{"id":1973,"date":"2009-10-29T07:00:32","date_gmt":"2009-10-29T15:00:32","guid":{"rendered":"http:\/\/hodakvalue.com\/blog\/?p=1973"},"modified":"2009-10-29T07:09:25","modified_gmt":"2009-10-29T15:09:25","slug":"stock-salary","status":"publish","type":"post","link":"http:\/\/hodakvalue.com\/blog\/stock-salary\/","title":{"rendered":"“Stock salary”"},"content":{"rendered":"

Every now and then, and outsider can see something that the insiders overlooked.\u00a0 Kenneth Feinberg, Treasury’s “pay czar” replaced cash salaries with something he’s calling “stock salaries<\/a>,” which is shares of the company that vest immediately, but is paid out over three years.\u00a0 This is a kind of restricted stock where the restrictions are on the payout rather than the vesting.\u00a0 There are two nominal benefits to trading cash salary for this kind of “stock salary”:\u00a0 to give the manager an incentive to get the stock price going up, and to stick around to make sure their efforts result in sustainable improvements.<\/p>\n

I give kudos to Feinberg for equating stock and cash from the perspective of a salary equivalent.\u00a0 Salary is referred to as “fixed pay” since it represent the guaranteed, time-based portion of managerial income.\u00a0 Most people in the compensation industry view stock as “variable” compensation because its value varies over time.\u00a0 I believe it’s more realistic to view stock as somewhere in between.\u00a0 It’s “fixed” insofar as there is a guaranteed value on the date it is granted, and it’s “variable” insofar as it does, indeed, vary in a manner that is arguably, somewhat influenced by managerial effort.<\/p>\n

My view is that stock is more salary-like than bonus-like, even with the restrictions. The problem with “stock salary” is that the restrictions simply make the stock grant less valuable.\u00a0 The easy remedy is to replace stock for cash with a higher value of stock than is surrendered in cash, and Feinberg appears to have done something like this for many of the managers.\u00a0 He was able to get his headline that he “cut salary by 90%,” while giving managers a risk-adjusted salary-equivalent to try to keep the good ones around.<\/p>\n

I think, however, that it’s a mistake to think that stock has any incentive effect on managers, besides the incentive to pray it goes up.\u00a0 Most managers simply cannot relate their day-to-day decisions and activities to the overall company stock price.\u00a0 It’s kind of like expecting them to use a globe to navigate between nearby towns.<\/p>\n

If Feinberg fails to attract or keep talented people at the Sorry Seven, which I believe is inevitable, it will be partly because the political constraints under which he is working will prevent him from meeting the market for real talent, which always has exceptional options to choose from.\u00a0 The more important driver, though, will be that talented managers seeking to implement creative solutions to difficult problems simply cannot work in a politicized, bureaucratic environment<\/a>, which already explains GM and Citibank.\u00a0 It’s doubtful that the Federal government will be the catalyst to change that.<\/p>\n","protected":false},"excerpt":{"rendered":"

Every now and then, and outsider can see something that the insiders overlooked.\u00a0 Kenneth Feinberg, Treasury’s “pay czar” replaced cash salaries with something he’s calling “stock salaries,” which is shares of the company that vest immediately, but is paid out over three years.\u00a0 This is a kind of restricted stock where the restrictions are on […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-1973","post","type-post","status-publish","format-standard","hentry","category-executive-compensation"],"_links":{"self":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1973","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/comments?post=1973"}],"version-history":[{"count":9,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1973\/revisions"}],"predecessor-version":[{"id":1976,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1973\/revisions\/1976"}],"wp:attachment":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/media?parent=1973"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/categories?post=1973"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/tags?post=1973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}