CEOs Cash In at Your Expense

Last fall, I called out several CEOs as cowards or heroes for their executive compensation. Given Starbucks' (Nasdaq: SBUX  ) pay plans for 2009, I'm still not sure which category CEO Howard Schultz belongs to.

In October, I criticized Schultz for his handsome pay package, even as his company closed stores, cut employees, and turned in lackluster sales earnings. As it turned out, Schultz had asked Starbucks' board to reduce his pay. My bad!

But wait -- how bad was my bad? Schultz's targeted base salary was cut to $643,954, and after he asked for reduced compensation, he was technically paid just $6,900 for the remainder of the 2009 fiscal year, from April 1 through Nov. 30. However, he also received a $1 million bonus. Add in restricted stock and options, and his total compensation added up to $12.1 million, a 25% increase from fiscal 2008. Not bad for a guy supposedly taking a major pay cut.

A tarnished shine
True, restricted stock can't be tapped at will (although it certainly does have monetary value). But Starbucks' decision to hand Schultz a $1 million bonus still floors me. According to the company, management received:

… discretionary bonuses to reward ... executive officers for their contributions to the Company's strong fiscal 2009 performance during extraordinarily challenging times that were not adequately reflected in the payout calculations under the Executive Management Bonus Plan.... In addition, the Compensation Committee approved a discretionary bonus for Mr. Schultz as a result of the strong financial results for fiscal 2009 as well as Mr. Schultz's leadership during a transformational year for the business, even though he did not participate in the Executive Management Bonus Plan for fiscal 2009.

A year ago, before he cut his salary, Schultz pledged that he wouldn't take a bonus. Whatever happened to that promise? And for fiscal 2010, Schultz's base salary will now increase to $1.3 million.

Although I admire Starbucks' ability to increase profits in a difficult environment, it's still been closing stores and cutting workers, cleaning up the mess of years of overexpansion and competitive influences from the likes of McDonald's (NYSE: MCD  ) , Caribou (Nasdaq: CBOU  ) , and Green Mountain Coffee Roasters (Nasdaq: GMCR  ) . Despite its surging share price, I'd argue that in many ways, this wasn't a great year for Starbucks. And while the company has admirably increased its profit over the last 12 months, its revenue has fallen 3.4% in that time frame.

Parasites bite
Disappointing, disconnected moments in CEO pay are hardly rare. I called out Abercrombie & Fitch (NYSE: ANF  ) last year for having an extremely highly paid CEO despite a clearly suffering business. That's a far worse reality disconnect than Starbucks seems to suffer.

Remember that even though leaders at some companies, such as Google (Nasdaq: GOOG  ) and Apple (Nasdaq: AAPL  ) , receive $1-a-year salaries, they still get stock, options, and all sorts of other perks and goodies, making their apparently frugal compensation misleading.

While restricted stock compensation represents at least a nod toward encouraging long-term performance, I far prefer the way The Corporate Library's Nell Minow thinks. When she presented her views on corporate governance to Fool HQ last year, she argued that CEOs should be prevented from selling stock in the companies they lead until three years after they leave their posts.

If you think this stuff doesn't affect shareholders like us, think again. Corporate governance watchdogs have long cast a baleful eye on excessive CEO pay. Minow said excessive compensation is the best predictor of investment, litigation, and liability risk.

Last month in The Wall Street Journal, Jason Zweig reported on two new studies, which imply that the more a CEO gets paid, the less shareholders earn. Those findings defy the conventional wisdom that lucrative pay encourages or even guarantees strong future job performance.

Everyone should be paid accordingly for a job well done. But shareholders (and corporate boards!) shouldn't allow CEOs to always cash in, whatever their accomplishments, with weak and often flexible standards to justify why they're raking it in. At some point, that attitude simply builds an entitled, parasitic economy, where supposedly powerful folks always win, regardless of how well (or ethically) they play the game.

No more business as usual?
Maybe I'm being too hard on Schultz, given the challenges Starbucks faced last year. Or maybe I'm not being harsh enough, since his supposed pay cut didn't end up being much of one at all.

On a wider scale, I truly believe that excessive CEO pay is a destructive influence. It can only hinder our much-needed efforts to encourage real merit in corporate America.

Should Schultz take another pay cut? Does he deserve his cushy paycheck this year? Lend us your insight on the topic in the comment boxes below.

Green Mountain Coffee Roasters and Google are Motley Fool Rule Breakers selections. Apple and Starbucks are Stock Advisor recommendations. The Fool has established a bear put spread position on Abercrombie & Fitch. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.


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  • Report this Comment On February 02, 2010, at 1:29 PM, TMFFischer wrote:

    Hey Alyce,

    Good article and thanks for seeking feedback. IMO, the pay seems pretty reasonable for Schultz. As the company founder, he of course helped create a tremendous amount of value and thousands of jobs. That still goes a long way in my book, and should be rewarded. Second, when he wasn't CEO, Starbucks started to lose its way. Now that he's back, we're seeing improvements -- and as you said, the share price reflects that. That certainly seems worth the modest cash pay that he received last year (especially modest for the founder of a $16 billion company). When it comes to stock and option compensation, well... it was his brain child, and the grants seem reasonable compared to the value created. Now, pointing out pay at Abercrombie & Fitch -- there I completely agree. There's a case where compensation has been out of line, even as the company suffers.

    Best,

    Jeff

  • Report this Comment On February 02, 2010, at 3:01 PM, bzhayes wrote:

    Jeff,

    Since Schultz is the founder of the company. He saw his (now modest) initial investment grow into a $16 billion company. He already got paid for that work!!! Why does he need millions and millions of dollars to oversee what he built? I think salaries over $1 million should be heavily taxed... there is nothing anyone can do in a year that is worth more than $1 million. Starbucks is turning around because it is pulling out of a heavy correction from a period of exuberant expansion. This has nothing to do with Schultz taking over the helm.

  • Report this Comment On February 02, 2010, at 4:53 PM, steveelcpo wrote:

    While I'm not familiar with the companies mentioned, other than the brandname, I've always thought CEOs are overpaid and generally undeserving of the exorbitant compensation they receive, much less the bonuses they get for essentially showing up. It's also interesting to see how many CEO's serve on other boards and receive compensation from those boards as well. The problem, in my view, is that individual stockholders who have a few hundred shares are generally powerless to reign this in when mutual funds, pensions, trusts, etc who own the lion's share of millions of outstanding shares at major corporations apparently vote in favor of the same board members, CEOs, and compensation packages year after year. There is no transparency on how these millions of shares are voted, and requests for information go unanswered. Real reform in the financial sector would require mutual funds to (a) allow holders of mutual fund shares some type of proportional vote on proxy statements, and/or (b) require full disclosure on how the mutual fund managers voted on proxy statements. I agree with bzhayes that exobitant salaries, and especially bonuses, should be taxed at a special CEO rate if they exceed a reasonable amount. If you can't get by on multi-million dollar annual salary without a bonus, maybe you're not a good enough of a manager to run a corporation....

  • Report this Comment On February 02, 2010, at 5:02 PM, Fool4ZTribe wrote:

    Many companies, including mine saw hard times in 2009. We took pay cuts as officers higher than those we foisted on other associates. For the second year running, we received no bonus. I half-jokingly told the board that whenever we reinstitute executive bonuses, we will have earned them in 2009 becasue we made more hard decisions then then I could ever imagine having to make in a boom year. So why does Schultz get a bonus when the bonus program produces a zero payout? It's true that his contributions, like mine to my company, were deserving of a bonus, but the prevailing rule should be that bonuses move with financial results. We need to think in the long term and these actions fly in the face of that concept.

  • Report this Comment On February 02, 2010, at 5:06 PM, mdtopper wrote:

    ".....discretionary bonuses to reward ... executive officers for their contributions to the Company's strong fiscal 2009 performance during extraordinarily challenging times that were not adequately reflected in the payout calculations under the Executive Management Bonus Plan....."

    This is what troubles me the most. If, under the plan in place, which was presumably approved by the Board and stockholders, he did not qualify for an additional payment, why go out of your way to make another "discretionary" payment?

    Shouldnt the Board use the plan in place to measure and reward?

  • Report this Comment On February 02, 2010, at 5:22 PM, swiver wrote:

    How does the IRS take it off them?

  • Report this Comment On February 02, 2010, at 5:33 PM, 102971 wrote:

    I like the idea that excercised stock options cannot be sold until three years after the employee has left his position. Executive pay has got totally out of hand. No CEO is worth more than $1million a year and any salary or bonus in excess of this should be taxed at a 90% rate. The higher executive pay goes the less there is available for shareholders. Schultz has already been well compensated for the monster he created. He doesn't need or deserve any more. As to Abercrombie & Fitch, I think their salaries are criminal for the job they've done to a once proud company

  • Report this Comment On February 02, 2010, at 5:36 PM, misfitred wrote:

    bshayes,

    So then by your statement of 'there is nothing anyone can do in a year that is worth more than $1 million", almost every single MLB player and NFL are overpaid, even though both leagues are doing quite well.

    And why should it be taxed. Whether it is worth paying some that or not, why should the government get the money rather than the individual?

  • Report this Comment On February 02, 2010, at 5:40 PM, goalie37 wrote:

    I like my dad's expression "Sideways in the trough."

  • Report this Comment On February 02, 2010, at 6:37 PM, HeyFo wrote:

    This CEO pay problem made me think of the conflict between the capitalist and the social-democrats The problem they say with democracy is that the people will vote themselves all sorts of benefits thus ruining the country.

    This doesn't play out in real life, because of checks and balances, but the true capitalist are showing how true it can be. Not a democracy (share holders), but an oligarchy who control, them may be ruining companies because they can vote themselves all sorts of benefits

  • Report this Comment On February 02, 2010, at 6:57 PM, teomax12 wrote:

    It's everyone's job to be productive and to get paid as much as his employer will pay him. For a CEO, his employer is the board of directors and the stockholders. If they are willing to pay millions to a CEO, what business is it of anyone else? Let the free-market system work without outside impediments.

  • Report this Comment On February 02, 2010, at 6:59 PM, peters46 wrote:

    Alyce

    You say "At some point ... builds an entitled, parasitic economy." That point was reached many years ago

    Misfitred

    Yes, the ball players are overpaid as are many entertainment industry performers. When the average Joe can't afford a ticket to a game or performance, they are charging too much in order to pay performers/players/owners too much, especially when players and teams get cities to pay for their new stadiums.

    bzhayes

    " there is nothing anyone can do in a year that is worth more than $1 million." I agree with the idea, but believe that with today's dollar a figure of two or three million would be more accurate..

  • Report this Comment On February 02, 2010, at 7:50 PM, gawler51 wrote:

    I also like the idea that excercised stock options cannot be sold until three years after the employee has left his position.

    It is also probably no coincidence that the rise in exorbitant remuneration for CEO's and other company officers, matches the growth of mutual funds and Retirement accounts. It is not in the interests of those running such funds to vote down pay rises and bonuses, since these self same people are often the recipients of the same type of largesse.It would be a step in the right direction to have the funds report to their owners (the rest of us) on how they voted and reasons for doing so.

  • Report this Comment On February 02, 2010, at 8:17 PM, maccdw wrote:

    As another Fool reminded us here a few days ago, firms can deduct from taxes salaries paid up to $1M a year, but they can deduct bonuses paid up to infinity.

    Pay me $5 million salary, my firm can shield only $1M from taxes. Pay me $500K salary and $4.5M bonus, 100% of it is deductible by my firm.

    Taxpayers like you and me foot the tax bill.

  • Report this Comment On February 02, 2010, at 8:24 PM, toddsore wrote:

    Interesting to contemplate the challenges in capping compensation for CEOs, or anyone else for that matter. That would be very much akin to the federal government implementing wage and price controls, since, presumable, if you cap the CEO's salary at a million, you'd have to cap the CFO at say $800,000, and the COO maybe $850,000, then what about division managers...One of the biggest, and perhaps least appreciated, problems this country faces is the administrative burden that arises from well-intentioned but mis-guided efforts to improve on the marketplace. If you don't like the CEO's salary, don't buy the stock.

  • Report this Comment On February 02, 2010, at 8:30 PM, renee2257 wrote:

    I couldn't agree with teomax12 more. In a capitalist system everyone should be able to work hard and make as much in salary and benefits as they can. There shouldn't be a ceiling on it. There also should not be an exorborant tax on any salary over $1 million. The people who make that much already pay a higher percentage of taxes. Alot of these comments sound like socialism. If many of these foolish commenters had their way, then when we fools make our millions every year through shrewd stock choices and options, we'll all be subject to their absurd tax too! No thanks.

  • Report this Comment On February 02, 2010, at 9:22 PM, tonedeafdave wrote:

    I have a strong suspicion that the boards which set the pay and bonuses contain CEO's of other companies, and some of these are voting on the remuneration of people who will in turn vote on their own remuneration. In other words, these boards are a small club of people scratching each others' backs financially.

    Even if my suspicion is incorrect, it is still true that the population of people who are on boards which set salaries and bonuses are themselves likely to be the kind of people who receive large bonuses, and who are likely to be in favor of excessive remuneration. It's called 'positive feedback' and some executive salaries seem set at a level equivalent to the high-pitched squeal you get when the 'gain' in a sound system is set too high.

    It does not surprise me that there is a correlation between excessive salaries and poor fiscal performance in companies, and I would like to see MF factor in data on executive salaries in the assements of which stocks to buy.

  • Report this Comment On February 02, 2010, at 10:18 PM, TMFLomax wrote:

    I'm enjoying the comments and discussion, please keep them coming!

    To truthisntstupid and tonedeafdave's points, yes, interlocking directors are a problem at many companies in general. If the same folks serve on one another's boards (and on their compensation committees) then it's easy to see how problems in excessive compensation can arise. Boards of directors are supposed to be looking out for shareholder interests, but the way things have been going for quite sometime, it doesn't seem to be the case. Match that up with a degree of shareholder apathy (and indeed, big shareholders are also a problem in this regard), and the problem just keeps getting worse.

    I'm not a fan of the idea of laws mandating caps or high taxes, but, I don't think shareholders should really be too satisfied with the status quo on this stuff in general. I do understand the free market argument, and I do know that financial reward is certainly important in that, but tied to merit and performance (on a long-term basis, too! Not just a year or what have you). Too often there are some serious disconnects to merit and performance in CEO compensation, and that kind of status quo situation and assumption that that is OK or even laudable is highly destructive, I think.

  • Report this Comment On February 02, 2010, at 10:31 PM, goalie37 wrote:

    "Free Market, Free Market, Free Market..." This steady mantra in so many debates has been reduced in value to "All Glory to the Hypno Toad." If an imbalance in the system (executive bonuses in this argument) causes the paying public to demand action, isn't that too part of a healthy, functioning free market? A huge part of the success of capitalism has been the ability to adapt to changing circumstances. If we believed in the absolute absence of the government, even outright fraud would be defended as part of a free market.

  • Report this Comment On February 02, 2010, at 10:48 PM, tkell31 wrote:

    I guess the inherent issue here is the ability to "make" and "earn" as much as you can versus the reality that the board is made up of the CEO's friends who know that the more the CEO makes the more they will make. That's a pretty effective free market. It really has nothing to do with "earning" anymore, but the greedy politicians will protect the greedy CEOs and life goes on.

  • Report this Comment On February 03, 2010, at 12:00 AM, pernfam wrote:

    How much is too much. Is twice what a CEO and his family can spend in a lifetime too much or should it be five times or ten times. Too many of the rich, famous or powerful seem to have become greedy pigs feeding at the trough to the detriment of the stockholders and employees. When a company has a bad quarter or year and employees loss their jobs or their hours are reduced why shouldn't the corporate executives share the pain. KH

  • Report this Comment On February 03, 2010, at 12:02 AM, pernfam wrote:

    How much is too much. Is twice what a CEO and his family can spend in a lifetime too much or should it be five times or ten times. Too many of the rich, famous or powerful seem to have become greedy pigs feeding at the trough to the detriment of the stockholders and employees. When a company has a bad quarter or year and employees loss their jobs or their hours are reduced why shouldn't the corporate executives share the pain. KH

  • Report this Comment On February 03, 2010, at 12:03 AM, jomueller1 wrote:

    One of my biggesat mistakes ever was to live in the US of A. This country of unfettered, brutal capitalism for the rich is causing pain and stress on hundreds of millions of people. Socialist venues from medicare to the school system keep the masses believing they live in "the best country in the world" with the "best health care system in the world". I do not understand how people can compare the country to the world if they have not lived in other countries and do not even know where other countries are. They are being robbed by the robber barons and cheer the "freedom" of free enterprise.

    What detergent is used to brainwash people? Why is there no uprising against the self serving politicians? I guess, everything is just fine in "the best country in the world".

  • Report this Comment On February 03, 2010, at 1:06 AM, LazyOldMan wrote:

    "Interesting to contemplate the challenges in capping compensation for CEOs, or anyone else for that matter. That would be very much akin to the federal government implementing wage and price controls, since, presumable, if you cap the CEO's salary at a million, you'd have to cap the CFO at say $800,000, and the COO maybe $850,000, then what about division managers..." We make it illegal to mug people in the park an take their money. So why is it OK for someone on a corporate boardroom to rob the stockholders to pay their "buddy" who put them on the board a few million dollars.

  • Report this Comment On February 03, 2010, at 1:08 AM, LazyOldMan wrote:

    "why shouldn't the corporate executives share the pain. " Most of the CEOs could take a 50% pay cut and not even change their lifestyle... don't try that if you work for one of them.... you'll starve an loose your house.

  • Report this Comment On February 03, 2010, at 1:51 AM, jomueller1 wrote:

    in response to lLazyOldMan:

    not lazy, not old in your mind... Like your screen name, suits me well, too.

    I am afraid corruption is consuming this country. Say hello to Haiti or Mexico!

    Once I had a manager who told me that money means freedom. Now I understand, once you have money you have the freedom to rip off everybody.

    Hallelujah!

  • Report this Comment On February 03, 2010, at 3:16 AM, lowmaple wrote:

    A million for a CEO is not much for a 16 billion company when compared to athletes or movie star making 20 to 50 million

  • Report this Comment On February 03, 2010, at 6:23 AM, 1sweet1 wrote:

    At first thought, I liked the ifea of CEO's only selling their shares after they leave the company, but I think it will increase themusical chairs. What abobut being able to sell their shares every third year when they remain with the company? There are reasons to sell shares, like buying second homes, yachts, and balancing their portfolios. However, a CEO's sale of shares would have an impact on the stock price in the marketplace.

  • Report this Comment On February 03, 2010, at 9:39 AM, Global10 wrote:

    II am truly sick about listening to all of this. My pay has been stuck in the mud for years and I work for a multibillion dollar company. I just want my fair share of the pie. Makes me sicker looking at these compensation packages and knowing that there’s nothing we can do about it.

  • Report this Comment On February 03, 2010, at 9:46 AM, TzingerToo wrote:

    CEO pay became a competition with public disclosure. The compensation committees choose to make CEO pay achieve at least the median of CEO's in the same industry. Thus causing a constantly inflated and growing pay level.

    I see no hope for improving the situation without some form of regulation. I might also vote for a return to 90% tax rate for income or deferred income above something like 5-10 million. I can hear the squeals already.

  • Report this Comment On February 03, 2010, at 1:04 PM, foolsbud wrote:

    In addition to scandalous compensation and bonus issues discussed here, we now have a major issue of corporations being given new political rights presumably buried somewhere in the constitution. In a 5 to 4 vote by the right wing of the Supreme Court, corporations, domestic and foreign, now can exercise their considerable weight to political campaigns by expending the stockholder's money. The media, in discussing the important "free enterprise" vs "socialism" issues they find in this unpresidented decision, seem to be totally unaware that stockholders have absolutely no control over this spending nor will they likely benefit from it.

  • Report this Comment On February 03, 2010, at 1:05 PM, dwscho wrote:

    I think in many circumstances there seems to be no correlation between company performance and executive compensation. I think if a company has a bad year, the compensation paid the executive management should honestly reflect that performance. Of course, the same is true in good years. All too often, there doesn't seem to be any correlation between performance and compensation.

    However, it's difficult to make some blanket statement about executive compensation which fits all situations. In some cases, it appears the board is adjusting compensation appropriately while in others, it seems they aren't. As a shareholder, I do feel somewhat powerless to influence the board's decision. My only option if I feel the board is not representing the shareholder's interest is to sell my holdings.

    In my opinion, there is way too much greed when it comes to the issue of compensation and it doesn't rest solely with executive management.

  • Report this Comment On February 03, 2010, at 4:31 PM, enginear wrote:

    The increase in my pay over the last decade runs right along with the value of the S&P 500... not very impressive, yet CEO's are way ahead of the curve.

    Why? They are essentially deciding their own pay. They have good access to compensation commitees, and few CEO's are bad salesmen/women. They all float in the same boat too.

    That means as shareholders (or even members of the public) we are getting the shaft. As many facts in the above posts explain, high executive pay does not equal good performance by any stretch of the imagination.

    As maccdw pointed out tax rules allow profits to disappear into CEO bonuses, but not salary (after $1M). Those profits were mine (the shareholders) until the CEO got them. Its enough to make me want to raise taxes on high income earners, which is not a good strategy in theory I think. They should not get that much compensation though, at the expense of the owners.

    I'm sorry (not really), but these cats are (!) too fat (my apologies to Barron's).

  • Report this Comment On February 03, 2010, at 4:54 PM, CoyoteMoney wrote:

    Thanks to may ongoing education here at Fool.com, I've decided that a guy wearing both the Chairman and CEO hats is an automatic ding in the 'good management' category. One more due diligence item to check.

  • Report this Comment On February 03, 2010, at 6:19 PM, porchguy wrote:

    I agree with the article 100% as long as the CEO is not the founder of the company and is an outsider selected to run the company, but if I start a company I don't care who gets mad at my salary. It's my company.

    I figure since I started the company and created a ton of jobs, and lets not forget that he also gave his employees very good hospitalization also, which most companies don't or can't afford to, that I'm entitled to whatever I want.

    Have you ever checked to see what he is doing with all his compensation. Maybe he has one or multiple charties he also donates a ton of money to each year.

  • Report this Comment On February 03, 2010, at 10:06 PM, Gardnermiles wrote:

    If the rich boys make it to heaven will they still collect their bonus' or will we all be on an even keel? They'll probably be begging for mercy from their shareholders and employees.

  • Report this Comment On February 03, 2010, at 11:08 PM, 2beewise wrote:

    In my 'unbiased' opinion a $million is excessive.

    I doubt that Mr. Schultz would be where he is

    without a bit of assistance from us shareholders.

  • Report this Comment On February 04, 2010, at 12:24 AM, burrowsx wrote:

    The only way to stop the self-dealers who have taken over corporate America is to change tax policy.

    1. Stop the favorable tax treatment of bonus money as "supplemental" income, to be taxed at a lower federal flat rate, than the highest marginal tax rate

    2. Add new marginal tax rate brackets at 50% or higher, for income greater than ten times the poverty level, ranging to 90% at twenty times the poverty level. When boards of directors see that most of their awarded trophy salaries are going to the government, sanity will return to executive compensation.

  • Report this Comment On February 04, 2010, at 7:07 AM, spenglowe wrote:

    Ultimately, punitive taxes on CEO compensation come out of the same place the compensation comes from: the company. It makes no difference to the company nor to its shareholders whether the CEO uses that money or the Fed Gov't spends it. Either way, that money cannot be used to grow the business or pay dividends to shareholders. Instead of sickening yourselves with class envy, do what a REAL investor would do, what Starbucks is telling you to do, and what their customers who are served by a decreasing staff are telling you to do: SELL.

    Sell all of your shares right now. You should not invest in any company that compensates its upper management for poor performance. You are buying a business. If the CEO's salary causes closures and reduced customer service, the customers are going to go elsewhere. So, invest in their competition. Find a coffee shop that cares about its customers and employees. That is the company that will grow. If you cannot find one that is publicly traded, see if you can invest in the privately owned shop in your hometown.

    The point is, you are an investor. You should not want the gov't to bail you out of a poor investment. You should WANT Starbuck's to over-compensate their management and destroy their ability to compete. This will move their customers to YOUR company, which will grow YOUR investment. Gov't intervention will only limit Starbuck's ability to send their customers, and their best employees, to YOUR coffee shop.

  • Report this Comment On February 04, 2010, at 7:12 AM, spenglowe wrote:

    Think of it this way: over-compensation has the same effect on a business as poor quality. For example, suppose someone at Pepsico threw the wrong switch, so that thousands of bottles of sour pepsi hit the shelves at the supermarket. This would be great for Coke sales.

  • Report this Comment On February 04, 2010, at 8:33 AM, wchopkins wrote:

    Executive compensation will always be a problem. Especially until we are able to alter the system of corporate governance such that there is real competition and a level regulatory playing field. When this occurs, the true value of an executive's services will be reflected in their salary.

    Unless we change the system, tinkering around the edges of the rules won't appreciably alter the outcome.

    How to do that? Hmmm...."For every complex problem, there is a solution that is clear, simple.....and wrong." Grist for another mill.

  • Report this Comment On February 04, 2010, at 9:54 AM, ewent0 wrote:

    Obscene CEO payouts and bonuses take more out of a company's assets than it can possibly return. The US pays its CEOs more than any other country of the world.

    These CEOs are not earning on the basis of merit or performance. That's what's wrong with the present mode of payout. How does a CEO come into a company one year, play Venture Capitalist for 12 months and get a couple hundred million in severance? For what? This is truly the DUH (Dumb Uppercrust Hubris) factor at work.

  • Report this Comment On February 04, 2010, at 1:24 PM, MORK000 wrote:

    I Think that a CEO should be paid according to how many more people work for that corp.. For instance 1000 people the CEO gets 5 times what it cost for those people and no more,

  • Report this Comment On February 04, 2010, at 2:46 PM, Kwankun wrote:

    The problem lies in the fact that the CEO stock option “bonus” is nowadays largely disconnected from company profit. CEO can still take stock option even if the company has no profit because of the “hard work”. The directors and the CEO are simply the same gang of people. They both take stock option. There is no true alignments of their interest with the shareholders' interest. They sell the new shares within a few days of assigning the stock option, usually the same day. They have no interest to own the new shares. The stock option actually picks the pockets of the shareholders to give the CEO and directors bonus because without increasing the capitalization, the increase in shares lowers the market price. This market price lowering is equivalent to making the shareholders to put in money for the stock option, every year. This virtually causes the shareholders unlimited liability. It is unfair to shareholders like you and me. The commercial banks of this market crash and Enron and Worldcom in the last market crash illustrate that the stock option is turning a public listed company into a scam business. The only way to stop such crazy fat bonus is to have a new securities law to regulate the issue of new shares. I suggest the following wording: “All new share issue must be fully funded at market price which is defined as the average market closing prices of the last ten trading days before the designated share issuing date”. Call this the Shareholders Fairness Act. If the CEO does not want to expense the stock option, then pay for it saving just the broker's commission. Warren Buffet has advocated to expense the stock option after the last market crash and he met opposition. This time the emphasis is fairness to the shareholders and to protect the shareholders from being ripped off. President Obama is currently angry with the CEO bonus. Now is the time to write to the President, the Senate and the Congress that America need such a new securities law to restore business ethic, fairness and the true meaning of bonus.

  • Report this Comment On February 04, 2010, at 5:20 PM, jfrankh57 wrote:

    During the good years and the build up that came within those years, Schultz was handsomely rewarded for Starbuck's performance. I think TMFFischer got it wrong when he suggests that the rewards should continue regardless of performance in a given year. As a matter of fact, I agree with the author that pay/compensation has become an "entitlement" and an obscene one at that. Almost all CEOs are way over compensated. If they want a big, fat paycheck, then let them run private companies. Once a company goes public, the stakes change and the people who take significant amounts away from the bottom line are parasitic at best and destructive at worst. Why are golden parachutes prevalent in the higher levels of corporate governance? They don't care too much which way the company falls! They will always get theirs! A public company should never be the personal piggy bank of some CEO.

  • Report this Comment On February 05, 2010, at 2:33 PM, RaiddinnRZ wrote:

    If the CEO wants to own shares (and they should) then they should buy them out of their own pockets at market rates.

    They should, under no circumstances, EVER get options.

    Option grants are pretty much never in the interests of the owners.

    Speaking of which, an even better pay plan would be to have the company declare that 30% of completely in the clear FCF should be the dividend policy and then the officers can set their own salaries by buying stock. Their dividend income will serve as proxy for their salary. They commit more, they get paid more.

    Doing this would align their interests with the owner's interests. If they tried anything fancy to pump one quarter and dump one quarter or something like that they would hurt themselves just like they hurt the rest of the owners.

    There would be none of the anti-shareholder practice of awarding 10 years worth of pay based on a single quarter's results, or (heaven forbid) the randomness of Mr. Market's personality.

  • Report this Comment On February 05, 2010, at 8:50 PM, markofzorro wrote:

    We don't need caps on executive salaries, we need laws that empower shareholders to control these parasites. There should also be a 99 - 100% tax on incomes over $1 million.

    The money these greed heads pay themselves should be used to help small firms that hire the unemployed and are the real engines of the economy.

  • Report this Comment On February 09, 2010, at 4:18 AM, esxokm wrote:

    Overcompensation of executives is a very difficult thing to fight, primarily because as soon as the issue is raised, the source of the vocal complaint becomes smeared with accusations of being a socialist/communist/whatever.

    I believe executives make too much, yet I am a capitalist. I want the overcompensation dollars to go to me via dividends and share buybacks. Saying that execs are paid too much actually makes sense; what sane capitalist believes a CEO, who is simply an employee, should be given tons of stock options, millions in cash, and a seat on the board?

    Great talent could be hired for much, much less. Time Warner would have no problem attracting a CEO for $250,000 per year plus generous benefits. Being a non-founder CEO isn't as difficult as it sounds...so much work is delegated, one ends up simply saying yea or nay to presentations. And stocks simply follow business cycles for the most part -- there's no connection between performance and payments.

    If one believes that pay is directly proportional to talent, then we've never had a smart President. Ever.

    I would love to know how dividend payments on the Vanguard S&P 500 fund could theoretically change if all CEOs received a total compensation package of $750,000 per year (say, $500,000 in cash, $250,000 in benefits). Even if it only amounted to an extra penny per share per quarter, hey, I'm a greedy capitalist...I want it.

  • Report this Comment On February 09, 2010, at 4:59 PM, circa1850 wrote:

    Exorbitant executive compensation is most definately a significant problem. How much can a person really contribute to a company. A company or organization by any definition is the whole group of workers.

    I've been voting against executive compensation packages for stocks owned for years when I feel they are being overpaid.

    That the current bankers and wall street execs., who drove the economy into the pits of despair, and haven't even begun using the TARP money for the refinancing of worthy troubled mortgages is outrageous. And yet, they have no trouble taking the bonuses not earned.

    Please follow Bill Moyers. He'd make a great third party co-ordinator, as he's got the goods on the good people who understand the problems the U. S. faces and who is exacerbating these issues!

  • Report this Comment On February 09, 2010, at 9:08 PM, ReadEmAnWeep wrote:

    They require more and more million dollar bonuses because they want more/bigger houses and more expensive cars. It isn't like they saved their previous million dollar bonuses :P

  • Report this Comment On February 11, 2010, at 9:43 AM, TMFLomax wrote:

    Thanks again for the great discussions and ideas here, everyone!

    esxokm, I agree with you whole-heartedly. I think the argument that this is a purely free market phenomenon is a flawed argument. I think we are failing to bring true competition into the management suite. I am quite sure there could be less expensive talent for many of these positions. Shareholders should remember overpaying executives reduces their profits. And if there are good signs that performance is not there, well, that's not competitive, like I have said, it becomes some weird entitlement.

    Thanks for the thoughts to those of you bringing up options; CEOs paying their own money for stocks in their companies is another good thought. Insider ownership is a good sign that executives have more interest in running the company well, but indeed, if they committed their own money, that would indeed be an even better signal.

    I also strongly believe separating chairman and CEO roles and "say on pay" for shareholders would be a huge improvement.

    Alyce

  • Report this Comment On February 11, 2010, at 9:43 AM, TMFLomax wrote:

    Thanks again for the great discussions and ideas here, everyone!

    esxokm, I agree with you whole-heartedly. I think the argument that this is a purely free market phenomenon is a flawed argument. I think we are failing to bring true competition into the management suite. I am quite sure there could be less expensive talent for many of these positions. Shareholders should remember overpaying executives reduces their profits. And if there are good signs that performance is not there, well, that's not competitive, like I have said, it becomes some weird entitlement.

    Thanks for the thoughts to those of you bringing up options; CEOs paying their own money for stocks in their companies is another good thought. Insider ownership is a good sign that executives have more interest in running the company well, but indeed, if they committed their own money, that would indeed be an even better signal.

    I also strongly believe separating chairman and CEO roles and "say on pay" for shareholders would be a huge improvement.

    Alyce

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