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How American CEOs got so rich (Vox)
- Thread starter Piecake
- Start date
It's such a crock to say that companies would reinvest tax savings and/or increase wages when buybacks are such an easier and better option for executives.
Getting poor republicans to believe in trickle down was so intelligent.
we been knowing this crock for decades now. who the fuck ever thought that these rich motherfuckers would give a solitary fuck about enriching their workers.
this is exactly why they're content with sowing bigotry/racism/division, slashing education, promoting their stupid cultish religion, putting up barriers to abortions and combating free press. it all ties together.
exploit the stupid and keep getting your ends. that lbj quote that's oft used in here is perfect.
this is exactly why they're content with sowing bigotry/racism/division, slashing education, promoting their stupid cultish religion, putting up barriers to abortions and combating free press. it all ties together.
exploit the stupid and keep getting your ends. that lbj quote that's oft used in here is perfect.
How often can conservative economic theory be proven wrong before people get a clue that maybe giving all the wealth to the already wealthy isn't sound or healthy at all? It took years of Kansas being the economic joke of the nation to shake just enough voters and GOP politicians to reverse course, at least partly. How many times can the GOP blow up the national debt when they are in power and then claim they care about the debt the instant they are not in power before you say "Hey maybe the GOP don't care about the debt at all? Maybe it is just a politican tool for them to use to pay the wealth of their donors?"
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Oh yea, I thought this video just did a really good job of explaining it in a way that related to stock buybacks.
It also compared it to other nations who don't do stock buybacks or simply do it a lot less. The differences is striking as those nations have healthier companies who actually reinvest their money in their company instead of shut shit down for stock buybacks.
I don't even know where to begin. What a trash video. I guess I no longer have any respect for Vox. What a joke. Did they bother to talk to anyone who understands accounting or finance? Or do they just do politically-motivated rants with no regard for logic or facts? Well if anyone from Vox is reading this, I have a graduate degree in finance and know more about this subject than you do.
Stock buybacks are just an accounting trick to manage a company's balance sheet. They don't go to executives as compensation. When you do a stock buyback, where does that money come from? It doesn't fall from the sky. It comes from the company itself. So the company takes money it already owns...and gives it to back to itself. If a company has $50 million in its bank account, that $50 million is owned by the stockholders. If the company takes that money and buys back stock, there are fewer stocks, meaning that each stock should become individually more valuable, but now the people who own those stocks own a piece of something that's inherently worth less (because the $50 million that had been sitting in that company's bank account is no longer there). It's like taking $50 out of your bank account and putting it into your pocket. It's still your money.
Companies mostly engage in stock buybacks as an alternative to paying dividends because dividends are taxed at a higher rate. That's it.
Moreover companies that engage in a lot of stock buybacks don't necessarily outperform companies that don't. Fast, high-growth companies generally don't buy back their stock ever. They need that money to grow their business. Companies that do stock buybacks are older, mature, have run out of ideas of things to invest in, and so give the money back to shareholders.
Should you force companies who don't have good ideas of what to do with their money to invest it? No. They should return it to shareholders who can then invest that money with companies who do have ideas of what do with that money. Companies that lose money like Tesla are built with profits from companies like GM.
lol what
It doesn't take a graduate degree in finance to know that if a company has "run out of ideas of things to invest in" then they should be paying workers more, not closing factories.
There was a thread a couple months ago, I can't remember the topic, but American education in economics, business, and finance are a form of indoctrination towards enabling the disgusting capitalism you're defending.
Edit: oh wait, I checked your post history. All you do here is tell people to pull on them bootstraps, equate Bernie to Trump, and call people "economically illiterate." Point proven.
Paying their workers more might be a good idea. Or maybe not. You probably suffer from a cognitive bias where you're thinking of someone struggling to make ends meet working at Walmart or McDonald's.
But you know what company spends the most on stock buybacks? Apple. And the people that work there are already extremely well compensated. Should they start paying their software developers $2 million a year instead of $1 million?
What you're actually trying to solve (economic inequality) is not solved by banning stock buybacks.
Apple has 509 retail locations. Raise up the lowest wages first.
What about their production process? Why not build and open more factories in the U.S., hire thousands more people, and stop using highly exploited foreign labor?
Using one of the richest and most successful companies in the world and your counter still immediately falls apart. lmao. They won't do this because it would cost more money that they could hold onto or pay themselves with.
You're onto something true here, which is to say that the problems are more systemic.
For years, Apple just kept the money sitting in a bank account. They only started doing buybacks after significant pressure from hedge funds and the death of Steve Jobs. If you banned stock buybacks, there is no reason to believe they would raise the wages of their retail workers, or start making iPhones in the USA. That may be what you want them to do, but the two are not related.
You could put high tarrifs on iPhones, which might encourage them to move iPhone production to the US. That's another debate. Or you could raise the minimum wage for retail workers. That's a different discussion.
The only people they care about is shareholders, and a very small % of the population actually owns stocks, so the general public doesn't benefit during times like these besides feeling less anxiety towards losing their job. Normal people don't get the benefits from a massively inflated market, but as soon as the house of cards crashes(again), they get their life taken from them and it is back to square one.
To be fair, Apple retail employees are paid well above the average retail wage.
It's been a great decade for execs. Central banks printing money to buy assets, and in Japan and Switzerland's cases openly buying stocks of companies, sent share prices soaring. The companies used their cash to buy their own shares, sending prices even higher. Then along came Trump with his tax cut plan for corporations and the rich. Not only did companies use the tax savings to buy their own shares again, the execs also pay less taxes. So their income goes up and at the same time their taxes go down. Meanwhile the country has all-time high deficits.
Here's Gary Cohn (WH chief economic advisor) in 2017, before the tax cuts were passed, asking a room full of CEO's if they plan use the tax cuts to increase their companies capital investment. Almost none raised their hands. Surprise.
Here's Gary Cohn (WH chief economic advisor) in 2017, before the tax cuts were passed, asking a room full of CEO's if they plan use the tax cuts to increase their companies capital investment. Almost none raised their hands. Surprise.
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They let it sit there because they did not want it to be taxed when they brought it to the US. They didn't let it sit there because they had nothing to invest in or whatever.
Why I think the Vox video is valuable is how it compares America's situation to other countries. Companies in other nations pay their CEOs significantly less and invest in R&D a lot more than American companies because American companies use all of their profits on stock buybacks because CEOs have an incentive to do that because it increases their pay and makes their shareholders happy.
The idea that American companies are older or simply have no reason to invest in R&D or their workers compared to companies in other nations strikes me as pretty ridiculous.
These people, generally, aren't looking at the long-term health of their company. They care about the short-term because that is what they are evaluated on. The article above gives some good examples of why that is a problem.
CEOs ARE shareholders dude. They're cashing in equity from the company, along with shareholders into higher stock valuations.
If a company can't find something better to do with that equity, be it investing in a better workforce, or using it for capital improvements, something has gone terribly, terribly wrong with the system.
This is what rent seekers do, not what companies in competitive markets do.
Also, economics isn't finance. What's good for one isn't necessarily good for the other, nor are they equated.
This just isn't true. Apple is top-10 in the world for company spending on R&D, and the US economy spends more on R&D in terms of absolute dollars and as a % of GDP than any other country.
Total sure, but break it down as a percentage of revenue. Apple is still up there because of their business, but you're pointing to a outlier as if its the norms.
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What clearly matters is the percentage. And he clearly stated that Apple is heading down that path, meaning that they are starting to do more buybacks and spend less on R&D. Apple spends less on R&D than Huawei and Samsung, even though Apple is a bigger company.
The example of the pharmaceutical companies and CISO were also not true?
Also, where are you getting your US economy figures?
Kinda hard to make any points when the defender of capitalism reframes the conversation around an exceptionally high paying company
In all honesty, it's completely irrelevant.
Most of the largest, most innovative, and most valuable companies in the world were started 20 or 30 years ago with a couple million dollars. R&D spending doesn't necessarily lead to more workers, or to higher paid workers. It's a famous story that Xerox was investing heavily into R+D to develop things like the GUI, and Steve Jobs went in and stole it for nothing. The Xerox managers were focused on making money from printers and ink. That's just how the system works.
It's a fundamental part of capitalism that companies grow, mature, and die over time. New jobs are often created by new companies. Many of the world's largest employers 50 years ago no longer exist. If you don't like this, then you have a bigger problem than stock buybacks.
What's wrong with this exactly? I thought the whole point of having a public corporation is to reward the shareholders (which also includes the CEO). If you just want to reward your workers instead, don't go public just stay private.
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That is a theory developed by an economist in 1980s. The theory before that was that companies should invest in their business and workers. Public Companies existed before the 1980s
There are two factors that were only briefly touched on, but are key to understanding why buybacks are so destructive:
1) this period also coincided with executives getting most of their compensation in stock, not salaries. All those tech CEOs with a $1 salary do it because they just pump the stock price and gettheir money that way
2) yes the buyback is just moving Numbers around between cash and equity accounts, but on the other side, when that money goes back to investors instead of workers, it tends to not get spent. When investors and funds get that cash from the buyback, they tend to not spend it, it just sits in a bank.If they paid their workers more instead, or invested in new businesses, the money is more likely to spread in the economy. That's the whole multiplier effect they talked about.
Boards of Directors decide executive compensation so I would start there as the source. They are influenced way too much by shareholders and hilariously disconnected from the rest of the world because they're hypnotized by the amount of money they earn as if it's fair/normal. This culture would need to change entirely. Ownership should be more fairly distributed across the people that actually run a Company's day to day operations.
Yeah, it's depressing everything. Money sitting in some bank somewhere isn't being spent by the workers in the local economies. Businesses will eventually shutter their doors and you now have less choices and and chances to spread that money around when you do want or need to make a purchase. Its a loop that will continue to enrich a few at the top.
I feel that having a majority of the CEO's compensation in stocks is a GOOD thing because that means the CEO has skin in the game and is motivated to make sure that the company succeeds.
As for the piles of cash that's being sit on, well that's no good obviously. But what can you do? Tax unused money? Ban public corporations and only allow private companies to exist?
For 1: The problem is that you're operating under the assumption that stock buybacks are inherently good for the stock price. That is a false assumption. They are not. They are just a tax-advantaged accounting trick. If you raised the tax on capital gains significantly, then companies would stop doing them, and go back to paying out larger dividends instead. Legalizing stock buybacks was simply a stealth tax cut for the rich. It wasn't some kind of nefarious super weapon. Prior to 1982, the stock market was yielding an average dividend of 5%. Since then, it's been cut in half. Companies simply moved money earmarked for dividends to a new pile of money called "stock buybacks" with a lower tax rate.
There are plenty of examples of companies that have wasted a lot of money on buybacks. A recent, relevant example is GameStop. The stock price has fallen like 85% in the last 4 years, meanwhile they've been buying back stock like crazy. If they had just let that money sit in their bank, their stock would be worth more and all their shareholders including their executives would be better off (still worth less because their business is collapsing, but they'd at least have some cash they could withdraw).
For 2: Who is to say this money would go to workers? As I said above, the evidence suggests it would just be paid out as a dividend. It might go to workers, but probably not. The two are not related just because you want them to be.
Tell that to the Foxconn workers.
There's something I really didn't understand from watching the video—isn't a stock buyback basically just a different kind of dividend? In both cases, you're basically giving the company's profits back to shareholders directly. How did buybacks in particular represent such a fundamental shift?
So if we ban stock buybacks, foxconn will start paying their workers more? Can you walk me through how that would work exactly?
Buybacks are indeed good for the stock price. This is well known. Consider the P/E, price to earnings ratio. If a company has 100M shares and earns $500M per year, that's $5.00 in earnings per share. If the company buys back 10M shares so now there are 90M, the EPS goes up to $5.55. The stock price will likely rise by over 10%.
GameStop stock didn't collapse because of buybacks, it collapsed because of fundamentals, i.e. digital. They've been pumping most of their earnings into buybacks for almost a decade, and for the first few years of that they were able to offset lack of growth with reduction in share count to keep EPS high. That's how the stock went from about $18 around 2010 to a high of $56 in 2013. Eventually the poor fundamentals caught up. If they had kept the cash instead their EPS would have been a disaster for longer. Cash doesn't get a market multiple of 15x or 20x.
Well yea, i get that sitting on all that money is bad for the economy, but that is the SOLE reason why public corporations exist. Nobody's gonna give you funding money to your corporation unless they get rewarded by potential future gains. How would you be able to stop stock buybacks and not impede investor funds?
Only way I think you could slow down or regulate stock buybacks would be have all shareholders vote on whether a stock buyback should happen or not.
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Bolded part is not how it works. P/E ratio is an output that you can use to ballpark whether a company is under-/over-valued relative to its peers (and it is a very basic one). It doesn't determine the value of a company. There are many companies with negative earnings that have significant valuations.
I also didn't say GameStop collapsed because of buybacks. Only that their share price would be higher if they had kept the money in a bank account rather than spent it on buybacks.
So many absolutely garbage takes in this thread.
Dividends are taxed as income. Stock buybacks are taxed as capital gains, which is significantly less.
Stock buybacks were illegal once because they're a form of market manipulation.
And here is the crux of the problem with the Vox video.
Banning stock buybacks to fix income inequality would work about as well as prohibition did in preventing alcoholism. Stock buybacks are a tool to increase shareholder wealth, but if you got rid of them I doubt it would make a significant dent. The CEOs (typically) don't control the corporations, the board of directors do. And who do the board of directors represent? The shareholders (which typically include the CEOs) who only care about increasing their wealth. Without buybacks, they'll just demand more dividends and not invest in employees because they just see them as an expense. Attributing factory shutdowns primarily (or even significantly) to buybacks is like attributing the current wealth gap to Microsoft Excel because it's used in financial analysis. Regan era reforms did a lot to change things, but I wouldn't put the changes in buybacks to be anywhere near the top of the list in terms of impact.
From investment standpoint, buybacks can be better than dividends. It's a way for the corporation to invest in itself and also give money to the investors, but they're only advantageous when the company's value is expected to go up. Buybacks come with a risk and do not always pay off. They are not a magical wealth creation tool. They have costs/benefits/risks like any other form of investment. Acting like they're a primary cause for the current wealth gap is just so utterly bizarre to anyone who has a basic understanding of finance. There are so many other weakened regulations that would make a significant impact.
GameStop's share price would never have gone from $18 to $56 in 2010-2013 without stock buybacks. Their net income wasn't going up. If they kept doing buybacks so long while fundamentals also collapsed, leaving them little room to maneuver, that's just bad management.
Of course higher EPS typically means higher share price. Come on. To suggest otherwise is bad faith. I suppose it's coincidence that when a company announces stock buybacks the share price jumps? Just like Apple did. Carl Icahn made almost $2BN in about two years banking on that.
Buying back stock can also be an easy way to make a business look more attractive to investors. By reducing the number of outstanding shares, a company's earnings per share (EPS) ratio is automatically increased – because its annual earnings are now divided by a lower number of outstanding shares. For example, a company that earns $10 million in a year with 100,000 outstanding shares has an EPS of $100. If it repurchases 10,000 of those shares, reducing its total outstanding shares to 90,000, its EPS increases to $111.11 without any actual increase in earnings.
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Ah, so it's basically just another tax dodge.
We should really tax capital gains as income...
Stock buyback is the opposite of dividend. In doing stock buyback, the company does the investment for the investors (as in investing in its stock -- not the company or its employees). Whereas giving dividend allows the investors to invest in something else.
The irony is that it was the well intentioned legislation Bill Clinton spearheaded and passed in 1993 that is the basis of much of this problem. Specifically, he ran on a policy of "CEOs make too much money, lets fix that problem!" and they fixed it by not allowing companies to deduct CEO pay over $1m anymore. Before, companies could deduct their CEO compensation as a business expense offsetting their profits, now that was a loophole fixed and corporations would give the US government more if they decided to pay their CEOs more. Problem solved, government fixes things again!
Oops. nope. Companies didn't protest very loudly over the bill, because behind the scenes they made sure legislators put in a provision that "performance pay", theoretically tied to how well the company is doing, would be exempt from the salary cap. Very quickly companies started handing out massive stock chunks to CEOs and other managers, and got to write that off. It was even BETTER than just handing out money, because of arcane rules about how you value stock, cash vs "stock pulled from nothing", and a ton of other stuff.
And now most of the worlds wealthiest people - Bill Gates, Jeff Bezos, Mark Zuckerberg, etc - are billionaires because of stock, and their parent companies pay very little in taxes because they can offset billions in revenue with billions in "performance based compensation".
Its not a real surprise that one of the biggest tech bubbles ever happened from 95-99, and thats the time companies like amazon, google, facebook, etc started - they were able to hand out massive chunks of stock to their employees and it cost them virtually nothing.
A perfect example of how something that is done with the noblest of intentions can be easily corrupted to be 10x worse than if you had done nothing at all. Robert Reich even knew this could be an outcome and pleaded with President Clinton not to allow the exemption, but lobbyists were too strong and I doubt any of the politicians at that point could even imagine how this simple law could be so abused.
Oops. nope. Companies didn't protest very loudly over the bill, because behind the scenes they made sure legislators put in a provision that "performance pay", theoretically tied to how well the company is doing, would be exempt from the salary cap. Very quickly companies started handing out massive stock chunks to CEOs and other managers, and got to write that off. It was even BETTER than just handing out money, because of arcane rules about how you value stock, cash vs "stock pulled from nothing", and a ton of other stuff.
And now most of the worlds wealthiest people - Bill Gates, Jeff Bezos, Mark Zuckerberg, etc - are billionaires because of stock, and their parent companies pay very little in taxes because they can offset billions in revenue with billions in "performance based compensation".
Its not a real surprise that one of the biggest tech bubbles ever happened from 95-99, and thats the time companies like amazon, google, facebook, etc started - they were able to hand out massive chunks of stock to their employees and it cost them virtually nothing.
A perfect example of how something that is done with the noblest of intentions can be easily corrupted to be 10x worse than if you had done nothing at all. Robert Reich even knew this could be an outcome and pleaded with President Clinton not to allow the exemption, but lobbyists were too strong and I doubt any of the politicians at that point could even imagine how this simple law could be so abused.
More to the point, I feel it's just a perfect example how Congress is corrupted by lobbyists. If you can't pass a law without strategically placed exceptions, then yeah, of course government is going to be ineffective.