Executive compensation

[Zorrofan]

This is a prime example of, IMHO, I would consider excessive. Can this really be justified?

 

http://www.nytimes.com/2006/04/13/business/13exxon.html?_r=1

 

 

cheers

Zorro

[benhacker]

I think Mr. Raymond is at least (nearly) universally viewed as a fantastic employee.  There are so many 8 and 9 figure payouts for incompetants, I think the focus would be best spent on those.

 

42 years with deferred comp can be a big payday...

 

Still though... wow.  I hope the 'wealthy' (however you define it) realize that a proative approach to addressing exec comp is in order.  The masses will drive something soon if it is not reigned in.

 

My 2 cents, I hope capitalists take the necessary steps needed to save capitalism...

 

Ben

[Guest ericopoly]

I find it more justified than this:

 

http://sportsillustrated.cnn.com/more/specials/fortunate50/2008/index.html

 

[Guest ericopoly]

Adding to that:

 

I see the same problem in both situations.  Rival teams/companies will hire your talent away in an escalation of pay packages.

 

Some people have suggested that shareholders should just stand up and demand the pay cuts.  Well, how do you pull that off across all competitors simultaneously?   Because if you are the first company to cut executive pay from $15m down to something like $1.5m, your executives may desert you and you'll be in a weakened position to replace them by offering only 10% of the market rate.

 

Sports teams are the same way.  You might argue that a player can't possibly be worth $100m, so if you own one of those teams and cut the pay down to $5m, do you really think the guy will stick around?  And if you don't own all the teams and make a coordinated pay cut, how can you pull this off without shooting yourself in the head?

 

Personally, I think nobody needs this much money.  People could be outraged though that the costs of taking the family out to a baseball game are out of reach for low income families, and some of that money goes to make sure some pro athlete is getting paid $40 million, because, obviously, hitting a ball with a stick for $1m just isn't worth it, right?

 

 

 

[Guest ericopoly]

There is bio of Lee Raymond on Wikipedia.

 

http://en.wikipedia.org/wiki/Lee_R._Raymond

 

He comes from a small town (20,000) in South Dakota:

 

http://en.wikipedia.org/wiki/Watertown,_South_Dakota

 

The median income for a household in the city was $34,348, and the median income for a family was $44,944.

 

He went to Watertown High School (public, small town) and holds degrees from public universities.

 

The New York Times didn't mention those facts, although they did mention that the corporation paid for his Country Club fees.

 

Small town, public schooling, can't the New York Times mention that anyone in America could have his job?  He's not Ivy League elite.

 

 

[arbitragr]

If you've been in the working world long enough, you'll find that compensation is pretty much rigged. You just have to know the right people and know how to work your way into it.

Nobody talks about it, b/c it's taboo and nobody wants to let the secrets out.

 

Those bonuses at ML, AIG, FNM FRE ... they're all standard procedure behind the scenes ... hush hush ... if the govt is going to bailout these companies I don't think they should be so naive as to think the money won't be misused ... moral hazard ... Hank was on to something when he refused to bailout Lehman.

 

Execs will take their money and run in this environment, b/c they know the good times won't come again for a while ...

[Guest JackRiver]

Adding to that:

 

I see the same problem in both situations.  Rival teams/companies will hire your talent away in an escalation of pay packages.

 

Some people have suggested that shareholders should just stand up and demand the pay cuts.  Well, how do you pull that off across all competitors simultaneously?   Because if you are the first company to cut executive pay from $15m down to something like $1.5m, your executives may desert you and you'll be in a weakened position to replace them by offering only 10% of the market rate.

 

Sports teams are the same way.  You might argue that a player can't possibly be worth $100m, so if you own one of those teams and cut the pay down to $5m, do you really think the guy will stick around?  And if you don't own all the teams and make a coordinated pay cut, how can you pull this off without shooting yourself in the head?

 

Personally, I think nobody needs this much money.  People could be outraged though that the costs of taking the family out to a baseball game are out of reach for low income families, and some of that money goes to make sure some pro athlete is getting paid $40 million, because, obviously, hitting a ball with a stick for $1m just isn't worth it, right?

 

 

 

 

Eric

 

Your post seems to shy away from the connection between star (popular) athletes and the excess revenues their names generate for their organizations even after accounting for their greater cost.  I always like to start my compensation thoughts with a useful example.  Take a stock broker at a no name firm, who is not provided any leads, minimal support, and generates a book of business worth 2 million per year in revenues.  Outside of the minimal support from his firm, this broker's revenue generation can be directly attached to his person.  On the flip side, you have a broker at a big name firm that is provided with leads and full support who also generates 2 million per year in revenues.  Clearly, one would not suggest both be compensated at an industry standard of 40% of revenues. 

 

It's always a function of cost benefit among the many alternatives, but the real world serves us up a muddied ability to measure this cost benefit.  The stock broker example above is a clean example because the revenues can be directly tied to one of our brokers and from there you can calculate a break even point.

 

Your premise seems to be that people are paid too much, but you can't do anything about it becuase if you cut their pay they will leave and go to the competition.  I agree, they will leave if the competition doesn't equally cut its pay, but are you worse off?  In most cases I think the cost benefit will prove you to be better off at least as it concerns Fortune 500 companies.  As for professional athletes, I think the compensation is more in line with the cost benefit these athletes provide to their organizations.  For many of them, cutting their pay will lead to losing that player but also less net profits for the organization.  That is, I'm not buying the argument that professional athletes are overpaid.

 

Fortune 500 CEOs look at these star athletes making millions and say to themselves I'm smart surely I should make as much if not more than some guy that can run fast or hit a ball, but rarely can it be shown that these CEOs actually help to generate excess revenues above their cost for their organizations than not only the next best alternative but for all alternatives.  I'd wager that at many of these companies you would be better off without a CEO. 

 

The funny thing about this is that Sports franchises are largely privately owned, where as, Fortune 500 companies are public.  To me it's clear what's driving the dysfunction in compensation.  It's our system of publicly owned companies.  In these companies there is a massive disconnect between the underlying owners of the businesses and the boards and managers at these companies which is largely brought about by financial intermediaries, managers of money, who are also compensated in bazaar ways.  Without this fragmentation and intermediation we see much lower compensation structures, or better yet, compensation structures that are better in line with performance.

 

To my mind if we want to fix errors in CEO compensation we first need to fix errors in money manager and financial intermediary compensation. 

 

Yours

 

Jack River

 

[Guest ericopoly]

Adding to that:

 

I see the same problem in both situations.  Rival teams/companies will hire your talent away in an escalation of pay packages.

 

Some people have suggested that shareholders should just stand up and demand the pay cuts.  Well, how do you pull that off across all competitors simultaneously?   Because if you are the first company to cut executive pay from $15m down to something like $1.5m, your executives may desert you and you'll be in a weakened position to replace them by offering only 10% of the market rate.

 

Sports teams are the same way.  You might argue that a player can't possibly be worth $100m, so if you own one of those teams and cut the pay down to $5m, do you really think the guy will stick around?  And if you don't own all the teams and make a coordinated pay cut, how can you pull this off without shooting yourself in the head?

 

Personally, I think nobody needs this much money.  People could be outraged though that the costs of taking the family out to a baseball game are out of reach for low income families, and some of that money goes to make sure some pro athlete is getting paid $40 million, because, obviously, hitting a ball with a stick for $1m just isn't worth it, right?

 

 

 

 

Eric

 

Your post seems to shy away from the connection between star (popular) athletes and the excess revenues their names generate for their organizations even after accounting for their greater cost.  I always like to start my compensation thoughts with a useful example.  Take a stock broker at a no name firm, who is not provided any leads, minimal support, and generates a book of business worth 2 million per year in revenues.  Outside of the minimal support from his firm, this broker's revenue generation can be directly attached to his person.  On the flip side, you have a broker at a big name firm that is provided with leads and full support who also generates 2 million per year in revenues.  Clearly, one would not suggest both be compensated at an industry standard of 40% of revenues. 

 

It's always a function of cost benefit among the many alternatives, but the real world serves us up a muddied ability to measure this cost benefit.  The stock broker example above is a clean example because the revenues can be directly tied to one of our brokers and from there you can calculate a break even point.

 

Your premise seems to be that people are paid too much, but you can't do anything about it becuase if you cut their pay they will leave and go to the competition.  I agree, they will leave if the competition doesn't equally cut its pay, but are you worse off?  In most cases I think the cost benefit will prove you to be better off at least as it concerns Fortune 500 companies.  As for professional athletes, I think the compensation is more in line with the cost benefit these athletes provide to their organizations.  For many of them, cutting their pay will lead to losing that player but also less net profits for the organization.  That is, I'm not buying the argument that professional athletes are overpaid.

 

Fortune 500 CEOs look at these star athletes making millions and say to themselves I'm smart surely I should make as much if not more than some guy that can run fast or hit a ball, but rarely can it be shown that these CEOs actually help to generate excess revenues above their cost for their organizations than not only the next best alternative but for all alternatives.  I'd wager that at many of these companies you would be better off without a CEO. 

 

The funny thing about this is that Sports franchises are largely privately owned, where as, Fortune 500 companies are public.  To me it's clear what's driving the dysfunction in compensation.  It's our system of publicly owned companies. 

To my mind if we want to fix errors in CEO compensation we first need to fix errors in money manager and financial intermediary compensation. 

 

Yours

 

Jack River

 

 

 

I would have done better I think had I used sports head coaches than sports athletes.  I think my message was lost given that star players are the ones that the fans come to see.  However, nobody comes to the games to see the coach.

 

In pro sports or at NCAA level, the head coach has a staff that does much of the work and he is more akin to a head executive officer -- certainly a much better analogy than using the players themselves.

 

Pro athletes are more like rock stars and the team more like record labels that sign them.  Coaches are more like CEOs.

[philassor]

  "To me it's clear what's driving the dysfunction in compensation.  It's our system of publicly owned companies.  In these companies there is a massive disconnect between the underlying owners of the businesses and the boards and managers at these companies which is largely brought about by financial intermediaries, managers of money, who are also compensated in bazaar ways"

 

amen

 

 

 

 

[Guest ericopoly]

Here is perhaps a fitting analogy:

 

http://en.wikipedia.org/wiki/Salary_cap

 

Players and players' unions generally concede that the overall wealth and stability of a league is just as important as the chance at higher wages for certain star individuals, and support the application of salary caps in principle, as long as they are not set too low.

[Guest ericopoly]

Here is a video of the head coach of the University of Connecticut basketball program being confronted about his multi-million dollar salary.  The reporter is angry that he is not returning his pay to the taxpayers despite the $2 billion state deficit.

 

He is the highest paid state employee in Connecticut.  His basketball program brings in $12 million according to him:

 

http://rivals.yahoo.com/ncaa/basketball/blog/the_dagger/post/Watch-as-Jim-Calhoun-emasculates-an-activist-rep?urn=ncaab,143147&cp=2

 

It's really not his fault that the state is in a $2b hole; after all, his division of the state revenue stream is performing well so he feels he is pulling his weight and doesn't understand why his pay should be any less than before (I think he may sympathize with some of the TARP executives here).

[Guest ericopoly]

http://www.usatoday.com/sports/college/football/2006-11-16-coaches-salaries-cover_x.htm

 

Coaches' contracts these days offer far more than just the basic salary. In scrutinizing contracts, USA TODAY found all kinds of perks: personal use of private jets, low-interest home loans, land deals, million-dollar annuities, pricey luxury suites at schools' stadiums, use of vacation homes and family travel accounts.

 

 

Okay, this is perhaps a very good comparison to what goes on in public companies:

 

 

Even presidents and trustees can fall prey to the impulse to overpay for the promised glitter of a winning season.

 

"These are emotional decisions," Likins says of the hiring process.

 

 

[Guest Broxburnboy]

Highly entertaining (or infuriating, depending on your point of view) but illuminating article on

the credit crunch, executive compensation etc.

 

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/

[sfwusc]

Here is the difference!!!

 

Those athletes and coaches are for the most part paid with private funds. The revenue is self supporting the Athletic department or organization. 

 

The executives are not generating enough extra revenue to equal the pay package.  Example: Some over leverage companies and make bad decisions to boast short term performance for their pay package.

 

The major problem is the board of directors is just a group of buddy buddies.  How do you get directors that are pro shareholders?  The fund managers don't care, and they hold a lot of shares due to the financial planners pushing mutual funds.

 

The answer to disagreeing with management is always just sell. Well everyone selling doesn't change the company. 

 

Any shareholder should be allowed to submit their name for the board of directors.  Current boards should be allowed to push current directors.  Each shares should get one vote per seat, so that if there are 9 directors...someone with 11% of shares gets one seat as they would hold enough shares to elect one seat by themselves.  51% ownership shouldn't get you the whole board. It should get you the majority of the board. 

 

The next time is public interest business should be restricted from enter locking funds between subs or non public interest businesses.  AKA AIG FP should have been put into bankrupcties with no risk to current policy holders.  If the future of the company tanked, then so be it.  Current policies should have been protected without taxpayer funds.

 

Same with banks. If the banking sub gets into trouble, then FDIC just takes the banking division.  If you don't want FDIC insurance then don't agree to it.  Good luck getting deposits.    People need to know their deposits are safe, and taxpayers need to be protected from this crap.

 

Basically if people have a fair shake and everyone shares the risk equal to the reward, then let everyone sink or swim on their own.

 

The problem is the system was unfair to shareholders and taxpayers.  The exec made off the shareholders on a risk to reward and the shareholder made off the taxpayers who had nothing but risk pretty much. 

 

-SFWUSC