On Monday morning, November 26, the auto giant General Motors announced plans to shut down production at five plants in the United States and Canada and shear off 15 percent of the company’s salaried jobs. The moves will cost 14,700 GM workers their livelihood.
The communities where those workers live will lose out, too. In Lordstown, the Ohio locale that hosts one of the plants set to be shuttered, officials estimate that every GM job cut will cost seven other workers outside GM their employment.
Did the GM executives who made the shut-down decision take that spin-off devastation into account? Did they soberly conclude that they had no choice, that only massive job cuts could ensure their enterprise a stable and sustainable future? Or do the GM job cuts reflect, in the end, nothing more than naked self-interest on the part of those executives, an attempt to enrich their own future — at worker expense?
The simple answer: We can’t get into the minds of the GM execs who’ve ordered the job cuts. We can’t divine how much greed determined their decision. But we can, rather easily, see who stands to gain from GM’s massive job cutting. Certainly not GM workers. In the wake of the GM layoffs, thousands of workers and their families will be poorer. GM execs, on the other hand, will be richer.
Substantially richer. At GM, as at all major U.S. corporations, the ultimate compensation top executives take home rests either directly or indirectly on their enterprise’s share price. The more that price rises, the more they pocket. In the afternoon after the GM job-cut announcement morning, Wall Streeters bid up the company’s shares a whopping 7.9 percent. Shares ended the week almost as high.
Corporate execs at GM and elsewhere tend to fixate on their share prices. They’ll do most anything to jack them up, even have the corporations they run expend big bucks — an estimated $1 trillion this year — to buy back their own corporate shares on the open market. This maneuver has just one purpose: to heighten demand for a company’s shares and raise the price they sell for. GM execs last year spent $100 million on “buybacks.”
All those outrageously wasteful buyback millions spent shouldn’t surprise us. Outrageous rewards give top execs an incentive to behave outrageously, to focus more on their share prices than the long-run health of their enterprises — and the workers and communities their enterprises impact so mightily.
Could we take that incentive off the table? Could we create a new economic framework that gives corporate decision-makers an incentive to think more about their enterprise’s future and less about their own?
We surely can. In the United States, elected leaders less beholden to America’s richest than the political norm have begun advancing proposals that could help tamp down greed in American’s corporate suites.
Senator Bernie Sanders from Vermont and Representative Ro Khana from California last month, for instance, proposed legislation that would prevent corporations from buying back shares if their CEOs are making over 150 times the pay of their median workers. GM’s CEO last year took home $21.96 million, 295 times the GM median worker pay.
Earlier this fall, Senator Elizabeth Warren introduced legislation that would force major corporations to have a federal charter that defines their mission as benefiting not just shareholders, but employees and communities as well. Workers, under this Warren proposal, would elect 40 percent of the directors who sit on a corporation’s board.
But the boldest thinking on how best to revamp the corporate incentive structure is coming from across the Atlantic. The British Labour Party has been rolling out a steady stream of corporate pay reform proposals. The party last year embraced the notion of denying government contracts to companies that pay their top execs over 20 times what their workers receive. This past September, John McDonnell, the lawmaker who will become the Labour Party’s go-to on matters economic if Labour triumphs in Britain’s next elections, released still another round of sweeping initiatives.
“We believe,” McDonnell explained, “that workers, who create the wealth of a company, should share in its ownership and, yes, in the returns that it makes.”
A Labour Party government, he went on, will pass legislation that requires large companies to annually transfer shares of their stock into an “Inclusive Ownership Fund” owned and managed collectively by the workers. This shareholding would “give workers the same rights as other shareholders to have a say over the direction of their company.” The transferred shares would also generate dividend payments that would go directly to workers.
Last week, Labour’s McDonnell welcomed a set of 20 more recommendations from a study team on CEO pay led by Sheffield University’s Prem Sikka. The recommendations would, if enacted, ban the stock awards that have executives focused single-mindedly on share prices and give employees and even customers — as identified through membership in company loyalty programs and the like — the right to take binding votes on executive pay packages.
If these recommendations became law, all stakeholders in a corporation would also have the right to propose a cap on executive pay and bonus, a move that would, in effect, begin to set a corporate “maximum wage.”
The American opposition to the latest General Motors sacrifice of GM workers and their communities hasn’t yet adopted ideas as bold as these UK notions. Who knows? If GM’s top execs continue down their current road, that opposition just might get considerably bolder.
Sam Pizzigati co-edits Inequality.org. His latest book, The Case for a Maximum Wage, has just been published. Among his other books on maldistributed income and wealth: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.