There are a number of other benefits as well. Such as having a pool of resources that can be much larger than any single person at the corporation, and having an organization that isn’t dependent on one rich guy to survive.
And judging from history, I don’t think that a return to feudalism - the “one rich guy” alternative to corporations -would make things better. Certainly not more accountable
Unless you nationalized the companies how exactly do you propose to enforce this? Not going to even get into whether it’s a good idea or not…but how do you figure you’d dictate policy to private companies and force them to implement this plan?
When companies pick a CEO, they don’t just pick some random schlub off the street. They are competing with OTHER companies for the cream of the crop to run their companies. That doesn’t mean that whoever they get will do a good job, and I certainly think it would be in the best interests of some companies to put in performance metrics in when negotiating bonuses and such for the top slots…but again, how do you propose to make companies do this?
I don’t see how you could institute it short of putting a gun to companies collective heads and forcing them to do it. As to whether it’s a good idea or not I’d say in most cases not. It’s in the best interest of most large companies to get the best CEO they can…and they are in direct competition with OTHER companies for a very small pool of talent. That means it’s a sellers market so to speak…sort of like top athletes and other elite type people. Basically companies are going to do what they perceive as what’s in their individual best interest. They will of course make mistakes…but you (or the government) trying to anticipate those mistakes and ‘fix’ them (by fighting the last war essentially) is probably going to have unintended consequences down the road. My guess is that by trying to ‘fix’ this issue you will only open up something else and companies find other means to entice those top elite executives over to run THEIR companies…so you will be in an endless cycle of more and more regulations with bigger and bigger guns until companies finally give it up as a bad job and move EVERYTHING overseas to some place that doesn’t fuck with them as much.
Just my guess of course.
-XT
It’s called “the law”. The government regulates all sorts of things about how businesses do business, fortunately.
No, it’s not in the “best interest of most large companies to get the best CEO they can”; companies have no interests. As said above; CEOs are chosen by each other, essentially. They look out for their own, not the welfare of a company that they regard as expendable.
It’s just like all the communities that give tax cuts and other concessions to companies to convince them to come or stay, and then watch as they choose some other locale instead . A locale that appeals to the people in charge, with things like good private schools and golf courses; and not places that appeal to “the company”, which when you get right down to it is just a thing. Saying that something is in the company’s best interest is not a good argument, because the company has no such thing.
Companies may not have interests, but shareholders do, and they’re very much interested in getting the best CEO they can. What you’re railing against is known as the principal-agent problem, and is by no means limited to CEOs.
So, you propose to create a law to force companies to policies you dictate on how to hire their CEO’s then? Just checking to make sure that’s what you are saying here. Will you write another law that forces them to stay here in the US, or will they be free to leave?
I see. And companies are too stupid to see this of course. It takes someone with your keen eagle eyed gaze to determine that it’s NOT in a companies best interest to do what they think is best, but instead YOU have the solution to their problem. And of course you will implement this at gun point…for the good of the workers and peasants! Er, I mean for the good of the companies in question.
I have no idea what you are getting at here. Are you saying that it’s not in the best interest of those ‘communities’ to give tax incentives to draw in corporations to build plants or offices in their areas?? That these communities are doing it out of the good of their hearts or something? Or do you mean something else?
-XT
I spent a good part of my career writing executive compensation plans for CEOs, Members of the BOD, and other senior execs. The most profitable time of my life was when everyone got upset about CEO salaries and capped the tax deduction at $1,000,000.
Thanks to that bit of populism, I was billing out tens of thousands of dollars in projects writing bonus and long term incentive plans for CEOs that would be based on performance. I promise that if you write your regulation, they will hire guys like me at Towers Perrin, Watson Wyatt, Hewitt and other firms to find ways to pay top dollar regardless and still be legal in the regulations.
A lot of reporting on high CEO pay is rife with errors. When Eisner left Disney, people commented on his stock. They neglected to notice when he received those shares, and what Disney’s value was when he was given them as an incentive. Don’t react to the number without checking the DEF-14A (aka the proxy). In there you can see the past 3 years of salary, bonus, LTIP, stock, options and other perks for yourself. You can also check out the members of the compensation committee and the BOD and look for interlocks (that is where CEOs serve on each other’s boards).
Of course; companies are mindless. They are too stupid to see anything at all.
I mean that it doesn’t work; they make the same mistake you are making, and treat companies as entities that have interests and desires. So they appeal to the companies supposed interest in such things as lower taxes; and all that happens is they are out some tax revenue and the company builds it’s offices somewhere that appeals to the people who run the company; someplace with nice golf courses, say. As opposed to someplace that appeals to the company itself.
I was thinking you’d just pass a law stating something like all bonuses given to senior officers of a company over a certain number of employees are subject to a two-year escrow waiting period. I don’t see this as being very restrictive. The bonuses can still be as high as they want. The salary itself can be as high as they want. Seems pretty simple to this non-lawyer and non-financial guru.
Please address my question in post #4.
From the experience I’ve had in corporations, compensation comes in three forms: salary, the options you describe, and immediate bonuses. The one good thing about the options that vest each year is that if the company tanks, the options aren’t worth anything. I think this is one reason that cash bonuses are used. Again, from my experience, the two have been offered as a choice: you can have X dollars in stock options or Y dollars in cash right now. If one is working at a high-growth company, the options can be a good idea. But if the company’s prospects don’t look great over the next few years, cash may be more attractive. And who better to have a feel for the company’s future than its most senior management? With the stock options, they become worthless if the company tanks. I’m trying to build in a similar mechanism for the cash bonuses, tying whatever value they may have to the CEO to the health of the company.
Add me to the pool of people who do not comprehend why something like this would be so difficult to enforce. Companies must have licenses to operate provided by the state, or occasionally the feds. Pass legislation mandating that a package of auditing paperwork must be filled out and submitted each year along with their checks and taxes. It is subject to verification at any time, and if fudging is found then you revoke their license until they get compliant. Prosecute the ones that consistently violate the laws. Make full transparency, and a yearly audit mandatory for corporations that make over a certain number per year. I don’t see any reason why we cannot legislate the manner in which businesses operate. It may be difficult to enforce at all times, but it certainly would make keeping an eye on the big boys a lot easier.
It is clear our CEOs make much more than their counterparts in other countries. It is not justified. Warren Buffet was on TV talking about them, He said CEOs are the heads of fraternities in college. They are friendly and know how to schmooze. He said he likes to golf with them but he does not do business with them . They are not the sharpest guys in management.
The head of Lehman, Fuld, says that they have a Compensation Board which determines salary and bonuses. He then said he appointed them. They set their own salaries and bonuses by stacking the Compensation Board and Board of Directors. He made a huge salary and bonuses as the company was failing. He made nearly 500 million in 8 years.
My guess is that his straight salary was a small portion of that. The big money comes in the form of cash bonuses and stock options. The stock options don’t worry me so much in the scenario of a company going under, as the vesting schedule is usually five years and they’re worthless if a company tanks. The bonus system seems to be something that is egregiously abused. When things don’t look good, the Board knows it before the rest of us. And they just give each other these parting gifts. It’s disgusting and needs to be 1) stopped and 2) those who seek to game the system like this be held accountable.
No, his salary was $750k. He got ZERO cash bonus in 2007. What he DID get was a huge stock grant. This is what I mean by make sure that you check out the actual numbers and what they are based on.
Fuld’s compensation is a matter of public record, and can be reviewed here: