Replies to post #113946 on Tornado Alley (PROG)

[StephanieVanbryce]

I dislike the person that is getting paid more than he/she is worth...

The thing is That's NOT for YOU to say. The company and the union make their contracts. AND

that's the way it is

......

Now let's get some posts from you on the hedges paying 15% on their incomes.

[sortagreen]

"That means that the unions have been promised $26 Billion more than what the company has... How in the hell did that happen??? What's the justification"

The company raided the pension fund in good years and paid themselves bonuses? It isn't an "unfunded" liability so much as a "defunded" one.

Why is it that you think union workers are being paid more than they're worth when they ask for a living, while management drives the company into the wall with greed? Do you ever question the pensions and perqs of the class that doesn't get it's hands dirty at work... those that shower before work as opposed to after? Or is it just the working folk you despise?

When Daimler "merged" with Chrysler their people were shocked to find that each of the top ten executives at Chrysler had been "earning" more than all of the top ten at Daimler combined.

Why do you hate Americans so much?

[fuagf]

"and forced corporations to look for cheaper production environments over seas." .. umm no, not "forced" .. no corporation
is "forced" to out-source jobs overseas .. cheaper countries a corporation with a most of this except you must have seen before ..

Levels of compensation

The levels of compensation in all countries has been rising dramatically over
the past decades. Not only is it rising in absolute terms, but also in relative terms.

Fortune 500 compensation

During 2003, about half of Fortune 500 CEO compensation was in cash pay and bonuses, and the other half in vested restricted stock, and gains from exercised stock options according to Forbes magazine. Forbes magazine counted the 500 CEOs compensation to $3.3 billion during 2003 (which makes $6.6 million a piece). Notice that this figure includes gains from stock call options used; the options may have been rewarded many years before the option to buy is used.

Forbes categories of compensation

The categories that Forbes use are (1) salary (cash), (2) bonus (cash), (3) other (market value of restricted stock received), and (4) stock gains from option exercise (the gains being the difference between the price paid for the stock when the option was exercised and that days market price of the stock). If you see someone "making" $100 million or $200 million during the year, chances are 90% of that is coming from options (earned during many years) being exercised.

Typical compensation

The typical salary in the top of the list is $1 million - $3 million. The typical top cash bonus is $10 million - $15 million. The highest stock bonus is $20 million. The highest option exercise have been in the range of $100 million - $200 million.

Compensation protection

Senior executives may enjoy considerable income protection unavailable to many other employees. Often executives may receive a Golden Parachute that rewards them substantially if the company gets taken over or they lose their jobs for other reasons. This can create perverse incentives.

One example is that overly attractive Golden Parachutes may incentivize executives to
facilitate the sale of their company at a price that is not in their shareholders' best interests.

It is fairly easy for a top executive to reduce the price of his/her company's stock - due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative (eg. pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce share price. (This is again due to information asymmetries since it is more common for top executives to do everything they can to window dress their company's earnings forecasts).

A reduced share price makes a company an easier takeover target. When the company gets bought out (or taken private) - at a dramatically lower price - the takeover artist gains a windfall from the former top executive's actions to surreptitiously reduce share price. This can represent 10s of billions of dollars (questionably) transferred from previous shareholders to the takeover artist. The former top executive is then rewarded with a golden handshake for presiding over the firesale that can sometimes be in the 100s of millions of dollars for one or two years of work. (This is nevertheless an excellent bargain for the takeover artist, who will tend to benefit from developing a reputation of being very generous to parting top executives).

Similar issues occur when a publicly held asset or non-profit organization undergoes privatization. Top executives often reap tremendous monetary benefits when a government owned, mutual or non-profit entity is sold to private hands. Just as in the example above, they can facilitate this process by making the entity appear to be in financial crisis - this reduces the sale price (to the profit of the purchaser), and makes non-profits and governments more likely to sell. Ironically, it can also contribute to a public perception that private entities are more efficiently run reinforcing the political will to sell of public assets.

Again, due to asymmetric information, policy makers and the general public see a government owned firm that was a financial 'disaster' - miraculously turned around by the private sector (and typically resold) within a few years.

Regulation

There are a number of strategies that could be employed as a response to the growth of executive compensation.

* In the United States, shareholders must approve all equity compensation plans. Shareholders can simply vote against the issuance of any equity plans. This would eliminate huge windfalls that can be due to a rising stock market or years of retained earnings.

* Independent non-executive director setting of compensation is widely practised.[citation needed] Remuneration is the archetype of self dealing. An independent remuneration committee is an attempt to have pay packages set at arms' length from the directors who are getting paid.

* Disclosure of salaries is the first step, so that company stakeholders can know and decide whether or not they think remuneration is fair. In the UK, the Directors' Remuneration Report Regulations 2002 introduced a requirement into the old Companies Act 1985, the requirement to release all details of pay in the annual accounts. This is now codified in the Companies Act 2006. Similar requirements exist in most countries, including the U.S., Germany, and Canada.[citation needed]

* A say on pay - a non-binding vote of the general meeting to approve director pay packages, is practised in a growing number of countries. Some commentators have advocated a mandatory binding vote for large amounts (e.g. over $5 million). The aim is that the vote will be a highly influential signal to a board to not raise salaries beyond reasonable levels. The general meeting means shareholders in most countries. In most European countries though, with two-tier board structures, a supervisory board will represent employees and shareholders alike. It is this supervisory board which votes on executive compensation.[citation needed]

* Progressive taxation is a more general strategy that affects executive compensation, as well as other highly paid people. There has been a recent trend to cutting the highest bracket tax payers, a notable example being the tax cuts in the U.S. For example, the Baltic States have a flat tax system for incomes. Executive compensation could be checked by taxing more heavily the highest earners, for instance by taking a greater percentage of income over $200,000.

NOTE: THOSE IN FAVOR OF FLAT TAX SCENARIOS ARE SUPPING IN THE BALTIC COUNTRY CLUB.

* Maximum wage is an idea which has been enacted in early 2009 in the United States, where they capped executive pay at $500,000 per year for companies receiving extraordinary financial assistance from the US Taxpayers. The argument is to place a cap on the amount that any person may legally make, in the same way as there is a floor of a minimum wage so that people can not earn too little.

* Indexing Operating Performance is a way to make bonus targets business cycle independent. Indexed bonus targets move with the business cycle and are therefore fairer and valid for a longer period of time.

Criticism

Many newspaper stories show people expressing concern that CEOs are paid too much for the services they provide. In Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs, Harvard Business School professor Rakesh Khurana documents the problem of excessive CEO compensation, showing that the return on investment from these pay packages is very poor compared to other outlays of corporate resources.

Defenders of high executive pay say that the global war for talent and the rise of private equity firms can explain much of the increase in executive pay. For example, while in conservative Japan a senior executive has few alternatives to his current employer, in the United States it is acceptable and even admirable for a senior executive to jump to a competitor, to a private equity firm, or to a private equity portfolio company. Portfolio company executives take a pay cut but are routinely granted stock options for ownership of ten percent of the portfolio company, contingent on a successful tenure. Rather than signaling a conspiracy, defenders argue, the increase in executive pay is a mere byproduct of supply and demand for executive talent. However, U.S. executives make substantially more than their European and Asian counterparts.

Shareholders, often members of the Council of Institutional Investors or the Interfaith Center on Corporate Responsibility have often filed shareholder resolutions in protest. 21 such resolutions were filed in 2003. About a dozen were voted on in 2007, with two coming very close to passing (at Verizon, a recount is currently in progress). The U.S. Congress is currently debating mandating shareholder approval of executive pay packages at publicly traded U.S. companies.

The U.S. stood first in the world in 2005 with a ratio of 39:1 CEO's compensation to pay of manufacturing production workers. Britain second with 31.8:1; Italy third with 25.9:1, New Zealand fourth with 24.9:1.

United States

The U.S. Securities and Exchange Commission (SEC) has asked publicly traded companies to disclose more information explaining how their executives' compensation amounts are determined. The SEC has also posted compensation amounts on its website to make it easier for investors to compare compensation amounts paid by different companies. It is interesting to juxtapose SEC regulations related to executive compensation with Congressional efforts to address such compensation.

In 2005, the issue of executive compensation at American companies has been harshly criticized by columnist and Pulitzer Prize winner Gretchen Morgenson in her Market Watch column for the Sunday "Money & Business" section of the New York Times newspaper.

A February 2009 report, published by the Institute for Policy Studies notes the impact excessive executive compensation has on taxpayers:

U.S. taxpayers subsidize excessive executive compensation — by more than $20 billion per year — via a variety of tax and accounting loopholes. For example, there are no meaningful limits on how much companies can deduct from their taxes for the expense of executive compensation. The more they pay their CEO, the more they can deduct. A proposed reform to cap tax deductibility at no more than 25 times the pay of the lowest-paid worker could generate more than $5 billion in extra federal revenues per year. Although a proposal such as this one would tighten controls on pay to executives, this study does take into consideration (or at least does not address) the tax obligations of the individual (CEO) that receives this compensation. Every dollar that is deducted from the firm's income is subject to the personal tax of the individual receiving such pay.

Unions have been very vocal in their opposition to high executive compensation. The AFL-CIO sponsors a website called Executive Paywatch which allows users to compare their salaries to the CEOs of the companies where they work.

In 2007, CEOs in the S&P 500, averaged $10.5 million annually, 344 times the pay of typical
American workers. This was a drop in ratio from 2000, when they averaged 525 times the average pay.

Much more .. http://en.wikipedia.org/wiki/Executive_pay