Stock Buybacks Over Worker Wages

There is not enough discussion going on about the relationship between corporate growth and employee wages. The growth rate of wages seems to be a fraction of corporate growth as measured by the S&P 500. Last year S&P 500 gains were 21.8% while today’s wages have less power than last years wages due to inflation and they are growing slower than before the 2008 recession. It seems like common sense for a company to invest in its workers. Employees at S&P 500 corporations should be rich. If a corporation’s profit grows by double digits wages should follow suit. Where is the money going? Unfortunately, corporate greed at the top has fueled stock buybacks to make corporations more valuable at the expense of workers. At some point in time corporations cared about their workers. Now, it seems that workers are replaceable just like parts in a car. At the heart of this issue is logic versus morality. What is the return on investment that my corporation will attain through buying back stock against investing in the workforce? This is the type of question that needs to be addressed.

The S&P seems to be on a steady trajectory up.

Wages have not recovered to pre-recession growth.

Stock Buybacks

There is no sense in doing research that has already been done. Some Wall Street strategist believe that roughly $1 Trillion will be spent by corporations on stock repurchases in 2018. In an article written by Brian Sozzi at The Street, the argument is made that buybacks manipulate stock prices directly impacting executive compensation. The average worker does not have enough disposable income to invest in their own company’s stock and they are not typically offered stock compensation at mature corporations. It seems to me that the only parties benefitting from stock buybacks are large investment firms and workers who are incentivized by increasing stock price. The reason that corporations buy back their stock is due to a popular corporate investment strategy based on the premise that the management of a company knows the most about future growth prospects. If you knew that the stock price of your company would increase in 6 months from now due to initiatives that have not yet been made public you would certainly buy your own stock now. It’s simple.

Workers

Workers have little bargaining power when it comes to employment at large corporations. Corporations have built redundancies into their workforce so that workers can be replaced without sustained productivity loss. The work that needs to get done is standardized and just about anyone can be trained to complete the task at hand. In addition, workers are discouraged from examining business problems outside of their limited scope of responsibility. In some cases, working outside of a worker’s scope of responsibility is considered insubordination. Corporations are not only controlling the work that a person does, but also limiting the ways in which an individual can contribute value added activities. There was once a time when creativity, curiosity, and ambition were rewarded in the workplace. In fact, this type of work is rewarded in smaller startup companies. Startup workers receive stock compensation because they are considered to be contributing to the growth of the corporation. At what stage in a corporations life it is determined that workers no longer directly contribute to growth? I believe that all workers are contributing to growth. In large corporations it is commonly held that workers do not need to be compensated for work outside their scope of responsibility (new growth) because they were not required to do the work. In essence, intrapreneurs are working for free. Workers are not incentivized to solve major business problems. By keeping quiet and doing the assigned work without questioning the work that is being done you are considered a good employee.

A Solution

I propose the idea that large corporations should invest in employees who want to provide value added activities for the corporation. In a sense, this would be an internal venture capital arm. If an employee has a vision for something that could create value for the company, than that individual should be compensated in a similar fashion to a startup being funded by a VC firm. In addition, the traditional workers of today that are not providing value added activities should still be compensated in relation to the growth that their corporation is attaining. Without workers who maintain the machine, the machine will stop working. Shareholder return should not take precedence over worker compensation.

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