Analysis: Shareholders can’t stop growing inequality – but maybe the rest of us can
Video Source: Foreign Highlights via YouTube
The following commentaries are solely based on my personal experience.
Does anyone really need two mansions in the Hamptons, Wall Street’s favorite summertime watering hole? Lloyd Blankfein, the CEO at banking giant Goldman Sachs, has apparently decided he can get by with just one.
Well I don’t “need” two mansions, but I do desire a whole fleet, or “chain” of million dollar mansions all over the world. So I buy them.
Blankfein recently sold his first Hamptons manse – a seven-bedroom affair with a sunken tennis court that he bought in 1995 – for $13 million. From now on, he’ll have to make do with only his second Hamptons manse, a 7.5-acre spread that set him back $32 million in 2012.
I made him an offer, then realized I rather not live in New York state.
A good many shareholders at Goldman Sachs would like to see billionaire Blankfein making do with less – much less – on another front as well. His paycheck.
I wasn’t at the shareholder’s meeting so this is pure speculation, however if Mr. Blankfein isn’t generating more shareholder value then yes his compensation package needs to be reviewed.
At Goldman’s May annual meeting, the bank’s board of directors put up for a shareholder advisory vote an executive pay plan that cut Blankfein’s annual compensation by $1 million, down to $23 million. Over a third of Goldman’s shareholders voted their disapproval. They wanted to see a bigger cut.
Uh oh Blankfein…what did you do?
Poor Blankfein may feel he’s getting picked on. He shouldn’t. He has company. We’re now witnessing growing worldwide shareholder angst over executive pay excess.
From my understanding there’s a lot of “activist investors” that have been calling foul on executive pay from poorly managed and undervalued companies. I wouldn’t doubt this one.
The day before the Goldman Sachs “say on pay” vote, a shareholder majority gave an executive pay plan at Germany’s Deutsche Bank a similar advisory thumbs down. Over in France, government officials upset about companies ignoring shareholder votes against excessive executive pay are threatening to enact legislation that makes advisory shareholder votes binding. In the U.K., notes one reporter, shareholders outraged by executive pay excess are “singing a song of angry men,” voting down pay packages at a record rate.
Well look at it like this; when you pay anyone in a company ranging from the CEO down to the janitor, that’s taking one dollar out of the shareholders’ pockets to pay that employee. So when the board increase any employee’s pay regardless of position without justification of creating a greater return for the shareholders, and continue to increase pay without their vote and consent—that’s technically financial theft. Yes?
© (Photo by Mario Tama/Getty Images) NEW YORK – DECEMBER 21: People walk past a painting mocking Goldman Sachs CEO Lloyd Blankfein, who received a bonus of $53.4 million this week, in the financial district December 21, 2006 in New York…
And in the U.K., unlike most other nations, shareholder pay votes actually do matter – at least on paper. Shareholders have had the power to take binding votes on executive pay in Britain since 2013.
Sounds like the U.K. is shareholder friendly.
But that shareholder power hasn’t turned out to make all that much of a difference. Overall executive pay in the U.K. has continued to rise, even as worker pay and shareholder returns have sunk and stagnated.
And that raises a larger question: Why are we relying on shareholders to fix executive pay?
Because the shareholders is where the gold is, and he who has the gold make the rules. Shareholders OWN the companies, that’s why. Just like someone has to rely on you to move your car if it’s in the way because you’re the owner. No one can legally move it for you unless you give consent.
We certainly don’t expect shareholders to rescue us, as my Institute for Policy Studies colleague Sarah Anderson points out, when corporations misbehave in other areas. We demand tough government regulations – or file lawsuits – when corporations pollute our environment or discriminate in their employment practices.
The only thing need rescuing is the mind believing it needs rescuing from someone else.
This “dependency on government” fad can actually be the last thing you want. There’s even some reports that showed that companies do certain things on purpose so that you DO go to the government for “more regulations” to kill off the smaller companies trying to compete.
And just like ‘Larry the Liquidator’ said on “Other People’s Money“, you can make all the laws and regulations you want. The little guy’s the one who will face them. Because we capitalists don’t go away, we adapt.
So why don’t we do the same on executive pay? The corporate flacks have a reason: Executive pay levels, they insist, have always been an internal matter. The public should keep its hands off.
Unless the “public” has a major stake in that company as a shareholder. IF they are (depending on the class of shares the public own), they can determine the executive pay.
But the executive pay decisions made inside corporate boardrooms have an enormous impact in the outside world. Outrageous pay gives top executives an incentive to behave outrageously. To hit the pay jackpot, they’ll do most anything. They’ll outsource and downsize and make all sorts of reckless decisions that pump up the short-term corporate bottom line at the expense of long-term prosperity and stability.
This happened to me before, I got laid off due to downsizing. However, I understood that the CEO had a job to do. While in my “little position”, I also understood the game; the CEO’s job is to increase profits, decrease costs and improve shareholder value. I understood that when companies lay people off (or in corporate terms downsize), the stock price go up because labor cost is one of the largest liabilities on the company’s balance sheet.
I’m going to bring it closer to home; you make purchase decisions for yourself and your family every month and some of them annually made inside your home. Your financial decisions is based on what’s in the BEST INTEREST of your household and its balance sheet. You decide to cut some expenses (credit cards, eating out, shopping, etc.). Doing that affects companies providing these products and services to you, thus decrease revenue for the company. The company must make decisions based on your household’s financial decisions. Yes, your decisions also have an impact in the outside world (Walmart beefing up their online division for example). When you save money and cut costs in your household’s expenses and put a few extra bucks in your pocket, you as head of household can be rewarded for your decisions. And yes, you’d do anything to hit the jackpot of your own pocket, rather it’s for short or long term.
In other words, between you and the CEO of a major company is no different.
We can’t rely on shareholders to call a halt to all this. Few shareholders, after all, have any long-term commitment to the corporations whose shares they hold – or to the communities where these corporations do business.
Again, relying on the car owner(s) to move their cars, or buy the car from them and move it yourself. How else would you move the car?
The thing is this, if you see a long-term potential of a company, invest in it. And regarding communities, it might be something to take into note regarding depending solely on certain corporations for that community’s financial support (GE’s affect on communities in Connecticut by moving to Boston). Communities put power in major corporations when the community themselves dismiss mid-size to small business playing catch-up. The community says these corporations are big, and advertise them like the financial holy grail. I would encourage communities to diversify their economic portfolio by promoting home-based businesses among their citizens so that regardless of a major employer do a massive layoff, or relocate somewhere else, it’s not causing a major economic turmoil to the area. I’m a home-based business executive that shop at my local stores in town, thus maintain the economic impact. Now just imagine a few thousand more of me in your neck of the woods.
Only the public can protect the public interest, and this public interest – in matters of corporate executive compensation – demands that we start setting limits on top executive pay. And we actually appear, as a nation, to be moving in that direction.
The best way to do that–as a public–is to either be a voting shareholder, or stop shopping there altogether if you disagree with the executive’s compensation. Fans of Apple agree with Tim Cook’s pay when they want the iPhone. Walmart customers agree with McMillon’s pay when they shop there. I can go on and on, but my point here is the public justifying the executives’ compensation by shopping there. Alas, when the public stop shopping there it also affect the decisions executives make by either cutting back on executive pay and laying off workers, or relocating. Either way, an executives’ pay doesn’t affect me if I’m not a shareholder.
Last summer, after five years of corporate resistance, the federal agency with watchdog responsibility over Wall Street finally promulgated new regulations that require corporations to annually disclose the ratio between the pay of their top execs and most typical workers.
This is normal for a publicly held corporation because the federal government do have major stakes in these companies. However I wouldn’t get to happy about that if you believe you own these corporations through the government. A lot of Americans don’t understand business, and the government depends on that ignorance alone. See how much equity and stake the federal government has in major companies here.
The first of these disclosures will start appearing early in 2018. We’ll know then, for the first time ever, exactly which companies are contributing the most to our rising inequality.
The only reason I’d have interest in seeing this is if I have a major stake in them. Other than that, I’m wondering what’s the motive behind those who’s looking forward to seeing this report. Other than that, I’m concerned that it’s just to inflame the anger of those who just want to be more angry towards corporate executives without making an impact of buying up the companies themselves, grab a seat in the board, and make official compensation decisions.
These disclosures just may open the door to all sorts of innovative new reforms. We could, for instance, deny lucrative government contracts to companies that pay their CEOs more than 25 or 50 times what they pay their workers.
Remember, government’s been a major stakeholder even when these pay ratios WAS approved. So I’m trying to figure out WHO is going to deny lucrative government contracts to these same companies?
And, if workers feel like they’re underpaid, they can do one of the greatest things they can do for their financial well-being in one of the greatest countries in the world—–start a part-time home-based business. Grow it, THEN make your own compensation decisions. It can start with you.
Back in the middle of the 20th century, only a handful of major U.S. corporations paid their power suits more than 25 times than what their average employees received. Last year, CEOs in the United States averaged 335 times what their workers earned.
We’re not in the middle of the 20th century anymore, this is the 21st century where the Information Age has created more millionaires and billionaires of all ages at such a short period than anytime on this planet Earth’s history–allegedly. And that’s one of the key reasons of this “pay gap” phenomenon because these same workers are mentally stuck in the 20th century Industrial Age.
Before graduating high school, kids have used the computer and their smartphones to create and build major billion dollar companies almost overnight. These same kids wrote (and are currently writing) their own paychecks because NO ONE caught up and reminded them of “pay gaps and income inequality” from the disgruntled “the rest of us” crowd—yet. Thank goodness, we wouldn’t have half of the technology gadgets and products we have now if they got distracted. Computers, smartphones and robots are taking over almost every aspect of labor humans used to do. Companies aren’t forcing it on the public, the public is forcing it on companies because people are quickly demanding it in the name of convenience. That’s extremely profitable for companies (banks are laying off tellers because the market’s heading towards smartphone interaction instead of brick and mortar branches for example).
So this pay situation is catching up with the 21st century. For more in depth look at the affect of technology and the workforce, I highly recommend reading The Business of the 21st Century* by Robert Kiyosaki.
Shareholders can’t change that. The rest of us can.
MY FINAL SPOTLIGHT:
Much respect for the author regarding their honest opinions on this article and topic.
DISINFECT YOURSELF FROM THE “RESTOFUSITIS” DIS-EASE:
I must have lots of pet peeves because this is one of my major ones. The phrase “the rest of us” is the most annoying phrase I’ve heard all my life. I don’t know about you, but I know that human nature wants wealth AND health. But we’ll stick with wealth right now. I used to watch a well-known financial news channel that talked about business all day and featured successful people. I admired this channel until one of their anchors were featuring million dollar lifestyles, and at the end of the show they said “but for the rest of us”—-who’s the rest of us? Who were they talking to? They sure weren’t talking to me. I was looking forward to having that lifestyle.
The “rest of us” crowd’s problem is saying the keyword “us” which is a soup of energy that focuses on lack regarding their finances and thought patterns in unison, while criticizing those like you who decided to be an individual, seek out what’s best for him/her without trying to impress the “rest of them”, and go achieve their own success regardless of what society say or think. The “rest of us” crowd cry to much about everything to me, and I’m not a part of that. The “rest of us” crowd have a mob mentality that dares and verbally punish you to be happy for who you are, and feel good about achieving wealth for yourself.
Please understand THIS; the “rest of us” crowd don’t want you to be successful–EVER. Because THEY aren’t successful. In other words, their inner-kid that wanted to achieve everything under the sun got pummeled by those who decided to listen to everyone else who failed. The “rest of us” crowd will shun you if you decide to become successful for yourself right now.
The biggest challenge I had to experience was my own family and friends mindsets who shunned my decisions for not staying in the “rest of us” crowd without knowing it, and we know most of our family and friends never mean us any harm. Even though they love me and I love them, with good intentions interfered with my desire to be successful. It’s not that they didn’t want me to be successful, it’s just that society gave them a cookie-cutter version of success that’s “reachable” to the 99 percent (I call them 99ers) and they settled for it.
This “rest of us” crowd complained about EVERYTHING, from how much their boss made while working for them to how much Bill Gates made while spewing it on Microsoft Windows—go figure.
I finally had enough of that “rest of us” crowd! I separated myself from that mentality, got clarity to who I am and what I wanted, and went for it. Yes, it was hard at first, but I realized THAT alone was the biggest challenge for me to prepare for the “rest of us” criticism.
I say that because “the rest of us” crowd are loud but don’t talk, and they hear but don’t listen. You on the other hand is an individual with your own thoughts and desires, and there’s absolutely NOTHING wrong with you starting your path to whatever makes you happy, regardless of what “the rest of THEM” says. Let them stay mad, broke, and right…
YOU my friend, get wealthy AND healthy.
*I’ve been told by many millionaires, billionaires and those who are living their desired life that reading a book apart from listening actually stimulated their brain by heightening and improving their vocabulary, intellects and spelling mechanism. I’ve noticed that myself personally reading books on wealth and personal growth. If you’re looking to achieve that for yourself personally, I highly recommend buying books on these subjects and try it for yourself. I’m glad I did, and I believe you will be too.
….unlike the rest of them ;-P
Original Article Source in Italic courtesy of