Distracted driving one reason for costlier insurance
Question: Is it my imagination, or are car insurance rates rising, even as my car gets older? Why would that happen? — F.R., Jackson, Michigan
Answer: It’s not your imagination, and a bunch of factors are responsible. The bottom line is that insurers have been facing rising costs in the form of more claims than they expected. Accidents (sometimes fatal ones) due to texting while driving are one problem, along with the general distraction of smartphones. Some blame more widespread use of marijuana, as well. An improving economy and lower fuel costs have led to more driving, which also increases the number of accidents.
Meanwhile, health-care costs have been rising, leading to more expensive claims. But wait — there’s more. It’s even getting more expensive to fix cars, as they have a lot more technology in them — think, for example, of backup cameras placed in bumpers.
Is there any hope? Well, red-light cameras have been reducing the number of accidents. Self-driving cars might reduce accidents further and could lead to lower premiums. And online services can help drivers zero in on affordable policies. Fool’s school: Paying for underperformance
To justify the stratospheric salaries that many CEOs receive, some will explain that you have to pay for performance. Indeed, a 2016 survey by the Rock Center for Corporate Governance at Stanford University found that 95 percent of CEOs and 87 percent of company directors believe that CEO compensation is aligned with performance.
But according to a recent study of 429 large American companies by the investment research firm MSCI, “Companies that awarded their Chief Executive Officers higher pay incentive levels had below-median returns.” The study reviewed the years from 2005 to 2015 and found “total shareholder returns of those companies whose total summary pay was below their sector median outperformed those companies where pay exceeded the sector median by as much as 39 percent.”
In other words, if you’d invested $100 in companies with the highest-paid CEOs, it would have grown to $265 over those 10 years — but it would have grown to $367 invested in the companies with the lowest-paid CEOs.
That’s not lost on the American public. According to a different Rock Center survey, 74 percent of respondents saw CEOs having “incorrect” pay levels — though they underestimated how much CEOs averaged in pay. Also, when asked how much more than a company’s average worker wage its CEO should earn, respondents’ answers averaged 17.6 times. In reality, according to several reports, the average CEO compensation among S&P 500 companies was more than 275 times that of the average worker in 2015.
It’s not a baseless argument to claim that CEOs guiding their companies to great growth are worth hefty compensation. The problem is that many CEOs get lavish pay without performing well.
Fortunately, we shareholders can use our proxy ballots to vote against companies’ CEO pay policies, and also to withhold votes from the compensation committees’ directors who craft outrageous pay packages — and pen employment agreements that ensure ample pay for failure through “golden parachutes.” CEO pay disconnected from performance (or reason) doesn’t have to be business as usual.
Foolish Trivia:
Name that company
I trace my roots to 1965, when a Connecticut teenager started a sandwich business in order to put himself through medical school. Borrowing $1,000 from a family friend, he opened “Pete’s Super Submarines” and sold 312 sandwiches in the first day, for less than 70 cents apiece. I got my current name in 1968. Today I boast more than 44,000 locations in more than 110 countries, all of them franchised. (That’s more locations than McDonald’s.) I serve about 7.5 million sandwiches each day. You can’t buy stock in me because I’m privately held. Who am I?
Last week’s trivia answer
I trace my roots back to a broken typewriter ribbon in 1985 that caused my founder to envision a supermarket for office products. I opened my first store in Brighton, Massachusetts, in 1986 and by 2002 was the world’s largest seller of office supplies. Who am I? (Answer: Staples)