Why work has failed us: Because companies aren’t sharing the profits

[CaptTom]

That's the title of this article:

https://www.fastcompany.com/90227917/toys-r-us-private-equity-and-stagnant-salaries

It also pretty well sums up the changes I've seen in my career.

To summarize, all the money is going to the investor class, while the workers are getting nothing.

I don't expect a sympathetic audience here. Maybe the smart ones will do something to reverse this trend before something bad happens. Maybe a few will actually feel a pang of regret for being part of this system.

Personally, I've been very fortunate to have worked most of my life before things got this bad, and to have gotten out when I did. My concern is that the current trend will lead to social unrest, which is bad for everyone, including my own modest 401k.

OK, I've got my flame-retardant suit out and I'm ready to face the "greed is good" and "trickle down" arguments.

 

[frayne]

It's called capitalism and the playing field is not level for the average Joe and never has been. That is why you have to win the birth lottery or be a little smarter than the average Joe and a bit of luck doesn't hurt either.

 

[gcgang]

Union! Union! Union!

 

[Mdlerth]

Retirees of the world unite! You have nothing to lose but your gains

To summarize, all the money is going to the investor class, while the workers are getting nothing.

My only disagreement with this is that you ignore the top execs. When I hired in at Megacorp in 1980, the CEO made about 40x as much as a rookie engineer. Today it's more than 400x, even though the company has only 1/6 as many employees.

I don't expect a sympathetic audience here. Maybe the smart ones will do something to reverse this trend before something bad happens. Maybe a few will actually feel a pang of regret for being part of this system.

I gotta call foul here. Exactly what is it that you expect any of us small investors to do? Please be specific.

OK, I've got my flame-retardant suit out and I'm ready to face the "greed is good" and "trickle down" arguments.

Again, this sounds like a generalized accusation of moral equivalence between ordinary indexers and the greenmail industry. Sorry, but it's just not valid.

Please reread your linked article and note that the authors of the corporate destruction you decry are "private equity" firms. That includes almost zero of us. Perhaps you could show us where in the prospectus of an index fund it directs the fund manager to engage in M&A of individual companies.

 

[Koolau]

That's the title of this article:

https://www.fastcompany.com/90227917/toys-r-us-private-equity-and-stagnant-salaries

It also pretty well sums up the changes I've seen in my career.

To summarize, all the money is going to the investor class, while the workers are getting nothing.

I don't expect a sympathetic audience here. Maybe the smart ones will do something to reverse this trend before something bad happens. Maybe a few will actually feel a pang of regret for being part of this system.

Personally, I've been very fortunate to have worked most of my life before things got this bad, and to have gotten out when I did. My concern is that the current trend will lead to social unrest, which is bad for everyone, including my own modest 401k.

OK, I've got my flame-retardant suit out and I'm ready to face the "greed is good" and "trickle down" arguments.

I don't necessarily disagree with your premise. I think, as in all things, "it depends." Which company do you w*rk for? What is their place in the "life-cycle" of similar companies. What type of w*rk force do they empl*y. Etc., etc.

Now, at the point you (excuse me "one") decides he (s/he) w*rks for one of those evil capitalist companies, buy their bloody stock! Of course, that assumes you (one) really believes that Company A or Megacorp B actually has the ability to make money on the backs of their empl*yees. It's kind of the same argument always made about the greedy (fill in the blank - pharma, big oil, big tobacco, etc. etc.) If you really believe they have the ability to "gauge" with their prices, buy their stock.

As always, it's not quite so easy when you look at it from the market end of things. You really do have to believe in your premise if you're going to buy in (and not just be a wage "slave"), so YMMV.

 

[Teacher Terry]

Wages have gotten so low and corporations so greedy that I wouldn’t be surprised if we have civil unrest. Income inequality has become a huge problem. Locally people with 2 jobs are having trouble affording the rent on a apartment. Forget about buying a house.

 

[mpeirce]

Another article that talks about "wages" not "total compensation".

Non wage compensation gets increased to cover higher health insurance costs, but since that's not a "wage increase" it's invisible.

 

[MRG]

Now, at the point you (excuse me "one") decides he (s/he) w*rks for one of those evil capitalist companies, buy their bloody stock! Of course, that assumes you (one) really believes that Company A or Megacorp B actually has the ability to make money on the backs of their empl*yees. It's kind of the same argument always made about the greedy (fill in the blank - pharma, big oil, big tobacco, etc. etc.) If you really believe they have the ability to "gauge" with their prices, buy their stock.

Actually the Megacorp I worked for was just acquired. While we shareowners made some money the C levels were the biggest winners around. I don't get paying someone a 40mm bonus for a couple of years.

 

[bloom2708]

The megacorp I work for had a record, record year. I work in finance. Budgets are tight, shrinking. The opposite of what you would expect.

The only strategy that works (no matter who pays or what your salary is) is to stop making "buying stuff" your hobby. Save a bunch and spend less.

Pile it up until you can walk away. Early or "on time".

 

[Koolau]

I don't get paying someone a 40mm bonus for a couple of years.

Nor do I. As I alluded to, buying into a company is a risky business. BUT, my point is to act on your assumptions that "they" have the game all rigged. If you really believe in the "premise", you should act on it and buy the "sure thing." Of course, you could be w*rking for a lousy, greedy, empl*yee-abusing company that manages to loose money, so there's that.

I certainly do NOT defend the changes I too have seen in corporate America (and corporate "world.") (I eventually came to at least somewhat despise the Megacorp I USED to be proud to w*rk for.) I'm just saying that if you REALLY believe the premise that the game is rigged in Megacorp's favor - and against the empl*yee, put your money where your beliefs are. Probably, better yet, buy "all" the greedy, rigged Megacorps and REALLY put your beliefs into action. Has worked for most on this forum. Dealing with our individual greedy, rigged companies is what we call FIREing. As always, YMMV.

 

[LOL!]

To summarize, all the money is going to the investor class, while the workers are getting nothing.

OK, I'll open up with my flame thrower.

Workers can join the investor class as soon as they learn about IRAs and taxes. As soon as I learned that long-term capital gains are not taxed for low income folks, I was troubled by all these folks paying income taxes on their CDs and high yield savings accounts.

There are significant tax breaks for folks like me that invest their money even while working. If one is paying taxes on their investments, then they are truly high income.

 

[mpeirce]

The megacorp I work for had a record, record year. I work in finance. Budgets are tight, shrinking. The opposite of what you would expect.

Really? I would expect that a record year happens in part because the company pays close attention to keeping expenses minimized.

One of the companies I worked for died when it started spending profligately, then when the downturn came (it always does) the baseline expenses were way too high.

 

[corn18]

I can speak from my experience at megacorp at the C level and if the board wants to make a move, they make a move. And the board is elected by the shareholders. If the shareholders didn't like their CEO making 400x the average worker's salary, they could do something about it.

Maybe it has something to do with shareholders not actively participating in the company? Maybe we can't. I would be curious to see data on how much of U.S. public companies are owned by institutional investors. Can we vote as shareholders if we own stock through a mutual fund or ETF?

 

[marko]

To summarize, all the money is going to the investor class, while the workers are getting nothing.

My concern is that the current trend will lead to social unrest, which is bad for everyone, including my own modest 401k.

While it's just good business to do well for your employees and community, somehow we've gotten into this mindset that companies 'owe' something beyond an obligation to the shareholders.

The "investor class" conjures up images of rich guys sitting in their mahogany club room smoking cigars, laughing at the poor when in fact, it's you, me and everyone with a 401k/IRA or a properly invested pension.

We already have social unrest; just watch the news.

What's bad for our 401k's, modest or otherwise is when companies start being forced to dole out profits that should be going to us shareholders to feel-good enterprises.

Harumpf!

 

[JoeWras]

I can speak from my experience at megacorp at the C level and if the board wants to make a move, they make a move. And the board is elected by the shareholders. If the shareholders didn't like their CEO making 400x the average worker's salary, they could do something about it.

Maybe it has something to do with shareholders not actively participating in the company? Maybe we can't. I would be curious to see data on how much of U.S. public companies are owned by institutional investors. Can we vote as shareholders if we own stock through a mutual fund or ETF?

Corporate governance likely needs some reformation. The "club" of directors seems to look out for each other first beyond anything else.

Mutual funds vote on behalf of the investors in a way to promote highest earnings, otherwise they would tick off their investors. The investors are way too far away from the corporation and are only happy to see their mutual fund shares improve. Whatever works for the bottom line is good, even on the backs of labor.

 

[Red Badger]

It's called capitalism and the playing field is not level for the average Joe and never has been. That is why you have to be smarter than the average Joe.

+1.

For the record, I never had to shop at the company store, nor live in the company housing. Generations before us did.

 

[Mr._Graybeard]

I can speak from my experience at megacorp at the C level and if the board wants to make a move, they make a move. And the board is elected by the shareholders. If the shareholders didn't like their CEO making 400x the average worker's salary, they could do something about it.

Maybe it has something to do with shareholders not actively participating in the company? Maybe we can't. I would be curious to see data on how much of U.S. public companies are owned by institutional investors. Can we vote as shareholders if we own stock through a mutual fund or ETF?

Ironically, I think the democratization of corporate ownership (through IRAs, 401ks, etc.) has played a role in the shift in business policies. The more owners a company has, the less power the individual shareholder can wield.

Large pension funds, such as those for state employees, can still throw some weight around, but they're dwindling in number and size. Many unions used to have their own funds, but unions have fallen on hard times.

 

[Mdlerth]

It takes a billion to raze a corporation

I can speak from my experience at megacorp at the C level and if the board wants to make a move, they make a move. And the board is elected by the shareholders. If the shareholders didn't like their CEO making 400x the average worker's salary, they could do something about it.

Maybe it has something to do with shareholders not actively participating in the company?

This is spot on. It reflects the tenuous connection created by diffuse ownership. Individual shareholders tend to ignore the proxy cards mailed to them in advance of votes. Shares not voted by their owners are voted by the board; so once a board is entrenched, they can stay entrenched indefinitely. And corporate boards are loaded with CEOs from other corporations; none of them is incentivized to hold down executive compensation lest the contagion spread!

 

[jollystomper]

Globalization, from both a work and education factor, also plays into this. The more you can find workers across the world, the more competition there is for that work, and that increases the ability for a company to pay lower wages/benefits. Meanwhile, C-suite is pay is more measured on revenue and profitability, so the more you get that, the more their pay increases.

Education, particularly a college degree, used to be almost a guarantee for finding good, steady jobs. But the more people who get a degree, the less "special" it is. Then project that on a global scale, and you can see why advanced education has less of an impact on increasing ones wages as it did in the past.

It also seems that education is less about challenging one to be the best in a field, and more about getting as any people in that field... so you have many folks with average skills, instead of fewer folks with great skills. The challenge for attaining personal wage growth is to have great skills in a field that has growing demand.

Generally speaking I do not see an answer to this. While I am all for capitalism (and perhaps my bias is from being the child of minority immigrants who came to this country because it offered - but did not guarantee - better opportunities than the old country, which my siblings and I worked to take advantage of), I worry as I see the growing cost of the basics like rent, a home, and a car without a proportional growth in wages, and the only answer seems to be for folks to have higher debt via longer term loans.

I do not know what to do... unfortunately I see things getting worse before they get better.

 

[Gumby]

Card carrying member of the rentier class here. Is it fair? No. Should the rules of the game be changed to make things more fair? Yes. But until that happens, all I can do is play the hand I have been dealt to the best of my ability.

 

[RAE]

To summarize, all the money is going to the investor class, while the workers are getting nothing.

Yes, there is no doubt this is happening, and has been happening for quite a while now. I just read another article this morning that looks at wealth inequality. It's bad, and has actually gotten WORSE since 2008. There is no doubt in my mind that this trend is bad for the country as a whole. And I agree that at some point, if we don't fix this, there is going to be some serious social unrest (beyond anything we have seen to date), and it's not going to be pretty.

I'm fortunate to have done okay economically during my lifetime, but I worry about the young people just starting their careers today (or within the last decade or so). Many of these folks (including my two stepkids) are struggling, and it's not because they are not smart enough, or don't work hard enough. Wages simply have not kept pace with inflation, because most of the $$ is going to shareholders, while most workers get the crumbs that are left over. Capitalism is great (in concept), but things can get out of balance (greed comes into play here, IMO), and we are living through one of those times right now, similar to the late 1920s.

 

[Ronstar]

At our small firm of 50 employees, us owners shared a small portion of the profits with the employees. I was a firm believer that the profits should go to those with skin in the game. I don’t think that the rules should be changed. Let capitalism run its course. Unhappy workers can always find work elsewhere. If companies suffer from attrition, they will sweeten the pot for the workers.

 

[JoeWras]

If companies suffer from attrition, they will sweeten the pot for the workers.

No they won't. They will offshore.

 

[RAE]

Let capitalism run its course. Unhappy workers can always find work elsewhere. If companies suffer from attrition, they will sweeten the pot for the workers.

Yes, economic theory supports what you say (or it used to), but things don't seem to work that way anymore. Workers simply don't have the bargaining power they used to have (despite continued low unemployment), and there are a number of reasons for that, as this article points out: Low Unemployment Doesn't Increase Wages Like It Used To

To briefly summarize the article, some of the reasons for the loss of worker bargaining power are: 1)the rise of non-standard (basically temp) employment; 2) globalization; 3) de-unionization; 4) the rise of automated technology:, and possibly a few others.


I am not especially hopeful that workers will be able to gain back much bargaining power anytime soon.

 

[Mdlerth]

Plenty of fingers in the pie

Wages simply have not kept pace with inflation, because most of the $$ is going to [-]shareholders[/-] well-connected insiders, while most workers get the crumbs that are left over.

An awful lot of the $$ gets siphoned off by other folks before it ever reaches this shareholder.

Capitalism is great (in concept), but things can get out of balance (greed comes into play here, IMO)

Let us distinguish Capitalism, which is an economic system based on private ownership of capital assets, from Greed, which is a human vice which predates capitalism by millennia. The two concepts are entirely unrelated. There's no end of greedy socialists/communists/anarchists out there piling up their own stacks while condemning you for yours.