Excessive CEO, which comes at the expense of the corporation, is far more pernicious than returns to shareholders. (Photo: Shutterstock)
CEOs Say They Will Stop Maximizing Shareholder Value. Would Be Better If They Stopped Maximizing CEO Compensation
Rather than maximizing shareholder returns, it seems more plausible that CEOs have been maximizing CEO pay, which has risen 940 percent since 1978.
The Washington Post had a major front page article announcing in the headline "Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations." The piece refers to a statement by the Business Roundtable, a group comprising many of the country's largest companies, which argues for an alleged shift in direction.
The problem with the statement and the piece is that that there is little evidence companies have been maximizing shareholder profits in the last two decades. The average real return to shareholders since December of 1997 is 4.8 percent. This compares to a longer term average of more than 7.0 percent. (I went back to 1997 instead of taking the more natural 20-year average to avoid distortions created by the stock bubble. The twenty year return has been just 3.6 percent.) These relatively low returns are especially striking since corporations have gotten so much assistance from government tax cuts over this period.
Rather than maximizing shareholder returns, it seems more plausible that CEOs have been maximizing CEO pay, which has risen 940 percent since 1978. Excessive CEO, which comes at the expense of the corporation, is far more pernicious than returns to shareholders. While shareholders include middle class people with 401(k)s and pension funds, every dollar that goes to CEOs goes to someone in the 0.01 percent of the income distribution.
More importantly excessive CEO pay distorts pay structures in the economy as a whole. If the CEO is earning $15 million, the rest of the top five corporate executives likely earn close to $10 million and even the third tier likely earn well over $1 million. This affects pay structures elsewhere. Presidents at universities and large non-profits now routinely make over $1 million a year and government cabinet secretaries whine about the sacrifice of public service where they make $211,000 a year.
It would be much better if our top CEOs started bringing their pay down to earth than change a focus that they don't in any obvious way now have.
Urgent. It's never been this bad.
Dear Common Dreams reader, It’s been nearly 30 years since I co-founded Common Dreams with my late wife, Lina Newhouser. We had the radical notion that journalism should serve the public good, not corporate profits. It was clear to us from the outset what it would take to build such a project. No paid advertisements. No corporate sponsors. No millionaire publisher telling us what to think or do. Many people said we wouldn't last a year, but we proved those doubters wrong. Together with a tremendous team of journalists and dedicated staff, we built an independent media outlet free from the constraints of profits and corporate control. Our mission from the outset was simple. To inform. To inspire. To ignite change for the common good. Building Common Dreams was not easy. Our survival was never guaranteed. When you take on the most powerful forces—Wall Street greed, fossil fuel industry destruction, Big Tech lobbyists, and uber-rich oligarchs who have spent billions upon billions rigging the economy and democracy in their favor—the only bulwark you have is supporters who believe in your work. But here’s the urgent message from me today. It’s never been this bad out there. And it’s never been this hard to keep us going. At the very moment Common Dreams is most needed and doing some of its best and most important work, the threats we face are intensifying. Right now, with just two days to go in our Spring Campaign, we're falling short of our make-or-break goal. When everyone does the little they can afford, we are strong. But if that support retreats or dries up, so do we. Can you make a gift right now to make sure Common Dreams not only survives but thrives? There is no backup plan or rainy day fund. There is only you. —Craig Brown, Co-founder |
The Washington Post had a major front page article announcing in the headline "Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations." The piece refers to a statement by the Business Roundtable, a group comprising many of the country's largest companies, which argues for an alleged shift in direction.
The problem with the statement and the piece is that that there is little evidence companies have been maximizing shareholder profits in the last two decades. The average real return to shareholders since December of 1997 is 4.8 percent. This compares to a longer term average of more than 7.0 percent. (I went back to 1997 instead of taking the more natural 20-year average to avoid distortions created by the stock bubble. The twenty year return has been just 3.6 percent.) These relatively low returns are especially striking since corporations have gotten so much assistance from government tax cuts over this period.
Rather than maximizing shareholder returns, it seems more plausible that CEOs have been maximizing CEO pay, which has risen 940 percent since 1978. Excessive CEO, which comes at the expense of the corporation, is far more pernicious than returns to shareholders. While shareholders include middle class people with 401(k)s and pension funds, every dollar that goes to CEOs goes to someone in the 0.01 percent of the income distribution.
More importantly excessive CEO pay distorts pay structures in the economy as a whole. If the CEO is earning $15 million, the rest of the top five corporate executives likely earn close to $10 million and even the third tier likely earn well over $1 million. This affects pay structures elsewhere. Presidents at universities and large non-profits now routinely make over $1 million a year and government cabinet secretaries whine about the sacrifice of public service where they make $211,000 a year.
It would be much better if our top CEOs started bringing their pay down to earth than change a focus that they don't in any obvious way now have.
The Washington Post had a major front page article announcing in the headline "Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations." The piece refers to a statement by the Business Roundtable, a group comprising many of the country's largest companies, which argues for an alleged shift in direction.
The problem with the statement and the piece is that that there is little evidence companies have been maximizing shareholder profits in the last two decades. The average real return to shareholders since December of 1997 is 4.8 percent. This compares to a longer term average of more than 7.0 percent. (I went back to 1997 instead of taking the more natural 20-year average to avoid distortions created by the stock bubble. The twenty year return has been just 3.6 percent.) These relatively low returns are especially striking since corporations have gotten so much assistance from government tax cuts over this period.
Rather than maximizing shareholder returns, it seems more plausible that CEOs have been maximizing CEO pay, which has risen 940 percent since 1978. Excessive CEO, which comes at the expense of the corporation, is far more pernicious than returns to shareholders. While shareholders include middle class people with 401(k)s and pension funds, every dollar that goes to CEOs goes to someone in the 0.01 percent of the income distribution.
More importantly excessive CEO pay distorts pay structures in the economy as a whole. If the CEO is earning $15 million, the rest of the top five corporate executives likely earn close to $10 million and even the third tier likely earn well over $1 million. This affects pay structures elsewhere. Presidents at universities and large non-profits now routinely make over $1 million a year and government cabinet secretaries whine about the sacrifice of public service where they make $211,000 a year.
It would be much better if our top CEOs started bringing their pay down to earth than change a focus that they don't in any obvious way now have.