Executive Pay Isn't the Problem
By Damien Hoffman Oct 28, 2009 8:15 am
But stealing from hard-working people is.
For example, if Bob builds your house, he’s paid as a symbol of the value he created for your life. On the other hand, if William creates and sells exotic (i.e. socially valueless) financial instruments, he’s paid lots of money, even though, in most cases, no value has been created.
Capping executive pay is a misguided remedial effort. If a company adds real value to society, people like Bill Gates and Steve Jobs should get wealthy. Unfortunately, our economic system is overrun with barely legal scams masquerading as businesses. In those cases, we can better protect the benefits of capitalism (and capitalism itself) by preventing such thievery from happening in the first place. Otherwise, we’re merely calling criminal activity by the more respected name of "capitalism".
Let's use a couple little examples which happened to screw our society at large: Enron and AIG (AIG).
The issue isn’t whether Ken Lay and his financial henchmen should have had their pay capped -- by that time, the dirty bomb had already exploded in the economic subway. The issue is whether trading energy derivatives had any value other than skimming money out of the system on the back of a valueless/harmful business model. As we all learned, Enron clearly didn’t do anything to add value to society. Quite the opposite.
More recently, the same adult game of smoke and mirrors occurred at AIG. Once again, prima facie criminals put on $5,000 suits, housed their scam in prime corporate real estate, and blinded their victims with big shiny logos.
In this case, the business model was to collect premiums to insure loans, yet never maintain any collateral to make good on the insurance claims. This is 100% the same as paying car insurance, having an accident, and learning the company had no money for your claim. Where does the money go in this model? The operators simply stuff it in their pockets. Skim, stuff, repeat (no time to rinse).
Coming full circle: Who cares about capping someone's paycheck midway through a giant project to hurt people who actually work for a living? While the iron is hot, let's surgically remove the cancerous businesses from our economy before we need another dose of chemotherapy. Then, we can finally see the value of capitalism as capital flows to the most beneficial uses.
 |
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
(5)
Reply
2009-10-28 09:21:33
Exactly.....
I can not help but think that the behavior written about so well above is nothing but HUMAN NATURE.
Much like the Dr. or anyone hitting that neat spot on your knee where it triggers immediately a reflex. You cant stop the reflex. You CAN stop this behavior but it amounts to an immense amount of will power and sacrifice. Regrets, regrets, regrets.
Much like that movie with Russ Crowe where he's an undercover cop and he turned in 1 million dollars he found. He had to chance to take it and run and all the other cops laugh at him...
he did the right thing.
1 in a million.....
Much like the Dr. or anyone hitting that neat spot on your knee where it triggers immediately a reflex. You cant stop the reflex. You CAN stop this behavior but it amounts to an immense amount of will power and sacrifice. Regrets, regrets, regrets.
Much like that movie with Russ Crowe where he's an undercover cop and he turned in 1 million dollars he found. He had to chance to take it and run and all the other cops laugh at him...
he did the right thing.
1 in a million.....
2009-10-28 11:46:43
What metrics are used to pay out needs to be changed...
When an executive joins a company, they should not be rewarded so handsomely just to join, as you have been saying, value needs to be created. So when a CEO or other executive joins a company, give them options out of the money or some other incentive to make them work to increase the share price of their company. They get rewarded for their work and they have created value for shareholders instead of just taking their money and saying "thanks buddy".
2009-10-28 12:19:22
pay cut should apply to non-executives too
while I agree pay-cut to top people is not the true issue here and taking out the valueless business model is the right approach, in practice, this is hardly do-able. capitalism is all about animal spirit--risk chasing, profit gauging.
i view the problem as, if the business model does not generate value, and traders in this business do not take any risk of their own (i.e. their own stake in the game), then they shouldn't be paid that much either. They play other people's money and take a huge bite out of any profit, but when business goes bad, they are not penalized (other than moving on to the next target) -- this is not risk-taking. this is risk-less indeed.
therefore, low risk low return.
i view the problem as, if the business model does not generate value, and traders in this business do not take any risk of their own (i.e. their own stake in the game), then they shouldn't be paid that much either. They play other people's money and take a huge bite out of any profit, but when business goes bad, they are not penalized (other than moving on to the next target) -- this is not risk-taking. this is risk-less indeed.
therefore, low risk low return.
2009-10-28 13:26:04
Copy rights to the big ten
Executive pay is a large part of the problem.
I have worked a lifetime and have yet to gross a million dollars total for all the years I have worked. Having started in the early 60's as a kid where 2.00 dollars a day on the ranch was good money for a 14 hour day of hard work. But these days the folks on Wall Street somehow feel cheated if they don't make more in one day then I ever did in my best years. While blue collar workers struggle through this boom and bust economy we watch the billionaires rape and pillage our retirement accounts and savings accounts and while they are living large we struggle to keep our heads afloat and hold onto our homes.
The likes of Dicky Grasso who was making a million dollars a day while the Head of the New York Stock Exchange did little to earn his wage while letting the likes of Enron, World-Com and countless other thieving companies scam Americans out of their life long savings. Why would anyone think that anyone is worth that kind of money? I would be hard pressed to even think God was worth that kind of money since I'm a Bible thumping atheist. Did Dicky Grasso bloat up so bad with greed that somehow he thought he had become the God of Wall Street? Who in Harry Potters name gave him the right to pay himself so much?
Today's Wall Street is worse then ever. While you Wall Streeter squabble over your million dollar bonus packages working Americans are losing their jobs by the millions. They are losing their homes by the millions and their life long savings are being stolen to support the thieves of Wall Street. Working Americans who have tried to hide in the safety of Money Market Accounts have had their interest cut to nothing. A life time of hard work and frugal saving and now you tell us our money is worth nothing while in the financial world you rake it in using our money as the collateral to leverage yourselves with all your exotic financial instruments some legal and some not.
So in my mind pay is an issue. No way in hell should you be raking in all this money when so many are homeless, jobless, destitute and receiving so little interest on their hard earned and saved dollars. Without the hundreds of billions that Americans have poured into the markets each year in an effort to save for retirement and without the trillions our taxpayers have pumped in to Wall Street to restore liquidity you on Wall Street would have nothing. And for all our contributions you pack it out the back door and then lay off millions of Americans to continue your efforts of fleecing the Americans who at one time trusted you to be the stewards of our money.
I'm going to buy up the copy rights to the Ten Commandments. While I'm a atheist it doesn't mean I can't respect these ten rules of social etiquette. I will post them all over Wall Street and for all those who would like a copy they will be free. Holly Christ! Even I can only remember four off hand which is likely three more than any Wall Streeter likely knows. Everyone knows ( Thou shalt not steal) But Wall Streeters are too busy Lusting after the dollar to take heed.
Johnny Lunch Box
JPM
I have worked a lifetime and have yet to gross a million dollars total for all the years I have worked. Having started in the early 60's as a kid where 2.00 dollars a day on the ranch was good money for a 14 hour day of hard work. But these days the folks on Wall Street somehow feel cheated if they don't make more in one day then I ever did in my best years. While blue collar workers struggle through this boom and bust economy we watch the billionaires rape and pillage our retirement accounts and savings accounts and while they are living large we struggle to keep our heads afloat and hold onto our homes.
The likes of Dicky Grasso who was making a million dollars a day while the Head of the New York Stock Exchange did little to earn his wage while letting the likes of Enron, World-Com and countless other thieving companies scam Americans out of their life long savings. Why would anyone think that anyone is worth that kind of money? I would be hard pressed to even think God was worth that kind of money since I'm a Bible thumping atheist. Did Dicky Grasso bloat up so bad with greed that somehow he thought he had become the God of Wall Street? Who in Harry Potters name gave him the right to pay himself so much?
Today's Wall Street is worse then ever. While you Wall Streeter squabble over your million dollar bonus packages working Americans are losing their jobs by the millions. They are losing their homes by the millions and their life long savings are being stolen to support the thieves of Wall Street. Working Americans who have tried to hide in the safety of Money Market Accounts have had their interest cut to nothing. A life time of hard work and frugal saving and now you tell us our money is worth nothing while in the financial world you rake it in using our money as the collateral to leverage yourselves with all your exotic financial instruments some legal and some not.
So in my mind pay is an issue. No way in hell should you be raking in all this money when so many are homeless, jobless, destitute and receiving so little interest on their hard earned and saved dollars. Without the hundreds of billions that Americans have poured into the markets each year in an effort to save for retirement and without the trillions our taxpayers have pumped in to Wall Street to restore liquidity you on Wall Street would have nothing. And for all our contributions you pack it out the back door and then lay off millions of Americans to continue your efforts of fleecing the Americans who at one time trusted you to be the stewards of our money.
I'm going to buy up the copy rights to the Ten Commandments. While I'm a atheist it doesn't mean I can't respect these ten rules of social etiquette. I will post them all over Wall Street and for all those who would like a copy they will be free. Holly Christ! Even I can only remember four off hand which is likely three more than any Wall Streeter likely knows. Everyone knows ( Thou shalt not steal) But Wall Streeters are too busy Lusting after the dollar to take heed.
Johnny Lunch Box
JPM
2009-10-30 06:55:15
You can't use Steve Jobs and Bill Gates to justify high executive pay
Steve Jobs, isn't he the FOUNDER of Apple? Bill Gates, isn't he the FOUNDER of microsoft? These guys do deserve to make lots of money, as do many others in the world. I believe that if you founded a company or are instrumental in building a company that provides a real profitable product or service to the world that you should reap the benefits. I do not believe that individuals hired into high ranking executive positions in existing publicly traded companies should be raking in millions of dollars in bounuses and salaries every year. Sure some of these guys have impressive resumes, but so do a lot of people. Don't fool yourself, these jobs are handed out by "boards of directors" based on who knows who and who owes who. They make millions regardless of the performance of the company they are "running". A cap on thier pay is however whishful thinking. Laws won't stop them as they have control of enough of investor's money to hire the best lawyers in the world to find ways around laws. Your favorite politician cant stop them because once again they have control of enough of investor's money to "buy" political favor ....you know it is true. Funny thing is, after all is said and done, these people work for the investor's.....which is or can be us. Only WE can change Wall Street. If we would all be good stewards of our money things would change. Know where your money is invested people. Many of us complain about overpaid executives at the very companies that we own shares of and don't bother to even vote at shareholders meetings? If you can't change company A with your votes ....it is your right to pull your money out of company A and invest in company B which may be more to your liking. We better wake up soon though. These people know that we have the power to stop thier little parasitic ways and are changing bylaws every year to make it more difficult for individual investors to make a differencce. They know that 401K's provide LOTS of capitol for them from US and most of us don't even know where our money is invested beyond "XYZ FUND". That money is invested in the same companies who have overpaid executives who are shipping jobs overseas in order to show us, the stockholders, the profits we demand. As long as my holdings are going up, I don't care that Joe Blow and his cronies are stealing more money every day than I make in a lifetime.....I just keep blindly pumping my money into the biggest Ponzi scheme ever .....the stock market and the retirement accounts invested in it .......sorry ......RANT OFF.
Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options. Click here for a free 14 day trial to OptionSmith by Steve Smith.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved
