Well, it’s always okay to apply labels in a complimentary fashion. Thanks. :)

JT,

Excellent points, especially this one:

“I never thought I would say this, but it is time to bring back shame.”

We have a judge here that started making criminals where sign boards admitting their crimes, and similar punishments to try to use shame. I don’t know how well it worked, but it was very popular with the citizens.

I never thought I would say this, but it is time to bring back shame.

“What? That’s not true unless the CEO is also Chairman of the Board or owns a controlling share of the stock, which usually isn’t the case. The board is elected by the owners (the stockholders) which in turn hires the executive that run the company (the CEO, COO, CFO, etc.) and sets pay.”

That might be what it looks like, but in practice that is not how things really work. How many Fortune 100 companies have directors which are put up as nominees for the board who have not been “approved” by the shareholders? The answer is ZERO. The nominees are in fact almost always “invited” by the CEO. Study up on corporate governance nuances and spend some time inside board rooms to learn how things really work. The shareholder elections and such are almost always in reality a charade. Do you know why almost all US companies incorporate in Delaware? The reasons go directly to this issue.

In extraordinary situations Boards have been known to replace CEOs, but that is the rare exception and not the rule. Generally boards are made up of these groups: Friends of the CEO, company insiders, window dressing members who do little (big names and/or diversity additions like Hillary Clinton when she was Ms. Arkansas being invited onto the WalMart board), and executives with other companies that the firm does business with. Rare indeed is the board member who actually comes to every meeting with the common stock shareholder as his or her constituency.

On the other hand, when corporate kleptocrats rob the entire country to the tune of a couple of trillion dollars, it’s OK, according to the likes of Limp-Blow, for the Fed to bail out the big corporations, because the big business are the job engines that make America great — at $8/hr with no benefits.

The average Boobus-Americanus will never learn.

Have all options vest between 2-10 years out.

If a big chunk of their compensation is tied to the long-term stock price you can better align management objectives with those of the shareholders.

Al “Chainsaw” Dunlap proved that you can juice profits short term by cutting R&D, maintaince etc. It was when got to Sunbeam and could not get out fast enough via merger or moving to another company that he was exposed for the bullying idiot that he is.

OTOH, questioning whether these guys are earning their pay is quite capitalist.

Furthermore, being afraid of labeling IDEAS as socialist or capitalist is to accept intellectual limitations. Only bad ideas thrive in darkness. Labeling PEOPLE, is almost always counterproductive, and we should try to avoid it. People generally have such varied views that labeling them is usually misleading as well.

Strive for truth, label ideas (and argue over the labels vigorously);however, try not to label people.

The last time I checked a couple of weeks ago Apple’s stock is trading around $125 a share. It was around $10 when he took over the company again a little over 10 years ago. That is a man who holds himself accountable for his companies success or failure.

Lay, Skillings, and Fastow made their wealth through the value of Enron’s shares too. Then when the floor fell out, they tried to cut and run.

The problem with this plan is that by tying your compensation to the value of of your stock, you become a slave to Wall Street who is only concerned about the next quarter and not the long term, and your decisions are based on quarterly earnings reports. Isn’t this what got Detroit in trouble in the first place?

Apple is a hot stock…for now. What happens when he doesn’t sell enough iPods and Macs, or a serious security flaw is found in OS X (which, btw is not as secure as people make it out to be)?

Tying executive pay to company performance is good, but it can be a double-edged sword if you’re not careful.

Wall Street made that assessment a long time ago.

But it’s ok to say the line workers are overpaid.

I don’t think anyone is in a position to dictate to a board of directors what they pay the top dog. If you don’t agree then don’t buy the stock, pass on their product, and don’t work for the company.

Done, done, and done. I don’t buy their stock, I don’t buy their products, and I don’t work for them.

Enormous paychecks for successful managers: that’s OK, I guess.

Golden parachutes: apart from moral considerations, such things tend to reduce effectiveness of managers — they limit your ability to negotiate with employees. How can you ask workers to take cuts in bad times if you are in a no-risk situation? You are reduced to strutting the bigger stick.

Excellent point, WCM. I’ve asked Frank to modify it so it’s not as absolutist as originally written.

FYI, Dick Dauch is CEO and Chairman of the Board at American Axle.

I agree – it nothing really to do with “socialist” or “capitalist” labels.

I recall reading the history of Packard’s downfall (and foolish merger with Studebaker), and how the company hired in executives from Ford, GM, etc.

These Ford and GM guys simply couldn’t take the strain. Ohmygosh, they actually had a hard job on their hands instead of cushy sit-back-and-collect-a-fat-paycheck job!!!!

Likewise, I recall reading about how struggling American Motors, in the 1960’s-1970’s, could do full, competent styling, design and engineering – equivalent to the big 3 – with a crew about 1/10th as large, and how the executives likewise had to be far more talented than the Big 3 guys.

It has everything to do with not being so aloof that you don’t feel the business is yours to worry about, I think.

As the market contracts and people lose money, I do think closer scrutiny will follow. But this won’t, nor should it, end outlandish executive compensation. In the end it comes down to supply and demand. If a company needs a battle tested CEO with a track record of turning around huge companies, clearly there are a limited number of them and they will command big money. The value they could add to the company can often be orders of magnitude greater than any pay they would receive and in those cases I think the big bucks are warranted. However, I can’t imagine people will continue to put up with execs with track records of extreme failure, who wouldn’t command squat on the open market, pulling in mega millions as everyone else loses their shirt.

What I would hate to see is more government intervention, which I doubt would do anything to resolve this problem anyway.

I’d say that American industry in general is filled with overpaid executives. When I say that they are overpaid, I’m not saying that as a class activist but as a business person who fears that excessive compensation creates a substantial disconnect between upper management and the stuff that makes the company function, namely, its employees, products and, most of all, its customers.

The main jobs of a CEO are to create and communicate a vision to those inside and outside the company, and to figure out how to make past, present and future customers happy. With a bloated paystub, that’s hard to do because money insulates you from all of those aspects of business, and feeds a feeling of entitlement. This goes against the need of the business to provide returns to its shareholders and excellence to their customers.

There are a lot of implications to excessive compensation that go well beyond the usual scope of this website. But I’d argue that it is contributing to the general decline of American competitiveness, because many of our corporate leaders don’t have the hunger to compete in a global environment.

The only reason that GM and companies like it haven’t collapsed already is because they got so big during the immediate postwar era that they created a base of operations that takes decades to lose. They aren’t tough enough to handle another couple of decades of increasing competition, and their leaders seem to live in yesteryear and don’t see the threat.

Or maybe they just don’t care, because regardless of what happens, their retirements will keep them safe from harm. Because, after all, they are paid too much.

That it is seen today as appropriate that I may as an executive make years of short term compromises and manipulate the books in order to inflate the real viability of my company is nothing short of criminal.

You nailed it. When personal ambition and greed trump all other considerations and the “oversight” consists of a complicit board of bystanders, you get a class of kleptocrats. Not so different from the corrupt ruling class of a run-of-the-mill banana republic, except that it’s a revolving door arrangement where they slide behind the CEO desk, loot the company, then slide out again. I can’t help but wonder if some auto executives in Detroit regard their job as basically a cash grab before the whole company finally goes belly up.

I’m not sure I envy that class so much as I resent it for being greedy and corrupt.

What? That’s not true unless the CEO is also Chairman of the Board or owns a controlling share of the stock, which usually isn’t the case. The board is elected by the owners (the stockholders) which in turn hires the executive that run the company (the CEO, COO, CFO, etc.) and sets pay.

The last time I checked a couple of weeks ago Apple’s stock is trading around $125 a share. It was around $10 when he took over the company again a little over 10 years ago. That is a man who holds himself accountable for his companies success or failure.

I don’t think the answer lies where we’ve come today, but there needs to be a way to help large struggling companies as well…

In fact, I have been reading some interesting stuff about how the US Fed leaders are trying to take lessons from what the Japanese economic leaders did wrong 20 years ago (trying to prop up failing banks with mega-bad loans on the books; stagflation, etc) – so as to avoid it.

Then Bear Stearns got bailed out.

And then I read in the British press that the Fed is considering nationalizing US banks.

Which means, if this all comes to pass, we’re going down EXACTLY the same path as the Japanese and can pretty well expect the same results.

A non-growth, shrunken economy for at least 20 years.