Prior to the 1990s, the average investor had faith in the stock analysts’ recommendations to provide fair, honest, and an unbiased assessment of a corporation’s stock price. However, with the invention of the internet, information became instantaneous and it changed how the investor viewed, researched and evaluated stocks. At the same time, “It became difficult for research analysts to add much value” to their recommendations “consequently, analysts faced pressure to add value in other ways: by helping investment bankers solicit business from the companies they covered” (Partnoy 285). This was a direct change from the analysts’ looking out for the investors’ best interest. In 1990, there were 15 times more buy recommendations than sell recommendations (Partnoy 286). Unknowing investors were fueling the Dot.com explosion. Analysts were reacting to the incentive system and profiting from recommendations. The investor was looking to amass considerable profits in the form of the next Microsoft stock. The eruption of technology IPOs exasperated the problem because they are difficult to valuate and the investor relied more on the analysts’ recommendations. Stock analysts would recommend full buy recommendations to pump up the price of the stock then the investor, along with those with inside information, would react and buy because of the recommendation. After the required 180-day lockout period before reselling, the insiders would dump the stock amassing large profits while those investors who did not have insider information generally lost. A large portion of the technology companies, were in fact, bankrupt within a few years after the 180 day lock-out period. The investor was not aware the rules of the game had changed and no longer were analysts acting in the investor’s best interest.
Excessive executive compensation continues to grow. As a result, employees’ are fighting harder than ever to maintain their current pay levels, benefits, retirement, and employment while executives are actively trying to minimize their overall labor costs. In 2003, CEO compensation has increased faster than the average worker’s compensation by a ratio of 300 to 1 compared to 42 to 1 in 1982. If minimum wage grew at this rate, the current minimum wage would be $15.71 per hour