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“How Companies Actually Decide What to Pay CEOs” (Atlantic) is interesting partly because the writer has personal experience in the area, i.e., he was on public company Boards as they were looting from shareholders to feed top executives. It is also interesting for showing a consequence of basic human psychology:

Once a peer group is established, the next step is to figure out how the CEO’s compensation will compare with those of the leaders at the other companies. If the median pay of a CEO’s peer group is $10 million, should he get $10 million? (I use the male pronoun here because so many of them are men.) It depends on where the company is benchmarked within this group. And every board I have ever sat on or researched benchmarked itself at the 50th, 75th, or 90th percentile, therefore targeting CEO pay at similarly exalted levels. Benchmarking below the 50th percentile says, We are a lousy company and don’t even aspire to be better. So in this sense all CEOs are above average: To be benchmarked at or above the 50th percentile, they need not do anything other than report to a board that considers its own company exceptional.

Executive stock options can be pretty straightforward, e.g., the 10-year right to buy stock at $X per share. Inflation obviously can be a big help to a CEO in this situation. But so can doing a share buyback instead of a dividend:

Paying CEOs in stock further props up their pay: When the economy is thriving, stock prices can rise across the board, and thus most CEOs’ pay rises too. But even if the market cools off, expectations for what CEOs should be paid—as reinforced by benchmarking and other mechanisms described above—tend not to come down when that happens. Moreover, in order to make more money from selling the stock they were given, CEOs can induce a higher share price by having the company buy back its own shares; a share buyback, though, can come at the expense of initiatives that might serve the company better in the long run, including funding research and development or employee training.

I’m not sure what the answer is here other than, perhaps, don’t buy U.S. public equities. In Europe, for example, it would be tough for a mediocre CEO to get paid $20-100 million per year. (I sat next to portfolio manager on a plane recently and she said that she prefers European stocks, which are her specialty, because Europe is just coming out of a recession whereas the U.S. is now in the 8th year of a bull market and the good times have never historically lasted forever.)

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Conferences are fun because you get to talk to people from all over the world. Of course, at the International Conference on Shared Parenting 2017, the subject of the conversation tends to be divorce, custody, or child support litigation. Over coffee with Ragnheidur Gudrunardottir, the District Commissioner of Greater Reykjavik, I learned as much as I could about all things Icelandic.

I told her how shocked I had been at the prices when changing planes last summer on my way to the Royal Caribbean Baltic cruise. How could Icelanders afford it? Ms. Gudrunardottir agreed that the country might be due for another economic, um, adjustment. “Costco is coming to Iceland and 40,000 people signed up for memberships before they even opened,” said said. “That’s in a country with a total population not much over 300,000.” (story)

As in Denmark or Sweden, divorce can be obtained via an administrative process. It takes 2-3 months, but there may be an additional delay for the finalization due to a requirement that people spend “6 months separated from bed and table.” (Note that North Carolina uses similar terminology within their litigated process.) If parties can’t agree they may spend up to one year mediating. As a last resort, litigation is available and she estimated a maximum of $10,000 in legal fees might be spent, similar to what we heard about in Denmark.

Also as in Denmark, which formerly ruled Iceland as a dependency, child support seems to be calculated as a multiple of a basic amount. If an Icelander has custody of a child with a non-working co-parent, the government pays about $300 per month in “child support”. If the co-parent earns a good wage, the cashflow comes from the co-parent and is referred to as “alimony” even if the parents were never married. “What if you defrosted those rich bankers from 2007 and one of them was being tapped as a co-parent?” I asked. Ms. Gudrunardottir estimated that the alimony payment would be 3X the basic amount, or about $900/month ($10,800). This is a little more than the Danish maximum, much more than the Swedish maximum, and only a fraction of the potential revenue available in the U.S. (see California, for example). The after-tax (net) average monthly wage in Iceland is about ISK 370,000 (Wikipedia), $3740. Thus an Icelandic child support plaintiff would need to be collecting on a minimum of four children before being able to out-spend a median wage earner.

As was typical of conference attendees from Civil law and administrative divorce-oriented countries, Ms. Gudrunardottir didn’t say “Now that I have learned about the marvels of litigation and how Americans with lawyers and witnesses really get at the truth, I wish we had more litigation and Common law procedures in Iceland.” (And, correspondingly, people from the litigation-oriented societies (U.S., U.K., Australia) would talk about how litigation might be improved, almost never about how it could be replaced with an administrative procedure.)

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The YouTube result of one of our “Helicopter Demonstration for Schools”:

• video of us teaching kids about helicopters (videography/editing: Jonathan Schmid)

 

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The Cosby jury continues to deliberate (in the criminal case; not to be confused with the 10 civil cases pending against him). At neighborhood coffee this morning, which is where we develop solutions to most of the world’s problems and also come up with brilliant investment strategies and business plans, a former hedge fund manager noted that the opportunity for jurors to make money post-trial could influence their behavior.

Jurors can’t legally be paid prior to delivering a verdict. However, jurors can make money by giving interviews or writing books after a trial (see “CASEY ANTHONY JUROR: Ask Me Anything … For a Price” (TMZ), for example, and Texaco and the $10 Billion Jury, an actually great book written by a juror in what was, at least at the time, the largest verdict in American legal history (the juror was upset at the incompetent reporting by journalists and wrote the book to set the record straight on why the jurors voted as they did; essentially the judge’s instructions and Texaco’s decision not to present an alternative damages theory boxed them in).

If the jury had come back with a verdict after 30 minutes, the Cosby case would have received less total media attention. The jury’s deliberations wouldn’t have been as interesting to the public (if they all agreed immediately, who would care to hear about the discussion?).

Readers: What do you think? Could these folks be taking their sweet time partly because there is some potential for post-case cashflow?

[Morning coffee shop conversation question: Andrea Constand testified that she was so tranquilized that she couldn’t move any of her limbs, but also that she was mentally alert enough to remember what was happening. Why didn’t Cosby’s legal team present expert testimony that there are no drugs whose effects are consistent with this testimony? (except perhaps https://en.wikipedia.org/wiki/Curare ?)]

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“What Makes a Parent? A brutal custody battle between two women raises questions about who has a right to rear a child—and could redefine the legal meaning of family.” (New Yorker, May 22, 2017) is a good companion to today’s post about children in Spain.

A child and two adult women, none of whom have any genetic relationship to each other, serve as the raw material for a “family” court battle that will consume probably over $1 million in legal fees (“for eight days Hamilton’s witnesses came to court”). Some cheerful excerpts for those planning a career in divorce litigation: “This wasn’t a final ruling in the case” and “The next day, [one woman’s lawyer] secured an interim stay on [the judge’s] decision. … The appeal would take months, and would be preceded by a decision about whether Abush would be expected to remain in New York during that time.”

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Americans like to gather statistics… as long as the numbers have dollar signs in front of them or are at least related to dollar figures (e.g., school test scores, which tend to predict employer demand for graduates).

Europeans, on the other hand, seem to be a lot more interested in how people feel. The Spanish, for example, have assembled a huge data set by surveying school children (roughly 10-18 years of age) and asking them, e.g., how satisfied they are with their lives. They also ask for a lot of demographic data and therefore it is possible to get some insight into what makes children happy.

On a slide featuring these Spanish data at the International Conference on Shared Parenting 2017, there was the same pattern that Malin Bergstrom and colleagues found in Swedish data on 172,000 children (see the Children, Mothers, and Fathers chapter for references): children who live with mom and dad in an intact family are happier than children who live in a 50/50 arrangement with a separated mom and dad who are in turn substantially happier than children who live primarily with one parent (i.e., parental separation makes children less happy, but children in 50/50 shared parenting aren’t all that different from their counterparts in nuclear families).

Much more interesting to me, however, was that the happiest children in Spain were not those who lived with their mother and father in a nuclear family. There was a yet happier group: those who lived with their two fathers. (This phenomenon cannot be explained by a preference for same-sex parenting; children who lived with their two mothers were extremely unhappy, one of the most dramatic differences in any two populations presented at the conference.)

Readers: Discuss! (I posted this on Facebook and there wasn’t a single comment. Either the above information is uninteresting or people are afraid to say anything about it! Of course I couldn’t resist noting that “for couples who really want the best for their kids it may be a good idea to look at transgender options”. Perhaps that was offensive? I don’t think it is that I have been defriended by all of the right-thinking folks on Facebook. An adjacent incredibly dull post about our 1.75-year-old’s first use of chopsticks got more than 30 “likes”)

[Separately, Spain is interesting for its regional variation in family law. Unlike France and Germany, but like the U.S., the law is different from region to region and outcomes are different from region to region even when the law is the same. For example, in some regions of Spain it is obvious that, post-separation, a child’s best interest is to be in a roughly 50/50 shared parenting situation and have ample access to both parents. Since 2010, this may be written into the law as a presumption. Across a state line, however, the statutory and/or judicial presumption will be that obviously a child’s best interest is to have a stable home base and be primarily with one parent, visiting the other parent occasionally. The regional prevalence of shared parenting tracks the legal environment and ranges from 8 percent to 40 percent (with an average of about 25 percent). Like Americans, Spaniards are comfortable with the idea that “justice” and “best interests of the child” may be completely different for two children living on opposite sides of a state or provincial border.]

Consistent with the first paragraph, I’m not aware of any way to compare Americans to their Spanish counterparts. The U.S. has more children not living with both parents than any other nation (both percentage and absolute), but nobody in the U.S. seems to care what is happening with these kids. Their living schedule and access to parents are governed by government court orders, but no state or federal agency bothers to track the contents of these orders. Therefore it would be impossible to say what percentage of children are living in shared parenting versus primary/secondary custody situations. We make K-12 students sit for standardized tests regularly, but I don’t think there are any questions about “How do you feel about your life?”

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“There is nowhere in this country where someone working a full-time minimum wage job could afford to rent a two-bedroom apartment” (Washington Post).

Why not have the government buy or rent apartments for low-income Americans? It seems that we have pretty much run out of other peoples’s money:

The current level of public subsidies is already not enough to meet the needs of low-income families, with only one in four eligible households able to receive assistance, the report said.

If the U.S. economy isn’t vibrant enough to generate spacious housing for everyone at the wages that residents actually command, and we have run out of subsidy cash, how about going back to living in smaller houses and apartments? Back in 1973 we managed to live in half as many square feet per person (AEI). Maybe we don’t want to go back to 1973 living standards, though. Could we use superior engineering to make 1973-sized housing more comfortable?

Check out the video at Ori Systems (MIT Media Lab spinoff) for an example of one approach. For $10,000 you get a piece of furniture that expands to about twice the size of a bed (about 90 square feet?). How much could we cut our consumption of square footage, while remaining equally comfortable, if we had this? Perhaps by 50 square feet (the size of the bed that can be hidden away)? If construction costs $300 per square foot, that’s $15,000 of built space saved ($5,000 net savings, enough to keep a welfare family going for a month), but maybe long-term savings from HVAC, lighting, maintenance, etc. could be higher?

Is this substantially different from 19th or 20th century furniture that folded up against a wall (Murphy bed) or placed a child’s bed above a desk or whatever? Motorized is fun, but what does it enable that couldn’t have been done with wheels and human power?

Readers: What do you think? Given our growing population, gridlocked transportation system, inability to build public transit, and high costs of construction are we destined to live in higher-density housing? If so, is there a tech-based way to make that a lot more comfortable?

Related:

• 77 Bluxome; 237-square-foot apartments for rent in a new building in San Francisco for about $2,300 per month; some apartments have built-in Murphy beds
• “Inside Mars Simulator, IKEA Designers Learn How To Live In Close Quarters” (NPR): “Because there are a lot of people that are moving to big cities, and urbanization is bigger every year. And that mean also people – they live in a smaller space. And that is kind of the things and the learnings we are trying to solve in a better way in our development and in our designs when it comes to products.”

 

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In the Divorce Corp. movie, a litigator driving by a wedding said “that’s inventory.” What if learning about family court litigation makes people shy about getting married? How can divorce litigators maintain their prosperity? In most jurisdictions around the world, lawyers can still get paid to handle custody and child support litigation between never-married parties. Scotland, however, has an innovative solution that I learned about at the International Conference on Shared Parenting 2017.

Unlike France and Germany, the United Kingdom has a family law that varies from region to region. A person who is able to file a lawsuit in Scotland, for example, might not have a claim in neighboring England.

In 2006, Scotland changed its laws so that a person who says that he or she lived with someone else can, within a year “after the day on which the cohabitants cease to cohabit.”, go down to the family court and sue for property division and alimony, just as if the two parties had been married. “Court ruling hits couples who cohabit” (2012 article on litigation following a 6-year relationship with no kids) quotes a lawyer: “People may also not know that there is no minimum period to qualify as cohabiting.”

What can lawyers be paid to argue, and bring witnesses to testify, about? Assuming that no children are involved, at a minimum, the following:

• whether the two litigants ever actually did cohabit
• the date on which they began to cohabit
• the date on which they ceased to cohabit
• what property each owns
• what property is jointly owned
• what income each has been earning
• what income each could have earned in the past
• what income each could earn in the future
• whether or not the plaintiff was disadvantaged by cohabiting with the defendant
• whether the defendant was advantaged financially by cohabiting with the plaintiff
• who supported whom during the cohabitation (because the judge might want to order that relationship to continue post-separation)

[If children are involved, and the defendant earns more than 3000 pounds per week pre-tax, there can be additional litigation on the profitability of the children. The UK government runs a calculator up to 3000 pounds a week of pre-tax income, which results in a tax-free payment of about 300 pounds per week to the parent who wins custody, i.e., roughly 20 percent of the defendant’s after-tax income. Median pre-tax weekly pay for a full-time worker in Scotland is 535 pounds. Therefore the plaintiff who has sex with two high-income partners and obtains custody of the resulting children is guaranteed to have more spending power than the Scot who marries and stays married to a median full-time worker.]

A quick Google search for how the law is being used in practice yielded a story about a defendant who was the part-owner of a plumbing business. He was characterized as a “tycoon” and reference was made to him flying “private aircraft.” It turned out that the “private aircraft” two attorneys were being paid to argue about was a two-seat “SkyRanger” homebuilt (airframe kit: roughly $20,000; I found an “always hangared” already-built example with 870 hours on it for $19,999 on barnstormers.com).

In litigation-oriented societies, I wonder if this Scottish idea will catch on. If the opportunity to litigate is a positive thing for people who were once married, why not for people who once lived together, however briefly?

Related:

• Property and Cohabitation: Understanding the Family Law (Scotland) Act 2006

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As a true child of the 1970s (cue fringed leather vest and tie-dye), I had scheduled a wine and cheese party in Cambridge for last night. This turned out to be about 12 hours after an angry Democrat (“passionate progressive”) shot Republicans on a baseball field in Virginia (Wikipedia).

About 90 percent of the guests were staunch Hillary supporters, a few having transferred their allegiance from Bernie. (How did we end up with 10 percent Deplorables/Libertarians? For example, a commercial pilot was invited and she lives on a steady Fox News diet while waiting with her jet at various FBOs.)

One theme of the party a “slide show” (another 1970s staple) from my recent trip to Russia. Before the show, the Hillary supporters expressed confidence that Russia is a completely dysfunctional society, except when it comes to nefarious plans to destabilize the U.S., at which time the same Russians develop superhuman capabilities. What about the fact that we have a member of one political party shooting at politicians from an opposing party? That’s one aberrant individual and doesn’t say anything about U.S. culture. (By contrast, if an individual does something bad in Russia or China, that is generally proof of a systemic problem.) [Did the pictures and narration change anyone’s mind? I don’t think so, but a few expressed interest in visiting Moscow and seeing for themselves.]

What about the shooting per se? One Democrat had posted “So much for ‘there’s no crying in baseball’.” on Facebook shortly after the shooting. This had earned some “likes” and “smiley/laugh” emojis. Previously, many of the party attendees had agreed with an outlook in which Republicans were responsible for (1) destroying Planet Earth, and (2) between now and when the surface of Planet Earth bursts into flames, making the U.S. unlivable for women, people of color, and the LGBTQIA. Republicans were killing Americans on a daily basis by trying to slow the growth in health care spending (we’re at 18 percent of GDP, compared to 4.5 percent in Singapore, so obviously they haven’t been very effective!). Trump was Hilter reincarnated , except actually worse than Hitler because Trump had admitted to sexually assaulting helpless women, and, when done grabbing pussies, he would soon grab dictatorial powers. Most had posted on Facebook or “liked” expressions of variations of the above sentiments.

Quite a few of the Hillary supporters had actively “resisted” Trump and the Republicans by joining the Women’s March. So they heard Angela Davis call for “Resistance to the attacks on Muslims and on immigrants. … Resistance to state violence… Resistance on the ground” and Gloria Steinem mention that “collectively violence against females in the world has produced a world in which for the first time there are fewer females than males” (is this mostly because of sex-selective abortions? If so, why is Steinem also pro-abortion?). They heard Madonna talk about the “new age of tyranny,” that “The revolution starts here,” and that “I have thought an awful lot of blowing up the White House…”.

Did any of the party-attendees draw a connection between talking about the need for a “revolution” and talking about the Republicans as running a “tyranny,” attacking citizens, attacking helpless immigrants, perpetrating violence against women, etc. and one of their fellow Democrats deciding to use a rifle rather than Facebook? Recall that Mao pointed out that “A revolution is not a dinner party, … A revolution is an insurrection, an act of violence by which one class overthrows another.” If you alert 325 million people to the need to start a revolution against a tyranny, is it surprising that one would take action?

The answer turned out to be simple, for these Democrats. The only cause of the “passionate progressive” taking out a gun and shooting was the lack of appropriate laws against gun ownership by civilians.

Readers: What have you heard from Democrats? Has anyone said “Maybe comparing the Republicans to Nazis or demanding a ‘revolution’ wasn’t such a great idea after all?”

[Separately, I’m concerned about the long-term effects of this shooting. We’ve been developing a society in which senior government officials occupy a separate plane of existence from citizens (And often, literally, a separate “plane”, e.g., James Comey, after being fired as FBI director, was traveling on a Gulfstream G550 (about twice the weight of the regional jet that I used to fly… carrying 50 taxpayers)). So laws, regulations, and economic decisions made by Congress and top Administration members may not affect those people in the same way that the affect an average citizen. If members of Congress need to be kept in a security bubble they will be even more out of touch with the problems of the typical American.]

Related:

• Antonio Garcia Martinez: “Schrodinger’s shooter: simultaneously representative of all gun owners, but not representative at all of rabid anti-Trumpers.”

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Tim Cook gave a commencement speech this year at MIT. Let’s look at the transcript:

in a moment of youthful indiscretion, I might even have experimented with a Windows PC, and obviously that didn’t work.

I would have laughed about this six months ago. Now that I own a $2,400 Dell XPS 13 2-in-1, I am crying.

I had never met a leader with such passion

The person who gets paid to lead says that it is all about the great leader and the passion. And that probably you should find a passionate leader and follow him or her. It worked for the Germans in the 1930s (well, until roughly 1943 anyway). Why not for MIT grads?

Aligned with a leader who believed that technology which didn’t exist yet could reinvent tomorrow’s world.

He’ll just have to agree to disagree with Bill Burr.

So the question I hope you will carry forward from here is how will you serve humanity?

Should we burden 22-year-olds with this standard? Shouldn’t this be reserved for the Albert Schweitzers? (Or are we interpreting “serve humanity” as in this Turkish Airlines commercial?)

Technology today is integral to almost all aspects of our lives and most of the time it’s a force for good.

Because video games enable Americans to enjoy their SSDI and Oxy? Wouldn’t most people actually be better off if they didn’t have an iPhone that encouraged them to waste time with Farmville, Facebook, and celebrity news?

I’m not worried about artificial intelligence giving computers the ability to think like humans. I’m more concerned about people thinking like computers without values or compassion, without concern for consequences.

Like Owen Wilson in Wedding Crashers, telling women “You know how they say we only use 10 percent of our brains? I think we only use 10 percent of our hearts.”?

Whatever you do in your life, and whatever we do at Apple, we must infuse it with the humanity that each of us is born with.

What if “humanity” for some Apple customers means waging Jihad? Why is humanity-infused automatically better than plain technology?

Don’t listen to trolls

Where “troll” = “anyone who didn’t vote for Hillary”? Or “troll” = “anyone who disagrees with you”?

At a shareholders meeting a few years back, someone questioned Apple’s investment and focus on the environment. … So I told him, “If you can’t accept our position [of wasting shareholder money on unprofitable green initiatives], you shouldn’t own Apple stock.”

Tim Cook is not afraid to speak truth to power!

[Separately, in what sense is Apple “green”? They are headquartered in a place that is accessible only by car, right? So wouldn’t they be automatically less green than a typical Manhattan-based Fortune 500? They compound this problem by being headquartered in a place where real estate is crazy expensive, which causes at least some workers to settle 30-90 miles away. They further compound this problem by being headquartered in a place with some of the worst traffic jams on the planet, which causes commute times and gasoline consumption to be yet more extreme.]

When you are convinced that your cause is right, have the courage to take a stand.

What kind of courage is required when you’re at the head of a trillion-dollar company?

if you choose to live your lives at that intersection between technology and the people it serves, … then today all of humanity has good cause for hope.

Uh oh, bad news for humanity every time someone decides to major in science rather than engineering. In fairness to Cook, though, when was the last time that you used a Higgs boson to get to the next level in an iPhone game?

Readers: did you find anything non-generic in the transcript? To me the speech seems like something almost anyone could have given. Why not share with MITers some secrets of effective management? Tim Cook must know something that makes him worth hundreds of millions of dollars to Apple shareholders (or at least they pay him that much!). Why not try to share that?

Related:

• What do liberal arts college graduates want to hear? (Jessye Norman at Oberlin)

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