Bonkers Economics

Wow? Those top CEOs must be doing an amazing job

Not really, because this has nothing to do with a company’s useful production. It’s all about “shareholder value.” That means an increase in the amount of money it returns to investors through dividends and share buybacks. Much of this excessive pay is tied to the price of the company’s shares.

Aren’t high share prices a good thing?

Not necessarily. They may boost the assets of existing shareholders, but they reduce value for people buying into the markets through their pension contributions. A focus on the share price may also discourage productive investment, since a longer strategy to create real wealth can depress share prices in the shorter term.

So how do they justify their pay?

By meeting their own, short term bonus targets. Methods include reducing staff wages and benefits, increasing prices and constructing complex, cross border financial arrangements to reduce taxes. These transactional methods accumulate money much more quickly than long term investment in new talent, products and processes.

What else has changed since 1980?

Financial regulations have been relaxed and corporate taxes reduced, while the rise of private equity capital means that productive businesses are routinely bought and sold, often sweated for their asset values and loaded with debt.

Wow? Those top CEOs must be doing an amazing job

Not really, because this has nothing to do with a company’s useful production. It’s all about “shareholder value.” That means an increase in the amount of money it returns to investors through dividends and share buybacks. Much of this excessive pay is tied to the price of the company’s shares.

Aren’t high share prices a good thing?

Not necessarily. They may boost the assets of existing shareholders, but they reduce value for people buying into the markets through their pension contributions. A focus on the share price may also discourage productive investment, since a longer strategy to create real wealth can depress share prices in the shorter term.

So how do they justify their pay?

By meeting their own, short term bonus targets. Methods include reducing staff wages and benefits, increasing prices and constructing complex, cross border financial arrangements to reduce taxes. These transactional methods accumulate money much more quickly than long term investment in new talent, products and processes.

What else has changed since 1980?

Financial regulations have been relaxed and corporate taxes reduced, while the rise of private equity capital means that productive businesses are routinely bought and sold, often sweated for their asset values and loaded with debt.

Wow? Those top CEOs must be doing an amazing job

Not really, because this has nothing to do with a company’s useful production. It’s all about “shareholder value.” That means an increase in the amount of money it returns to investors through dividends and share buybacks. Much of this excessive pay is tied to the price of the company’s shares.

Aren’t high share prices a good thing?

Not necessarily. They may boost the assets of existing shareholders, but they reduce value for people buying into the markets through their pension contributions. A focus on the share price may also discourage productive investment, since a longer strategy to create real wealth can depress share prices in the shorter term.

So how do they justify their pay?

By meeting their own, short term bonus targets. Methods include reducing staff wages and benefits, increasing prices and constructing complex, cross border financial arrangements to reduce taxes. These transactional methods accumulate money much more quickly than long term investment in new talent, products and processes.

What else has changed since 1980?

Financial regulations have been relaxed and corporate taxes reduced, while the rise of private equity capital means that productive businesses are routinely bought and sold, often sweated for their asset values and loaded with debt.