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CEO pay hike and the pandemic

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Chief executives of public corporations are compensated by way of salary, bonus, stock, stock options, and even through use of company jets. It’s well-known that CEO pay has always been high but it’s also been increasing at a disproportionately fast rate for many decades; in the 1990s this trend increased a lot. A significant portion of CEO pay however, is not actual salary. It’s more related to stock or stock options and it’s this non-salary component which has increased over time. 

According to a survey by Stanford University 74% of Americans did not agree with the fact that CEOs are paid so much more compared to the average worker. Only 16% thought CEOs were paid what they should be paid. CEO salaries have been skyrocketing over the years and this trend hasn’t stopped nor reversed during the pandemic. At a time when firms are laying off employees, this news is both shocking and disturbing. 

Companies want to hire above average CEOs on the assumption that their firms will reflect above average performances. A study by the Institute of Policy Studies in 2019, shows that 80% of S&P 500 firms paid their CEO a huge 100 times more than their average employee. And the average employee would have to work for a back-breaking 100 years in order to make what a typical CEO earns in just one year. 

Another study by the Economic Policy Institute found that in 2020 throughout the pandemic, CEOs of the top 350 firms were paid an incredible 351 times more compared to the average worker, which is naturally disconcerting for the common stakeholder. Additionally, CEO compensation has risen by a huge 19% in 2020 whilst the pay of a rank and file worker increased by only 4% and there were also massive layoffs and decline in sales. It’s been calculated that the median CEO-to-employee pay ratio during 2020 was 227:1 – significantly up on the previous year of 191:1.

Although apparently the salaries of some CEOs were reduced after the pandemic, which received admiration from some sections of the media, in reality these cuts were practically reversed by big bonuses. For example, thousands of workers were furloughed by Hilton Worldwide Holdings Inc. and 2,100 corporate positions were removed. In response, apparently the CEO and some other top executives cut their base salaries. But according to the company filings with the SEC, their total compensation was doubled. So the base salary cuts were mostly symbolic. 

The Tax Excessive CEO Pay Act was proposed in 2021, to penalise companies which overpay their CEO or top executives. Any company which pays their top executives more than 50 times that of a median worker, will have to pay 0.5 percentage points or more on their tax rates depending on the discrepancy of pay. As an example, Walmart would have had to pay up to $854.9 million more in taxes in 2020 if this law had been in effect. 

The expectations that higher pay will attract better talent results in the exorbitant pay packages for top executives although these expectations are not always borne out. CEO salaries do not necessarily link directly to their performance. They are paid more if the company’s stock prices rise but this does not always mean those companies are performing better. Stock prices might be rising due to other economic factors or just due to government support measures. 

Companies may feel pressured into constantly having to increase their CEO pay in order to compete with the market. Rewarding bosses who’ve steered their organisation through the tough times with inflation-busting salaries is a strategy to stop them leaving. But the trend of executive pay benchmarking is not healthy. There is a counter argument that there is no scarcity of talent to justify overpayments at the expense of long term company goals. 

429 large-cap US companies were sampled between 2006 and 2015 in a report by MSCI, which found that companies which paid lower than median total pay outperformed other corporations by as much as 39%. It was a study about companies where CEO compensation was linked with performance. On the contrary shareholders’ returns were found to be higher where CEOs’ pay was in lower percentages. 

When the subject of CEO salaries gets a lot of attention in the media and is constantly scrutinised it can be counterproductive. Instead of companies keeping a check on that component of CEO pay which is counterproductive because it is not performance based (base salary), the pay for performance approach may be avoided altogether. It is feared that in such situations executives are not rewarded for performance nor are they penalized for poor performance (no performance based bonuses). 

Although it’s generally believed that a big portion of executive pay includes company stock, it’s mostly mentioned in terms of its value or what its proportion is out of total pay. However, more meaningful analysis is needed to see what percentage of company stock is owned by the CEO. The higher the percentage of shares owned by the CEO creates a direct link between shareholders’ stake and that of the CEO. It’s also believed that stocks instead of stock options are a better way to link pay to performance. Similarly, just because an executive is paid via bonus does not automatically mean it is linked to performance. This payment can be in fact misleading unless it is actually linked with performance. 

There is a perspective that it doesn’t matter how much CEOs are paid, what really matters is how they’re paid and what they were paid in the past years. Transparency in executive pay will help in restoring confidence. Compensation committees should make sure that CEO pay is according to the organisation’s philosophy, long term goals, and risk appetite. The widening gap between CEO compensation and workers’ salary is not a healthy sign for the economy and it means the middle class is disappearing. The rising focus on income inequality has resulted in increased attention to CEO pay. In many instances shareholders get to vote on the board’s decision of pay and agree to it. However, it’s no surprise to see shareholders from Starbucks and AT&T starting to vote against the executive compensation as executive pay packages have begun to balloon. 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Business

Elon Musk Acquires Twitter for $40 Billion

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Elon Musk’s offer to buy Twitter has been accepted by the company this Monday for over $40 billion. “The Twitter Board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing. The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders,” representative Bret Taylor of the Independent Board Chair released in a statement. Stockholders of Twitter will now receive $54.50 for each stake in the company. 

Musk had previously stated a $46.5 billion set aside to acquire Twitter, prompting the company to look into his offer. Twitter’s board has already accepted the deal, which is expected to become concrete by the end of the year following approval from Twitter stockholders and regulators. 

As a frequent user with over 84 million followers on the social media site, the CEO of Tesla Motors holds a controversial platform, ranging from discussing business to criticizing politics and making insulting remarks. He has already been under investigation from the SEC in 2018 for fraudulent claims. Some users fear a rise of dissent following the transition of power.

In response to this, Musk stated: “Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated.” He also stated his hope to “make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential.”

The drive for free speech comes with its own concerns, however, as critics fear it may allow for hateful speech, misinformation, and other harmful content which Twitter has been working to silence.  Musk had also previously commented on preferring the company enforce “time-outs” over permanent bans, indicating future decisions which may allow the return of users such as Donald Trump. Decisions such as these could greatly affect politics and future elections. 

If the deal is fully approved, one of the world’s wealthiest individuals will be owning the company. The future is unclear for current CEO Parag Aragwal, who was appointed just last year in place of Jack Dorsey in a slew of CEOs over the years. With the news, Aragwal stated that he was “Deeply proud of our teams” and “inspired by the work that has never been more important.” 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Russia Looks to Brazil for Support to Prevent Expulsion from IMF

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The Kremlin has requested Brazil’s support in the International Monetary Fund, G20 group, and World Bank to help it counter crippling sanctions from invading Ukraine. Russian Finance Minister Anton Siluanov wrote to Brazil’s Economy Minister Paulo Guedes claiming that, “behind the scenes work is underway in the IMF and World Bank to limit or even expel Russia from the decision-making process”. Siluanov then went on to request support from Brazil “to prevent political accusations and discrimination attempts in international financial institutions”.

Russia is facing immense backlash for its actions against Ukraine, especially from the US and its allies. According to Siluanov, Russia is facing financial difficulties and economic turbulence due to international sanctions which have frozen almost half of the Kremlin’s international reserves and foreign trade transactions. The Russian minister added that the US is attempting to isolate Moscow from the international community. 

US Treasury Secretary Janet Yellen stated last week that the US will not participate in any G20 meetings in which Russia is present, citing the Ukraine wa as the reason. Brazilian Foreign Minister Carlos Franca has previously stated that Brazil opposes the expulsion of Russia from the G20 group. Franca further explained that, “The most important thing at this time is to have all international forums, the G20, WTO, FAO, functioning fully, and for that all countries need to be present, including Russia”.

As reports of Russian war crimes make headlines and the economic consequences of the Ukraine War begin to pile up, more countries appear to be standing against the Kremlin’s involvement in international affairs. The US is the main proponent for Russia’s expulsion, however this could partly be due to the personal benefit the White House would receive from the removal of Moscow’s influence from global politics and economics. Russia’s actions in Ukraine warrant severe consequences and Moscow’s removal from international financial groups could serve as a warning for other countries against initiating offensive military action.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Saira Shah
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Saira is a Muslim American with a passion for writing, economics, and justice.  With a background as a UC Berkeley graduate with a bachelors in economics allows her to quantitatively analyze critical developments from around the globe as well as their long term impacts on financial systems and social welfare. She is dedicated to reporting in an investigative, honest and compassionate manner to give voice to those who need it most.

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Could the Covid-19 Pandemic Bring an End to Supply Chain Capitalism?

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The global economy has long depended on supply chains to fuel profits through low prices, fast service, and cross-country inequality. These chains of production have extended across borders and seas to unify the global economy. However if supply chains are meant to lower prices and connect production across the globe, why are we now seeing some of the worst shipping backlogs, product shortages and inflation rates in decades?

Several reports place the blame for these economic shocks on the coronavirus pandemic or war in the East, however the true culprit is the supply chain itself. The White House Council of Economic Advisers released a report on Thursday supporting this view. The report argues that recent shocks have not created supply chain failures rather they have exposed the overall frailty of the current production process. 

In essence, supply chains separate product manufacturing into distinct steps which are then outsourced to the regions that can complete the steps at the lowest price. Outsourcing allows firms to shift work to companies in different countries and thereby lower labor costs. Companies in the chain have their own legal autonomy, however they work together as a whole to lower production costs and maximize profits. In exchange for decreased production costs, the supply chain sacrifices security. Crises in any region of the world can halt the entire chain and cause backlogs which lead to product shortages and inflation. 

The coronavirus pandemic sent ripples through the global supply chain as several companies struggled to manufacture and sell under strict government lockdowns. Factories and docks also suffered from labor shortages brought on by high death tolls, social distancing practices and union strikes demanding better compensation and benefits for working through the pandemic. While these may seem like temporary shocks to the system, they will likely influence future rhetoric concerning global manufacturing and trade. Now that the global economy has experienced extreme supply chain failures, individual countries will likely look for methods that will protect them from such economic vulnerability in the future. Even the United States has warned that frailty in the supply chain will not go away once the pandemic has ended. The world’s largest capitalist economy admitting such a critical flaw in the commodity manufacturing system definitely begs the question, will the Covid-19 pandemic bring an end to the era of global supply chain capitalism?

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Saira Shah
+ posts

Saira is a Muslim American with a passion for writing, economics, and justice.  With a background as a UC Berkeley graduate with a bachelors in economics allows her to quantitatively analyze critical developments from around the globe as well as their long term impacts on financial systems and social welfare. She is dedicated to reporting in an investigative, honest and compassionate manner to give voice to those who need it most.

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Multinational Gas and Oil Company Shell to Face $5 Billion Writedown of Assets as They Leave Russia

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  • Shell is expected to announce their earnings report on May 5th, and they promise that post-tax impairments will not impact their earnings.
  • Russia’s invasion of Ukraine pushed gas and oil companies out of Moscow causing the opening of the 2022 trading year to be one of the most turbulent ever seen.
  • Fear of what will become of Shell and other gas companies as they exit a major financial support like Russia has left many in doubt.

Despite oil and gas prices skyrocketing during the first quarter of trading activities, Shell is still expected to write down up to $5 billion due to its decision to exit Russia. Shell is expected to announce its earnings report on May 5th, and they promise that post-tax impairments will not impact its earnings. Shell’s initial $3.4 billion write-down was driven up by credit losses in Russia, writedowns of receivables, and other factors. 

Oil prices hit an average of $100 a barrel, the most since 2014. The United Kingdom also hit record numbers for gas prices following Russia’s aggression and the consequential sanctions. 

Shell’s shares have been down nearly 2% since the start of London trading. Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, stated “Despite the eye-watering costs, the share price should continue to stay reasonably resilient given the divestment far outweighs the reputational damage which could be caused had it not pulled out.”

Multi-Billion dollar businesses are now watched as closely as ever before, with the accessibility provided by social media and online news agencies. Reputation and activism are heavily scrutinized, pushing companies to act in the most ‘humanitarian’ ways possible. Economic powerhouses such as gas companies are likely to continue down the most ‘politically correct’ way until profits show otherwise. 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Skin-lightening & anti-ageing creams sold online may contain dangerous levels of mercury

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The Zero Mercury Working Group (ZMWG), an international coalition of non-governmental organisations from over 55 countries, working to eliminate mercury exposure, has found extremely high mercury levels in skin-lightening and anti-ageing products sold on platforms including Amazon, Ebay and Flipkart amongst others.

With the legal limit of mercury concentration in the US being 1 part per million (ppm), levels as high as 65,000ppm were detected in about half of the 271 online products that were purchased and tested from 40 e-commerce sites.

Michael Bender, director and co-founder of the Mercury Policy Project and co-coordinator of the ZMWG, said: “We’re not finding 1 ppm – we’re finding products that are hundreds or thousands or tens of thousands of times above [1 ppm]. These levels are astronomical.”

Although this is the third report by the ZMWG to reveal the global availability of skin products containing high and toxic levels of mercury, this most recent analysis is the first to solely focus on the online sale of these products.

“Despite being illegal, our findings show the same high mercury skin lighteners continued to be offered for sale on the internet,” Bender elaborated. “What’s illegal domestically should be illegal online. E-Commerce must be held to the same standards.”

Products tested were mostly manufactured by brands from Pakistan, Thailand, China and Taiwan.

“These hazardous and illegal products pose a serious mercury exposure risk, especially to repeat users and their children,” said Dr. Shahriar Hossein, a member of the ZMWG. “We welcome the opportunity to work collaboratively with the authorities to stop the toxic trade in high mercury skin lightening creams.”

Mercury is classified by the World Health Organization (WHO) as one of the top ten chemicals of major public health concern. This metal element is known to result in lighter skin as it inhibits melanin pigment production. Above safe levels, mercury is highly toxic to humans, particularly to the nervous system. The developing nervous system before birth is especially susceptible to mercury poisoning, and this makes its exposure a hazardous threat to the developing child in pregnancy. Compounds of mercury are also possibly carcinogenic according to the International Agency for Research on Cancer. Mercury poisoning can lead to tremors, memory loss, neuromuscular changes, insomnia and headaches, as well as adverse effects on the kidneys and lungs which can be fatal. Some mercury compounds are also corrosive to the skin, eyes and the digestive system.

Following a lawsuit against Amazon, the California Court of Appeals ruled the company must warn consumers when selling mercury-contaminated products or other toxin-containing products.

Michael Bender noted that the ruling only affects products sold in California and that there is a need for global strategies. He therefore welcomed the Minamata Convention – a recent global treaty to ban the manufacture and trade of cosmetics containing more than 1 ppm of mercury.

“We really need international cooperation,” he said. 137 countries have committed to ‘phase out and limit mercury’ under the treaty, perhaps paving a potential pathway to progress in this specific mission of the ZMWG – ‘to eliminate where feasible, and otherwise minimise, the global supply and trade of mercury.’



All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Business

First Union Forms at Online Retail Giant Amazon

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  • Multinational tech giant Amazon Inc reached another milestone today when workers at its New York warehouse formed the company’s first ever union.
  • 2,654 workers voted in favor of unionization, and 2,131 opposed the action.
  • Amazon is considering various legal options to challenge the results, priding itself on direct communication between the company and employees, versus negotiating through a bargaining unit.
  • Meanwhile, labor advocates celebrated Friday’s vote, excited for what it may portend for other aspects of operations at Amazon.
  • Amazon Inc is the country’s second largest private employer.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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