Nonetheless, shareholders, investors and senior leaders still receive the bulk of the profits, which means income inequality continues to rise. This is also the reason why corporate players globally compete for the top talent. As a result, the salaries of people with a slight edge are increasing across all top firms.
There are two additional mechanisms which link market concentration to executive pay:
- Compensation for higher risks. The possibility exists that some players might use technology to disrupt – and steal – the entire market. Executives are therefore compensated also for taking the extra risk. They need to protect the market position of their firm.
- Inadequate governance can lead to entrenched managers who then start to extract rent. Managers employed by just a few global behemoths thus have huge power.
According to an article on the website of the INSEAD business school, innovations are of course still good for the economy. Tax and inclusive policies help share the benefits of technology across the whole of society. It seems that shared prosperity is needed to keep firms or even nations competitive. Egalitarian societies empower more people to acquire relevant skills. In inclusive workplaces, higher productivity is achieved.
Since firms are the ultimate drivers of prosperity, corporate governance has given more power to top executives and shareholders. Alternative employment arrangements, though flexible, have undermined the role of firms as equalising institutions: in the past, they would compensate lower-wage employees with relatively high bonuses.
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