The Progressive Ensign

insights and analytics to build an economy that works for all

Category: Worker Power

Wall Street Expects A Cash Return, Leaving Employees Out

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: wikipedia.org

Today, employees don’t share in the profits or success financially the way they did the past. Forty years ago, Sears offered their sales staff commissions, bonuses and retirement plans enough for many of them to retire on $1 million in today’s equivalent dollars. Amazon recently announced raising all workers to $15 @hr, yet they are eliminating stock and bonus plans.  Hourly staff will be left with little for retirement except what little they can save.

What is driving management to not share company financial success with employees, or increase investments in productivity which would support a raise in wages?  One factor is Wall Street expectations of corporate management to keep the cash machine cranking full speed.

Sources: The Daily Shot, The Wall Street Journal – 10/25/18

Companies that invested in capital equipment to increase productivity or R & D to innovate were penalized by Wall Street investors driving their stock price down.  Note that on the lower chart the relative performance of investment focused on capex companies versus cash return in buybacks and dividends is 6 % less and has been falling since a year ago. Executives quite often receive as much as 80 % of their compensation in stock options based on stock performance and earnings targets.  Spending money on expenses by increasing wages, capital equipment purchases or innovative research reduces profits and does not provide more funding for stock purchases to drive the stock price up.

Next Steps:

Our post this past Labor Day notes how Wall Street wields power over the economy, and drives executive decisions on allocation of resources.

Wall Street, the citadel of capital,  wields supreme power focused on profit throughout our economy and control of our government. Corporations pander to financial leaders with ever higher profits manipulated by stock buybacks juicing the value of share prices. Management ensures investors are pleased with financial results using loose financial gimmicks and laying on record debt. While workers have seen their wages stagnate for 30 years since the 1980s.

Yet, Wall Street is beginning to change with major leaders beginning to recognize the need to invest in corporations that take social responsibility and worker value as core principles.

We need to require corporations to report on how they are building employees as assets and worker contribution to increasing company value.  The next step is for Wall Street to recognize social responsibility in their investments as Blackrock, CEO Larry Fink, has in a letter to CEOs of companies in their portfolio that he will be looking beyond profit, for implementation of policies by management in sustainability and worker advancement.

Harry Truman had the right perspective:

Our most productive asset is our labor force.”

Workers Exercise Power Through Pensions on Corporate Policies

Photo: commondreams.org

Toys R Us was saddled with billions of dollars of debt by private buyout firms like Kohlberg Kravis Roberts.  Pension funds provide firms like KKR with funds to invest expecting higher returns than stock market rates. When the workers at Toys R Us petitioned the Minnesota Pension Fund that they had been denied a severance the fund suspended making investments with KKR.  About 35 % of all private equity funding comes from public pension investors.

The New Jersey pension fund has listened to its pensioners on issues like not foreclosing on Puerto Rico residents who are recovering from Hurricane Harvey and an investment in a payday lender.  Adam Liebtag, the acting chairman of the New Jersey State Investment Council, told the New York Times,  “They are paying closer attention. They are following the money.”

Pension funds provide about 35 % of all private equity funding. providing a good channel of leverage for activist groups.  The deals that pensions do with private equity firms continues to rise as well.

Source: Prequin Private Equity Spotlight, Value Walk – 10/2014

Sarah Bloom Raskin, a fellow at Duke University and a deputy Treasury secretary in the Obama administration, observed, “Workers don’t want their pension money invested in ways that hurt other workers”.  Workers are waking up to the fact they have financial power to get private equity firms to listen to their concerns that private equity policies are hurting some workers as in the Toys R Us case, heavily loaded with $5 billion in debt from a private buyout.

Next Steps:

We see the pension leverage option on private equity firms as a model to build on.  Why not require pensions to listen to their investor – workers by having a set of investor – workers on their board, participating in the investment decisions the board makes to begin with.  Workers should be constantly polled for their concerns to ensure adherence to investment policies that are moving the lives of workers better in any company where the pension is invested.  Workers are mainly left out of the financial decisions that manage their lives while working for a company, at least after retiring the money they have saved in a pensions fund should speak for them and their concerns in building a better life for all employees.

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