2 events that happened in the US Stock Market that can have far reaching consequences
On Thursday the 7th, the SEC ruled against Blackrock. It’s a huge deal. Why, you ask? Because it forces Blackrock to explain why a certain CEO’s pay package was approved.
History: CEO pay in big corporations has gone through the stratosphere as we all know. Aren’t shareholders doing anything about it? They cannot because most investors never get to vote on CEO pay. Huge Asset Management companies such as as Blackrock are the one who vote on CEO compensation. Typically Blackrock approves 99 percent of CEO pay packages. Blackrock is the largest CEO accomplice of these all. The median of 118 other monetary asset managers who vote, turn down 10 percent of all CEO pay packages. Even that is bad but not as blatantly bad as 99%!
Well, that may change. An activist shareholder of Blackrock itself (his name is Steve Silberstein, pictured below — and, full disclosure, he’s a good friend), tried to get Blackrock to allow its own shareholders to vote on Steve’s resolution to force Blackrock to do a thorough analysis of these CEO pay packages and vote against them if they don’t meet some basic criteria.
Steve is not the one to take things lying down and he went to the Securities and Exchange Commission (SEC). And the SEC decided that Blackrock must place Steve’s shareholder resolution on the agenda for a stockholder vote at Blackrock’s annual shareholder meeting in New York on May 25.
This may seem like a tiny success, but it’s really quite big. And maybe it’s groundbreaking. If the resolution does pass, then it would empower the share holder a bit and the Stock Market will start seeing a more equitable salary structure in the Public companies. Shareholder “say on pay” was mandated in 2010 by the Dodd-Frank financial reform law, which calls for such votes at least every three years.
On Monday the 4th, the U.S. Treasury unveiled new rules to curb inversions. Obama called international tax avoidance a “huge problem” and urged Congress to take action to cease U.S. businesses from tax-preventing corporate “inversions”, which lower firms tax bills by re-domiciling abroad.
“While the Treasury Department’s actions will allow it to be more difficult… to exploit this special corporate inversions loophole, only Congress can close it for good,” Obama said.
This is another good start. Tax inversion can be defined as re-incorporating a company overseas in order to reduce the tax burden on income earned abroad. USA today captured all the different ways US based companies try and reduce their tax burden in this article. The Stock Market did not react much to this news but the implications are clear. The U S Treasury Department intends to deter “Tax Inversion” Mergers and Acquisitions.
Treasury Secretary Jack Lew who comes across as being mild mannered has nerves of steel when it comes to negotiations and is determined to implement Dodd-Frank Act to the fullest. In this video interview with Bloomberg, Lew describes how the US Tax system is broken and what is being done to fix it.