Posted on 02/07/2009 6:01:19 AM PST by Brilliant
President Barack Obama's plan to limit executive pay to $500,000 a year -- plus restricted stock -- for institutions that get government funding is understandable. Still, salary caps are only a stopgap measure that fails to address the root of the problem.
The real problem is that many corporate managements operate with impunity -- with little oversight by, or accountability to, shareholders. Instead of operating as aggressive watchdogs over management and corporate assets, many boards act more like lapdogs.
Despite the fact that managements, albeit with some exceptions, have done an extremely poor job, they are often lavishly rewarded regardless of their performance.
We must change this dismal state of affairs if we are to rebuild our economy in a sustainable way that restores confidence. If we don't, these problems will keep recurring as investors pile into the next Wall Street innovation or asset bubble, enabled by the kinds of managements that nearly sank Wall Street.
The problem, as I have long maintained, is that boards and managements have been entrenched by years of state laws and court decisions that insulate them from shareholder accountability and allow them to maintain their salary-and-perk-laden sinecures.
What we need are fewer government rules at the state level that protect managements. We need to return capitalism -- our great national wealth machine -- to its roots, where owners call the shots to managements, not the other way around.
Currently, corporate law is largely the province of state governments, not federal. As a result, most corporations migrate to, and incorporate in, states that offer the most protection for managements.
Management-friendly states have a vested interest in attracting these companies because hosting them generates a substantial portion of state revenues. It's a symbiotic relationship: The state offers management protections and, in return, receives much-needed tax revenue...
(Excerpt) Read more at online.wsj.com ...
“What they really need to do is force management to get shareholder approval of their compensation”
As if executive pay speculation is what sunk our economy. Right.
Irrespective whether it caused the bad economy, they should still do it. I see little reason why top management should be able to steal from shareholders simply because they are in control of the company.
“capitalism” doesn’t exist. It’s a boogeyman invented by the communists.
People buying & selling their property in an open market is just NORMALNESS.
When Xerox started (Haloid), employees were paid in part in stock. It created a goal for employees.
Too late now, Komrad Carl. Welcome to the commune.
I don’t know if Icahn has the solution, but something’s wrong when CEO’s are paid $80 million just to leave a company and stop doing damage. It happened at EDS twice.
So shareholders now should be in on every financial legal negotiation made when top managers move in and out?
I suppose there are some who think that voters should vote on every military manoeuvre made by the military as well.
There's already a problem with shareholders demanding short term gains at the expense of the long term health of the company. I think Icahn's own self interest is showing.
You can structure this a lot of different ways without having to approve every change in executive management.
For example, shareholders could have control over the total amount spent on executive compensation. If management wants to fire one guy and hire another, no change is needed so long as they don’t exceed the compensation limit.
I think that the hundreds of millions of dollars or even billions that are paid to select CEOs is not the product of free market forces. When a guy who drives a company into the ground gets paid a huge bonus to leave, you know that there is something wrong with the system. In my view, the problem is that these corporations have organizational structures that insulate management from the shareholders. Capitalism is based upon the notion of entreprenurial control. If the shareholders don’t have control, then you don’t have capitalism, and the system is bound to fail.
“People buying & selling their property in an open market is just NORMALNESS.
This is certainly true. However, when you have huge organizations that are incorporated in one country, operate in another, and are listed on the stock exchange of a third, with the stock owned by people living somewhere else, you have a somewhat artificial system.
It is a lot of it. Greenspan made a speach not to long ago where he made the statement that it never occurred to him that corporate officers would not be motivated to protect shareholder equity. Well, they were not and they didn't.
Corporate officers have been motivated to structure their businesses so that they can loot the corporation for as much money as possible. Investment was not based on what would make the company most productive, but what would make the officers the most income - and they made Gazillions of it.
The shareholders, the FED, and the taxpayers are now stuck with the debt while they skimmed off the assets.
So yeah, executive pay is a large part of what has sunk our economy.
The term Capitalism was coined by opponents of the free market as part of a dialectic.
Businessmen are the one group that distinguishes capitalism
and the American way of life from the totalitarian statism
that is swallowing the rest of the world.
All the other social groups- workers, farmers, professional
men, scientists, soldiers- exist under dictatorships, even
though they exist in chains, in terror, in misery, and in
progressive self-destruction.
But there is no such group as businessmen under a dictatorship.
Their place is taken by armed thugs: by bureaucrats and
commissars.
Businessmen are the symbol of a free society- the symbol
of America.
AYN RAND
“when you have huge organizations that are incorporated in one country, operate in another, and are listed on the stock exchange of a third, with the stock owned by people living somewhere else, you have a somewhat artificial system”
I’m not sure why that should be artificial, or what relevance it has. You have different jurisdictions, but trade has always gone on between countries, and has always been one of the backbones of prosperity.
I think you have to look at total compensation across the company.
At my workplace, there are about 250,000 employees. Our CEO makes good money, about $25 million a year. That is between him and the board.
But the bulk of our compensation expenses are about 100,000 employees who make between $100K and $500K. There total comp is obviously much greater than that of the CEO and his directs. More importantly, it is a market-rate comp, based on paying the least possible they are willing to take to do the work, considering their value to the company and what competing employers might offer. That means, basically, that we’re stuck with these costs.
Given this, the cost to stockholders of CEO and top executive comp is insignificant. It doesn’t matter much to the bottom line if he takes $25 million or $200 million.
That, of course, is how executives who are not worth it get away with taking large salaries. You can bet that if it really made a significant difference, stock analysts would be all over it.
Obama plan: Nail the management, ignore the Unions and government mandates...
So shareholders are now in charge of scouring the high-finance employments markets and keeping tabs on the ebbs and flows of international markets and trade dynamics to decide exactly what compensations should be allowed their top execs?
Shareholders are busy people with their own jobs. You expect them to know how to entice, hire and fire top talent?
Of course it is. Did you think the gov't was controlling it?
With that closing statement, Icahn favors the pork bill with NO economic stimulus.
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