Many huge Corporations in this country are facing almost immediate bankruptcy as a result of the Corono virus. Letting them go bankrupt would torpedo our economy for years, maybe decades.
But if these companies had been using their profits to build up a rainy day fund they wouldn't need goverment intervention. Apple has enough cash stuck away to finance operations for something like three years. The problem is so many companies have been using their profits for stock buybacks - going into the financial markets to buy their own stock - instead of funding an emergency operations fund.
The airlines are the poster boys for this practice, 96% of their profits over the last decade went into buying back their own stock instead of socking money away for a rainy day. But buy backs have been endemic across publicly traded corporations in almost all industries.
From an operational standpoint it makes no sense for a big company to buy its own stock back. But it makes sense for enriching CEO's. Part of CEO pay is tied to the companies stock price - so even though using corporate funds to buy the companies own stock makes the corporation a little poorer (although not on paper because it drives the stock price up briefly) it makes the CEO paycheck bigger.
From World War II up until 1980 CEO pay averaged about 20% higher than the pay of the average worker. Since then CEO Pay has increased nearly 1000% percent while worker pay has increased 11%.
This vast CEO pay increase has little relation to increasing the value of the corporations CEO's run. Since 1980 CEO pay has grown 70% faster than the value of the corporations CEO's run. The extraordinary rise in CEO pay is a direct result of corporate directors who set pay, and CEO's who appoint directors, effectively scratching each others backs to advance their own interestes rather than the corporations. (see footnote 1)
The House Democrats want to link Corporate bail-outs to eliminating Corporate stock buybacks, and limiting CEO pay while the corporations are operating on government money.
Should be a no-brainer, but the Republican Senate and President believe business can do no wrong - their policies over the last 40 years created the CEO pay boom and the mediocre economy that has accompanied it - and the the exploding national debt that is about to go into warp speed debt accumulation with trillion dollar bail outs.
(Footnote 1) - “The CEO Pay Machine” by Steven Clifford, a former CEO. Blue rider press/Penguin Random House LLC, published in 2017.
Subscribe to:
Post Comments (Atom)
1 comment:
Another valuable posting, Jan. Good points and very timely !
Post a Comment