industrial space—particularly, locations near a ready supply of edible byproducts or food scraps—into fly factories for feed. "The business model is, we set it up, we sell the hardware, and we take a piece of the revenue," says Courtright. "We're already in serious talks with global feed ingredient producers."

EnviroFlight does have some global competition—a handful of privately funded startups around the world are also trying to produce livestock feed from black soldier flies, including Enterra Feed of Canada, Ynsect of France, Entologics of Brazil, Protix Biosystems of the Netherlands, and AgriProtein Technologies from South Africa. Some have already hit regulatory snags. Kees Aarts, founder of Protix Biosystems, had lined up more than 10 million euros in funding last year for a facility to feed larvae animal byproducts from supermarkets, but investment stalled when the European Food Safety Authority deemed insects to be a "farmed animal" that couldn't eat another animal. The EU is now weighing what larvae should be allowed to eat as well as what sorts of livestock can eat larvae-based feed.

Though U.S. regulators seem more favorably disposed, Courtright still faces another big test: scaling from a prototype to a large commercial enterprise. "Anybody can do something once," says EnviroFlight investor Carl F. Kohrt, a former board member of the Scotts Miracle-Gro Co. "Can you do it a thousand times? A million times? And get exactly the same results? You have to be disciplined and focused, particularly if your product is to be suitable for human consumption." Kohrt says he has confidence in Courtright and his "analytical, very methodical" approach.

Recently, though, there have been a few hiccups. Last autumn, Courtright had been feeling good about the business—with 10 full-time employees overseeing breeding, milling, and product testing. Then, the polar vortex happened. The company suffered a major power outage during subzero temperatures that wiped out most of the larvae reserved for breeding.

Now, Courtright says, he's ready for anything. "Our systems are tested and ready to go through any weather extreme, even another polar vortex. I am confident this will work anywhere in the world now," he says, sounding like a battle-tested commanding officer. "My competitors are doing this in temperate zones, like South Africa. I'm doing this in Ohio. The weather in Ohio stinks, OK? Don't print that."

Sept. 30 2014 7:02 PM

At Long Last, eBay Sets PayPal Free

Today eBay announced that it will spin PayPal off into a separate publicly traded company in 2015. Aside from being a major breakup, the move is a dramatic about-face for a company that, until very recently, had insisted its retail and payments operations were better off together.

John Donahoe, eBay's chief executive, told Reuters that the decision was based on the feeling that “the pace of change in this competitive environment ... is accelerating and will continue to over the next three to five years.” That seems like a reasonable statement on Donahoe's part—Apple Pay, anyone?—but it's an abrupt change of tone from his comments in recent months. During the Q4 2013 earnings call, Donahoe told listeners that, “PayPal and eBay make sense together for many reasons.” Among them: “eBay accelerates PayPal's success,” “eBay data makes PayPal smarter,” and “eBay funds PayPal's growth.” He expressed similar opinions until July.

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What changed? For starters, activist investor Carl Icahn has been pushing for the spinoff since the start of this year. “We are happy that eBay's board and management have acted responsibly concerning the separation—perhaps a little later than they should have, but earlier than we expected,” Icahn said in a statement on his blog. “It is almost a ‘no brainer’ that these companies should be separated to increase the value of these great assets and thus to meaningfully enhance value for all shareholders.” On top of Icahn's efforts, Reuters reports that activist investor Daniel Loeb had taken a “significant” stake in eBay.

Activist investors weren't the only ones who felt eBay's ownership of PayPal was strangling the service. In a Reuters column, Rob Cyran notes that PayPal's ties to the online retailer were impeding close relationships with huge platforms like Amazon and slowing its adoption of new technology. “Departed co-founder Elon Musk warned two years ago that the plan he wrote at the turn of the century was essentially still in place and that if PayPal didn't act quickly it would be ‘screwed.’ ”

Judging by the performance of eBay's stock on Tuesday, investors don't think the spinoff came too late: Shares soared 7.5 percent.

Sept. 29 2014 7:01 PM

We May Never Know Whether Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge

Larry Ellison, the billionaire and until very recently CEO of Oracle, is famous for his outlandish pursuits. He delights in shooting hoops aboard his yacht The Rising Sun (reportedly the world's 10th largest) and owns 97 percent of the Hawaiian island Lanai. In a recent profile otherwise devoted to that significant geographic purchase, the New York Times notes another oddity: "There's a rumor—the truth of which remains murky—that Ellison once flew a fighter jet under the Golden Gate Bridge."

Could such a thing be true? The closest Ellison has ever come to addressing the epic rumor appears to be in a 2004 interview with Charlie Rose. Asked whether he had taken a joyride below the Golden Gate Bridge, Ellison told Rose that doing so would be against Federal Aviation Administration rules and "so of course not." Then again, if he had pursued such a stunt, Ellison added, he would have taken one of his fighter planes.

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In an effort to get to the bottom of this rumor, I called up the authorities at the Golden Gate Bridge, Highway and Transportation District. I spoke with several people, all of whom were familiar with the rumor of the Ellison joyride but none of whom could confirm that it had happened. One longtime sergeant, who declined to give his name, said there are similar stories around San Francisco's Fleet Week—that the Blue Angels would invert a plane and fly it beneath the bridge.

But that also seems to be hearsay. "We wouldn't do that," a member of the Blue Angels told the Charleston, South Carolina, Post and Courier in 2010. "It's really unsafe." She added that the sharp turns taken by the jets could leave onlookers with the impression that an aircraft had flown under the bridge. (Watch the YouTube footage below from about the 5-second mark to the 10-second one, and you'll see why.) At any rate, we may never really know if Ellison attempted this. But if it's too dangerous for the Blue Angels, it seems unlikely that Ellison tried—much less managed—to pull off the trick.

Sept. 29 2014 3:06 PM

Want to Be Stinking Rich? Major in Economics.

Want to guarantee yourself a steady, well-paid career? Major in engineering. Want to take a shot at striking it rich? Then major in economics.

At least, that's how I'd sum up the findings of a new report and interactive tool from the Hamilton Project, which looks at how the value of a college degree changes depending on your major. This is already a pretty well-explored subject. But the Hamilton study is especially nifty, because instead of calculating what the "typical" college graduate can expect to make over the course of a career, like many researchers do, it shows a whole range of potential outcomes, from the fifth percentile of earners up to the 95th percentile. And of the best-paid graduates in all fields, economics majors rake in the most.

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To start off, here's the sort of graph you're probably used to seeing. Using data from the Census Bureau, which began asking college graduates about their majors in 2009, it shows the annual income that the median college graduate in four common majors can expect to make in each year of her career. Of the group, English grads make the least, business majors do a bit better, while engineering and econ grads jockey for the top spot. (Quick note: These numbers cover only graduates without advanced degrees. We'll come back to the grad-schoolers in a bit.)

Now check out how the view changes when, instead of tracking median graduate, we look at all graduates. The graph below depicts the range of lifetime earnings that graduates in each major can expect to make. Up until about the 57th percentile, engineers make the most. But then the earnings curve for economics grads basically goes parabolic. At the 95th percentile, they can expect to earn more than $3 million more during their lifetime than an engineering grad.

Does the outcome change if you start factoring grad school into the equation? Nope. Brad Hershbein, one of the study's authors, confirmed for me that "at the 95th percentile and above, economics outearns every other major," whether or not graduates have gone on to earn advanced degrees. For those with just an undergraduate degree, economics becomes the top-paid major at the 92nd percentile, passing engineers who specialize in energy and extraction technology (basically, kids who go to college in order to learn how to drill oil out of the ground). When you factor in Americans with graduate degrees, as in the graph below, econ becomes the top-paid major at the 94th percentile, where it passes biochemistry and molecular biology, which produce lots of doctors. I've thrown the energy engineers and history buffs onto the graph as extra points of reference.

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So why are econ grads so good at making it rain? Part of it is that the finance and consulting industries like recruiting them, not necessarily for their specific skills, but because they consider the major a basic intelligence test. Granted, we're probably not seeing the effect of Goldman Sachs or Private Equity salaries in these charts, since they only stop at the 95th percentile of earners—but banking is a big industry, and it pays well. There's also an element of self-selection. Plenty of engineers have the math skills to hack it at a bank (film fans may recall Stanley Tucci's speech about how he once built a bridge in Margin Call), but choose a slightly less lucrative but probably more fulfilling career path. Not everyone wants to spend a career turning money into more money. No matter how well it pays.

Sept. 26 2014 4:49 PM

The Whimsical Adventures of a Tube of Burt’s Bees Lip Balm

Burt's Bees, or everyone's favorite natural skin care company that's actually owned by a multibillion dollar corporation, is rolling out its first television campaign to remind America just how natural it is. The first commercial (above) is scheduled to air Monday, and is on YouTube with the title "Burt's Bees: Uncap Flavor." The 30-second episode begins with two cartoon bees dropping a tube of beeswax lip balm from the clouds and then follows it as other (surely natural) flavors like pink grapefruit, honey, and cherry get mixed in.

Burt's Bees reportedly did not disclose its budget for the campaign, but spent $26.4 million on advertising in 2013 and $15.9 million in the first half of 2014. That might sound like a lot for a company that prides itself on its local roots and brand sustainability, but keep in mind that the earthy-crunchy business has been a subsidiary of Clorox since 2007, when it was acquired for $913 million. Clorox's quarterly ad spending, at last count, exceeded 9 percent of its total sales, or some $135 million. That doesn't mean the commercial isn't a fine one; it's short and cute and exactly what an ad for Burt's Bees lip balm should be. And at any rate, it's a lot better than when Burt's was in the news for beezin'.

Sept. 26 2014 12:46 PM

Bond King and Wall Street Eccentric Bill Gross Abandons His Throne

Bill Gross, the famed investor and "bond king" of Wall Street, said Friday that he was leaving Pacific Investment Management Co. for a position at Janus Capital Group, effective immediately. Janus, an investment firm based in Denver, that manages around $200 billion, is tiny compared with the $2 trillion bond empire that Gross built and co-founded in Pimco. But Pimco has also performed shakily in the past year with investors pulling more than $65 billion, and the firm was reportedly preparing to fire Gross on account of his controversial management style and erratic behavior.

Gross' departure, which, as a certain financial writer muttered in the Slate office this morning, is "the most important news that no one outside of Wall Street cares about," seems to leave Pimco with a significant management hole. (That same financial writer called for Gross' resignation earlier this year.) Mohamed el-Erian, the former co–chief executive officer of Pimco and longtime heir apparent to Gross' throne, rattled investors in January with his own departure from the firm. And even for those not interested in the nuances of bond fund management, Gross' resignation starts to dim the spotlight on one of the most colorful personalities on Wall Street.

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Gross, as the New York Times wrote in a 2009 profile, "has long been celebrated for his eccentricities." A former professional blackjack player who became obsessed with the game after reading Beat the Dealer: A Winning Strategy for the Game of Twenty-One, Gross turned $200 into $10,000 in four months and used the profits to pay for an MBA. His yoga routine includes balancing on his head in a position known as the "feathered peacock," and he has credited his time spent upside down with yielding some of his best ideas. Then of course there are his investment outlooks, which if nothing else, are among the most entertaining in the industry. We'll leave you with this classic excerpt:

All right fellow frogs, so we’re being repressed and shortchanged in order to allow Uncle Sam to balance its books. Whatta we gonna do about it? “Frogs of the world unite,” as Lenin might have said, and so here’s where I harken back to Mark Twain and my second lesser-told frog story. There was this other frog who instead of being tossed into a pot of hot water was left to cool its heels in a pitcher of cold milk. Unable to jump out, he churned and churned those frog legs until eventually the milk turned into butter and the hardened butter allowed him the platform to leap to froggy freedom! Well, let’s get churnin’, fellow frogs. If the U.S. or the U.K. or any other government is going to attempt to boil us alive, let’s make butter! Butter in this instance is what PIMCO characterizes as “cheap bonds.

Sept. 25 2014 6:35 PM

How the Rich Conquered the Economy, in One Chart

When you write about the economy every day for a living, you can start feeling numb toward charts about income inequality. After all, the story doesn't change much week to week, and usually neither do the visualizations. But this one, from Bard College economist Pavlina Tcherneva, somehow still feels astonishing, and has stirred up a bunch of attention today. It shows how much of U.S. income growth has been claimed by the top 10 percent of households during economic expansions, and how much was claimed by the bottom 90 percent. Guess who's gotten the lion's share in recent years?

Through midcentury, when times were good economically, most of the benefits trickled down to the bottom 90 percent of households. Then came the Reagan era and actual trickle-down economics. Suddenly, the benefits started sticking with the rich. Since 2001, the top 10 percent have enjoyed virtually all of the gains.

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This isn't a totally new story. But it is a vivid and visceral illustration of what we've basically known to be true for a while (the graph is updated from this paper). Meanwhile, as a point of comparison, The Week's Ryan Cooper points to a similar graph of Sweden, where, until recently, economic gains were much more evenly dispersed. As he notes, even in the era of globalization and high finance, it's clearly possible to structure an economy so that it benefits someone other than the rich.

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Sept. 25 2014 6:19 PM

Subprime Auto Lenders Are Using This Terrifying Device to Track Their Borrowers

The New York Times has a big story out on the dangers of subprime lending—and in this case, those dangers aren't just financial. In the article, Michael Corkery and Jessica Silver-Greenberg examine the lengths to which auto lenders are going to ensure that the riskiest of borrowers make their payments on time. For many, the technique of choice is installing a "starter interrupt device" in the borrower's car that allows the lender to track the car and remotely disable its ignition.

If this sounds a tad bit problematic, that's because it is. From the Times:

Some borrowers say their cars were disabled when they were only a few days behind on their payments, leaving them stranded in dangerous neighborhoods. Others said their cars were shut down while idling at stoplights. Some described how they could not take their children to school or to doctor’s appointments. One woman in Nevada said her car was shut down while she was driving on the freeway.
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Lenders defend the use of starter interrupt devices as allowing them to make loans to the millions of Americans who otherwise would not qualify. In 2013, around 25 percent of all new auto loans were made to borrowers with credit scores below 620. The recent surge in this kind of lending—fueled by Wall Street's appetite for high-risk, high-return investments—has sparked fears that subprime auto loans are the new subprime mortgages. Yet again, the iffy assets are being pooled, sliced, packaged, and repackaged almost beyond recognition. Some banks have loosened credit standards so much that they are helping people who have lost their jobs or recently declared bankruptcy to take on loans for thousands of dollars.

In August, economists at the Federal Reserve Bank of New York examined data on subprime auto lending and concluded that the boom was not too concerning. They noted that while auto finance companies have ramped up their lending to subprime borrowers, banks remain more cautious. "Subprime lending is definitely on the rise in absolute terms, although the increase in prime auto lending over the same period makes the relative increase in the subprime share less pronounced," they wrote.

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What the Times story makes clear is that questionable financials are only the tip of the iceberg with subprime auto lending. In addition to safety concerns, the geotracking starter interrupt devices have prompted ethical questions about surveillance and debt collection. One woman told the Times that when her daughter developed a high fever, she could not drive her disabled vehicle to an emergency room. Another feared the tow truck used to repossess her vehicle would lead her abusive husband to the shelter she was hiding at. And while many states prevent lenders from seizing cars until borrowers miss payments for 30 days, some consumers claim their vehicles have been shut off with little warning only a few days after a deadline passes.

Sept. 25 2014 1:24 PM

Stand Out by Closing the Executive Pay Gap

This article originally appeared in Inc.

Are CEOs properly compensated, compared with unskilled workers? If you think so, you're in the minority. That's one takeaway from recent research by Chulalongkorn University’s Sorapop Kiatpongsan and Harvard Business School’s Michael Norton.

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Their other key finding is a fascinating distillation of what people think CEOs should make compared with unskilled workers. Here are the numbers, according to Gretchen Gavett’s superb summary on the Harvard Business Review blog:

  • U.S.-based respondents to the survey Kiatpongsan and Norton used believe that, ideally, CEOs should earn 6.7 times what unskilled workers earn. 
  • The actual CEO-to-worker compensation ratio at U.S.-based companies in the Fortune 500 is 354. That's right: On average, Fortune 500 CEOs earn 354 times what unskilled workers at their companies do. In actual numbers, the average CEO compensation is $12,259,894, compared with $34,645 for their workers. 

What does it all mean for today’s leaders and entrepreneurs? From my perspective, these numbers present a clear opportunity to differentiate yourself—specifically, to brand your company as a leader in progressive compensation practices.

Why would you do this? Mainly because you’ll earn extreme employee loyalty and customer respect. Consider the recent six-week saga that played out in New England at Market Basket, a supermarket chain of 71 stores. The short version of the saga is this: Employees were willing to lose their jobs to protest the firing of a longtime CEO who they believed was exceptionally generous in terms of compensation and benefits. Moreover, during the six weeks, customers largely sided with fired CEO Arthur T. Demoulas and the employees. It was as if they felt, to quote a headline in Esquire, that “the last stand for the middle class” was taking place in the parking-lot protests at Market Basket’s headquarters. 

What steps can you take, then, to brand yourself as an organization taking a stand against what many see as unjust compensation disparities? Interestingly, it’s another supermarket leader—John Mackey, co-founder of Whole Foods—who has famously advocated for making compensation transparent. One of the main transparencies at Whole Foods is this: Whole Foods caps executive pay at 19 times the pay of the average store worker.

Here’s the thing. In 2007, Whole Foods raised the executive compensation cap from 14 times the average pay to its current 19 times. The reason, Mackey stated in a letter to all employees, was “to make the compensation to our executives more competitive in the marketplace.” In addition, Mackey told Inc. last year that raising the cap might happen again in the future, if Whole Foods again needs to remain competitive for executive talent.

The point here is not to nitpick at Whole Foods. It’s only to say that the company faces a different executive recruiting-retention challenge than that of its ratio-free rivals. And if it needs to increase the ratio, it needs to manage how employees and other shareholders will react to that change. But those seem like small prices to pay for maintaining a policy that brands the company’s compensation practices as unassailably progressive. 

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