Author Topic: Executive compensation  (Read 3499 times)

Zorrofan

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Executive compensation
« on: March 21, 2009, 09:24:16 AM »
This is a prime example of, IMHO, I would consider excessive. Can this really be justified?

http://www.nytimes.com/2006/04/13/business/13exxon.html?_r=1


cheers
Zorro


benhacker

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Re: Executive compensation
« Reply #1 on: March 21, 2009, 11:20:09 AM »
I think Mr. Raymond is at least (nearly) universally viewed as a fantastic employee.  There are so many 8 and 9 figure payouts for incompetants, I think the focus would be best spent on those.

42 years with deferred comp can be a big payday...

Still though... wow.  I hope the 'wealthy' (however you define it) realize that a proative approach to addressing exec comp is in order.  The masses will drive something soon if it is not reigned in.

My 2 cents, I hope capitalists take the necessary steps needed to save capitalism...

Ben
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Beaverton, Oregon - USA

ericopoly

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Re: Executive compensation
« Reply #2 on: March 21, 2009, 12:23:03 PM »

ericopoly

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Re: Executive compensation
« Reply #3 on: March 21, 2009, 12:37:42 PM »
Adding to that:

I see the same problem in both situations.  Rival teams/companies will hire your talent away in an escalation of pay packages.

Some people have suggested that shareholders should just stand up and demand the pay cuts.  Well, how do you pull that off across all competitors simultaneously?   Because if you are the first company to cut executive pay from $15m down to something like $1.5m, your executives may desert you and you'll be in a weakened position to replace them by offering only 10% of the market rate.

Sports teams are the same way.  You might argue that a player can't possibly be worth $100m, so if you own one of those teams and cut the pay down to $5m, do you really think the guy will stick around?  And if you don't own all the teams and make a coordinated pay cut, how can you pull this off without shooting yourself in the head?

Personally, I think nobody needs this much money.  People could be outraged though that the costs of taking the family out to a baseball game are out of reach for low income families, and some of that money goes to make sure some pro athlete is getting paid $40 million, because, obviously, hitting a ball with a stick for $1m just isn't worth it, right?


« Last Edit: March 21, 2009, 01:11:53 PM by ericopoly »

ericopoly

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Re: Executive compensation
« Reply #4 on: March 21, 2009, 01:30:48 PM »
There is bio of Lee Raymond on Wikipedia.

http://en.wikipedia.org/wiki/Lee_R._Raymond

He comes from a small town (20,000) in South Dakota:

http://en.wikipedia.org/wiki/Watertown,_South_Dakota

The median income for a household in the city was $34,348, and the median income for a family was $44,944.

He went to Watertown High School (public, small town) and holds degrees from public universities.

The New York Times didn't mention those facts, although they did mention that the corporation paid for his Country Club fees.

Small town, public schooling, can't the New York Times mention that anyone in America could have his job?  He's not Ivy League elite.

« Last Edit: March 21, 2009, 01:33:04 PM by ericopoly »

arbitragr

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Re: Executive compensation
« Reply #5 on: March 21, 2009, 03:38:30 PM »
If you've been in the working world long enough, you'll find that compensation is pretty much rigged. You just have to know the right people and know how to work your way into it.
Nobody talks about it, b/c it's taboo and nobody wants to let the secrets out.

Those bonuses at ML, AIG, FNM FRE ... they're all standard procedure behind the scenes ... hush hush ... if the govt is going to bailout these companies I don't think they should be so naive as to think the money won't be misused ... moral hazard ... Hank was on to something when he refused to bailout Lehman.

Execs will take their money and run in this environment, b/c they know the good times won't come again for a while ...
"worry top down, invest bottom up ..."

JackRiver

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Re: Executive compensation
« Reply #6 on: March 21, 2009, 06:36:26 PM »
Adding to that:

I see the same problem in both situations.  Rival teams/companies will hire your talent away in an escalation of pay packages.

Some people have suggested that shareholders should just stand up and demand the pay cuts.  Well, how do you pull that off across all competitors simultaneously?   Because if you are the first company to cut executive pay from $15m down to something like $1.5m, your executives may desert you and you'll be in a weakened position to replace them by offering only 10% of the market rate.

Sports teams are the same way.  You might argue that a player can't possibly be worth $100m, so if you own one of those teams and cut the pay down to $5m, do you really think the guy will stick around?  And if you don't own all the teams and make a coordinated pay cut, how can you pull this off without shooting yourself in the head?

Personally, I think nobody needs this much money.  People could be outraged though that the costs of taking the family out to a baseball game are out of reach for low income families, and some of that money goes to make sure some pro athlete is getting paid $40 million, because, obviously, hitting a ball with a stick for $1m just isn't worth it, right?




Eric

Your post seems to shy away from the connection between star (popular) athletes and the excess revenues their names generate for their organizations even after accounting for their greater cost.  I always like to start my compensation thoughts with a useful example.  Take a stock broker at a no name firm, who is not provided any leads, minimal support, and generates a book of business worth 2 million per year in revenues.  Outside of the minimal support from his firm, this broker's revenue generation can be directly attached to his person.  On the flip side, you have a broker at a big name firm that is provided with leads and full support who also generates 2 million per year in revenues.  Clearly, one would not suggest both be compensated at an industry standard of 40% of revenues. 

It's always a function of cost benefit among the many alternatives, but the real world serves us up a muddied ability to measure this cost benefit.  The stock broker example above is a clean example because the revenues can be directly tied to one of our brokers and from there you can calculate a break even point.

Your premise seems to be that people are paid too much, but you can't do anything about it becuase if you cut their pay they will leave and go to the competition.  I agree, they will leave if the competition doesn't equally cut its pay, but are you worse off?  In most cases I think the cost benefit will prove you to be better off at least as it concerns Fortune 500 companies.  As for professional athletes, I think the compensation is more in line with the cost benefit these athletes provide to their organizations.  For many of them, cutting their pay will lead to losing that player but also less net profits for the organization.  That is, I'm not buying the argument that professional athletes are overpaid.

Fortune 500 CEOs look at these star athletes making millions and say to themselves I'm smart surely I should make as much if not more than some guy that can run fast or hit a ball, but rarely can it be shown that these CEOs actually help to generate excess revenues above their cost for their organizations than not only the next best alternative but for all alternatives.  I'd wager that at many of these companies you would be better off without a CEO. 

The funny thing about this is that Sports franchises are largely privately owned, where as, Fortune 500 companies are public.  To me it's clear what's driving the dysfunction in compensation.  It's our system of publicly owned companies.  In these companies there is a massive disconnect between the underlying owners of the businesses and the boards and managers at these companies which is largely brought about by financial intermediaries, managers of money, who are also compensated in bazaar ways.  Without this fragmentation and intermediation we see much lower compensation structures, or better yet, compensation structures that are better in line with performance.

To my mind if we want to fix errors in CEO compensation we first need to fix errors in money manager and financial intermediary compensation. 

Yours

Jack River

ericopoly

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Re: Executive compensation
« Reply #7 on: March 21, 2009, 08:22:27 PM »
Adding to that:

I see the same problem in both situations.  Rival teams/companies will hire your talent away in an escalation of pay packages.

Some people have suggested that shareholders should just stand up and demand the pay cuts.  Well, how do you pull that off across all competitors simultaneously?   Because if you are the first company to cut executive pay from $15m down to something like $1.5m, your executives may desert you and you'll be in a weakened position to replace them by offering only 10% of the market rate.

Sports teams are the same way.  You might argue that a player can't possibly be worth $100m, so if you own one of those teams and cut the pay down to $5m, do you really think the guy will stick around?  And if you don't own all the teams and make a coordinated pay cut, how can you pull this off without shooting yourself in the head?

Personally, I think nobody needs this much money.  People could be outraged though that the costs of taking the family out to a baseball game are out of reach for low income families, and some of that money goes to make sure some pro athlete is getting paid $40 million, because, obviously, hitting a ball with a stick for $1m just isn't worth it, right?




Eric

Your post seems to shy away from the connection between star (popular) athletes and the excess revenues their names generate for their organizations even after accounting for their greater cost.  I always like to start my compensation thoughts with a useful example.  Take a stock broker at a no name firm, who is not provided any leads, minimal support, and generates a book of business worth 2 million per year in revenues.  Outside of the minimal support from his firm, this broker's revenue generation can be directly attached to his person.  On the flip side, you have a broker at a big name firm that is provided with leads and full support who also generates 2 million per year in revenues.  Clearly, one would not suggest both be compensated at an industry standard of 40% of revenues. 

It's always a function of cost benefit among the many alternatives, but the real world serves us up a muddied ability to measure this cost benefit.  The stock broker example above is a clean example because the revenues can be directly tied to one of our brokers and from there you can calculate a break even point.

Your premise seems to be that people are paid too much, but you can't do anything about it becuase if you cut their pay they will leave and go to the competition.  I agree, they will leave if the competition doesn't equally cut its pay, but are you worse off?  In most cases I think the cost benefit will prove you to be better off at least as it concerns Fortune 500 companies.  As for professional athletes, I think the compensation is more in line with the cost benefit these athletes provide to their organizations.  For many of them, cutting their pay will lead to losing that player but also less net profits for the organization.  That is, I'm not buying the argument that professional athletes are overpaid.

Fortune 500 CEOs look at these star athletes making millions and say to themselves I'm smart surely I should make as much if not more than some guy that can run fast or hit a ball, but rarely can it be shown that these CEOs actually help to generate excess revenues above their cost for their organizations than not only the next best alternative but for all alternatives.  I'd wager that at many of these companies you would be better off without a CEO. 

The funny thing about this is that Sports franchises are largely privately owned, where as, Fortune 500 companies are public.  To me it's clear what's driving the dysfunction in compensation.  It's our system of publicly owned companies. 
To my mind if we want to fix errors in CEO compensation we first need to fix errors in money manager and financial intermediary compensation. 

Yours

Jack River



I would have done better I think had I used sports head coaches than sports athletes.  I think my message was lost given that star players are the ones that the fans come to see.  However, nobody comes to the games to see the coach.

In pro sports or at NCAA level, the head coach has a staff that does much of the work and he is more akin to a head executive officer -- certainly a much better analogy than using the players themselves.

Pro athletes are more like rock stars and the team more like record labels that sign them.  Coaches are more like CEOs.
« Last Edit: March 21, 2009, 08:25:12 PM by ericopoly »

philassor

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Re: Executive compensation
« Reply #8 on: March 21, 2009, 08:52:02 PM »
  "To me it's clear what's driving the dysfunction in compensation.  It's our system of publicly owned companies.  In these companies there is a massive disconnect between the underlying owners of the businesses and the boards and managers at these companies which is largely brought about by financial intermediaries, managers of money, who are also compensated in bazaar ways"

amen




ericopoly

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Re: Executive compensation
« Reply #9 on: March 21, 2009, 09:04:57 PM »
Here is perhaps a fitting analogy:

http://en.wikipedia.org/wiki/Salary_cap

Players and players' unions generally concede that the overall wealth and stability of a league is just as important as the chance at higher wages for certain star individuals, and support the application of salary caps in principle, as long as they are not set too low.