Pigs at the Private Trough

I have written before about CEO compensation, mainly that it is being manipulated by the CEOs themselves and their hand-picked boards of governors (often made up of other CEOs). This largess isn’t supported by history in this country and now a major study by Bloomberg researchers has driven a stake into any argument that these overpaid CEO’s are worth what they are paid. A post on OurFuture.org stated: “The Bloomberg researchers looked worldwide at major corporations of similar size and heft. In all, the researchers examined corporate pay records in 22 nations. In not one of these nations, Bloomberg found, do the executives of top-line firms make anything close to the paychecks of America’s corporate execs.

“In fact, America’s top corporate executives are taking home, on average, quadruple the average CEO pay that comparable top execs in the rest of the world are making.

“If this huge pay difference simply reflected a “marketplace” judgment on the sheer talent of America’s top execs, top U.S. corporations would be totally dominating global markets, outselling their foreign rivals by wide margins in everything from cars to computers.

“U.S. corporations are doing no such thing, of course. In one key global market sector after another, foreign corporations that pay their CEOs much less than U.S. CEOs are running neck and neck with their U.S. counterparts — and often leading the pack.”

CEOs and their cohort (business executives) are the largest growing segment of the 1% and are major drivers in the efforts to establish even greater wealth and pay inequality through manipulations of the government. If they were insects we would not hesitate to spray them out of existence for the pests they are.

I have suggested a way to dial back these bloated CEO salaries. It is relatively simple. If you like your current CEO, renegotiate his contract around a salary 50% of whatever they are currently making. If they say that they will “take their ball and go home,” say “fine.” Go to the Vice-CEO and offer them the job at 50% of what you were paying your current CEO. In all likelihood they will jump at the opportunity to improve their resume, but if they do not, go to the next most senior executive and offer him/her the job. You will find a taker and your company will not suffer much if at all. If you are in favor of a “kinder, gentler” process, you can make the reduction to 75% or whatever you deem appropriate. If the subordinates to your current CEO are also making bloated salaries, the same process should be applied to them. We certainly would not want the top executives making less than their subordinates! (Hey, the top guys used this to ratchet their salaries up, we can use it to ratchet the others’ salaries down.)

The fact the foreign companies that are doing as well or better than our companies are “getting by” with CEO pay one fourth of what we are paying says something. Heck, if you can’t find anyone in your corp who will take the job at 50% of current CEO pay, offer it to one of those foreign executives. To them the job will come with a pay raise.

If You Think The System is Not Rigged … Read This

We will have Mr. Trump as our next president precisely because voters thought that the economic and political systems are rigged against them. That this “feeling” is based in fact should give pause to those currently excoriating Trump voters for voting against their own financial interests.

A Financial Times (London) report on a Lancaster University Management School study, said in part:

“The correlation between high executive pay and good performance is “negligible”, a new academic study has found, providing reformers with fresh evidence that a shake-up of Britain’s corporate remuneration systems is overdue.

“Although big company bosses enjoyed pay rises of more than 80 per cent in a decade, performance as measured by economic returns on invested capital was less than 1 per cent over the period, the paper by Lancaster University Management School says.

“Our findings suggest a material disconnect between pay and fundamental value generation for, and returns to, capital providers,” the authors of the report said.

“In a study of more than a decade of data on the pay and performance of Britain’s 350 biggest listed companies, Weijia Li and Steven Young found that remuneration had increased 82 per cent in real terms over the 11 years to 2014.

“Much of the increase was the result of performance-based pay. But, the report’s authors say, the metrics used to assess performance — such as total shareholder return and earnings per share growth — are unsophisticated and short-termist, acting against the interests of long-term investors. The research found that the median economic return on invested capital, a preferable measure, was less than 1 per cent over the same period.”

What is true in the UK is more than true in the U.S. as we are the leaders of this “the CEO is King/Emperor” movement. Like all of the other propaganda, black is white (and vice-versa). CEOs claim their compensation is “performance-based,” which it clearly is not as they have rigged the system by defining “performance” in a way that results in raises for themselves but no one else. When people hear that CEO salaries are “performance-based,” they assume the huge salaries and retirement programs CEOs “earn” are warranted because they don’t think to ask for the details. Well, the details are now out in the open and “the King/Emperor has no clothes” or any other kind of protective cover.

I am declaring that it is not open season on CEOs (no, not the Second amendment kind), but let’s see how many we can take down.

Since the CEO’s aren’t doing much for those gaudy salaries, one approach would be to fire them and ask the First Vice-CEO if he would like the job at half of the current CEO’s salary. I suggest no one will hear the word “no” to these offers. If the performance of that CEO is as abysmal as the one’s now, then fire that replacement and ask his second in command if he would like the job at half of his superior’s salary. If this doesn’t result in superior performance, it will certainly reduce overpayment of the CEO.

And, this is just a manifestation of the “disruption” all of the business experts say is so good for the growth of companies, just applied to top management … for once.

CEO Pay Scam … by the Government!

You have all heard about how CEO pay (aka remuneration) has risen from comfortable levels, roughly 20 times the average worker’s pay in the mid-1960s, to mind-numbing levels today, roughly 373 times the average worker’s pay in 2014. The sense of outrage is palpable, but not enough to have anything done about it. What would you say if I told you that the 373:1 ratio was vastly understated? That the actual ratio is closer to 950:1?

How is this possible? It is possible because the Securities Exchange Commission (SEC), the government watchdog of said statistics, uses an estimate of the value of stocks held that works okay for ordinary people, but CEOs are not ordinary people. Their stock is worth more than that estimate suggests because they are better able to time when to cash in their stock because, they, unlike “ordinary people” have information, and decision making power, that allows them to maximize the value of their company’s stock.

So, how much are we talking about? In one such instance, a pharmaceutical corporation CEO was listed as making $19 million in such compensation in 2014 in SEC documents, but on his tax return, he listed a different number, $192.8 million. Similarly in 2015, the SEC list him at $18.8 million as his “fair-value compensation” while his actual take home was $232 million. And the SEC figures are what are used to calculate the ratio of CEO to average worker pay.

As if we needed more evidence that the 1% have scammed the system, it is clear beyond any shadow of doubt that America is government by the “e Rule” them that has the gold, make the rules.m, it is clear beyond any shadow of doubt that America is government by the Golden Rule: those that have the gold, make the rules.

CEO Pay, Again? Really?

A piece on The Conversation (U.K.) about CEO pay describes the situation we have known here for decades. CEO’s are vastly overpaid. The reason, of course, is that they manipulated their Boards of Trustees to become a back scratching club when it came to paying their salaries.

The essence of their argument went that CEOs were underpaid and if their pay weren’t raised “we” would be at a competitive disadvantage. No evidence was given for this claim … because there is none. It is clearly bullpucky, made up out of whole cloth, for the sole purpose of getting themselves raises.

Since over 80% of CEO appointments in major companies (International Fortune 500) come from within, and there is some evidence that such appointments work out better in the long run (in actual performance), I have a suggestion as to how to correct for this malfeasance.

When your CEO is retiring, or you just hate the bastard and fire him, offer the position to the next in line with a 20% pay cut. Explain that if the next in line turns them down the position will be offered to the person beneath him and so forth. He will accept the position. Obviously underlings can’t be paid more than the CEO so all executive salaries need to be adjusted downward.

Declare a moratorium on executive pay increases. Your shareholders will thank you. Your employees will thank you. You executives won’t but they’ve been overpaid for years, so they should just shut up.

When each CEO leaves, repeat the process, until matters are brought back into line with employee salaries (relatively, of course), such as they were in a benchmark year, say 1980.

Easy, peasey.

As an alternative, you could just pile up all of that extra cash you are overpaying your executives and burn it; that would be about as effective as what you are doing now: paying premium wages for ordinary performance.