I’m watching Eliot Spitzer run for comptroller of New York, and listening carefully to what he says. Whatever your feelings for Spitzer’s personal, errr…tastes, when it comes to enforcement and fiduciary responsibility, the man is both feared and respected. The closest to misuse of taxpayer money you can hit the guy with were some of his trips as government may have been more about prostitutes than business; like 2 parts hooker, 1 part official duty.
And there is no doubt that company executives fear him. That may have something to do with Spitzer’s willingness to shoot first, between the eyes, on the scantest of evidence, and then try to take testimony from the accused…
As comptroller, Spitzer would have oversight of very large funds of money. He is promising to be an activist on shareholder rights, pushing for reasonable CEO pay. These are resonating issues, even now five plus years after the recession.
So this is a thought experiment; what do you think would be the implications of shareholder activism pushing CEO pay in line?
My personal guess follows this line of thinking; the ability of CEO’s to make a big payday is predicated on granted options which in turn are pushed from stock buybacks. Buybacks hike earnings per share and directly support share prices, helping investors, particularly because capital gains taxes are lower than dividend taxes.
Of course, they could also be viewed as executives using corporate funds to rig their paychecks – the company buys up what will, to some degree, be given back to them directly.
If this process is brought under close scrutiny, then lost compensation will probably reverse the progression that got us here. I would expect share buybacks to become increasingly rare, with dividend hikes becoming the norm again – that would be the quickest, most direct way for company executives to increase their compensation. Accordingly, price/earnings growth would slow, and there could be immediate fallout from price/earnings resetting to lower multiples to expand dividend yields.
And I tend to think that more dividends/less buybacks may be what elected officials want. This would increase tax revenues without needing to start the messy and contentious debate about long term capital gains taxes.
What do you think? Leave a comment.
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Thanks for sharing your thought process on this one. Very interesting either way.
I think spitzer is bs-ing more than usual because of his texting issues
Even if it isn’t Spitzer though – there’s clearly strong, pent up, residual demand for CEO pay to be addressed in this country
not gonna happen, I voted for obama and no reforms were made, politicians have been garbage for awhile now
Spitzer wins and CEO’s are gonna have
smaller beach houses.
So, a policy or rule restricts CEO pay with the same force and stamina that the Fed impacts dollar creation? If not, I think the market will rule. The market for CEOs results in high pay for the desired ones. Consumers and employees continue to do business with companies that pay CEOs outsize pay. Nothing is wrong, the market is working.
When consumers (then investors) and employees bail on the underlying company, then something may change.
Additional comment/rant- Medium and low income consumers are not helpless and have much more power than they think- it is their spending. Many businesses would stain their shorts if the mass consumer turned away.
Largely, low income people have not made the connection between spending money at lowest cost places, and the low wages offered by same. It is astounding to me that “folks” continue to buy from Walmart and McDonalds while complaining about the low wages, and still working there.
In short it, is not “about jobs”, it is about spending. My view is demand drives supply, and as long as the masses buy stupid, they will work stupid.
Well said
Well said and we’ll see.