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Welcome to the Greenwood.Net Curiosity Corner
Finding those execs Part II
Mar 07, 2010
Question: Given today’s economic climate and the stink raised about bailouts of companies whose executives receive sinful bonuses and stock options, what do you think would be a better way for companies to attract the most talented execs? (Asked by a curious wordsmith who’s not so good with numbers.)
Reply - Part II: People, particularly stockholders, have been miffed at the high salaries, bonuses and stock options CEOs are getting. This is a taxpayer concern, too, since some big bonuses were paid after government bailouts. The bailouts gave the government some regulatory power. For example, in exchange for $81 billion for AIG (American International Group, an insurance company), the government got 79.9 percent of AIG equity, is allowed to replace management, and has veto power over all major decisions, for example, payment of dividends.
Also, agreements allowed the government to set up a “salary czar” for negotiating and setting compensation limits. Kenneth Feinberg got the job and so far some limits have been set. Middle management is restricted to $500,000, with 45 percent allowed in cash and the rest in company stock. Top executive compensation can go up to $950,000, although one executive received $1.5 million. There are changes when a company pays back the bailout monies, and things become complicated. In a few words – it’s a mess.
So how can this be changed and be fair to all? Here are a couple thoughts that crossed my mind. As pointed out in last week’s Part I, the stockholders own the company and elect the BOD (board of directors), which really runs the show. If the company is a mess, the BOD should clean it up, or the shareholders should vote them out and put in people who can. This is somewhat analogous to replacing politicians in office.
It would be nice if all BODs set fixed standard limits for executive compensation. How about salary? This would in part depend on the size of the company and number of employees. Want a government baseline? Let’s see, the president of the United States is paid a yearly salary of $400,000 and $50,000 for expenses – and no stock options. He is the CEO of the Executive Branch, which, with departments, etc., has over 3 million employees (including military). Don’t think this would set too good a standard – just having fun.
But, with base salaries set, how about bonuses? This is a no brainer – tie the bonus amounts to company profits – the more profit (or less loss), the greater the bonus, with a fair and equitable sliding scale. If the chief executives make money (profit) for the shareholders, they make more money for themselves. No profits or improvements, no bonuses.
With standards and limits in place, there would be no big bonuses to give in looking for the best and most talented people. The shoe would be on the other foot – the best and most talented people would have to look for the best job they could get.
C.P.S. (Curious Postscript): A billion (dollars) here, a billion there, and pretty soon you’re talking real money. ~Attributed to Everett Dirksen, U.S. Senate majority leader in the 1960s
Curious about something? Send your questions to Dr. Jerry D. Wilson, College of Science and Mathematics, Lander University, Greenwood, SC, 29649, or for e-mail, www.curiosity-corner.net. Selected questions will appear in the Curiosity Corner. © JDW
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