The Candidates
McCain wants to regulate CEO pay:
“Americans are right to be offended when the extravagant salaries and severance deals of CEOs … bear no relation to the success of the company or the wishes of shareholders,” he will say, adding that some of those chief executives helped bring on the country’s housing crisis and market troubles.
“If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders,” he will say.
Politically astute, or terribly worrying? I’m voting both.
June 10th, 2008 at 1:00 pm
I don’t see a problem with all owners of a company dictating the salary of those who run the company. Aren’t they essentially all bosses-in-common?
June 10th, 2008 at 1:02 pm
Note that McCain is not proposing the the government set CEO pay, but that it require that executive compensation be approved by a company’s owners (i.e. it’s shareholders). I say that this is probably a politically astute move, and really not that worrying at all.
June 10th, 2008 at 1:04 pm
I’m not sure if it would actually have any effect.
But if John McCain keeps attacking companies, and those who run them, he may push many economic conservatives to sit this one out.
June 10th, 2008 at 1:07 pm
In what way is this saying that John McCain wants the government to regulate CEO pay?
June 10th, 2008 at 1:07 pm
Kevin,
It’s not a question of whether or not corporate should approve a CEO’s salary, but rather every company should be forced to adopt this structure, and John McCain has continually shown an tendency to impose what might be good and admirable reforms when enacted voluntarily onto Americans (largely wealthy Americans) through the force of government. I’m not terribly worried about this particular issue, because it’s relatively small-scale, and is likely to help McCain, but it further demonstrates what I find to be a worrying thought process about the role of government.
June 10th, 2008 at 1:08 pm
I would have to concur with Big S on this one although ACT does certainly have a point.
June 10th, 2008 at 1:09 pm
and I’m not sure the problem is the proposal itself - but rather that this is a continuation of McCain’s liking to attack corporate america.
June 10th, 2008 at 1:11 pm
Kavon,
When you’re strictly limiting the means by which a CEO can receive his or her compensation you’re effectively regulating CEO pay. Perhaps regulating “pay” is too strong, but it’s clearly an additional regulation on how businesses can operate, which directly impacts CEO compensation.
June 10th, 2008 at 1:11 pm
Big S,
Do you think a bill would get through congress that said only “shareholders must approve compensation and severance?” No way. It will say compensation should/must bear some relation to stock performance, that CEO pay is considered excessive if it exceeds “x,” and that probably impose fiduciary obligations on compensation committees. This is a slippery slope.
Politically, it sounds populis and attracts some voters but offends a lot of voters who are already suspicious of McCain. Kudlow might have a heart attack.
June 10th, 2008 at 1:16 pm
He is not proposing strictly limiting anything. They can pay CEO’s in coffee grounds for all he cares, I bet. McCain is only saying that if they want to pay the CEO in coffee grounds, it has to be approved by the people who actually own the company-its shareholders.
June 10th, 2008 at 1:19 pm
Shareholders who have a problem with CEO compensation should sell their shares of stock in that company.
Employees who have a problem with their CEO’s salary or severance package should start your own business.
I will not be voting for McCain in November, but against Obama — who is clearly the more dangerous and greater of two evils.
Americans, rich and poor, are right to be offended by this language from Mr. Cap & Trade.
June 10th, 2008 at 1:21 pm
Imagine McCain’s reform, as stated, were enacted. What would be more likely to happen: American companies moving overseas to avoid the voting on CEO pay, or investors putting their money into American companies on the assu,ption that they’re less likely to get ripped off by unethical executives? I’d bet on the latter.
June 10th, 2008 at 1:23 pm
This is utter B.S.
I’m more and more inclined to stop following this election at all.
June 10th, 2008 at 1:28 pm
Aron,
I absolutely hate that argument. Many people have stock that has been in their family for years, often preceding any CEO’s tenure. But they are supposed to walk away from that investment because some CEO grabs a hunk of corporate assets? That’s no answer at all. That is not to say the answer is gov’t involvement either, but rather boards that are held to higher standards by shareholders.
June 10th, 2008 at 1:28 pm
You know, the voting could go both ways. If a company is really struggling, the shareholders could vote to override executives, and bring in a CEO who’s a real turnaround artist, like Mitt Romney (haha) for a million bazillion dollars.
The man’s leadership is worth it.
June 10th, 2008 at 1:46 pm
I have mixed feelings on this. The shareholders are the owners, and they, not John McCain should be the ones who resent the CEO making huge salaries, when they think he/she is not deserving of the same. IMHO, in the stockholders meeting, they can vote them out anytime they choose too, and if they want to (as owners) help determine total compensation packages of their top managers, they have a perfect right to do so.
I would have to vote to keep the Government out of it.
June 10th, 2008 at 1:46 pm
5. Corporations are government-created “person”s that enable individuals to pool risk and to insulate their own activities from liability for the corporations mistake. Given that the government creates them, it also certainly retains the ability to regulate their form.
June 10th, 2008 at 1:52 pm
Oh my God. You’ve GOT to be kidding me.
Is this really what the Republican Party has come to…?
June 10th, 2008 at 2:00 pm
I have to agree with those who don’t see the big deal (since he is not talking about government regulation of CEO pay but shareholder regulation). I also agree with those who say it won’t change much (since most of these pay packages would wind up getting approved anyway).
Finally, I think this is very astute politically, but for a reason nobody has mentioned. To wit, Bush would never ** ever ** propose or push this idea. The very fact that it marks a departure from W is an asset in and of itself.
June 10th, 2008 at 3:11 pm
I have no trouble with the owners of a company (shareholders) approving the managers’ pay. That kinda’ sounds like capitalism and the free market to me.
What some people here want is the Old Boys’ Network to run the show where a cartel of kleptocrats who sit on each others’ boards approve each others’ salaries. That’s not the free market, and that isn’t capitalism.
Metro, what’s your problem with shareholders approving pay? I didn’t think you were a fan of elites voting themselves other people’s money- at least not when it comes to the government. Why are you okay when it is shareholders who get fleeced?
June 10th, 2008 at 3:15 pm
Aron,
“Shareholders who have a problem with CEO compensation should sell their shares of stock in that company.
Employees who have a problem with their CEO’s salary or severance package should start your own business.”
Yeah, and people who want to retire with a $190 million severence for losing the company $8 billion in one quarter (tens of billions more to follow) just need to know the right people.
And don’t give me this BS that it’s the open market. It’s not. It’s who you know. These guys all sit on each others’ boards and vote on each others’ salaries. It’s more kleptocracy than capitalism. It’s corporate incest.
June 10th, 2008 at 3:36 pm
MWS - I’ll have to agree with you!
June 10th, 2008 at 3:51 pm
What you guys are forgetting is that it is becoming less and less popular for companies to want to go public because of increased regulation. Sarbanes-Oxley has already done a number of plenty of firms that might have gone public but find the regulations to onerous and expensive. Now you want to add further requirements that limit the potential leader you could get to run a company? This is striking at the heart of economic freedom.
There are plenty of companies where the shareholder democracy has decided that their CEO’s won’t get over a certain amount of money, or others that allow their CEO’s to get a big paycheck only when the company performs well. This is how it should be done, by the people that actually own the company, not by an arbitrary requirement that certain business decisions be made in shareholder meetings.
June 10th, 2008 at 4:14 pm
MWS,
I, too, have no trouble with investors of a publicly-traded company approving their CEO’s compensation. However, if a $190 million severance deal is approved by those who own the company, it is no longer relevant whether said compensation package bears any relation to the current financial success of the company, as McCain would like the government to mandate it does. I do not believe disgruntled employees or shareholders should then have any recourse but to sell their stock or find another job.
June 10th, 2008 at 4:34 pm
MWS, the shareholders OWN the company. D’oh.
If the government is to tell we business owners how to do business, that is fascism.
June 10th, 2008 at 4:36 pm
Aron,
“However, if a $190 million severance deal is approved by those who own the company,…”
Stop there. It wasn’t. It wasn’t approved by the Board of Directors.
BIG difference.
June 10th, 2008 at 4:39 pm
Metro,
“If the government is to tell we business owners how to do business, that is fascism.”
So telling a company it can’t sell rancid meat, or lie in its shareholder reports, or hide money from its creditors is fascism?
June 10th, 2008 at 4:41 pm
Here’s the real problem - McCain is proposing forcing the owners of a corporation to make a decision they may not actually have the expertise to make. Shareholder hire boards of directors exactly to make these kind of decisions. That’s why boards of directors exist, is to make these calls. They wouldn’t do it if the shareholders were interested in making those decisions themselves.
Smaller scale example - fast food franchise owner. He may own several stores in a small area. He hires managers for each restaurant. Those managers then make the hiring decisions for shift managers and other employees, and set those salaries. The owner may not actually approve every one of those salaries. If McCain’s idea were to be applied to this fast food franchise, it would force the owner to set the day shift manager’s salaries directly, and by the sounds of it require independent investigation of all the shift manager’s qualifications and whether he really deserves that salary. Why should the owner have to do that? He hired a store manager to do that.
Publicly traded corporations are the same beast on just a larger scale, needed another level of oversight (the board of directors). The decisions are left to the board because it’s more efficient that way, and on the whole, in the usual course of things, means more money for the shareholders. Your average shareholder is not qualified to asses the qualifications and just compensation of corporate executives of giant corporations. That’s why they hire Boards to do it.
June 10th, 2008 at 4:41 pm
MWS, the those are fraud, and THAT is the government’s proper role, to police the use of force and fraud.
June 10th, 2008 at 4:42 pm
It amazes me you’d use such a ridiculous argument.
June 10th, 2008 at 4:47 pm
Metro,
“It amazes me you’d use such a ridiculous argument.”
I’m simply establishing that there are in fact legitimate reasons for government intervention. It’s part of what makes civilization possible. You are the one who made the blanket statement. I was simply pointing out the absurdity of it. If we agreed then, that not all government regulation amounts to “fascism,” could we agree that it is appropriate for the government to keep the shareholders from getting fleeced by non-owners who control the company?
June 10th, 2008 at 4:49 pm
Everyone who knows anything about political philosophy knows about the fraud exception. It’s not necessary to tack on to every statement.
June 10th, 2008 at 4:55 pm
PN,
“Your average shareholder is not qualified to asses the qualifications and just compensation of corporate executives of giant corporations. That’s why they hire Boards to do it.”
It doesn’t take a PhD from Carnagie Mellon to discern that a CEO who loses $8 billion in one quarter should be allowed to “retire” so as to keep an additional $90 million of his $170 million severence package.
Shoot, in a free market, Merrill Lynch could have hired me to lose $8 billion for HALF the severence.
What I think some people are not understanding here is that there is an inherent conflict of interest in the Boards of Directors sitting on each others’ boards. The interests of the CEO and Board are NOT always the same as the shareholders’. In fact, they quite often are not. That is why you have such outrageous packages untethered from performance. If these guys are so good, why do they need the guaranteed money (just in case) they get canned?
Old Boys Network voting each other the shareholders’ money, and convincing the shareholders that they would be lost without their “leadership” and “vision.”
June 10th, 2008 at 4:58 pm
Metro,
How about regulations regarding pollution, using pensions as collateral, and discrimination.
Is that fascism? They have nothing to do with fraud….
June 10th, 2008 at 4:59 pm
You pay your CEO what it takes to get him. It takes a parachute package to get the best.
Their outstanding past performance is no guarantee of future performance.
Can you understand those simple facts? Along with the fact that it is OUR RIGHT as owner/shareholders to assess these facts and not YOURS?
I’m not stepping in telling your Church how it should conduct its affairs. Nor am I yet insisting it be taxed. You’re already insisting WE are taxed, and you want MORE. We haven’t even BEGUN to do the same to YOU.
June 10th, 2008 at 5:08 pm
“Shareholders who have a problem with CEO compensation should sell their shares of stock in that company.
Employees who have a problem with their CEO’s salary or severance package should start your own business.
”
Excellent point Aron. I think what you describe happens for the most part anyway. If the few exceptions that it does not, we can always count on the politicians to exploit the problem for political gain while never intending to do much about it.
June 10th, 2008 at 5:09 pm
Metro,
1. I am taxed.
2. McCain is calling for increased SHAREHOLDER oversight, not government approval of CEO pay.
3. If you think qualifications is what lands these guys hundred million dollar golden parachutes, you are being hopelessly naive.
4. Of all the millions of people frantically trying to claw their way up the corporate ladder, do you HONESTLY think it takes these kind of sweetheart deals to get a qualified person? I guarantee you the supply of qualified CEOs is much greater than the demand, and it doesn’t take hundreds of millions of guaranteed pay (for screwing up) to get them.
June 10th, 2008 at 5:13 pm
I meant your churches are untaxed. It is no more your right to come in and tell me how to run my business than for me to come in and tell you how to run your church.
That is a freaking outrage.
Get it?
#3/4 shows who is naive. Do you think for-profit businesses are just throwing away millions of bucks when there are better qualified candidates? Even if you’re dumb enough to think so, that gives you NO RIGHT TO COME IN AND TAKE OVER.
Or me and my secular buddies are going to come in and take over your church and force you to stop indoctrinating children.
June 10th, 2008 at 5:19 pm
Metro,
“Do you think for-profit businesses are just throwing away millions of bucks when there are better qualified candidates?”
Of course they are, because it is the Board making the decision. The interest of the Board and CEO are not the same as the shareholders. As a prime example, does the CEO who gets the golden parachute have to care if the company goes down in flames? Hell NO! He’s already rich. He’s feathered his nest, and he suffers not a whit from the disastrous decisions he made. You need to understand that the interests of the decision makers are not the same as the interests of the owners.
(Metro) “Even if you’re dumb enough to think so, that gives you NO RIGHT TO COME IN AND TAKE OVER.”
For the umpteenth time, I’m not advocating government take over (and neither is McCain), but more involvement and oversight from O-W-N-E-R-S.
O-W-N-E-R-S.
O-W-N-E-R-S.
O-W-N-E-R-S.
O-W-N-E-R-S.
Okay, I think I’ve made that clear.
Now, what scares you about accountability?
June 10th, 2008 at 5:24 pm
MWS, the shareholders are the owners. They hire and fire the boards. What do you not get about THAT?
Yes, McCain wants to force the owners to approve specific decisions they’d rather delegate. That’s better than what a Democrat would offer. To tell us we can’t delegate a decision is still telling us how to run our businesses. And once you grant that “right,” there is no end to what will follow.
June 10th, 2008 at 5:37 pm
Metro,
“the shareholders are the owners. They hire and fire the boards. What do you not get about THAT?”
Right. How many proxies did you mail back last year? How many Directors did you inview? Did you even read their resumes?
June 10th, 2008 at 5:44 pm
Metro,
“Yes, McCain wants to force the owners to approve specific decisions they’d rather delegate. ”
How could you possibly know that? When was the last time the Board asked you as a shareholder? As a shareholder you are one in a long line of owners with a corporate charter that may have been written before your grandparents were born. Granted, with the wider impact of mutual funds, things have gotten a little better for your average shareholder in his representation, but most people don’t have the time to organize shareholders in their companies, as one might organize a union.
The result is that your average little shareholder is lead by the nose by his own Board of Directors.
June 10th, 2008 at 5:47 pm
Most of the businesses I’ve invested in have had only a handful of shareholders. After what number of shareholders do you consider a company to be a national resource you can take over? Just curious.
June 10th, 2008 at 5:48 pm
…..and once again, the interests of those Directors are not the same as those for whom they are making the decisions.
June 10th, 2008 at 5:52 pm
And the federal government somehow has a closer connection with the shareholders than the directors do, whom the shareholders HIRED?
So, after what number of shareholders do you consider a company to be a national resource you can take over?
June 10th, 2008 at 6:00 pm
Metro,
“And the federal government somehow has a closer connection with the shareholders than the directors do, whom the shareholders HIRED?”
That’s non sequitor. He’s talking about shareholder approval, not the government taking over for the Boards.
(Metro) “So, after what number of shareholders do you consider a company to be a national resource you can take over?”
I have no idea what that question means or where it’s coming from.
June 10th, 2008 at 6:08 pm
We’ve already covered what it means for the feds to take over delgation. See PnGrata’s #28 and my #40.
About the number of shareholders, let’s say me and 9 buddies own a company. 10 shareholders. 6 of us are on the board of directors and 4 are silent partners. Are you going to support the feds dictating how the 10 of us deal with one another? If not, when we have 100 shareholders? Or when we go public? Just curious how successful you think my business has to be before you consider it a natural resource subject to federal regulation.
June 10th, 2008 at 6:17 pm
Metro,
“Just curious how successful you think my business has to be before you consider it a natural resource subject to federal regulation.”
Being a ‘natural resource’ has nothing to do with it. How sucessful it is has nothing to do with it. My small business is subject to federal regulation. As a citizen and taxpayer I am subject to federal regulation. Really, regulation is kinda’ hard to avoid, as a business OR as a person. I imagine being a small company would make shareholder approval of pay even easier.
What you are advocating may sound like capitalism superficially, but is in practice oligarchy, for you want to divest decisionmaking from ownership, and want to keep decision making within a tiny cartel, many of whom have no equity stake themselves.
(But he does have a big incentive to write a sweetheart deal for, and approve the performance of, the CEO who also happens to sit on HIS board……)
June 10th, 2008 at 6:20 pm
MWS - so you admit most small shareholders never bother to send in their proxies or interview directors. But you advocate making it impossible for them to delegate salary decisions. This is an improvement, how, exactly?
June 10th, 2008 at 6:24 pm
48 - If the shareholders care so little for their money as to appoint boards who are more interested in making off with the corporation’s funds than making the corporation a success, that’s the shareholders own fault. They don’t need John McCain riding in on a white horse to save them from their own folly.
June 10th, 2008 at 6:30 pm
Holy crap, I assumed you meant this for large corporations. You mean you want to subject small business to more regulations?
I already explained that fraud is not part of the regulation I am talking about.
And why do you allege I wish anything other than for the owners to make their own decisions?
June 10th, 2008 at 6:31 pm
I don’t get what metro is bitching about. There has been talk of giving shareholders more proxy power for years. The SEC has put some possible regs up for comment. This is not some loony-left wing idea. Unless you consider the entire SEC to be radical leftists, which I know for a fact they’re not.
June 10th, 2008 at 6:38 pm
I am almost in line with Aron. If McCain doesn’t knock this crap off, all that will motivate me is the fact that Obama is who he’s running against, and that is exactly what I was not hoping to feel this election cycle.
June 10th, 2008 at 6:39 pm
Until recently, a lot of possible shareholder proxies were killed because they dealt with ordinary business issues. Well, the SEC has completely changed course either this year or last and is allowing a number of issues to be voted on, e.g. health care. I personally think it’s great that shareholders can get more involved in the companies they invest in. Aron is dead wrong; people should not sell their securities, if they think some policy is wrong, as the OWNERS of the company they should vote for change. Nothing but good can come of this. Maybe these people will finally start reading the annual reports that are sent to them. It’s a good thing to have an intelligent, active investor class.
June 10th, 2008 at 7:51 pm
PnGrata,
“So you admit most small shareholders never bother to send in their proxies or interview directors. But you advocate making it impossible for them to delegate salary decisions. This is an improvement, how, exactly?”
I never said that McCain’s proposal would be a panacea that cures all that ills corporate America, but it is a step in the right direction. No one ever said that shareholder approval of CEO salaries would keep Boards and Execs from pilfering shareholder money, but it would create a little more transparency and accountability. My point about the proxies is that small shareholders are virtually powerless and left in the dark. That is part of why Boards are able to lead shareholders by the nose. As I mentioned above, mutual funds (who at least have the same interest as other shareholders) have helped with transparency and accountability, but more needs to be done. I would also propose that upper execs of publicly traded companies who answer to Boards not be allowed to serve on the boards of other public companies. This would help prevent the sort of corporate incest and “you scratch my back and I’ll scratch yours” that goes on all the time. I would also look for other ways to empower pensions and mutual funds (who are large and sophisticated owners) with greater oversight and decision making. There needs to be watch dogs over the Board, because the average shareholder doesn’t know what the hell they do.
It amazes me me how many self proclaimed capitalists here are scared of transparency and accountability. They think they are defending the “marketplace,” but the incestuous cesspool of unaccountability they are defending looks more like Congress than an open market. When did marketplace transparency become “left wing?”
I can’t imagine why a real conservative would oppose empowering ownership with greater control and visibility. Somebody explain to me how the defense of trustees skinning owners is conservative. I would also like one of our “economic experts” to explain to me how in a “free market” a CEO can command a $170 million severance that has N-O-T-H-I-N-G to do with performance, when literally hundreds (if not thousands) of qualified applicants would take the job without such a guarantee. Somebody explain the supply/demand equilibrium there for me. You can’t. It’s the Old Boys Network.
June 10th, 2008 at 7:56 pm
MWS, all your assumptions come from leftwing media sources. Might want to read some of the books on economic conservatism I’ve recommended in the past. Pilfering is theft and punishable by jail and does not require government control of business.
You think there are thousands of qualified applicants to run a Fortune 500 company? You sound just like a liberal when you say such a thing — completely clueless about the actual business world.
What you’ve failed to realize when I use the term “national resource,” even though I’ve made it quite explicit, is that corporations are PRIVATE PROPERTY. I don’t seek to control your private property, so stay the hell away from mine. What hubris.
June 10th, 2008 at 8:00 pm
IR-MN,
“I personally think it’s great that shareholders can get more involved in the companies they invest in.”
AMEN! But some here equate weak ownership and strong Boards with the free market. They seem to think that greater accountability from decision makers means “fascism.” They seem to want owners who are ignorant and powerless, and easy prey.
June 10th, 2008 at 8:06 pm
Metro,
“all your assumptions come from leftwing media sources.”
Right. Like the CEOs who have spoken in classes taught in the University of Michigan’s MBA program. As for pilfering. When a guy gets $170 millions in exchange for losing his company billions, I have no other word for it.
Well, maybe “highway robbery.”
June 10th, 2008 at 8:08 pm
1) Liberal or Christian guilt for their money-making.
2) Do you really want me to point everyone back to the thread where I proved how ridiculous you were when it came to those bonuses?
June 10th, 2008 at 8:18 pm
Let’s translate this $170M severence and $8B loss example you use into numbers that your mind can comprehend, by dropping 5 zeroes.
Let’s say you build up a nice small business for yourself. You hire someone to run it so you can retire. It pays you $0-200,000 per quarter, averaging $100,000, AFTER you pay your CEO/president/manager.
In your retirement, your business has some trouble, and instead of $0-200,000 per year, you are now projected to be between -$100,000 and +$100,000 per quarter. You hire a new manager, the best you can find after an exhaustive search. He asks for a severance package, should things not work out in a couple years, of a measly $1,700.
He ends up losing $80,000 in a quarter. You fire him. Is that $1,700 severance irrational? Moreover, something that should be PROHIBITED?
June 10th, 2008 at 8:22 pm
Metro,
“Do you really want me to point everyone back to the thread where I proved how ridiculous you were when it came to those bonuses?”
Yep.
June 10th, 2008 at 8:25 pm
Metro,
“In your retirement, your business has some trouble, and instead of $0-200,000 per year, you are now projected to be between -$100,000 and +$100,000 per quarter. ”
LOL!!!! What if my business “has some trouble” B-E-C-A-U-S-E of the decisions made by the CEO I hired????
Stop worshipping pinstripe suits for a second and realize that some of these guys are boneheads who aren’t worth the money their friends vote for them (paid for, of course, with other people’s money).
June 10th, 2008 at 8:26 pm
I just restated the example here, as the thread was very long.
The new CEO did cause a drop in my example…. did you fail to notice that? Did you fail to comprehend the relationship between $80,000 and $1,700?
June 10th, 2008 at 8:34 pm
Metro,
You’re right. Merrill Lynch, Countrywide, Lehman Brothers, etc….. had NO CHOICE but to lose billions in the subprime lending market.
Of course, if CEOs are so hamstrung, then I reckon one is as good as the other, and we don’t need the anti-capitalist golden parachutes.
Now, can you admit that CEOs sometimes do a lousy job? Can you do that, Metro?
June 10th, 2008 at 8:34 pm
Nice example in #60. MWS is looking pretty foolish for buying into liberal dogma without understanding the economics.
June 10th, 2008 at 8:35 pm
Metro,
“Is that $1,700 severance irrational?”
Yep, when I can get get a dozen others who won’t demand that if they screw it up.
June 10th, 2008 at 8:36 pm
Of course I can admit that CEOs can do a lousy job. I did so in my own example in #60.
Somehow I think you are too embarrassed to read #60 too closely.
Thanks, ID GOP.
June 10th, 2008 at 8:37 pm
ID GOP,
Are you also in favor of weak ownership and strong Boards? Do you also believe that decisions regarding my money should be left with a barely accountable “elite” whose interests are not aligned with mine?
June 10th, 2008 at 8:37 pm
#66 CEOs who can run Fortune 500 companies are not a dime a dozen. Why don’t you try reading the Wall Street Journal for a few days?
June 10th, 2008 at 8:42 pm
Metro,
“Why don’t you try reading the Wall Street Journal for a few days?”
I used to work for Merrill Lynch. I’ve read a fair amount of the WSJ over the years. Now I was never high enough to get passed over for “the big promotion” so there isn’t anything personal in my attacks on unaccountable CEOs, but I was in long enough to learn a few things about corporate culture. Of course, the CEOs don’t want you to THINK they are a dime a dozen. That’s the facade. But the big lie in corporate America is that it is a pure meritocracy.
June 10th, 2008 at 8:48 pm
Metro,
To take your example further, I’d tell the prospective CEO who wants money for nothing, “If you’re so damn good, put your money where your mouth is, and I’ll comp you based on what you make for me. If not, then I’ll assume that you’re fat, dumb, and lazy.”
I don’t want the CEO whose interested in a bunch of guaranteed money. He’s a bureaucrat, not an entrepreneur. I want the guy who says “I’ll be rich if I make you rich, but not otherwise.”
June 10th, 2008 at 8:53 pm
If you can find a good one who’ll accept that even though others are offering severance, good for you.
The point is, how do you get from having your opinion, to deciding you are going to FORCE IT ON OTHER BUSINESS OWNERS?
Where the hell do you get off having such hubris?
June 10th, 2008 at 8:54 pm
Metro,
The irony here is that I am arguing for more transparency, greater accountability, a meritocracy, and stronger ownership, which you have called “fascism,” “liberal,” and “left wing.”
Does that make sense to you?
June 10th, 2008 at 8:59 pm
Metro,
“The point is, how do you get from having your opinion, to deciding you are going to FORCE IT ON OTHER BUSINESS OWNERS?”
You’ve got it wrong. I’m for taking power away from unaccountable, incestuous Boards, and putting it in the hands of OWNERS! I’d rather have capitalism than a kleptocracy. I’d rather have democracy in business than a secretive oligarchy.
June 10th, 2008 at 9:00 pm
MWS, I can usually find plenty on which to disagree with you, but I think you’re mostly correct in this post. I agree that companies should be allowed to pay a CEO what he’s/she’s worth. But I find far too many examples of CEOs who are inexplicably compensated for mind-blowingly dismall performance. There is definitely a need for more accountability to the shareholders.
June 10th, 2008 at 9:01 pm
The boards are HIRED by the OWNERS. Good God, are we back to THAT?
It’s liberal and fascist because it’s government control of private business. Look up the definition of fascism.
June 10th, 2008 at 9:02 pm
FredsFighter, did you read the example in #60?
Because that is the relationship between $170 million and $8 billion.
June 10th, 2008 at 9:04 pm
If shareholders want to give some bonehead billions of dollars with no accountability, that’s up to the shareholders, because they are the owners. BUT IT SHOULDN’T BE UP TO THE BOARD, WHO ARE NOT THE OWNERS, and who serve on EACH OTHERS’ boards, creating an egregious conflict of interest.
PERSONALLY, I’d tell a prospective CEO that if he wants guaranteed money, he needs to get a job on the assembly line. But if he wants the top floor suite, the limo, and the big bonuses, then he needs to SHOW ME THE MONEY!!!!!
But that’s just me. As a matter of principle, I’d leave that decision up to the owners, not the Board.
June 10th, 2008 at 9:07 pm
Metro, yes, I read your example. I, however, agree with MWS in that an “exhaustive search” can surely yield a qualified individual who doesn’t need a golden parachute as a condition for signing on.
And let’s get this straight. It doesn’t matter that a poorly performing CEO’s compensation is small relative to the company’s revenue. What matters is that horrendous CEOs don’t have a whole lot of motivation to engage in decision making that benefits the company in the long run. After all, they’re getting $170 million even if they screw the pooch.
June 10th, 2008 at 9:08 pm
Freds,
Thanks. I think Metro is missing the concept of “inexplicably compensated” as you put it so well. It’s not the marketplace which “inexplicably” compensates CEOs for “mind-blowingly dismall performance,” it is Directors who serve on each others’ boards voting themselves other peoples’ money.
June 10th, 2008 at 9:11 pm
“It doesn’t matter that a poorly performing CEO’s compensation is small relative to the company’s revenue. What matters is that horrendous CEOs don’t have a whole lot of motivation to engage in decision making that benefits the company in the long run. After all, they’re getting $170 million even if they screw the pooch.”
Exactly! In Metro’s twisted logic, the CEO’s compensation would seem even smaller if he lost even MORE money, as the % of compensation to loses would decrease. So if he lost $10 billion instead of just $8 billion, then he’s even MORE of a value, cause you are only paying him 2.1% of what he lost!
June 10th, 2008 at 9:14 pm
Look, nobody is in a position to command a $170 million parachute at hiring, if he or she has not previously made at least hundreds of millions, and most probably, billions, for their previous employers. They are being rewarded for THAT, plus a whole lot more if they make a profit for the next employer.
But neither of you have grasped that it is unacceptable for you to force yourselves into private establishments and tell us how to set our rules. How about I rile up a mass movement to force the Catholic Church to change its position on priests and celibacy?
June 10th, 2008 at 9:18 pm
I think it easy as an economic conservative to get carried away in worshipping unbridled capitalism. Any sort of attack on the venerable CEO, those engines of the economy, is an unspeakable sin. I’ve been there. And I still do revere the value of a wise and essential executive. But then I realized that not all CEOs are good. In fact, some are deplorable. And it’s not like free market forces are efficiently filtering them out.
June 10th, 2008 at 9:20 pm
Metro, the religious comparison doesn’t really apply very well here because corporations only exist because the government grants them rights as an entity.
And you still haven’t grasped the concept that MWS and I are simply pushing for more accountability to the company shareholders. Do you not think that would be a good thing?
June 10th, 2008 at 9:23 pm
Another though Metro. When a private company goes public, it submits itself to a different set of rules. More people have a vested interest in the company’s performance, and frankly, I think they’re entitled to a higher degree of transparency and accountability than currently exists.
June 10th, 2008 at 9:24 pm
MWS, Lots of good arguments. Be glad that your opinions are being adopted by the SEC and are being pushed by shareholder advocates nationwide. This last proxy season might be the start of more accountability.
Metro, I enjoy reading your opinions on economic matters. However, this is the first time that you really don’t make very strong arguments. (You can’t keep on calling us leftists). The general tide of the last years is going toward more shareholder control, exactly b/c of executive compensation. That’s why under SARBOX there are more independent directors dealing with compensation. As for your arguments that there are few if any good CEOs and we have to shower them with golden parachutes, while that’s just false rhetoric that has become hackneyed in my opinion. European companies are not even close in terms of US-style compensation and many of those companies are run brilliantly. Certainly the Euro car companies are better than the American ones. It’s just the culture now in corp America to pay the big names too much. There really are few standouts nowadays. The same trend has happened to law firms. Associates salaries are now insanely high b/c once one firm starts giving higher salaries, everyone has to follow. If you are truly concerned about corporate governance, which from all your comments it seems so, you should be concerned with 404 FIRST AND FOREMOST.
June 10th, 2008 at 9:29 pm
Freds, I’m all for more transparency and accountability. When individual companies decide to do so FOR THEMSELVES, to attract shareholders, increase their market value, etc.
I’m also open to a slightly higher degree of regulation for publicly traded companies, which is why I asked MWS how big my company must get for him to insist on controlling it. But he said only 10 shareholders was sufficient!
But publicly traded companies are still private property. And so are corporations as such.
June 10th, 2008 at 9:31 pm
#85, FredFighter, exactly. Institutional investors especially want to make sure that everything is on the up and up. If a company wants to go private and get out of regulation they can. That’s was certainly happening a few years ago. I thought we conservatives wanted competent governance. Why should the board (just like the Supreme Court) be the final arbiter of substantial corporate policy decisions.
June 10th, 2008 at 9:34 pm
Metro, do you think that shareholders are generally against holding the CEOs more accountable for their performance? I would suggest not. So why isn’t it happening? IMO it’s because there are obstacles in the way, e.g. the “incestuous” boards (as MWS puts it). I am in favor of some sort of regulation that eliminates or mitigates such obstacles.
June 10th, 2008 at 9:37 pm
I think you are discussing an imaginary problem. The bonuses look about right to me.
AND IT’S NOT YOUR BUSINESS, unless you are a shareholder, in which case you pursue shareholder action, NOT federal government action.
June 10th, 2008 at 9:47 pm
Metro,
You know, the worst damage that these outrageous CEO’ss parachutes create isn’t the dollars of the compensation itself. I’ll admit that Stan O’Neal’s $170 million is a pittance compared to the money he lost. The worst damage of all this guaranteed money is that it saps initiative, drive, and incentive. If this was a union getting $40 an hour GUARANTEED for their welders- despite the job they did or how long it took- I’m guessing you’d cry foul. But if the guy’s wearing a pinstriped suit and wingtips, it’s suddenly the Holy Marketplace that determines his pay and makes the ‘magic’ happen.
I’m not buying that crap. As far as I’m concerned, the higher up the food chain you go, the more performance based your compensation. I want transparency and accountability. You argue against both and call it capitalism. I’m calling BS. Give me a CEO who is lean and hungry, not some guy who demands a golden safety net when he doesn’t do his job.
June 10th, 2008 at 9:53 pm
I am not arguing against transparency and accountability, and you are smart enough to know it.
I am saying it is a private matter. Did the Catholic Church example go over your head?
June 10th, 2008 at 9:53 pm
MWS, good comparison. The nerve of CEOs to demand compensation regardless of their performance is little different from that of union workers demanding the same for themselves. Well, except that the CEO’s insisting on 15x more money…
June 10th, 2008 at 9:56 pm
Metro: assume, for sake of argument, the position that poorly performing executives are unjustly compensated. How do I, as a minority shareholder (but holding the same opinion as many others) take issue with this?
June 10th, 2008 at 9:59 pm
FYI, Metro, I would much rather the companies police themselves than have the government legislate another regulation, but they seem to be unwilling/uncompelled to do so.
June 10th, 2008 at 10:00 pm
You folks equating welders with CEOs are sounding more and more like Marxists.
#94: If you hold the same opinion with many other shareholders, you band together (the Internet makes this really easy nowadays), get an advocate, and head to the shareholders meeting.
June 10th, 2008 at 10:01 pm
#95: Again, you are imagining the problem of CEO compensation. They look about right to me.
June 10th, 2008 at 10:05 pm
Metro,
“Did the Catholic Church example go over your head?”
This is incredibly tangential to the discussion at hand, but I don’t want you using this as an excuse for ignoring the myriad questions which you have avoided so…..
Corporations, as Freds’ noted, are created under the laws of the United States. Hence, they owe their very life and existence to the United States’ government (in a legal sense). As such, those who make the decisions for the United States’ have a lot to say about the regulation and conduct of entities which are created under their auspices. Those who seek redress for their grievances or the injustice done by entities created under US law need to address their concerns to the US government. Likewise, if you have a beef with the Catholic Church, you need to take it up with God.
June 10th, 2008 at 10:09 pm
Metro,
“You folks equating welders with CEOs are sounding more and more like Marxists.”
?!?!?!?!?!
The point was unaccountable compensation. Are you trying to suggest that welders and CEOs are of different species? Wow. What the hell IS your point?
June 10th, 2008 at 10:12 pm
I absolutely reject that argument. Because common law has held that corporations have limited liability does not make them government property.
June 10th, 2008 at 10:15 pm
Metro,
Okay, if you know as much about the marketplace as you claim to know, then you realize there is a strong correlation between risk and reward (like volatility). If you’ve read “Mutual Funds for Dummies” you should know that. If the CEO wants high reward (big bucks) but takes on no risk (gets a golden parachute if he does a crap job), how does that reflect the principles of the marketplace? I’ve suggested that the higher up the food chain you go in a company, the more compensation should be performance based. That is correlating risk with reward, as efficient markets should. You seem to think that’s foolishness, and that eliminating risk and piling on the reward is evidence of the market at work.
So who needs to read their Wall Street Journal?
June 10th, 2008 at 10:15 pm
Metro,
“Because common law has held that corporations have limited liability does not make them government property.”
Nobody said they are.
June 10th, 2008 at 10:20 pm
Metro,
You’re arguments are getting desperate.
June 10th, 2008 at 10:20 pm
If a CEO’s downside is $170M and his upside is $500M, that’s incentive. Plus, at that level, CEO’s primary motivation isn’t the money, it’s the challenge.
If you disagree, make an issue of it at companies where you are an owner. Otherwise don’t tell people what to do with their property. What don’t you get about that?
#98 Implies that the U.S. government created corporations (which it did not) and thus has any regulatory power it wishes to excise. That’s a leftist argument.
June 10th, 2008 at 10:21 pm
Desperate? Telling you over and over not to assemble a mob to rule somebody else’s property? It’s ground for outrage, that’s for sure. Especially from an alleged Republican.
June 10th, 2008 at 10:23 pm
Metro,
“If a CEO’s downside is $170M and his upside is $500M, that’s incentive.”
Not really. He’s really damn rich either way. And rich is rich. Anyway, you’re assuming the upside numbers.
June 10th, 2008 at 10:26 pm
Metro,
“Telling you over and over not to assemble a mob to rule somebody else’s property?”
For the bazillionth time (this is getting REALLY old), I’m arguing for GREATER OWNER CONTROL. You are arguing for weaker ownership and stronger (corporate) bureaucracies. If any entity is “the mob” it is your beloved Board which disposes of the shareholders money in any way it sees fit.
June 10th, 2008 at 10:30 pm
We already answered that argument, PnGrata and I. #28 and #40.
June 10th, 2008 at 10:33 pm
Metro,
Let me try to boil this down for you……
Federal intervention is needed to wrest control from an unaccountable bureaucracy without a vested interest which has gradually taken control. This control rightly belongs to ownership, which does have a vested interest, but whose interests are being undermined by the very bureaucracy which does not share their interests, which is difficult (if not impossible) to get rid of.
Does that make sense?
June 10th, 2008 at 10:35 pm
Metro,
“We already answered that argument, PnGrata and I. #28 and #40.”
And I answered. In 33, 41, 42, and 44.
June 10th, 2008 at 11:30 pm
The following is from a book “The Politically Incorrect Guide to Capitalism” Everyone should read it.
If the steps necessary to turn around a company were obvious the company wouldn’t be in trouble in the first place.
If the shareholders said ‘We’ll pay you $20 million if you succeed, but nothing if you fail, it wouldn’t be attractive because the type of person who heads these companies can make plenty of money in a different job.
Nobdy objects when an automobile firm tells its assembly line workers “We will pay you $50,000 (base salary plus $5,000 bonus) if our cars sell well, but only $45,000 if we lose money.
But when the same is done for CEO’s with the numbers being much higher, because of the potenial earnings, people complain.
June 10th, 2008 at 11:40 pm
I want to go back to IR-MN in 86. He notes that there are many corporations are adopting rules where the shareholders approve CEO salaries. Good for them. That’s great that they want to exercise some more oversight over their property. Point is, that’s exactly where such decisions should be made, not with John McCain riding in and demanding all corporations operate under those rules.
You guys are also forgetting that for every company with a CEO who screws up but leaves with a golden parachute, there’s a hundred others with a CEO who has pretty much the same deal but doesn’t screw up. The current system works fine for them. They don’t need anyone to rescue them, much less John McCain.
You are also forgetting that investing in a corporation is a purely voluntary economic activity, and like all business activities involves risk. And the shareholders have absolute power. If the shareholders want to do something, there is nothing the board or the CEOs can do to stop it. If the shareholders don’t choose to exercise that power, that’s their own fault. Guess who appoints that board member who happens to be CEO at some other mega company the first company’s CEO is on the board of? The shareholders - who all get his resume and are perfectly free to vote any way they like - and to sell their shares if they don’t like who gets appointed.
Finally, minority shareholders who think a decision by the board involves a conflict of interest are perfectly free to sue on behalf of the corporation. Board members are fiduciaries, and are subject to all the restraints that entails.
June 11th, 2008 at 12:04 am
Looks like McCain is about to continue his leftward lurch…
John McCain is just one of dozens of Republicans abandoning President Bush to join Democrats who want to extend unemployment payments for people whose benefits have run out.
“We have to extend the unemployment benefits,” McCain said Tuesday on CNBC. “We have to …. because we all know Americans are hurting, and hurting badly.”
Dozens of House Republicans are likely to abandon Bush on a vote this week to award 13 additional weeks of unemployment compensation to people who’ve used up their benefits. Republican leaders and staff aides conceded that they were unlikely to be able to prevent Democrats from getting enough votes to override a likely veto.
The legislation would make more than 1 million people immediately eligible for extended benefits, with 3 million more becoming eligible in coming months. A House vote is expected as early as Thursday. Benefits vary by state but the nationwide average is about $300 a week.
The White House opposes the extension, saying such emergency steps have historically been taken only when the unemployment rate jumps considerably higher than the 5.5 percent reported for May.
McCain indicated that, like Obama, he could be open to a new economic stimulus package. Obama has proposed an additional $50 billion in relief on top of the $168 billion package approved this year.
He did not give a dollar figure for the stimulus, but when a donor asked how he would address economic troubles in the short term, he said:
“I can’t give you a good short term solution. I can tell you we ought to keep tax rates low. I can tell you we ought to, if necessary, extend unemployment benefits. We may even …,” McCain said before mentioning “another stimulus package.”
“Whatever we can do in the short term to relieve this burden, I think is obviously something that we need to do,” he said.
June 11th, 2008 at 2:16 am
I totally agree with Metro, PnGrata and the others who have chimed in on the conservative side of this.
I think MWS and others have missed the point entirely which is why you argued past each other for so long.
Metro is not saying any of those ideas are necessarily bad, just that government implementing them is awful. That is the problem GOVERNMENT CONTROL OVER PRIVATE PROPERTY. Metro has said himself that those are fine ideas and shareholders should pursue them if they choose to do so. However once the government starts involving itself it becomes a terrible, terrible idea.
Just so everyone is clear. It is in no way conservative to suggest that government intervention of this type is good, regardless of the motives or even the results of such an intervention.