What Thomas Piketty Got Wrong


By Steve Denning – There is no mention of the actual driving force behind increased executive compensation, namely, the shareholder value movement which explicitly proposed compensating executives with stock so that their actions would be aligned with shareholder value.

This began with Milton Friedman—another Nobel Prize winner in Economics—who proposed back in 1970 that the purpose of a firm is to make money for its shareholders.

In 1976, Professors Meckling and Jensen gave an economic rationale for generously compensating managers with stock to encourage them to focus on short-term shareholder value.

Ronald Reagan and Margaret Thatcher gave this political cover and the rest is history.

The book misses the more obvious solution: removing the intellectual foundations of the pay increases by rejecting the shareholder value theory. more> http://tinyurl.com/nht4b59

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