Stock option

50 Things That Made the Modern Economy

BBC

Business

4.8 • 2.6K Ratings

🗓️ 25 November 2019

⏱️ 10 minutes

🔗️ Recording | iTunes | RSS

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Summary

In theory, stock options should motivate executives to perform better by tying their pay to their company's performance. So why do some argue the practice has just become a way for the highest earners to boost their salaries even further? Tim Harford turns to ancient Greek philosophy and Bill Clinton's presidency in search of the answer.

Transcript

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0:00.0	The average CEO at a major American corporation, according to a recent Senate hearing, is paid
0:22.2	about 100 times as much as the average worker.
0:26.2	In our government today, rewards that excess with a tax break for executive pay no matter
0:30.4	how high it is.
0:32.0	That's wrong.
0:33.0	If companies want to overpay...
0:34.6	Bill Clinton, campaigning to be US President in 1991.
0:39.6	He won, of course.
0:41.4	And he promptly made good on his promise to tackle excessive pay.
0:46.1	Usually, salaries are treated as costs, reducing the profit on which a company pays tax.
0:53.3	Clinton changed the law.
0:55.5	Companies could still pay as much as they wanted to, but salaries over a million dollars
1:00.3	would no longer be tax deductible.
1:03.3	It had a big impact.
1:05.0	By the time Clinton left office in 2000, the ratio of CEO pay to worker pay was no longer
1:11.4	a hundred to one.
1:13.0	No, it was, uh... well over three hundred to one.
1:17.4	What had gone wrong?
1:19.5	We can approach that question from the olive groves of ancient Greece.
1:26.9	The philosopher, Thales of Miletus, so the story goes, was being challenged to prove the
1:33.1	value of philosophy.
1:34.8	If it was so useful, why was Thales so poor?
	...

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