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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