Now that we’re six years into the Great Recession, financial experts tell us that the stock market is booming, and the economy is once again robust. Strangely, the vast majority of Americans aren’t sharing in this so-called recovery and the benefits of it are virtually non-existent, unless you look at the top 0.1% of wage-earners in the country, namely the CEOs of major corporations. Profitability and stock price increases are going through the roof and yet, none of this largesse is filtering down to employees or translating into product innovation or improved quality. How can that be?
In an in-depth article by the Harvard Business Review, William Lazonick, details how stock-based pay leads CEOs to initiate huge, short-term open market stock buybacks to inflate stock valuation, create the illusion of improved corporate performance and increase their own pay and bonuses. This sleight of hand shell game has gotten so big that 440 of the S&P 500 companies between 2003 and 2012 spent 54 percent of their earnings or $2.4 trillion to buy back their own stock on the open market. In the article, Laurence Fink, CEO and chairman of BlackRock, the world’s largest asset manager states, “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies. Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.” To read more, click the link below.