By on April 3, 2008

perfect-sting.jpgSomething I’ve noticed: no discussion on corporate governance can go longer than five minutes before executive compensation comes up. It’s as predictable as “the scream” coming up when discussing Howard Dean. And why not? As a possible recession looms, executive pay remains the same. If North America’s economy is coming down with the mumps, its automotive industry may as well have Ebola. Chrysler was declared “operationally bankrupt” by its own its own CEO (before a cynical volte-face), while billion-dollar losses mount at GM and Ford. Yet all the people at the top of America’s piston pyramid continue to be compensated quite luxuriously. What’s up with that?

Take Alan Mulally at Ford, for example. Mulally scarfed $28.2m (plus, plus, plus) to take the top job at Ford. The money was paid before Big Al proved he could earn the automaker $1 of profit. Supporters note Mulally’s track record at Boeing and the “opportunity cost” of his exit (including lost pension).

Meanwhile, GM CEO Rick Wagoner has spent an entire career watching his employer lose market share, shareholder value and money. Although Wagoner took a highly-publicized 25 percent pay cut two years ago, GM’s board has recently restored his salary to pre-2006 levels. They justified the raise by noting GM’s turnaround plan is on track to reach whatever non-defined goal it aspires to. Profitability is clearly not that goal, as it easily escaped the General again in 2007.

As (automotive) executive pay and (automotive companies’) financial performance diverge, it behooves us to see the bigger picture.

First, the phenomenon isn’t restricted to The Big Three. It affects their supplier base as well. Canada’s Report on Business reports that Ontario-based Magna International’s jefe, Frank Stronach saw a 50 percent increase in personal “consulting revenue” (from his own company) last year. Magna’s stock value shrank by 15.45 percent over the same period.

Of course, making a direct link between stock price and executive pay is a gross oversimplification; the kind that led to some of the short-term thinking that has allowed much of this situation to develop in the first place.

Qualitatively, Magna weathered a difficult year. Its number one customer (Chrysler) was sold to a private equity firm, sideswiped by a supplier bankruptcy, and saw a big shake-up at the top of its own executive pyramid. Then again, Stronach’s own bid to buy Chrysler failed, he couldn’t stop unionization efforts at his own plants (some say he invited them to smooth the way for a Chrysler takeover) and he failed to properly hedge against a low American dollar. Stronach also failed to retain majority control of his company.

For all his efforts, Stronach took home $40.1 million in 2007.

Closer to the rust belt, American Axle’s (AA) CEO Richard Dauch banked exactly $10,175,194 in 2007, up from a paltry $9,316,242 in 2006. Was Dauch’s failure to prevent AA’s labor strike of 2008 by acting in 2007 worth the extra money? More importantly, how can Dauch preach fiscal conservation to his striking employees when all four returning AA executives got pay raises from 2006 to 2007?

Meanwhile, Visteon’s CEO Michael Johnston earned $10,783,136, according to their latest SEC filing. Great pay for the man who oversaw the company going from a $163m loss in 2006 to a $372m loss in 2007. Again, I’ll add some qualitative insult to quantitative injury. Where was Visteon’s strategic plan to separate itself from Ford’s declining operations and diversify its client base? It was nowhere to be found, apparently. Visteon continues to depend on The Blue Oval’s fortunes.

In the face of shaky executive performance, you’ve got to wonder why automotive executives’ pay remains sky high. The prima facie explanation is supply and demand. In other words, many firms require top-level executive “talent” and very few people can supply it. Unfortunately, that’s not the entire picture.

The truth of the matter is that CEOs have significant influence in selection of board members, who then have the power to decide how much the CEO should be paid. Even Mr. Magoo would see that conflict of interest, which stifles price competition. Secondly, these boards use a composite benchmark of compensation paid out to executives of comparable public companies to determine what to pay their own CEOs. Neat fact: American Axle’s 2007 benchmarking included both Magna and Visteon! Welcome to the fat cat’s intricate way of saying “well, everyone else is doing it too."

Here’s the bottom line. If an executive can rake-in millions of dollars in compensation regardless of performance, what’s his personal incentive to make his company profitable? We see athletes whose performance languishes after signing guaranteed contracts. If pay, pensions and perks are equally guaranteed, should we be surprised to see CEO’s doing the same?

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42 Comments on “Auto Industry Executive Compensation Rankles. And For Good Reason....”


  • avatar
    AGR

    High ranking executives sign employment contracts with their employers, usually the “compensation comittee” approuves the remuneration package.

    Does it have anything to do with actual performance of the company? The optics make it look like it does. Does it have anything to do with the career and well being of the executive, absolutely.

    Are these individuals in the XYZ business or the personal career business?

    The recent clean up of some executives on Wall Street, the individual gets a kick in the behind, assisted by a multi million severance package, a generous pension which was part of the employement contract.

  • avatar
    KatiePuckrik

    Whilst I agree about executive pay, I think we’re being a bit harsh on Alan Mulally.

    Alan Mulally had to be coaxed from his lifetime’s work at Boeing (He brought them back from the ashes) and subsequently needed to sufficient compensation for what he lost by leaving Boeing.

    Alan Mulally has only been in the job for 18 months and I think he’s doing a good job of trying to cut down bureaucracy and make departments work with each other, not against. In short, he’s acheived more in 18 months than Rick Wagoner has in 8 years!

    But the Board of Directors are the ones who approve these outrageous packages for these executives and publicly back them and their useless turnaround plans. So, the question isn’t quite “Why are executives’ pay so obscene?” but more “Why do the Board of Directors allow this to happen…..?”

  • avatar
    windswords

    ‘ Secondly, these boards use a composite benchmark of compensation paid out to executives of comparable public companies to determine what to pay their own CEOs. Neat fact: American Axle’s 2007 benchmarking included both Magna and Visteon! Welcome to the fat cat’s intricate way of saying “well, everyone else is doing it too.” ‘

    It’s just an upper management tactic. That’s exactly what teachers unions do. They look at what some other community is paying it’s teachers, ignoring the fact that the other community may have a much better tax base, higher cost of living, etc. and say “we should be compensated the same as the teachers in XYZ”. I wouldn’t be surprised if other public service unions so the same thing.

  • avatar
    menno

    I once read that in Japan, on average, top executives (used to) make about 700% of the “mean average” wage, whereas in the US, it was more like a 14,000% difference.

    That pretty well sums up the two cultures.

    Team work and acknowledgement that everyone is pulling together for a common goal, with a graduated and fairly small executive pay perk –

    vs

    Everyone it it for themselves.

    Gee, how well as everyone in it for themselves worked out for America, just lately?

    Perhaps the Japanese have yet more to teach us instead of “Just in Time manufacturing”.

  • avatar
    JimC31

    I forget where I heard this recently. The reason executives get paid so much even they don’t really do much or may be incompetent is to give everyone else something to aspire to, that if they work hard they too could win that lottery.

  • avatar
    jolo

    Maybe teachers are using other areas that have higher costs of living indexes, but for what they do, they are grossly undepaid. It’s a noble profession to teach children and you have to do it for the love of it because the pay sucks.

  • avatar
    GS650G

    Socialist calls for limits on executive pay run counter to capitalist themes. 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.

    Look at it this way: Who decides how low the compensation goes and how much should it be? Do we ask the anti-globalization crowd for their input? Is it put to a vote somewhere?

    Maybe we shouldn’t be concerned with what someone else earns and worry about ourselves. paying Mulally 30 million dollars didn’t affect my paycheck or bills.

    Here’s the bottom line. If an executive can rake-in millions of dollars in compensation regardless of performance, what’s his personal incentive to make his company profitable? We see athletes whose performance languishes after signing guaranteed contracts. If pay, pensions and perks are equally guaranteed, should we be surprised to see CEO’s doing the same?

    To answer the two questions, I think that a CEO wants and desires success since that can only lead to bigger paychecks, there are plenty that have achieved this. We like to think they light cigars with 100 dollar bills will the company burns but that is a bit stereotypical and the media likes to reinforce that image before the masses.

    Not all athletes slump after signing, there are many variables that come into play. Business has many too, we just can’t paint them all with the same brush. If you don’t offer some guarantees, your not going to get many takers.

  • avatar
    jdv

    Menno – Japanese automakers are doing well, but the Japanese economy as a whole tanked in the early 90’s and has never come back to the go-go days of the 80’s.

    Perhaps the Japanese could learn a few things from others too.

  • avatar
    KatiePuckrik

    GS650G

    paying Mulally 30 million dollars didn’t affect my paycheck or bills

    I can’t speak for anyone else, but the reason I get angry when I hear stories like this, is because, the rank and file are continually being squeezed to “make the company more cost effective” (i.e ban on overtime, perks being cut etc) whilst managers get lavish packages regardless of performance. It must be bloody annoying to work for GM (I’m not lumping Ford in here, because I think Mulally is doing his best) to continually be told to make concessions to save the company, then Rick Wagoner blows $2 billion on the FIATsco and still keeps his job! If a rank and file worker cost the company 5% of that cost, they’d be sacked or, at the very best, disciplined!

    Then, when the rank and file have had enough, they unionise and fight to keep their perks and their jobs. Then, the managers moan about how they are “inflexible”, but not thinking “Why are they unionising?”.

    It’s no coincidence that workers at Toyota shun unionisation…….

  • avatar
    BuckD

    @GS650G:

    I don’t think we need to trot out the word “socialist” to describe a common-sense question on why CEO’s are making such outlandish salaries for such pathetic performance, and why, at the end of their sorry tenure, they get paid ungodly amounts just to walk out the door.

    Bringing ideological baggage to the discussion just clouds the issue.

  • avatar
    AKM

    And yes, outlandish pay packages does affect the bills we pay, since they’re factored in the prices of the products we buy.

    I’m all for performance-related pay (the antithesis of socialism).
    Now, I cannot discern how somebody’s work may be worth 1,000 times more than somebody else’s. This seems even truer when executives command poor performances.

    However, a far worse culprit than pay packages is the golden parachute. Wihtout it, the exec is encouraged to work as hard as possible and succeed, while the golden parachute insulates him from failure….not a good thing!

  • avatar

    GS650G :

    Socialist calls for limits on executive pay run counter to capitalist themes.

    In our “capitalist” country, we don’t seem to mind “socialist” services like police and fire departments, the defense department, public health system or regulation against price-fixing and monopolies among other things. We manage with “socialist” regulation of banks and financial institutions. Much of our regulation is to guard the public against those who would steal from them either illegally or using legality as a guise. We can agree that Enron was simply a conspiracy to fleece the public at large, but have more difficulty when it comes to paying an “executive” class huge sums to perform a specific task: to create and maintain a viable company which produces a product which meets market needs.

    What is the company if one believes that the employees do not form a fundamental and vital component? If I am a worker at a company, my responsibility is not simply to line my pockets, but also to my fellow employees, to do my best to help create and build a product which will be viewed as valuable to those who use it. If I am a manager of workers, I have a responsibility not only to the public, but to the workers who look to me for leadership.

    Our country was founded on the principal that we govern for a common defense and a common purpose. Inherent in the responsibility of citizenship is that each of us is willing to pull an oar for the betterment of all. Capitalism rewards us for our individual efforts, but does not eliminate our larger responsibility to our fellow citizens. Capitalism does not mean that we have the right to divine schemes by which we take a larger portion of the pie as payment for the illusion that we are actually doing our jobs.

    Yet executive compensation throughout our “capitalist” society is with rare exception completely out of kilter with results. 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.

  • avatar
    NoneMoreBlack

    I have made this argument here before and I’ll make it again; who are we to say what the “right” amount of CEO pay is? Stockholders should certainly be on the look out for the warped incentives mentioned, but simply saying “look at the huge number this person earned!” does not constitute an argument that it is “too much.” Certainly, plenty of bad things have happened to these companies while under the helmsmanship of somebody earning a number with lots of zeros; the relevant question, however, is how would things have gone otherwise, and would they have gone better if the company had instead been run by the kind of CEO they could have gotten for whatever is the “right amount?”

    You establish the logical potential for abuse and rent seeking; now where is the proof that it has occured?

    menno: You rightly point out that Japan has a very different corporate culture from the US. I reject your narrative of it however; the way I see it, the corporate ladder in Japan is defined the reward for the initially difficult step of breaking into the system (due to a variety of protections for insiders) being the essential guarantee of lifetime employment with gradual advancement, and relatively little cross-firm competition. Therefore, there is no need to provide high levels of pay in order to attract talent. I don’t see anything to romanticize about an economy that is only recently struggling it’s way out of a 10+ year recession.

  • avatar
    windswords

    jolo:
    “Maybe teachers are using other areas that have higher costs of living indexes, but for what they do, they are grossly undepaid. It’s a noble profession to teach children and you have to do it for the love of it because the pay sucks.”

    That’s what they would like you to believe. I know – my mother was a teacher for 30 years. When she started whe was paid peanuts, but thru the years as the union gained strength and voters were duped into thinking that money is the answer to everything in education, she retired (early) very comfortably and traveled everywhere. I know teachers now that pull down UAW style money and bennies and have two months off in summer on top of the all the other days off. And unless they molest a kid, they can’t be fired (well, in New Yord city you CAN molest a kid and still keep your job), no matter how bad their performance.

  • avatar
    KatiePuckrik

    Edgett,

    Amen!

  • avatar

    Let me just interject before this becomes a debate on the socialist/capitalist themes.

    This article isn’t an indictment of capitalism, more an observation that true capitalism is not allowed to flourish because of an imperfect market (the conflict of interest I mentioned).

    So let’s put the “socialist” labels away, please.

  • avatar
    geeber

    The big problem is that executive pay is NOT linked to performance.

    If the company makes lots of money…the executives make lots of money.

    If the company gushes red ink…the executives still make lots of money.

    Failure is explained away or ignored or rationalized…which, ironically enough, sounds suspiciously like the old communist countries, or even some unions.

  • avatar
    Johnny Canada

    Ok, I won’t use the “socialist” label, but I will call this “class envy”.

  • avatar
    DetroitIronUAW

    I don’t see any good from this managmant. The company is run by the workers. We put in the hard work to get cars out the door. And the managmant just collects their pay.

  • avatar
    menno

    I admit that Japan has been unable to pull their economy out of it’s “slump” for twenty years, but before we Americans (and British and Canadians) start pointing fingers at them and laughing, we’d better wait about 20 years to see how well/poorly WE end up, because right about now, or collective economies are just about at the point where Japans was 20 years ago.

    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.

  • avatar
    Brendon from Canada

    @geeber: if you re-read Katie’s point about Mullaly, how do you “save” a company? If a CEO’s pay is linked to profits (I actually agree that it should be, at least in part), who could step up to help out Ford. You could argue that the US automakers should never have reached this point, but it can happen at any company – a really bad mistake, that could cause a CEO his job (assuming they ever got fired quickly for mis-management). Somebody then needs to come in and clean up the mess; if the best candidate is a guy like Mullaly, what do you do? While I’m sure he relishes the challenge, would he work for free?

    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…

  • avatar
    Orian

    One thing that I admire Steve Jobs for is his $1 a year salary at Apple. He gets the rest from shares of stock he is given each year and bonuses…and his company has been turning out solid profits each year for the last several years.

    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.

  • avatar
    William C Montgomery

    The truth of the matter is that CEOs appoint the board members

    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.

  • avatar
    BuckD

    NoneMoreBlack :

    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.

  • avatar
    Pch101

    I’m not going to touch the socialist shtick, either. Inappropriate discussion killer.

    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.

  • avatar
    guyincognito

    Great editorial. This topic really confounds me. While I am a staunch free market capitalist, I hate seeing these execs being rewarded with more money than could ever be spent in return for performance that would get the rest of us fired. Still, the real issue is that there aren’t enough people outraged by executive compensation to make a difference. I think the system we have in place should work fine. Shareholders and customers are simply not doing their part.

    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.

  • avatar
    menno

    Well said, Psych101.

    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.

  • avatar
    BuckD

    I think Steve Jobs is an excellent example of how to run a company, as Orian pointed out. Aside from the fact that his compensation is entirely dependent on the company’s performance, he puts the company focus on where it should be: making outstanding products that people love so much, their devotion to the brand is almost religious.

  • avatar
    Ryan Knuckles

    I work for a Japanese automotive supplier. While AA and all of the Big 3 are asking their employees to take paycut and buyouts, we just got bonus raises (in the face of declining volumes ordered). I say that is pretty impressive.

  • avatar

    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.

    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.

  • avatar
    Martin Schwoerer

    Excellent article, Samir.

    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.

  • avatar
    Dynamic88

    Socialist calls for limits on executive pay run counter to capitalist themes.

    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.

  • avatar

    If you don’t agree then don’t buy the stock, pass on their product, and don’t work for the company.

    Wall Street made that assessment a long time ago.

  • avatar
    quasimondo

    One thing that I admire Steve Jobs for is his $1 a year salary at Apple. He gets the rest from shares of stock he is given each year and bonuses…and his company has been turning out solid profits each year for the last several years.

    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.

  • avatar
    Landcrusher

    It’s not socialism to question CEO pay at all. It IS socialism to limit it by fiat, or to try to tax it away in the name of “fairness”.

    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.

  • avatar
    RedStapler

    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.

    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.

  • avatar
    NetGenHoon

    Landcrusher, I’m going to have to go against your advice and label you as thoughtful, insightful, and a valued contributor. Any argument is welcome.

  • avatar
    P71_CrownVic

    I wouldn’t give Big Al a DIME until he woke up and brought the Euro. and Au. models over here NOW..and get rid of the appliances they sell here.

  • avatar
    skor

    Did your boss out-source your job to Lower Slobovia? Couldn’t find a new job that paid more than $8/hr? Did you lose your house soon after? Well according to Rush Limp-Blow, it’s because you’re a loser. Why should the government help you? That would be communism. If you were a winner, like the above mentioned bloated dope fiend, you would go out and make your own opportunities — as a radio shill for the Republocrat party, for example.

    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.

  • avatar
    jthorner

    Somewhere in recent decades the notions of reasonableness, propriety and self-control were completely tossed out of the board room to be replaced by rapacious self-dealing and self-interest.

    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.

  • avatar
    Landcrusher

    NetGen,

    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.

  • avatar
    qduffy

    And now it doesn’t matter what you think – the Genie’s out of the bottle and it’ll be nigh impossible to create responsible compensation packages.

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  • 2manycars: Leftist snowflakes want to micro-manage all aspects of our lives. That alone is reason enough to vote...
  • trackratmk1: When you consider that inflation has far outpaced any real gains in consumer purchasing power over the...

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  • Matthew Guy
  • Timothy Cain
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  • Bozi Tatarevic
  • Chris Tonn
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  • Mark Baruth
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