![Dictator -iStock_000008984367XSmall.jpg Dictator -iStock_000008984367XSmall.jpg](http://www.newgeography.com/files/imagecache/Chart_Story_Inset/Dictator+-iStock_000008984367XSmall.jpg)
Public companies and their management boards are run with all the democratic coziness of banana republics. The object of the junta is to transfer the wealth of the shareholders into the bonuses and stock options of the management. As they used to say in China, “business is better than working.”
Amidst the outcry over excessive executive pay, it is worth noting that, in the caudillo management culture of many public corporations, there is nothing more annoying than a shareholder with an interest in the company that he or she partly owns. The most dreaded corporate day of the year is that of the annual meeting, when outside consultants are hired to screen bothersome questions and choreograph the happy gathering.
During the meeting itself the greatest scorn is reserved for nosy shareholder questions about executive compensation and board composition, neither of which is deemed to be in the sphere of shareholder influence.
The annual meeting ends with the appointment of outside auditors, a few planted questions, and — for those meetings held at some remote subsidiary, to keep activist shareholders from showing up — a trip to a regional airport.
Archaic company by-laws explain why it will be nearly impossible for various regulators to cap the amounts that companies pay to executives. In short, the shareholders work for the managers, not the other way around. (If Goldman Sachs has so much extra cash, why don’t they raise the dividend?)
Start with board composition, which is usually the domain of one executive: the chairman and chief executive officer. In a functioning system of corporate governance, the jobs would be separate. Chief executives would not also be assigned the job of monitoring their own performance, which is now the case in most public U.S. companies. Good European companies have a supervisory board, which oversees the performance and pay of the senior management.
In the U.S., not only do foxes run the chicken coops, they get to eat most of the eggs and then write off the meals on their expense accounts.
Most chairmen/CEOs stack their board and compensation committees with party-line stalwarts, who vote in favor of excessive pay packages in the hope that the recipient or one of his friends will not forget the favor. To break such a back-scratching system should be relatively easy, especially in companies regulated by the Securities and Exchange Commission. Simply mandate that management cannot sit on its own board of directors.
Cumulative voting or proportional representation of the shareholders is another way to start breaking the management oligopoly of board composition. Board seats could also be allocated to representatives of retired personnel (who built the company) and those who now work in the company.
Another way to limit excessive pay packages is to impose a binding ratio that caps executive pay based on the compensation of the company’s lowest paid workers. At the moment, CEOs in big public companies have packages that pay them more than a thousand times that of their employees’ lowest wages.
J.P. Morgan thought the boss should only be paid twenty times the salary of the average company employee. Such an idea might not cap fat cat bonuses, but it would certainly improve the minimum wage.
How then to claw back executive pay when the big bosses bet the ranch on something like sub-prime mortgages and lose?
For starters, boards independent of management self-interest will be less forgiving when executives ruin a company or even turn in mediocre results. That so few banking executives were fired after the Great Collapse of 2008 is testament to the lack of shareholder representation on most boards of directors. Who fires the CEO when he reports to himself?
Next, mandate that incentive compensation like stock options only be paid into segregated retirement accounts, which ought to align performance with long-term success.
In financial services, the reward for failure should be just that: failure. In the recent crisis, deposed chairmen and chief executives were marched into the sunset with multi-million dollar severance packages. Remember the $64 million sayonara given to Citigroup’s Charles Prince, about the time the company’s shares lost $275 billion in market capitalization?
A side affect of the government bailouts was to comfort bad managers. But while these corporate executives were pinning medals on their own chests (very much in the tradition of Latin strongmen), the reason given for the sweetheart loans, especially to banks, was to protect depositors. Under this variation of mutual assured destruction, financial institutions with a large depositor base can never be put to the wall, which gives them an effective government guarantee.
To replace this kind of dependence on bankers who can gamble with deposits without consequences, there needs to be a mechanism that will protect depositors while allowing the larger financial companies to fail.
For example, depositors could be given the option of buying deposit insurance — privately funded insurance, unlike that offered by the Federal Deposit Insurance Corporation — much in the way that air travelers buy accident insurance. That the FDIC caps out at $100,000 is neither here nor there. Under this scheme, insurance would be available for all amounts, large and small. It would be paid for in the market, not given as a government gift.
When customers deposited money somewhere, they would decide if they wanted to insure the deposit or not. Those that wanted coverage would pay for it. Those that wanted to reply on their bank’s full faith and credit would leave their money uninsured and hope they have not found the next Lehman Brothers.
Publishing rates on deposit insurance, much like posted interest rates, would be yet another indicator of a company’s financial health, much like the credit default swaps that are traded in institutional markets.
The goal is to alert customers to good banks and bad ones, and to make clear that the bad ones will be allowed to fail, which is nature’s way of telling executives that they are overpaid.
My last modest proposal is to encourage reconstituted boards of directors to auction off the positions of senior management.
At the moment, managers justify their self-worth with a lot of encomiums about how big salaries and bonuses are necessary to insure that “we get the best people.”
From what I can see, all that the big salaries insure is that companies keep a lot of mediocre executives, many of whom, judging by recent performance, then spend their time buying wine and sprucing up their vacation homes. Remember what was said, in Henry Ehrlich’s book of business quotations, about the compensation policies of Harold Geneen at ITT: “He’s got them by their limousines.”
Under my revised system, top executives would be required to show the board that they have, in writing, a comparable offer from a competing firm (baseball works like this). As well, under the auction system, boards could entertain bids by senior executives to fulfill the roles of senior management.
Clearly, chief executives have a good time in their corporate jets and swank hotel suites, which might lower what other senior managers would need every month to handle the top jobs.
My guess is that a number of competent executives could be found willing to do the jobs of Fortune 500 CEOs, and for a lot less than what the current occupants charge the companies for their services (the average is over $10 million). Something tells me that Citigroup could have found a CEO for less than the $38 million that it paid to Vikram Pandit in 2008. Maybe it should have looked on eBay?
Matthew Stevenson was born in New York, but has lived in Switzerland since 1991. He is the author of, among other books, Letters of Transit: Essays on Travel, History, Politics, and Family Life Abroad. His most recent book is An April Across America
. In addition to their availability on Amazon, they can be ordered at Odysseus Books, or located toll-free at 1-800-345-6665. He may be contacted at matthewstevenson@sunrise.ch.
http://aboutleodicaprio.com/
http://aboutleodicaprio.com/ I have been failed by my doctors for most of my adult life. I've gone to several different specialists, I've gone to see different general practitioners who were ...
exercise during pregnancy
exercise during pregnancy All-Belly Pregnancy Program: How To Eat And Exercise When Expecting To Stay Fit, Have A Strong, Healthy Baby, And Be One "Hot Mama"! This site is a leading resource for information about the Ryan Watson and Flavia Del Monte All Belly Pregnancy PDF book, diet manual, and exercises for pregnant women that help you carry your pregnancy weight with ease, prepare you for giving birth and beyond, and help you keep your baby healthy and happy inside the womb.
the girlfriend activation
the girlfriend activation system The Girlfriend Activation System: How To Get A Girlfriend Step-By-Step Using "Literotica". This site is a leading resource for information about the Christian Hudson Girlfriend Activation System PDF book and attraction system that teaches you how to turn a girl you like into your loyal and committed girlfriend.
how to get rid of cellulite
how to get rid of cellulite fast The Cellulite Factor: Make Cellulite Disappear And Get The Sexy Body You Want. This site is a leading resource for information about the Dr Charles Cellulite Factor PDF book and cellulite treatment system that teaches you how to get rid of cellulite fast in your legs, hips, butt, and other trouble spots.
mike whitfield workout
mike whitfield workout finishers 2.0 Workout Finishers Ebook: How To Get Ripped And Torch Body Fat Using Insanely "Weird And Addicting" Metabolic Stacking Exercises...Without Giving Up Any Of Your Favorite Workouts. This site is a leading resource for information about the Mike Whitfield Workout Finishers PDF book and body transformation system that teaches you how to use metabolic finishers to torch body fat, build lean, sexy muscle, and dramatically improve conditioning without cardio.
rebelmouse.com The Michael
rebelmouse.com The Michael Fiore Text Your Ex Back 2.0 PDF and multimedia texting system is here! Read reviews, get download and purchase links, and learn about Michael Fiore text examples and techniques to get your ex back.
old school new body Old
old school new body Old School New Body Workout System: The Age-Defying Focus4 Exercise Protocol For Achieving Your Ideal Body. This site is a leading resource for information about the Steve Holman Old School New Body PDF book and workout training system that teaches you how to lose weight, build muscle, and tone your body in just 90 minutes per week using a combination of 4 youth-enhancing exercises.
power of conversational
power of conversational hypnosis The Power Of Conversational Hypnosis Ebook: 3 Crucial Factors That Almost Force People To Fall Under You Hypnotic Spell And Do Exactly What You Want. This site is a leading resource for information about the Igor Ledochowski Power Of Conversational Hypnosis PDF book and hypnotic training system that teaches you effective techniques for influencing and persuading people to give you exactly what you want during everyday conversations.
fantasy lover formula The
fantasy lover formula The Fantasy Lover Formula System: Become Your Woman's Ultimate Sexual Pleasure. This site is a leading resource for information about the Krista and Leann Fantasy Lover Formula PDF book and video seduction system that teaches you incredible techniques on giving intense sexual pleasure to your wife, girlfriend, or hottie you just met at the bar.
carb backloading Carb
carb backloading Carb Backloading Diet: What Muscle And Fitness Magazine Has Described As "Eat Like A Pig. Get Shredded. The Carb Backloading Diet Could Provide The Holy Grail Of Packing On Mass Without Adding Fat." This site is a leading resource for information about the John Kiefer Carb Backloading 1.0 PDF book and body fat control system that teaches you how to pack on incredible muscle while burning fat simultaneously, all while enjoying the foods you love...and YES that means pizza and donuts!