Posted by Marc Hodak on May 11, 2011 under Innumeracy | 
Greece is out of cash. You would think that the land of Aristotle, Demosthenes and Euclid could do better than this:
Vassilis Theodorakopoulos, a 53-year old dental technician who works for the country’s main public health-care fund, said he was protesting a 20% cut in his salary, as well as a plan to expand the working week for public servants to 40 hours—in line with the private sector—from 37.5 currently.
“Personally, I don’t think there should be a difference between the public and private sector,” he said. “What we are fighting for is a reduction in private-sector working hours.”
He said he also objects to a plan by the government to eliminate free dental braces for children, his specialty, as part of its health-care reform.
That last part actually makes sense, at least in a world where one’s income is driven by politics. If I were an economics professor employed by the state, I’m sure I could make an excellent case for spending big,big bucks to raise economic literacy, using quotes like the one above to support my case.
Unfortunately, you can’t spend money even on important things when you have no money left. When that happens, then you see what is really important to those in power.
Posted by Marc Hodak on May 10, 2011 under Executive compensation |
Larry Ribstein notes a questionable allocation of scarce SEC resources:
The SEC brought in Hu, a widely recognized expert on financial regulation, in response to its embarrassing Madoff failure. The Reuters article discusses some reservations about how much Hu accomplished, but I want to focus on another issue it covers: the price of Hu’s services.
The SEC let Hu call Austin home, then paid him to travel between DC and Austin and to stay in temporary housing in Chevy Chase.
The SEC allocated nearly a quarter of its entire travel budget to this one expert. Furthermore, the amount they paid his university in salary reimbursement and contributions to his benefits exceeded the cap on federal employee salaries for SEC division heads.
The point is not whether or not Hu was worth it. His SEC commissioners made that determination, and one ought to give them the benefit of the doubt. I’ve been involved in countless negotiations where getting the “right” guy or gal meant paying all sorts of travel-related expenses that the board considered worth it compared to the value of the services they were expecting to receive.
Ribstein makes the point that when the majority of SEC is looking at similar determinations by corporate boards, they feel that such decisions should be second-guessed by outside shareholders. He then suggests:
I suppose it’s too much to expect a national referendum on SEC pay. But shouldn’t we at least give Congress a say on SEC pay? If anything it’s more justified here, since investors can simply sell or decide not to invest in companies that pay too much, but what’s the taxpayers’ remedy for excesses by the SEC?
Of course, Congress does indirectly, but powerfully, have a say on SEC pay. I would suggest (and Larry would likely agree) that Congress is all too willing to focus on relatively inconsequential amounts, like the extra hundred thousand that the SEC may have used in their best judgment to attract Dr. Hu, while ignoring the hundred thousand dollars that the government spends every second that they tie themselves up in such deliberations. In adopting Say on Pay, Congress was merely spreading the fun of second-guessing the immaterial executive awards to institutional investors who are generally poorly equipped to make such distinctions, and should be much more concerned about what they are getting from their managers than what they are giving them.
But if they don’t like what’s going on with their CEO’s pay or policies, investors can cut loose their shares without having to permanently leave the country.
Posted by Marc Hodak on May 6, 2011 under Executive compensation, Governance |
Well, not a rabbi, really, but the CEO of a Jewish organization, along with the others “will be there to press Goldman Sachs Group Inc. to evaluate whether it’s paying executives too much.”
“When we see CEOs earning over 300 times more than the typical worker, it raises serious questions for shareholders on whether they are really (that) valuable,” says Sister Nash, who has been a nun for 50 years.
I personally have no doubt that Goldman’s executives are paid way too much. I have somehow found a way to be reasonably happy and secure with my relatively paltry income, so why do they need so much? I can only imagine how it must look to nuns, who have taken a vow of poverty.
But that, of course is my personal, not my professional, opinion. I can’t render a professional opinion on Goldman’s pay because I don’t know what information the board had about:
a) Agreements, explicit or implicit, that had been reached between these executives and their (quite independent) compensation committee
b) The likelihood of losing key executives to hedge funds, where they could each make multiples of what the top five made together
c) The impact on the company’s returns if one or more of these people left
The latter gets to the heart of how valuable these executives are relative to the “typical” worker.
Goldman has a market cap of about $82 billion. Its shareholders understand that the firm recently survived a financial tsunami, is now dealing with the radioactive Frank-Dodd aftermath in the midst of market and regulatory shifts that are transforming the global financial industry. The “typical worker” is not going to have much impact on how Goldman Sachs strategically and organizationally responds and adapts to these changes for the benefit of the shareholders. So, the relevant question is this: Is it possible that the difference in outcomes between what this management might achieve versus the next best management team that the board might lure could be something in the range of $69 million?
If the Sisters of Saint Francis asked God, “would losing your dear, unconverted son, Lloyd, in favor of his next best make a two hundredth of one percent difference in the GS stock price?” and the Lord replied, “Yea, my children, losing Lloyd would make 10 times, nay 15 times, that difference,” would they then go back to the board and insist that they increase management’s pay? Would they do that for the sake of the shareholders?
