Finally, An Explanation for Corporate Compensation

Anyone who reads this blog regularly won’t be surprised to find out that once again, it is government meddling that has created what many see as a problem. However, this one, like the price of oil, is being blamed on companies and few are discussing the real issue.
Tech Central Station has the first article I have come across that actually explains why corporate compensation is so high to begin with. Big corporations are using the heavy hand of government to prevent take-overs. And use of this government intervention (something we could make illegal and let the free market respond to prices as we used to) is what allows compensation to increase seemingly without limit.
“As a result of the takeover boom of the early 1980s the managements of some of the larger corporations started to look for permission, from both courts and politicians, to protect themselves with poison pill defenses in order to thwart takeover bids. These take a number of forms but the essential outcome is much the same: it makes the hostile takeover of a company by a corporate raider more expensive.”
How does preventing takeover allow CEO compensation to skyrocket?
“…back in the 1950s and 60s, when there was a fairly unregulated market for corporate control, managers could not pay themselves huge sums in this manner because someone could and would come along and buy the company and throw the bums out. Now that those poison pills form the corporate defenses they can’t, or at least only at vastly greater cost.”
So, if another corporation can’t come along and buy the company and toss out those who are leeching profits, companies – stockholders and workers – are left with little choice but to pay whatever the market rate is, and the market rate is as high as it is because nobody can buy these companies up and throw out the expensive and wasteful CEOs.
Once again, market rigidity is the cause of the non-competitive pricing.

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