Editore"s Note
Tilting at Windmills

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January 3, 2007
By: Kevin Drum

CEO PAY UPDATE....Charles Munger, Warren Buffett's partner at Berkshire Hathaway, talks to the LA Times about the insane levels of CEO compensation these days:

What makes CEO pay so difficult is that only a few of the people who are earning these huge amounts are actually worth it....I like the idea of high pay for people who are really worth it. The problem is that most of them are not. Every mediocre employee who rises through the ranks to become CEO thinks he should retire rich. It's crazy.

Do you think this might be what Munger is talking about?

Embattled Home Depot Chief Executive Robert L. Nardelli, under fire from stockholders for earning hundreds of millions at the same time the company's stock fell and market share dropped, resigned suddenly today and will walk away with a severance package of $210 million, the company announced....During his tenure, Nardelli earned $240 million in salary, bonuses and stock options.

....During his leadership of the nation's second largest retail chain after Wal-Mart, Home Depot lost market share to home-improvement rival Lowe's Cos. and its stock price declined almost 8 percent.

Let's get out our calculators. $450 million for six years of service comes to....about $75 million per year. And this is for reducing Home Depot's value and losing market share to its main rival.

I wonder what Nardelli would have been paid if he had actually increased Home Depot's value? Would there be enough money in the world?

Kevin Drum 3:01 PM Permalink | Trackbacks | Comments (111)

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Comments

Hooray for Nardelli. One of Home Depot's biggest shareholders is Bill Gates, and anyone who can put a dent in Bill Gates' wallet is just fine by me.

Posted by: charlie don't surf on January 3, 2007 at 3:17 PM | PERMALINK

Actually, when Carly Fiorina, ex CEO of HP quit, her hundred million severance package was worth it.

Overnight, HP stock went up so fast they gained $7 Billion in market cap.

Posted by: Extradite Rumsfeld on January 3, 2007 at 3:17 PM | PERMALINK

And people say A-Rod is overpaid. This guy better hit .450 with 80 HR and 200 RBI.

Posted by: SP on January 3, 2007 at 3:20 PM | PERMALINK

If you liberals don't like Home Depot, go buy your hammers and sickles someplace else

Posted by: Al on January 3, 2007 at 3:20 PM | PERMALINK

Nardelli is like all repukeliscum - he's a looter. He took a well-built company, stole all that he could, and left it in freefall.

He's the poster boy for the Repukeliscum of today - unable to actually do anything, just adept at theft.

Posted by: POed Lib on January 3, 2007 at 3:24 PM | PERMALINK

Munger hits the nail on the head.

The vast majority of CEOs of existing corporations do basically what any competant MBA would do.

My own pet theory on what staretd this all was the dot com boom. All these execs in existing fortune 500 companies saw a bunch of nobodies getting filthy rich and said "hey we run sucessfull companies that actually make money shoudln't we be making those kind of bucks?" Since they all serve on each others boards the incestuous race in CEO pay was on...

Posted by: Eric on January 3, 2007 at 3:25 PM | PERMALINK

The Market is perfect!!!

CEO's at Top Companies will Make More before Lunch on January 2, 2007 than Their Minimum Wage Employees will Earn All Year

It takes the average CEO, 2 hours and 2 minutes to earn $10,712. The CEO of Fortune 100 companies earn $10,712 in 1 hour and 16 minutes.

It takes the average minimum wage worker 52 forty-hour weeks (2,080 hours) to earn $10,712.

Posted by: Al's Mommy on January 3, 2007 at 3:26 PM | PERMALINK

I'm reminded of a description of recent African history: a country will prosper in peace for some years, building up wealth. Eventually the target gets so rich that some general or politician takes control, loots the country side, and retires to Southern France with the treasury.

Posted by: Boronx on January 3, 2007 at 3:29 PM | PERMALINK

And people say A-Rod is overpaid. This guy better hit .450 with 80 HR and 200 RBI.
Posted by: SP on January 3, 2007 at 3:20 PM | PERMALINK

Pro-sports celebrities (athletes, coaches, and owners) rate their overinflated salaries SOLEY by virtue of their state-enforced franchise monopolies.

If we did away with those, and allowed anybody with enough money to build a stadium and field a team to do so, we might have say, 20 baseball teams for Chicago (or any other major city) who would have to COMPETE for ticket sales, instead of what current sports teams do now, which is sit back and rake in money based on nothing but simple knee-jerk tribalism of their city's residents (or college's alumni). And the result of this competition would be, far lower ticket prices, far less drug abuse, and no asshole pro-sports celebrities.

Only THEN would pro-sports be about honest competition and teamwork. The supposed virtues that cause people to indoctrinate their children into sports in the first place.

Posted by: Extradite Rumsfeld on January 3, 2007 at 3:31 PM | PERMALINK

I don't invest in the stock market, but I sometimes like to amuse myself by comparing a particular company's stock market performance with its actual performance in my own town.

WalMart, where I never shop but often drive past the always-full parking lot, is too easy.

But Home Depot is a superb example of a company whose real-world performance matches its Wall Street performance perfectly. Its employees are hard to find, untrained and apathetic, which explains the empty parking lot.

Lowe's, across the street, is always jumping - an accurate reflection of the efficient service inside.

Posted by: Yellow Dog on January 3, 2007 at 3:31 PM | PERMALINK

After Nardelli first took charge at HD, he started belt tightening - Wall Street loved him - Larry KRUDlow and Jim Cramer were raving about his business skill - With his micro managing style he drove HD execs into the open arms of Loews - Then he centralized buying - Exclusive contracts.

As a customer, I noticed, in several of the Portland metro area, a drop off in knowledgable sales personnel after he took the reins. Fewer sales types, but they were younger part timers. Also, supplies were limited to specific brands. Switched shopping to Loews and the small independents. Have talked with several customers, especially small contractor types at Loews. They all said they had switched as well. Hell, Loews is the one who should give Nardelli a bonus.

Posted by: thethirdPaul on January 3, 2007 at 3:34 PM | PERMALINK

Now, for the seamy, non-CEO-pay-related side of Home Depot. Note also that Tom Ridge serves on their board.

Posted by: TLB on January 3, 2007 at 3:38 PM | PERMALINK

CEO's at Top Companies will Make More before Lunch on January 2, 2007 than Their Minimum Wage Employees will Earn All Year

More than the minimum wage employees? Hardly just that - Mr Nardelli, an average or worse CEO, makes $75M a year, which is $1.44M a week, or $206,000 a day. In other words, in 1/2 day, he makes $103,000, or more than not just the minimum wagers, but more than the white collar professionals and more than the lower rungs of management make in a year.

And he makes that much on holidays, too. So buy lunch time yesterday, he had made $309,000 this year - more than the total annual income of 99% of Americans.

Posted by: Alex on January 3, 2007 at 3:40 PM | PERMALINK

Same thing happened with Pfizer. Ex-CEO Hank McKinnel oversaw buyouts of Warner-Lambert (lawsuits over drug misuse/mislabeling plus layoffs from integration) and Pharmacia (Celebrex, like Vioxx, a lawsuit waiting to happen). Company shares dropped 40% on his watch. Retired prematurely with $6.6 mill a year pension for life plus options, bonuses et al. bringing total compensation to ~$183 million.

Posted by: Dano on January 3, 2007 at 3:47 PM | PERMALINK

This is yet another reason I shop at a little, locally-owned hardware store whenever possible -- the money stays local and the staff can not only be found (unlike HD or Lowes), but also know their stuff (again, unlike HD or Lowes).

More on topic:

I think most of us in the business world would agree that, 9 times out of 10, the CEO/Prez does the least amount of work, comes in at 10 and leaves at 2, gets about four months of vacation, and all for coming up with some of the most spectacularly idiotic ideas ever fathomed. Or maybe that's just me. :-)

The point is true, though: Most CEOs really don't do a damn thing to earn their pay. It's simply ricockulous.

Posted by: Unholy Moses on January 3, 2007 at 3:49 PM | PERMALINK

Is Munger disparaging the free market?

Posted by: Carl Nyberg on January 3, 2007 at 3:49 PM | PERMALINK

After Nardelli first took charge at HD, he started belt tightening - Wall Street loved him - Larry KRUDlow and Jim Cramer were raving about his business skill - With his micro managing style he drove HD execs into the open arms of Loews - Then he centralized buying - Exclusive contracts.

As a customer, I noticed, in several of the Portland metro area, a drop off in knowledgable sales personnel after he took the reins. Fewer sales types, but they were younger part timers. Also, supplies were limited to specific brands. Switched shopping to Loews and the small independents. Have talked with several customers, especially small contractor types at Loews. They all said they had switched as well. Hell, Loews is the one who should give Nardelli a bonus.

Posted by: thethirdPaul on January 3, 2007 at 3:34 PM | PERMALINK
*************************************************
Nardelli's problem was that he came from managing a successful manufacturing business at GE - GE Power Systems. A lot of the cost-cutting measures that make sense in a manufacturing business make none at all in a company that is based on retail sales and customer service.

Nardelli came over after he lost the Jack Welch succession battle to Jeff Immelt. Obviously he wasn't sharp enough to figure out the difference in the business models you need to follow. And the market has spoken!

Posted by: Campesino on January 3, 2007 at 3:51 PM | PERMALINK

I think part of the problem is the way boards of directors look at the CEO position. In too many cases they focus on one or two experienced candidates, become desparate to get their man/woman, thus putting themselves in a weak negotiating position which forces them to overpay for average talent. As Eric noted upthread, any decent upper level manager should be able to do what a CEO does...running a division is not all that different from running a whole company.

However, boards lust after superstar CEOs and therefore end up paying accordingly, even though an unknown with little name recognition could probably do just as good a job. However, most boards are not willing to "gamble" on a no-name CEO, regardless of how competent they may be.

Posted by: mfw13 on January 3, 2007 at 3:52 PM | PERMALINK

These days it's hard to find even a conservative willing to defend this large-scale looting by the likes of corporate kleptocrats like Nardelli. But it's one thing to bitch and moan about the problem and quite another to effectively put an end to what is - there's no other way to put this - stealing from the shareholders. A good place to start would be to institute true corporate democracy, with officers and directors being subject to removal by a majority vote of shareholders - no exceptions.

Posted by: Django on January 3, 2007 at 3:56 PM | PERMALINK

I've always wondered why shareholders put up with this crap. The money taken by the greedy bastards (above a reasonably excellent salary -- say one million per year) is coming directly out the pockets of shareholders. This money could be going into dividends instead, and it has always seemed to me that the Boards that agree to give it to the CEO instead are violating their duty to shareholders.

Posted by: Cal Gal on January 3, 2007 at 3:59 PM | PERMALINK

I don't know how to do it, but director nomination and selection has to be taken away from the executives. When execs began to think they owned the company, with poison pills and golden parachutes, when the owners firing the execs was called a hostile takeover, it all went to hell.

Posted by: Walter E. Wallis on January 3, 2007 at 4:00 PM | PERMALINK

When I refer to "America's tiny, ultra-rich, hereditary, neo-fascist, corporate-feudalist ruling class", people like "Embattled Home Depot Chief Executive" Robert L. Nardelli are ... NOT what I'm referring to.

He is merely rich, not ultra-rich. The merely rich are being left behind economically by the ultra-rich. Nardelli runs a chain of hardware stores. He is a puny nobody compared to the CEOs of "defense" contractors and multinational oil companies -- a.k.a. Bush's base.

Posted by: SecularAnimist on January 3, 2007 at 4:00 PM | PERMALINK

You don't expect most institutional shareholders to institute that, do you Django? They love their hypocrisy

Posted by: Ghost of Tom Joad on January 3, 2007 at 4:02 PM | PERMALINK

And he makes that much on holidays, too. So buy lunch time yesterday, he had made $309,000 this year - more than the total annual income of 99% of Americans.
Posted by: Alex on January 3, 2007 at 3:40 PM | PERMALINK

Let's tax the fuck out of these assholes.

And if the WSJ editorial page wet-dream comes true, they'll start leaving America.

Competent CEO's can take their place, and these idiots will go to work for companies in other countries, and drag THEIR economies into the shitter and sandback THEIR middle class. Instead of ours.

A lot of the cost-cutting measures that make sense in a manufacturing business make none at all in a company that is based on retail sales and customer service.

They make even less sense in a Technology company. But that doesn't stop them from trying.

So, is this a result of America's transition from a manufacturing-based economy to a service economy? Management still hasn't caught up with that?

However, boards lust after superstar CEOs and therefore end up paying accordingly, even though an unknown with little name recognition could probably do just as good a job.
Posted by: mfw13 on January 3, 2007 at 3:52 PM | PERMALINK

That's because the CEO is the public face of the company, and for very large multinationals, is typically a celebrity of one sort or another. Did you hear Ken Lay's testimony? He had little to do with day-to-day business decisions and activities. So he didn't know what was going on. He wasn't managing. He was jet-setting around, making deals, making speeches, bribing politicians, being a lightning rod for critics, etc. (by the way, this is George W Bush's function in BushCo, as well. You think he's really the DECIDER? He's the scapegoat. He's Karl Rove's Liberal-bait).

That's the function of a CEO in today's world. The only reason they're called CEO instead of "head PR slag" is to lend some semblance of credibility. The same reason why they command such high salaries. Because they can't scam The Market into thinking they made a good hiring decision if they don't pay huge amounts of money.

Posted by: Extradite Rumsfeld on January 3, 2007 at 4:07 PM | PERMALINK

Cal Gal hits it on the nose....it really comes down to the big shareholders (i.e. pension funds and endowments) not doing due diligence when voting their shares.

Of course there is also the structural issue in that the ownership of publicly traded companies is so diluted that even the largest stakeholders usually own no more than 10-15% of the company, which makes it all the more harder to cobble together the 51% needed for shareholders to throw their power around.

The easiest course of action is to simple to vote with your money. If you don't like the way a company is being run, or if you think the CEO is being paid to much, sell your shares and let somebody else worry about it. There are thousands of publicly traded companies and mutual funds for you to put your money into, so there's very little reason for you to stick with a stock when you don't like the management.

As an investor, I wouldn't touch Home Depot with a 10-ft. pole, nor do I own any other companies with outrageously overpaid CEO's.

Posted by: mfw13 on January 3, 2007 at 4:15 PM | PERMALINK

I've always wondered why shareholders put up with this crap.
Posted by: Cal Gal on January 3, 2007 at 3:59 PM | PERMALINK

The same reason why they'll pay $200 for football tickets.

The same reason why they'll pay $20 for a CD.

The same reason why they'll pay $10 to watch a movie.

People love their celebrities - and concentrate their spending on a very few providers when competition is constrained by over consolidation bad-faith meddling by influence-peddling politicians.

Posted by: Extradite Rumsfeld on January 3, 2007 at 4:15 PM | PERMALINK

"I doubt that much of the $210 million is cash - the stockholders would be angier."

Those would be some really stupid stockholders. The difference is slight.

Posted by: jefff on January 3, 2007 at 4:18 PM | PERMALINK

"I've always wondered why shareholders put up with this crap. "

It's because there are very high institutional and practical barriers to thier noticing, or doing anything about it.

Posted by: jefff on January 3, 2007 at 4:21 PM | PERMALINK

The easiest course of action is to simple to vote with your money.Posted by: mfw13 on January 3, 2007 at 4:15 PM | PERMALINK

That's easy for YOU to do.

But everyone else will not listen to such wisdom, and will invest in the company with the sexiest CEO, most well-known logo, and shiniest products anyway.

As an investor, I wouldn't touch Home Depot with a 10-ft. pole, nor do I own any other companies with outrageously overpaid CEO's.

And you would be unwise.

In today's stock market - companies make far more money, not on sales, but on the effects of market cap, which is about 99% driven by hype and promotion, and a big contributing factor in that is the CEO.

Institutional investors go for this stuff, because it works.

This is true, and today's P/E ratios PROVE it.

And the ONLY way this will change, is if there is regulatory intervention that allows for more direct democratic intervention in corporate governance rules, for minority shareholders.

And of course, that will never happen. Because the stock market would collapse overnight as companies market caps returned to sane values based on actual earnings.

Posted by: Extradite Rumsfeld on January 3, 2007 at 4:22 PM | PERMALINK

Ghost - the managers of some institutional shareholders won't fulfill their fiduciary obligations, others will. One big problem though is the dwindling number of fixed-benefit pension funds such as CALPERS, whose trustees could always be counted upon as a counterweight to corporate excess. If everyone has his or her own IRA or 401k, it's hard to organize. Which is just the way the corporatists want it.

Posted by: Django on January 3, 2007 at 4:22 PM | PERMALINK

What in the world are the shareholders and the Boards of Directors thinking? They control executive pay, don't they?

Posted by: eduardo the adequate on January 3, 2007 at 4:29 PM | PERMALINK

Campesino: Nardelli's problem was that he came from managing a successful manufacturing business at GE - GE Power Systems. A lot of the cost-cutting measures that make sense in a manufacturing business make none at all in a company that is based on retail sales and customer service.

Common phenomenon. Remember Sculley at Apple? Soda pop, computers, what's the difference. Hey, business is business. Who cares if the CEO doesn't know jack shit about what the company does.

Meanwhile, with grunts they look for ridiculously specialized skills. How do you think they get away with claiming that the H-1B's have skills they couldn't find amongst Americans. Monkey wrenches, oh, but you've never worked with left handed ones? Sorry, we can't afford the 15 minute learning curve (and we don't want to pay your American style salary).

Posted by: alex on January 3, 2007 at 4:29 PM | PERMALINK

just for the sake of accuracy, note that there's some double-counting of compensation going on; the $210 includes vested retirement benefits, which likely were counted in the $240 number. No way of knowing, from press reports, how much overlap there is, and by any standard he made too much--but it's not as simple as adding 210 and 240.

Posted by: dan on January 3, 2007 at 4:30 PM | PERMALINK

Extradite Rumsfeld: And the ONLY way this will change, is if there is regulatory intervention that allows for more direct democratic intervention in corporate governance rules, for minority shareholders. And of course, that will never happen. Because the stock market would collapse overnight as companies market caps returned to sane values based on actual earnings.

Comrade, that's a great strategy for the Revolution. We will institute Capitalism! (that would really make the cronies shit their pants).

Posted by: alex on January 3, 2007 at 4:37 PM | PERMALINK

What in the world are the shareholders and the Boards of Directors thinking? They control executive pay, don't they?
Posted by: eduardo the adequate on January 3, 2007 at 4:29 PM | PERMALINK

They're thinking exactly THIS:
"If I give him X-hundred million dollars, then he, as a board member of the company I'm a CEO at, will do the same for me!"

Posted by: Extradite Rumsfeld on January 3, 2007 at 4:46 PM | PERMALINK

This paragraph really stood out for me as an example of how whacked the system is:


Stephanie Hoff, senior retail analyst for investment firm Edward Jones, said Nardelli had been unfairly criticized for his hefty pay packages. "I seriously doubt that anybody would be critical of his compensation package if the stock price had been doing well," she said.


Well, gee, Stephanie, if the stock had actually gone up then perhaps he would have actually deserved the pay (I think it would still be excessive, but that's another matter). Basically, it's heads the CEO wins, tails he/she wins even bigger. Isn't the stock price a pretty important means of judging the performance of a CEO?

Posted by: Vincent Sheffer on January 3, 2007 at 5:17 PM | PERMALINK

If this guy cost $75M/year to fuck things up, think what a bargain Bush is. He's made a much bigger mess, for a lot less pay!

Posted by: craigie on January 3, 2007 at 5:27 PM | PERMALINK

And what are the shareholders thinking? They are thinking "I've got my money in a diversified indexed mutual fund so I don't really know what shares I own."

It is a pretty sweet deal when you look closely at it. Basically it is the 'get a zillion people to give you a penny each' scam. The people giving the money have no power, are disorganized, and generally ignorant of what is going on.

Posted by: Tripp on January 3, 2007 at 5:27 PM | PERMALINK

If you think the CEO is overpaid, the solution is to sell your stock or to get enought shareholders who agree and fire the board.

Posted by: Justin on January 3, 2007 at 6:10 PM | PERMALINK

What really sucks is when they do layoffs at the end of quarters to make the bottom line look good.If that is what a good CEO is all about I'm for hire.

Posted by: Thomas3.6 1/2 on January 3, 2007 at 6:16 PM | PERMALINK

If you think the CEO is overpaid, the solution is to sell your stock or to get enought shareholders who agree and fire the board.

Luckily the cost of doing either of these things is zero, so it's not like the CEO is holding you hostage to transaction costs....

Posted by: Disputo on January 3, 2007 at 6:17 PM | PERMALINK

A high paid CEO usally is the guy that knows how to bend laws and create loopholes.Rarely do Boards care if the guy knows jack @#!$ about the company just at how to buy politcal favors and skirt laws.CREEPS.

Posted by: Thomas3.6 1/2 on January 3, 2007 at 6:19 PM | PERMALINK

Maybe there should be a law that says you buy stock you should know how much money you will lose trying to pay for the CEO.

Posted by: Thomas3.6 1/2 on January 3, 2007 at 6:22 PM | PERMALINK

But Kevin, don't you realize that these CEOs work so much harder than the black, single mother who works three jobs at minimum wage to feed her children? After all, the average CEO has to play a lot of golf with the Board members who sit on the Compensation Committee of the Board of Directors, to convince them to grant him millions in stock options for no results. And what about that Steve Forbes? Why he had to be born into just the right family to be paid millions for jacking off all day!

In all seriousness, the ultimate form of capitalism is piracy. And that is what we are describing here, folks. And, like all pirates, we should make these scurvy dogs walk the plank!

Posted by: The Conservative Deflator on January 3, 2007 at 6:26 PM | PERMALINK

Justin: If you think the CEO is overpaid, the solution is to sell your stock or to get enought shareholders who agree and fire the board.

What a brilliant idea! Why didn't Charlie Minger think of that? Ah, what does he know about capitalism.

BTW, you might want to actually read the article, where he explains why it's not so easy to fix. My favorite quote: "not enough executives have gone to jail".

Posted by: alex on January 3, 2007 at 6:51 PM | PERMALINK

Why he had to be born into just the right family to be paid millions for jacking off all day!

Good work if you can get it.

Posted by: Disputo on January 3, 2007 at 7:00 PM | PERMALINK

Al:If you liberals don't like Home Depot, go buy your hammers and sickles someplace else
Now that is funny. Give a troll credit where credit is due.

Posted by: thersites on January 3, 2007 at 7:16 PM | PERMALINK

The ability of CEOs to make so much money says everything about their ability to negotiate and play alpha male in a group and almost nothing about their ability to actually create wealth. Eventually, the folks who own these companies (that'd be us, average stockholders) are going to wise up and demand influence over policy (including outrageous executive pay) commensurate with their ownership.

Posted by: Ron on January 3, 2007 at 7:23 PM | PERMALINK

From the article:
"I don't see blanket limits as a good idea, because it's not the dollar amount that's a problem. No one is the least mad when Tiger Woods earns $18 million. They figure he's earned it."

This isn't true. People do get mad that sports starts and celeberities are paid so much. They get particularly mad about things like publically financed sports stadiums and sports star pay.

Now golf is, I beleive, a relatively unsubsidized sport so Tiger Woods won't get much anger from that, but the same is not true of the various team sport players who's employers are sucking down millions in tax money for their stadiums while paying thier stars millions of dollars every year.

The sports stars to also have a layer of insulation from the corruption. CEO's are prime movers in the corporate and government corruption that lets them direct the benefits of our economy toward themselves and away from shareholders and other employees.

Posted by: jefff on January 3, 2007 at 7:32 PM | PERMALINK

I have done well in the stock market but I resented watching the oil executives as they sat before Congress, not under oath, thanks to Republican corporate loyalist Ted Stevens of Alaska, lie, lie , lie that they had no part in setting energy policy. That one guy with six chins--ridiculously compensated. I watched on Cspan and it is indelibly burned into my brain.

Posted by: consider wisely always on January 3, 2007 at 7:42 PM | PERMALINK

Tripp and others nailed it. Huge amounts are invested in mutual funds which isolates the executives from the owners. As the executives manage the company they get to write the rules and the rules favor them.

We also had a guy from GE come into our division. He didn't know jack about our products or customers. He made some horrific changes, got his pat on the back from upper management and moved on. A year later the business tanked but by then he was off to "help" another division.

Posted by: JohnK on January 3, 2007 at 7:52 PM | PERMALINK

JohnK: He didn't know jack about our products or customers.

That's a feature, not a bug. It's very easy to think outside the box if you don't even know what a box is.

Posted by: alex on January 3, 2007 at 7:53 PM | PERMALINK

If you liberals don't like Home Depot, go buy your hammers and sickles someplace else

Actually, the dictatorship of the proletariat will redistribute them so that we all get one each.

You're obviously not reading enough Marx, Comrade.

Posted by: floopmeister on January 3, 2007 at 8:02 PM | PERMALINK

Oh, and this is OT, but interesting:

The financial press reported last week that the euro, the new currency created only five years ago and used by most European nations, has supplanted the U.S. dollar as the most widely used form of cash internationally. There are now more Euros in circulation worldwide than dollars.

I wonder how CEO payrates match up in the EU?

Posted by: floopmeister on January 3, 2007 at 8:06 PM | PERMALINK

alex,

Even worse when you can't think outside the "big box" store.

Posted by: thethirdPaul on January 3, 2007 at 8:10 PM | PERMALINK

The financial press reported last week that the euro, the new currency created only five years ago and used by most European nations, has supplanted the U.S. dollar as the most widely used form of cash internationally. There are now more Euros in circulation worldwide than dollars.

So invading Iraq didn't work after-all?

Posted by: Disputo on January 3, 2007 at 8:26 PM | PERMALINK

Eventually, the folks who own these companies (that'd be us, average stockholders) are going to wise up and demand influence over policy (including outrageous executive pay) commensurate with their ownership.
Posted by: Ron on January 3, 2007 at 7:23 PM | PERMALINK

No we wont.

Because us average stockholders are just going to continue losing our shirts, and the CEO's and boardmembers who PROFIT from the current arrangement, will keep getting richer. Why should they listen to whiny minority shareholders? They'll just buy up your shares.

The only way to change this is to add regulations to force the issue of shareholder governance, at the point where securities trade is regulated (SEC regulations). If you (board members) don't like it - then trade your stock privately, not publicly. Sounds like a no-brainer, but we keep electing corporate fellatio artists to public office, so this will never happen.

And as I said before, the net result of such regulations, at this point, would be a massive stock market crash, as all the hot air that currently keeps prices inflated will be taken out of the bubble. This will happen sooner or later anyway - but who wants to be RESPONSIBLE for it happening?

Posted by: Extradite Rumsfeld on January 3, 2007 at 8:27 PM | PERMALINK

Hey - holy fuck - here's some OT news:

Negroponte is leaving his cushy "death squad management" -er Intelligence Czar position for a "senior position at the State Department".

Looks like Condi's going to be learning some new techniques of persuasion for these recalcitrant 3rd World leaders. . .

Posted by: Extradite Rumsfeld on January 3, 2007 at 8:30 PM | PERMALINK

Are we having fun yet?

Trouble, right here in River City?

Apparently nobody still believes in the Judeo-Christian Calvinist work ethic and everybody is just out to win the lottery. Woo hoo!

Hey, as long as people keep buying stocks so their money can just be given away to stupid CEOs, then by all means go for it. After all, Capitalism IS about exploiting the stupid and powerless among us, so a few lucky, smart, sociopaths (like Bush) can live like kings and kill whomever they want to fulfill their bizarre subconscious urges. Get 'er done.

Just another day in Pleasant Valley, USA.

We are, it appears, destined to be, in all the ad brochures, a shining city on a hill. But, in fact we'll just be a dump with a big billboard displaying a bright shining city (homage to "Hollywood" and all that).

Posted by: MarkH on January 3, 2007 at 8:38 PM | PERMALINK

I wonder how CEO payrates match up in the EU?

Well, according to a German magazine average pay for a German CEO managing a DAX-30 company was around 3.8 million Euro in 2005. Ranging from 11.9 million for the Deutsche Bank CEO down to 1.3 million for the Lufthansa CEO.
The BMW CEO got 3.2 million. The whole board including him got 12.2 million. Volkswagen CEO 2.9 million.
All numbers include stock options.

Posted by: Detlef on January 3, 2007 at 8:50 PM | PERMALINK

Campesino: Nardelli's problem was that he came from managing a successful manufacturing business at GE - GE Power Systems. A lot of the cost-cutting measures that make sense in a manufacturing business make none at all in a company that is based on retail sales and customer service.

Common phenomenon. Remember Sculley at Apple? Soda pop, computers, what's the difference. Hey, business is business. Who cares if the CEO doesn't know jack shit about what the company does.
************************************************

Nardelli is an interesting contrast with the other loser in the Welch succession sweepstakes at GE, Jim McNerney. McNerney had been running GE Aircraft Engines and left after Immelt was chosen GE CEO to be CEO at 3M. He apparently did pretty well at 3M, another manufacturing business and left in 2005 to be CEO of Boeing. Boeing has been doing okay lately, though whether that is mostly due to Boeing being good or Airbus screwing up may be a matter of opinion.

I will have to take issue with the characterization several commenters have made here about big-time CEOs being useless golf-playing drones. I worked for GE for 15 years and had some (limited) interaction with Jack Welch, Jim McNerney and several other people at that level. To be honest I will have to say that Jack Welch is one of the most intelligent and charismatic people I have ever met. At the GE Training Center at Crotonville NY, I saw him have an "open question" session with about 100 employees from GE businesses all over the world. Off the top of his head, Welch knew in detail, the sales figures, profit figures, and market share of every GE business segment AND the same numbers for all of their major competitors. Very impressive performance.

McNerney was no slouch but not up to that level. Actually, most of the GE managers at General Manager level and up were very hard-working and intelligent, if ruthless and unscrupulous.

That said, Welch is in many ways a totally reprehensible human being. People meant little to him. But he did get results and GE was fabulously profitable during his tenure.

Posted by: Campesino on January 3, 2007 at 8:51 PM | PERMALINK

Ah, Kevin.

Ever hear of supply and demand. This is how we know capitalism is working: price signals are attracting the best and brightest to these positions.

Quit casting your value judgements on efficiency.

Posted by: egbert on January 3, 2007 at 9:09 PM | PERMALINK

here's the thing:

if a CEO adds positive value to a company over what an average CEO would add in that position minus his/her compensation, than that particular CEO is, by definition, worth their compensation. Jack Welch is the classic example here.

If the CEO's value is negative, then that is an inefficiency bespeaking a poorly run company.

in other words, relating CEO compensation to a company's performance compared to its peers is a decent proxy for how efficiently that corporation is run.

Posted by: Nathan on January 3, 2007 at 9:14 PM | PERMALINK

Egbert, this isn't capitalism, this is cronyism. I am one of a lot Home Depot shareholders who sold off after years of lousy performance and a slap in face at the May annual meeting. I'm a Lowe's customer now, not that they are any better, but whatever it takes to avoid the orange apron. Nardelli ignored my votes as a shareholder, I voted with my wallet for Lowe's.

Word of advice to anyone considering using Home Depot's installation services: run like a bunny. Nardelli's house of cards built on fly-by-night contractors with long rap sheets at the local BBB is about to crumble in spectacular fashion. I don't often root for trial lawyers, but make an exception in this case. The class action on this will be astounding...

Posted by: arteclectic on January 3, 2007 at 9:39 PM | PERMALINK

CEO pay is SICK, and I'm a conservative.

On the other hand, does anyone flapping their jaws on here actually have any reasonable ideas to fix the problem? Didn't think so.

The one proposal I could see from the left would be some type of governmental controls. Of course, that would open the flood gates for scandal and corruption in Washington that would make CEO's look like saints by comparison.

Posted by: sportsfan79 on January 3, 2007 at 9:39 PM | PERMALINK

"If you liberals don't like Home Depot, go buy your hammers and sickles someplace else"
Actually, Al, that's kinda funny.
Corporations have no basis in constitutional law, but rather exist by a public charter, and are subject to state and federal laws. As citizens and taxpayers, we have the right to petition to change the laws pertaining to corporations if we don't think they serve the public good. Or, we have the right to boycott corporations that we don't like. In that case, a lot depends on the availability of information that is available.
I personally don't go to Wal Mart, but prefer the local Costco for bulk purchases. I

Posted by: DK2 on January 3, 2007 at 9:46 PM | PERMALINK

It's mildly amusing, but sad, to read these poorly educated conservatives like egbert justify the false monopolistic salaries paid to CEOs as "capitalism". It is actually just the opposite. Great concentrations of wealth only come from great exploitation, not from informed, rational consumer decisions.

Just shows the failure of home schooling and the private educational system that conservatives advocate.

Posted by: The Conservative Deflator on January 3, 2007 at 9:50 PM | PERMALINK

like I said, if a company overpays its CEO, it is inefficiently run. such companies, over time, tend to be beaten out by competitors.

the system will stabilize itself, somewhat.

Posted by: Nathan on January 3, 2007 at 9:57 PM | PERMALINK
the stockholders would be angier. Frequency Kenneth at 4:15 PM
Most stockholders are in mutual funds and 401(K)'s and therefore have no say. Most probably don't know what companies their funds are invested in.
What... are the shareholders and the Boards of Directors thinking?...eduardo the adequate on January 3, 2007 at 4:29 PM
The Boards of Directors appoint Compensation Committees which set the pay. The CEO's generally appoints the members of those committees. How about Exxon giving 400 million to Lee Raymond. You pay. At the pump.
relating CEO compensation to a company's performance compared to its peers is a decent proxy for how efficiently that corporation is run. Nathan at 9:14 PM
According to that criterion, this CEO should have received a negative pay.
does anyone...have any reasonable ideas to fix the problem? Didn't think so. ... sportsfan79 at 9:39 PM
So as a "conservative" you are recommending government regulation? Amusing, but there is plenty of corruption already, especially on the Republican side. A windfall tax would not be out of place while we eagerly await your solution. Posted by: Mike on January 3, 2007 at 10:04 PM | PERMALINK

"Pro-sports celebrities (athletes, coaches, and owners) rate their overinflated salaries SOLEY by virtue of their state-enforced franchise monopolies."

Pro sports in the US doesn't have any state enforced franchise monopolies. There's no law that would prevent you from setting up a baseball team in NY to rival the Mets and the Yankees. There are huge economic barriers to entry into the market, however.

You can't just start a team; you have to be part of a league, or your team will have no one to paly with. You have to pay star players a risk premium to sign with your team rather than a team in an established league. And you have to build a stadium or arena.

That last bit is where government comes into it--many, but not all, major sports facilities are government financed. That kind of government backing, however, isn't characterizable as giving teams "state-enforced franchise monopolies."

Nevertheless, there have been a number of examples like the old AFL, the old ABA, and even (ancient history) the AL where new leagues have prospered enough to be accepted in whole or in part into the existing system . . .

Posted by: rea on January 3, 2007 at 10:21 PM | PERMALINK

Nathan: if a CEO adds positive value to a company over what an average CEO would add in that position minus his/her compensation, than that particular CEO is, by definition, worth their compensation

Close but no cigar. The idea is to maximize return, not just to have it be positive. In other words, which CEO do you choose so that the value added by that CEO minus their compensation is maximized?

Of course these are just pretty theoretical points. You can't calculate this with any accuracy, so it's assumptions, guesswork, propaganda and hype to a large extent. In other words, largely a Keynesian beauty contest.

relating CEO compensation to a company's performance compared to its peers is a decent proxy for how efficiently that corporation is run

And that's the point. Obscene amounts of money for running a company worse than its competitors.

Posted by: alex on January 3, 2007 at 10:23 PM | PERMALINK

rea: Pro sports in the US doesn't have any state enforced franchise monopolies. There's no law that would prevent you from setting up a baseball team in NY to rival the Mets and the Yankees. There are huge economic barriers to entry into the market, however. You can't just start a team; you have to be part of a league ...

The leagues function as "trade associations" or cartels which, in other businesses, would be in violation of anti-trust laws.

Posted by: alex on January 3, 2007 at 10:29 PM | PERMALINK

"This is how we know capitalism is working: price signals are attracting the best and brightest to these positions."

Oh, hell. Anyone--even me--could run a huge company unsucessfully enough to get fired, which is what Nardelli did for his $450 million. They could have hired me, done no worse, and I wouldn't have charged a fraction of that. So, how did Nardelli get the job, rather than me, or someone like me? Doesn't that show that the market forces aren't working properly in this instance?

Posted by: rea on January 3, 2007 at 10:30 PM | PERMALINK

rea: how did Nardelli get the job, rather than me, or someone like me? Doesn't that show that the market forces aren't working properly in this instance?

No. It shows that the market is grooming W's successor.

Posted by: alex on January 3, 2007 at 10:34 PM | PERMALINK

Pro sports in the US doesn't have any state enforced franchise monopolies.

Perhaps you are not familiar with Major League Baseball's anti-trust exemption?

Posted by: Disputo on January 3, 2007 at 11:05 PM | PERMALINK

It's gotta be a huge ego blow to Nardelli, though.

You hand in your resignation as CEO and the stock market reacts with a 3% share price rise, which is the market's way of cheering THANK GOD!

Heh... :)

Just goes to show that GE knew what they were doing when they passed Nardelli over for the top spot.

Posted by: arteclectic on January 3, 2007 at 11:12 PM | PERMALINK

Nardelli is worth every penny. Are Home Depot shares trading on the pink sheets? Do you get spam emails touting the stock as the "next BIG thing"? Has not his abject failure emboldened his competitors? I mean, ask yourself this: When does a capital loss write-off become charity instead of a theologically sanctioned rational allocation of scarce resources? When is the glass half empty instead of half full.

These are soul wrenching questions that can only be addressed by a large severance package. Thus I look forward to the book, and the wisdom Nardelli shall undoubtedly set forth.

It could have been worse. Isn't that what capitalism is all about?

Posted by: bobbyp on January 4, 2007 at 12:18 AM | PERMALINK

Here's another data point. An executive at Mass Mutual (Robert O'Connell) was fired in June 2005. He sued and he just won an award for 50 Million Usd. The mind boggles... So the problem with huge severance pay looks like it's coming from the contract that is being signed with these guys; it's not allowing firing for cause (or not), without huge payoffs. For any other employee the employer has a wide latitude for termination (except for race, religion, and so forth). That's what needs to change - companies need to sign better contracts at the beginning.

Posted by: a on January 4, 2007 at 3:51 AM | PERMALINK

The HD stock is down 8% in six years, before inflation?

That makes it what, 25% less than breaking even in real dollars, and 35% less than the result from investing in a money market mutual fund?

Investors are sheep.

Posted by: Xenos on January 4, 2007 at 4:01 AM | PERMALINK

There's an excellent postmortem at businessweek.com

Out at Home Depot
Behind the flameout of controversial CEO Bob Nardelli

by Brian Grow

http://businessweek.com/bwdaily/dnflash/
content/jan2007/db20070103_456441.htm


"You know, the only trouble with capitalism is capitalists. They're too damn greedy." Herbert Hoover

Posted by: MsNThrope on January 4, 2007 at 8:58 AM | PERMALINK

Cspan is televising activities at the House of Representatives as Dems take over this morning, lots of good interviews with newly elected congress members. Nancy Pelosi was just speaking at the Congressional Black Caucus Leadership Swearing in Ceremony, mentioning individual contributions such as the work to re-sign the voting rights act. She spoke of a new direction for all the people, not just the privileged few. A new direction that builds and strengthens the middle class. Rather uplifting to watch.
What a difference from the shameful and abysmal presentation of the republican-run congress in the past 6 years, how marginalized democrats were as a result of the re-thug-li-cans' overbearing, brutish behavior.

Posted by: consider wisely always on January 4, 2007 at 10:26 AM | PERMALINK

Disputo,MsNThrope

Check out Denny Hoyers schedule.

Thursday, January 18 - End Subsidies for Big Oil and Invest in Renewable Energy


The Ethanol crowd already has more subsidies than they know what to with. With production growth at 50% it's hard to imagine it can go any faster AND be well mamaged.

But we are going to find out. They are going to throw lots more money at Ethanol. Buy Archer Daniels Midland and corn futures. Demand will go thu the roof.

This might be why Oil is down another $1.25 today to $57.

Hmmmm! Average prices in 06 were $66. At $57 that's a drop of 14%. Inflation might fall below 1% again with interest rates following.

Posted by: rdw on January 4, 2007 at 10:35 AM | PERMALINK

Remember, CEOs have to be paid huge amounts because that's what the market demands. And pay no attention to the fact that compensation committees are made up of other corporate pigs at the trough, who will vote against large pay increases for their peers some time after Hell freezes over.

Posted by: ahem on January 4, 2007 at 10:36 AM | PERMALINK

it really comes down to the big shareholders (i.e. pension funds and endowments) not doing due diligence when voting their shares.

Institutional investors are corporate entities with CEOs whose salaries are voted upon by compensation committees made up by corporate executives.

And thus the grand circle-jerk continues.

Posted by: ahem on January 4, 2007 at 10:39 AM | PERMALINK

The problem is with the corporate culture that it does not demand performance from the people at the top. If Home Depot had been successful during the last 6 years nobody would be kicking about the former CEO's severance package. Given the company's poor performance under his watch it is hard to justify giving him anything more than a swift kick in the butt as he leaves.

Of course, much of the package is the result of negotiations between the CEO and his compensation committee over his entire term. Home Depot is bound by the contracts it entered.

Another thing to consider is that Home Depot doesn't have to defend a las suit for breach of contract.

I guess what I am trying to say is that Home Depot's mistakes were probably made at the front end of the relationship. At the time they anticipated great things out of Nardelli.

Posted by: Ron Byers on January 4, 2007 at 10:56 AM | PERMALINK

Here is my periodic reminder about CEO pay: it isn't decided by a free market of buyers and sellers, despite misrepresentations by the likes of Treasury Secretaries etc. In a true free market, the buyers must pay out of their own financial resources, such that paying an extra dollar for a hot dog at one place is a dollar less *they* have to spend elsewhere. Hence, the buyer is frugal, looks for value, and the price paid really reflects what the hot dog is worth to them. That keeps prices down, and "competitive" as we say.

But the Board members who decide CEO pay are just picking a figure that comes out of company revenues, not their own pockets (they get a salary, and the CEO might be able to arrange for them to get *more* money in their pockets if "they" pay the CEO a lot - as even George Will put it, they are "each other's poodles.") It is not a true market-set value.

If I could go out dining and spend other people's money, I might be quite welling to buy a hot dog for $20: after all why should I care? That certainly doesn't represent its *value to me.*

tyrannogenius

Posted by: Neil Bates on January 4, 2007 at 10:56 AM | PERMALINK

As a customer, I noticed, in several of the Portland metro area, a drop off in knowledgable sales personnel after he took the reins. Fewer sales types, but they were younger part timers. Also, supplies were limited to specific brands.

A friend who works at HD independently confirms this account. He called Nardelli the world's most intrusive, and inept, micromanager and said the store was ringing last night with "Ding, dong, the witch is dead!"

Now golf is, I believe, a relatively unsubsidized sport ...

Actually, tournaments generally are subsidized ("sponsored") by publicly held companies, using shareholder money.

Posted by: Lex on January 4, 2007 at 10:57 AM | PERMALINK

Ironically, this reminds me that we need to tax stock trades. Shareholders who "invest in a company" rather than "speculate in a stock" get hurt by management decisions that are only focused on the short-term stock price. Should CEO performance be judged quarter-to-quarter or over the long term? The long term. BUT. With CEO pay so high, they rarely stay around more than six years, preferring to retire with all of that shareholder value in their pockets. There is no long term for CEOs or stock speculators, only for those who invest in America's companies. And they are the ones paying the "CEO tax".

Posted by: John on January 4, 2007 at 11:30 AM | PERMALINK

I have read all of the comments connected to the blog entry, and have a question:

How much should Nardelli have been paid?

Posted by: Yancey Ward on January 4, 2007 at 11:52 AM | PERMALINK

And kudos to Al, the real one or impostor, for the funniest comment I have read in a very long time.

Posted by: Yancey Ward on January 4, 2007 at 11:55 AM | PERMALINK

How much should Nardelli have been paid?

You go first, Yancey.

I'm all for a salary cap linked to the wages of the lowest-earning employee. Let's just say that Mr or Ms Corporate CEO shouldn't feel comfortable earning in a day what a shop-floor worker pulls in in a year.

Posted by: ahem on January 4, 2007 at 12:08 PM | PERMALINK

Who appointed you liberals to determine the value of what output/service someone provides? If an individual/company/employer wants to pay $1.00 or $450,000.00, what's it to the rest of us? It's none of our business. I find it duplicitous that liberals always scream and whine about privacy rights, but then always want to violate someone else's to satisfy their illegal urge to redistribute wealth. You Robin Hoods really need to grow up.

Posted by: hundefuhrer99 on January 4, 2007 at 12:11 PM | PERMALINK

Well, dog of the leader, I am concerned that paying the CEO of the company making Lenin Busts will affect our abiltity to purchase them for our shrines.

Posted by: stupid git on January 4, 2007 at 12:21 PM | PERMALINK

hundefuhrer99 wrote: "If an individual/company/employer wants to pay $1.00 or $450,000.00, what's it to the rest of us? It's none of our business."

Home Depot is a publicly traded company. That means that some of "the rest of us" are stockholders. If Home Depot is paying hundreds of millions of dollars to a CEO whose "management" of the corporation has reduced the value of its stock and harmed its business, then that most certainly is "our business".

You may now return to screeching at the one-dimensional cartoon comic book stereotypes of "liberals" that Rush Limbaugh and the rest of the fake, phony pseudo-conservative propaganda machine has spoon-fed you.

Posted by: SecularAnimist on January 4, 2007 at 12:38 PM | PERMALINK
I'm all for a salary cap linked to the wages of the lowest-earning employee. Let's just say that Mr or Ms Corporate CEO shouldn't feel comfortable earning in a day what a shop-floor worker pulls in in a year.

I think a hard cap is too draconian unless tied as a condition of a particular legal structure; though a soft cap enforced, say, through tax policy might be applied more generally. Say, establish some ratio to the wage of the least-well-paid employee beyond which wages aren't, for tax purpose, a deductible business expense. It doesn't stop employers from paying more, but it does make it more expensive.

Of course, to do that, the tricky parts are setting the ratio at developing a reasonable method of equating salary and hourly wage compensation.

Posted by: cmdicely on January 4, 2007 at 12:41 PM | PERMALINK

hundefuhrer may need a new flea collar.

Posted by: thethirdPaul on January 4, 2007 at 12:42 PM | PERMALINK

Yancey Ward wrote: "How much should Nardelli have been paid?"

ahem replied: "I'm all for a salary cap linked to the wages of the lowest-earning employee."

According to numbers reported by MSN (citing the Economic Policy Institute as its source), and CNN Money (which cites United for a Fair Economy and the Institute for Policy Studies as sources):

In 1965, CEOs in major US companies earned 24 times more than an average worker.

In 1978, this ratio grew to 35.

In 1989, this ratio grew to 71.

In 1990, this ratio grew to 107.

In 2000, this ratio grew to 300.

In 2001, this ratio grew to 525.

After the stock market drop in the early 2000s, by 2003 the ratio of CEO pay to the pay of an average worker dropped to 301.

In 2004, the ratio rebounded to 431.


Posted by: SecularAnimist on January 4, 2007 at 12:52 PM | PERMALINK

the problem with a salary cap is that one can certainly conceive of a CEO being worth a billion dollars a year. if he/she is significantly responsible for that company making billions more than it would have if someone else was the CEO, that CEO could justifiably be paid massive amounts.

the problem is when a CEO is paid massive amounts for poor performance. but like I said, that signals inefficiency, inefficiency which almost certainly are present elsewhere in the company as well and thus signals to investors that that company is poorly run.

Posted by: Nathan on January 4, 2007 at 12:52 PM | PERMALINK

ahem,

Fair enough. Nardelli should be paid whatever the owners, like Secular Animist, agree collectively to pay him.

Posted by: Yancey Ward on January 4, 2007 at 1:06 PM | PERMALINK
the problem with a salary cap is that one can certainly conceive of a CEO being worth a billion dollars a year.

I don't see why that's a problem; the fact that one can conceive of a private utility to doing something is not, by itself, any kind of argument against a public policy based on the premise that the social disutility of an act outweights its private utility.

Posted by: cmdicely on January 4, 2007 at 1:11 PM | PERMALINK

but, the social disutility seems to be predicated upon massive compensation being inherently unfair....when that's clearly not the case. (if you add 10 billion in value there's nothing theoretically unfair about you garnering 10% of that)

throw in the potential for a cap to be a performance disincentive....

Posted by: Nathan on January 4, 2007 at 1:24 PM | PERMALINK

put differently, unless a cap is set monstrously high (which kind of defeats the purpose), similarly situated corporations will no doubt all pay their CEOs the peak cap amount.

thus, instead of making compensation more closely related to performance, you will remove it from the equation altogether.

Posted by: Nathan on January 4, 2007 at 1:27 PM | PERMALINK

Nathan,

In many cases a CEO coming into an existing fortune 500 company isn't doing anything to generate that 10 bil in revenue growth, it just happens on his watch.

There was a line in a movie I saw once with Bogart and Ava Gardner where a rich playboy is criticisizing another rich guy who had criticisized him. He pointed out that they had both inherited their wealth to begin with and said something like "taking $100 and making $110 is work, taking $100 million and making $110 million is inevitable"

Posted by: Eric on January 4, 2007 at 2:15 PM | PERMALINK

Nathan, er J. Pierpont Finch,

J.B. Biggley will see you now - Don't forget your manual and "Grand Old Ivy". Keep your lips puckered.

Posted by: thethirdPaul on January 4, 2007 at 2:50 PM | PERMALINK

Eric:

um, I already differentiated that above.

try reading before stating the blooming obvious.

I'm really not sure what's up with the thethirdPaul's homoerotic obsession. or what he thinks my point is. its certainly clear that Nardelli demonstrates idiotic inefficiency at Home Depot. maybe he objects to my agreement with Munger that a cap would be a counterproductive idea?

Posted by: Nathan on January 4, 2007 at 3:02 PM | PERMALINK
but, the social disutility seems to be predicated upon massive compensation being inherently unfair

Saying that there is social disutility is exactly identical to saying that the massive compensation is unfair, though not necessarily inherently or necessarily so in every particular case. Policies, of course, are often crafted around aggregated effects; it is not inherently impossible for someone to drive unsafely above the maximum posted speed limit, for instance.

when that's clearly not the case. (if you add 10 billion in value there's nothing theoretically unfair about you garnering 10% of that)

This considers only the private utility between the CEO and those for whom he works, and doesn't address the social aspects of fairness at all.

throw in the potential for a cap to be a performance disincentive....

No such potential has been established to exist, nor does it seem logical to assume that one would. Certainly, there might be an absence of one kind of particular alternative incentive if there were a hard cap, but even the hardest cap wouldn't create a disincentive.

put differently, unless a cap is set monstrously high (which kind of defeats the purpose), similarly situated corporations will no doubt all pay their CEOs the peak cap amount.

Actually, with a cap based on a ratio to some other measure of wages within the firm (the kind of cap suggested in this thread), assuming CEO performance was a significant factor in overall corporate performance, there would be a significant incentive to maximize the basis value on which the final limit was calculated so as to maximize CEO compensation that could be offered within the cap. There would be no more tendency to offer the same amount than there is in the status quo system, where (again, assuming CEO performance is significant) the incentive is to minimize all other costs to make money available to offer more to the CEO, what changes is merely what has to be done to enable paying the CEO more.

Posted by: cmdicely on January 4, 2007 at 3:21 PM | PERMALINK

Yancey Ward: Nardelli should be paid whatever the owners, like Secular Animist, agree collectively to pay him.

I heartily agree. But that's not what happened, or generally happens with publicly traded corporations. Compensation is set by committees composed of board members. The notion that boards are supposed to watch out for the stockholder's interest is quaint.

What's needed is changes in the way boards and compensation committees are chosen. For example, any group of shareholders holding at least 10% of outstanding shares should be able to nominate board members. Further, shareholder votes not submitted should not be taken as automatically agreeing with current management.

Curiously many board memebers, CEOs, etc. oppose such changes. I guess they don't like capitalism, where the owners determine how their company should be run.

Posted by: alex on January 4, 2007 at 3:49 PM | PERMALINK

alex,

Unfortunately, if the board is not looking out for the interests of the shareholders, then it is the shareholders' fault. And if shareholders feel they have no power to exert influence on the boards, then don't invest in publicly traded companies.

While I would favor some changes in the corporate structure, I am fairly certain it would make no difference since shareholders are too apathetic by nature.

The only proposal I have seen that might make a difference is to bar the incestuous relationship that exists between board members and management. However, this policy can be enacted by shareholders of any publicly traded company. I don't know of any examples that have done so. Do you?

Posted by: Yancey Ward on January 4, 2007 at 4:04 PM | PERMALINK

Yancey Ward: if shareholders feel they have no power to exert influence on the boards, then don't invest in publicly traded companies.

Just because something is good (ie investing in publicly traded corp.) doesn't mean it couldn't be better. By your logic, if there is something about America I don't like, then I should leave.

While I would favor some changes in the corporate structure, I am fairly certain it would make no difference since shareholders are too apathetic by nature.

Small fry shareholders like you and me are apathetic because it's not worth the time for small investments. Big fry like Charlie Munger (KD's 1st link) are another story. Realistically the small fry go along for the ride, but the interests of the small fry and the big fry are more closely aligned than those of the management and the stockholders.

The only proposal I have seen that might make a difference is to bar the incestuous relationship that exists between board members and management.

It's not the only possibility, but it's a very important one.

However, this policy can be enacted by shareholders of any publicly traded company.

Catch-22. If major shareholders have little influence over the running of the company, then how can they enact a change that most board members vehemently oppose?

Posted by: alex on January 4, 2007 at 4:51 PM | PERMALINK

Yancey,

That's all you can think of? What about the baby-step of requiring publically traded companies to disclose IN FULL the compensation they pay their execs?

To start with the owners (shareholders) need the power to force the disclosure of information that they need to make rational choices.

Currently the owners don't even have the power to ask for what they need.

Posted by: Tripp on January 5, 2007 at 11:08 AM | PERMALINK

You're just jealous because his rising tide hasn't lifted your boat yet.

Posted by: scarshapedstar on January 5, 2007 at 11:21 PM | PERMALINK




 

 

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