Institutional investors increasingly recognize that growing income and wealth inequality poses significant long-term risks. High levels of income inequality – particularly when associated with wage growth that lags productivity growth – curtail effective demand, and thus lower returns to long-term investments in fixed capital and intellectual property. Inequality within companies can create a sense of unfairness that undermines morale, engagement, and job-specific human capital investment, further reducing long-term returns. Finally, high levels of inequality are frequently associated with increased financial volatility, including more frequent and more severe asset price bubbles and crashes.
Together with like-minded long-term investors, the CtW Investment Group seeks to mitigate the risks of rising economic inequality by engaging with publicly traded companies to:
Encourage best-practice in human capital management and workforce investment.
Avoid costly mergers and acquisitions, which routinely destroy jobs without building long-term shareholder value.
Re-align executive pay with long-term performance measures – such as the company’s median hourly wage – that cannot be gamed by management.
Industry wide efforts to highlight income inequality include:
The UN Sponsored Principle for Responsible Investment’s research on economic inequality provides a range of topics and solutions for investors, policy makers, and companies. Included in these reports is one highlighting the investment case for income equality.
The American Federation of Labor and Congress of Industrial Organizations’ tracks CEO pay through Executive Pay Watch.
As You Sow releases yearly Pay Reports highlighting the 100 most overpaid CEOs.