What Do Executives Do With All Their Money?
Of course, capitalists like me will tell you that when we cut into profits, the entire economy is damaged. And think of all the investment that corporate profits make possible. What do executives like me do with all that extra money? Why, invest in creating good-paying jobs for middle-class Americans like you, of course.
Unfortunately, that’s not exactly true either. Mostly, we use profits to manipulate our stock price for personal gain.
Here’s a little history that will explain how: Back in the 1970s, when the share of total U.S. income that the top 0.1 percent of households got was at a 100-year low, corporate executives received most of their compensation in the form of a salary, just like you. But since the late 1980s, the largest component of income for the top 0.1 percent has been stock-based pay. This shift toward compensation via stock options and grants means that CEOs are directly incentivized to increase the share price of their company’s stock.
Building better products that lead to higher sales and fatter margins is the traditional way for a CEO to push up the price of his stock. But that’s so old-fashioned. So yesterday. Instead, ever since a former Wall Street CEO in charge of the Securities and Exchange Commission back in 1982 loosened the rules that define stock manipulation (beginning to see a historical pattern here?), U.S. corporations have increasingly resorted to stock buybacks to prop up share prices. According to a report in the Harvard Business Review by professor William Lazonkick—“Profits Without Prosperity”—over the past 10 years, America’s largest companies, those making up the S&P 500, have devoted a staggering 54 percent of their profits to buying back shares, reducing the total number outstanding and thus increasing the value of the remaining shares owned by capitalists like me.