Earlier this year, 57% of Disney shareholders approved a compensation package for CEO Bob Iger that will be worth as much as $35 million. That’s for one year’s worth of work, mind you. Abigail Disney, filmmaker, philanthropist and granddaughter and grand niece of company co-founders Roy and Walt Disney, responded that CEOs "in general are paid far too much." Though she did not single out Iger, she added that "if your CEO salary is at 700, 600, 500 times your median workers' pay, there is nobody on Earth—Jesus Christ himself isn't worth 500 times his median workers' pay." It can be difficult to know when an idea has fully entered the contemporary zeitgeist. But when even a Disney heiress thinks that CEOs are wildly overpaid, it is safe to say that something is up. And as recently outlined in our explainer on proxy voting, executive pay, or “Say on Pay,” is another issue where you as a shareholder can weigh in. How did executive compensation become such a hot topic? Though it is hardly a new phenomenon, income inequality—or the pooling of wealth among a sliver, or “1 percent,” of the population— wasn’t something talked about widely for a long time. But the topic re-entered the national conversation during Senator Bernie Sanders first campaign for President, and it is a theme he has returned to repeatedly during his current run. Last year he introduced the 'Stop BEZOS Act' in the Senate, which was meant to highlight what he felt was the perceived disparity between Amazon chief executive Jeff Bezos, the richest man in the world, and the wages of Amazon workers, many of whom reportedly rely on food stamps to make ends meet. The bill called for large employers like Amazon and Walmart to reimburse the government for food stamps, public housing, Medicaid and other federal assistance received by their workers. In response, Bezos raised Amazon workers' wages to $15 an hour. Regardless of your opinion on Sanders and his politics, he seemingly tapped into a raw cultural nerve, and has continued to draw attention to low hourly minimum wage for workers at other companies. He appeared at Walmart’s 2019 shareholder meeting and held a town hall at McDonald’s ’meeting, calling for both companies to raise worker pay to $15 an hour. Sanders is also not the only one questioning the gap between the pay of CEOs and rank-and-file employees. Since 2015, the shareholder advocacy non-profit As You Sow has been ranking “The 100 Most Overpaid CEOs” using a formula that contrasts "excess CEO pay assuming such pay is related to total shareholder return" and "companies where the most shares were voted against the CEO pay package," then lists "the company, the CEO and his pay as reported at the annual shareholder meeting, and the pay of the company’s median employee." Number one with a bullet (or lucrative bonus, as it were) is Fleetcor Technologies’ CEO Ronald F. Clarke, who boasts a CEO-to-median-worker-pay ratio of 1,517. Why did pay ratio become a thing? Dodd-Frank. Introduced by Congressman Barney Frank and Senator Chris Dodd (with input from Senator and now-Presidential Candidate Elizabeth Warren), the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 requires publicly traded companies to disclose their chief executive’s compensation in terms of the median salary of its employees. It was enacted in response to the 2008 economic collapse. As recently reported by The Financial Times, “the median chief executive pay ratio for 2018 was 254:1.” 2018 was the first full year reported, but it’s worth noting that the reported ratio was “235:1 in 2017, when only two-thirds of the companies it tracks disclosed such figures.” So things have gone up a bit. But as reported by MarketWatch, even close to a decade "after the passage of the reform law, 5 of 12 mandatory executive compensation rules remain to be approved by the Securities and Exchange Commission." While Dodd-Frank requires companies to be transparent about CEO pay, the act was also intended to curb excessive executive pay. As its supporters argue, extravagant salaries incentivize the sort of short-term, risky behavior that led to the grave effects of 2008 in the first place. Astronomical executive pay wasn’t exactly reined in. As you probably surmised already. As noted in the MarketWatch piece, "The Securities Industry and Financial Markets Association, whose members include the largest broker-dealers, provided comments to all of the regulators responsible for drafting and approving the incentive compensations rules for financial institutions, saying they would have a significant negative impact on financial institutions’ ability to recruit and retain top talent." The SEC did not adopt rules that would curb CEO pay. How did we get here, anyway? No CEO wants to feel like he or she is being underpaid. Or, more plainly, the attitude is “if you have it, I want it too.” Poynter recently talked to corporate governance expert Charles Elson about why CEO pay is so high in the United States, as opposed to other countries. “‘It’s all about peer groups,’ said Elson. Consultants and a board compensation committee first compile a list of as many as a dozen comparable companies and what their CEOs make. ‘Then they pay their own CEO 50 percent of that figure or higher.’” The result has been a steep rise in CEO pay, even as wages for most Americans have remained stalled for decades. As noted by Forbes, a 2017 report by the The Economic Policy Institute, shows “CEO pay in the US peaked in 2000 at $20.7 million (in 2016 dollars), 376 times the pay of the typical worker. In 1995, the CEO-to-worker pay ratio was 123-to-1; in 1989, it was 59-to-1; in 1978, it was 30-to-1; and in 1965, it was... 20-to-1." So extravagant CEO salaries are a bad thing? It depends on whom you ask. Here’s a few of the arguments against super-duper CEO pay that have been making the rounds lately. The first and most obvious argument is that it is just a bad look for any company when its CEO is making exorbitantly more money than the average worker. It’s an especially bad look for a CEO to be raking it in while the company begins laying off employees, as happened recently with the video game company Activision Blizzard. It laid off 800 employees despite self-reported “record results in 2018." Don’t search social media for the reaction to this move, as it is not pretty. While it has never been a closely kept secret that CEOs earn more than anyone else at a company, thanks to Dodd-Frank, employees are now learning just how much more they are being paid. As reported by the Society for Human Resources Management , this could lead to a rise in employee dissatisfaction and low morale, which ultimately hurts productivity and retention. "’Employees will see quickly if they are paid more or less than the median employee, not only at your company but also at other organizations within the same industry or geography. This information may change their perceptions with regard to their current compensation,’ which could impact productivity and job satisfaction and lead to retention issues,” said Donna Westervelt, a principal at Conduent HR Services in New York City. CEO pay is generally tied to benchmarks the company must hit to justify high salaries and bonuses. But these targets, as Fortune has pointed out, are often low-bar, “mushily subjective or can be easily manipulated. If you want more sales, simply cut prices. If you want more cash flow, hold back investment.” What could be considered "mushily subjective"? One of the main mechanisms that companies use to hit goals is with stock buybacks. This is when a company uses excess cash reserves or profit to buy up its own shares on the public markets. With fewer shares on the market, buybacks tend to drive up the company’s stock price. Given that CEOs typically own company shares, and often have various stock option plans, stock buybacks tend to increase a CEOs’ wealth without increasing his or her salary. Critics of buybacks argue that cash reserves should not only go back to executives and investors but to employee compensation, research and development, long-term projects, and other areas that can help a business grow and become even more profitable in the long-term. Under this logic, long-term shareholders and the workers who help make their companies successful, would reap the benefits. Senators Sanders and Minority Leader Chuck Schumer have proposed legislation that, among other provisions, would prevent companies from buying back their own stock unless they raise their minimum wage to $15 an hour and increase health benefits. But investment guru Warren Buffett, CEO of Berkshire Hathaway Inc. and JPMorgan Chase CEO Jamie Dimon have both invested in buybacks in the past few years, arguing that they’re not examples of short-termism. It’s kinda become their thing. In a letter earlier this year to shareholders, Buffet argued that "Repurchases will benefit both those shareholders leaving the company and those who stay." In last year's JPMorgan Chase 2018 annual report, Dimon called buybacks "a no-brainer" and "an important tool that businesses must have to reallocate excess capital." He also noted that "Seven years ago, we offered an example of this: If we bought back a large block of stock at tangible book value, earnings and tangible book value per share would be substantially higher just four years later than without the buyback." It’s not just Buffet and huge banks, either—Apple is also big into buybacks, as CEO Tim Cook used the money the company saved from President Trump’s Tax Cuts and Jobs Act to scoop up $75 billion of the company’s own stock. OK, what about the argument for high CEO pay? There are lots of people in the “for” corner. Let’s use Iger’s pay at Disney as an example. Under his stewardship, Disney acquired both the Star Wars franchise and Marvel, the two biggest film properties on the planet. Since becoming CEO in 2005, he has led Disney to unparalleled success, and is at least partially responsible for bringing Groot onto the big screen, a titanic achievement. But while many critics think there is a reasonable limit to how much anyone can be rewarded, there are plenty of people who think sky-high CEO pay is just fine, thank you very much. The main argument for high CEO pay is that the market can justify it as a simple result of supply and demand. And what’s more, if a CEO is not paid his or her absolute highest worth, he or she can bring their talents to another company that will value them more. So if Iger isn’t getting his maximum bonus, he can just over to Netflix or HBO or whathaveyou. While some critics argue that CEOs would continue to work hard even if they were merely paid very well instead of very, very, very well, Investopedia sums up the more-is-best argument thusly: "Companies that come up with this justification say that by awarding a big part of an executive’s compensation in the form of stock grants, they are providing an incentive for him or her to run the company well and personally benefit, as well as reward shareholders." Take Tesla’s Elon Musk. He was last year’s highest-paid CEO. Tesla shareholders voted to approve a 10-year compensation plan valued at about $2.3 billion dollars in stock options, a number The New York Times called the biggest ever, noting that one of the reasons the package was deemed necessary was to require Musk to focus on Tesla and not go off to space: “The award’s structure was driven by concern that Mr. Musk’s attention could wander to his other ventures, like SpaceX, or that he could leave Tesla altogether.” The thing to keep in mind, however, is that Musk would only see that money if Tesla hit remarkably aggressive performance goals. In response, Musk said that he did not receive any money for performance-based compensation in 2018, tweeting “Tesla last year was actually net negative comp for me.” Might excessive CEO pay be a canary in the wealth-gap coal mine? Exorbitant CEO pay might not just hurt a company’s image and productivity. Some economic thinkers believe that excessive pay, as symptomatic of growing wealth disparity between the ultra-haves and the median/less-haves, might hurt society itself. As reported by MarketWatch, Ray Dalio, founder of hedge fund Bridgewater Associates, said that the ever-increasing wealth gap is threatening to put "the very existence of the United States at risk." Dalio posits that the wealth gap is the highest it has been since the 1930s and will “lead to increasing conflict, and, in the government, that manifests itself in the form of populism of the left and populism of the right and often in revolutions of one sort or another.” Some thinkers, like late M&T Bank CEO and billionaire Robert Wilmers, agreed with Dalio and warned in American Banker that widespread resentment of high CEO pay would inevitably lead to some sort of backlash and greater regulatory response. “It is easy to understand the widespread public resentment,” he wrote in 2014. “It is this sentiment that provides fuel for our elected officials and policymakers to call for more legislation and regulation, which is placing a costly burden on the engines of growth for our economy." Now, are CEOs the only people in the world that compromise the 1%s that have most of the wealth? Of course not. There are, obviously, others in the c-suite (Iger is certainly not the only person at Disney making ultra-bank), real-estate titans, and all sorts of financial wizards who make more money than most of the country. But high levels of CEO pay are now being reported on so frequently and making for eye-catching headlines, that they rapidly are becoming a sort of social shorthand for inequality as a whole. Is it fair that CEOs are quickly becoming a symbol for massive inequality and the huge chasm between the middle class and the rich? That is a debatable subject. Is it rapidly becoming the case in the mind of the American public? That seems much less debateable. So what can shareholders do about it? Whether high CEO pay rubs you the wrong way or inspires you, it is hard at this point to not have an opinion on the subject. You also have a say in the matter. While Dodd-Frank didn’t achieve all its goals, it wasn’t a goose egg either. It requires companies to allow shareholder “say-on-pay” votes at least once every three years as well as a “frequency” vote at least once every six years that allows shareholders to say how often they’d like to be given a say-on-pay vote. So remember, as a shareholder, you have a say in CEO pay. Whether you think that ultra, ultra rich should maybe be merely very rich or you think the sky’s the limit when it comes to these things, use your voice and cast your proxy vote. —Michael Tedder
AT&T is trading lower Thursday and is very close to a major support breakdown. How major do you ask? Let's look at one Point and Figure chart. In the daily Point and Figure chart of T, below, we used close-only price data.
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