WHY IS ALL OF THIS IMPORTANT?

For Investors:

This would appear obvious. As more of a company’s profits accrue to the top executives, there is less for the shareholders. If the company pays a dividend, there would be less money available to increase that dividend. If the company does not pay one, and is counting on earnings growth to spur the share price, the increased executive compensation would reduce earnings per share. For the mega-companies such as Exxon-Mobil, this is not a big problem, but it might be for some of the small and mid-sized companies on the list.

For Employees:

The inflation-adjusted pay of the average worker in the United States has been fairly stagnant for over 20 years. Twenty years ago, the ratio of CEO pay to average workers’ pay was approximately 10:1. As pointed out before, that ratio is now 193. This is clearly out of line. Comparisons with other industrialized counties also show that the American executive is paid far in excess of foreign executives. Obviously, a company’s goal is to keep its expenses down, and workers’ pay and fringe benefits are usually the top expense. Executives have controlled these wage costs in several ways. First, workers have been laid off, and the remaining workers are made to pick up the slack. Second, companies have set up manufacturing facilities in foreign countries where workers’ pay might be as low as $1 per hour, virtually slave wages. Companies have been outsourcing services to places like India and China. All of this has had a negative effect on the American worker. As workers’ power has diminished, they are in no position to demand raises, because if they demand too much, the companies will just move operations somewhere else in the world. Now, the top executives of these companies are also employees, and if they also shared the same pain as the average worker, there would be no controversy. However, the pay packages today are currently structured to include huge bonuses and stock awards based on company profits. So, as workers are laid off, or if their pay is retarded, the company’s profits will increase and the executive will be richly rewarded.

For Society:

Money is “power”. Not only does it buy goods and services but also political influence. Too much money has accrued to too few people. This is not good for society. As our elected officials have looked the other way, a super-rich class of people has emerged as the real power of the country. Soon there may be only two classes of people in the U.S., the super rich and the poor. IRS statistics recently released show that the top ˝ of 1% of taxpayers had incomes greater than the bottom 100,000,000 taxpayers in 2005. The pendulum has swung too far in one direction.

For the Companies Themselves:

The implosion of companies like Merrill Lynch, Lehman Brothers, AIG and Bear Stearns was certainly caused by an excess of leverage in their business. However, other factors were the excessive greed on the part of executives and their sheer disregard of rules, regulations and just common sense in the way they ran their businesses. The quest for short-term profits at the expense of long-term interests of their companies directly resulted in the collapse of these companies and the huge losses of others. The backlash against some companies and their CEOs by Congress and the president has been incessant. While no one wants the government meddling in businesses, strong regulations have to be passed so that companies can be protected from executive mismanagement and excessive risk-taking. Otherwise, the companies will cease to exist and the US economy will suffer even more.