Posted on 28-03-2012
Filed Under (Current Affairs, Economics) by Rashtrakut

 

Like the fictional King Louis in the video above, it is good to be the CEO of an American public corporation too.

  • Stock price drops 58%
  • Lay off 30,000 employees
  • Your company faces potential liability from a number of lawsuits
  • Compensation package quadruples

Welcome to the life of Bank of America CEO Brian Moynihan.  Now to be fair (and it is hard for for this blogger when the compensation of public company plutarchs…I mean CEOs is concerned), the bulk of the award is based on is based on performance related stock.  I do not know the terms of the stock award before Mr. Moynihan gets to cash out.  But at this juncture the optics are of another fat cat feeding at the trough at the expense of the working stiff.

A recent column by Steven Rattner points out just how obscene this inequality is becoming.

In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households.

Still more astonishing was the extent to which the super rich got rich faster than the merely rich. In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent.

The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income.

This new data, derived by the French economists Thomas Piketty and Emmanuel Saez from American tax returns, also suggests that those at the top were more likely to earn than inherit their riches. That’s not completely surprising: the rapid growth of new American industries — from technology to financial services — has increased the need for highly educated and skilled workers. At the same time, old industries like manufacturing are employing fewer blue-collar workers.

The result? Pay for college graduates has risen by 15.7 percent over the past 32 years (after adjustment for inflation) while the income of a worker without a high school diploma has plummeted by 25.7 percent over the same period.

It was very easy to mock the Occupy Wall Street movement for its incoherence and share of marxist loons.  But they highlighted the fact that the social contract in this country has gone horribly awry.  The last 30 years have advanced the notion that stock holders are the only stakeholders that matter for a corporation, short term fluctuations in stock price are the key to measuring corporate success and managing this short term fluctuation gives license for the executives of the Corporation (whose compensation is selected not by the shareholders but by cartels) to loot corporate assets with reckless abandon.  And should these bean counters wreck the business they are supposed to manage, they still walk away with millions.  And to reward them further, we will rejigger the tax system to reduce their tax burden and create ridiculous giveaways like the carried interest loophole for private equity managers.

As a result few large companies innovate, engage in long term research which would not boost short term stock price or engage in long term strategic planning.  It is far easier to pay an excessive premium to buy a start-up that actually innovated and pass the strategic planning buck to external consultants rather than in-grown talent.

I highlighted Mr. Moynihan because his pay package triggered this long overdue rant.  But he is hardly the worst CEO offender.  The system is broken and is slowly strangling the middle class.  But right now our CEOs are too happy to be hogs feeding off the corporate asset trough while the rest of us deal with economic uncertainty.

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