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

[charlz]

Q: Why are CEOs of publicly traded companies focused on stock prices?
A: Because they get stock options.

Not entirely true. The whole purpose of the corporation model is to "improve shareholder value"... which everyone takes to mean the stock price. Unfortunately this can cause management to focus on the next quarterly report vice the long term health of the company. This is really a problem in companies that are in 'mature' markets. It seems like there is no way for them to say "this is all we are ever going to be" and just make a steady amount of money.

 

[Duffster]

...... contracts that essentially pay no matter what.

Kinda sounds like the union........

 

[MossRoad]

Let's say one of you guys has a kid that is a sports star and after college(if he finishes) he gets offered $20,000,000.00 to play for a few years. Which one of you is going to tell him to turn it down?......................... I thought so!

Now let's say your kid stays in school, develops a brain, develops a network of business associates, and ends up being offered the position of CEO of a fortune 500 company for, oh, let's say... $20,000,000.00!!!! Again, which one of you is going to tell him to turn it down?.................. Hmmmm.... same answer.

 

[2manyrocks]

I did mergers and acquisitions for a good deal of my career. I was the guy who did the calculations to figure out how much money went where and to whom after tax and how the deal needed to be structured to maximize the after tax return. It wasn't necessarily that the people who ran them were smart. More often, it was because they were fortunate to get in on the ground floor of something and stay with it until a much bigger company wanted to buy them out. Frequently, they'd invest their sales proceeds in something they didn't understand or spend what they got and lose it. So much for being smart.

There were some, a scare few, executive teams that were highly professional. When I see a troubled company and executive management being paid large amounts of money, it tells me a lot.

Paycheck does not necessarily equate with worth.

 

[riptides]

Not entirely true. The whole purpose of the corporation model is to "improve shareholder value"... which everyone takes to mean the stock price. Unfortunately this can cause management to focus on the next quarterly report vice the long term health of the company. This is really a problem in companies that are in 'mature' markets. It seems like there is no way for them to say "this is all we are ever going to be" and just make a steady amount of money.

Oh my.... dead on in most cases.

Witness those corporate profits which don't meet "expectations".

Profits and the stock still retreats.....

 

[riptides]

Let's say one of you guys has a kid that is a sports star and after college(if he finishes) he gets offered $20,000,000.00 to play for a few years. Which one of you is going to tell him to turn it down?......................... I thought so!

Now let's say your kid stays in school, develops a brain, develops a network of business associates, and ends up being offered the position of CEO of a fortune 500 company for, oh, let's say... $20,000,000.00!!!! Again, which one of you is going to tell him to turn it down?.................. Hmmmm.... same answer.

I think we are really only interested in compensation packages, specifically golden parachutes when things are tanking. Companies and business in general should retool those packages to have escape clauses that protect shareholder interests when things go bad at the helm. Seems to me, this has not happened.

 

[jdbower]

I think we are really only interested in compensation packages, specifically golden parachutes when things are tanking. Companies and business in general should retool those packages to have escape clauses that protect shareholder interests when things go bad at the helm. Seems to me, this has not happened.

That's because golden parachutes are there explicitly to protect the CEO when something goes wrong and he's fired. They encourage risk taking, and when the risk doesn't pan out the CEO wants to be protected and if it does pan out he'll make a lot more off his options than he will off the safety net. Lets look at GM and Ford. GM took two big risks over the past few years:

First, they retooled their engines to gamble on E85 with their FlexFuel, but they didn't foresee that the public would decide ethanol raises food prices and is not a viable technology (the truth is irrelevant, hybrids are pretty are also awful technology but the public has decided that they're the way of the future). This FlexFuel retooling was wasted, but had the government stuck to their historical heavy subsidies to the corn growers it could have paid off big.

GM also gambled heavily on the Volt, to be the first mass-market electric car. If they had succeeded this would have blown the Prius out of the water and opened up whole new markets for GM. But the environmentalists didn't like the gas engine that allowed for the occasional long distance trips and the car ended up taking too long to design and became too expensive.

During this time, Ford did nothing but the same thing GM also did - come up with some "me-too" hybrids because that's where the market shifted (sadly, just after Honda pulled out of the market). It turns out that Ford going into turtle mode and hiding was not a bad choice. For now. But do we want to stay stagnant and let the other car companies pass us by until we're no longer competitive? Or do we want to encourage bold choices to be made so we can claw our way back on top? Yes, the problem with bold choices is that sometimes they backfire on us. But the problem with avoiding risk is that we become irrelevant. How can we strike a balance?

 

[Scooby074]

jdbower: When i first read about the Volt, i knew it was going to be a flop, or at least not be the savior of GM. 13 years ago i had a car that would get better mileage, it was a Jetta Diesel. It did this without all the weight and complexities of hybrid engines and batteries. Honestly i wonder if the management at GM secretly believes this and only putting Volt to the forefront to look "Green" and "Hip".

Hybrids in general arent the answer (this includes the prius and others). And when you look at the total impact of making them, from manufacturing the lithium batteries and shipping them around the world, to the added costs of recycling them at their end of life theyre not that "green" either.

Proping up these dinosaur companies stifles innovation. If the Big 3 failed, a dozen startups would take their place. And they would have products that are actually fresh and innovative, not derivatives of what they and their competitors are making (ie: the big 3's rush to hybrids).

Golden parachutes IMHO dont cause CEO's to want to take risks. They need CEOs with a love of the job and a feel for what the consumer wants. And vision to beat their competators to the next big thing. Like Toyota did with hybrids ,even given my opinion of hybrids in general, they were ahead of the current trend. By the way, Toyota's CEO makes under $1 million.

 

[MikePA]

Paycheck does not necessarily equate with worth.

It never does. What is so hard to understand about the concept you are paid what someone is willing to pay you? The question, "Is Simon Cowell worth $144 million?" is irrelevant. $144 million is what someone is willing to pay him.

I have no problems with a reasonable salary for management.

And who defines reasonable?

 

[jdbower]

When i first read about the Volt, i knew it was going to be a flop

Unless you're actually a CTO of a car company I'd say that was just a lucky guess, Volt got a lot farther than I thought it would especially once you consider the complexities of the modular fuel system. Remember, this isn't just capitulating to the greenies, it's building a car that's eminently marketable.

13 years ago i had a car that would get better mileage, it was a Jetta Diesel.

Your Jetta got 100mpg and doesn't need fuel for the first few dozen miles? I think you're confusing the Volt with a traditional hybrid, Volt was supposed to be the holy grail of the green movement - an all-electric commuter car with the ability to go long distances using the current gas station network so you can still drive it to mom's or not worry if you forgot to charge it the night before.

Toyota's CEO makes under $1 million.

That's not exactly true:

It's difficult to get a precise comparison because Japanese companies are not required to include perks. "It's a very tough comparison to make," says David Cole, chairman of the Center for Automotive Research. The perks given to Japanese executives can include homes, chauffeurs, country club memberships. In the USA, "our disclosure on things like this is pretty complete. The first inclination is to say there's this huge difference, but I don't think that's true."

If you want to try to migrate US CEO salaries to the Japanese model, we can save the most money by starting at the bottom and work our way up where the comparisons are much easier:

It's estimated that GM workers earn an average $73 an hour when benefits including health care and pensions are added in. That appears to be about $25 an hour more than Toyota's U.S. workers.