Wednesday, April 4, 2012

CEO pay is hurting the 99% and killing our economy

CEOs are looting their corporations at the expense of innovation, trainng and employment, writes William Lazonick, the director of the UMass Center for Industrial Competitiveness.

In other words, they're destroying the US economy.

It isn't their base salary that's an issue here, but their stock options. For example, Bank of America's CEO Brian Moynihan's salary was "only" $950,000 last year, but he got stock options worth $6.1 million. JPMorgan Chase's Jamie Dimon did much better, earning $1.5 million in base salary with stock options that could raise his pay package to $23 million.

So CEOs have an incentive to inflate the price of their company's stock. They do it by buying back the company's own shares (called a stock buyback), which raises the share price. And as Lazonick points out, the practice of stock buybacks has gotten out of control:
In 1981, 292 major corporations spent less than 3 percent of their combined net income on buybacks.  ... From 2003 to 2007, buybacks really took off, and by 2007 the very same 292 corporations now spent over 82 percent of their net income repurchasing their own stock.
Here's why that's bad:
...these executives will tend to ignore investments in innovation and training. Some companies actually fund their buybacks by laying off workers, offshoring jobs to low-wage countries, and taking on debt. The top executives’ weapon of value extraction becomes a weapon of value destruction.
Lazonick argues that the 1% are destroying their companies and destroying the economy. He'd like to make stock buybacks illegal.

It probably won't happen, but we can dream, can't we?