Posted by Marc Hodak on November 10, 2008 under Executive compensation | 
When got back to my office, I got a message about an invitation from the Drum Major Institute to attend a panel discussion they’re having on “Say on Pay.” Here is the blurb from their web site:
As compensation for top corporate managers has skyrocketed, even executives who mismanage their companies or demonstrate mediocre performance often receive lavish pay. Blockbuster Inc., led by CEO James Keyes, is at the forefront of efforts to provide greater accountability to shareholders. In March 2008, Blockbuster’s Board of Directors voted to grant shareholders an annual non-binding vote on executive compensation. Beginning in 2009, shareholders will directly advise the board on whether they approve of the pay levels of the company’s top executives. A majority of Blockbuster shareholders, headed by the New York City Employees Retirement System, first called for a ‘say on pay’ in 2007. In Britain, laws requiring say on pay have been credited with reining in exorbitant CEO retirement packages. A small number of other U.S. companies, including AFLAC and Verizon, have also adopted the reform.
Well, I think it’s clear that this narrative presupposes that CEO pay is too high (my read of “lavish”) because of a lack of accountability at the board level, and that “Say of Pay” can provide that missing accountability. In medicine, prescribing a cure without regard to the validity of the diagnosis would be called “quackery.” In politics, it is often called “good governance.”
I was struck by a couple of sentences in particular:
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Posted by Marc Hodak on November 7, 2008 under Unintended consequences |
Coyote found a concrete instance where the mere threat of possible unionization may have killed jobs. A Honeywell plant near Phoenix had, a couple of times over the last decade, barely prevented unionization in secret ballot voting. Well, a day after Obama and the Democratic horde won the election, the company announced it would shut down that plant and offshore 700 jobs.
Recall that Obama promised two things in his campaign. First, he has pledged his support for “card check” unionism, where the secret ballot is replaced by face-to-face cajoling. Second, he promised to penalize companies that “move American jobs overseas.” It’s not a stretch to believe that the Phoenix plant was a highly likely target for successful unionization. It’s therefore not a stretch to think that the company decided to move its operations to Mexico and the Czech Republic while it still had the freedom to do so.
It’s well documented that job growth in unionized companies is far slower than in non-union companies. Labor organizations will never track such a thing. They will track union vs. non-union wages or benefits–the visible benefits of union negotiations. But they don’t have to track job growth. Everyone knows that within any industry–airlines, trucks, auto manufacture, etc.–job growth is much higher among the non-union firms. Everyone knows that unions spend much of their energy trying to prevent further job losses. This is just economic common sense.
The problem for workers is that, while they can see the tangible gains of unions in terms of wages and benefits, they can’t see all the jobs that weren’t created, or were created off shore because the union priced them out of the domestic market. The market penalty of unionism is largely invisible. Of course, the market is working whether workers or politicians or anyone else notices it or acknowledges it. But it is quite possible, if not likely, that Obama’s outspoken support for pro-union policies led to the loss of hundreds of jobs in Phoenix, and goodness knows how many more in the rest of the country between now and the point where he takes those rights away from workers and companies.
Postscript: Those with the jobs, and therefore union votes, have a strong incentive toward blindness about this feature of the market. They could care less about those without the jobs, especially if the reason those jobs aren’t there is because their jobs pay too much. They only care to the extent that the lack of labor competitiveness might affect their job.
Posted by Marc Hodak on under Practical definitions |
Will our first black president bring back involuntary servitude, i.e., requiring certain people to work for no pay in jobs they don’t choose?
I’m not sure this is serious, since Obama was careful not to mention mandates in the context of National Service, but this is what it says on Change.gov, which appears to be a bona fide Obama web site:
The Obama Administration will call on Americans to serve in order to meet the nation’s challenges. President-Elect Obama will expand national service programs like AmeriCorps and Peace Corps and will create a new Classroom Corps to help teachers in underserved schools, as well as a new Health Corps, Clean Energy Corps, and Veterans Corps. Obama will call on citizens of all ages to serve America, by developing a plan to require 50 hours of community service in middle school and high school and 100 hours of community service in college every year. [emphasis mine]
I wonder what that massive youth vote that propelled BHO to victory will think about being sentenced to 100 hours of community service per year in college as a result of electing him.
HT: Coyote, who is mining this great find to the hilt
Update: Well, Change.gov is living up to its name by changing the last sentence quoted above to:
Obama will call on citizens of all ages to serve America, by setting a goal that all middle school and high school students do 50 hours of community service a year and by developing a plan so that all college students who conduct 100 hours of community service receive a universal and fully refundable tax credit ensuring that the first $4,000 of their college education is completely free.
Posted by Marc Hodak on under Revealed preference |
One of the most important questions in any society is: where do your brightest minds go? I would argue that in a healthy society, those minds would go to our most productive sectors. In that context, I’m pretty pleased about what this chart says about the U.S.:
The libertarian blogs are chuckling about the chuckleheads at the bottom with a “That explains it” attitude. I look at it with a slight twist: it feels right that the lower the average IQ represented by this chart, the more likely the holder of that IQ is aiming for a government job. That’s as useful a place to store our less brilliant minds.
HT: Coyote
Posted by Marc Hodak on November 2, 2008 under Executive compensation |
There is a growing outrage about the possibility that Wall Street employees might get paid anything this year. This outrage is translating into a demand to rob bankers of their legitimate savings, and the elimination of pay-for-performance in the banking sector.
To begin with, critics are complaining that banks “owe billions to their executives.” But the vast majority of those billions represent past compensation that executives have chosen to save inside the company. And those critics are further outraged that these savings are accruing interest. Imagine that? And they are further clucking about the fact that these deferrals are mainly for the purpose of deferring taxes. Can you believe that anyone would actually try to structure their affairs to delay paying taxes? Goodness, how greedy can one get? How…unpatriotic?
So, imagine for a moment that one of those bad, bad people decides to defer some of their compensation, essentially saving it within the firm. Under what conception of fairness or justice would one accept the company, reacting to government pressure, confiscating those savings? That is precisely what the ‘companies-owe-executives-billions’ crowd is implicitly advocating. Why else would this particular form of savings register as a front page headline?
Next, the scolds are complaining about new bonuses that many of bankers are set to get for 2008–upwards of $20 billion. New bonuses in a year like this? How dare they?
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Posted by Marc Hodak on November 1, 2008 under Practical definitions |
At a rally yesterday where Senator Obama promised all sorts of goodies to the crowd, he said that as president:
I’ll help pay for this by asking the folks who are making more than $250,000 a year to go back to the tax rate they were paying in the 1990s
He’ll ask them?
What if they don’t all accept his request? Oh, yeah. In political new-speak, “ask” doesn’t mean “request,” it means an request you can’t refuse.
Here’s what I don’t get. There is probably not a single person in the crowd who would really mistake “ask” for “force” in this context. Yet, the good Senator, who is extraordinarily careful with his words, uses “ask.” Why is that?
Posted by Marc Hodak on October 29, 2008 under Executive compensation |
Andrew Cuomo is going after the Wall Street bonuses that pay his salary every which way.
First this argument, taken directly from Tony Soprano:
Now that the American taxpayer has provided substantial funds to your firm, the preservation of those funds is a vital obligation of your company. Taxpayers are, in many ways, now like shareholders of your company, and your firm has a responsibility to them.
Translation: “When your shareholders were merely institutions, pension funds, and assorted traders, widows and orphans, you could do whatever you thought was right. But with taxpayers as investors, you will do what I think is right.”
Of course, the Delaware courts have strongly ruled that shareholders can’t second-guess the board on what they think they need to pay managers in order to attract and retain their services. Which is why companies incorporate in Delaware instead of, say New York. Andy supported his threats using a New York law, a la role model Spitzer, that “permits the recovery of payments worth more than the services provided by executives.”
Excuse me, Mr. and Ms. Juror, do you think this guy was worth $763,249 last year? Here, let me explain roughly what he did… So much for business judgment.
Andy’s other ploy is another law from the code on debts:
Specifically, corporate expenditures and payments, made in the absence of fair consideration of undercapitalized firms, may well violate NY Debtor and Creditor Law 274, which deems such payments illegal fraudulent conveyances
What, you didn’t know that every dollar you paid Joe might be used to pay down your debt instead? Well, you have 10 years to think about it, with time off for good behavior.
I don’t think Mr. Cuomo talked to the Governor recently, who was in Washington begging the Federal government to save New York from massive cutbacks. Stopping some of the wealthiest, taxpaying New Yorkers from getting their full pay, and probably chasing them away, is likely to greatly help things. By “help things,” I mean Mr. Cuomo’s gubernatorial aspirations.
Posted by Marc Hodak on October 28, 2008 under Economics |
While the presidential election is quickly becoming anti-climactic, the real race is in the Senate, where the Democrats might possibly gain a filibuster-proof majority of 60 seats. A lot of the most economically destructive aspects of an Obama presidency, like implementation of a thoroughly pro-union agenda, or carte blanche on appointing liberal judges, would need to get through a Senate unable to block those initiatives.
Normally, it’s impossible to isolate the impact of political power on economic value. Many studies purporting to find that economic growth is more or less likely to occur under one party or another are hopelessly overwhelmed by noise in the data. But is it possible that yesterday we got a data point that could support the semblance of an event analysis?
Yesterday afternoon, at about 3:30 pm, a jury announced a guilty verdict on Senator Ted Stevens of Alaska. Before the verdict, the Senate race was extremely close. The verdict itself was not able to be predicted. So, the guilty verdict is a bona fide surprise event (statistically speaking), with a certain impact on a close race, which could determine a key threshold composition of the Senate. Shortly after the verdict was read, the stock market dived 2.6 percent. The rest of the world dropped by the same amount, but that is to be expected under current conditions.
That would be about a $350 billion verdict, half the amount set aside for the bailout. Not that I’m blaming the jury for Steven’s misconduct.
Posted by Marc Hodak on October 25, 2008 under Executive compensation |
I’d like to know what an “AP review” means. When I did a review of likely bonuses for a Forbes story last week, I predicted that Wall Street bonuses would be down by 30 to 50 percent. The Associated Press claims that “despite the Wall Street meltdown, the nation’s biggest banks are preparing to pay their workers as much as last year or more.”
What did the AP see that led them to this bold prediction? An “AP review” revealed that “total costs for salaries, benefits and bonuses grow by an average of 3 percent from a year ago.” They presented this to Andrew Cuomo, New York’s AG (Aspiring Governor), who summoned the outrage appropriate to an elected official:
Taxpayers have lost their life savings, and now they are being asked to bail out corporations. It’s adding insult to injury to continue to pay outsized bonuses and exorbitant compensation.
What was the AP review, and subsequent Cuomo comments based on? The pay expenses disclosed by the banks in their quarterly reports.
Uh huh.
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Posted by Marc Hodak on October 17, 2008 under Practical definitions |
For Sale in Detroit
Failed city: Any major city in North America where the average home price is $9,250. No, I didn’t forget any zeroes. How ironic that in the Motor City, cars now cost more than homes?
HT: Walter Olson
