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Mind Your Own Business

Wow, talk about prescience.

Yesterday, Dafydd ab Hugh went after Barack Obama's call for "more corporate accountability." Then, this morning, the Boston Globe decides to echo Obama's call for Congress to get in on the compensation of CEOs.

I am reminded of the old rebuttal some people said to the Catholic church, when priests sworn to celibacy lectured about the evils of birth control: "you no play the game, you no make the rules."

The big controversy seems to be among those publicly-traded companies. As the Globe notes, there are a lot of CEOs and other high-ranking corporate muckety-mucks making big bucks whether or not their companies make or lose money.

My response is this:

So what?

Every employee -- from the lowest janitor to the CEO -- is going to try to get the most compensation out of their employer they can. That is simple self-interest, and that is human nature. And it is the nature of an employer to give the least compensation it can, out of its own self-interest.

The Globe (and Obama) are upset because they think these companies are paying their CEOs too much, in disregard for the economic realities. They get raises whether or not the company does well, they get "golden parachutes" and other sweetheart deals that don't reflect the overall economic health of the company.

Again, I say, so what?

These things are, ultimately, self-correcting. If a company makes a lot of very bad financial decisions, then eventually it will dumb itself out of business.

When I was younger, I hit a bit of a bad streak for employment. I rode three consecutive employers into either bankruptcy or out of business entirely. Each time it sucked, and each time I moved on. And in each case, my prior employment was not held against me, because it was obvious I was a small cog in a bigger machine and didn't have anything to do with the decisions that wrecked my prior employer. (Although I did start to wonder if I was some sort of "Typhoid Jay.")

If a CEO or other bigwig rides a company into trouble, though, theoretically it should put a big black mark on their employment record. Unlike the little people like me, the CEOs actually have some responsibility for the overall success or failure of the company as a whole.

If that doesn't happen, if some CEOs can keep collecting hefty compensation packages despite piling up a track record for failure, then that is a problem.

But it ain't mine. And it likely ain't yours.

Corporations have a legal responsibility to their owners, not the general public. And it's established law that corporations have a fiduciary responsibility to their stock holders to maximize their profits. And when they violate that, then they can be sued.

So if you don't like how companies are conducting their affairs, you are free to sue them and compel them to act more responsibility.

IF you can prove that you have a personal stake in the matter.

If you're horribly upset about the head of the Blackstone Group giving its boss about a third of a billion dollars in a single year (as the Globe is) or appalled at the way the current management of the New York Times (which owns the Globe) has totally and utterly destroyed its credibility and flushed its sales and revenues right down the toilet, then buy some stock and make your voice heard.

In other words, if you wanna make the rules, get involved in the game. Put your money where your mouth is, and demonstrate that you are truly and seriously involved in the matter, and you can have a say.

If you're really that upset, then vote with your wallet. Don't do business with those companies that are so stupid as to keep giving their bigwigs such astronomical pay. Find out who gives them the revenues that they're paying out, and don't give them your business, either.

But if all you want to do is stand there and point and howl in rage about how other people are spending their money, then please feel free to STFU.

As Dafydd noted, you gotta stretch the hell out of the Constitution to make it a matter for urgent Congressional attention.

Besides, I hear there might be a baseball player somewhere who might have used some kind of drug, and if that foul corruption of the national pastime isn't stopped by Congress, lord knows what sort of havoc that might wreak.


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Comments (17)

I do have to say the board ... (Below threshold)
jpm100:

I do have to say the board of directors in general don't know what they are doing. They hire people like they were movie stars, more for their celebrity than their ability to act.

The only portion of your po... (Below threshold)
Jamie:

The only portion of your post with which I'll take issue, Jay, is that you claim that squandering of corporate resources on overpaid executives is a self-correcting problem.

While this is true, in theory, in a free-market economy, the manner in which our current government meddles regularly in the economy makes that assumption largely invalid. With price supports, tariffs, subsidies, and other perversions of the "general welfare" clause of the constitution, many corporations enjoy freedom from true competition, and subsequent freedom from financial responsibility to their employees, shareholders, or any other entity.

Bear in mind that the solution I favor is not for the government to do more, but to do much less.

Jay. Yep.Problem i... (Below threshold)
JoeC:

Jay. Yep.

Problem is, you are not following the current left thinking about "From each according to his abilities, to each according to his needs", which, I am sure, you will hear about.......

I think it's difficult for ... (Below threshold)
COgirl:

I think it's difficult for the average shareholder to change the compensation and/or make up of the board of directors. It's really the big institutions that are large enough to have an impact. But you're right, consumers can vote with their feet.

As an aside, I think the NYT was a bad example. Their share class system makes it nearly impossible for non-family investors to toss out the management in spite of how badly they are running the company. The best thing to do to show your displeasure is to not buy the papers and to not invest in the company. Only when Pinch has driven the stock price down so much will the family have the balls to throw him out, if they care at all.

COgirl, exactly. And it ha... (Below threshold)
SPQR:

COgirl, exactly. And it happens every day that shareholders vote with their feet. People too often focus on the difficulty of winning proxy fights in an annual shareholders meeting and don't notice that boards of directors are really reacting to what the stock markets think of their decisions.

Government control of salar... (Below threshold)
drjohn:

Government control of salaries?

Another one of the dreams of his father.

The Commie doesn't fall far from the dacha.

The irony of this is simply... (Below threshold)

The irony of this is simply too rich.

The Boston Globe is owned by the NYT. The latter has a grossly unfair two tier share voting structure. Shareholders have been voting with their feet for years. Billions of dollars of market value have evaporated. The principle owner (Pinch) has run the company into the ground and one of their flagship papers (the Globe) deigns to cry foul about executive salries? Only a socialist like Obama would climb on board this mess of contradictions, hypocrisy and arrogance.

Although I agree with Jamie... (Below threshold)
jpm100:

Although I agree with Jamie on the lack of competition, laying the lack of competition at the feet of "price supports, tariffs, subsidies," is incomplete. Over-regulation is a major cause.

For example, it seems like it would be an act of God to get a new refinery built by one of the 5 major gas companies. Imagine a prospective newcomer to the refinery business going to congress to be allowed to build one. Regulation has made a defacto oligopoly. Add to that the regulation by localities on their own variants of gas blends. You are lucky if more than one of the gas companies supplies a locality. Those regulations further stifle competition.

Another cause was turning a blind eye to anti-trust/anti-competitive practices starting the 90's because Wall Street loved it and had a desire to keep the 90's bubble going. From that gas company example, the government allowed 11 major oil companies to become 5.

Yikes! Someone has gotten ... (Below threshold)
Mac Lorry:

Yikes! Someone has gotten into Ron Paul's left over Kool-Aid. While the free market is better than communism, it's not perfect. I believe valid analogies can be drawn from biology where there's a long history of competition among individuals and species. What you find in biological systems is that a number of parasites develop to take advantage of that system. A parasite benefits from an association with the host out of proportion to any benefit it gives the host. I submit that there are economic parasites as well. These parasites take advantage of niches in the economic system to extract money (blood) without providing significant benefits in return.

Many CEO's and company board members have close relationships and it's really quite a small club. Board members draw good salaries for little work and often sit on many boards. Some of the CEO's were members of such boards themselves. When a board member starts putting the breaks on increased compensation for CEO's and other board members, well they are not around for long. There's a built in bias to increase compensation. Anytime a CEO gets a large bonuses or salary increase that has no relationship to the company's performance there's a parasitic relationship between the CEO and the company at some level. Unlike day traders, there's no risk for such CEO's.

There are already many laws regulating business, some of which I don't believe even Ron Paul would want to repeal, such as the laws against insider trading. Think of a law requiring linkage (justification) between CEO compensation and the company's performance as anti-parasite medicine. It will be good for the company and the economy because it lets shareholders keep more of their own money. It will also make CEO's work harder. If they want that multi-million bonus they need to improve the company's performance.

Y'know, I'm starting to emb... (Below threshold)
Clay:

Y'know, I'm starting to embrace the idea of limits on income. Maybe we oughta be paying attention to George Clooney's next paycheck after his latest box office stinker. Why should he be getting paid so much? Gawsh, and while we're talking about Ben Affleck, maybe he should be insisting on a pay cut, too. I mean, unless they want to be considered elitist or something similar.

I always want to apply the ... (Below threshold)
exhaustguy:

I always want to apply the same arguments to some liberal icons like Barbara Streisand. How much does she get paid for a concert versus the guy selling the t-shirts? I bet the pay inequity is similar to corporate CEOs vs. the lowest paid employees in the company.

That being said I think corporate CEO compensation is out of whack in many cases to the value generated by the CEOs. I feel the only roles the government should have in this situation is to ensure that as complete and timely information is available to the public and that all forms of compensation are taxed correctly (ie taxing stock options at their current true value) when issued. A CEOs reported compensation should not include options acted upon when those options could have been granted years ago. That being said back dated options (a recent scandal) should have been pursued by the SEC.

Our corporate compensation is driven alot by the problem with interlocking compensation committee boards of directors. In some cases you can have a clear conflict in which executives vote or have heavy influence to vote on each other's compensation.

In the final analysis if you don't like the way the company is run then don't buy the stock or sell the stock if you already own. Also, no one is forcing you to work at the company.

Im all for it, once Congres... (Below threshold)
GianiD:

Im all for it, once Congress lowers its salary to the US median income, no lifetime pension or other benefits, and term limits, AND, a cap on what attorneys can make, say, 10% of any award, or, a max to 2x the US median income.

Until then, let the free markets rule.

You will know congress has ... (Below threshold)
Scrapiron:

You will know congress has reached it's goal of full blown communism when the first full blown riot (among members)breaks out on the floor.

They also pay very big taxe... (Below threshold)
civildisobedience Author Profile Page:

They also pay very big taxes. When the rich make less, government starves for funds.

Let us not forget, either, ... (Below threshold)

Let us not forget, either, that much of the current state of CEO compensation was dictated by . . . Congress. Some years ago, Democrats were also outraged at CEO pay, and restricted the deductibility of executive salaries to the first one million dollars. Anything paid in salary beyond the limit could not be deducted as a business expense like every other business expense. (Why their outrage didn't extend to singing stars and pro athletes is unknown).

The idea was to FORCE companies to make stock and/or stock options a major part of CEO compensation packages. The thinking was that if compensation were tied to stock performance, only those who increased their companies' values would earn the big bucks.

Then along came the stock market boom, begun with the surge in tech stocks and fueled by a capital gains rate reduction, the market took off. It's remarkable that it has only been in the last dozen years or so that the Dow Jones moved over 5000, the S&P over 500, and the NASDAQ over 1000.

Bottom line: nearly every CEO in America made multiple times the money under the new, congressionally-mandated system with options than they would have on a straight salary.

The moral of the story is: Do not tinker with stuff you don't know sh*t from Shinola about. Incidentally, it was over-regulation like this, as well as the double taxation on repatriated overseas earnings, which has led many companies to move their corporate headquarters "offshore" to avoid the stupidity.

Ah yes, members of Congress... (Below threshold)

Ah yes, members of Congress and the Senate whining about what CEOs make. These would be the same politicians who in 1989 voted to have their own annual pay increases be automatic, right? Regardless of their performance.

These people make me laugh.

I voted with my feet. I no... (Below threshold)
UncleZeb:

I voted with my feet. I no longer own any stock. Not even in a 401K and I am better off for it. I make my own decisions as to my investments and am not at the whim of some unknown idiot. Wish I had been able to do this years ago.

I we dont buy the stock they will get the message.




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