Share on Google Plus Share on Twitter Share on Facebook 1 Share on LinkedIn Share on PInterest Share on Fark! Share on Reddit Share on StumbleUpon Tell A Friend 1 (2 Shares)  
Printer Friendly Page Save As Favorite View Favorites (# of views)   3 comments

Exclusive to OpEdNews:
OpEdNews Op Eds

Consequential Political Play of Words

By       Message Seymour Patterson     Permalink
      (Page 1 of 1 pages)
Related Topic(s): ; ; , Add Tags Add to My Group(s)

Must Read 2   Well Said 2   Supported 2  
View Ratings | Rate It Headlined to H2 6/17/15

- Advertisement -

Some expressions convey (or maybe hide) the true motives of the persons making them. Company stock buyback is one such expression. It almost sounds like the company is doing so well that it can afford to buy back its own stocks--and implicitly this is somehow good for everyone attached to the company--its workers included. Similarly, right-to-work is a euphemism like "death tax" in lieu of "estate tax" and "pro-life" versus "choice" in the abortion debate. In this milieu of misdirection is "voter ID" to restrict voting, and "Obamacare" in lieu of ACA. First, no corpse pays a tax. I am not aware of empirical studies asserting "anti-life" proclivities by implication in the word "choice." Voter ID is tantamount to a poll tax, and the Obamacare tag is about disparaging ACA. Also, some expressions have negative connotations: What do you think about when you hear the word "union"?[tag]

From Fast food strike and protest for a $15/hour minimum wage at the University of Minnesota
Fast food strike and protest for a $15/hour minimum wage at the University of Minnesota
(image by Fibonacci Blue)
  License   DMCA

It is no secret that unionism as an institution has become a pariah. Gov. Walker in some interesting turn of logic asserted that his success at gutting public unions in his state qualifies him for the highest office and by extension to deal equally effectively with ISIS. Collective bargaining from the very beginning faced tremendous hurdles, in spite of some broad-based support. In their heydays, unions negotiated worker benefits--improved working conditions and higher wages for their members, giving rise to the middle class in America. In the good-ol' days, the welfare of workers was a mutual and paramount goal for democrats and republicans: President Nixon signed bipartisan pro-labor legislation around safety and health. (See U.S. Department of Labor)

Unionization had the commendable effect of mitigating the income gap between the rich and everyone else. But all of this started to unravel about fifty years ago, when the assault on unions intensified from two prominent fronts with PM Thatcher and Pres. Reagan (See Business Insider): She took on the trade unions in 1984 and he went after the air traffic controllers in 1981 (See Politico)

At the same time, an important turning point was enabling CEOs to receive part of their compensation in the form of company stocks. In addition, a reduction in the top marginal tax rates from 70 percent to 39.6 percent today has contributed to huge disparities between wages and CEO compensation, and turned the incentive of CEOs away from growing the company to growing the price of the company's stock. Example, between 1980-2004, according to John C. Bogle in Reflections on CEO Compensation (2008), the average CEO compensation rose from $625,000 to $4,500,000 (a 614 percent rise representing an 8.5 percent annual rate). During the same timeline, average worker compensation increased from $14,000 to $15,400 (or 0.3 percent per annum). More interesting are data showing no correlation between CEO productivity as measured by the S&P 500 Index, that rose about 8.7 percent over the period, and CEO compensation that grew 8.5 percent. "But that relationship appears to be period-dependent. For example, in the decade since 1997, S&P earnings have grown at a 5.2% nominal rate, actually a hair short of the GDP growth rate of 5.3%. Yet that is the era in which CEO compensation went through the roof. Incidentally, GDP increased by 5.4 percent." (Bogle, ibid.) CEOs are paid in excess of their productivity due in part to stock options and weakened union power.

One way that stock options reward CEOs at the expense of workers is through buybacks, which increase the value of the stock. The cost to the CEO is zilch. If you are the CEO, you can use borrowed funds from the FED at near zero interest rates and use those funds to buy back the company's stock. Increasing the demand for the capitalized holdings of the company will increase the stock's value. Thus, your shares will increase in value. The whole transaction is no "skin off your back". In fact, there is only an upside from your point of view. In this scenario, nothing real-- such as improvement in quality, or greater productivity--has anything to do with the higher value of the stock. The motivating factor here was your desire and opportunistic ability to increase the value of your compensation via the company's stock buyback. The net result, though, is that the value of your portfolio will expand. Thus, as a CEO you want to do everything to raise your stock price.

- Advertisement -

An equally likely scenario (which is not exclusive) that expands the income gap is the company with a large pool of cash: it does not need to borrow from the FED. The company could utilize this money for real investment in plant and equipment, or give pay raises to its workers; or use it to buy back the company's stocks. What to do!? The stock buyback would represent an immediate and certain positive payoff for you, the CEO. The alternatives, namely, investment in plant and equipment (and employee pay raises) that might grow the company long term are fraught with uncertainty. The long-term investment strategy to grow the company has an upside risk to you--the value of the stock falls if the investment does not pan out.

Inflicting pain on workers is par for the course. Not only does a stock buyback fail to help workers, so does right-to-work legislation being pushed in a number of states around the country. It is no surprise that wages have been flat (ticking imperceptibly up), while profits have achieved stratospheric heights. Yet, to add another stake in the heart of worker compensation is legislation against forcing workers into union membership and union dues payments. Negotiated union benefits (including wages) are for all workers, even those who elect not to pay union dues. The ultimate effect of right-to-work legislation is that workers will opt not to join unions and pay dues. This will reduce union membership, weaken collective bargaining, and keep wages from rising. The upshot of this has been losses for workers, but wins for CEOs.

- Advertisement -


- Advertisement -

Must Read 2   Well Said 2   Supported 2  
View Ratings | Rate It

Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon

Go To Commenting

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Fiscal-Policy Obstruction to Economic Recovery

Is Growing Ethnic Diversity a bad thing?

Minimum Wage, Unemployment Benefits, and Income Inequality Connection

The Burden of Education on Students Grows but It Shouldn't

Startups and small business create most new jobs

On Income Inequality and Economic Growth