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Good read on CEO pay and stakeholder governance

Deacon923

Scooter Banks
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http://www.theatlantic.com/business/archive/2014/10/can-ceo-pay-ever-be-reeled-in/382042/

Long, but worth the read. There is good information on historical context and the whacky economic assumptions underlying gigantic C-suite pay.

TL;DR: the only real way to impact CEO pay in a way that is positive for society is to move away from the share price primacy model and toward a model where all stakeholders, not just the shareholders, are considered in corporate decision making.

I apologize in advance for the BKF batsignal.
 
What happens when customers get pissed?

What happens when employees get pissed?

Oh that's right customers buy elsewhere and good employees move to other companies. This hurts profitability. What does this do to the stock price? I am sure you can answer this one.

Then who gets pissed? Oh that's right, the remaining shareholders. Sounds to me like all stakeholders have a say.
 
Plenty examples of customers who can't simply "buy elsewhere." Leave your vacuum, bullets.
 
What happens when customers get pissed?

What happens when employees get pissed?

Oh that's right customers buy elsewhere and good employees move to other companies. This hurts profitability. What does this do to the stock price? I am sure you can answer this one.

Then who gets pissed? Oh that's right, the remaining shareholders. Sounds to me like all stakeholders have a say.

Clear, concise, correct. No need for Al Sharpton to step in here.
 
Sure, sure. Perfect markets are perfect. Nothing to see here.

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avg%20income%20percentile.png
 
Are shareholders unable to sell shares? Seems to me like they can go elsewhere, too. I don't have any personal experience though because I am smart and invest only in index and target date funds and not individual companies.
 
It says in the article I posted that the average holding period for a publicly traded share is 40 days, which impacts the short-term decision-making behavior of traded firms. I don't know where they got that statistic, as there's no link in the article, but it does occur to me that the statistic could be significantly skewed downward unless they somehow adjust for the millions of flash trades that get executed every day.

The idea that all this is self correcting is not really borne out. Modern share pricing clearly responds to short term boosting tactics at the expense of long-term thinking and investment. There has been a long-term trend in large American companies to spend more and more of their profits on stock buybacks and other price-boosting tactics rather than reinvesting in their businesses to produce long-term value. Shareholders and executives (who are compensated in stock options) win, all the other stakeholders lose, and the shareholders can cash out their winnings quickly while the rest of the stakeholders can't possibly be as nimble.
 
What happens when customers get pissed?

What happens when employees get pissed?

Oh that's right customers buy elsewhere and good employees move to other companies. This hurts profitability. What does this do to the stock price? I am sure you can answer this one.

Then who gets pissed? Oh that's right, the remaining shareholders. Sounds to me like all stakeholders have a say.

There's no justification for their pay. Even failing CEOs get huge packages and golden parachutes. In no other country does this happen.
 
Are shareholders unable to sell shares? Seems to me like they can go elsewhere, too. I don't have any personal experience though because I am smart and invest only in index and target date funds and not individual companies.

Shareholders have little to no power in these matters, Fat cat board members pay the outrageous salaries and get ridiculous pay themselves. Once a CEO is in power, it becomes a self-fulfilling prophecy as he (95% are men) stacks the board in his favor.

CEOs who fail should be fired with no parachutes at all. If the company loses money, CEOs and other executives should not be given bonuses or stock options unless theyare taking a company out of bankruptcy.

CEOs often talk about rewarding excellence, but insist on being paid for their own failures and mediocrity.
 
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It says in the article I posted that the average holding period for a publicly traded share is 40 days, which impacts the short-term decision-making behavior of traded firms. I don't know where they got that statistic, as there's no link in the article, but it does occur to me that the statistic could be significantly skewed downward unless they somehow adjust for the millions of flash trades that get executed every day.

The idea that all this is self correcting is not really borne out. Modern share pricing clearly responds to short term boosting tactics at the expense of long-term thinking and investment. There has been a long-term trend in large American companies to spend more and more of their profits on stock buybacks and other price-boosting tactics rather than reinvesting in their businesses to produce long-term value. Shareholders and executives (who are compensated in stock options) win, all the other stakeholders lose, and the shareholders can cash out their winnings quickly while the rest of the stakeholders can't possibly be as nimble.

In a free economy all this is self correcting. In an economy controlled by political greediness it is a lot harder to keep politically connected greedy crony capitalists from getting richer. For example Dave Stockman outlines how "QE 1,2,3, etc." does this:

http://www.lewrockwell.com/2014/10/david-stockman/good-riddance-to-qe/
 
In the last 30+ years the economy has had increasing interference from the government. $3 trillion in monopoly money added in the last few years which goes into asset bubbles. Don't confuse a free economy with what we have now
 
From the article:

"Just about every spring, the season of corporate proxy votes, we see the rankings of the highest-paid CEOs, topped by men like David Cote of Honeywell, who in 2013 took home $16 million in salary and bonus, and another $9 million in stock options."

Just by way of comaprison, Cote (who leads a company employing more than 130,000 people and generating almost $40 billion in revenue) made less in salary/bonus than any of Amare Stoudemire, Rudy Gay, Zach Randolph, Masahiro Tanaka, Carl Crawford, or Troy Tulowitzki.
And if you don't like it, then just like BKF tunes out the NBA, then don't buy anything fron Honeywell or invest in their stock. But then don't complain when your 401k or IRA tanks.
 
They're self correcting if you're a certain place on those charts.
 
In the last 30+ years the economy has had increasing interference from the government. $3 trillion in monopoly money added in the last few years which goes into asset bubbles. Don't confuse a free economy with what we have now

I don't think this is true, or at least, requires significant qualification.

As just one example, in the period before this 30 years, there were direct price controls on large portions of the American economy, and plenty of subsidies to various sectors. Tax rates on the highly paid and corporations were much higher in the 40s-70s, which surely qualifies as "interference". In the modern era, no Western government has ever operated a laissez faire no interference policy, monetary or otherwise. In other words, there is no golden age, unless you want to look at pre-modern agrarian economic history, in a time when there was neither a need nor the technical capability for government regulation of any economic activity other than border tariffs.

There is certainly plenty of crony capitalism, rent seeking, and industry capture of regulatory bodies. But I don't think that is sufficient to explain the stagnation of wages and concentration of wealth seen in the last 30 years. The greatly reduced taxation of the highest incomes, coupled with changes in the capital markets that discourage investment and encourage short-term profits, play a very significant role.
 
I don't think this is true, or at least, requires significant qualification.

As just one example, in the period before this 30 years, there were direct price controls on large portions of the American economy, and plenty of subsidies to various sectors. Tax rates on the highly paid and corporations were much higher in the 40s-70s, which surely qualifies as "interference". In the modern era, no Western government has ever operated a laissez faire no interference policy, monetary or otherwise. In other words, there is no golden age, unless you want to look at pre-modern agrarian economic history, in a time when there was neither a need nor the technical capability for government regulation of any economic activity other than border tariffs.

There is certainly plenty of crony capitalism, rent seeking, and industry capture of regulatory bodies. But I don't think that is sufficient to explain the stagnation of wages and concentration of wealth seen in the last 30 years. The greatly reduced taxation of the highest incomes, coupled with changes in the capital markets that discourage investment and encourage short-term profits, play a very significant role.

Just about everything about government has gotten bigger in the last thirty years. Onerous regulation, higher spending and much higher debt. I think a lot of this funny money created by the Fed went straight into the pockets of the crony capitalists:

Federal_Debt.png
 
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