Tuesday, August 7, 2012

‘99 to 1: How wealth inequality is wrecking the world and what we can do about it’ by Chuck Collins

CEO pay
“The root problem with CEO pay is the underlying system of incentives. Current compensation practices encourage a very short-term outlook and reward short-term decisions that goose immediate profits over long-term strategies that foster healthy, durable, built-to-last companies. Roger Martin, dean of the University of Toronto business school, has blasted the current US compensation system of ‘profit maximisation’ that encourages CEOs to game the system. In this structure, ‘customers become marks to be exploited, employees become disposable cogs,’ and shareholders see their equity values plummet.’
“There is a perverse incentive, for example, to use a corporation’s power and influence to distort the regulatory environment it operates in. For example, of the 100 highest-paid CEOs in 2010, 25 took home more compensation than their company paid in federal income taxes. Twenty of these companies spent more on lobbying lawmakers than they paid in corporate taxes, and eighteen gave more in money in bundled contributions to political candidates than they paid the IRS in taxes.’
“Another perverse incentive is that companies lower their tax bills by overcompensating their executives. The higher CEO paychecks soar, the larger the amount corporations can deduct off their taxes, because compensation is a business expense.”
(pp. 53-4, ‘99 to 1: How wealth inequality is wrecking the world and what we can do about it’ by Chuck Collins - Harper)

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