Corporate Executives Are Making Way More Money Than Anybody Reports

Source: William Lazonick and Matt Hopkins, The Atlantic, September 15, 2016

There are two methods for measuring compensation. One appears everywhere. The other is correct. ….

….While the AFL-CIO’s calculations are for CEOs at S&P 500 companies, our analysis of data for the 500 highest-paid senior executives (not all of whom are CEOs) from the ExecuComp database, which is maintained by Standard & Poor’s, suggests that the Executive Paywatch ratios are far too low. Data on these executives’ actual take-home pay, which is published, as required by law, in companies’ annual filings with the Securities and Exchange Commission (SEC), show that in 2014, senior executives made 949 times as much money as the average worker, far higher than the AFL-CIO’s ratio of 373:1.

What accounts for this huge discrepancy? The SEC is to blame. The AFL-CIO—as well as most economists and reporters—relies on the SEC-sanctioned estimates of senior-executive stock-based pay that each company reports in the Summary Compensation Table of the proxy statement that it files annually with the SEC, the federal agency whose mission is to protect investors. Curiously, that figure, the “estimated fair value” of executives’ stock-based pay, or EFV, is featured much more prominently in companies’ SEC filings than the figure indicating their actual realized gains, or ARG, on stock-based pay. ARG is a figure that permits the calculation of senior executives’ actual take-home pay—the number they report in their personal-income tax filings with the Internal Revenue Service…..

…..Throughout the American economy, senior executives have become enamored with stock buybacks as a potent means of manipulating their companies’ stock prices. Over the past decade, net corporate stock issues (that’s new shares issued minus share repurchases, plus shares retired in merger-and-acquisition deals) have drained more than $4 trillion from all U.S. non-financial corporations. The 459 companies in the S&P 500 that were publicly listed between 2006 and 2015 did $3.9 trillion in buybacks, equal to 54 percent of their net income. That’s on top of the $2.7 trillion that these companies distributed to shareholders as dividends, representing another 37 percent of net income. Through stock buybacks of this magnitude, executives effectively participate in the looting of the corporations they run. In some cases, the stock-price increases last just long enough for the executives to exercise their options, have their awards vest, and sell the acquired shares…..