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Paying the Boss 1,000 Times More Than a Worker Encourages Reckless Corporate Behavior

Originally published at http://www.commondreams.org/views/2019/10/07/paying-boss-1000-times-more-worker-encourages-reckless-corporate-behavior

A patchwork of new regulations will not reverse this four decade long trend.

Restore all the New Deal regulations that were decriminalized in the name of “deregulation” during the past four decades or watch that figure soar to 2,000 “times more than a worker makes” post haste.

The solution is that simple, but difficult with the best Congress money can buy and stacked courts running the nation.

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Minimum Wage - Maximum Wage
And corporate exec’s stop getting payed in Stock.

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Time for two laws. Bring back sumptuary laws, which taxes items only the very wealthy can afford. The Doges of Venice were forced to implement them to reduce rising unrest among the poor. The paintings of the time featuring young women wearing clothing made from luxurious fabrics and lots of jewels were engagement portraits. Once married, they wore ordinary clothing without any jewels.
Second, impose a maximum age. This is especially important in these times, as we face having to reduce consumption anyway.
All those pied-a-terres, fancy yachts, private jets, trophy wives…all made illegal. One home. One spouse wearing ordinary clothing. No more bling. No more fancy cars. We’ll have to do it anyway.

I read the article to find out how the high executive pay rates encourage reckless corporate behavior, but did not find the answer to that in Anderson’s column. The only support she gave to her assertion was a further assertion that Congress recognized the problem in 2010 when it passed the Dodd-Frank financial reform law.

This is not to say that her assertions are false or that very high executive compensation is good, but rather to level some criticism of the poorly chosen title that Commondreams applied to this piece, and to point out that Anderson is treating her assertion as being obvious, true, and common knowledge.

Could it be that some more important factors (than the pay ratio) in encouraging reckless corporate behavior be the way in which executives are chosen and evaluated and the way in which the level of executive pay is determined? Might laws which require the executives to maximize profit over all other concerns play some part in reckless corporate behavior? Might allowing corporations to expand and monopolize their markets play some part too? Or allowing corporations and the wealthy to buy politicians and change and write laws play a significant part in incentivizing reckless corporate behavior? So how exactly does the odious practice of paying the boss 1000 times more than a worker encourage any reckless corporate behavior beyond the reckless behavior that is to be expected from the various other current business practices that are currently allowed? Could the excessive pay ratio be a symptom of the problem rather than its cause?

Corporate ownership of Congress combined with scant regulations on corporate regulations encourage corporations’ reckless behavior. Corporations know that if the reckless behavior results in losses, or crashing the entire economy, Congress is at the ready to commit taxpayers’ money to bailing out said corporation.

Dodd/Frank was 90% corporate friendly “regulations” and 10% consumer friendly regulations. The entire 10% has been obliterated by Trump, Moscow Mitch and the GOP since 2017 while the 90% continues to enrich corporations and give too-big-to-fail banks growing market share…nearly 60% of all US bank assets these days and growing, compared to 25% in 2008 when they crashed the economy.

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Let’s start with Zuckerberg, Facebook’s CEO. They are reckless, uncontrollable, unable to police themselves, and poised to throw the next election just like the last one. How does one get paid so much to be so incompetent?

Judging from what employees are paid at many corporations, 1000 to 1 is the relative value of a CEO versus the average employee. But for some corporations, even that absurd ratio is considered too modest. America leads the world in overpaying executives. Here is why.

The ‘compensation committee’ of the Board of Directors that sets executive pay is picked by the CEO and/or Chairman. The committee in turn relies on the recommendations of outside paid advisors, also approved by the CEO and/or Chairman. The whole process is supervised by the Board Directors, who are themselves picked by the CEO and/or Chairman. And you wonder why executive pay is obscenely excessive? The whole scheme is designed to steal money.

Excess executive pay is money stolen from stock owners and employees. The thefts hurt employees most because payroll is a zero sum game, the more money stolen by one, means cut backs for everyone elses. Which is why we need Bernie Sanders’ plan to penalize any corporation which permits such theft.

Stock options are one of the ways these CEOS pad their income via chicanery in a manner which harmful to the entire economy as a whole. Taxes on Capital gains are MUCH lower then are taxes on Income. In the USA the genesis for this was the administration of Bill Clinton. What he did was raise taxes marginally on the highest incomes and then a feel years later slashing the taxes on Capital Gains.

Where the differences in tax paid between wealth gained from Capital Gains and Income was around 5 percent, after these adjustments it jumped closer to 20 percent. This lead directly to CEOS demanding stock options as part of their compensation packages.

Now what increases the prices of stocks?

Cutting costs while increasing prices. Given the single largest costs is labor , making war on unions or off shoring or laying workers off and investing in technology to replace them or freezing wage growth all increase stock prices. This also leads to things like Drug companies charging ever more for something like insulin.

Stock buybacks. Rather then use profits to reinvest in the Company and its workers excess revenues are used to buy stocks. This inflates the value of the stock while hollowing out the Company.

Corporate lobbying of Government officials. Nothing provides a bigger return to the Corporation as does lobbying. The R|I investment from lobbying is off the charts with Government officials always looking for ways to boost Corporate stocks and profit margins in return for those lobbying dollars.

CAPITALism is a stupid and harmful system

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