Hummer is now Chinese....just doesn't sound right.

[jdbower]

but it will put cents in the shareholders pockets.

$0.023 per share, to be exact. Assuming it all goes back into the market cap. And then we've got the long term hit of setting a precedent of trying to hire competent people when they know that they'll be forced to give back their salary when there's a market disruption. It's almost like economics is a complex subject with a lot of variables we need to consider

 

[MikePA]

Executive pay and packages need to be more closley aligned to company performance in general.

This is for the board to decide, not the government.

 

[Duffster]

This is for the board to decide, not the government.

Ah Hmmmm....Politics.......

 

[2manyrocks]

I'm specifically thinking of some executives on Wall St. who thought it was great idea to put together all these financial packages of second mortgage loans that a common, rookie first year mortgage lender would know better than to make in the first place.

Also in my opinion, look at the executive management of Wachovia Bank which took one of the largest, most successful banks in US history and bought up Great West in California. Then Wachovia wound up in a forced shotgun sale of its banking business to Wells Fargo at a rock bottom depressed price in a distressed economy. And in my opinion, the former CEO got a nice severance package before the Wachovia shareholders, for practical purposes, lost a banking business it took about a hundred years to build.

So yes, it's my personal opinion that the stockholders would better served if executives who make goofball decisions lose money in a big way when they make poor decisions. And boards of directors make a huge error when they enter into severance packages with executives that insulate them from the financial consequences of their mistakes.

 

[jdbower]

And boards of directors make a huge error when they enter into severance packages with executives that insulate them from the financial consequences of their mistakes.

Superficially, yes. However we only see severance packages when a senior exec is forced to leave because the company isn't doing well. For one thing, in many cases this may not be the fault of the CEO. If just about all car companies (or banks, or name your industry) are doing pretty awful it's more an indication that the market is bad than any one person's mistakes. But a severance package is like an airbag - it's something the execs hope they'll never need to use. Think of it like tenor for teachers. Without it we'd be stuck with teaching the politically correct things only and professors would be afraid to teach outside that box lest they be fired. A senior exec who has no severance package will work to maintain status quo so he doesn't lose his job. One that isn't afraid of being fired has the freedom to innovate and take risks because if he succeeds his payoff will be in stock options and if he fails he has a chunk of money to fall back on. With severance packages you can get some spectacularly bad decisions, without them you become irrelevant because the competition passes you by. It's a no-win situation.

 

[2manyrocks]

A senior exec who has no severance package will work to maintain status quo so he doesn't lose his job. One that isn't afraid of being fired has the freedom to innovate and take risks because if he succeeds his payoff will be in stock options and if he fails he has a chunk of money to fall back on. With severance packages you can get some spectacularly bad decisions, without them you become irrelevant because the competition passes you by. It's a no-win situation.

I personally would not grant tenure to teachers. I've seen a few on college faculties that needed to be forced out.

CEO's need to pay for their stock in cash like everybody else and then they have the same incentive as the shareholders to decide what risks are appropriate and which risks are too much. With options and a parachute, they don't have any skin in the game.

 

[Duffster]

I personally would not grant tenure to teachers. I've seen a few on college faculties that needed to be forced out.

.

Ditto

 

[jdbower]

The idea of firing professors is tempting, until you realize that you're not the one with the power to fire them. Chances are, given TBN's demographics, its the ones you like who will be fired and replaced with ones that are closer to status quo.

CEO's need to pay for their stock in cash like everybody else

I think you misunderstand the nature of stock grants and options. They're not gifts, they're pre-negotiated or expected compensation that's cheaper for the corporation to give than the effective cash value. Given a choice between $100,000 in stock and $100,000 in cash no CEO in his right mind would take the stock. For one, stock grants are taxed upon receipt so $100k in stock would mean you'd need to sell some right away to cover (and selling stock as a senior exec is extremely regulated so it's not easy to do unless you set it up beforehand) or you need to fork over cash to cover the taxes. More importantly, you get to decide how to spend cash while you're forced into that decision with a stock grant. The choices aren't $1.5M plus stock for a compensation package or $1.5M alone, it's $1.5M plus stock or $14.3M in cash. Probably a lot more since the company didn't do well, depending on the nature of the package the total compensation would probably have been $20M or more had GM held its value. Stock and options grants ARE the way to force CEOs to have more skin in the game.

 

[Redneck in training]

Isn't it true that CEOs sit on ech other board of directors? If that is true then there is conflict of interest because they can award pay packages to each other. I help you, you help me etc.

 

[jdbower]

Isn't it true that CEOs sit on ech other board of directors?

Not exactly. The board makeup is public information so scrutinize for yourself (having so much of their life and finances made public is one of the reasons why it takes a high salary to draw in a CEO - personally I'd have to consider $14.3M to head up GM for even a year as it could be a career-ender). Boards are usually made up of retired industry execs and college professors - GM has a smattering of current execs as well, but I'd be curious if you can find reciprocal links that cause conflicts of interest (and if you do, feel free to report them to the DoJ or SEC since that's their job). Remember that the board gets paid largely on how well the stock does - it'd in their best interest to increase the stock value rather than to pay off the CEO.

Still, it's hardly a perfect system. If the board is stocked with friends of the CEO a lot of bad decisions can be made, you can generally tell this is the case when a CEO sticks around too long in a non-family run business. But is that more or less corrupt than a union demanding that all employees in a location pay tribute to the union boss whether they want to or not? Corruption does and will happen at all levels, there is no way around that. All we can do is watch for specific infractions and handle them one at a time.