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Judi Lynn

(160,219 posts)
Mon Aug 20, 2018, 04:33 PM Aug 2018

Why do American CEOs get paid so much?


James K Galbraith
‘Let the market decide’ has been the mantra for decades. This dysfunction and inequality is the inevitable result

Mon 20 Aug 2018 07.54 EDT

A new report from the Economic Policy Institute calls attention to the hardy perennial of how much America’s corporate titans make: bosses of the top 350 firms made an average of $18.9m in 2017. That’s a ratio of 312-1 over the median worker in their industries. Big bucks to be sure. And a big change since 1965, when the ratio was just 20-1. But what does it mean? And if there’s a problem, what is it, exactly?

What it means, as the EPI economists carefully document, is that the top US corporate chiefs are paid overwhelmingly with stock options, and their income fluctuates with the market. About 80% of the pay packet is in stocks, and the rise of 17% in 2017 after two flat years surely suggests that the top CEOs (not unreasonably) sensed the market peaked last year. So they cashed in. On the other 20% of the pay packets, no gains occurred.

The US numbers have shock value. But bear in mind that they reflect not only the way companies are run, but also changes over decades in the structure of the US economy and tax law, specifically the rise of market valuations in technology and finance at the expense of the major industrial corporations, and a corresponding decline in unions, which held down the ratios in the sectors the industrial firms dominated a half century back. Plus, there is the radical decline in top marginal tax rates on income and capital gains, beginning in 1978, which gave executives strong reasons to restructure their pay away from inside-the-corporation perks (the penthouses and country clubs of yore) and toward cash and capital assets. The reliance of tech firms on venture capital and bubble psychology, rather than cash flow, deepened this trend.

Note also that there is something a bit artificial about the resulting “wealth.” Jeff Bezos may have a net worth of over $150bn, mostly in Amazon stock, but he couldn’t convert it into cash if he wanted to, neither by selling nor by borrowing. Any effort to sell would demolish Amazon’s valuation and hence his own fortune. The rich aren’t like us – they have more money, true, but some of it isn’t really money and it can disappear, by the billions, pretty fast.

More:
https://www.theguardian.com/commentisfree/2018/aug/20/american-ceos-pay-dysfunction-finance
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Why do American CEOs get paid so much? (Original Post) Judi Lynn Aug 2018 OP
One word PJMcK Aug 2018 #1
I read it's the "old boy" network mitch96 Aug 2018 #2
But... czarjak Aug 2018 #3
The system is rigged, exec. pay in stock options since Reagan, greed. appalachiablue Aug 2018 #4

mitch96

(13,821 posts)
2. I read it's the "old boy" network
Mon Aug 20, 2018, 05:56 PM
Aug 2018

I'm on your board of directors (or my son/brother/uncle) and vote you a raise. Then you or your standin is on my board and votes ME a fat raise or bonus.. Round and around it goes..
m

appalachiablue

(41,055 posts)
4. The system is rigged, exec. pay in stock options since Reagan, greed.
Wed Aug 22, 2018, 05:02 PM
Aug 2018

To think that in high school I heard Galbraith's father, the renowned economist give a speech at a college. How time flies.

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