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

🌈 Abstract

The article discusses the role of establishment economists in defending the status quo and the interests of the wealthy elite, particularly through the promotion of stock buybacks as a means of boosting executive compensation at the expense of worker wages and long-term sustainability.

🙋 Q&A

[01] The Role of Establishment Economists

1. What is the role of establishment economists according to the article?

• The article states that the role of establishment economists is to come up with new ways of saying "actually, your boss is right" - in other words, to justify the current system and the interests of the wealthy elite.
• Establishment economists argue that executive pay is not coming at the expense of worker wellbeing, and that stock-based compensation aligns CEO incentives with long-term sustainability. The article dismisses these claims as "nonsense".

2. How do establishment economists defend high executive pay?

• Establishment economists argue that simply dividing a CEO's pay among their workforce would only yield a small increase in worker pay, implying that controlling executive pay is not useful.
• They also claim that stock-based compensation, rather than cash bonuses, aligns CEO incentives with long-term sustainability.

3. What is the article's critique of the establishment economists' arguments?

• The article argues that money is power, and the more wealth individuals are allowed to amass, the more power they can wield to further entrench their position and influence democratic institutions.
• It also contends that cutting executive pay does in fact impact worker wages, as the money spent on stock buybacks could instead be used to provide substantial bonuses or raises for workers.

[02] The Impact of Stock Buybacks

1. What is the role of stock buybacks in inflating executive compensation?

• Stock buybacks are an illegal form of stock manipulation that nevertheless has a "safe harbor" under SEC rules.
• Buybacks reduce the supply of outstanding shares, increasing the value of the remaining shares. CEOs who hold large amounts of company stock can then cash out or borrow against these inflated share prices.
• The article provides the example of Lowe's CEO Marvin Ellison, who spent $43 billion on buybacks over 5 years, netting $18 million for himself, while Lowe's has 285,000 employees, half of whom earn less than $33,000 per year.

2. How do stock buybacks impact worker compensation and long-term sustainability?

• The money spent on stock buybacks could instead be used to provide substantial bonuses or raises for workers.
• The article argues that the billions spent on buybacks by companies like Boeing are billions that were not spent on improving product safety and long-term sustainability.

3. What policy changes does the article recommend to address the issues with stock buybacks?

• The SEC should re-establish enforcement of the prohibition on stock buybacks and drop the "safe harbor" fiction of Rule 10b-18.
• The preferential tax treatment of capital gains should be ended, which would also eliminate the "carried interest tax loophole".