Ever wonder how top executives like former Republican presidential candidate Carly Fiorina can walk away with $100 million after nearly wrecking a major corporation? The answer is that the market doesn’t work the same way at the top as it does for the rest of us. While most of us expect our pay to bear some relationship to our performance, at the top it’s mostly a story of play money among friends.
Corporate executives get patted on the back when they announce plant closings, layoffs and pay cuts. This is seen as good news for corporate profits and stock prices. But there is no one to applaud when the CEO gets their pay cut because they are not worth the money. That would be a decision of corporate boards, and these boards tend to have more loyalty to CEOs and top management than to the shareholders they ostensibly represent.
After all, top management often played a role in getting the directors their job. And being a director is a very good job. Typically it means getting paid several hundred thousand dollars a year for showing up at 6-10 meetings. Many corporate directors find the time to sit on three or four boards while still holding down full time positions of their own.
In that environment, why would a director ever want to make a fuss over a CEO getting $5 million, $10 million or $20 million more than they are worth? The rewards from successfully leading a difficult battle are minimal. And, corporate directors tend not to be the sort of people who do things for the greater good; they want money in their pocket. And the best way to keep getting a cushy stipend as a corporate director is to smile and go along with every CEO pay hike.
Excessive CEO pay has an impact on the economy that extends far beyond a few thousand CEOs at major corporations. It also means excessive pay for their underlings, after all, if the CEO gets $20 million, then the second and third in line are also likely to get pay packages well into the millions.
CEO pay also affects pay scales outside of the corporate sector. Presidents of universities, nonprofit hospitals and even charities often now earn more than $1 million a year. They argue, correctly, that they could make far more money if they were operating a private corporation of the same size. In short, the bloated CEO pay is a major factor shifting pay upward throughout the economy. For this reason it is important to bring some market discipline to CEO pay.
The cesspool of failure in corporate governance will be on display next month at the annual shareholder meeting for BlackRock, the investment management company. BlackRock is by far the largest investment management company in the world with more than $4 trillion in assets under management. These assets include many of the mutual funds or exchange traded funds that middle-class people hold in their retirement accounts.
This matters when it comes to CEO pay, since most middle-class workers probably think that they should pay the CEOs of the companies whose stock they hold as little as possible. That way more money can be used either to build up the company or be paid to stockholders. But BlackRock’s CEO Larry Fink doesn’t see things that way. BlackRock has supported 99 percent of the CEO pay packages, voting against them just 1 percent of the time. By comparison, the average fund votes no 10 percent of the time, and the leading investment advisory service recommends no votes 15 percent of the time.
One reason that Mr. Fink may be so willing to turn over shareholder money to CEOs is a sense of solidarity. His pay last year was $24 million, which he just had increased to $26 million this year, in spite of weak growth for BlackRock in both profits and assets under management. In this context, it perhaps shouldn’t be surprising that Fink might feel more solidarity with his fellow CEOs than the shareholders he is supposed to represent.
There will be a resolution at BlackRock’s May 25th shareholder meeting which would instruct the company to re-evaluate its practices on voting shareholder proxies on CEO pay. (The originator is Steve Silberstein, a friend and supporter of the Center for Economic and Policy Research.) This resolution won’t by itself reverse the explosion of CEO pay over the last four decades, but it will be a big step in the right direction. Shareholders shouldn’t be forced to give Mr. Fink’s friends money for nothing.
As progressives are starting to learn, market discipline can be a beautiful sight when it is applied to those at the top. This resolution will be a big step toward bringing market forces into the CEOs’ suite.
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.