As we watch the gyration in the stock market, the obvious question is –what is going on? Part of the answer is found how large corporations reward their executives.
Corporate pay in America has become exceedingly fixated on the value of the shares of one’s company in the stock market. All of the compensation packages over the past several decades have been driven by the idea that the corporation is an “asset” whose value is to be measured by its share prices. CEOs and other corporate leaders get massive payouts when the stock market surges. Worse, many (most?) of their actions have been geared to maximize the value of that stock so that they personally benefit. Indeed, since 1970 CEO compensation has tracked the S&P Index almost perfectly.
Only in America are the “multiples” at a bizarre level (the “multiple” being the ratio of CEO pay to “average worker” pay). The Trump tax cut of 2017 allowed companies to buy back their own stock—thereby inflating compensation to the very folks making a decision about how to allocate that bounty. None of that bounty was devoted to increasing worker pay.
So, as you watch the stock market decline, you may usefully consider it as a “take back” of most of the gains of the corporate sector that has been successful in driving up their own compensation schemes. Those folks are now stripped of something that was a contrivance of their own duplicity. How much correction is required to strip away their contrived earnings is unknown.
Dr. Daniel Bromley can be contact at email@example.com.