OT: Public referrendums on destroying evil companies

[deccan]

Baron Munchausen,

Here's a peace offering, my idea of a specific, clear and legitimate grievance against how many corporations operate, excerpted from the 17th October 2003 issue of The Economist. The issue concerns the wage inflation of bosses of corporations.

One of the first things that the Motorola search committee did was to follow the standard procedure of selecting a recruitment consultant to help them - in their case, the well-established firm of Spencer Stuart. To determine what a new CEO's salary should be, consultants make use of benchmarks. For Tenet Healthcare's new boss, for example, the comparison was with "compensation levels and opportunities made available to executives at the company's peer companies".

This has the effect of continually ratcheting up bosses' pay. No selection committee wants to award their new choice less than the industry average. That will, they feel, not attract the best man to the job, and it will also suggest that their company has settled for someone less than average. Since the tenure of top bosses is getting shorter and shorter, this ratcheting effect is accelerating, especially in Europe where, according to a recent report from consultants at Booz Allen Hamilton, the turnover of top CEOs has almost tripled since 1995.

[Growltigger]

Ahh, if this discussion is more focussed on fat cat's pay, then I believe we are on firmer ground.

The sad thing is that the only people who can really do anything to curb extoritionate director's pay are the shareholders of the corporation, or a direct regulatory body such as the Stock Exchange.

Governments have tried to legislate (as the Blair government is trying to do at the moment, primarily in relation to privatised utility companies) but currently, nothing is progressing.

The allies here though are the large investment funds into which most of our pension monies are invested. These generally hold large slugs of public companies' equities and therefore, directors really have to listen to fund managers if they have an objection. This approach appears to be polarising and I think we will see a lot more direct shareholder action to stop excessive pay awards..

The UK is bad enough, but when you see what the CEO's of US companies pay themselves!!!!!

[macjimmy]

A large part of executive pay comes from stock options, right? At least, during the stock boom of the late 90s options were the bulk of executive compensation plans. The idea being, that a profitable company = a sucsessful company. Of course, the American way is to hire a team of lawyers to analyze the rules and systems and find the best ways to exploit them, so stock options eventually started leading to companies taking drastic short cuts, using creative accounting practices, selling unsafe products, and shredding the evedince of these activities. Taking illegal shortcuts raises corporate profits, thereby raising stock prices and executive pay. So maybe doing away with stock options as compensation would have a positive effect on corporate behavior. Just my 2 cents worth of rant.

[Growltigger]

Macjimmy, you are quite right that option schemes, and phantom option schemes, used to be a fair percentage of director's remunerations.

This is less the case these days, where the bulk of remuneration packages come from guaranteed bonueses irrespective of whether or not the company performs.

It sometimes seems that the rationale is

Success should be rewarded
Failure should be compensated!

[macjimmy]

I don't understand the reasoning for options then, and bonuses now. Why not just pay executives a larger salary than everyone else? I know they already do get larger salaries than average employees, but then it is combined with all of this doublespeak for money. Just increase their salaries. And while I'm here, what about the practice of creating offshore accounts to evade income taxes? I am under the impression that this is a fairly common practice among larger corporations and richer individuals who can afford accountants and lawyers to set up things like this. I remember when Enron & pals were big in the news that there was some talk about trying to fix it, but like the rest of corporate reform, it has been drowned out in the flood of news from Iraq, Afganistan, and Kobe Bryant.

Ahhh, someone shut me up

[ October 28, 2003, 15:03: Message edited by: macjimmy ]

[Growltigger]

Macjimmy, the clever executive will get a salary, but benchmarked at a level that hopefully wont upset the shareholders too much.

He will then get bonuses, discretionary and non-discretionary.

He will also get pension contributions.

Add then stock options and some sexy advanced payment mechanism to get money paid offshore to avoid taxes as a "sweetener" and then your average board chappie is wealthier than Croesus

Oh, and the clever ones negotiate golden handshakes and golden parachutes, so it makes it damn expensive to get rid of them.

Eg head of AstraZeneca in England, sack him? no worries, but that will be £38,000,000 please

[narf poit chez BOOM]

poverty isn't so much of a virtue as it's hard to be tempted to be arrogant about your wealth when you don't have any.