Monday, December 17, 2007

Greed Is Groovy

In this item, the woman we love to mock & abuse (because she makes it so easy) explains executive pay to us. Thank you so much.

First, from the interview she's riffing on:

If the [compensation] process gets captured by the CEO, then it can get corrupted.


If it’s a market wage, it’s a market wage. I don’t know of any solid evidence that the process was corrupted.
Who sets the CEO's compensation? The board of directors. And many/most boards are composed of (Imagine!) other CEOs, people who serve on other boards, & so on. There's little "solid evidence" because this is the way the Old Boys (& a few Girls) Network works. Are we supposed to wait for documentary evidence of pay-offs or the like?

Now try this on for size (or sense):

But what advocates of the idea that these salaries are necessary to attract good CEOs must contend with is the question of why CEO salaries have increased so much over time. Contrary to popular belief, CEO's [sic] are not driving inequality trends; there are too few of them, and they aren't paid that well. Nonetheless, they are much better paid than they used to be, and one wants to know why.
Yes, there are too few of them, & they certainly aren't paid that well, just much better than they used to be. Thank goodness for that. There was nothing more heart-breaking than those annual Christmas features about the plucky CEO w/ his family at the Downtown Rescue Mission, just hoping that Muffy & Chad would be able to have a few slices of turkey this year, as long as they got to the mission early enough, and if they had no gas for the limo they'd never get there in time!

Is the supply of CEO's [sic] being outstripped by the demand? That latter case is pretty hard to make; there are actually slightly fewer public companies listed on the various exchanges than there used to be, and the population has grown rather rapidly.
That's getting beyond silly. And doesn't exactly back the case that "if it’s a market wage, it’s a market wage."

Ms. McArdle's own ordered list:

I find Paul Krugman's argument that CEO's [sic] have simply gotten greedier, while the rest of us have become more greed-tolerant, less than compelling. Explanations I do find compelling:

1) Falling tax rates have increased the bang one gets from one's CEO salary buck

2) The size of public companies is bigger; CEO's [sic] are essentially taking a fixed piece of a larger pot

3) Being a CEO is riskier than it used to be; executives are more likely to be forced out

4) Stock options have disguised the true cost of compensation, boards spend them with the casual disregard of a tourist using a strange currency

5) Deregulation and globalization have made the economy more competitive, which means that CEOs matter more. Thus, it is more important to actually have a talented CEO, which results in a bidding war for a limited supply of human capital.

6) Advances in financial markets offer an alternative way to get really, really rich; CEO pay is bidding against Wall Street salaries for talent.

7) Deregulation means that boards are no longer afraid of attracting unfavorable government attention with lavish executive salaries.
And the compelling answers:

1) Really, what does this mean? Was the discussion about how much more they're raking in after taxes? No, it wasn't. We quote: "Nonetheless, they are much better paid than they used to be, and one wants to know why."

2) Again we quote: "[T]hey aren't paid that well. Nonetheless, they are much better paid than they used to be[.]" So the economy has increased by an almost infinite factor, explaining why CEO to average worker pay is now something like 400 to one, but used to be larger by factors of tens, not hundreds? (No, I don't remember the exact numbers, & if Megan can speculate her "compelling explanations" w/o any back-up, I needn't be bothered w/ numbers either.)

3) The typical forced-out (as if they have a right to be there; they're never "fired") exec is usually at the unemployment office the afternoon of his forcing-out, right after calling his wife & telling her to post that old resume @, she's going to have to support the whole family for a while, & if she wants to keep two maids & a nanny she'd better start pulling her weight. Two cases in point:

Charles "Chuck" Prince, the deposed head of Citigroup, is in line to walk away from the Wall Street giant with a total pay, perks and shares payout worth just under $100 million, it has emerged.
The payout for Mr Prince, who stays on as a consultant until the end of the year, include a pro-rata cash "incentive award" currently estimated to be worth $12 million.
It also includes $10,716,469 in restricted share awards and $16,046,703 in stock options that will automatically vest at his departure.

Merrill Lynch CEO Guaranteed $159 Million Exit Package After Firm Posts Huge Loss
Merrill Lynch's directors may be weighing E. Stanley O'Neal's future, but one thing is already guaranteed: a payday of at least $159 million if he steps down.
Mr. O'Neal, the company's chairman and chief executive, is entitled to $30 million in retirement benefits as well as $129 million in stock and option holdings, according to an analysis by James F. Reda & Associates using yesterday's share price of $66.09. That would be on top of the roughly $160 million he took home in his nearly five years on the job.
Oh, it is tough out there. Hope the CEOs have a rainy day fund gathering some interest at the S&L. (Or a hedge fund.)

4) & 5): Yes, a lot of executive compensation is in stock options. And oddly enough, the primary function of the CEO is to keep those stock prices up. Which is why, as often as not, the CEO is someone who, if she's risen from w/in the company, is not someone who knows enough about the business or product line to make any difference in the actual running of the company, but a salesperson, who can suck up to the stock analysts & keep the price up, at least, at least until the "force out."

Let's face it, CEOs are next to worthless as far as keeping a corporate entity going. Those of you unfortunate to have worked for an almost-living wage in any hierarchy may have noticed (unless you're brain dead authoritarians) that things would almost always function much more smoothly w/o management imposing its inane agendas, mission statements & other time wasting crap dreamed up by corporate drones who never leave their echo chamber headquarters.

6) Maybe so. Those "advances" in financial markets do make it easier for scam artists to play w/ other people's money & grab a commission, whether their clients see a profit or not. And a lazy parasite is just the kind of person I want running my company.

7) Another reason deregulation is yummy & good. That "unfavorable attention" comes from petty, jealous bureaucrats, not the interests or will of the voters. And if the Democrats get in & start regulating things again, well, that's just another argument to be made against small-"d" democracy. Somehow voters just refuse to understand that the interests of CEOs are really their interests.

As to Krugman's explanation: Occam's razor, baby. Like, greed is groovy.

Elements of Style©: Try it this way:

But what [A]dvocates of the idea that these
salaries are necessary to attract good CEOs must contend with is the question of why CEO salaries have increased so much over time.
Brief. Simple. Clear. Really, try it once.

And "over time?" As opposed to over space? Or, I dunno, over cardboard?

Also, please (Puh-leeeze!) learn the use of apostrophes! Or be consistent in the abuse thereof. And items 1) through 7)? A period at the end of each? Or a semi-colon? Is that too much to ask?


NutellaonToast said...

Isn't the use of an apostrophe for possessive after an acronym correct? I was just reading about this in "Eats, Shoots, and Leaves" and I think the author stated that the usage differed in England and America but that that was one of the correct usages.

Dhalgren said...

Megan likes to use the UK standard for grammar and spelling because deep down, she wishes she was at LSE getting her PhD in Economics and spending nights sipping martinis at Annabel's on Bearkley Square.

Clever Pseudonym said...

In either case, Megan can't seem to make up her mind which is correct in the same post. Never mind that, what in the hell does "literarily" mean?

spencer said...

The idea that CEOs and executives somehow face greater risk than rank-and-file workers is ludicrous. I spent about a decade in the private sector before going to grad school (and I expect to end up there again soon enough), and I never - not once - saw a member of upper management suffer for one of his own boneheaded decisions before that decision cost plenty of disposable drones their jobs.

Management fucks up big? The employees suffer first. If - and only if - that step doesn't appease the investors / owners / whomever, do the idiots in charge face any actual risk at all.

Anonymous said...

Maybe I smoked too much last night, but why does Megan rebut Krugman by quoting an interview with Eugene Fama?

M. Bouffant said...

NoT, it is correct, but none of the instances I "[sicced]" are posessives. (I had to proofread several times to be sure.) As CP observes, in some cases she used the apostrophe for a plural, in some she didn't. I think "literarily" means "in a literary manner." It's in my dictionary, which doesn't necessarily mean I'd use it.

MM just doesn't like Krugman. One might say, as some say about the Usual Gang of Idiots here, that she's obsessed w/ him. Or bitterly jealous.
And as "Road-Hog" Moran used to say: "Kids, don't snoke dope when you're already high. You don't get no higher, you just get lower on dope."