Wondering what happened to America’s Middle Class? UMass Lowell professor William Lazonick has some numbers for you.
- Since 2004, top US corporations have paid 86% of their net income to stockholders through dividends and stock buybacks.
Why that’s important: Money paid out to stockholders is not available for long-term growth investments such as R&D, opening new facilities, updating equipment or hiring new employees. It’s also not being used to give raises to current employees. But I’m digressing. Back to Professor Lazonick:
- And 86% is just the average return to stockholders. Professor Lazonick names 15 corporations that spent more than their net income on dividends and stock buybacks, including: Time Warner (280%); DirecTV (192%); Hewlett-Packard (168%); Pfizer (137%) and Home Depot (134%).
Wonder how corporations can pay more out to stockholders than they receive in net income? Here’s one possible answer: they can borrow the money. From May 20, 2014 Time Warner Inc. Prices $2.0 Billion Debt Offering: “The net proceeds from the issuance of the notes and debentures will be used for general corporate purposes, including share repurchases.” (Remind you of…say, What Mitt Romney Taught Us About America’s Economy?)
But I’m digressing again. Back to Professor Lazonick, again:
- The top corporations kept paying dividends through the recent recession, with a barely-noticeable drop between 2008 and 2010. “[T]hrough boom and bust, dividends were stable, and on the rise from 2010. In 2004 mean dividends were $349 million; in 2013 double that amount at $685 million.”
Repeating that: an average of $685 million in dividends per company. Paid out to stockholders, not reinvested in the business. Just in 2013.
Wondering what effect that has on America’s economy? Here’s one example, using a company that paid out much less than $685 million in dividends:
Last year, we estimated what FedEx CEO Fred Smith received – personally – in dividend income: “According to SEC filings, he owns about 15 million shares of the company. Last year, FedEx paid out a total of 55 cents per share in dividends. Do the math… and it looks like Mr. Smith received about $8.5 million in dividends (not counting dividends to his family holding company, his wife, or his retirement fund).” Also last year, we estimated what that meant in the larger scheme of things: “his 15 million shares in the company represent only a fraction of the outstanding stock. For Mr. Smith to receive $8.5 million in dividends, personally, the company has to pay out well over $100 million in total dividends – money that could have been invested in new hires, or new planes, or new facilities (or improved employee benefits).”
Now, compare that $8.5 million that we calculated he received as dividends with his $13.7 million “compensation package” that was reported about the same time.
Hey, maybe we did the math wrong. Maybe Mr. Smith didn’t actually get two-thirds again as much in dividends as he got in official “compensation.” It’s really, really hard to track dividend payments to corporate CEOs – that information is not reported anywhere that we have been able to find.
But doesn’t it seem possible that Mr. Smith’s decisions about how FedEx treats its workers… could perhaps be influenced by the fact that he gets a substantial share of the dividends paid out to stockholders? Read FedEx And The Real Reason Why There’s No Jobs: Cut Back On Worker Hours And Raise Profits. Also remember that a federal appeals court just ruled that FedEx improperly classified 2,300 California drivers as “independent contractors” rather than “employees”… to the tune of “hundreds of millions of dollars.”
BTW, it’s not just difficult to track dividend payments to CEOs… it’s also hard to track the effect of stock repurchasing programs on CEOs.
Going back to Mr. Smith… Late last year, FedEx announced plans to buy back up to 32 million shares – or, about 10% of outstanding stock. Since then, the market price of its stock has risen by about $35 a share. Multiply $35 per share by the roughly 15 million shares Mr. Smith owns… and you’re talking some serious numbers.
Not to repeat myself (again), but: that type of information isn’t tracked anywhere. At least, not anywhere we could find.
Going back to Professor Lazonick:
- The corporations in his survey spent 51% of net income on stock buybacks.
Yep, must be lookin’ real rosy up there in the corporate offices. Extrapolating from our FedEx example, can you imagine how much all those different stock buybacks have enriched America’s CEOs?
And as near as I can tell, it’s going to keep lookin’ rosy in corporate offices as long as our federal tax system encourages this sort of thing. Ever since the Bush tax cuts, investment income has been taxed at a much lower rate than wage income. Are we really surprised that CEOs are taking more compensation in stock options and awards, rather than traditional wages?
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Meanwhile, yesterday’s New York Times hosted a “Room for Debate” on the policy implications of Professor Lazonick’s research.
Want to know how deeply ingrained the “No New Taxes” ceiling has become, in our public discourse?
Not a single policy expert quoted in that “debate” even suggested that America should return to taxing investment income at the same rate as wages.
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My “Why the Economy Doesn’t Work for the 99%” post from last year is available here.