In Sunday’s New York Times the article “No Wonder C.E.O.’s Love Those Mergers” discusses how top managers (i.e., a bunch of folks with fairly high IQs) are managing to collect in the neighborhood of 8 percent of the value of two public companies when they merge… all without disclosure to the widows and orphans who own stock. It is apparently a beautiful world out there for those who are smart enough to navigate the maze of regulations and laws.
[Make sure that you read “Hourly Pay in U.S. Not Keeping Pace With Price Rises” in the same sitting to see what life is like at the other end of the wage-IQ scale.]
I don’t see what your complaint is. You see, CEOs are entitled to every penny and every perk they receive by divine entitlement. At one time, in Old Europe, there was the concept of the Divine Right of Kings. Today, with Corporate Feudalism the de facto form of both government and religion multinationally, we have the Divine Right of CEOs.
It is an immutable Law of God that CEOs are entitled to ever-increasing compensation packages. They’re entitled to receive all of it without question in good times and in bad, in sickeness and in health, in merger and in bankruptcy, in honesty and embezzlement, when arriving and when departing and at all times in between. Once God has elevated a mortal man to the exalted status of CEO, the entitlement is automatic and perpetual by virtue of that divine grace. It cannot be questioned. I hear it told that once a CEO departs this mortal coil, his exaltation continues as joins God’s Board of Directors in Heaven, but that’s something that can only be speculated upon.
Not to worry, Gretchen Morgenson (the author of the article to which you link) will be dealt with appropriately. As John Ashcroft (anointed exclusive Representative of God for North America) can attest, questioning or criticizing CEOs (especially George W. Bush, CEO of United States of America, Inc.) is not only unpatriotic, it is blasphemous.
Move along all you serfs and subinfeudates. Nothing to see here.
I don’t see what your complaint is. You see, CEOs are entitled to every penny and every perk they receive by divine entitlement. At one time, in Old Europe, there was the concept of the Divine Right of Kings. Today, with Corporate Feudalism the de facto form of both government and religion multinationally, we have the Divine Right of CEOs.
It is an immutable Law of God that CEOs are entitled to ever-increasing compensation packages. They’re entitled to receive all of it without question in good times and in bad, in sickeness and in health, in merger and in bankruptcy, in honesty and embezzlement, when arriving and when departing and at all times in between. Once God has elevated a mortal man to the exalted status of CEO, the entitlement is automatic and perpetual by virtue of that divine grace. It cannot– yea, it shall not– be questioned. I hear it told that once a CEO departs this mortal coil, his exaltation continues as joins God’s Board of Directors in Heaven, but that’s something that can only be speculated upon.
Not to worry, Gretchen Morgenson (the author of the article to which you link) will be dealt with appropriately. As John Ashcroft (anointed exclusive Representative of God for North America) can attest, questioning or criticizing CEOs (especially George W. Bush, CEO of United States of America, Inc.) is not only unpatriotic, it is blasphemous.
As for the ability of CEOs to “navigate the maze of regulations and laws,” you are of course forgetting that that maze exists specifically for the benefit of CEOs, having been bought and paid for with the campaign contributions they pay and bundle. It is only serfs and subinfeudates who get lost in the maze– by design, to prevent them from usurping any share of the wealth that belongs exclusively to the CEOs.
Move along all you serfs and subinfeudates. Nothing to see here.
I don’t see what your complaint is. You see, CEOs are entitled to every penny and every perk they receive by Divine entitlement. At one time, in Old Europe, there was the concept of the Divine Right of Kings. Today, with Corporate Feudalism the de facto form of both government and religion multinationally, we have the Divine Right of CEOs.
It is an immutable Law of God that CEOs are entitled to ever-increasing compensation packages. They’re entitled to receive all of it without question in good times and in bad, in sickeness and in health, in merger and in bankruptcy, in honesty and embezzlement, when arriving and when departing and at all times in between. Once God has elevated a mortal man to the exalted status of CEO, the entitlement is automatic and perpetual by virtue of that divine grace. It cannot– yea, it shall not– be questioned. I hear it told that once a CEO departs this mortal coil, his exaltation continues as joins God’s Board of Directors in Heaven, but that’s something that can only be speculated upon.
Not to worry, Gretchen Morgenson (the author of the article to which you link) will be dealt with appropriately. As John Ashcroft (anointed exclusive Representative of God for North America) can attest, questioning or criticizing CEOs (especially George W. Bush, CEO of United States of America, Inc.) is not only unpatriotic, it is blasphemous.
As for the ability of CEOs to “navigate the maze of regulations and laws,” you are of course forgetting that that maze exists specifically for the benefit of CEOs, having been bought and paid for with the campaign contributions they pay and bundle. It is only serfs and subinfeudates who get lost in the maze– by design, to prevent them from usurping any share of the wealth that belongs exclusively to the CEOs.
Move along all you serfs and subinfeudates. Nothing to see here.
Doesn’t your own word “fairly” somewhat bring into question your whole hypothesis. To paraphrase a business prof of mine – The American management culture is built around a homogenous culture – everyone is in the 115-130 IQ range. Who gets ahead beyond that depends on a lot of other factors, and if you’re above the top limit, you will likely get labelled as a “flake”. Here is another example of someone likely with a modestly above average IQ – but earnings well to the right on the curve, for the moment at least. The article has plenty to offer on the subject under consideration.
http://www.nytimes.com/2004/07/18/weekinreview/18gorm.html
Phil:
The article noted that it management is 8% of a merger’s cost – not 8% of a merger’s value.
They can be significantly different. It depends if a company used the “pooling” or “purchase” method and how they re-jiggle their balance sheet.
Uhh, errm, aren’t we playing a little fast and loose that IQ is the same as intelligence? I’ve taken two real IQ tests in my life, one was not even within 50 points of the other. Doesn’t that indicate that it’s also highly inaccurate as a measurement, even if it were really measuring intelligence?
I have also heard that less than 1% of Fortune 500’s upper management are graduates from Ivy League Schools. Most upper management came from much less inspiring schools.
If it bothers you so much, just don’t buy stock in companies where you think the CEO’s pay is too high.
Of course, I get the feeling that your righteous indignation is not really on behalf of the shareholders but something much simpler. Yeah, everyone always thinks that someone else is getting too much money and that it’s not fair.
So what’s the “proper” amount for a CEO to make? Come on, give us a number.
Konrad: The article is not about CEOs being paid to work. It is about mergers triggering termination clauses in contracts, sometimes for executives on both sides of the merger. Thus the article is actually about folks who get paid $billions not to work!
Concentration of Wealth Gallery
Demonstrating how the concentration of wealth works in America today.
http://concentrationofwealth.blogspot.com
http://concentrationofwealth.blogspot.com/2004/07/shocking-executive-payouts-for-mergers.html
Konrad: You prompt us to give numbers.
Giving numbers has been done before: I cannot exactly recall where I read it (Cicero?), but Roman philosophers found it appropriate for the individual and healthy for the society that what we would call top-level managers not earned more than 20 times the income of a simple worker… Without being too well informed on how much an American worker makes a year, I guess it essentially does not exceed some $30k-40k. Just do the rest of the math yourselves 😉
Now, to continue on Philip’s “It is apparently a beautiful world out there for those who are smart enough to navigate the maze of regulations and laws,” here the very next example of an amazingly mazed maze-meandering:
Just three days ago a lawsuit ended in my homecountry, Germany that is, finding a bunch of CEOs of ‘Mannesmann-Vodafone’ and ‘Deutsche Bank’ to be morally blameworthy but legally untouchable in Germany’s most infamous case of CEO’s serving their own interest: They awarded themselves with an extra 68 Million Dollars for doing what basically is their duty in their already well paid jobs. I guess it is futile to state that they did not even do a halfway decent job at fulfilling their duty: Their proceedings costed the company, i.e. the shareholders, a rocking 60 Billion Dollars, of which according to German laws of taxation they can write off 100%. So the rest is to the tax payer.
Any questions?
Alexander: Not that I believe that anything a Roman philosopher says is right, but that range doesn’t seem too far from what we have now. In Roman times, there were no businessmen who employed several hundred thousand people, as do modern mega-corporations like GE. If we scale the compensation up linearly then it seems to be appropriate.
More importantly, if the CEOs in the case you mention did not do their duty, why didn’t the shareholders simply vote them out? If there was a problem with the company’s management, I don’t believe the goverment is better-suited to fixing it through regulation than the shareholders are through direct voting. After all, you wouldn’t trust government bureaucrats to design next year’s BMW models, why would you trust them to run any other aspect of your business?
Philip: Either way, those contracts are ultimately controlled by the shareholders (via the board). The shareholders shouldn’t have offered the CEO a contract with such a termination clause.
Now, I’m not saying the shareholders didn’t get screwed. They almost certainly did. The point is that is a self-correcting problem. If enough shareholders get screwed by these contracts they’ll vote with their feet until those companies are forced to reform their compensation.
Self-correction is in the nature of the free market. It is not (generally) in the nature of governments. The USSR didn’t change many dumb policies until it was on the brink of collapse and had no other choice.
Konrad: I guess I do regard it inappropriate to scale linearly, given the fact that even CEOs cannot work for more than 24 hours a day, no matter how many employees they have… But that is a question of political (or social) preferences and taste.
And yes, one of the former mentioned CEOs is out of job now. But only because ‘Mannesmann’, the company of which he was the CEO, has been taken over by ‘vodafone’.
I would never want _our_ politicians to run a business of which they understand even less than of their own: I completely agree with your liberalistic approach to corporate management. It is only somewhat dubios that in some cases where a deal brings a company gains, they keep them, and otherwise tax-payers account for the losses. The question now is, why we western democracies only have federal elections every four or five years [sic!].
PS: The latter ought, of course, not to be answered with respect to pc. 😀
Konrad: I’m not sure if you’ve been following the news but the stockholders of public companies don’t control the managers or the Board. The managers control who gets nominated for the Board and presumably would be wise to nominate only their personal friends who will understand their need for a 7th home or larger jet. Only after winning an expensive proxy fight can a group of shareholders put forward their own Board candidate.
The kind of corporate structure that you’re referring to is a PRIVATE corporation. In this case the stockholders actually do get to pick Board members. This is why you very seldom hear of a private company being looted by its management.
I’m Philip’s Jeopardy-contestant classmate. Although my IQ scores are high (like Philip, I reached the top of the scale in the standard tests), IQ is relatively unimportant in Jeopardy — it is more relevant that I happen to have a very sticky and well-indexed memory (which is probably even more genetically based than IQ) and a lifetime of very broad reading (which I take full credit for).
The nub of the issue in the stories Philip posts is that the system is manipulated by smart but unprincipled people so that they come out with much more money than they deserve. “Deserve” is of course a loaded word, but the right one here. Technically, what the CEOs are doing is arranging appearances so that their executive activities appear to have very large and positive financial consequences for the shareholders, which they then claim a big cut of. In most cases, the decisions they made either did not really have such positive consequences, or else were decisions any decent manager would have made, but the fog they created was thick enough that this was very hard for average people to see.
Philip is wrong that it is their high IQ which allowed them to pull this off. It’s true you have to be clever to be a successfully crooked CEO, but most people who get in to MIT are smarter than these guys (in the IQ-test sense). Andy Fastow, the guy who actually came up with all the Enron scams, went to high school with my wife Lisa (who is also a classmate and friend of Philip’s). She was unsurprised by the news of his rise and fall, because in HS he was an “operator” — always trying to talk his way into better grades and full of schemes, but definitely not in the top academic rank (though if he’d been willing to work really hard he probably could have been).