Another reason the US stinks (TMQ)

Rasta Monsta · Sep 19, 2006, 04:26 PM

Much news and sports commentary focuses on the ever-larger paychecks of professional athletes. But even Peyton Manning is a day laborer compared to the modern Fortune 500 CEO. In May, Exxon Mobil shareholders passed the first resolution in company history to be enacted over opposition of the board of directors; at issue was shareholder fury regarding the $168 million retiring CEO Lee Raymond awarded himself in his final year. "There's some unhappiness about the way Raymond's compensation was handled," new Exxon Mobil CEO Rex Tillerson dryly told a news conference. During the summer Hank McKinnell was ousted as CEO of Pfizer; he got $162 million over his last five years at the helm, even as Pfizer earnings faltered. Carol Hymowitz of the Wall Street Journal reported that the head of Pfizer's "compensation committee" defended McKinnell's windfall on grounds of market forces in executive pay -- which in this context appears to mean, "CEOs at other companies are picking shareholders' pockets, too." There just wasn't anybody who would have taken the Pfizer job for less than $162 million? McKinnell's pay for his tenure atop Pfizer equates to $130,000 per work day.

Not all Fortune 500 CEOs are glorified pickpockets. For instance, James Skinner, the CEO of McDonald's, paid himself $3.4 million in 2005, as McDonald's income was rising. (All pay figures in this item fold together salary, bonus, stock options and stock grants.) A year's pay of $3.4 million is a lot, but a CEO who makes good strategic decisions for a large firm easily could be worth that amount to shareholders. Contrast to Home Depot CEO Robert Nardelli, who is under pressure to resign owing to what the Louisville Courier-Journal earlier this month called "a firestorm over his pay and the Atlanta company's lagging stock price." During the last five years Nardelli has earned from the company $245 million -- $196,000 per work day -- though Home Depot's stock price has stagnated. Whether it's fair to judge a CEO by stock price is an open question. Economic theory says stock prices represent the market's guess about a corporation's future value: that is, what future buyers will be willing to pay for the shares. CEOs have no control over what investors guess regarding their company's future, while pressuring them to prop up stock using short-term gimmicks leads to accounting scandals. Corporate executives are more fairly judged by sales and profits than by stock prices, and in the case of Home Depot, those numbers are strong; that the stock price is stagnate reflects the market's guess about the company's future, namely that it is unlikely to expand much more. But sympathizing with the pressure Nardelli is under is no justification for him being wildly overpaid, at shareholder and worker expense. And please don't tell me the prevailing prices for executives justified Nardelli's huge number, because this requires you to argue that there was not one single qualified manager willing to run Home Depot for less than $245 million. "You're only offering $244 million? Forget it!"

Bad enough is the matter of executives insisting what they receive be called "compensation." Workers get wages, white-collar employees get salaries and executives get "compensation," as if they were lofty philantrophists. Keep in mind Orwell's maxim that we cannot think clearly about things unless we call them what they are. By insisting their pay be referred to using a silly euphemism, executives make it harder to think clearly about their excesses. The media go along with this exercise in weasel-wording. Fannie Mae CEO Franklin Raines paid himself $64 million from 2001 to 2003, about $85,000 per work day, during a period Fannie Mae was engaged in "fraudulent accounting," according to a recent report of the Office of Federal Housing Enterprise Oversight. Raines, the report said, manipulated Fannie Mae earnings so the numbers would trigger his maximum bonus milestones. Yet even when reporting on the federal document accusing Raines of fraud, news organization called the $64 million Raines' "compensation," as if for a noble deed.

Next, consider that executive income usually is rubber-stamped by boards of directors whose members may be engaged in self-dealings with the firm, or who have a self-interest in rising CEO pay. As Julie Creswell noted in the New York Times, "Five of the six active Home Depot board members are current or former chief executives of public corporations … CEOs benefit from one another's pay increases, because compensation packages are often based on surveys detailing what their peers are making."

Suppose I was placed on a committee that would vote on Peter King's salary. Suppose King would be paid with someone else's money; that there would be no penalty to me no matter how much I voted to lavish on him; and that my next ESPN contract offer would be based on a survey of what football columnists including King are earning. I'd vote King a huge increase -- maybe to $196,000 a day! This is the situation boards of directors are in when they award wheelbarrows full of shareholders' cash to CEOs. The board members know the more they inflate CEO pay, the more they themselves will be able to pilfer from their own shareholders. In June, a New York state judge ruled a shareholders' lawsuit against Viacom could proceed. The suit alleges the board of directors breeched their fiduciary duty to shareholders by paying Viacom's top three executives $160 million in 2004, or about $213,000 per work day per executive. In 2004, Viacom lost a gasp-inducing $18 billion. From the directors' standpoint, inflating the checks of the top managers had little downside. In most circumstances, company-paid liability policies effectively render directors immune from any legal consequences of their decisions, while overpaying executives adds to the arguments board members use to demand additional millions from their own corporations.

Recently the Business Roundtable released a study purporting to show that CEO pay rose 9.6 percent annually from 1995-2005, while stockholder returns rose 9.9 percent in the same period. So things aren't so bad, eh? The Business Roundtable said the study "sets the record straight." The Business Roundtable is, by its own description, "an association of chief executive officers of leading U.S. companies." As Gretchen Morgenson, dean of Wall Street journalists, laid it out in the New York Times, the study systematically understated the income of CEOs in two ways. First, the numbers exclude dividends received by CEOs on restricted stock holdings, and this is often a big chunk of executive income. Second, Morgenson wrote, "The study counts only the value of the options and restricted stock received by executives on the dates the awards were made."

That renders the study about as truthful as an Enron balance sheet. Suppose I award you an option for a share of Tuesday Morning Quarterback Enterprises, on a day the stock is selling for $10. Naturally the value of my company skyrockets -- based on hat and T-shirt sales, perhaps. The stock price hits $50, you exercise the option, sell the share at $50 and realize a $40 gain. According to the Business Roundtable you made $10. Include the value of gains on stock options and restricted grants, Morgenson found, and CEO pay increased far faster than shareholder returns in the last decade. Now guess who the chairman of the Business Roundtable was when the "sets the record straight" study was being prepared: Hank McKinnell of Pfizer. How does it serve the interests of CEOs for their trade association to be blatantly dishonest toward the public about CEO pay? Unless the Business Roundtable is saying that CEOs as a group wish to deceive the public.

BlueMak · Sep 19, 2006, 05:01 PM

Go live in Haiti or something then.

Rasta Monsta · Sep 19, 2006, 05:39 PM

HA I love it when people respond with garbage like that. . .

"Don't criticize our society! LEAVE!"

Well, mate, our great country was created by people who felt that public debate and open criticism of government was their MOST IMPORTANT GOD-GIVEN RIGHT. There is a reason free speech is guaranteed in the FIRST amendment!

If you want to control what people say, perhaps you should "go live in Haiti or something!"

Tinkerhell · Sep 20, 2006, 04:10 PM

I agree with you.
Some things that go on in the US do stink.
However if you think this is something limited to just the US you are nuts. Give me the same details for the leading CEO's from Japan, China, Britain etc etc and I expect you will see pretty much the same thing.
I got news for ya, American CEO's aren't the only greedy SOB's in the world.
So, keep the playing field of your comments level. If the US stinks because of this than many other countries in the world are puss filled oozing sores on the ass of a diseased yak.

Rasta Monsta · Sep 20, 2006, 05:44 PM

Tink, if you have some facts about corporate abuses outside the US, on a similar scale to what we have seen, I would be interested in reading some of it.

pr0digal jenius · Sep 20, 2006, 06:25 PM

"$196,000 per work day"

sign me up!

BlueMak · Sep 21, 2006, 01:12 AM

Quote:

Originally Posted by Rasta Monsta

HA I love it when people respond with garbage like that. . .

"Don't criticize our society! LEAVE!"

Well, mate, our great country was created by people who felt that public debate and open criticism of government was their MOST IMPORTANT GOD-GIVEN RIGHT. There is a reason free speech is guaranteed in the FIRST amendment!

If you want to control what people say, perhaps you should "go live in Haiti or something!"

1)I didn't say don't criticize, I said if you don't like it so much that you can always go to another country, I am sure you will find something more to what you like. You have the right to say that the country stinks but I have no right to tell you can always leave? Why stay somewhere where you think it stinks?

2)Your problem is that some people who have higher titled jobs get shitload of money. Sounds more like a jealousy moment at least. I am unemployed, I get nothing even close to that (of course), and I would love to be rich and get that kind of money. I don't, I still don't go out and condemn a whole country because I don't make enough money in it.

3)Life is not perfect, this is not a Star Trek world either. Since the other systems simply cannot work in the long run, capitalism is what we have that works. It is not always good for the little guy (like you and me) but that doesn't mean it is so bad. Now if you (not you personaly) stopped whinning about it, stopped the rasta crap from infecting your mind then perhaps you could do something to change things. If you think you can't, my first suggestion always remains, you can always leave. Thankfuly the USA is not USSR or Cuba. I am sure you have plenty of selling points for yourself and your skills and that you would have zero problem being accepted in any number of countries across the world. Why limit yourself and stay where you are unhappy?

Falstaff · Sep 21, 2006, 10:33 AM

Capitalism...
Imperialism....
ism.....
(heavy sigh)
Look at America if you will and tell if you dont see similiarities between our economy and others..
and Corproate culture?
Look at Russia or Africa or even France and tell me about Corruption..LOL

Rasta Monsta · Sep 21, 2006, 10:36 AM

Ha, I am not jealous of folks like Ken Lay who lie, steal, and defraud thousands of innocent stockholders and employees out of greed. They are criminals.

Did you actually read the article above? The McDonald's CEO is praised for his good management, and he makes $3+ million a year, which is a good value for stockholders, franchisees & employees.

And as Jackson Brown wrote, "I am a patriot." Using my voice to point out injustice is how I try to contribute to change my country. . .I'm not going to abandon it.

Here is another interesting piece I found online. Perhaps you should take it to heart.

Quote:

Originally Posted by Wdllofzepia

In all ages people who one way or another came into power have misdirected their power. Instead for the good of the people for the good, or only pleasure, of a select few. What makes these people act like that? Propably some or all of the above. What can be done about it? One way would be for these people to not come into power in the first place. But, for these people to manage to rise have supporters. The aim for change should not be only at those few people but to their supporters. How can you change people into not supporting a ruthless guy or a person that you know is just not good? One way would be for these people to not find the need to. Why would an average guy want to support someone like Hitler or Stalin for example? Why would an average guy support someone who is killing or planning to kill other people? What is actualy causing that move towards supporting him? (btw I don't mean just one leader guy but any of the top "elite"). In many occurences the reason was/is money. Simple as that! Poverty can cause people to think differently. Having no way to feed, having other money related, important things to have, can bring a human to do things that does not necessarily approve at first, but learns that perhaps this way he will be fed etc.
Injustice is another reason. When people feel they have not been treated fairly, they will given time and opportunity react. Some day they will find a leader, real of imagined, It can relate to poverty, but, it is not always the reason. Humans must be treated fairly, no matter what the cost, for the good of the future generations and not only. Justice must prevail!

BlueMak · Sep 21, 2006, 04:14 PM

THIS IS THE MOST FUNNY THING EVER. Do you know who Wdllofzepia is? IT is me.

BTW, I am really flattered that you like my piece.

Rasta Monsta · Sep 21, 2006, 05:12 PM

Quote:

Originally Posted by BlueMak

Do you know who Wdllofzepia is? IT is me.

No way, really?

BlueMak · Sep 21, 2006, 05:29 PM

Hmm either both of us are great with sarcasm or terrible.

Rasta Monsta · Sep 21, 2006, 06:04 PM

BlueMak · Sep 21, 2006, 06:15 PM

Hmm, I admit, now I am confused. You quoted that because you knew thet wdllofzepia was me, right?

Falstaff · Sep 21, 2006, 06:55 PM

I think we have a breakthrough here...

TheBlackCat · Sep 21, 2006, 08:10 PM

Wait, sockpuppets are allowed here?

hyperl1t3 · Oct 19, 2006, 08:37 PM

i think the title of this thread should have been more along the lines of "US makes criminals millionaires". you would think that during huge audits and failures in funds of a company all should follow the ways of the companies, but in the US (don't know about other countries) seems to coddle (sp) them. when companies dive like enron and others of the past half decade the elites didn't loose a dime most actually made money. during all this while workers were laid off immediatly after their numerous years at a company and hopefuls invested their dollars into them. i remember reading about rolling blackouts behind the energy scandals in california where the coperate energy companies were withholding production to raise prices. people could have died (i.e. cutting energy to elderly housing; hospitals) and some might have, but in all this these people profited huge. and not only did these people profit huge right before they've been indited but they mearly got slaps on their wrists for it. yes the US may not have the only dickheads in the world, but we sure have the biggest... and love them dearly for it because they pay the government.