Which is why everyone should have been opposed to the bailouts in the first place. At least then the executives would find their jobs and bonuses and possibly some of their own assets disappear. Maybe even some of them would be sued by shareholders for fraud. Instead we throw billions of dollars to the idiots and only months later start worrying about the problems involved in this. The lesson they and the market learn is “Don’t worry about taking stupid risks! If your screw up is big enough, the government will take care of it!” when they should have been learning “You do this stupid shit and your cushy life is ruined.” So far most of the idiots who caused the mess are still sitting pretty. Sure, that approach is more painful for a while, but the market will end up working more sanely without the complete screwups still around.
I’d love to see defenders of the swashbuckling CEO myth knock down some of the arguments in this article.
[quote=“NYT”]We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.
— Edward Liddy, chief executive, American International Group
Nothing highlights the fiction of performance-based pay quite so well as retention bonuses. It turns out that, at least for chief executives, retention bonuses are almost entirely unnecessary.
A few years ago, when the economy was still expanding, I looked into every large company that had changed chief executives over the previous six months. Not a single boss at any of them had left for another job. Such departures are so rare that Booz & Company’s annual study of executive turnover doesn’t even include a category for them. [/quote]
A ray of sunshine in Slate today.
[quote=“Eliot Spitzer: Even Judge Posner Thinks CEO Pay Is Nutso”]Posner wrote that there are growing indications that CEO compensation “is excessive because of the feeble incentives of board of directors to police compensation. … Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO.” He then examined the conflicts inherent in the process of CEO compensation determination, concluding that “[c]ompetition … can’t be counted on to solve the problem because the same structure of incentives operates on all large corporations and similar entities, including mutual funds” [emphasis added].
[…]
How much should management be paid for its services by shareholders?
Posner concluded that while judges shouldn’t directly review corporate salaries, evidence of unreasonable compensation could be evidence of a breach of fiduciary duty. Yes, these are legal words, but they reveal a remarkable conclusion—courts should take a hard look at private-compensation issues—and demonstrate how far, and rapidly, the world has shifted. The two issues Judge Posner examined—setting CEO compensation at major companies and determining the fees to be paid to mutual fund-management companies on the base of trillions of dollars of mutual-fund investments—are central to the governance of our financial system. It is remarkable that a leader in Chicago School thought would acknowledge that the market is so broken that it can’t be properly trusted on those two critical issues. Yet that is exactly what Judge Posner has concluded.[/quote]
The world grows more sensible by the day. Aside from the tea parties, that is.
Still more sensible.
[quote]“If you’re worried that lions are eating too many zebras, you don’t say to the lions, ‘You’re eating too many zebras.’ You have to build a fence around the lions. They’re not going to build it.”
- Judge Richard A. Posner[/quote]
[quote=“Huffington Post”]A longtime proponent of deregulation, the idea that business works best in a free market without burdensome government regulations, Posner began to change his mind when he realized the enormity of the crisis. This change of heart inspired him to write his upcoming book, “A Failure Of Capitalism.”
Though still a believer in the virtues of capitalism, Posner now emphasizes the importance of government regulations; the need to strengthen the regulatory structure by directly funding authorities rather than the current fee-based model; the dangers of excessive executive compensation, and even expressed support for the idea of changing bankruptcy law to make it easier for homeowners who face foreclosure.
“I wouldn’t have thought the economy was as vulnerable,” he explains. “I wouldn’t have thought that banking deregulation was dangerous.”
[…]
Since our free-market system encourages businessmen to be self-interested profit maximizers, Posner says it doesn’t make sense to also ask them to be conscious of their impact on the wider economy.
“You can’t expect [an] individual firm to be worrying about what his collapse will do to the rest of economy. That’s why you need government regulation of banking… Coal-burning utilities in the Midwest don’t worry about acid rain because that’s going to be in the east. That’s why you need regulation.”[/quote]
You mean externalities aren’t good?
I’m going to rewatch The Corporation, reread some reviews slagging it, and laugh, laugh, laugh…
Why would you ever worry about lions eating zebras?
People get the governments and the corporations they deserve, usually due to their own apathy, greed, or some other inability to control themselves or take charge of their lives. Fuck 'em.
If the lions are eating too many zebras, you don’t build a fence around the zebras, you let it sort itself out. The savannah will tend towards equilibrium. Sometimes, after good periods of rainfall, etc., there will be an excess of fat zebras, in which case there will be an excess of fat lions, but combined with yearly variations in climate, etc., the zebra population will be too great, and so some will die off and so too will some lions.
I absolutely love the logic of this. LOVE it. [quote=“]The Promise of CEO Outsourcing”]
Via Ezra Klein, a fascinating Business Week piece about how new CEO pay disclosure rules in Japan have revealed that Japanese executives are merely fancy lawyer rich and not world-crushing American CEO rich:
[quote]A drawback of Japan’s low pay is that it’s harder to recruit abroad because junior executives overseas can end up with higher salaries than their peers—or bosses—at headquarters. “They have to make a special case for hiring a VP who’s making more than the president,” says Motohiro Morishima, a professor of human resources at Hitotsubashi University. At Takeda Pharmaceutical in Osaka, the CEO takes home $2.5 million—half as much as the U.S. sales chief. […]
Nissan’s Ghosn, Japan’s top-paid CEO, took home $10 million in 2009. Over at Toyota Motor, meanwhile, Chairman Fujio Cho earned $1.5 million. CEO Akio Toyoda wasn’t among the four executives who received more than $1.1 million (though as the founder’s grandson, he owns about $160 million in company shares). Sony’s Stringer, Japan’s second-highest-paid executive, made $9.1 million. At rival Panasonic, nobody earned enough to require disclosure under the new rules.[/quote]
An editorial remark appended to the end of the piece says:
I assume that if this was an article about how some Chinese factory workers do essentially the same job as some American factory workers, but they do it for much less money, the bottom line would be about all the efficiencies that can be reaped through outsourcing production to Asia. And to me the bottom line seems to be the same. Toyota is a much larger and dare I say more successful firm than Ford, whose CEO appears to be making over $20 million a year. Surely there’s some senior person over there who speaks English and would be willing to do Alan Mulally’s job for Carlos Ghosn money, right? CEO pay in China also seems to be quite low.
Even within the West, if you look at the CEO’s of the major oil companies the French guy running the French company makes much less than the American and British executives running the other firms. Presumably Chevron could save some money by importing a French CEO, but the magic of class solidarity seems to largely prevent such moves.[/quote]
Always so fascinating to hear Marxists rage about instabilities of capitalism. Would help if Marxist stability didn’t always result in loss of freedom and poverty for all but the political elite EVERY SINGLE TIME.
[quote=“Jaboney”]I absolutely love the logic of this. LOVE it. [quote=“]The Promise of CEO Outsourcing”]
Via Ezra Klein, a fascinating Business Week piece about how new CEO pay disclosure rules in Japan have revealed that Japanese executives are merely fancy lawyer rich and not world-crushing American CEO rich:
[quote]A drawback of Japan’s low pay is that it’s harder to recruit abroad because junior executives overseas can end up with higher salaries than their peers—or bosses—at headquarters. “They have to make a special case for hiring a VP who’s making more than the president,” says Motohiro Morishima, a professor of human resources at Hitotsubashi University. At Takeda Pharmaceutical in Osaka, the CEO takes home $2.5 million—half as much as the U.S. sales chief. […]
Nissan’s Ghosn, Japan’s top-paid CEO, took home $10 million in 2009. Over at Toyota Motor, meanwhile, Chairman Fujio Cho earned $1.5 million. CEO Akio Toyoda wasn’t among the four executives who received more than $1.1 million (though as the founder’s grandson, he owns about $160 million in company shares). Sony’s Stringer, Japan’s second-highest-paid executive, made $9.1 million. At rival Panasonic, nobody earned enough to require disclosure under the new rules.[/quote]
An editorial remark appended to the end of the piece says:
I assume that if this was an article about how some Chinese factory workers do essentially the same job as some American factory workers, but they do it for much less money, the bottom line would be about all the efficiencies that can be reaped through outsourcing production to Asia. And to me the bottom line seems to be the same. Toyota is a much larger and dare I say more successful firm than Ford, whose CEO appears to be making over $20 million a year. Surely there’s some senior person over there who speaks English and would be willing to do Alan Mulally’s job for Carlos Ghosn money, right? CEO pay in China also seems to be quite low.
Even within the West, if you look at the CEO’s of the major oil companies the French guy running the French company makes much less than the American and British executives running the other firms. Presumably Chevron could save some money by importing a French CEO, but the magic of class solidarity seems to largely prevent such moves.[/quote][/quote]
THe pay gap would only be a problem if you believed there was only a few people who could do the job you wanted, something patently not true! I’m sure the Japanese could find 100s of candidates to run their operations in the US at pay rates of less than 1 million/year. Again it’s ridiculous to even think a company’s success is dependent on one CEO, even a stellar CEO like Jobs cannot take all the credit for Apple’s turnaround.
It’s US and UK companies that have loaded up on debt the most…money really is ‘funny money’ to them when they get paid so much no matter if their company goes bust 5 years down the line.
[quote=“headhonchoII”][quote=“Jaboney”]I absolutely love the logic of this. LOVE it. [quote=“]The Promise of CEO Outsourcing”]
Via Ezra Klein, a fascinating Business Week piece about how new CEO pay disclosure rules in Japan have revealed that Japanese executives are merely fancy lawyer rich and not world-crushing American CEO rich:
[quote]A drawback of Japan’s low pay is that it’s harder to recruit abroad because junior executives overseas can end up with higher salaries than their peers—or bosses—at headquarters. “They have to make a special case for hiring a VP who’s making more than the president,” says Motohiro Morishima, a professor of human resources at Hitotsubashi University. At Takeda Pharmaceutical in Osaka, the CEO takes home $2.5 million—half as much as the U.S. sales chief. […]
Nissan’s Ghosn, Japan’s top-paid CEO, took home $10 million in 2009. Over at Toyota Motor, meanwhile, Chairman Fujio Cho earned $1.5 million. CEO Akio Toyoda wasn’t among the four executives who received more than $1.1 million (though as the founder’s grandson, he owns about $160 million in company shares). Sony’s Stringer, Japan’s second-highest-paid executive, made $9.1 million. At rival Panasonic, nobody earned enough to require disclosure under the new rules.[/quote]
An editorial remark appended to the end of the piece says:
I assume that if this was an article about how some Chinese factory workers do essentially the same job as some American factory workers, but they do it for much less money, the bottom line would be about all the efficiencies that can be reaped through outsourcing production to Asia. And to me the bottom line seems to be the same. Toyota is a much larger and dare I say more successful firm than Ford, whose CEO appears to be making over $20 million a year. Surely there’s some senior person over there who speaks English and would be willing to do Alan Mulally’s job for Carlos Ghosn money, right? CEO pay in China also seems to be quite low.
Even within the West, if you look at the CEO’s of the major oil companies the French guy running the French company makes much less than the American and British executives running the other firms. Presumably Chevron could save some money by importing a French CEO, but the magic of class solidarity seems to largely prevent such moves.[/quote][/quote]
THe pay gap would only be a problem if you believed there was only a few people who could do the job you wanted, something patently not true! I’m sure the Japanese could find 100s of candidates to run their operations in the US at pay rates of less than 1 million/year. Again it’s ridiculous to even think a company’s success is dependent on one CEO, even a stellar CEO like Jobs cannot take all the credit for Apple’s turnaround.
It’s US and UK companies that have loaded up on debt the most…money really is ‘funny money’ to them when they get paid so much no matter if their company goes bust 5 years down the line.[/quote]
France’s business class is even more stratified than America’s. In the US, you have a lot of self-made men running family businesses and corporations. Almost every single French executive has been educated at a grande l’ecole such as L’ecole polytechnique or l’ecole centrale.
Asian style consensus management has its benefits, and I was always impressed by the frugality of Asian MNC’s and the reasonable wages they pay their top executives and board members. However, most Asian companies are great at replicating and perfecting technologies rather than innovating and inventing them. I think many inventors, venture capitalists, and CEOs might find such environments with limited salaries stifling for innovation. I don’t think paying successful CEOs such large salaries is a bad thing. However, payments at that level to continuously money losing enterprises in the auto or any other industry are a disgrace. I wonder what the CEO of Japan airlines or construction companies proped up by local pork spending in Japan really make. That’s the problem with the article. There are other ways to make that kind of money that aren’t always reported in Asian societies.
[quote=“Chewycorns”][quote=“headhonchoII”][quote=“Jaboney”]I absolutely love the logic of this. LOVE it. [quote=“]The Promise of CEO Outsourcing”]
Via Ezra Klein, a fascinating Business Week piece about how new CEO pay disclosure rules in Japan have revealed that Japanese executives are merely fancy lawyer rich and not world-crushing American CEO rich:
[quote]A drawback of Japan’s low pay is that it’s harder to recruit abroad because junior executives overseas can end up with higher salaries than their peers—or bosses—at headquarters. “They have to make a special case for hiring a VP who’s making more than the president,” says Motohiro Morishima, a professor of human resources at Hitotsubashi University. At Takeda Pharmaceutical in Osaka, the CEO takes home $2.5 million—half as much as the U.S. sales chief. […]
Nissan’s Ghosn, Japan’s top-paid CEO, took home $10 million in 2009. Over at Toyota Motor, meanwhile, Chairman Fujio Cho earned $1.5 million. CEO Akio Toyoda wasn’t among the four executives who received more than $1.1 million (though as the founder’s grandson, he owns about $160 million in company shares). Sony’s Stringer, Japan’s second-highest-paid executive, made $9.1 million. At rival Panasonic, nobody earned enough to require disclosure under the new rules.[/quote]
An editorial remark appended to the end of the piece says:
I assume that if this was an article about how some Chinese factory workers do essentially the same job as some American factory workers, but they do it for much less money, the bottom line would be about all the efficiencies that can be reaped through outsourcing production to Asia. And to me the bottom line seems to be the same. Toyota is a much larger and dare I say more successful firm than Ford, whose CEO appears to be making over $20 million a year. Surely there’s some senior person over there who speaks English and would be willing to do Alan Mulally’s job for Carlos Ghosn money, right? CEO pay in China also seems to be quite low.
Even within the West, if you look at the CEO’s of the major oil companies the French guy running the French company makes much less than the American and British executives running the other firms. Presumably Chevron could save some money by importing a French CEO, but the magic of class solidarity seems to largely prevent such moves.[/quote][/quote]
THe pay gap would only be a problem if you believed there was only a few people who could do the job you wanted, something patently not true! I’m sure the Japanese could find 100s of candidates to run their operations in the US at pay rates of less than 1 million/year. Again it’s ridiculous to even think a company’s success is dependent on one CEO, even a stellar CEO like Jobs cannot take all the credit for Apple’s turnaround.
It’s US and UK companies that have loaded up on debt the most…money really is ‘funny money’ to them when they get paid so much no matter if their company goes bust 5 years down the line.[/quote]
France’s business class is even more stratified than America’s. In the US, you have a lot of self-made men running family businesses and corporations. Almost every single French executive has been educated at a grande l’ecole such as L’ecole polytechnique or l’ecole centrale.
Asian style consensus management has its benefits, and I was always impressed by the frugality of Asian MNC’s and the reasonable wages they pay their top executives and board members. However, most Asian companies are great at replicating and perfecting technologies rather than innovating and inventing them. I think many inventors, venture capitalists, and CEOs might find such environments with limited salaries stifling for innovation. I don’t think paying successful CEOs such large salaries is a bad thing. However, payments at that level to continuously money losing enterprises in the auto or any other industry are a disgrace. I wonder what the CEO of Japan airlines or construction companies proped up by local pork spending in Japan really make. That’s the problem with the article. There are other ways to make that kind of money that aren’t always reported in Asian societies.[/quote]
Holy crap! I agree with Chewy 
Yep I mostly agree with it too, it’s his lucky day! But I still don’t see the argument for paying CEOs so much money, their influence is extremely over-rated in the scheme of things. Running a company is very much a team effort. I can see the owner getting paid that much as it’s his company, but NOT the CEO, who plays with other peoples money and doesn’t take on a significant degree of risk. Why not pay more money to the most productive members of your company instead?!?
Think about it, the logical way to renumerate a CEO is to majority link his income to the shareholding/revenue/performance over a 5 year rolling contract period. Not an annual one. And certainly there can no question of retention bonuses, clawback should be included in contracts. You f$%k up, you pay.
The main problem with corporate governance is the ‘short-termism’ involved. You do an M&A and see the profit temporarily improve?
http://www.scribd.com/doc/528918/Why-MAs-Fail-often
Sorry you don’t get payback for that unless it is shown to have been beneficial by independent review 3 years down the line.
This of course is the same reason so many banks bet such their house on recent credit bubbles, it simply wasn’t their money, they didn’t emotionally fear losing it all. They can always retire or move on and keep their salaries.
headhoncho: I agree about linking CEOs’ income to the performance (upside and downside) of the company, which is something that impresses me greatly about Buffett. However, I think the market can sort that out.
Shareholders or even the customers of banks (or any company for that matter) should have enough knowledge, or start acquiring that knowledge, as to the payment packages of top executives and corporate culture in general and then make an informed decision about whether they want to be shareholders or customers. A lot of what passes for corporate culture is bullshit, but let’s not let the shareholders or customers/consumers off the hook either. This is a societal issue of short-termism. I get sick of people who complain about certain organisations yet who continue to feed the monster, so to speak.