23:06
Faizan
At one time, most American companies business saw their role as being responsible to its stakeholders, i.e., being a good corporate citizen and taking care of both its stockholders and its workers. There was a change in the 1980's toward increasing shareholder value, i.e., a shift toward considering the companies' profits to be primary even if it hurt the rest of its stakeholders. The graph at the right shows how that change affected our economy. Corporate profits increased, CEO pay increased remarkably, and worker wages stagnated.
Wal-Mart is a good example of that shift. As with many companies, the corporate culture changes when the founder dies. Sam Walton believed you should buy American and that you should treat workers fairly, a policy of maximizing stakeholder value. His heirs apparently thought that profits should be the main goal, a policy of maximizing shareholder value, and in the process making themselves fabulously wealthy. The company now imports many of their products and pays its workers poorly. Wal-Mart just announced that it may raise its minimum salary to $8.50 an hour. The Tulsa World editorial board approved saying," If they (the workers) earn more, they will spend more, spurring the economy. They also will be less prone to need government entitlements such as food stamps." True, and while the salary increase may sound generous, it really isn't. In 2009, when the minimum wage was raised to $7.50, Wal-Mart stock was worth $50 a share. In 2014, workers still earn only $7.50, but the stock is now at $88. If wages had kept up with the stock price, the minimum wage worker would get $13.20.
Corporate earnings are one of the most closely watched indicators of a company's profitability. Stock prices reflect the companies earning or its potential for earnings. Wall Street likes it that way, as it boils a company's value down to one number which can be measured or approximately estimated for the future. CEO salaries are closely tied to their stock's performance, making increased shareholder value the primary goal of the company. This leads to policies which boost the company's earnings and the CEO's pay in the short term, even though it may hurt the company in the long term. That's why most CEOs insist on Golden Parachutes which make them fabulously wealthy even if the company declines in the future. Rewarding CEO's for increased profits had led to policies that created a huge pay gap. While in 1980 CEO earned 42 times as much as an average worker, that gap has grown to 354 times as much.
Salaries are one of the biggest expenses for most companies, and keeping average employee salaries low increases profits. Announcing layoffs, though it may reduce a company's future productivity, is often rewarded with an increase in stock price. Some companies resort to practices such as shifting earnings overseas, setting up tax havens, or ignoring safety and environmental regulations which would cost money to implement. These policies hurt the workers, damage the US economy, and sometimes shift a companies business expenses to the US taxpayer. Many companies justify these practices by saying that they are following the law, but we should not forget that many of the laws were made by politicians influenced by lobbyists and money. Even though they are following the law, the ethics and the patriotism of those companies are questionable.
Wal-Mart is a good example of that shift. As with many companies, the corporate culture changes when the founder dies. Sam Walton believed you should buy American and that you should treat workers fairly, a policy of maximizing stakeholder value. His heirs apparently thought that profits should be the main goal, a policy of maximizing shareholder value, and in the process making themselves fabulously wealthy. The company now imports many of their products and pays its workers poorly. Wal-Mart just announced that it may raise its minimum salary to $8.50 an hour. The Tulsa World editorial board approved saying," If they (the workers) earn more, they will spend more, spurring the economy. They also will be less prone to need government entitlements such as food stamps." True, and while the salary increase may sound generous, it really isn't. In 2009, when the minimum wage was raised to $7.50, Wal-Mart stock was worth $50 a share. In 2014, workers still earn only $7.50, but the stock is now at $88. If wages had kept up with the stock price, the minimum wage worker would get $13.20.
Corporate earnings are one of the most closely watched indicators of a company's profitability. Stock prices reflect the companies earning or its potential for earnings. Wall Street likes it that way, as it boils a company's value down to one number which can be measured or approximately estimated for the future. CEO salaries are closely tied to their stock's performance, making increased shareholder value the primary goal of the company. This leads to policies which boost the company's earnings and the CEO's pay in the short term, even though it may hurt the company in the long term. That's why most CEOs insist on Golden Parachutes which make them fabulously wealthy even if the company declines in the future. Rewarding CEO's for increased profits had led to policies that created a huge pay gap. While in 1980 CEO earned 42 times as much as an average worker, that gap has grown to 354 times as much.
Salaries are one of the biggest expenses for most companies, and keeping average employee salaries low increases profits. Announcing layoffs, though it may reduce a company's future productivity, is often rewarded with an increase in stock price. Some companies resort to practices such as shifting earnings overseas, setting up tax havens, or ignoring safety and environmental regulations which would cost money to implement. These policies hurt the workers, damage the US economy, and sometimes shift a companies business expenses to the US taxpayer. Many companies justify these practices by saying that they are following the law, but we should not forget that many of the laws were made by politicians influenced by lobbyists and money. Even though they are following the law, the ethics and the patriotism of those companies are questionable.
Posted in: business
