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Stock Buybacks Set To Soar After SEC Forces Companies To Compare CEO And Worker Pay
In an attempt to publicly shame CEOs into lowering their pay, or boost the compensation they pay their employees (because the forces of labor supply and demand apparently no longer work) moments ago, in a 3-2 vote, the SEC approved a rule Wednesday requiring companies to reveal the pay gap between the chief executive officer and their typical worker.
The vote was split along party lines: with Mary Jo White, who did not recuse herself on this occasion as one of her former Wall Street clients was not directly implicated, voting alongside the two democratic SEC commissioners, Luis Aguilar and Kara Stein, while republicans Michael Piwowar and Daniel Gallagher voted against.
Specifically, the SEC will require companies to disclose the median compensation of all its employees, excluding the CEO, and publish a ratio comparing that figure to the boss’s total pay. Companies would have to report the pay ratio beginning in 2017. The metrtic will have to be updated once every 3 years and will allow companies to exclude as much as five percent of their foreign workers from the calculation.
The passage of the vote comes as a bit of a surprise because the agency had delayed progress on the rule for years, with SEC Chair Mary Jo White facing attacks from unions and Democratic lawmakers in recent months for failing to get it done.
As Bloomberg adds, "the disclosure is required under the 2010 Dodd-Frank Act, which hasn’t stopped it from splintering the five-member commission. Republican commissioners and business groups argue it’s meant to embarrass CEOs and won’t be useful to investors."
The SEC gave allowed for some discretion in determining the median pay of workers. Companies can use sampling to estimate the figure, rather than calculating it by tallying data from all of the payrolls across the company.
“These decisions were designed to facilitate compliance with the rule in a manner that is reasonable and workable” for companies, Aguilar said.
Left-leaning organizations such as the Institute for Policy Studies promptly applauded the decision:
“We finally have an official yardstick for measuring CEO greed,” said Institute for Policy Studies analyst Sarah Anderson. “This is a huge victory for ordinary Americans who are fed up with a CEO pay system that rewards the guy in the corner office hundreds of times more than others who add value to their companies.”
“The new SEC rule could pave the way for further reforms that go beyond disclosure,” said IPS veteran compensation analyst Sam Pizzigati. “At the state level, lawmakers are already moving to subject corporations with wide CEO-worker pay gaps to a higher corporate income tax rate – or give corporations with more moderate pay divides a better shot at gaining government contracts.”
“This new ratio information,” Pizzigati adds, “will make it easier to ensure that our tax dollars do not enrich corporations that are widening our economic divide.”
Yet for all posturing, the intention behind the SEC's decision was simple: prompte Obama's agenda to redistribute wealth while shaming executives. On this the SEC's republican commissioners were spot on:
Republican lawmakers have sponsored legislation that would repeal the provision in Dodd-Frank that underpins the SEC’s rule. Commissioner Michael Piwowar, a Republican who opposed the measure, said he found White’s decision to move forward “peculiar” given that opposition in Congress.
Commissioner Daniel Gallagher, another Republican, said the vote shows how the agency’s rulemaking agenda has been hijacked by “ideologues” and partisans who want to shame businesses into reducing CEO pay. “A majority of the commission has opted for a hugely expensive rule over a much less expensive rule,” Gallagher said. “I can only conclude that there is no reasoned basis for the commission’s action.”
Jawboning aside, there are two key aspect to this issue of executive compensation. To be sure, CEO pay when compared to average employee pay, is outrageous. This is obvious not only at the macro level...
... but micro as well:
And yet, as anyone who has spent just a few minutes analyzing executive comp will know too well, the leaders of America's public corporations are rewarded just as generously through their all-in cash annual comp, as with the value of their option grants and total equity holdings.
It is this that has been the primary driver of the epic stock buyback craze of the past 2 years: the fact that corporations can issue unlimited amount of debt and use the proceeds to repurchase stock in an illiquid market pushing the stock to record highs, thereby boosting not only their equity-linked comp, but the value of their equity holdings, is precisely why none other than Hillary Clinton is now preaching the BlackRock party line against activist investors and demanding an end to corporate stock repurchases (as we explained it is not because she cares about the common worker but because her long-term aide Cheryl Mills is a Blackrock director).
Which is why the SEC's rule will immediately backfire: in an attempt to trim their outlier comp, executives will simply be rewarded even more with options and stocks which do not have the SEC reporting treatment, which in turn will incentivize these same executives to buyback that much more stock.... using even more debt.
In fact, in pandering to democrats and dogmatic supporters of Obama's "fairness doctrine", the SEC has succeeded in further abbreviating the lifetime of most public US companies which will simply lever up that much faster and proceed to transfer stakeholder value to shareholders while leaving bondholders footing the bill, and assuring of a promptly bankruptcy filing once interest rates rise. But not before the same executives who are demonized for their exorbitant pay extract all residual equity value.
As for executive pay being exorbitant, which it clearly is in context, if only these same companies were unable to constantly keep rolling over debt, and hiding inefficiencies under the umbrella of low interest rates and ZIRP, as well as issuing stock into a stock market bubble, then these same CEO would promptly be forced by their own boards and/or treasurers to slash their pay and boost margins and profitability, or else face bankruptcy.
But that would entail looking at the real reason why the average CEO is paid more than 300x more than their average employee: the catastrophic wealth redistribution policies of the Federal Reserve. And since as the Pedro da Costa example vividly showed that anyone daring to expose that the Fed emperor has no clothes leads to prompt loss of job, nobody will ever look in the right place, or ask the relevant question.
Which is why instead we will be stuck with this kind of political farce that passes for regulation, which will do absolutely nothing to rein in executive pay - in fact it will further boost the divide between the bottom and top corporate runs - but it will also assure that the death of the US middle class comes even faster than we had anticipated.
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Culottes, sans culottes.
Nothing has changed.
"The waltons are evil! They make too much money while their workers starve! Honey, wheres the EBT card, I need to go to Walmart to buy some Pepsi and Doritos."
-Average lower class democrat
Stock buybacks have pros and cons
http://www.planbeconomics.com/2015/08/pros-cons-of-stock-buybacks.html
Because what else would the SEC have to do?
They want to SHAME corporate executives?
The false premise here is the assumption than anybody in the political, corporate, or orther leadership of American has any capacity for shame.
They do not.
Somebody told this:
Generally speaking if the CEO to worker pay ratio goes over to much, the quality of management goes down.
The only thing that will EVER improve the wealth distribution is lowering or eliminating the artificial barriers to entry for new businesses. New businesses feasting on the carcasses of the old is necessary for progress and building wealth. It will therefore never be allowed to happen. Small businesses were once the lifeblood of this nation, and large source of hope for changing your station. RIP.
And there is no free market for labor. There is a regulated market for labor.
Really? Then why does Obama keep "body man" Reggie Love and his wife Mike's dick in the closet?
"The waltons are evil! They make too much money while their workers starve! Honey, I need to go to the Apples store for the new iphone.
-Average middle class democrat
"The waltons are evil! They make too much money while their workers starve! Honey, I'm going to see the accountant and try to lower our income tax for this year.
-Average upper class democrat
WalMart is essentially a civilian PX.
Damn......never thought of it that way.....but you are SOOoo right !!
You sir, just won the Internet for the day.
"The Waltons are evil! They make too much money while their workers starve! Unless they make a big donation to my family foundation."
- average ruling class Democrat
Reading this made me want to watch NASCAR.
Cool. I'm all for this new rule. Nothing like sunshine to make the roaches scatter.
So what if if causes CEO's to go balls to the wall in fattening their own asses up at the expense of their employees. I WANT to see the Middle Class collapse even worse than it is now, so that people finally get pissed off enough en mass to riot and string these motherfuckers up.
And the poltical class and most importantly of all.....THE BANKERS !!
Someone makes more than I do!!!! Life is unfair!
Only the SEC can make life fair again!!!
CEO pay has grown 90 times faster than typical worker pay since 1978. You do not consider this income divide ever so slightly disproportionate?
I care about what anyone else earns and how fast anyone else's income changes about as much as I care about who took a shit in the restroom down at the Chevron station last nite. Only stupid fucks obsess about such nonsense.
USA is completly full of "stupid fucks"
How many employees does the CEO of Wal-mart oversee? Divide that by the number the "average" worker oversees.
That should be a good ballpark number for salary differential.
2.2 million world wide employees.
The average worker may have five reports....
I do not think it's the worker that is being underpaid, considering their contributions to the bottom line.
So how much should the top guy in China make?
India?
President of USA?
Facebook?
Twitter?
Apple?
If you think POTUS is responsible for my success, you are in dire need of help.
For the businesses-if the shareholders do not like it they can sell their shares.
Government is not required to address this issue.
wealthy, middle and poor
Thats 1 too many classes.
Jello Biafra agrees.
https://www.youtube.com/watch?v=TWrJAaUU1r8
Throughout history there has always been the wealthy and the poor. The 'middle class' is a relatively new phenomenon on the scene. And looks poised to be a mere 'blip' on the historical radar...
Rome had a middle class. It was great while it lasted.
Even today, the middle class is being forced down. The reality is the biggest tax burdens are on the middle class.
And the biggest tax/expense burden looming in the future? The cost of energy. All this "green" energy will destroy the middle class. Renewable energy is MUCH more expensive, and that makes ALL goods and services MUCH more expensive, because everything we buy, do, and even eat, has a very high energy content.
The "rich" can easily pay five times the cost of their monthly electricty and gasoline bills. The rich can easily afford a Tesla EV that costs over $100k. How about the middle class?
Governments are doing their best to eliminate the middle class through taxation, fees, and "benefits" (save the planet, make everything "better").
The rich can easily pay these extra fees, the poor don't pay them. Who gets bent over?
It also creates awesome incentives to fire all of your low-paid workers and automate or outsource their jobs.
WINNING!
Not to be a socialist or anything, but this website has shown many articles that discuss the longer-term implications of inequality. That is, keep gutting the middle class and pushing more and more people down the ladder and eventually they fight back. Not that this should be the concern of the SEC...
But it should be addressed or at a minimum discussed. The alternative is business as usual, which means more and more of the same, CEOs getting millions and millions for paper progress.
Whatever.
End the Fed.
Regarding income inequality in the "Greatest Country in the WorldTM" I guess this website can summed up this way:
'Sure, there's a problem. Just don't do anything about it.'
"...the forces of labor supply and demand...". Hahaha. Funny.
I guess trickle down economics didn't trickle.
No no. It will. Just give it some time. A mere 35 years isn't nearly quick enough to expect results.
Check back in another 35 years. Run along. Nothing to see here.
The economics did trickle down, and spectacularly well. It created the middle class. Then the government saw this HUGE pot of money sitting in the middle class that wasn't being taxed enough.
They fixed that situation real quick.
GS and JPM ratios would be interesting.
Welcome to Marxist hell, Capitalism.
How many companies are going to move HQ outside the US?
Why stay HQ'd in the US?
Obozo really wants to kill America.
Too much fluoride,
How much of the shit you buy at Walmart says "Made in China"?
You might also pose the question , how much shit you buy at a Walmart in China says made in the USA.
The income divide is caused by the Fed, nothing else. CEO pay is a consequence of this, not the cause.
Solve the problem by taxing capital gains more than income from labor...haha, fuck you Uncle Warren, now your secretary pays a smaller tax rate than you !