I noticed this week via "the news," which consists of a variety of different sources from The New York Times to NPR, that the United Autoworkers Union is on strike against the big three automobile manufacturers in the United States. This then, joins the other people in this country, like the writer's union in Hollywood, who are on strike for more compensation. I mean...we have these people like CEO's (looking at Mary Barra of GM for this kind of example) who make a hundred times what the salary of a person makes who is actually doing the work and making the product for the company. The UAW reportedly wants a 40% increase over the next 4 years. Two of the automakers were telling them they could get 20%, and blah, blah, blah.
So, here's my point about all of this. I think that our conversation about "wage" and "compensation" is disingenuous in this country. Yes, CEO's get paid way too much but the majority of this "pay" is stock options or "company performance," which is just terrible, and it makes these people who don't actually do any of the work an obscene amount of money. It's like the entire system was set up by grifters, similar to how the housing system seems also to have been set up by lazy grifters who just want to cash-in and be rich based off no work.
And here's where I state an unpopular opinion: wealthy people don't actually want "big incomes." And saying that someone like Mary Barra makes millions upon millions per year is not talking about the whole truth. Her actual base pay might be a lot smaller than people talk about. The other tens of millions that she gets per year is just bonuses (like stocks). While completely unfair, they have nothing to do with "hourly pay." If that was all actual "income," the wealthy people might actually have to pay taxes and contribute to the country's infrastructure that makes their business possible, like all working-class people have to do. But that's not how any of this works.
These people at the top can obtain extremely low interest loans using those stocks as capital, and then spend that cash as though it were their earned income. Then they can cash out those stock options and the sum of taxes against the gains & interest paid, and it ends up being much less than the taxes paid by the other 99% of the country. They also have access to a variety of company financed perks that is generally not advertised about. Just because it is not on a paystub does not mean they can't use it, and they aren't making massive piles of money. Massive piles that have been growing at a faster rate than their workers for decades.
What would be fair would be to totally eliminate options completely. If you want to buy some of the company's stock, then you'd buy it on the open market just like everyone else. Either that, or every employee should qualify for profit sharing moves if even one employee gets "profit sharing." And just in case someone things that "employee stock purchase plans" are the same...they aren't. Our system is very much "You make one silver coin, I make ten silver coins. It is fair because I'm the CEO." And I'd argue that this actually is fair. But what they don't mention is that the person who gets ten silver coins is also getting ten gold coins. And when you point that out, they say, "Yeah, but those are different. They don't count!"
I think the thing that has bamboozled Americans regarding this is just a huge ignorance about how money and stocks work. For example, the thing that most people don't seem to grasp is that stock-based pay doesn't come out of the liquidity of the company. If a company grants their CEO 1000 shares of stock and that stock increases in value from 15 million to 30 million, the company has not paid a cent. Not even the original 15 million. From the company's perspective, it is literally free money. The CEO gets paid, but the people actually handing out cash is everyone else who is buying that person's shares. Or the banks who lend that CEO money based on the value of those shares.
The consequences of this action are relatively low depending on how big the company is. Sure, issuing more stock dilutes the value of each share and that could result in fewer willing buyers and an overall loss with long-term consequences. But for most big companies, no one even notices, because there's literally so much stock sloshing around. I couldn't even begin to tell you how much Apple stock there is in the world. Probably as many grains as there are on all the beaches of the world.
Anyway, I mostly wanted to express (in writing this) that I get tired of people talking about "compensation" in ways that don't make sense to me. I think the entire conversation needs to change, people need to be educated about how money works, and only after that understanding can income inequality in this country begin to be successfully addressed. Otherwise, it's just going to keep getting worse over time. And income inequality is bad for everyone, because it breeds resentment, it breeds entitlement, it breeds pettiness, it kills off empathy, it creates cognitive dissonance, it results in fads like "poverty tourism," and it creates a whole class of people who have no sympathy at all for others because they don't understand their various privileges.
Even after reading this, I still don't understand how it all works. My brother is good at stocks but I'm glad someone else handles mine.
ReplyDeleteStocks are initially a good thing for companies because it lets them build and expand the company. But stock eventually becomes toxic for these companies as you get CEOs making decisions to line their own pockets and those of shareholders and not doing what's best for the company itself. They'll shut down plants and lay off thousands of workers to meet some arbitrary goal created by analysts that will make the stock price move up or down.
ReplyDeleteReally at some point companies need to divest themselves of stock, at the point where they don't really need it to fund capital improvements anymore. If you think about it, stocks were created back in the 16th Century or so as a way to fund expeditions to plunder the New World. The idea being that some rich people would give the company money in exchange for a piece of paper that would entitle them to a percentage of whatever profits are made from the herbs, spices, cloth, gold, silver, and people are brought back. It was really created as a short term investment not something to hold on to for a hundred years and pass down like land.
We really should make all stocks short-term investments again and limit how often big companies can reissue them, but that will never happen.
The other side of this is something they were talking about on the local news, which is that the UAW president is in his first term and so a lot of these demands are because he needs to look like a tough guy to the members so he can get reelected. He has to take on the Big Three and "win" something major for the membership.
The rich know how to game the system. They set up the system to line their own pockets. That's not necessarily a bad thing, but it doesn't help those that are doing the work that creates the value.
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