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May 1, 2018 | How Outrageous Executive Compensation Schemes Cost Us Dearly

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Why should we mind that public company CEOs are making an outrageous 272x more than the median employee? Because the costs are underwritten by taxpayers one way and another.  This is especially true for big bank CEO’s where reckless risk-taking– encouraged by stock-based compensation schemes–lead to financial busts that exact a heavy price from the economy, workers and all taxpayers, repeatedly.

For an important discussion on this topic, see 10 years after the Great Recession, big banks are still making outrageous profits:

The Institute of Policy Studies and Public Citizen compiled CEO-employee pay ratios for the nation’s biggest banks. Both Citigroup CEO Michael Corbat and JPMorgan Chase CEO Jamie Dimon make more in one day than their bank’s typical employee earns in a year. CEO Brian Moynihan earned 250 times the salary of the median Bank of America employee. Scandal-ridden Wells Fargo’s CEO Tim Sloan earned a whopping 291 times the median Wells worker. For the top six U.S. banks, the average pay ratio between CEOs and median paid employees came out to 272 to 1.

Why should we begrudge CEOs their soaring pay packages? Because, ultimately, they are coming out of our pockets.

First, the CEOs profit from us as customers — and not always honestly. Second, we subsidize their executives’ salaries with our tax dollars because bonuses are tax-deductible. And third, compensation in the form of stock-based pay encourages CEOs to take excessive risks to boost share prices, risking a financial crisis and taxpayer bailout.

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May 1st, 2018

Posted In: Juggling Dynamite

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