The 401k was one of the greatest gifts to wall street ever. Millions of people pouring billions of dollars into stocks that they have neither interest nor knowledge. Take a look at what happened to the volume on Wall Street after 401k dollars started pouring in. It was at this point when CEO salaries began to become completely unhinged and decorrelated with company performance and other professionals’ pay.
Once, for example, Coke stock was no longer owned and being watched over by interested and knowledgeable parties, but instead by school teachers and Starbucks workers, the CEO salary was no longer monitored by the majority shareholders. Even if these people realized that they actually owned shares of Coke, what possible impact could they possibly have on the CEO’s salary.
When Peter Lynch or Warren Buffet buy huge shares in companies, they make sure to get a say. But when the majority holders are a few million unrelated people–that likely don’t know they even own that stock–it is not surprise that CEO’s have huge salaries even when the company is making really stupid decisions.
Add in the fact that major retirement funds do their block buys on known dates, and high speed traders skim a little off the top each time the small blip in stock price occurs during that period, and your getting even more screwed.
Happy Friday.
