William Lazonick writes that "The top dogs have a huge interest in allocating corporate resources to jack up their companies’ stock prices, thanks to some terrible decisions by the SEC." Not only were laws passed that allow CEO's to get far higher pay without the strict requirements for performance found in other countries, not only were their taxes greatly reduced, but the Securities and Exchange Commission changed the rules in ways that allow CEO's to jack up their companies' stock prices.
In 1982, the SEC changed rules that prohibited large-scale stock repurchases to allow up to 25% of a stock's daily trading volume to be traded every day, day after day. Stock buybacks result in an increase in the price of a stock. In 1991, the SEC made another rule change that enabled top executives to make quick gains by exercising their stock options and immediately selling the shares.
Prior to 1991, executives had to hold the stock options six months after exercising the options before the stock could be sold. This rule change enabled top executives to time sales so they could benefit from stock price boosts from buybacks.
William Lazonick is director of the University of Massachusetts Center for Industrial Competitiveness and author of Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) which won the 2010 Schumpeter Prize for innovation and economic development. Read his article: "The Reason CEOs Make 350 Times More Money Than Their Workers -- And Why That's Terrible for the Economy."