CEOs pay is tied to the stock price. They will do whatever it takes to boost the stock price, until they are out with a golden parachute. From their perspective, the business is all about boosting the stock price. It doesn't matter if the boost comes from innovation, or from polluting the planet, or from unscrupulous addictive practices, or from culling the employees.
Employees are merely, an often undesired, side-effect in the business of boosting stock prices.
That is a very narrow and frankly sweepingly incorrect description of "CEOs" or "companies". They're not all the same. I for one (alongside many other investors) carefully study incentive programs and compensation oversight executed by the board of directors. There are many thoughtful companies (and CEOs) who e.g. align over very long-term targets, such as '5 year return on capital". Investors have found out a long time ago that incentivizing by short-term measures such as share price (or revenues, or EPS) can bring about very adverse long-term investing outcomes.
Let's imagine that shareholders agree on a 5 year return on capital plan. Now let's say some missteps/economic circumstances make revenue go down in the 4th year. The CEO will get heat from the investors. This is especially true if the board contains an investor representative who can vote the CEO out.
What choice does the CEO have at that time but to boost short term?
Look at the same story from an employee perspective. Imagine that employee worked for 4 years and the downturn arrives. They invested a lot of time of their precious life, much like the shareholders invested their precious money.
In the downturn, the CEO gets to make a choice and the choice ALWAYS is to boost the stock price for shareholders (and for themselves). Often, at the expense of employees.
It's really crazy how just a few months ago Facebook's long-term prospects were worth just 1/3 of what they are now! What do you think changed so much during that time to warrant the 3x increase?
Did you just learn this in Finance 101? The real stock market is priced based on many factors including interest rates, future growth expectations, etc, but the biggest factor of all is psychological.
Yes, but I think that is because investors rationally realize that the future is extremely uncertain and complex so it is better to weight towards shorter term more predictable outcomes.
Average CEO tenure is less than 7 years, not sure how you'd practically be able to accomplish any kind of compensation plan on a longer time horizon. What is the person supposed to do in the meantime, life off of savings?
And if you make them subject to "alternative minimum tax" where their stock based compensation is considered regular income for the year it is awarded based on the difference between the strike price and the market price, you "moderate" that process somewhat.
> compensation is considered regular income for the year it is awarded based on the difference between the strike price and the market price
Isn't that exactly how it works? Your grant price just determines your number of your shares. When your shares vest they get taxed as regular income for the entirety of the vest amount.
Executive stock prices should vest at the first of 25 years from the date earned or 10 years after they've left the company. That would encourage long term strategies rather than pump and dump.
That would certainly be one way of attaining long term vision.
But who will enforce this requirement? Only pension funds and other large shareholders have any (and often impractical) leverage over the board C-suite. Wall-street shareholders demand faster growth until they themselves can exit out. They don't care about the business or the services or the employees. They want a high growth return, year-over-year until their own investment carry continues to exist.
Stock buyback is equivalent to paying a dividend. If stock buybacks are prevented, companies will continue to layoff and pay out dividends. It doesn't solve the root cause that employees don't have a seat at the decision-making table.
At a minimum, if corporation laws were modified such that every laid off employee must be issued 1 year worth of shares as a golden parachute, the incentives will all get aligned very quickly and employees will not be abruptly thrown away.
By definition, one returns cash, the other doesn’t.
The stock buyback also prevents market price discovery because of an artificial price floor.
The buyback is also a subject to buyback tax, transaction fee at the broker, and the benefits of the buyback are not captured by the long term holders, only by short term holders, e.g. insiders, who often sell into the buyback guaranteeing a price floor and effectively an execution price.
The previous restriction on them was an example of controlling capital markets with statute. That was the point. These are all just words on power and numbers in a database. We can change the rules whenever we collectively choose to.
Employees do work and that work is meant to be profitable. If it is, then great. More employees, more profit. If it isn't, they get cut. That's exactly what CEOs are responsible for determining.
I disagree with pretty much everything you say except this.
>Employees are merely, an often undesired, side-effect in the business of boosting stock prices.
Employees are worse than a side effect, they're a cost center to be avoided if possible. You want to achieve your goals with as few employees as possible.
I do think hiring a bunch of people and then firing a bunch of people is indicative of some sort of mistake. Nobody can perfectly predict the future. That said, when someone takes a job they know it's not a lifetime tenure position and has some risk.
it is truly a product of the computer age, to come up with self-centered ego BS like this.
You do not acknowledge different industries or business models, distribution of physical goods or market brand activity, let along "things that take more that one person to do" .. This is a rote recital of an inner dialog of an ill "investor" CEO who might as soon throw his secretary off of a bridge than give a bonus for winter holidays.
There are not enough words to scourge this infantile, Ayn Randian nonesense from the page.
Never in history have companies hired more employees for the sake of having more employees. This isn't a new modern or even libertarian hypothesis.
Do you think people in 1000 bc hired more employees than they needed just maximize headcount. Of course not. You want enough to get the job done and not more.
People in 1000 BC is maybe not the best example here considering practically the entire population of Egypt was tasked with building or supporting the building of the pyramids among many other projects.
I think that's just as good of an example as any. Do you think pharaohs hired and fed more slaves than they needed to build a pyramid just to maximize worker numbers, or so the extra could sit around and take it easy?
Egypt had shops and Merchants too.
Can you think of any time between then and now where things worked that way?
And frankly layoffs had almost no effect on their stock prices. Announcing new products, even if quite half-baked AI efforts, had much bigger impact on stock prices than layoffs.
> And frankly layoffs had almost no effect on their stock prices. Announcing new products, even if quite half-baked AI efforts, had much bigger impact on stock prices than layoffs.
This is true but you know what? Every action of the CEO is meant for the investors and large shareholders. The layoff is merely a signal that says
"I am willing to do what it takes to give you your return. Buy more shares"
Employees are merely, an often undesired, side-effect in the business of boosting stock prices.