There's a lot of bullshit coming from America

January 21, 2013 7:45 PM

"Of the top 100 Swiss companies, 49 give shareholders a consulting vote on the pay of executives. A few other countries, including the United States and Germany, have introduced advisory "say on pay" votes in response to the anger over inequality and corporate excess that drove the Occupy Wall Street movement. Britain is also planning to implement rules in late 2013 that will give shareholders a binding vote on pay and "exit payments" at least every three years. Minder's initiative goes further, forcing all listed companies to have binding votes on compensation for company managers and directors, and ban golden handshakes and parachutes. It would also ban bonus payments to managers if their companies are taken over, and impose severe penalties — including possible jail sentences and fines — for breaches of these new rules."
posted by vidur (32 comments total)

Since institutions tend to hold all the shareholder votes needed to ensure execs get nice payouts (and they are themselves often eyeing future board positions or are chums) I tend to be very down on shareholder votes... but I like this guy's moxy.
posted by Mezentian at 7:50 PM on January 21

Say what you will about public companies and the amount of money they pay their CEO's, but the status quo isn't wildly out of line with what heads of law firms or professional sports teams are paid.

Part of the problem may be that the IRS taxes CEO pay in ways that might skew pay scales and force companies to pay their leaders in a way that might not make any intuitive sense. Part of it might be something inherent to market capitalism. Whatever the case, I'm skeptical of the argument that shareholders need more accountability. In a sense it's a correlate to the collective sense of outrage pointed towards mortgage originators and the credit rating firms. Yes, they are guilty of falsifying appraisals and labeling unsafe mortgages AAA- (just as publicly-traded companies pay their CEO's huge amounts of money during periods of dubious economic performance), but you can't ignore the influence that massive pension funds and other institutional investors have in these things.

They demanded ~8% returns on their money while refusing to invest in anything that was rated lower than AA+. Likewise, people demand ever-higher rates of return on their equity investments, so firms hire CEO's who can deliver on the short term.
posted by anewnadir at 8:09 PM on January 21 [1 favorite]

It would also ban bonus payments to managers if their companies are taken over

I'm not sure this is a good idea. There tends to be an exodus of upper management when a company is taken over. If you need people to stay through the transition, you pretty much have to give them a good reason to. I'm not sure why managers should be punished for selling their company anyway.
posted by empath at 8:11 PM on January 21 [2 favorites]

Say what you will about public companies and the amount of money they pay their CEO's, but the status quo isn't wildly out of line with what heads of law firms or professional sports teams are paid.

Looks to me like they're only looking at CEO wages (ie salary)... Which (if true) is frankly bullshit. And I'm pretty sure that The Economist knows as much.
posted by graphnerd at 8:15 PM on January 21 [2 favorites]

Today Bill Quigley in his MLK day injustice index states that in 2011 the average CEO took in 200 times the pay of the average worker--up from 20 times worker pay in 1965. It's part of the problem.
posted by Anitanola at 8:15 PM on January 21 [3 favorites]

Yes, they are guilty of falsifying appraisals and labeling unsafe mortgages AAA- (just as publicly-traded companies pay their CEO's huge amounts of money during periods of dubious economic performance), but you can't ignore the influence that massive pension funds and other institutional investors have in these things.

Do you know what has more influence than pension funds on how the economy ended up over-leveraged? I'll give you a hint: it starts with the letter fraud.
posted by tripping daisy at 8:18 PM on January 21 [4 favorites]

Say what you will about public companies and the amount of money they pay their CEO's, but the status quo isn't wildly out of line with what heads of law firms or professional sports teams are paid.

Professional sports teams? Maybe, but the average MBA salary is 5 million, the NFL is $1.9 million. That's obviously a lot, and some athletes get paid more then others - but not that much more, since there are things like salary caps and so on.

The big difference between athletes and CEOs, though is that top athletes really can perform at a level that no one else can. And more importantly, their abilities can be empirically measured. They either score X number of points, run however many yards, whatever. In baseball you can look at the stats and actually figure out exactly how much value a player brings to the team.

But CEOs get paid tens, sometimes hundreds of millions of dollars on the basis of... their own decisions - along with the board which is made up of CEOs from other companies and their friends.

They demanded ~8% returns on their money while refusing to invest in anything that was rated lower than AA+.

Yes, they were just demanding to be defrauded.
posted by delmoi at 8:22 PM on January 21 [5 favorites]

Yes, they were just demanding to be defrauded.

Well, they weren't particularly curious about what they were buying, apparently.
posted by empath at 8:26 PM on January 21

Well, they weren't particularly curious about what they were buying, apparently.

What, you mean practically every major bank on earth? Listen, if scientists turn out to be wrong about climate change, we will properly blame the scientists, not everyone who believed the scientists. Why is every regular individual is expected to be smarter and more in tune with the "true" market than the entirety of the supposed brains at AIG?
posted by tripping daisy at 8:32 PM on January 21 [18 favorites]

Do you know what has more influence than pension funds on how the economy ended up over-leveraged? I'll give you a hint: it starts with the letter fraud.

I'm not trying to defend the conduct of anyone involved in the confluence of clusterfucks that is the banking-mortgage crisis.

My problem with the bailouts isn't that banks which should have failed were instead propped up with taxpayer dollars--it's that investors who should have taken a haircut didn't, because they had enough political clout to make the public assume the risk they had willfully ignored when they believed someone who said that 8% ROI's could be achieved without any risk whatsoever.

Fraud is the result of greed, and the interesting thing about the financial crisis is that the people with the capital were just as greedy as the people with the equity. So far, the narrative has more or less focused on the companies and executives that defrauded the public, with no real attention paid to the public that was (at least in my humble opinion) willfully taken in.
posted by anewnadir at 8:34 PM on January 21 [4 favorites]

Tom Albanese is leaving Rio Tinto because of a US$14 billion asset writedown.
He's actually turned down a golden handshake, but he's still leaving with UK$1.6 million worth of options and has been paid a salary around US$2 million per annum (plus assorted benefits) for the past few years. You can check out the details of his replacement's full package here (PDF) is anyone wants to see what the CEO of one of the big miners pulls in.
posted by Mezentian at 8:35 PM on January 21

Why is every regular individual is expected to be smarter and more in tune with the "true" market than the entirety of the supposed brains at AIG?

Regular people weren't buying those shitty mortgages.
posted by empath at 8:51 PM on January 21

I'm not sure why managers should be punished for selling their company anyway.

Is the word "their" accurate there ?
posted by benito.strauss at 8:51 PM on January 21

I'm not sure why managers should be punished for selling their company anyway.

Many large-scale acquisitions are actually destructive of value and don't make a lot of rational sense when viewed from a perspective of either company's investors. So it might not be that bad an idea to discourage management from pursuing them. If they only happened when investors were dragging management kicking and screaming into them (rather than the other way around), we might have avoided a few really bad mega-mergers.
posted by Kadin2048 at 9:01 PM on January 21 [1 favorite]

Say what you will about public companies and the amount of money they pay their CEO's, but the status quo isn't wildly out of line with what heads of law firms or professional sports teams are paid.

Don't drag sports into this. When the average MLB career only lasts for 5.6 years there is little common ground between a CEO's lifetime earnings and that of a starting pitcher.
posted by N-stoff at 9:04 PM on January 21 [7 favorites]

Shuffling the deck chairs on the Titanic. If there's one thing the Occupy movement brought to the table, it was income inequality and just how rigged the system appears to be. I think that's one Genie that's going to be hard to get back in the bottle.
posted by Windopaene at 9:06 PM on January 21 [5 favorites]

Regular people weren't buying those shitty mortgages.

In the second quarter, 30.9 percent, or 15.3 million homeowners, had negative equity in their homes, down sequentially from 31.4 percent, according to a new report from real estate listing firm Zillow. That means 400,000 homeowners are no longer upside down on their mortgages.

Some 46 percent of younger homeowners are underwater, a much higher rate than with older mortgage holders. Zillow chief economist Stan Humphries notes that younger buyers tend to have bought their homes more recently, just as the housing market was falling apart. They didn't have much time to see their homes increase in value before the bubble burst.

CBS News

46% of everyone under the age of forty certainly contains regular people. Pretending that economic booms and busts don't occur is a piss poor way of trying to prevent them in the future.
posted by tripping daisy at 9:10 PM on January 21 [4 favorites]

The "shitty" mortgages were sliced and diced into high rated equities of packaged debt. Real Estate speculation by "everyone" looking to flip themselves into the next infomercial guru millionaire. People walking away from underwater mortgages/2nds in unprecedented numbers even when they could have stayed in them the whole bubble crowd was caught up in get rich quick fever exacerbated by too much cash chasing too few borrowers. Then we have funky accounting where the loss is declared against potential gain vs actual loss. You hold a 30 year mortgage on a home where the owner borrowed 300k @ 6% The lender is not just out whatever a forced sale produces (say you get $240 k on the sale) real loss is 60k but the "actual loss" is the potential $350k in interest a contract would have produced if it went to term. So the investor really loses 60k plus interest to date so out of pocket loss ~60k. Reported loss $410k. Loses of potential profit are as imaginary as unicorns.
posted by pdxpogo at 9:28 PM on January 21 [1 favorite]

46% of everyone under the age of forty certainly contains regular people. Pretending that economic booms and busts don't occur is a piss poor way of trying to prevent them in the future.

I'm talking about the pension funds that bought the shitty CDOs, not the homeowners that got conned into taking out mortgages they couldn't afford. If there wasn't a market for that toilet paper, there wouldn't have been as much financial incentive to create it.
posted by empath at 9:31 PM on January 21

Puh-leeze. The biggest Swiss banks are handmaidens to giant US tax fraud. Stop blowing them.
posted by Ironmouth at 9:44 PM on January 21 [1 favorite]

So far, the narrative has more or less focused on the companies and executives that defrauded the public, with no real attention paid to the public that was (at least in my humble opinion) willfully taken in.

Why would it? Being the victim of fraud isn't illegal. S&P and the other rating agencies rated those CDOs as AAA+ when they weren't.

A lot of the institutions who got left holding the bag were pension funds and municipalities and so on. A lot of them probably got bailed out, probably at tax payer expense.

So in a sense the people who were responsible for not getting ripped off didn't have the right incentives to actually care. It wasn't really their money, and if they lost it, the government would cover it. Meanwhile everybody made their bonuses along the way.
posted by delmoi at 10:46 PM on January 21 [2 favorites]

Living in Switzerland, we've been inundated with billboards telling us to vote against the initiative. There's clearly a lot of money being thrown at making it fail. I will be voting for it, out of sheer orneriness if nothing else.
posted by Zarkonnen at 11:29 PM on January 21 [3 favorites]

Say what you will about public companies and the amount of money they pay their CEO's, but the status quo isn't wildly out of line with what heads of law firms or professional sports teams are paid.

a company with 6000 people where the CEO is making 200% of what many in the company are making does not even begin to compare to a law firm or a sports team (ratio or population-wise)

I like the idea, but what would be even cooler would be all companies having to set up a process by which the share holders (1) propose multiple methods of compensation and (2) vote on which should be used. I know it's not a perfect idea, but it would at least get around people on the board that are the said "chums" skipping around the law enough to still provide ridiculous compensation to the execs
posted by zombieApoc at 5:33 AM on January 22

An action-packed thriller is about to unfold in Davos, Switzerland
In secret meetings in tiny rooms, the rich plot to get even richer

posted by robbyrobs at 5:57 AM on January 22

Law firms compete with corporations for management talent. You'd think The Economist would understand that if publicly traded companies throw crazy compensation packages at executives, LLPs will be forced to follow suit.
posted by chrchr at 6:00 AM on January 22

a company with 6000 people where the CEO is making 200% of what many in the company are making

You mean 20,000%, no? (200x)
posted by nobody at 6:00 AM on January 22

If there's one thing the Occupy movement brought to the table, it was income inequality and just how rigged the system appears to be. I think that's one Genie that's going to be hard to get back in the bottle.

Its been frightening to see the accumulation of wealth at the top; I don't begrudge them the money, I begrudge them the power. We are witnessing the foundations of a new aristocracy that will rule over all of us for generations to come. Unfortunately this new aristocracy has no sense of Noblesse Oblige.
posted by Secret Life of Gravy at 6:02 AM on January 22 [5 favorites]

Well, they weren't particularly curious about what they were buying, apparently.

Spoken like a man who doesn't get that data can be aggregated with an intent to deceive. who is in the marked for a rock solid high yield investment opportunity.
posted by Kid Charlemagne at 7:58 AM on January 22

Its been frightening to see the accumulation of wealth at the top; I don't begrudge them the money, I begrudge them the power. We are witnessing the foundations of a new aristocracy that will rule over all of us for generations to come. Unfortunately this new aristocracy has no sense of Noblesse Oblige.

I was thinking about this comment and realized that we may be at a disadvantage in this round. Since the new class hierarchy is based purely on wealth instead of mix of blood, birthright, religion, power and wealth there is less friction at the upper end of the hierarchy. Additionally there's less resentment from the lower end of the hierarchy, because there are no easily visible classes to see, and of course anyone can be a millionaire. You can even get there by eating weird shit on television.
posted by tripping daisy at 11:33 AM on January 22

Fraud is the result of greed, and the interesting thing about the financial crisis is that the people with the capital were just as greedy as the people with the equity. So far, the narrative has more or less focused on the companies and executives that defrauded the public, with no real attention paid to the public that was (at least in my humble opinion) willfully taken in.

There's greed on both sides, sure, but in context the two sides are far from equivalent. Who's more at fault, the many "civilians" buying more house than they could afford, or the people in banking selling mortgages with no down payment to low income earners, to collateralize that debt and sell it on to someone else? When one person falsifies a loan application, it's their fraud; but when a bank encourages and accepts millions of subprime mortgages, the much larger fraud is the bank's.
posted by eurypteris at 1:03 PM on January 22

Glad to see that point being made Gravy. I've been yearning for a return of basic Nobility in lieu of actually ousting anyone from power. The level of entrenchment is just impossible to get through.

Maybe that's settling, but benevolent overlords would be an improvement.
posted by butterstick at 1:10 PM on January 22

As for the managers recall Bain capital and the tendency for managers to completely fuck their companies over because they personally get a shit ton of money in exchange for their malfeasance.
posted by lordaych at 3:08 PM on January 22