[Plura-list] America's best-paid CEOs have the worst-paid employees
Cory Doctorow
doctorow at craphound.com
Mon Sep 9 08:36:29 EDT 2024
Read today's issue online at: https://pluralistic.net/2024/09/09/low-wage-100/
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On September 24th, I'll be speaking in person at the Boston Public Library!
https://bpl.bibliocommons.com/events/66cf2d8bf520192f005fcc50
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The paperback edition of The Lost Cause, my nationally bestselling, hopeful solarpunk novel is out this month!
https://us.macmillan.com/books/9781250865946/thelostcause
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Today's links
* America's best-paid CEOs have the worst-paid employees: Incentives matter, especially when it comes to stock buybacks.
* Hey look at this: Delights to delectate.
* This day in history: 2004, 2009, 2014, 2019, 2023
* Upcoming appearances: Where to find me.
* Recent appearances: Where I've been.
* Latest books: You keep readin' em, I'll keep writin' 'em.
* Upcoming books: Like I said, I'll keep writin' 'em.
* Colophon: All the rest.
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📐 America's best-paid CEOs have the worst-paid employees
Broadly speaking, the role of an establishment economist is to come up with new ways of saying, "actually, your boss is right." In other words, the world we're living in is the best possible world, and the fact that you got contact burns from collapsing on the scorching sidewalk outside of the grocery store where you couldn't afford your weekly shopping is unfortunate, but unavoidable.
I once had an economist send me an email to explain how misguided it was to focus on executive pay. Sure (he wrote), executives might be taking home eye-popping sums, but these weren't really coming at the expense of their workers' wellbeing. Just do the math: take those whopping CEO pay-packages and parcel them out to the hundreds of thousands of workers at Fortune 100 companies, and you'll find that each worker's paycheck is just a few dollars larger. Hacking away at CEO pay is an act of spite, not justice.
Meanwhile (the economist continued), just look at where those giant paydays are coming from: stock grants, not salaries. In the bad old days, CEOs' millions came in the form of cash. That incentivized short-term thinking, since anything the CEO did to goose the quarterly numbers would translate into a cash bonus, even if it set the company up for failure in the years to come. But if a CEO's payout comes long after their decisions - if their stock grants don't vest for three or four years - then the CEO's incentives are aligned with long-term sustainability, which is good for everyone.
It's all nonsense, of course - every bit of it.
Take the question of whether controlling CEO pay is useful as a matter separate from the impact it has on workers' wages. In our society, money is power, and the more money any individual is allowed to amass, the more power they amass. This power is then mobilized to acquire more money, and thus more power. Before you know it, the ultrawealthy are perverting every democratic institution we have. They buy the Supreme Court:
https://pluralistic.net/2023/04/06/clarence-thomas/#harlan-crow
They fill our elite universities with their doltish offspring:
https://pluralistic.net/2021/11/18/bipartisan-consensus/#meritocracy
They set the planet on fire:
https://pluralistic.net/2024/09/04/deferred-gratification/#selective-foresight
And they bankroll fascists:
https://pluralistic.net/2023/06/02/plunderers/#farben
So even if controlling wealth acquisition had *no* impact on workers' wages, it would be worth doing. But of course, cutting executive pay *does* have an impact on workers' wages. It's true that simply dividing a CEO's pay among their workforce yields pennies, but that's the wrong way to do the math (and economists know it).
Every year, the Institute for Policy Studies publishes a report called "Executive Excess," in which they track the gap between the compensation offered to corporate leaders and to the workers who generate all that money. This year's is a banger:
https://ips-dc.org/report-executive-excess-2024/
The report zeroes in on one weird trick that CEOs use to goose their compensation: stock buybacks. Buybacks are an illegal form of stock manipulation that is nevertheless widely practiced, thanks to the SEC's policy of stretching Rule 10b-18 of the Securities Exchange Act of 1934 to creates a "safe harbor" for conduct that violates the plain language of the SEA.
Stock buybacks divert a company's profits to buy its own shares on the open market, reducing the supply of outstanding shares, which makes each outstanding share worth more. Say a company is worth a billion dollars and has issued a million shares. Each of those shares is worth $1,000 (because $1,000 times one million is $1 billion). The company uses its profits to buy half of those shares, so now the remaining 500,000 shares are worth $2,000 ($2,000 times 500,000 is $1 billion).
So stock buybacks increase the value of a company's shares - *without* increasing the value of the company. This is the opposite of the notional goal of paying CEOs with shares (long-term sustainability). Companies that buy back their own stock do so at the expense of R&D, or competitive price-cutting, or (of course) paying their employees more. Unlike a dividend - in which companies pay shareholders some of their profits directly - buybacks manipulate the price of shares directly.
Why would CEOs prefer buybacks to dividends? Because CEOs sit on *tons* of shares. Even if only some of those shares have vested, a CEO who uses this ruse to increase share prices can cash those shares out, borrow against the rest, *and* count on a big stock grant from shareholders who are grateful for their windfall.
That means that the *true* cost of a CEO pay package isn't the value of the shares they're awarded - it's the cost of the stock buyback that leads to that award. And this is where the numbers get truly, obscenely, *huge*.
Take Lowe's: over the past five years, CEO Marvin Ellison spent *$43 billion* on stock buybacks, netting $18 million for himself in the process. Now, Lowe's has 285,000 employees, half of whom earn less than $33,000/year. Divide Ellison's $18m among those workers and each of them would net a paltry $126/year. But if you were to share out the $43 billion Ellison had to piss up against a wall on stock buybacks among those workers, you'd be able to give *every worker a $30,000 bonus, every year*:
https://www.counterpunch.org/2024/09/02/the-low-wage-corporations-that-blew-half-a-trillion-dollars-to-inflate-ceo-pay/
Lowe's leads the "Low-Wage 100," IPS's index of the worst paying 100 companies out of the S&P 500. Over the past five years, the Low-Wage 100 has spent more than *half a trillion dollars* on stock buybacks. As with other companies, the CEOs of the Low-Wage 100 timed mass sell-offs of their shares to coincide with the buybacks:
https://www.sec.gov/newsroom/speeches-statements/speech-jackson-061118#_%20ftn22
The largest 20 companies in the Low-Wage 100 spent nine times more on stock buybacks than they spent on worker retirement plan contributions. Chipotle spent $2b on buybacks - that's 48 times what the company put into its workers' 401(k)s. That's because 92% of Chipotle employees *can't afford to have a 401(k)*.
The economists who campaigned to pay CEOs in stock were wrong about nearly everything. CEO compensation *does* come at the expense of a living wage for workers, and it *doesn't* build sustainable businesses focused on long-term value. The billions that Boeing spent on buybacks are billions that Boeing *didn't* spend on airworthiness:
https://ycharts.com/companies/BA/stock_buyback
But those economists were right about one thing: incentives matter. In incentivizing CEOs to keep share prices high above every other consideration, establishment economists set the stage for a corporate America where CEOs were punished for investing in a living wage, a dignified retirement, or even a non-lethal product. Instead, we have a business environment that boils down to a competition to see who can eat their seed-corn the fastest.
Contrary to those economists' insistence that this is the best possible outcome, this all represents a (disastrous) choice. Lowe's doesn't need stock buybacks to thrive: we know this because from 2000-2004, Lowe's spent *zero* dollars on stock buybacks. In that period, CEO pay ran about 40 times median worker pay. Today, Ross Stores CEO Barbara Rentle makes *2,100 times more* than her median employee.
What should we do about this? Well, for starters, the SEC should re-establish enforcement of the prohibition on stock buybacks and drop the absurd fiction that buybacks satisfy the safe harbor requirements of Rule 10b-18. We should end preferential tax treatment of capital gains, the money you get from owning something, which is taxed at a fraction of wages, the money you get from *doing* something. This would also have the side benefit of killing the "carried interest tax loophole," a rule designed for 16th century sea-captains (!!) that lets private equity looters duck billions in taxes:
https://pluralistic.net/2021/04/29/writers-must-be-paid/#carried-interest
On top of this, the IPS recommends:
* Taxing stock buybacks (the 2024 Democratic platform proposes quadrupling the existing tax on buybacks);
* Increase taxes for excessive CEO pay (a rule already in place in San Francisco and Portland and proposed in several federal bills);
* Ban companies that have absurd pay gaps from doing business with the US government (something a sitting president can do at the stroke of a pen).
The transformation of economics into the "actually, your boss is right" machine has made vast fortunes for a tiny segment of the population. Even if you stipulate that this handful of oligarchs is no worse than any of us, they certainly aren't any *better* than us - and they've been incentivized to wreck our economy, our bodies, and our planet. But this isn't the only way to run an economics profession, which is why it's so exciting to see heterodox economics moving to the fore:
https://archive.is/kEk63
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📐 Hey look at this
* The Insidious Elitist Upshot of Behavioral Economics https://jacobin.com/2024/08/behavioral-economics-exxon-valdez-elitism/
* Apple Repaired My iPhone Screen, but Now My Social Media Account Is Banned https://www.finnvoorhees.com/words/banned-iphone (h/t Gregory Charlin)
* "Eradicating Hepatitis C with Bio-Terrorism" - DEFCON 32 https://kolektiva.media/w/uvD1wWTRoh7HEto8zeSswr (h/t Mixæl Laufer)
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📐 This day in history
#20yrsago AnarchistU, Toronto’s wiki-based free school https://web.archive.org/web/20040911010603/http://anarchistu.org/bin/view/Anarchistu
#20yrsago Fair use is a right AND a defense https://memex.craphound.com/2004/09/09/fair-use-is-a-right-and-a-defense/
#20yrsago Bounty for asking “How many times have you been arrested, Mr. President?” https://web.archive.org/web/20040918115027/https://onesimplequestion.blogspot.com/
#20yrsago What yesterday’s terrible music https://www.loweringthebar.net/2009/09/open-mike-likely-to-close-out-legislators-career.htmlsampling ruling means https://web.archive.org/web/20040910095029/http://www.lessig.org/blog/archives/002153.shtml
#15yrsago Conservative California legislator gives pornographic account of his multiple affairs (including a lobbyist) into open mic https://www.loweringthebar.net/2009/09/open-mike-likely-to-close-out-legislators-career.html
#15yrsago Shel Silverstein’s UNCLE SHELBY, not exactly a kids’ book https://memex.craphound.com/2009/09/09/shel-silversteins-uncle-shelby-not-exactly-a-kids-book/
#10yrsago Seemingly intoxicated Rob Ford gives subway press-conference https://www.youtube.com/watch?v=WbcETJRoNCs
#10yrsago Amazon vs Hachette is nothing: just WAIT for the audiobook wars! https://locusmag.com/2014/09/cory-doctorow-audible-comixology-amazon-and-doctorows-first-law/
#10yrsago Dietary supplement company sues website for providing a forum for dissatisfied customers https://www.techdirt.com/2014/09/08/dietary-supplement-company-tries-suing-pissedconsumer-citing-buyers-agreement-to-never-say-anything-negative-about-roca/
#10yrsago New wind-tunnel tests find surprising gains in cycling efficiency from leg-shaving https://www.theglobeandmail.com/life/health-and-fitness/health/the-curious-case-of-the-cyclists-unshaved-legs/article20370814/
#10yrsago Behind the scenes look at Canada’s Harper government gagging scientists https://www.cbc.ca/news/science/federal-scientist-media-request-generates-email-frenzy-but-no-interview-1.2759300
#10yrsago Starred review in Kirkus for INFORMATION DOESN’T WANT TO BE FREE https://www.kirkusreviews.com/book-reviews/cory-doctorow/information-doesnt-want-to-be-free/
#10yrsago Steven Gould’s “Exo,” a Jumper novel by way of Heinlein’s “Have Spacesuit, Will Travel” https://memex.craphound.com/2014/09/09/steven-goulds-exo-a-jumper-novel-by-way-of-heinleins-have-spacesuit-will-travel/
#5yrsago Important legal victory in web-scraping case https://arstechnica.com/tech-policy/2019/09/web-scraping-doesnt-violate-anti-hacking-law-appeals-court-rules/
#5yrsago Whistleblowers out Falwell’s Liberty University as a grifty, multibillion-dollar personality cult https://web.archive.org/web/20190910000528/https://www.politico.com/magazine/amp/story/2019/09/09/jerry-falwell-liberty-university-loans-227914
#5yrsago Pinduoduo: China’s “Groupon on steroids” https://www.wired.com/story/china-ecommerce-giant-never-heard/
#5yrsago Notpetya: the incredible story of an escaped US cyberweapon, Russian state hackers, and Ukraine’s cyberwar https://www.wired.com/story/notpetya-cyberattack-ukraine-russia-code-crashed-the-world/
#5yrsago NYT calls for an end to legacy college admissions https://www.nytimes.com/2019/09/07/opinion/sunday/end-legacy-college-admissions.html
#5yrsago Purdue’s court filings understate its role in the opioid epidemic by 80% https://www.propublica.org/article/data-touted-by-oxycontin-maker-to-fight-lawsuits-doesnt-tell-the-whole-story
#1yrago Saturday linkdump, part the sixth https://pluralistic.net/2023/09/09/nein-nein/#everything-is-miscellaneous
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📐 Upcoming appearances
* Albacon (Albany/remote), Sep 13-15
https://albacon.org/2024/
* The Right to Read, Boston Public Library, Sep 24
https://bpl.bibliocommons.com/events/66cf2d8bf520192f005fcc50
* TusCon (Tucson), Nov 8-10
https://tusconscificon.com/
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📐 Recent appearances
* HC4US
https://soundcloud.com/hc4us/081224-cory-doctorow-a-canadian-british-science-fiction-author-activist-and-journalist
* Tech Rights & The Future of Privacy (Synthetic Minds)
https://www.youtube.com/watch?v=iD5iAV1YmO4
* Enzittification with Ed Zitron & Brian Merchant
https://omny.fm/shows/better-offline/enzittification-with-cory-doctorow-brian-merchant
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📐 Latest books
* The Bezzle: a sequel to "Red Team Blues," about prison-tech and other grifts, Tor Books (US), Head of Zeus (UK), February 2024 (the-bezzle.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3062/Available_Feb_20th%3A_The_Bezzle_HB.html#/).
* "The Lost Cause:" a solarpunk novel of hope in the climate emergency, Tor Books (US), Head of Zeus (UK), November 2023 (http://lost-cause.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3007/Pre-Order_Signed_Copies%3A_The_Lost_Cause_HB.html#/)
* "The Internet Con": A nonfiction book about interoperability and Big Tech (Verso) September 2023 (http://seizethemeansofcomputation.org). Signed copies at Book Soup (https://www.booksoup.com/book/9781804291245).
* "Red Team Blues": "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books http://redteamblues.com. Signed copies at Dark Delicacies (US): and Forbidden Planet (UK): https://forbiddenplanet.com/385004-red-team-blues-signed-edition-hardcover/.
* "Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin", on how to unrig the markets for creative labor, Beacon Press/Scribe 2022 https://chokepointcapitalism.com
* "Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The *Washington Post* called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html
* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59?sk=f6cd10e54e20a07d4c6d0f3ac011af6b) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)
* "Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html
* "Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p2682/Corey_Doctorow%3A_Poesy_the_Monster_Slayer_HB.html#/.
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📐 Upcoming books
* Picks and Shovels: a sequel to "Red Team Blues," about the heroic era of the PC, Tor Books, February 2025
* Unauthorized Bread: a middle-grades graphic novel adapted from my novella about refugees, toasters and DRM, FirstSecond, 2025
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📐 Colophon
Today's top sources:
Currently writing:
* Enshittification: a nonfiction book about platform decay. Friday's progress: 758 words (44452 words total).
* A Little Brother short story about DIY insulin PLANNING
* Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. FORTHCOMING TOR BOOKS JAN 2025
* Vigilant, Little Brother short story about remote invigilation. FORTHCOMING ON TOR.COM
* Spill, a Little Brother short story about pipeline protests. FORTHCOMING ON TOR.COM
Latest podcast:
Marshmallow Longtermism https://craphound.com/news/2024/09/08/marshmallow-longtermism/
This work - excluding any serialized fiction - is licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.
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Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.
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