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America's best-paid CEOs have the worst-paid employees

110 points by janandonly 2y ago

duxup 2y ago
Would be interesting to see if you could track CEOs by "built / grew a company into something more than it was" vs "extracted value for shareholders". I suppose to shareholders it doesn't matter so it doesn't get much attention. When I worked for either type executive it was almost immediately clear what type they were by their actions. It was no mystery.
- spiderfarmer 2y ago
  In those cases, did you become a shareholder?
  - duxup 2y ago
    Enough to participate in the stock discount program and then sell ASAP. That was less an expression of confidence in the company as it was just a personal policy to not hold stock in a company I work in for as little time as possible.
- ryoshu 2y ago
  This is the existential problem. Are you building value or extracting value?
dotdi 2y ago
Well, in contrast to other situations, this appears to be a zero-sum game. A company has a certain revenue, which is used to pay employees, invest back into the business, etc. If you pay the CEO an exorbitant amount of money, it means it takes up a larger part of the income, which means you have to pay employees less, invest less, etc. Then these lowest-paid employees need to be supported by social programs, which means we - the taxpayers - are subsidizing the enormous paychecks CEOs are taking home. Corporate socialism. Eat the rich.
- gruez 2y ago
  How do you avoid a "pay peanuts, get monkeys" problem, making the company perform worse due to incompetent leadership? Under your zero sum framing, I'm sure the shareholders would love to be able to pay the ceo less as well, because that means more profits for them.
  - jon-wood 2y ago
    Is there actually any evidence that higher pay results in better performance from CEOs? I’m sure there’s some threshold below which you’re going to get an incompetent but I strongly suspect that threshold isn’t actually tens of millions a year and a company jet.
    - bluGill 2y ago
      How much would you pay Steve Jobs vs the previous CEOs Apple had? Yes I know Jobs only took $1, but what if he demanded more - at what point would you say too much? I don't know how to value a CEO, but it is clear that a good CEO makes a big difference.
    - maxerickson 2y ago
      No. Somewhat ironically, if it was obvious what made for good CEO performance, they wouldn't be expensive.
  - trilbyglens 2y ago
    This is straw man bullshit. Were c-suite execs less competent before the 90s when executive pay regulations were repealed? Also, your argument cuts exactly into your own fingers when considering employee pay.
    - gruez 2y ago
      >This is straw man bullshit. That's not what strawman means. I mentioned an objection with paying CEOs less, but there's no implication that's the other side's argument. If that counts as strawmanning, what you're doing is arguably strawmanning as well. >Were c-suite execs less competent before the 90s when executive pay regulations were repealed? What regulations are you talking about? Also, I'm not sure how you got the impression that high pay causes good performance. Clearly paying a monkey $10M isn't going to magically make him a competent CEO. However, there are good CEOs and bad CEOs out there. Microeconomics dictates that firms will bid up their salaries, causing the more competent CEOs to be paid more. If there are regulations on executive salaries, of course that's going to lower the price, by definition. The same would apply if government capped the salaries of software engineers. That doesn't mean there wouldn't be competition between firms, it'll just get shifted to non-financial compensation eg. company cars or whatever.
mathverse 2y ago
I dont care how much people are paid but C levels pay should be affected when cost reductions are being implemented.
- NickC25 2y ago
  But that's already a thing, and probably one of the reasons the article has so much data - C-levels ARE affected: cost reductions screw over the worker, and the C-level makes more money.
- lazide 2y ago
  C levels work for the board, which works for the shareholders. The rest of the company works for the C levels. Companies go on cost reductions to increase shareholder returns. Of course C level pay will be impacted - positively, because they know the C level is going to be shit on by employees, and they’ll need them to stay around to properly insulate them from it and implement what they want.
- judge2020 2y ago
  Most C-levels have performance-based stock packages as their main compensation. Which is why I'm saddened by this article not having any actual data (like others have said). It would be useful to have a study that analyzes the overall landscape of performance-based versus non-performance-based compensation, the share of CEO comp that is or isn't performance-based, how often C-level is awarded for good performance when the employees aren't, etc. Instead it reads like an opinion piece with a study linked that doesn't back up their claims and just tells us the cumulative amount of stock buybacks.
mupuff1234 2y ago
And they also probably end up paying a lower effective tax rate.
- orochimaaru 2y ago
  Yes. But I believe since most of the compensation is stock and is unrealized gains - they just put it in a trust. That way it builds what is called “generational wealth”.
  - mupuff1234 2y ago
    Yeah, didn't mean it's illegal or anything, but just another aspect leading to higher inequality.
  - derivagral 2y ago
    As I understand it, with low (<1%) interest rates... Take a low-interest loan against a % of your wealth. If you can get the loan, then it seems like you get to have your cake (unrealized appreciation gains) and eat it too (non-income money now.) Not riskless, but there's a lot of upside.
r-u-serious 2y ago
[flagged]
NickC25 2y ago
I don't know how we could through legislation mandate things like banning the US government from doing biz with companies that underpay their workers and enrich their C-Suite handsomely, but I support it. With executive pay being over 500x what the average worker at the company makes, no wonder there's effectively 2 Americas - our social contract has been broken. While Japan has its own issues, the social contract between low-wage and high-wage workers has been intact and there's a reason they don't have some of the issues that we do in terms of class disparity and the long-term ramifications of one class of already privileged individuals making astronomical amounts of money by screwing over everyone else. We also need to ban buybacks, or tax them REALLY heavily - over 100%. Make it wildly unprofitable to do so. Or, I like this idea better: for every $10 million you spend on buybacks, you loose your right as a corporation or an officer of a corporation to lobby local, state, and federal governments in any way for a year.
- triceratops 2y ago
  There's a legitimate use for buybacks, but I don't like seeing them used as a tax dodge over dividends. Rich shareholders can borrow more against their appreciated assets post-buyback. But they're useless to poorer shareholders unless they plan to sell at that exact time. The recent proposal to tax borrowing against assets as realized gains might be the best way to thread the needle.
- rpcope1 2y ago
  Buybacks shouldn't have ever been made legal in the first place, as the fears that cause them to be regulated in the first place have really come to pass. I'm sure someone will right on queue chime in and talk about how buybacks are superior to dividends for a whole lot of reasons, the least abstract being that they're ostensibly tax advantaged. I really believe we'd all be better off if they went back to being banned and equities go back to just issuing dividends (which I strongly believe is better and more intuitive for small time investors). If nothing else, even though I'm sure a lot of wall street types will lose their mind, buybacks absolutely should not be tax advantaged in relation to dividends.
- walthamstow 2y ago
  I like this, hit 'em where it hurts, which for most corps is their ability to lobby the state
nonethewiser 2y ago
The author seems to have just realized that fast food workers don't make much compared to the CEO of the fast food company. I mean it would be great to see Chipotle's restaurant employees grow their wages and benefits in a sustainable way but am I supposed to be surprised they dont have a 401k?
- jetrink 2y ago
  Starbucks has a 401k with 5% match, as well as medical, dental, and vision insurance for its baristas. It's not an impossibility, it's just not something we expect from fast food companies. 1. https://careers.starbucks.com/benefits/ https://careers.starbucks.com/benefits/
  - nonethewiser 2y ago
    That's great. > It's not an impossibility, it's just not something we expect from fast food companies. This is my point exactly.
- lenerdenator 2y ago
  > am I supposed to be surprised they dont have a 401k? No, you're supposed to be angry that a company that made $1.23 billion in profit has no program in place for its employees to financially contribute towards the time when they either can't or don't want to work anymore, because that means they're going to be more reliant upon the taxpayer to keep them off the streets when they're old.
  - nonethewiser 2y ago
    Well if we're talking about what "should" be I think you're setting the bar way too low. The reality is 95% of fast food chains dont offer any of that.
    - lenerdenator 2y ago
      And our society is worse off for it.
osigurdson 2y ago
The ideal company has no CEO and no employees, only shareholders and customers. Real companies should be approximations of this ideal.
- jebarker 2y ago
  Please tell me this is satire
  - osigurdson 2y ago
    Not at all. Rather, it is evidently true. Your savings account represents the ideal company. The only issue is the returns are abysmal. Therefore real companies must necessarily diverge from this ideal.
    - jebarker 2y ago
      I suppose if the only purpose of a company to exist is shareholder returns this is true.
fxtentacle 2y ago
"The billions that Boeing spent on buybacks are billions that Boeing didn't spend on airworthiness" and the article suggests that CEOs only do dumb buybacks because they personally profit from the raising stock price.
- triceratops 2y ago
  Compensating CEOs with stock grants has the side-effect that they aren't motivated to look too far beyond their time in the role. Short-term bumps in the stock price are good for them. Maybe locking up a portion of their stock grants for longer - say 5 years after they leave - is the solution. I don't know how many CEOs would sign up for that deal though. It means part of their compensation is effectively hostage to the next CEO.
hobom 2y ago
The article provides almost no hard data to back the headline up. They link a report on buy backs, but at least the abstract/summary does not provide support for the claim either. Written in a very partisan way, although the description of how stock buy backs create bad incentives for CEOs sounds convincing to me.
lenerdenator 2y ago
It's almost as if for the last 35 years, we compensated C-suites using massive stock grants and then plowed all of the value created by labor into equities instead of, you know, paying the people who did the actual work. The good news is, there's no precedent for populations at large deciding this is a reason to use violence to displace the ruling classes in drawn-out, society-devastating wars that radically alter global geopolitics. Nope, none at all. By the way, I've just learned about these two countries, Russia and France. You guys heard of these before? Can't wait to read more.
brigadier132 2y ago
This entire diatribe about stock buybacks makes 0 sense. It's just another way of returning money to shareholders, it's exactly the same thing as dividends but gives the shareholder the option to realize their gain. A business only exists for the benefit of its owners, if businesses negatively impacted owners, they would not own shares in the company. If employees want to enjoy the benefit of being owners of companies they can start their own companies or themselves use their income to buy shares in companies. They will quickly realize that starting a business is really fucking hard. Before you mention monopolies, yes I agree and I think what Lina Khan is doing is great and she should be doing more. Also, just because you don't understand or disagree with the logic economists use doesn't mean they are wrong. Stick to writing bad fiction please.
- nonethewiser 2y ago
  > This entire diatribe about stock buybacks makes 0 sense. It's just another way of returning money to shareholders, it's exactly the same thing as dividends but gives the shareholder the option to realize their gain. A business only exists for the benefit of its owners, if businesses negatively impacted owners, they would not own shares in the company. I agree with you, but it all makes sense if you just change this: > A business only exists for the benefit of its owners to this > A business only exists for the benefit of society
  - brigadier132 2y ago
    "Society" doesn't create businesses, individuals do.
    - sgarland 2y ago
      And what supports those individuals? Society, with its shared costs for necessary infrastructure, education, EMS… To your point, though, that’s also incorrect. Worker cooperatives exist, the best-known examples in the U.S. perhaps being Rural Electric Membership Cooperatives. The name is a bit of a misnomer these days, as even large suburbs are often on an REMC’s grid. REMCs were created because individuals didn’t see profit in running infrastructure to rural areas with low population density, so society decided to do so.
deleted 2y ago
[deleted]
dauertewigkeit 2y ago
Corporations are all internally very corrupt and all the top execs are working to stuff their pockets first, second, and third, to lie the the shareholders fourth, and the employees are so disposable, they are not even worth lying to. CEO pay is so ridiculous because you are asking the wolves to take care of the sheep. Just like we have evolved governmental organizations to be more robust against corruption, we need to do the same with corporations.
OkayPhysicist 2y ago
The more I interact with the business world, the less affection I feel to the entire concept of public companies. Software companies, in particular, seem like a bad fit for the entire concept. What is a share, and why is valuable? More importantly, why should profits of the business be of any value with regards to stock price? In the world of dividend-paying companies, the connection between profit, dividend, and thus stock price is obvious. But most tech companies don't pay dividends. With voting shares, there is value in control over the company's direction, and the more successful the company is, the more power you control a share of. But most shareholders don't vote, and many companies issue shares that don't grant the owner a vote. That leaves the base value of shares as being tied to the fact that you have a claim on whatever assets are left when the company goes bust. But software companies don't hold much in the way of resellable assets, and few would shutter their doors before their debts wipe out what little assets the company holds. Maybe you can bet on the company being bought out by either a bigger company or a private interest, but that rarely happens anywhere near the peak of a company's market cap.
- duxup 2y ago
  > the less affection I feel to the entire concept of public companies. Software companies I don’t disagree. I do think though that it really depends on the companies that are highly visible (arguably successful). All the other companies maybe don’t make the news but I’ve worked for smaller orgs that do right by shareholders and code and customers. But maybe to your point you don’t know unless you’re on the inside.
daft_pink 2y ago
There is an enourmous amount of economic value in simplying a complicated task so that it can be completed by an unskilled ie low paid worker.
Eumenes 2y ago
Yes, CEOs are overpaid, but there is only one per company. There are 100s of useless overpaid directors, VPs, senior managers per F500. Essentially yes men whose job is to brew koolaid all day. They aren't talked about as much.
squarefoot 2y ago
I always wondered if and how things would be different if we had regulations like: "the highest paid job can't be more than 10 times the lowest one, including all benefits", or like "where there is a well defined hierarchy, each upper level can't be paid more than +50% than the one that immediately follows", so that giving a raise to high rank executives would also propagate to other workers thus reducing those huge discrepancies.
- the_snooze 2y ago
  I think you'd just end up with more tenuous employment situations under that setup. If I'm an owner or an executive, that would discourage hiring low-level staff as full-time regular employees. Better to make them part-timers or independent contractors or deal with a staffing firm to skirt the responsibility of paying employees proportional to my pay.
  - ryandrake 2y ago
    When we're proposing a rule, and someone points out that it won't work because of X, Y, or Z, the solution is to integrate X, Y, and Z into the rule--not give up and say "oh, companies are very clever and they will get around whatever you write!" So, instead, add that to OP's proposal: "the highest paid job can't be more than 10 times the lowest one, including all benefits, and including all part time work, annualized, and including temp workers and all hired contractors, and all sub-contractors."
    - silverquiet 2y ago
      It's a rather interesting form of learned helplessness isn't it (and one suspects not really an unwitting one)?
    - ThrowawayR2 2y ago
      Unless you include the rule "nobody can ever leave your jurisdiction", Iron Curtain style, all you'll see is the entrepreneurial equivalent of brain drain to other jurisdictions that don't have such rules. Almost by definition, people with entrepreneurial ambitions are those willing to take calculated risks like relocating. This is kind of what's happening to the EU. And, to be crystal clear, I'm not delighted by high CEO pay but the cures proposed always seem worse than the disease. If you want to eat the rich, do it in a way that makes them willing to hop onto the plate and offer you a napkin.
Shawnecy 2y ago
Nice to see someone sore about the content flagging this perfectly valid article.
Thorrez 2y ago
>Say a company is worth a billion dollars and has issued a million shares. Each of those shares is worth $1,000 (because $1,000 times one million is $1 billion). The company uses its profits to buy half of those shares, so now the remaining 500,000 shares are worth $2,000 ($2,000 times 500,000 is $1 billion). Why would the company still be worth $1B after the buybacks? The company just spent $500M on buybacks. So the company has $500M fewer dollars in the bank. I assume the company would now be worth $500M less. So the company would be worth only $1B - $500M = $500M. So with 500k shares in existence, the stock price would be unchanged from the beginning: $1k.
- brigadier132 2y ago
  He doesn't understand stock buybacks.
- orwin 2y ago
  Close to how it work, but because of how money work, in practice the stock price would probably be a bit superior to $1k in most cases. Well, if a company buyback half of its shares all at once, it's probably because it expects a lot of returns w/o the need for new investments, so probably the new share will be worth a lot, lot more. [edit] I wanted to add more nuance but parents is basically correct and the OP example is dumb.
arder 2y ago
The argument he makes about buybacks just doesn't work. If the money didn't go to buybacks it'd go out in dividends. If there were no way to extract profits from a company and return them to shareholders then the whole investment model doesn't work. At the end of the day the owners of the company have the first claim on the profits. If the profits don't get paid out in dividends or used in buybacks they don't suddenly become the property of the employees. Having said that, yes stock based compensation works to align CEO incentives with share holder incentives and yes share holder short term incentives are to drive down employee wages. Fundamentally I think the bigger issue is the taxation system not only preferencing unearned income, but then also being full of loopholes to mask income entirely. I think you'd be much better off proposing new rules around what it means to "realize" a capital gain (for example, if your asset is used as collateral, you are realizing it's value and it should be taxable). Rather than creating more byzantine rules around who can earn what.
Thorrez 2y ago
>Why would CEOs prefer buybacks to dividends? Because CEOs sit on tons of shares. Even if only some of those shares have vested, a CEO who uses this ruse to increase share prices can cash those shares out, borrow against the rest, and count on a big stock grant from shareholders who are grateful for their windfall. If the CEOs sit on tons of shares, the CEOs would receive a large dividend too. So the CEO would benefit from both dividends and stock buybacks. And "shareholders who are grateful for their windfall" would be grateful for both dividends and stock buybacks. And announcing a dividend tends to make the stock go up, as seen when Google announced a dividend earlier this year. So the big distinction the article is trying to make between dividends and buybacks doesn't make sense to me.
josefritzishere 2y ago
That's cause and effect right there.

110 points by janandonly 2y ago

Would be interesting to see if you could track CEOs by "built / grew a company into something more than it was" vs "extracted value for shareholders". I suppose to shareholders it doesn't matter so it doesn't get much attention. When I worked for either type executive it was almost immediately clear what type they were by their actions. It was no mystery.

spiderfarmer 2y ago
In those cases, did you become a shareholder?
- duxup 2y ago
  Enough to participate in the stock discount program and then sell ASAP. That was less an expression of confidence in the company as it was just a personal policy to not hold stock in a company I work in for as little time as possible.
ryoshu 2y ago
This is the existential problem. Are you building value or extracting value?

dotdi 2y ago

Well, in contrast to other situations, this appears to be a zero-sum game. A company has a certain revenue, which is used to pay employees, invest back into the business, etc. If you pay the CEO an exorbitant amount of money, it means it takes up a larger part of the income, which means you have to pay employees less, invest less, etc. Then these lowest-paid employees need to be supported by social programs, which means we - the taxpayers - are subsidizing the enormous paychecks CEOs are taking home. Corporate socialism. Eat the rich.

gruez 2y ago
How do you avoid a "pay peanuts, get monkeys" problem, making the company perform worse due to incompetent leadership? Under your zero sum framing, I'm sure the shareholders would love to be able to pay the ceo less as well, because that means more profits for them.
- jon-wood 2y ago
  Is there actually any evidence that higher pay results in better performance from CEOs? I’m sure there’s some threshold below which you’re going to get an incompetent but I strongly suspect that threshold isn’t actually tens of millions a year and a company jet.
  - bluGill 2y ago
    How much would you pay Steve Jobs vs the previous CEOs Apple had? Yes I know Jobs only took $1, but what if he demanded more - at what point would you say too much? I don't know how to value a CEO, but it is clear that a good CEO makes a big difference.
  - maxerickson 2y ago
    No. Somewhat ironically, if it was obvious what made for good CEO performance, they wouldn't be expensive.
- trilbyglens 2y ago
  This is straw man bullshit. Were c-suite execs less competent before the 90s when executive pay regulations were repealed? Also, your argument cuts exactly into your own fingers when considering employee pay.
  - gruez 2y ago
    >This is straw man bullshit. That's not what strawman means. I mentioned an objection with paying CEOs less, but there's no implication that's the other side's argument. If that counts as strawmanning, what you're doing is arguably strawmanning as well. >Were c-suite execs less competent before the 90s when executive pay regulations were repealed? What regulations are you talking about? Also, I'm not sure how you got the impression that high pay causes good performance. Clearly paying a monkey $10M isn't going to magically make him a competent CEO. However, there are good CEOs and bad CEOs out there. Microeconomics dictates that firms will bid up their salaries, causing the more competent CEOs to be paid more. If there are regulations on executive salaries, of course that's going to lower the price, by definition. The same would apply if government capped the salaries of software engineers. That doesn't mean there wouldn't be competition between firms, it'll just get shifted to non-financial compensation eg. company cars or whatever.

mathverse 2y ago

I dont care how much people are paid but C levels pay should be affected when cost reductions are being implemented.

NickC25 2y ago
But that's already a thing, and probably one of the reasons the article has so much data - C-levels ARE affected: cost reductions screw over the worker, and the C-level makes more money.
lazide 2y ago
C levels work for the board, which works for the shareholders. The rest of the company works for the C levels. Companies go on cost reductions to increase shareholder returns. Of course C level pay will be impacted - positively, because they know the C level is going to be shit on by employees, and they’ll need them to stay around to properly insulate them from it and implement what they want.
judge2020 2y ago
Most C-levels have performance-based stock packages as their main compensation. Which is why I'm saddened by this article not having any actual data (like others have said). It would be useful to have a study that analyzes the overall landscape of performance-based versus non-performance-based compensation, the share of CEO comp that is or isn't performance-based, how often C-level is awarded for good performance when the employees aren't, etc. Instead it reads like an opinion piece with a study linked that doesn't back up their claims and just tells us the cumulative amount of stock buybacks.

mupuff1234 2y ago

And they also probably end up paying a lower effective tax rate.

orochimaaru 2y ago
Yes. But I believe since most of the compensation is stock and is unrealized gains - they just put it in a trust. That way it builds what is called “generational wealth”.
- mupuff1234 2y ago
  Yeah, didn't mean it's illegal or anything, but just another aspect leading to higher inequality.
- derivagral 2y ago
  As I understand it, with low (<1%) interest rates... Take a low-interest loan against a % of your wealth. If you can get the loan, then it seems like you get to have your cake (unrealized appreciation gains) and eat it too (non-income money now.) Not riskless, but there's a lot of upside.

r-u-serious 2y ago

[flagged]

NickC25 2y ago

I don't know how we could through legislation mandate things like banning the US government from doing biz with companies that underpay their workers and enrich their C-Suite handsomely, but I support it. With executive pay being over 500x what the average worker at the company makes, no wonder there's effectively 2 Americas - our social contract has been broken. While Japan has its own issues, the social contract between low-wage and high-wage workers has been intact and there's a reason they don't have some of the issues that we do in terms of class disparity and the long-term ramifications of one class of already privileged individuals making astronomical amounts of money by screwing over everyone else. We also need to ban buybacks, or tax them REALLY heavily - over 100%. Make it wildly unprofitable to do so. Or, I like this idea better: for every $10 million you spend on buybacks, you loose your right as a corporation or an officer of a corporation to lobby local, state, and federal governments in any way for a year.

triceratops 2y ago
There's a legitimate use for buybacks, but I don't like seeing them used as a tax dodge over dividends. Rich shareholders can borrow more against their appreciated assets post-buyback. But they're useless to poorer shareholders unless they plan to sell at that exact time. The recent proposal to tax borrowing against assets as realized gains might be the best way to thread the needle.
rpcope1 2y ago
Buybacks shouldn't have ever been made legal in the first place, as the fears that cause them to be regulated in the first place have really come to pass. I'm sure someone will right on queue chime in and talk about how buybacks are superior to dividends for a whole lot of reasons, the least abstract being that they're ostensibly tax advantaged. I really believe we'd all be better off if they went back to being banned and equities go back to just issuing dividends (which I strongly believe is better and more intuitive for small time investors). If nothing else, even though I'm sure a lot of wall street types will lose their mind, buybacks absolutely should not be tax advantaged in relation to dividends.
walthamstow 2y ago
I like this, hit 'em where it hurts, which for most corps is their ability to lobby the state

nonethewiser 2y ago

The author seems to have just realized that fast food workers don't make much compared to the CEO of the fast food company. I mean it would be great to see Chipotle's restaurant employees grow their wages and benefits in a sustainable way but am I supposed to be surprised they dont have a 401k?

jetrink 2y ago
Starbucks has a 401k with 5% match, as well as medical, dental, and vision insurance for its baristas. It's not an impossibility, it's just not something we expect from fast food companies. 1. https://careers.starbucks.com/benefits/ https://careers.starbucks.com/benefits/
- nonethewiser 2y ago
  That's great. > It's not an impossibility, it's just not something we expect from fast food companies. This is my point exactly.
lenerdenator 2y ago
> am I supposed to be surprised they dont have a 401k? No, you're supposed to be angry that a company that made $1.23 billion in profit has no program in place for its employees to financially contribute towards the time when they either can't or don't want to work anymore, because that means they're going to be more reliant upon the taxpayer to keep them off the streets when they're old.
- nonethewiser 2y ago
  Well if we're talking about what "should" be I think you're setting the bar way too low. The reality is 95% of fast food chains dont offer any of that.
  - lenerdenator 2y ago
    And our society is worse off for it.

osigurdson 2y ago

The ideal company has no CEO and no employees, only shareholders and customers. Real companies should be approximations of this ideal.

jebarker 2y ago
Please tell me this is satire
- osigurdson 2y ago
  Not at all. Rather, it is evidently true. Your savings account represents the ideal company. The only issue is the returns are abysmal. Therefore real companies must necessarily diverge from this ideal.
  - jebarker 2y ago
    I suppose if the only purpose of a company to exist is shareholder returns this is true.

fxtentacle 2y ago

"The billions that Boeing spent on buybacks are billions that Boeing didn't spend on airworthiness" and the article suggests that CEOs only do dumb buybacks because they personally profit from the raising stock price.

triceratops 2y ago
Compensating CEOs with stock grants has the side-effect that they aren't motivated to look too far beyond their time in the role. Short-term bumps in the stock price are good for them. Maybe locking up a portion of their stock grants for longer - say 5 years after they leave - is the solution. I don't know how many CEOs would sign up for that deal though. It means part of their compensation is effectively hostage to the next CEO.

hobom 2y ago

The article provides almost no hard data to back the headline up. They link a report on buy backs, but at least the abstract/summary does not provide support for the claim either. Written in a very partisan way, although the description of how stock buy backs create bad incentives for CEOs sounds convincing to me.

lenerdenator 2y ago

It's almost as if for the last 35 years, we compensated C-suites using massive stock grants and then plowed all of the value created by labor into equities instead of, you know, paying the people who did the actual work. The good news is, there's no precedent for populations at large deciding this is a reason to use violence to displace the ruling classes in drawn-out, society-devastating wars that radically alter global geopolitics. Nope, none at all. By the way, I've just learned about these two countries, Russia and France. You guys heard of these before? Can't wait to read more.

brigadier132 2y ago

This entire diatribe about stock buybacks makes 0 sense. It's just another way of returning money to shareholders, it's exactly the same thing as dividends but gives the shareholder the option to realize their gain. A business only exists for the benefit of its owners, if businesses negatively impacted owners, they would not own shares in the company. If employees want to enjoy the benefit of being owners of companies they can start their own companies or themselves use their income to buy shares in companies. They will quickly realize that starting a business is really fucking hard. Before you mention monopolies, yes I agree and I think what Lina Khan is doing is great and she should be doing more. Also, just because you don't understand or disagree with the logic economists use doesn't mean they are wrong. Stick to writing bad fiction please.

nonethewiser 2y ago
> This entire diatribe about stock buybacks makes 0 sense. It's just another way of returning money to shareholders, it's exactly the same thing as dividends but gives the shareholder the option to realize their gain. A business only exists for the benefit of its owners, if businesses negatively impacted owners, they would not own shares in the company. I agree with you, but it all makes sense if you just change this: > A business only exists for the benefit of its owners to this > A business only exists for the benefit of society
- brigadier132 2y ago
  "Society" doesn't create businesses, individuals do.
  - sgarland 2y ago
    And what supports those individuals? Society, with its shared costs for necessary infrastructure, education, EMS… To your point, though, that’s also incorrect. Worker cooperatives exist, the best-known examples in the U.S. perhaps being Rural Electric Membership Cooperatives. The name is a bit of a misnomer these days, as even large suburbs are often on an REMC’s grid. REMCs were created because individuals didn’t see profit in running infrastructure to rural areas with low population density, so society decided to do so.

deleted 2y ago

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dauertewigkeit 2y ago

Corporations are all internally very corrupt and all the top execs are working to stuff their pockets first, second, and third, to lie the the shareholders fourth, and the employees are so disposable, they are not even worth lying to. CEO pay is so ridiculous because you are asking the wolves to take care of the sheep. Just like we have evolved governmental organizations to be more robust against corruption, we need to do the same with corporations.

OkayPhysicist 2y ago

The more I interact with the business world, the less affection I feel to the entire concept of public companies. Software companies, in particular, seem like a bad fit for the entire concept. What is a share, and why is valuable? More importantly, why should profits of the business be of any value with regards to stock price? In the world of dividend-paying companies, the connection between profit, dividend, and thus stock price is obvious. But most tech companies don't pay dividends. With voting shares, there is value in control over the company's direction, and the more successful the company is, the more power you control a share of. But most shareholders don't vote, and many companies issue shares that don't grant the owner a vote. That leaves the base value of shares as being tied to the fact that you have a claim on whatever assets are left when the company goes bust. But software companies don't hold much in the way of resellable assets, and few would shutter their doors before their debts wipe out what little assets the company holds. Maybe you can bet on the company being bought out by either a bigger company or a private interest, but that rarely happens anywhere near the peak of a company's market cap.

duxup 2y ago
> the less affection I feel to the entire concept of public companies. Software companies I don’t disagree. I do think though that it really depends on the companies that are highly visible (arguably successful). All the other companies maybe don’t make the news but I’ve worked for smaller orgs that do right by shareholders and code and customers. But maybe to your point you don’t know unless you’re on the inside.

daft_pink 2y ago

There is an enourmous amount of economic value in simplying a complicated task so that it can be completed by an unskilled ie low paid worker.

Eumenes 2y ago

Yes, CEOs are overpaid, but there is only one per company. There are 100s of useless overpaid directors, VPs, senior managers per F500. Essentially yes men whose job is to brew koolaid all day. They aren't talked about as much.

squarefoot 2y ago

I always wondered if and how things would be different if we had regulations like: "the highest paid job can't be more than 10 times the lowest one, including all benefits", or like "where there is a well defined hierarchy, each upper level can't be paid more than +50% than the one that immediately follows", so that giving a raise to high rank executives would also propagate to other workers thus reducing those huge discrepancies.

the_snooze 2y ago
I think you'd just end up with more tenuous employment situations under that setup. If I'm an owner or an executive, that would discourage hiring low-level staff as full-time regular employees. Better to make them part-timers or independent contractors or deal with a staffing firm to skirt the responsibility of paying employees proportional to my pay.
- ryandrake 2y ago
  When we're proposing a rule, and someone points out that it won't work because of X, Y, or Z, the solution is to integrate X, Y, and Z into the rule--not give up and say "oh, companies are very clever and they will get around whatever you write!" So, instead, add that to OP's proposal: "the highest paid job can't be more than 10 times the lowest one, including all benefits, and including all part time work, annualized, and including temp workers and all hired contractors, and all sub-contractors."
  - silverquiet 2y ago
    It's a rather interesting form of learned helplessness isn't it (and one suspects not really an unwitting one)?
  - ThrowawayR2 2y ago
    Unless you include the rule "nobody can ever leave your jurisdiction", Iron Curtain style, all you'll see is the entrepreneurial equivalent of brain drain to other jurisdictions that don't have such rules. Almost by definition, people with entrepreneurial ambitions are those willing to take calculated risks like relocating. This is kind of what's happening to the EU. And, to be crystal clear, I'm not delighted by high CEO pay but the cures proposed always seem worse than the disease. If you want to eat the rich, do it in a way that makes them willing to hop onto the plate and offer you a napkin.

Shawnecy 2y ago

Nice to see someone sore about the content flagging this perfectly valid article.

Thorrez 2y ago

>Say a company is worth a billion dollars and has issued a million shares. Each of those shares is worth $1,000 (because $1,000 times one million is $1 billion). The company uses its profits to buy half of those shares, so now the remaining 500,000 shares are worth $2,000 ($2,000 times 500,000 is $1 billion). Why would the company still be worth $1B after the buybacks? The company just spent $500M on buybacks. So the company has $500M fewer dollars in the bank. I assume the company would now be worth $500M less. So the company would be worth only $1B - $500M = $500M. So with 500k shares in existence, the stock price would be unchanged from the beginning: $1k.

brigadier132 2y ago
He doesn't understand stock buybacks.
orwin 2y ago
Close to how it work, but because of how money work, in practice the stock price would probably be a bit superior to $1k in most cases. Well, if a company buyback half of its shares all at once, it's probably because it expects a lot of returns w/o the need for new investments, so probably the new share will be worth a lot, lot more. [edit] I wanted to add more nuance but parents is basically correct and the OP example is dumb.

arder 2y ago

The argument he makes about buybacks just doesn't work. If the money didn't go to buybacks it'd go out in dividends. If there were no way to extract profits from a company and return them to shareholders then the whole investment model doesn't work. At the end of the day the owners of the company have the first claim on the profits. If the profits don't get paid out in dividends or used in buybacks they don't suddenly become the property of the employees. Having said that, yes stock based compensation works to align CEO incentives with share holder incentives and yes share holder short term incentives are to drive down employee wages. Fundamentally I think the bigger issue is the taxation system not only preferencing unearned income, but then also being full of loopholes to mask income entirely. I think you'd be much better off proposing new rules around what it means to "realize" a capital gain (for example, if your asset is used as collateral, you are realizing it's value and it should be taxable). Rather than creating more byzantine rules around who can earn what.

Thorrez 2y ago

>Why would CEOs prefer buybacks to dividends? Because CEOs sit on tons of shares. Even if only some of those shares have vested, a CEO who uses this ruse to increase share prices can cash those shares out, borrow against the rest, and count on a big stock grant from shareholders who are grateful for their windfall. If the CEOs sit on tons of shares, the CEOs would receive a large dividend too. So the CEO would benefit from both dividends and stock buybacks. And "shareholders who are grateful for their windfall" would be grateful for both dividends and stock buybacks. And announcing a dividend tends to make the stock go up, as seen when Google announced a dividend earlier this year. So the big distinction the article is trying to make between dividends and buybacks doesn't make sense to me.

josefritzishere 2y ago

That's cause and effect right there.