Here’s an interesting essay about executive pay at Bear Stearns and Lehman, written by several Harvard Law Professors (Lucian A. Bebchuk, Alma Cohen, and Holger Spamann) -- The Wages of Failure
I wonder about all pay – not just executive pay. I work for a fairly large company as a tax manager (and have my own small practice on the side-hence this blog). It is an agricultural manufacturing facility, structured as a cooperative, to allow ownership by the growers. In lemans terms, we have a couple thousand owners, and their individual activity determines their share of the profits/losses.
These “owners” do not manage the manufacturing facilities. We have a CEO, and 4 senior VPs. Each individual location (three active factories, two inactive/processing factories and several warehousing facilities scattered in several states) has a management structure. We are big enough to be publicly traded, and in fact were, until an investor bought us off the marked and delisted us (quite a while ago). Our growers, then bought the company from that investor (sort of – they are still owners, technically, until the long-term sale is complete). Our corporate HQ has a management structure. All in all, I would estimate at least 100 manager and above level employees.
Their pay is (for the most part) fully deductible. With exception of two employees (CEO & a SR VP), all are under the lowest of our nexus state deductibility thresholds (300k) – and they aren’t over by much, and I would say a vast majority of managers are in the 60-80k range.
Some would attribute this to being cheap, or not making money. While both of these aspects have their merit, I believe the culprit belongs to the transparency to our owners (the growers), and our Board of Directors (who are active and paid minimally ~ the Chairman made 12k last year, most directors made 5-6k). This is something that (in my opinion) that needs to be a major issue of reform for publicly traded companies, investment houses, banks, etc.
Why stop at executives? Why are ANY compensation figures off limits? As the owner of a stock certificate, you (and several million of your closest friends) are the owner of a company. All compensation information should be available for you to review. Can I be the first to say that I want to know financials and compensation information for everyone that handles my money and investments.
A wise corporate buyer once told me that “buyers” should be the highest paid individuals in the company (retail), as if they can’t negotiate their own salary effectively, how do you expect them to negotiate the best deals with vendors? While humorous (and self-serving), the element of truth is that everyone contributes a good to the company, and determining their worth is very difficult.
In the public accounting world, we live to a higher standard. While safeguarding independence, (auditors) have to not only have independence, they have to look like they are independent. This is to prevent auditors from altering their opinion, because of their own financial stake. While there is much debate on the merits of it, what it amounts to is accountants (Managers and above) can’t own stock in companies that are audited by their firm. If they work on an audit, and they quit and are hired by the company they audited – they cannot work on anything related to the financial statements for a year. So if you’re a tax manager at KPMG, and your wife buys Albertson’s (Supervalue) stock, you’re likely in violation of independence guidelines – even if you do not work on any Albertson’s jobs. Yet CEOs and senior executives of the same companies (who are direct participants in management decisions of the company) can buy and sell their own stock freely? While stock options, and sales by corporate officers are disclosed in notes – they aren’t really regulated. Bear Stearns and Lehman, for the benefit of 10 people, reduced the equity of the companies by 2.5 billion through equity sales and bonuses from 2000-2008. The company I work for has total compensation of around 65 million. This is for ~ 1200 employees. This would fund the entire compensation of 5 companies this size for 8 years. To pull a childish reference, I call bull$hit. How can anyone with a logical mind think that pay of that magnitude could be good for a company?
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