#CEO Performance Pay Is One of #Capitalism’s Great Myths
BY
LUKE SAVAGE
..."A new analysis jointly conducted by the Institute for Policy Studies (IPS) and the Congressional Progressive Caucus Center (CPCC) suggests that colossal increases in CEO pay are unrelated to improved performance and reflect little more than “a rigged system that extracts wealth from ordinary workers and channels profits to the top of the corporate ladder.” This is immediately evident when you look at the methods used to inflate compensation for the highest-paid executives.
Once illegal and considered a form of market manipulation, stock buybacks allow a company to artificially inflate its own value. In 2021 and 2022, the analysis notes, companies on the S&P 500 spent a record amount on the practice and, since the lion’s share of CEO pay (on average just over 80 percent) now comes in the form of stock options, the upshot is that executives get a massive boost as well.
As William Lazonick put it in the Harvard Business Review nearly a decade ago: “Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons . . . but none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices.” Far from being efficient, moreover, the IPC/CPCC analysis points out that the billions now spent every year on stock buybacks represent money that might otherwise be directed to more productive or constructive ends like research or simply higher wages at a company.
Needless to say, there is no particularly good or defensible reason for an executive to make hundreds or thousands of times more than a worker. There are, however, plenty of relatively straightforward ways that the problem of outlandish CEO compensation could be addressed through tax policy. As the analysis notes, the Tax Excessive CEO Pay Act backed by Bernie Sanders and Elizabeth Warren in the Senate and Barbara Lee and Rashida Tlaib in the House would link the federal corporate tax rate paid by companies to the size of the gap between median CEO and worker pay. Other options include levying an excise tax on firms with a disparity of more than 50:1 and closing tax loopholes that enable executives to park money in special tax-deferred accounts."...
