Comments on: Discovering new ways to pay CEOs http://blog.aynrandcenter.org/discovering-new-ways-to-pay-ceos/ Mon, 24 Oct 2011 16:44:58 +0000 hourly 1 By: Daniel Wisehart http://blog.aynrandcenter.org/discovering-new-ways-to-pay-ceos/comment-page-1/#comment-604 Daniel Wisehart Tue, 19 May 2009 16:23:59 +0000 http://blog.aynrandcenter.org/?p=2025#comment-604 I really enjoyed your comments, Mr. Watkins, but you missed talking about one example of government intervention into CEO pay that I think needs mentioning: "say on pay", which would give shareholders the post-ante right to reduce a CEO's by popular vote. There are already procedures in place for setting CEO pay; what the supporters of these proposals want is the ability to set CEO pay based on factors that have nothing to do with the company's performance, punishing the CEO--for instance--for making egoistical comments to the media or for cutting jobs. If the shareholders had to specify the actual factors they want used to determine CEO pay, the proposals would fail: their meaning would be too clear. What they are counting on when they ask to vote on CEO pay is their ability to stir up enough shareholder envy to set aside the question of how much pay the CEO has earned. Regards, Daniel I really enjoyed your comments, Mr. Watkins, but you missed talking about one example of government intervention into CEO pay that I think needs mentioning: “say on pay”, which would give shareholders the post-ante right to reduce a CEO’s by popular vote. There are already procedures in place for setting CEO pay; what the supporters of these proposals want is the ability to set CEO pay based on factors that have nothing to do with the company’s performance, punishing the CEO–for instance–for making egoistical comments to the media or for cutting jobs. If the shareholders had to specify the actual factors they want used to determine CEO pay, the proposals would fail: their meaning would be too clear. What they are counting on when they ask to vote on CEO pay is their ability to stir up enough shareholder envy to set aside the question of how much pay the CEO has earned.

Regards,
Daniel

]]> By: Raymond Niles http://blog.aynrandcenter.org/discovering-new-ways-to-pay-ceos/comment-page-1/#comment-603 Raymond Niles Tue, 19 May 2009 10:34:42 +0000 http://blog.aynrandcenter.org/?p=2025#comment-603 Don, you make good points. However, I would alter your statement, "If...the government starts dictating how to remunerate CEOs..." Government already does that through the tax code. The most egregious manner was when, about 15 or so years ago, the government eliminated the deductibility of corporate salaries over $1 million. That is about when you started seeing the explosion of *non-salary* forms of payment, in particular the explosion of payments tied to stock options and in the form of deferred compensation. The latter included large pensions and perks that kick in when employment ends, such as cars, air travel, etc. All of these non-salary forms of compensation benefit the corporations because they are tax-advantaged relative to straight salary and cash bonuses, which are now taxable over $1 million. (Incidentally, all salaries should be deductible because they are business expenses. Given the tax code, all business expenses should be deductible, but government, in the same envious manner we see today, decided that salaries over $1 million were "unfair" or "excessive" and therefore eliminated their tax deductibility.) So, the current system is not the result of a "free market." Rather, its most notable features, which include all manner of non-salary, non-cash-bonus compensation are due, at least in large part, to government planning through the tax code. Government is largely responsible for the way CEOs are paid today. In a laissez-faire world, pay perhaps would consist largely of simple salaries and cash bonuses, with much smaller stock or option portions than today's CEOs receive. It would be interesting to pin down when the tax code was changed and compare it to when the explosion of the stock options, et al., form of payment began. Bottom line: today's form of pay only needs to be partially defended. Companies can pay their executives anything they want, but the pay structure we see today is also the distorted result of government intervention. (I am leaving out another issue, the myriad of laws that thwart takeovers of companies, which would allow shareholders to boot out over-compensated and under-performing executives. That is also a government-induced distortion that creates a disconnect between corporate pay and corporate performance.) Don, you make good points. However, I would alter your statement, “If…the government starts dictating how to remunerate CEOs…” Government already does that through the tax code. The most egregious manner was when, about 15 or so years ago, the government eliminated the deductibility of corporate salaries over $1 million. That is about when you started seeing the explosion of *non-salary* forms of payment, in particular the explosion of payments tied to stock options and in the form of deferred compensation. The latter included large pensions and perks that kick in when employment ends, such as cars, air travel, etc. All of these non-salary forms of compensation benefit the corporations because they are tax-advantaged relative to straight salary and cash bonuses, which are now taxable over $1 million. (Incidentally, all salaries should be deductible because they are business expenses. Given the tax code, all business expenses should be deductible, but government, in the same envious manner we see today, decided that salaries over $1 million were “unfair” or “excessive” and therefore eliminated their tax deductibility.)

So, the current system is not the result of a “free market.” Rather, its most notable features, which include all manner of non-salary, non-cash-bonus compensation are due, at least in large part, to government planning through the tax code.

Government is largely responsible for the way CEOs are paid today. In a laissez-faire world, pay perhaps would consist largely of simple salaries and cash bonuses, with much smaller stock or option portions than today’s CEOs receive.

It would be interesting to pin down when the tax code was changed and compare it to when the explosion of the stock options, et al., form of payment began.

Bottom line: today’s form of pay only needs to be partially defended. Companies can pay their executives anything they want, but the pay structure we see today is also the distorted result of government intervention. (I am leaving out another issue, the myriad of laws that thwart takeovers of companies, which would allow shareholders to boot out over-compensated and under-performing executives. That is also a government-induced distortion that creates a disconnect between corporate pay and corporate performance.)

]]> By: Todd Martin http://blog.aynrandcenter.org/discovering-new-ways-to-pay-ceos/comment-page-1/#comment-602 Todd Martin Tue, 19 May 2009 06:05:26 +0000 http://blog.aynrandcenter.org/?p=2025#comment-602 Thank you for an interesting read. I began my career during the dot-com bubble and watched many CEO's completely milk the system. It's been a long while now since I've seen a CEO who actually wanted to create something, build something or deliver a real service. Instead what is happening is CEO's are plumping up the company as best they can in order to sell it for a profit and cash in on their stocks. In 1999 I was working for a small ISP in Santa Cruz California run by four friends who had a revolving CEO'ship while they hunted for a permanent CEO. When they found him they spent the better part of 3 months in daily interviews and negoatiations. Less than 4 months after he took the position the company was sold off in pieces. It was a strong company and one of only two ISP's in the area at the time. The second one was a complete failure and the company I worked for had a virtual monopoly on the market. There was simply no reason to sell other than a quick pay day. Furthermore, many of these CEO's also sit on boards of other companies and they all vote each other pay raises and "golden parachutes." The CEO of the last company I worked for sat on 7 other boards. The people on the board of the company, were CEO's and CFO's of companies my CEO sat on the board of. It's a sort of demented fraternity designed specifically to scam money out of Angel investors and the like. So while government intrusion is certainly an issue, so is the free market in the sense it has been hijacked by the looters and pillagers of our time. The people who are supposed to be holding CEO's accountable are complicit in the scam themselves. In many ways it parallels what is happening in our (The USA's) political system. The looters have found out they can vote themselves money by electing pillagers to do the work for them. Anyway, thank you very much for the read. It was thought provoking. -todd Thank you for an interesting read. I began my career during the dot-com bubble and watched many CEO’s completely milk the system. It’s been a long while now since I’ve seen a CEO who actually wanted to create something, build something or deliver a real service.

Instead what is happening is CEO’s are plumping up the company as best they can in order to sell it for a profit and cash in on their stocks. In 1999 I was working for a small ISP in Santa Cruz California run by four friends who had a revolving CEO’ship while they hunted for a permanent CEO. When they found him they spent the better part of 3 months in daily interviews and negoatiations. Less than 4 months after he took the position the company was sold off in pieces. It was a strong company and one of only two ISP’s in the area at the time. The second one was a complete failure and the company I worked for had a virtual monopoly on the market. There was simply no reason to sell other than a quick pay day.

Furthermore, many of these CEO’s also sit on boards of other companies and they all vote each other pay raises and “golden parachutes.” The CEO of the last company I worked for sat on 7 other boards. The people on the board of the company, were CEO’s and CFO’s of companies my CEO sat on the board of. It’s a sort of demented fraternity designed specifically to scam money out of Angel investors and the like.

So while government intrusion is certainly an issue, so is the free market in the sense it has been hijacked by the looters and pillagers of our time. The people who are supposed to be holding CEO’s accountable are complicit in the scam themselves. In many ways it parallels what is happening in our (The USA’s) political system. The looters have found out they can vote themselves money by electing pillagers to do the work for them.

Anyway, thank you very much for the read. It was thought provoking.

-todd

]]> By: Michael Fitzgibbon http://blog.aynrandcenter.org/discovering-new-ways-to-pay-ceos/comment-page-1/#comment-601 Michael Fitzgibbon Tue, 19 May 2009 04:17:25 +0000 http://blog.aynrandcenter.org/?p=2025#comment-601 The government refuses to accept the factors that created the financial problems faced by the country and as a result, the solutions won't work since the issues aren't addressed. CEO pay didn't casue the problem, so regulating it will not solve the problem. ( and it's morally unacceptable) What's surprising is that the government takes actions that have proven to fail in other countries, so how could they ever work in the U.S.? It seems highly unreasonable to me. The government refuses to accept the factors that created the financial problems faced by the country and as a result, the solutions won’t work since the issues aren’t addressed. CEO pay didn’t casue the problem, so regulating it will not solve the problem. ( and it’s morally unacceptable) What’s surprising is that the government takes actions that have proven to fail in other countries, so how could they ever work in the U.S.? It seems highly unreasonable to me.

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