While Millions Lost Jobs, Some Executives Made Millions in Company Stock
During the pandemic, many companies rewarded their senior executives with stock options, which provides the owner the right to acquire company stock at a later date but at the same price the day it was offered, or a restricted share, which is a stock that executives cannot sell for months or years. This has allowed many superrich and corporate executives to gain exorbitant amounts of profits. However, most Americans own little to no stock which is just "a reminder that income and wealth in the U.S. economy are tilted heavily toward a tiny number of top earners who own significant amounts of stock." According to Brandon Rees, "the stock market is not an indicator of the health of the economy for working people; it’s an indicator of economic inequality," and "these C.E.O. payments reflect that reality."
For decades, corporate boards try to incentivize executive managers with company stock as pay to make them more accountable for shareholders, yet executive managers still end up doing better than what might be justified by a company's business performance. Debra DeShong, an MGM representative, justified MGM Resorts International chief executive, William J. Hornbuckle's, significant gain through restricted stock units by stating "Mr. Hornbuckle . . . volunteered to help the company conserve cash by exchanging all . . . of [his] cash compensation for the remainder of 2020 [worth $700,000] for restricted stock units that vest at the end of the year," and "by doing so, they took on great risk, risk that still exists in that we are not operating under normal circumstances and we are still in a period of recovery." All of Mr. Hornbuckle's 2020 awards have now appreciated to a combined $4 million. Furthermore, Edward W. Stack, the chief executive of Dick’s Sporting Goods, "received 355 percent more stock options for his 2020 award than for his 2019 grant and 142 percent more restricted shares" in March when the stock market was close to its low point. When his 2020 awards were issued, they "were worth about $7 million . . . and are now valued at a combined $67.4 million." In Dick's last fiscal year before the pandemic hit, "[Mr. Stack's] compensation was 1,487 times the pay of the company’s median employee" which raises many concerns from employees and shareholders.
Is it fair to provide company executives many stock rewards, even during a pandemic, when they seem to make an exuberant amount comparatively to majority of other employees and Americans in the long-run? What do you think can be done to prevent such extreme income inequality?
4 comments:
I think that companies providing their executives with stock options is a good incentive. It gets employees motivated and the company gets the reward of their loyalty and productivity. One of the main constraints with that of course if the inequalities of compensation it can create. To prevent that I think companies could try to restrict the number of stocks given to executives or create long terms plans that reward other employees as well.
It is interesting to see the financial affects on the highest earners in the American economy in the most recent recessions: that in 2008 and the current one due to Covid. Interestingly, the economic downfall brought by Covid has resulted in higher earnings for the most elite, while the opposite was true in the '08 recession, largely because the housing crash in '08 and the ensuing troubles were due to the crash in the stock market. However, I think heavy investment by top executives in their own company is a good thing. While the public is also able to invest, even during a financial crisis, those with the most wealth will be the most suited to do so. When executives can continue to stimulate the stock market during a recession, lower-level workers also benefit, as they are more likely to be able to keep their jobs when more resources are invested in the company.
I think giving executives stock options is a way to incentivize them to be more productive at this time although I think it's not only executives working hard and risking much this period. other employees should be given stock options as well since these corporations would not run the way they should without these people. Giving stock options to both executives and the lower-level employees will somehow help with inequality although it wouldn't make much difference.
The idea of fair and income inequality is one of the many talking point in Labor Economics. The executives get the stock rewards and in return, the company expects them to work harder and increase overall productivity and efficiency of all the employers. So like Marya said, it is a good incentive for the benefit of the company. Do I think it is fair to non-executive employees? No it's not fair. I agree with Nana that stock rewards should also be given to other employees which will not only be fair, decrease income inequality but also prove to be beneficial for the company in the long run in my opinion.
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