Employment, Debt, Deficit & Austerity

[expat_panama]

...a causal link between performance and compensation of CEOs, which there is not...

...compensation contracts are based on past track records...

...a "bonus" after your bank was saved by the tax payers, much less hundreds of millions of dollars worth, totally discredits the idea that there could be any sort link between performance and pay...

Time to revisit the Planet Earth.

We're talking about most CEO's. Of the 10K publicly listed corporations, less than a thousand are banks. Of those, less than a dozen were involved with TARP. You don't get to complain about all CEO's because of something you believe happened somewhere.

 

[Toro]

...I'll believe they earn every penny when there is a causal link between performance and compensation of CEOs, which there is not...

It's a bad idea to decide a causal link doesn't exist just because we don't see it. Many things exist that we don't see at first glance.

Anyone who's hired a CEO, or even just plain thought about it, would probably understand that compensation contracts are based on past track records. So CEO's that fail may get paid contracted compensation, but they rarely get another top corp position again. Sometimes they quit business management and become economic advisers for Democrats; Ira Magaziner advising Clinton comes to mind

Sorry. The empirical evidence doesn't back up your claim.

[T]wo new studies ... suggest that when chief executive officers get paid more, shareholders end up earning less.

The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the "CEO pay slice."

It turns out that the bigger the CEO's slice of the pie, the lower the company's future profitability and market valuation. "These CEOs," says Prof. Bebchuk, "seem to be trying to grab more than they should."

Finance professor Raghavendra Rau of Purdue University and two colleagues looked at CEO pay and stock returns for roughly 1,500 companies per year from 1994 through 2006. They found that the 10% of firms with the highest-paid CEOs produce stock returns that lag their industry peers by more than 12 percentage points, cumulatively, over the next five years.

Companies at the top of the pay pile, Prof. Rau concluded, award their CEOs an annual average of $23 million—but leave their shareholders poorer (relative to other companies in the same industry) by an average of $2.4 billion per year. Each dollar that goes into the CEO's pocket takes $100 out of shareholders' pockets.

http://online.wsj.com/article/SB100...15950355411042.html#mod=todays_us_marketplace

 

[Brutus]

Thats why a 12 year old girl makes your iPhone.

It doesnt necessarily have to be this way.

sure, the iphone could cost $1000 instead of $500, we'd buy 70% less
and in China a million would lose their jobs and so could go back to mass liberal starvation!!

 

[expat_panama]

...Anyone who's hired a CEO, or even just plain thought about it, would probably understand that compensation contracts are based on past track records....

Sorry. The empirical evidence doesn't back up your claim.

[T]wo new studies ... suggest that when chief executive officers get paid more, shareholders end up earning less...

First, we need to get together on what "empirical evidence" is. From an encyclopedia article about Empirical evidence:

"Empirical research is a way of gaining knowledge by means of direct observation or experience."​

Reading someone esle's studies is not direct observation. Becoming a shareholder and hiring a CEO provides direct observation and experience.

Something else is that even if the WSJ makes a reasonable presentation of the studies, and even if the studies themselves are representative of the market and themselves not reflecting campus prejudices, they can still agree with the fact that compensation for current performance is based on contracts drawn up from negotiations based on past track records.

Putting it another way, you say pay doesn't match performance, and I agree adding that pay does not match current performance becuase it's based on past performance.

 

[Toro]

...Anyone who's hired a CEO, or even just plain thought about it, would probably understand that compensation contracts are based on past track records....

Sorry. The empirical evidence doesn't back up your claim.

[T]wo new studies ... suggest that when chief executive officers get paid more, shareholders end up earning less...

First, we need to get together on what "empirical evidence" is. From an encyclopedia article about Empirical evidence:

"Empirical research is a way of gaining knowledge by means of direct observation or experience."​

Reading someone esle's studies is not direct observation. Becoming a shareholder and hiring a CEO provides direct observation and experience.

Something else is that even if the WSJ makes a reasonable presentation of the studies, and even if the studies themselves are representative of the market and themselves not reflecting campus prejudices, they can still agree with the fact that compensation for current performance is based on contracts drawn up from negotiations based on past track records.

Putting it another way, you say pay doesn't match performance, and I agree adding that pay does not match current performance becuase it's based on past performance.

Read the article again. The empirical evidence is that on a going-forward basis, there is no evidence that compensation is linked to performance, i.e. the better the CEO does, the more he is paid. There have been several studies making this conclusion.

And yes, studies looking at compensation and performance of thousands of companies is empirical evidence.

 

[expat_panama]

...pay does not match current performance becuase it's based on past performance.

Read the article again...

This is a hoot! Here we are talking about something you say is always done wrong even though you've never done it and even though I and millions do it everyday and are quite happy with it.

This is like a parent trying to explain to their 10-year old boy why girls will some day be more fun than video games.

 

[Toro]

...pay does not match current performance becuase it's based on past performance.

Read the article again...

This is a hoot! Here we are talking about something you say is always done wrong even though you've never done it and even though I and millions do it everyday and are quite happy with it.

This is like a parent trying to explain to their 10-year old boy why girls will some day be more fun than video games.

Wait a second. You're the one always insisting that we stick to the data. And you are relying on your own anecdotes when the data says that CEOs are not paid on performance.

And I've been involved in enough corporate governance campaigns at the board level to know that this is correct.

 

[Dragon]

Marx also believed that company owners and managers didn't do any work and proposed replacing them with clerks

Neither Marx nor I believed that, and if he proposed replacing them with clerks then that is proof he didn't believe that. If he had, he would have proposed replacing them with nobody. Clerks, after all, work, which means there was work to be done.

You're not going to get anywhere by selectively posting quotes from Marx, for two reasons. 1) I used to be a Marxist, which means I'm very familiar with what the old boy believed and wrote, and can tell quotes taken out of context at a glance; and 2) I'm no longer a Marxist, which means I don't especially care what he said anyway. But neither do I care in any negative way, nor should you or anyone else. That's a logical fallacy.

Why don't you stop quoting Marx (unless you're saying you agree with him in the matter quoted) and deal instead with what I'm saying. Might seem a novel concept. I call it common sense.

In real life, CEO's do in fact work, they work hard, and they earn every penny of their incomes.

LOL you are in no position to make a statement like that. Neither is anyone else.

Something else is that we need to be clear when we are talking about income and when we're talking about wages. You can change the subject from incomes to wages
if you want but quoting what I said about incomes and saying that I was wrong about wages doesn't make any sense.

We were originally talking about wages.

 

[expat_panama]

...I've been involved in enough corporate governance campaigns at the board level to know that this is correct.

Ah. Your belief that corporate management pay is always done poorly is confirmed by your past personal misfortunes in corporate management, while my understanding that shareholder control can be and is usually done well is backed by my continuing successes in the field.

This doesn't make me right and you wrong. What it does is help me understand why I'll have to accept that there's nothing I could possibly say to explain to you that corp. management comp. packages can be and are often done well. What's also chilling is the idea that this chat is a microcosm of a nation's dialog, where those that have failed resent and fight to restrict those that have succeeded.

 

[Toro]

...I've been involved in enough corporate governance campaigns at the board level to know that this is correct.

Ah. Your belief that corporate management pay is always done poorly is confirmed by your past personal misfortunes in corporate management, while my understanding that shareholder control can be and is usually done well is backed by my continuing successes in the field.

This doesn't make me right and you wrong. What it does is help me understand why I'll have to accept that there's nothing I could possibly say to explain to you that corp. management comp. packages can be and are often done well. What's also chilling is the idea that this chat is a microcosm of a nation's dialog, where those that have failed resent and fight to restrict those that have succeeded.

You've made assumptions in this thread that simply are not true. I did not say that management pay is always done poorly. What I'm saying is that there is no correlation between pay and performance. And this is a function of a poor corporate governance system in America where the CEO and Chairman can appoint too many insiders and accomplices to boards and committees. Half of all members on the compensation committees of the biggest companies in America are composed of individuals who are not independent whereas shareholders are almost never on the compensation committee. That is a clear and obvious conflict of interest that works against the interests of shareholders.

People who claim to be capitalists and criticize social programs but defend the current system of corporate governance in this country are being conveniently selective in their application of how people are incentivized. These individuals claim that if you create incentives through social programs such that it causes people to act in an unproductive manner conveniently ignore that if you structure incentive compensation schemes that cause executives (agents) to act without regard to shareholders, they will do so. This is called "the agency problem," and is well known. That is exactly what is occurring in America today. It is plainly obvious by the agents' fierce opposition to the SEC's Say-on-Pay proposal, which would put more power in the hands of shareholders and less in the hands of agents and executives such that it would be more difficult for agents to take more for themselves at the expense of shareholders.

The shareholders are the foundations of capitalism, not the agents. Agents exist to maximize their own wealth, not shareholders. If you get the alignment of interests right, everyone wins, but that often does not happen in America.

 

[expat_panama]

...I did not say that management pay is always done poorly. What I'm saying is that there is no correlation between pay and performance...

My temptation is to respond with 'oh yeah well I didn't say you said "that management pay is always done poorly"' but then I'd have to put up with your coming back with nyah nyah I didn't say you said that I said--

--so I'll just hold back and understand your view is that correlation between pay and performance can be a good thing. Bottom like here is if you call for laws banning whatever it is that others do that you don't like, I'll probably vote against them.

 

[Toro]

...I did not say that management pay is always done poorly. What I'm saying is that there is no correlation between pay and performance...

My temptation is to respond with 'oh yeah well I didn't say you said "that management pay is always done poorly"' but then I'd have to put up with your coming back with nyah nyah I didn't say you said that I said--

--so I'll just hold back and understand your view is that correlation between pay and performance can be a good thing. Bottom like here is if you call for laws banning whatever it is that others do that you don't like, I'll probably vote against them.

You are making presumptions about my intentions and what I've said.

Corporations are legal structures defined by the articles of association under the purview of the states in which they incorporate, under the exchanges in which they list, and under federal law such that they can offer securities to investors. These corporate laws define how companies are organized, and include the structures of corporate governance and the duties of the officers of the corporation.

Property rights are the cornerstone of capitalism. Increasing the rights of shareholders to give them a greater say over their property and lesser power to the agents who represent owners is as pro-capitalist as it gets, which should be blatantly obvious to anyone who claims to support capitalism.

 

[zenguy]

.....most consuming is done by the wealthy....

That is simply not true. The non-wealthy outnumber the wealthy 100 to 1, and they spend almost all of the money they earn, so their total spending is actually the principal driver of the economy. Not only are the wealthy few in number, but they spend only a fraction of what they earn on consumables. The rest is saved or invested.

Am I allowed to mention the URL of my blog here? It's earthchurch.blogspot.com

 

[Toro]

.....most consuming is done by the wealthy....

That is simply not true. The non-wealthy outnumber the wealthy 100 to 1, and they spend almost all of the money they earn, so their total spending is actually the principal driver of the economy. Not only are the wealthy few in number, but they spend only a fraction of what they earn on consumables. The rest is saved or invested.

Am I allowed to mention the URL of my blog here? It's earthchurch.blogspot.com

You are allowed. But first you have to pay me $5.

I will send you my PayPal account number.