| Worker's Capitalism Triumphs Originally publisheed in Muhlenkamp Issue 2, October 1987, this essay points out tha through pension plans, American workers own a major portion of the business assets of the United States. As reflected in literature and the popular media from Dickens and Marx to Studs Terkel and Jesse Jackson, people have always viewed themselves as workers. As workers, they think of themselves as being in direct competition with owners and managers for a share of the wealth created by business enterprise. They see the return for their efforts in the form of a weekly or semi-monthly paycheck and often conclude that their pay would be greater if only the owners took less. People naturally think in terms of net, "take home" pay, money that is then spent on the day-to-day necessities and luxuries of life. Yet "take home" pay is only a part of the benefits received for work. Other items, whether deducted from gross pay, such as taxes, or those not appearing on the pay stub at all, such as medical insurance or pension benefits, are much less tangible, and are often taken for granted or ignored by the worker. Yet, the least tangible part of the paycheck, the pension benefit, has resulted in American workers owning a major portion of the business assets of the United States. The growth in pension and retirement assets has been so great that Peter Drucker calls wage earners "the only true capitalists in developed countries today." Today the workers are the owners; they just don’t know it yet. According to Pension & Investments Age, in late 1986 the 100 largest U.S. Pension Funds had assets exceeding $845 billion. Of these 100 funds, only 48 were corporate related. The aggregate market value of the 48 sponsoring companies was $583 billion. Thus, the 100 largest pension funds could easily own all of the shares of the 48 companies. Individually, the pension funds of the employees of 14 of these companies exceeded the total market value of their respective stocks. Thus, the employees of General Motors, through their pension plan, could buy all of the stock of their company. So could the employees of AT&T, USX, Alcoa, Lockheed Martin, Union Carbide and Delta Air Lines. Of the 100 largest pension plans not company related, most are plans for public employees. The California Public Employees Retirement Plan exceeded $37 billion, an amount sufficient to buy all the stock of General Motors and Ford. Similarly, the Pennsylvania State Employees Retirement Plan could have bought out USX. The Pennsylvania School Employees Retirement Plan, at over $10 billion, could have bought out USX plus Alcoa. The list goes on and on. The point is that workers already own a huge chunk of America’s capital assets, yet are largely unaware of it. A person retiring from USX with a $20,000 per year pension and a life expectancy of 15-20 years thinks he’s poor, but if he receives the same amount in a lump sum, he thinks he’s rich. Same data, different perceptions. Though the workers seem unaware of their ownership status, managers are rapidly becoming more aware. Directors and managers see huge blocks of "their" stock in the hands of (potentially non-friendly) pension funds and mutual funds, so they try to maintain their positions of power and influence with various "poison pills" and so-called "shareholder rights plans." Manager’s sometimes literally buy-off unfriendly holders through greenmail payments or share repurchase. Some do both. When General Motors paid $700 million in hush money to H. Ross Perot because Perot refused to keep quiet about GM’s loss of market share, the firm was besieged by its other larger shareholders, including the Comptroller of the New York City Pension Funds. It seems these other shareholders were not happy with H. Ross being the only beneficiary of the firm’s largess, so they made noises about replacing Roger Smith as Chairman. GM announced a share repurchase soon thereafter. Other firms undermine the shareholder’s say in management by creating separate classes of stock, one with the great majority of voting power, the other with very little. The trouble with this strategy is that the New York Stock Exchange has something called the "one share-one vote" rule, and firms opting for this strategy face de-listing of their securities. Opposition to these and other corporate tactics is increasing as institutional shareholders come to recognize their collective power. 1995 Update We wrote in 1987 that institutional
shareholders and pension plans were beginning "to recognize
their collective power." Much has been made of the push in
recent years for a greater focus on shareholder values, frequently
resulting in corporate cutbacks, including large layoffs. But the
public is unaware that the major pension plans have been aggressive
drivers of this trend. Specifically, in each of the past several
years, CalPERS (California Public Employee Retirement System) has
targeted a number of major companies, pushing for greater efficiencies
and greater profitability. Its targets have included General Motors,
Eastman Kodak, Westinghouse, and so on, and its pressure has resulted
in the firings of chief executives and whole tiers of corporate
managers— in the name of, and for the benefit of, workers' pensions. 2002 Update The following data is reprinted with
permission from Pensions & Investments, January 21, 2002 (Grain
Communications, Inc.). It lists the top 200 pension funds and their
sponsors in the United States, along with the assets (in millions)
in the fund. The largest fund is CalPERS. As of September 30, 2001,
the top 100 pension plans aggregate over $2.9 trillion. The top
200 plans aggregate over $3.5 trillion. The top 1,000 pension plans
aggregate over $4.7 trillion. As you can see, of the top 200 pension
plans, 94 have corporate sponsors; of the top 100 plans, 41 have
corporate sponsors. We have included a column labeled Market Value
that shows the The Update (1996) The data below and on the following page was copied with permission from Pension and Investments, January 22, 1996, page 22. It lists the top 200 pension funds and their sponsors in the United States, along with the assets (in millions) in the fund. The largest fund is TIAA-CREF, which is the Teacher’s Insurance Annuity Association - College Retirement Equity Fund. As of September 30, 1995, the top 100 pension plans aggregate over $2 trillion. The top 200 plans aggregate over $2.4 trillion. The top 1000 pension plans aggregate over $3 trillion. As you can see, of the top 200 pension plans, 91 have corporate sponsors; of the top 100 plans, 41 have corporate sponsors. We have included a column labeled "Mkt. Value" which shows the market value of the respective corporations, as of year-end 1995. The asterisks on the table indicate those plans that exceed the market value of the sponsoring companies. Thus, the employees of General Motors, Ford, Boeing, Lockheed, etc., through their pension plans, could purchase their respective companies.
We wrote in 1987 that institutional shareholders and pension plans were beginning "to recognize their collective power." Much has been made of the push in recent years for a greater focus on shareholder values, frequently resulting in corporate cutbacks, including large layoffs. But the public is unaware that the major pension plans have been aggressive drivers of this trend. Specifically, in each of the past several years, Calpers (California Public Employee Retirement System) has targeted a number of major companies, pushing for greater efficiencies and greater profitability. Its targets have included General Motors, Eastman Kodak, Westinghouse, etc., and its pressure has resulted in the firings of chief executives and whole tiers of corporate managers, and it was done in the name of, and for the benefit of, workers’ pensions. In the United States, in 1995, we have worker capitalism. Workers can paraphrase Pogo in saying, "We have met the owners and they are us."
Ron Muhlenkamp
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