The Demonization of Corporations

[Clark Addison]

What do you think motivates companies to pay executives like they do? This is a marketplace, and there are plenty of people who would love to have a job that rakes in millions every year. I have a hard time believing that boards will pay $90 million for a job they can get done for $900k. Bonus packages are included to encourage CEO's to add value, and when they add value, they get a commission. We pay huge commissions all the time without batting an eye. Realtors make thousands of dollars for sometimes doing more than showing a home twice and including it on their website.

Whether CEO's earn their pay or not is for the boards to decide, and I suspect the market is efficient. I doubt that compensation can be more fairly distributed by any other system while still encouraging CEO's to maximize profits for the company.

CEO pay is far down on my list of "problems" with the economy. As long as median incomes are moving up, I don't care that much what a CEO makes. Also, I think that there are absolutely some CEOs who are worth a huge amount of money. I'm a pretty smart guy, but I couldn't have done what Steve Jobs did at Apple. If Apple had paid him a billion dollars a year, you could make a good argument that it was justified.

Having said that, I think there are problems in two areas. First, I think that BoDs are not very good at determining which CEOs are worth $90MM, and which aren't. So a good CEO gets paid $90MM, and no one complains much, but a bad CEO, of which there are plenty, also gets paid an exorbitant amount of money. Second (and related) is that when that bad CEO fails, he still gets rewarded. If a guy who makes $40K a year fails and loses his job, he will generally get a severance of between $0 and $4000 and be much worse off than he was before. If a CEO fails, he will likely get a few million dollars and won't suffer at all.

I guess what I am saying is that I think that the market is often inefficient in this area, for various reasons, one of them being the cronyism factor that Wuap brought up.

[Sleeping in EQ]

This discussion has me thinking of Emerson's The Conduct of Life. Here's a short passage from it:

"How prompt the suggestion of a low motive! Certain patriots in England devoted themselves for years to creating a public opinion that should break down the corn-laws and establish free trade. 'Well,' says the man on the street, 'Cobden got a stipend out of it.' Kossuth fled hither across the ocean to try if he could rouse the New World to a sympathy with European liberty. 'Aye,' says New York, 'he made a handsome thing of it, enough to make him comfortable for life.'"

"See what allowance vice finds in the respectable and well-conditioned class. If a pickpocket intrude into the society of gentlemen, they exert what moral force they have, and he finds himself uncomfortable, and glad to get away. But if an adventurer go through all the forms, procure himself to be elected to a post of trust, as of senator, or president--though by the same arts as we detest the house-thief--the same gentlemen who agree to discountenance the private rogue, will be forward to show civilities and marks of respect to the public one: and no amount of evidence of his crimes will prevent them giving him ovations, complimentary dinners, opening their own houses to him, and priding themselves on his acquaintance. We were not deceived by the professions of the private adventurer--the louder he talked of his honor, the faster we counted our spoons--but we appeal to the sanctified preamble of the messages and proclamations of the public sinner, as the proof of sincerity. It must be that they who pay this homage have said to themselves, 'On the whole, we don't know about this that you call honesty; a bird in the hand is better.'"

[Color Me Badd Fan]

I'm bothered by executive pay and the incentives that are often mixed in to their pay. Bank executives had an incentive to take on an enormous amount of risk because of the short term profits. Because of the incestuous relationship all these guys have sitting on each others' boards, they knew the worst case scenario were the golden parachutes they all gave each other. It's absolutely ridiculous. I think executive pay probably played a huge role with the financial meltdown. Heads they win, tails they win.

Then they socialized their losses without the government cleaning house. Remember what we were hearing at the time? "We have to keep our talent here and you have to pay talent." Ridiculous. I'm pretty sure I could have ran BofA into the ground just as well as the group that was in power.

The top 6-7 banks have actually increased in size since 2008. Meanwhile local and regional banks are barely getting by. Does anyone wonder why Barney Frank and Chris Dodd, to the two democrats in congress with the coziest relationships with the banks, are the ones that proposed the new bank laws/regulations? The big banks know damn well they have the resources to comply with these new laws while the smaller banks are going to have a tough time. It's funny that others have mentioned regulations in this thread and how corporations buy influence to avoid them, but you fail to realize how these regulations inevitably enable the larger groups to quash the more dynamic up and comers.