CEO pay and stock buybacks have soared at the largest low-wage corporations
ips-dc.org
ips-dc.org
CEO pay relative to median employee pay has soared since the 1970s. That is, a CEO may be paid $10,000,000 vs the median employee at $70,000 (arbitrary numbers), where before 1970 the numbers may have been $150,000 and $20,000
Using only one set of numbers can be deceiving though. For instance, through mergers and acquisitions, there may be One CEO where there were previously 10. So you might be able to see this by comparing Total Executive Pay - ie the whole C-suite to Total Non-Executive Pay.
Also, many companies have become more efficient as measured in revenue per employee over time, so another good set of numbers might be Total Executive Pay vs Gross Revenue.
How does Executive Pay look in these contexts?
I'm sure someone has done the work, but I have not had luck googling it, and I definitely don't trust a LLM to get this one right.
- Reduce unions
- Outsource and automate labor
- Slow minimum wage increases
- Consolidate power via M&A (you mentioned this)
- Cut back on benefits like healthcare, pensions and paid leave
- Promote "guru culture": indispensable, iconic leaders like Jack Welch, Steve Jobs etc
- Shift economy towards high-margin industries (tech, finance, pharma) and away from lower-margin ones (retail, manufacturing)
Turns out all of these have been happening since the 70s. So this result should not be surprising.
*Important note that the 1993 Clinton tax bill made it so corporations could no longer deduct the full amount of top executive salaries as a business expense. Only up to $1 million. UNLESS the amount beyond $1 million was performance-based (leading to stock option comp boom).
The solution to this isn't to get mad (or even do something about) CEO wages, but to make sure there are other good reasons why companies might not use these approaches to maximize shareholder returns (ie stronger government regulation, making these approaches illegal).
Legally the CEO has a fiduciary duty to the shareholders. In practice, can we honestly say that every CEO of a publicly traded corporation acted in the long term interests of EVERY shareholder and didn't just parasitically extract value from the company for themselves and a handful of LARGE shareholders? Facebook is essentially the personal property of Mark Zuckerberg
The CEO has two fiduciary duties:
1) To act with appropriate information; 2) To avoid usurping corporate opportunities
The duty to make money for the shareholders is distinctly not a thing.
Is revenue per employee the best metric? Productivity gains don’t automatically justify higher executive pay. Most of those gains come from technology the CEO didn't invent or personally implement, supply-chain leverage, and cost-cutting at the bottom, not from some surge of genius at the top. Yet the financial rewards are heavily skewed upward, while median wages flatlined. Plus you know the rule about what you measure being what you get more of. All that would happens under your metric is CEOs push to move to 'contractors' to reduce the measured headcount to justify an even higher salary.
Changing the metric just masks things. Society is broken for those at the bottom, and if their numbers grow too large, it will become broken for everyone.
Using only one metric is THE classic way to misunderstand a system.
> Society is broken for those at the bottom, and if their numbers grow too large, it will become broken for everyone.
It's difficult to capture my intention and perspective in a short comment. In my personal belief, if the future is going to be better than the present, we need to share resources more fairly.
However, money is an imperfect representation of resources. For instance, the extremely wealthy may eat more food or more quality food, but not anywhere near a proportionate excess. They may have a bit more housing, but generally not proportionate to their excess income. Etc etc etc for most things.
This is not excuse, or justification.
What I am saying is that focusing on the excess wealth can become a distraction.
I believe that the majority of harm relating to income inequality does not come from the inequality itself, or even excess resource (food, housing, etc) consumption.
I believe that the majority of harm comes from actions taken while attaining and defending wealth.
It's regulations bent and broken while growing a business.
It's not the housing per se, but the housing must retain value.
It's not the stock portfolio per se, it's the tax loopholes exploited.
----
Excess wealth is a correlation to harm. Beyond that, I feel that care must be taken.
Beware of easy narratives and blame.
Executive compensation is not part of that equation.
They might have twice the yield with the new varietal, but if their crop fails: they risk destitution and might even loose their land. So they rationally choose the proven lower-yield varietal. Their risk appetite is proportional to their savings, if they have any. A catch-22.
For low wage workers in America, is it that much different? So many people stay in badly paying jobs because if they loose access to health insurance they could loose their home. Or get sued over a non-compete they cannot afford to fight.
Seems like below some threshold of wealth, supply and demand don't apply anymore. People are forced to choose the least risky option.
> the maximum wage the company is willing to pay
This is the primary method I was thinking of. A company/CEO has a variety of reasons for paying its labor more than the minimum (retention, moral belief, working next to colleagues, etc). Shareholders really only have executive comp (and its structure) to discourage CEOs from paying labor more than the minimum necessary.
- guilty of systemic accounting fraud from 1999-2004
- manufactured a (allegedly known-to-be) faulty ignition switch that led to the deaths of 124 people and injured 275 others
- currently forcing 20,000 former employees to fight a decades-long legal battle for their earned pension benefits
- gleefully dumps massive quantities of carcinogens and poisons into the environment, including: lead compounds, chromium compounds, sulfuric and hydrochloride acid (lol), and glycol ethers
Citations here: https://en.m.wikipedia.org/wiki/Aptiv
If anything, they're paying CEOs so much in some cases that the rational thing for the CEO to do is as little work as possible. Why work hard if you'll get enough to retire comfortably on regardless of your performance?
... Sundar Pichai, is that you?
The iPhone swipe keyboard is crap. I have much better luck with GBoard, but then I have to install GBoard, and have all sorts of issues with app unresponsiveness or crashes whenever either GBoard or iPhone updates.
Do buybacks cause profits to increase? Maybe from what I can see? But long-term? If all we care about is short-term then that will lead to the continued financial cannibalization of the US economy. Where private equity firms buy companies and destroy them for short-term profit while loading them with the debt used to buy them.
I think the obvious answer to both these questions is: no. CEO pay and buybacks don't focus on profits. At best short-term. Which isn't good.
I think companies should focus on making good products that positively serve the countries they sell in, while secondly still aiming for a profit.
This seems like a particularly terrible measure of success for everyone but those owners.
Does anyone really think Tesla is worth more than every single other automaker combined? That’s what the stock price (market cap) is saying.
If as you said, short term profits are prioritised over long term profits - the short term stock price would reflect that and it is not beneficial to shareholders.
I think the major institutional investors don't get involved cuz they're major institutional investors, and other investors don't have enough power to influence the compensation committee.
Musk has his cronies on the board, and the rules to replace someone on the board effectively require 80+% of the stock not owned by Elon to change.
The members of this board got huge stock grants from Musk and are utterly beholden to him.
They cause each (remaining) shareholder's part of the profits to increase (relative and absolute), because there are fewer shareholders left. So it does very really increase the value of each share.
If you don't have a minimum wage, some people get paid below this level, and they somehow struggle along in poverty. But there is no real incentive for the state to help them.
Establish a minimum wage. Now these people are unemployed. Which contributes to the unemployment percentage. Causes the government to lose votes. The state has to pay out unemployment benefits to these people. The govt+state now have real incentives to change the structure of economy to ensure jobs are created for these people that are productive enough to justify the minimum wage.
I don't understand why people sit around saying oh the minimum wage is going to increase unemployment and therefore treat minimum wage legislation as apostasy, but some radical new technology which results in a lot of unemployment is just the economy getting more efficient and it will absorb all the excess labor with new enterprises.
Is there something about minimum wage legislation that makes the labor completely unusable? Wouldn't it be equally as temporary as some large efficiency gain in the economy?
These truths are not self evident to other cultures. Like yours
HBR discusses some downsides of buybacks: https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...
It's reasonable to be upset about the fact that this is arguably a tax dodge! But all of the other criticism of buybacks apply equally to dividends which no one seems to get upset about. Fundamentally this is the corporation saying it doesn't have a market-beating way to reinvest this capital, and it's giving the money back to its owners to more productively invest.
The fundamental purpose of a buyback is not to raise the stock price. The purpose of a buyback is to reduce the amount of outstanding shares, which makes every existing owner own an increased percentage. If a company buys back 10% of its stock, each long term shareholder now owns 10% more of the company. Over the long term, steady buybacks increase shareholder value this way, but the purpose of it isn't to slam the order book and juice the price. That's counterproductive, because you'll buy fewer shares at higher prices, and within a trading day, the market will push the price back to normal anyway.
They do, but it is only paid by the people who took the money (instead of being forced to do so), and, more importantly, only on the difference from what they paid.
If you pay out $1mln of dividends, then everyone collectively owes (let's say at a qualified rate of 20%) a total of $200k. If you buy 20,000 shares from one guy at $50/share, you returned the same $1mln of cash to shareholders, but if he bought last year for $45, he only owes (let's say at a long-term capital gains rate of 20%) a total of $20k in taxes.
If they buy back x, it strengthens shares by 1/(1-x)
So if they buy back 50%, remaining shareholders have 2x ownership.
Make up whatever nonsense you want about the “fundamental purpose” of something, it doesn’t matter. The purpose of a system is what it does:
https://en.m.wikipedia.org/wiki/The_purpose_of_a_system_is_w...
Stock buybacks increase share price. There’s no reason to look any farther than that. The purpose of stock buybacks is what stock buybacks do.
Searching on the subject of "buybacks where share price decresed", Google returns Merck as an example (reffing Harvard Business Review), which actually works quite well to illustrate. The HBR article even notes the main strategy "historically, companies that bought back their own shares have posted immediate returns between two and 12 percentage points above the market average"
"Merck's stock price dropped after a major buyback announcement when investors focused on expiring patents and a drying drug pipeline"
Except: Feb. 23, 2000, NYT, "Merck & Company, the No. 1 United States drugmaker, will buy back as much as $10 billion of its shares, which have fallen 18 percent this month." (Closest share price I can grab is 2/25/2000 at $57.39)
Share price then climbs steadily (tiny drop in July) up to a max at 12/29/2000 of $89.27 before finally crashing.
The first example Google returns is full of info on the stock behavior that makes it look like the stock buyback did not initially jack the price. Owners had 10 months to pull in a 55% share price increase before it crashed. And they floated through the 2000 March 10 bubble popping until the stock market really started deflating in 2001.
Much of the gains in the stock market the past decade or so are simply the result of a greatly reduced number of shares available to purchase - as a result of buybacks, takeovers and going private (there are roughly 1/2 the number of listed companies today as in the 1990s).
Fundamentally this is the corporation saying it doesn't have a market-beating way to reinvest this capital
But their stock is priced like it too, so they are plowing most of their free cash flow into buying back shares, and it more than offsets the melt. The result? Their shares are steady and up about 95% over the past 5 years despite overall revenue decline across this period.
Sure, you could have this sleepy turbocharger factory start investing in real estate, or get into uranium mining, or begin trying to write and sell cloud computing software. But their strategy is to keep making a good product and regularly eat up stock to overcome declining earnings per share, and it's working rather nicely.
The new admin just did that last month in the Big Beautiful Bill.
Before tech companies demonstrated the principle of infinite growth, the purpose of a company was to generate revenue (paid as dividends) for its shareholders.
So much growth hasn't really been possible before.
If a company can keep growing and investing infinitely, one might argue that it's time for the DOJ / FTC to step in and stop them from eating the entire business sector. That's the sign of a monopoly pushing into every market like an invasive species and making the existing businesses in those markets go extinct. Kind of like how tech companies are now movie companies, music companies, game companies, pharmaceuticals, grocery stores...
Perhaps we have different definitions of “infinite,” but either way I’m pretty sure nobody’s demonstrated that yet.
They temporarily raise the stock price for the people who are the counterparties to the stock purchase, but isn't that also creating a taxable event for them?
Once the buyback is done, what's keeping that share price from sliding right back down to earth? The shareholders who support the company and hold watch a group who bet against the company by selling shares reap a profit, in a tax advantaged way, while their own dividends are effectively stolen. The buybacks are actually a crap deal for anyone who is a responsible buy and hold investor.
Warren Buffett bought a couple percent of American Express, and now owns 22% of the company despite not buying a share in decades. It really becomes apparent over time. American Express just carefully repurchased shares over the years and Buffett's stake became greater and greater.
They own an extra 11%. Not 10%.
1/100 versus 1/90
I’m not sure if this is basically the same or just related to the first item, but I’m also going to make them also fix the bug where taking away 1/4 then adding 1/3 returns you to the same amount.
Buybacks only create a taxable event for the shareholders that wish to sell.
And the share price doesn't slide down because there are now less shares on the open market. Theoretically the market capitalization decreases by the amount of money spent on the buyback.
Also, if you issue a dividend the market expects that dividend to be ongoing, hell or high water. Share buybacks do not have that social expectation, so the "temporary" nature of them is an asset for companies that don't want to go from a growth stock to an income stock.
The plan really seems for the buyback never to be done. Or only in case of economy-wide disruption when there is something to blame— a kind of reverse-Buffet.
In fact , adding more punch to the bowl is a key advantage over the legacy tender offer process— tenders directly compete for shares for just a little while. Buybacks, while they have limits, are much more persistent and flexible.
Perhaps it was some historical accident that when the SEC made reacquiring shares easier, everyone started doing more of it … but at some point the explanations of efficient capital allocation just become too much.
And maybe I don't understand the stock option game and stock BuyBacks don't count towards the strike price for options. But I doubt it
I don't know what planet you're living on, where nobody's ever been upset about dividends.
> For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation.
https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...
Henry Singleton who founded Teledyne is known as the buyback king because he used his high-flying stock in the 1960s to snap up tons of smaller electronics companies, and when his stock crashed to $8 during the years of stagflation, snapped up millions with buybacks. In the end, he had used his stock as a currency to acquire dozens of companies at what essentially became 80% discounts.
http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Single...
A very good very in-depth PDF read about him if you're interested in this type of thing.
Sure, bids hitting the orderbook theoretically keeps a stock price higher than the counterfactual where the bids did not exist, but it's simply urban myth that failing companies can keep their stock price high over the long term with buybacks. The math doesn't pencil out.
QED: manipulation
> failing companies can keep their stock price high over the long term with buybacks
This assumes they care about the long term.
Maybe executives shouldn't have stock. Then it wouldn't be manipulation.
But they do. That is their main compensation people like to point (the CEO isn't really getting paid those millions, it's stocks). So the CEO is paid in a way that encourage the CEO to commit DIRECT stock manipulation.
…that’s what a share of stock is.
which just formalized ways that the SEC was finding corporations not guilty and transparent enough, this blueprint paved the way for corporations to all copy it as well as reducing the administrative overheard of caring at all
the exceptions make the rule
If you think returning money to investors is bad, I have to ask: Why would anyone invest in the first place?
If my option is a 5% dividend or a 5% share buy-back, the net-of-taxes benefit of the 5% dividend is 15%-20% less due to capital gains taxes than the share buy-back. The effect with annual compounding over many years is quite material...
What does that phrase even mean? It's nonsensical. Whether via buybacks or dividends, money goes from the corporation to its investors. That's why investors invest.
Metrics like debt service costs to cashflow are also relatively healthy.
Not all businesses are the same.
There’s this perverse belief that companies should exist to enrich the wealthy shareholders at the expense of the workers and it’s put us dangerously close to a complete collapse of the social contract.
Not sure why you would tie pure compensation (a greedy concept) with goals that align exactly to the opposite.
This is so outrageously naive
To pay the asking price for the needed labor?
Wages are a cost. Profits are revenue minus costs. Share price is driven by profits. The job of a CEO is to maximize share price.
The only reason to raise wages is if you think it will lead to a net gain of profit during your tenure. Say do to efficiency or simply retaining better talent. There’s no gain for simply raising employee wages. Quite the opposite.
It absolultely is not. That was an idea floated by Milton Friedman, and he was wrong with his ridicluous assertion. His justification wasn't even legally sound...
https://www.forbes.com/sites/stevedenning/2013/06/26/the-ori...
A CEOs job is to grow market share, increase the value of the company, and tend to its long-term health. All of which directly conflicts with "maximizing the share price" as we've seen time and time again with the corporate raider class.
If you're looking for an economic reason, there isn't any. Politics in the US has always been moralistic since the days of the Puritans, so people prefer moralistic "solutions".
So not necessarily “low-wage” corporations, just the lowest quintile from a very small group.
It’s certainly not enough of a cherrypicked group to warrant dismissing their findings.
Seems like today they are paid mostly in stock. Their vision becomes very short term. If they can’t organically grow the company, stock buybacks will prop up their shares. Otherwise a CEO paid mainly from salary might be more motivated to stay a tiny bit longer.
E.g. presumably companies can pay people more if they capture less value themselves. Why can’t a company do that and just hire the best talent?
Ironically, one of the few places I've seen that actually rewards employees for going above and beyond regularly is Walmart. Entry-level staff who can rise through the ranks with exceptional work can turn from low-wage line workers to store managers who are often paid close to $250k.
But many businesses are just optimizing for lowest labor cost when it comes to their main workforce. That's where you see the arguably exploitive situation above.
Same company, same employees.
The only difference was leadership.
Consider also what happened to MSFT when Nadella took over. Same company, same employees, dramatically different results.
As a shareholder of Microsoft and Apple, I am happy with their CEO compensation. They earned it. And after all, CEO compensation comes out of the pockets of the shareholders, not the pockets of the employees.
Not really. There are a lot of external factors that could explain the difference in the company's performance. Different time, different customers, different overall market strength, different availability in capital, different interest rates. You can't pin the company's success or failure entirely on the CEO, and there is not that much correlation between CEO compensation and company success.
I think a lot of people could do Nadella’s job and you’d see similar company performance. In fact I’d be so bold to say that the higher up on the totem pole you go, the more people could do an equal or better job. The world has few CEOs simply because the world has few companies, not because the job is particularly difficult or requires niche, rare skill.
We love to hero worship, though, and the fiction we consume loves to uplift That One Person who won the day, downplaying everyone else who contributed to that win, and the environment in which the win happened.
But without that guide, I would have destroyed Apple. I'm just not that good.
Being dumb luck seems highly unlikely.
If you can show me an incompetent CEO who presided over such success, I'd enjoy hearing about it.
That's quite the leap though, and is just confusing correlation and causation. Maybe the previous leadership was simply getting in the way of the engineers and managers that had the good ideas. And the new leadership was more hands-off, or focused in other areas like marketing. Or those cases are just flukes. For every case like the ones you cite, I could find two where the exact opposite happened.
If you're downing a shot of vodka every morning, and suddenly stop, then yeah, your health is going to improve.
In my opinion, many (if not most) of these CEOs are business-focused people with no technical (or even non-technical) knowledge of anything they purport to manage. And on the whole, they really don't affect the value of the company one way or the other.
There's this certain anti-historical proclivity to create heroes for worship. Because it's a simple story to tell and it gives you the opportunity to put yourself in the hero's shoes. But the simple story is almost always wrong.
One of the main problems I see with modern Corporatism is that "shareholders" have too much influence over companies, driving them to make choices that erode long-term customer trust and brand value in return for short-term gains. (This is rational from the investor POV, because they can sell their stake at any point and still have made a profit on the dead husk of a company they left behind). Put more briefly, being beholden to shareholders drives enshittification.
Stock buybacks should, in principal, allow a company to dilute shareholder power and re-control its own destiny. It should allow a company that is successful enough to not need external investment anymore to re-prioritize what's good for the company, rather than the shareholders, especially once they've reached the point of having enough free cash to not need investors. Why, then, is it so universally reviled?
https://en.wikipedia.org/wiki/Share_repurchase#Criticism
The vibe is that there's a vicious cycle of "Customers are not brand-loyal, let's make our products shitty, hollow out the brand, and then liquidate everything to enrich ourselves" and "Why should I be loyal to any brand when brands that were institutions in my parents' time, like Sears and Craftsman, are hollowing out their brands and making everything shitty for a quick buck?"
Feels like everything has become a market for lemons, and the hand of Moloch has realized that if something isn't a market for lemons, it would be more profitable if it was.
In my head there's a piece of red string connecting this to the Internet Whalefall phenomenon - The Internet used to feel like (again, vibes are all I have for this) a place where the savvy early-adopter techie could be rewarded for their skill at installing any web browser but IE, with secret information shared by other elite techies, about which brands were good and how to get things done cheaper.
But now that Eternal September post-2007 has Pokemon-mega-evolved into Eternal 2007, everyone just buys reviews and nothing online is trustworthy. All the whale meat is eaten and those picking at the bones are left starving.
This led to my personal heuristic of just taking recommendations from people or orgs I meet in person. "Do you like that brand of clothing? How is that USB hub treating you? Where did you buy this?" It's a natural hedge against "I could have _told_ you not to buy that piece of crap" and it's also mathematically similar to best-of-two-random-choices load balancing. Just pick any service or product that one real human halfway-likes.
In the same way you own your house and pay a painter to paint it, the shareholders own the company and pay Nick to stamp boxes.
I don't know of anyone who has had work done on their home, and then upon selling the home, went back to the painter and said "Here is your cut of the profit we made selling our house, thanks for the great work!"
But I know and endless number of people who think that because they painted a house at an agreed price to make it look nice, they need to be cut in on the profit from selling the house.
You might think I was making an analogy, and hence tried to break it, but it wasn't an analogy. Its the same thing. You own something, you pay people to work on it, it's still all yours afterwards.
Those are probably less than 1% of the population. The majority don't even approach 2x, much less 1000x.
Especially when Starbucks awards stock and healthcare plans to even part time baristas. Probably one of the better major employers of low skill labor in the world.
The point is that poaching a new CEO from another company (in this case, Chipotle), and awarding him a pile of stock options if he hits certain metrics is not pay, is not comparable to W2 income, does not hit his bank account, and does not make anyone else poorer, except theoretically the shareholders, who were so excited to hire this new guy that the stock literally popped 20% when the news broke.
Are you certain that they are options, and not RSUs? The bonus plan described in the SEC filing [0] seems to indicate that the stock offered is not options.
My RSUs absolutely counted as wages once they vested, and I was absolutely able to turn them into cash in my bank account (as would have been the case with stock options that were worth something).
[0] <https://www.sec.gov/Archives/edgar/data/829224/0001193125242...>
Some of his metrics are about store renovations, revamping the rewards program, and hitting some internal financial operating ratios, and a couple other things.
> ...awarding him a pile of [RSUs] if he hits certain metrics is not pay, is not comparable to W2 income, does not hit his bank account...
That's my point. Their CEO has a W-2 salary and cash bonus. It is about $5m a year. They should use that. We all know the reason they pull forward the next 3 years of maybe money and compare it against a part-time barista's single year pay. Because it juices the ratio and makes for a more outrageous headline. But it's dishonest. Starbucks CEO is not paid $98m per annum.
Funnily enough, wage income for nearly all USians is not guaranteed. For most of us, you have to keep hitting performance targets to earn subsequent paychecks. Sometimes (as many of us in the tech sector, and so, so many in the movie and video games sector know) you get that income taken away from you for no real reason at all.
> ...in a single year.
(To keep things simple in the following, I'm going to assume that Starbucks' fiscal years line up with calendar years, even though I'm certain that they do not.)
Sure, that objection of yours I sort of agree with. He gets a ten million signing bonus [0] and ~30 million in stock just for signing up, with ~45 million in additional stock gated behind continued job performance. The guy only starts getting 10.8 million per year (through the LTIP) in FY2025, with an equity bonus of 13.8 million and a cash bonus with target value of 3.6 million and maximum-planned value of 7.2 million.
Having said that, it does look like the annual cash bonus starts immediately:
> Your annual cash bonus for FY2024 will be pro-rated based on your Start Date and, notwithstanding anything to the contrary in the foregoing, will be calculated by multiplying (i) the annual cash bonus due based on actual performance for FY2024 by (ii) a fraction, (A) the numerator of which is the number of calendar days from the Start Date through September 30, 2024, and (B) the denominator of which is 366.
Another thing that's very important to look into: How often do these CEOs fail to meet their cash bonus targets? Their stock bonus targets? When I was working a bonus-eligible job, the only people who didn't meet their cash bonus target were folks who were going to be fired soon. (Noone I knew was eligible for bonuses delivered via RSUs.)
If we assume that he's not eligible for stock bonus in 2024, and we assume that his late start only divides his 2024 earnings by four, then (if I haven't fucked up my math) it looks like his Q4 2024 earnings were 41.3 million dollars. That's a little less than half what that article reported, but
a) That's still a lot of money... much, much, much more than most USians will ever make in their life, for four months work.
b) Because of my fiscal year manipulation, It's entirely possible that I'm not counting some money that was actually paid out in calendar year 2024, that would bring the actual payout much closer to the value stated in the article.
[0] I'm counting 100% of that signing bonus as paid up front because the only way he loses any of it is if he gets fired With Cause before he hits the six-month mark. If he got disabled on day #2 of his job and had to quit, he'd get 100% of the signing bonus.
Too much over the market rate, and you're not maximally efficient at converting economic inputs into larger economic outputs.
Too much under the market rate, and you'll see increased employee churn, leading to all sorts of other problems.
If you want workers to be paid more, as we all do, even us greedy capitalists, their economic productivity has to go up (not the same as working harder).
The best way to do that - as far as I know - is improving technology and education.
The Venn diagram of people who have the diversity and depth of skills to pull off a major CEO role has a very small overlapped area.
If you choose your CEO well, you turn Apple in 1997 into Apple in 2010. If you choose poorly, your investment stagnates or evaporates.
So a couple of tens of millions in stock options are a bargain for investors. The value-add of any particular minimum wage employee, despite their equal human dignity and worth, is never going to even be in the same league.
The CEO to worker compensation ratio is a useless metric. There is absolutely no reason why Starbucks should be punished for hiring more workers over a company like Nvidia that hires relatively few very well paid workers. If you want raise taxes, just increase taxes across the board.
If you really think that stock buybacks are meant to "pump up short term share prices", you should test your theory in the market and you'll be a billionaire in no time.
Economists by and large tend to be academically and principally in support of many progressive positions so I'm not sure your statement can be read any other way than "I don't like perspectives that disagree with my primed and preconceived beliefs"
Which is an exceedingly common phenomena in a post-truth world. But it's quite obvious; just want to point that out to you.
For decades, professional American economists vote for the democratic party at a rate greatly exceeding the general population and profess support for ideological progressive positions that is also at a notable rate higher than the general population.
You know, there's also something to say about how people invoke the term "economics" in their own personal posts as some sort of grandstanding dog-whistle but we'd be here for hours.
Those were your words, not mine.
Whether you are a Democrat or any other party member is kind of irrelevant; although it certainly is amusing.
Where? No one has stated anything. Everything has been a _direct_ response to your own words.
> I'm not sure your statement can be read any other way than "I don't like perspectives that disagree with my primed and preconceived beliefs"
You could have read the second half of the comment which explains why I think progressives are economically illiterate and an example of a non economically illiterate policy.
> For decades, professional American economists vote for the democratic party at a rate greatly exceeding the general population
This assumes that I'm not Democrat. Maybe it's partially at fault for not being clear about what progressive means, but again the rest of the comment would not sense with this assumption.
> there's also something to say about how people invoke the term "economics" in their own personal posts as some sort of grandstanding dog-whistle
A dog whistle for what?
>This assumes that I'm not Democrat.
No it doesn't. It's not even about you? English seems like your first language so I can't help but feel there's something else going on here.
You're just being a troll at this point. Goodbye.
It'd be great if public companies could grow market share by beating competitors by with better prices or service, but that takes long-term strategic planning and no surprises from government, activist investors, suppliers and employees. CEOs don't have that kind of time, so they reach for familiar tools: restructuring (mass firings), selling off parts, and yes, share buybacks, because these tools move the needle that matters. During their quarterly earnings calls, they answer to Wall Street analysts, who represent the interests of shareholders, not employees or economic policymakers.
As for "economic illiteracy", the very concept is nonsensical. Every economy is structured differently and what's "sensible" changes over time. If you asked a US economist whether they thought zero interest rate policy (2008-2022) was a good idea, they'd think you were talking about a communist society with a desperate government trying to manufacture growth. But this is how every western economy largely operated after the Great Recession. They'd probably take a dim view of venture capital as well, considering its portfolio strategy ignores operational profit targets in favor of IPO windfalls. That's how you end up with abominations like SPACs, where companies can go public with a fraction of the financial transparency that would otherwise be required.
I think you missed some words. Did you mean economists from the Cold War? By economic illiteracy, I don't mean economic opinions I think are stupid, but refusal to acknowledge economics altogether. If Milton Friedman rises from the dead, he could read the Fed's rationale for keeping interest rates low. He may vehemently disagree, but he would at least acknowledge there is an argument to be made.
On the other hand, there has been no thought whatsoever put into the implications of a tax that specifically targets companies with a exec to worker pay gap. There is no economic argument for why stock buybacks are bad for workers. There are arguments for why they're bad for investors, but somehow I doubt that the authors of the article are worried about those people.
Did you mean that tens of billions of dollars are going to ALL the tech workers combined? True, but a single absolute number means little when the conversation is about relative distribution of resources and how those numbers change over time.
My claim was that your argument isn't well supported, not that you're wrong.
Nike opens factories in low-cost areas because they're allowed to. Before Clinton, most things were built in the country. Profits were lower, but the wage gap was also much lower.
What I see missing most in discussions around immigration is what it does to the home countries of the people trying to move to the United States. I know a lot of families who have come into the country from Mexico, and I don't blame them - I'd probably do the same. But if you look at the towns they're leaving (which I've done many times), it's creating a vacuum of good, hard-working people. As a result, crime and drug lords fill the vacuum, making it even more unsafe.
If you ask a lot of those people (which I've done), they'd really like to stay in their home countries - provided that there weren't growing concerns over crime. As Americans, why do we have to act like this is the only place in the world where people can be successful, and the only safe haven? What if we instead supported those countries and encouraged their brightest and best citizens to stay so that their communities can thrive?
I love immigrants, and I also love a lot of the countries they're coming from. I just wish we could stop pretending that everyone needs to move to the United States to be happy, productive, or successful.
And yes, markets tend to be affected by supply and demand, the labor market included. If you have an almost unlimited supply of people looking for work and willing to work at very low wages, of course we're going to see wages stagnate.
does this not describe literally every successful coordinated collective effort? can you be more specific about what you mean by this?
- While some policymakers have blamed immigration for slowing U.S. wage growth since the 1970s, most academic research finds little long run effect on Americans’ wages.
- The available evidence suggests that immigration leads to more innovation, a better educated workforce, greater occupational specialization, better matching of skills with jobs, and higher overall economic productivity.
- Immigration also has a net positive effect on combined federal, state, and local budgets. But not all taxpayers benefit equally. In regions with large populations of less educated, low-income immigrants, native-bor
https://www.congress.gov/118/meeting/house/116727/documents/...
"most academic research finds little long run effect on Americans’ wages."
Right, with this sentence being important right after:
"studies suggest that these gains come at the cost of short-term losses from lower wages and higher unemployment."
Clearly there foreign workers at Starbucks or there would not be protests: According to the popular videos circulating over the Internet, Starbucks halted a few minutes of their services across the nation as a form of protest against the recent “illegal deportation of immigrants.” "We are stopping work for a few minutes to read a statement in protest of actions against our fellow workers," Starbucks Workers United members at the Ellicott City location in Maryland said in a statement during their strike on April 1.
https://economictimes.indiatimes.com/news/international/glob...?
Immigration’s impact on wages, especially in the long term, is not as straightforward as “less supply → higher pay.” Multiple studies from the U.S. National Academies of Sciences and leading labor economists find that immigration has only small effects on native-born workers’ wages, and in most cases boost overall wage growth by fueling demand, entrepreneurship, and innovation. Restricting immigration might reduce competition in some low-skill job markets, but it can also harm industries that rely on labor shortages being filled, push up costs for consumers, and slow economic growth, which in the longer run counteracts any wage gains.
"Restricting immigration might reduce competition in some low-skill job markets, but it can also harm industries that rely on labor shortages being filled"
So restricting immigration of low wage workers, would push up wages in low wage industries. Seems pretty clear.
Cut low-wage immigration and you don’t just raise some hourly rates. You also shrink output, kill complementary jobs, and push prices up for everyone, which erodes those wage gains. The National Academies’ comprehensive review finds immigration’s impact on native wages is small overall and often positive for some groups, with clear long-run growth benefits. https://nap.nationalacademies.org/catalog/23550/the-economic...
Classic natural-experiment evidence like the Mariel Boatlift shows big low-skill inflows had essentially no hit to local low-skill wages. Labor markets adjust. https://davidcard.berkeley.edu/papers/mariel-impact.pdf
Meta-work by Peri and coauthors show across many settings, native wage effects are near zero, while immigration raises productivity and lets natives move up the job ladder. https://giovanniperi.ucdavis.edu/uploads/5/6/8/2/56826033/pe...
Recent CBO work attributes stronger labor-force growth and higher GDP to immigration. Reverse that and you get slower growth and upward price pressure that cancels your “clear” wage story. https://www.cbo.gov/publication/60569
So yes, if you freeze the rest of the economy in place, fewer workers can bid up some wages. Once you allow demand, complementarities, and prices to move, the simple “less supply → higher pay” slogan stops matching the data.
Lets go much further, lets multiply this by 10 to account for top 5000 companies (in practice it would be more like top 20,000 because the lower companies have much lower CEO salaries).
There are around 300 million people in USA. By redistributing the 100% CEO salary you can give around $900 per year to every single person. All this for $900? Which does not even account for income tax paid by CEO's. Edit: after accounting for income tax it is more like $600
So all you have achieved by completely eradicating C suite salary for top 20,000 companies in the USA is around ~$900~ $600 for each individual per year.
I'm increasingly convinced that CEO pay is the wrong place to look at for any impact at all.
Edit: there's more to this if you account for spending patterns.
Even if you give $500 to every citizen, that does not mean affordability will increase because inflation can increase proportionally. This is because even with increased money, each citizen is buying goods amongst the same quantity of goods as before.
For example we can take potatoes: do you think citizens can afford potatoes even more now? No, because the number of potatoes have remained the same. Taking away CEO salary does not mean potato stock would increase because CEO's are not hoarding up potatoes.
Heck annual social security average is 24k a year, so you are talking about nearly 4% more money for just those people alone.
So you decide: 20,000 companies running with a CEO being paid like an average person. And every citizen gets $500 in their account per year.
Edit: its not just a CEO but the C suite. 20,000 running without a C suite.
Just dont discount what several hundred bucks means to way too many people in such a prosperous country.
>Just dont discount what several hundred bucks means to way too many people in such a prosperous country.
Sure.. but the real disposable income has increased by a decent amount over the years. Just in the last 10 years (including covid) the real disposable income has increased by over 20%.
In these contrived scenarios people will always choose the anti-CEO scenario.
You could restructure your hypothetical scenario such that the money was lit on fire instead of being paid to executives and you’d still find support from people who are just angry at executives getting paid a lot.
Do you really think 5% increase in income would change the savings scenario? The median real disposable income increased by more than 20% over the years. I don't think savings have changed.
A lot of the readers here have worked at mega corps and seen what the incentives are in the real world, its not Ayn Rand superman doing the best thing for the company because their interests are aligned.
CEO = 0$ value Employee = 0$ value
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Round 1 Year
CEO = $20M Employee = $0.5M (generous)
--
Round 5 Years
CEO = $100M (if pay remained the same, and they did not create new companies, which I'm sure they will).
Employee = $3M (let's give them promo) etc. Cost of living is increasing with employee's wage, nothing for a CEO.
----
Tell me who is more secure, who has the flexibility to take risks, and create new value.
It's not about the 900$ every human being gets. It's how much differentiation 5 years makes, which is 1/4 of value generation timespan of adults.
No they are not. The economy isn’t a zero-sum game where the only way an executive can get paid is by taking money from a household.
Executive compensation is largely equity based. The mostly equity is new value created in the economy.
Using zero-sum thinking for economic topics like this is very misleading.
Look at China. The people were fine with whatever, as long as incomes were going up. America was the same. Give people the American dream, and you can do what you want at the top. Take it away and at the same time say 'yeah, of course your life is going to suck, you are a dumb worker who deserves nothing, have you tried not being that?' isn't a winning tagline for a company/a society.
> “Every dollar we put into high-quality early childhood education we get $7 back in reduced teen pregnancy, improved graduation rates, improved performance in school, reduced incarceration rates. The society as a whole does better.”
https://www.washingtonpost.com/news/fact-checker/wp/2015/04/...
>Even if you give $500 to every citizen, that does not mean affordability will increase because inflation can increase proportionally. This is because even with increased money, each citizen is buying goods amongst the same quantity of goods as before.
I know. I thought those covid payments proved it. Everyone got a temporary financial boost, which was great, but they ended up paying for it threefold with rising inflation. As far as i can tell the only people that did really well from it were the banks. The whole policy was well intentioned and completely misguided.