Shareholder-value incentive pay enriched managers more than shareholders themselves

Evidence

Although meant to empower shareholders in the face of self-maximizing managers, shareholder value policies—in particular, incentive pay—have enabled top-level managers to enjoy unprecedented degrees of wealth. Due to the shift away from salaries to stock options, executive pay has risen exponentially since the 1980s. CEO’s of the largest corporations now earn several hundred times higher incomes than the average worker (DiPrete et al., 2004; Englander and Kaufman, 2004; Bebchuk and Grinstein, 2005). These findings do not merely apply to the USA, where these compensation practices originated. Executive stock options have also been increasingly adopted by large, public corporations on the European continent and in Japan (Miyajima, 2007; Chizema, 2010). Moreover, studies show that executive compensation has continued to rise despite drops in corporate performance (Erturk et al., 2007a). This suggests that ‘the power of managers has been more significant than the power of financiers’ (Boyer, 2005, p. 40). — Natascha van der Zwan, Making Sense of Financialization, 54

Categorization

• XREF: Connects to the broader financialization-of-the-firm debate in this syllabus: manager power versus shareholder power, an inversion of agency theory’s premise. — connects to: Early computer-investment effects on executive pay depend on business services — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 138; Firms adopted shareholder-value rhetoric selectively to protect executive discretion. — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 57; Stock-based executive pay widened CEO-worker income gaps. — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 56 (+5 more)
• SEED: Article angle: the irony that the tool designed to discipline managers became the vehicle for their enrichment — governance failure as unintended consequence.
• corroborated: 2 independent passages support this claim — Natascha van der Zwan, Making Sense of Financialization, 54

Related

• Stock-based executive pay widened CEO-worker income gaps. (similarity 0.84)
• Boards packed with CEOs set each other’s pay higher (similarity 0.83)
• Financial earnings at nonfinance firms raise executive bargaining power with boards. (similarity 0.81)
• US income inequality is dominated by top managers capturing historically unprecedented pay (similarity 0.79)
• The incentives sustaining managerial roles vastly exceed those compensating dangerous labor (similarity 0.79)

Broader Connections

• Boards packed with CEOs set each other’s pay higher #corroborates (0.80) — Andrew deWaard, Derivative Media, 120
• Financialization theory links wage-compromise collapse and shareholder value to inequality #expands (0.75) — Natascha van der Zwan, Making Sense of Financialization, 109