Educational

CEO meaning and why are they so rich in U.S

بِسْمِ اللهِ الرَّحْمٰنِ الرَّحِيْمِ

what does CEO stand for?

CEO stands for chief executive officer. Elected by board and its shareholder. He/she is the highest-ranking executive of the company. Takes major decision regarding operations of the company.


On October 24, 1929 the American stock market crashed. People lost fortunes overnight. But there was a way that American businessman had. And that was buy backs. Buying your own shares from investors and when there is less of something the prices shoots up. So, CEO’s bought their own stocks even when they can use that to save jobs. This is the reason why Chief executive officer salary is so high in proportion to workers’ wages.

In 1932 The New York times reported “many abuses are alleged” against those doing buy backs. And against those doing insider trading by using corporate funds to buy shares from the management and CEO or friends to the management. In 1934 to curb it new law was passed in United States and it was Securities and exchange act of 1934.

When companies can’t do buy backs with CEO and management, they started spending money in other things such as investing, raise wages and issue more dividend. That helped the companies in the long run. But then Reagan appeared in the government and with the advice of an investment banker the law prohibiting buy backs ended.

Now buybacks are back and investors want to have more money. So, they changed the way CEO got paid. Now they were getting bonus when stock prices go up and easiest way to do that is buybacks. In 1982 American companies were spending less than 1% on stock buy backs before 2008 recession it was 77%. And in 2018 it was 65%.

Furthermore

Also, the gap between American CEO’s and workers jumped from 15:1 to 220:1. The companies doing buybacks have more Chief executive officer salary than the companies not doing buy backs. The more the company give to investors the less it would have for workers and investment.

The best example is of General motors once they were doing a lot of buy backs. Their CEO were getting paid 22 million dollars. They to save their company closed the plants that were providing jobs to a lot of people. Highest among the automakers if not in the highest paid. But one of the plant in lords town, Ohio is prominent in economic loss causing a multiplier effect.

The multiplier effect is when one big business shutdown it effects many people indirectly. If an Automaker plant providing 30% jobs shutdown’s than people would spend less and cause losses to the other business including less tax pay to the government. That can stop building up of public buildings.

A year before shutdown of lords town Ohio plant Trump announced decrease the corporate tax from 37% to 21% to increase wages. But in return very less workers wage growth rate was reported and huge increase in amount of buybacks reported. Taxes do not often effect rich. The buybacks played a prominent In American economy. And now the graph looks like it was in 1920s. Now it would be interesting to see where it goes in the future.

Analyzing CEO salary compensation of top companies-

The highest paid employee in the world is a CEO and he Sundar Pichai of Alphabet Inc. the parent company of google with 281 million dollar salary. The average CEO salary in the United States is $765,200 as of 2020 in United states. The most popular companies and CEO’s are-

  • Mark Zuckerberg of Facebook with $23,415,973 compensation.
  • Satya Nadella of Microsoft with $42.9 million compensation.
  • Elon Musk of Tesla
  • Tim Cook of Apple

CEO’s are not only paid in salaries but also compensations.

Conclusion

I think buy backs are not a good thing it could help in the short run but cannot change reality in the long run this can be seen in the case of General motors. Buy backs also stagnated the workers’ wages in comparison to productivity. And CEO’s are not only paid for themselves but also to do buy backs.


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