| | | Monday, August 17, 2015 | Issue #2611 | |
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BLACK SKY DAYS
Codenamed by the Intelligence Community and quoted as being "inevitable," this is the one event that could take down everything - your home... your job... your finances. With trillions of dollars hanging in the balance, this crisis could soon bring the entire economy to a grinding halt. Click here to see what all the commotion is about. | |
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CEO Pay... and the Breathtaking Hypocrisy of Hillary Clinton Alexander Green, Chief Investment Strategist, The Oxford Club
 Are business leaders in the U.S. overpaid?
Hillary Clinton says yes, that it's an outrage the average American CEO makes 300 times as much as the average worker. As president of the United States, she promises to change that.
Investors and freedom lovers everywhere should be leery. Here's why...
Each year, the AFL-CIO publishes its "Executive PayWatch." According to its latest report, in 2014 the average pay for a CEO at an S&P 500 company was $13.5 million. That is indeed more than 300 times as much as the average worker earned.
Are some of these CEOs overpaid? You bet. Are some of them underpaid? Absolutely.
There's an easy way to tell which is which, however. Look at the share price - and compare it to other companies'. If the stock is outperforming - especially other firms in the same sector - chances are management is doing a good job. If the share price is lagging, chances are the CEO won't be around much longer.
Despite the popular conception that U.S. businesses are filled with top executives doing a mediocre job and maintaining their position for decades thanks to uninterested shareholders and compliant board members, the average CEO in this country keeps his or her job just four years. So the pressure to perform is intense.
But is the compensation fair?
Often it is. A highly paid CEO may take a struggling company and turn it around by shaking up the brand, improving products and services, radically overhauling distribution, or otherwise squeezing more profit out of existing sales.
It is fair from another standpoint, too. Men and women compete tooth and nail to earn the top spots at the nation's biggest companies. And their pay is offered voluntarily, not extorted.
One reason executive compensation is so high is that years ago critics argued that CEO pay should be more closely tied to share price performance. Many shareholders agreed. But then when rising share prices pumped up executive pay, these same critics claimed that CEO pay was unfair relative to that of average workers.
There's just no pleasing some people.
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Notice that these criticisms often come from the same folks who are suspicious about corporate pricing. If a company's prices are higher than average, they call it "gouging." If they are lower than average, it's "dumping" or "predatory pricing." If they are the same as everyone else's, it's "collusion."
Sheesh. Maybe it's simple supply and demand - and rhetorical nonsense from grievance-mongers.
There is something peculiar about the charge that executive pay should be some "There is something peculiar about the charge that executive pay should be some preset multiple of the average worker's pay. Notice that this metric is only applied to business people.
"Nobody argues that Oprah Winfrey should only earn 300 times as much as her makeup artist or that LeBron James should only earn 300 times as much as the average office worker in Cleveland." | |
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preset multiple of the average worker's pay. Notice that this metric is only applied to business people.
Nobody argues that Oprah Winfrey should only earn 300 times as much as her makeup artist or that LeBron James should only earn 300 times as much as the average office worker in Cleveland.
Should someone else tell you that you only have the right to earn so many times as much as someone else doing an entirely different job? Who are our intellectual and moral betters who know the "correct" calculation for all these contracts? What's wrong with people transacting freely and reaching their own decisions about how much compensation to pay or receive?
I have a sneaking suspicion that Hillary Clinton's goal is not to change CEO pay practices so much as stoke outrage over CEO pay for political purposes.
(The same could be said for other "populists" like Senator Elizabeth Warren who regularly goes on about "millionaires and billionaires," as if we should lump people who have worked, saved and sacrificed their entire lives to hit the seven-figure mark into the same category as individuals with a net worth larger than the GDP of some small countries.)
The rise in CEO pay in this country has correlated with a steady shortening of CEO tenure. Enormous amounts of wealth can be created or destroyed based on CEO performance. And an individual who can make billions - or tens of billions - for shareholders should be amply incentivized and rewarded. (And promptly fired if they can't get the job done.)
On the other hand, the Clintons' newly released tax returns show that last year Bill and Hillary earned $20 million in speaking fees. That's 553 times as much as the average worker's salary... and 50% greater than the CEO ratio.
Either Hillary Clinton feels that flapping her gums is worth more than steering the world's great companies through an intensely competitive global market - or she's a hypocrite.
Or both.
Good investing,
Alex
Editorial Note: Mrs. Clinton has really been on a roll lately. One minute she's campaigning against CEOs, business owners and the 1%. And the next? She's collecting as much as $200,000 in a single day from a top-secret "campaign fund." It's the same wealth builder used by big-name celebrities, D.C. insiders and tycoons. (President Obama himself has collected as much as $5 million thanks to this backroom market.) The good news is... Now everyday investors can profit from this game-changing secret. To see how the whole thing works, just click here.
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The Secret Money Source of Obama, Clinton and Bush (Even Nancy Pelosi)
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Hillary Clinton and a handful of left-leaning economists want to put an end to "quarterly capitalism." But how big of a problem is it, really? Read On... | |
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With the 2016 election cycle in full swing, there's really no avoiding politics. Today, Investment U Plus readers are discovering a way to play all of this partisan back-and-
forth - with a stock that's outperforming its peers and steadily raising its dividend. To find out how you can get all the details, click here. | |
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For income investors, a stock's dividend is a major selling point. This easy formula will help you determine if a company's payout will reliably increase... or get cut entirely. Read On... | |
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