Over at Mish's Global Economic Trend Analysis , he discusses the subject of how the ratio of CEO pay to the average worker pay is insanely higher in the US than in any other country. He quotes from a speech by an SEC commissioner to that effect as follows:
In 1982, the ratio between chief executives and the average employee was 42:1. In 2004, the ratio of the average CEO pay to that of the average non-management worker in the US was 431:1. There is certainly no evidence that today's executives in the U.S. are 10 times better than twenty years ago. The US ratio far exceeds any international comparison, which remain closer to the historical average. Although internationally there has been a trend towards increased "US-style" pay, according to a 2001 report by management consultants Towers Perrin the same ratio in other heavily developed nations was 25:1 in the case of the UK, 16:1 in France, 11:1 in Germany and as low as 10:1 in Japan (as compared to 531:1 in the US in that same year).
Mish's analysis of the cause of the disparity includes a discussion of how CEOs whose pay includes significant stock option grants have a strong incentive to return capital to shareholders through stock buybacks instead of dividends. Dividend payments now are worthless to the CEO who holds stock options that he/she cannot exercise until some time in the future. So the CEO will do share buybacks rather than dividends. Mish's succinct statement of this: "every dime paid out in dividends reduces the value of all outstanding options."
Good stuff...
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