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Letter to [AT&T CEO] Ed Whitacre.
May 4, 2007 5:32 AM   Subscribe

Letter to [AT&T CEO] Ed Whitacre. "Perhaps the generous compensation package is in appreciation of all the fine lobbying efforts your team has conducted in Washington to preserve the incumbent footprint and defend yourself against innovation. If that is indeed the rationale for your pay package, then you deserve it. AT&T has shown true excellence in lobbying. Your team knows how to preserve the system.

Here's what I really think of this pay package: It's a farce. It's a symbol that the pure arrogance and imperial management style of incumbent telcos is here to say. It's proof that your company is focused more on maintaining the status quo and maximizing executive pay, than on innovation and the creation of shareholder value."
posted by ZenMasterThis (49 comments total) 1 user marked this as a favorite

 
Precisely how does one become a CEO? Is it like becoming a level 20 CEO and taking Epic levels?
posted by Pope Guilty at 5:37 AM on May 4, 2007


Level 20 MBA, even. Dammit.
posted by Pope Guilty at 5:37 AM on May 4, 2007


I think the most common method is to have a rich father. Heck, if your family is wealthy enough, you can even become president of a whole country.

I'm glad I don't work for AT&T anymore.
posted by Faint of Butt at 5:43 AM on May 4, 2007


I think the most common method is to have a rich father. Heck, if your family is wealthy enough, you can even become president of a whole country.

I'm glad I don't work for AT&T anymore.


And I'm glad that I don't live in the United Sta- aw, hell.
posted by Pope Guilty at 5:46 AM on May 4, 2007 [1 favorite]


I have this fantasy that AT&T presses to hard to end Net Neutrality so Google shrugs, says "Fuck It" and then buys AT&T.

My only fear in this fantasy is that AT&T is so evil that no one could survive taking over that truly evil company.
posted by drezdn at 5:57 AM on May 4, 2007


Precisely how does one become a CEO?

On the off chance that it was a serious question: In a small or new company, you're often there from the beginning. In larger companies, or companies that have been around long enough to have had more than one CEO, you're appointed by the Board of Directors -- which is to say, you're hired.

Usually that sort of hiring is thought the sort of networking you'd expect, but there are also executive search firms (read: C-level management recruiters) who will find a CEO for a firm that needs one. The board typically wants a good CEO (i.e, one that will make them money), but just like any other job, nepotism and favors come into it too.

As to how to get there, the usual way is to make your way up the corporate finance ranks to CFO (or maybe COO, but boards like that finance background.) Executive management isn't flat -- the CFO and COO typically report to the CEO, and the rest of the C-levels to the CFO and COO.
posted by mendel at 6:22 AM on May 4, 2007 [1 favorite]


I, for one, am shocked that a company with such a glimmering public image and a well-maintained image of dynamic leadership and social responsibility like AT&T gave an exorbitant compensation package to its CEO.

Shocked.
posted by Plutor at 6:33 AM on May 4, 2007 [2 favorites]


that letter writer is a lefty, a sore loser, a snotty misanthorpe. This is the way things are done here. Love it or leave it.
posted by Postroad at 6:37 AM on May 4, 2007


Metafilter: This is the way things are done here. Love it or leave it.
posted by Flashman at 6:40 AM on May 4, 2007


Yeah yeah yeah, but did the guy put it through a spell checker? Oh wait... wrong thread. Sorry.
posted by ZachsMind at 6:45 AM on May 4, 2007


Colbert got it right. [Googlevid]
posted by HyperBlue at 6:55 AM on May 4, 2007 [1 favorite]


I do agree with the writer here: the pay and retirement packages this guy has been given are ridiculous. And I know it's par for the coure, but it's still fucked up.

I do wish, however, that the writer hadn't obnoxiously addressed the CEO by his first name after stating that they've never met and don't know each other. That kind of scornful familiarity makes the writer, not his target, look bad.
posted by taliaferro at 7:33 AM on May 4, 2007


I think the most common method is to have a rich father. Heck, if your family is wealthy enough, you can even become president of a whole country.

This is the path to being on the Board of Directors, not being CEO. CEOs generally come from the ranks of the industry..either up through the company or hired from the upper echelon ranks at other companies in an industry.
posted by spicynuts at 7:34 AM on May 4, 2007


Writing to the CEO is pointless. Become a shareholder, write to the compensation committee of the board and let them know that you think that they are violating their fiduciary duty to the corporation with such a pay package. It might even be more effective if you have your lawyer at a major shareholder derivative suit firm write the letter on your behalf. This probably won't change anything either, though.
posted by caddis at 8:01 AM on May 4, 2007


First of all, this guy did start with a small company - SBC. He work his way up in the Bell company before the breakup in 1984.

Secondly, the performance of AT&T over the last 5 years is better than Verizon, a company which no one accuses of being run poorly. But this stupid article cherry picks "the five fiscal years through 2005", in other words 2001-2005. Guess what happened in 2000? The dot-com telecom bust. Guess what happened in 2001? The everything-else bust.

Furthermore, AT&T's stock performance over the last year beats Verizon, Google, and Apple. That's right, you thought google was a hot stock? It got beat by the phone company. Furthermore, AT&T over the last year beat Berkshire Hathaway, run by the fabled "greatest living investor" Warren Buffet.

As I said, this article is stupid. "Take the Google boys. They took in billions. But they returned hundreds of billions to shareholders. Yes, they fly on an obscenely large jet, but they created the company out of thin air and the shareholder returns were extraordinary."

Thin air? Does that thin air include the $25 million VC investment from Silicon Valley bankers Kleiner Perkins and Sequoia Capital? Or does it include the fact that their primaary revenue stream AdSense, was bought whole from another company with that VC money? OR perhaps it's because, as one Wall Street study argued, 30% of AdSense clicks are fraudulent? Yeah, that's exactly the same thing as a company that has to buy spectrum in hotly contested auctions, build towers, run phone lines, manage telco plant and infrastructure, etc.

And Google "returned hundreds of billions to shareholders"? Since when? AT&T pays a 3.7% dividend, Google pays nothing. They return nothing to shareholders. If the shareholders in Google are lucky, the stock goes up. Too bad it hasn't in the last 6 months. But AT&T's has, up over 10%. And that's in addition to the 3.7% dividend they pay you.

Comparing stock charts in isolation is meaningless. Every telecom chart mirrors SBC/ATTs, except SBC/AT&T's is always a bit better, or at least not as bad.

I'm the first to smash excessive CEO pay, but this isn't an example of it. I don't know what "Light Reading" is, but I'm certain I will never find out, as this is the last time I will ever read it.
posted by Pastabagel at 8:09 AM on May 4, 2007 [10 favorites]


I think Whitacre's a lousy CEO, too, but didn't AT&T spin out Liberty Media and AT&T wireless during the time frame considered by the writer? If so, he ought to be including those returns in his AT&T returns.
posted by Kwantsar at 8:20 AM on May 4, 2007 [1 favorite]


Disclaimer: AT&T stock owner

AT&T pays a 3.7% dividend, Google pays nothing.

That's not necessarily a good thing. I see dividends as the company saying they are unable to capitalize on the cash on hand and generate investments internally (or invest externally) at the rate of return they've been able to sustain. I would rather companies like Google (also a shareholder) keep my money and improve their value to the shareholder.

Does that thin air include the $25 million VC investment from Silicon Valley bankers Kleiner Perkins and Sequoia Capital? Or does it include the fact that their primaary revenue stream AdSense, was bought whole from another company with that VC money?

To be fare, returning whatever billion on a $25 million dollar seed investment is amazing. I am going to say that it is impossible to build a multibillion dollar company in the time Google did without at least the most rudimentary angel investor.

Concurrently, developing a technology like AdSense was not Google's comparative advantage. If it was cheaper for them to buy AdSense than to develop it internally -- I see nothing wrong with this. Google's search technology is incredibly innovative. The markov state switching approach to page rank is not exactly an intuitive and obvious means of going about it.
--
Look, AT&T is doing well for its stockholders but the short-term gains in the market value of the stock do not insure that the company is a good investment in the long-term. I'd much rather AT&T focus less on lobbying efforts and more on developing the "dark fiber", moving towards being a primary provider of wireless broadband (and offering close to free services in VoIP, Internet access, etc.). If they focus too much on increasing value through lobbying efforts and laws meant to protect their position in the market place. If they wish to be a public utility, fine, lets regulate it heavily to avoid monopolization and make it akin to a local water utility.

I think AT&T has some great resources and I hope they're able to utilize them, instead of just creating a giant shell of a company where keeping the status quo is what advances careers.
posted by geoff. at 9:07 AM on May 4, 2007


I see dividends as the company saying they are unable to capitalize on the cash on hand and generate investments internally (or invest externally) at the rate of return they've been able to sustain.

Well, that's sort of the textbook reason you offer them, but the practical reason AT&T, Verizon (4.10% div), and Microsoft offer them, despite being in tech heavy businesses is because they are regulated to a crippling degree. All the antitrust these companies have gone through has made it virtually impossible for them to invest horizontally. Microsoft would love to buy Yahoo, but they can't without regulators prying. AT&T and Verizon are desperate to get wide fiber - you don't think Verizon would swallow Qwest tomorrow of they could get away with it, especially considering it's fiber to the home initiative? Qwest has more bandwidth than AT&T, WorldCom and Sprint combined. Google is collecting scraps, Qwest is the prize.

But the government will never let Verizon have Qwest, even this republican administration. Too much market consolidation, and they aren't likely to let AT&T have it either. So what do ATT/Verizon do? Well, their Board of Directors, elected by shareholders 42% of whom are institutions, vote for a juicy dividend. The dividend pays cash back to the 42% shareholders, many of whom, surprise!, also own qwest (which itself is 90% owned by institutions).

In other words, given the realities of the market and public companies today, dividends are one (not the only, but one) mechanism by which indirect consolidation of ownership can be achieved when direct onsolidation of ownership and management are prohibited by regulation.

That's why companies that have grown should pay dividends, and that's why you should own these institutional investors, not the companies themselves - they have built-in diversification and managed risk.
posted by Pastabagel at 9:25 AM on May 4, 2007 [1 favorite]


I don't know what "Light Reading" is, but I'm certain I will never find out, as this is the last time I will ever read it.

It's a trade publication covering the telecommunications industry. Their focus is business and technical issues. I've never seen them criticize CEO compensation before.

First of all, this guy did start with a small company - SBC.

SBC isn't a small company. All of the Baby Bells were Fortune 50 companies.

Whitacre did work his way up from the bottom. A 1999 BusinessWeek profile.

A 2007 Forbes profile.

Wall Street Journal.
posted by Ye Olde Socke Puppete at 9:37 AM on May 4, 2007


Well, that's sort of the textbook reason you offer them

No. The textbook reason that you offer them is that you don't have any positive NPV projects, which has nothing whatsoever to do with the rate you've "been able to sustain."

Of course, the real reason dividends are paid is that they were paid last year, and discontinuing or reducing them will usually crush the stock.
posted by Kwantsar at 9:41 AM on May 4, 2007


There a lot of different ways companies can invest the money and not monopolize their industry. GE is a perfect example of a company that does a lot of segmented business. A company does not have to Pacman everything in sight to increase its value. I would even argue that a company would benefit from being turning itself into a giant shell company to diversify risk. I would go further to argue that the company themselves have the economies of experience to know their own systematic and non-systematic market risks and how to best hedge against them.

Institutional investors have their own biases and agendas, which might or might not include using the dividends to shore up failing internal business units.
posted by geoff. at 9:46 AM on May 4, 2007


I would even argue that a company would benefit from being turning itself into a giant shell company to diversify risk.

That's not right. I don't mean this to be snarky, geoff., but I think I remember that you are a business school student, and if that's the case you should really re-read Modigliani and Miller.
posted by Kwantsar at 10:02 AM on May 4, 2007


Love it or leave it.

I am afraid that man - corporation love would destroy the traditional family.
posted by srboisvert at 10:04 AM on May 4, 2007


Modigliani-Miller rational expectation theories? I would suggest looking into Hirshleifer and Stout's refutations that they are simply, to put it bluntly, wrong.
posted by geoff. at 10:26 AM on May 4, 2007


What do Modigliani and Miller have to do with rational expectations theories?
posted by Kwantsar at 10:39 AM on May 4, 2007


Intresting posts pastabagle.
posted by delmoi at 10:44 AM on May 4, 2007


that letter writer is a lefty, a sore loser, a snotty misanthorpe. This is the way things are done here. Love it or leave it.

I'm putting that up on my fridge as an example of productive discussion.
posted by Pope Guilty at 10:44 AM on May 4, 2007


Modigliani-Miller rational expectation theories?

Color Commentator: For those of you playing at home, Kwantsar, being a quant-tsar, is of course correct about the function of dividends. Modigliani and Miller came up with an eponymously named theorem that, in short, says in an efficient market, absent certain costs, it doesn't matter whether a corporation is financed by debt or stock. Furthermore, the dividend structure won't matter.

My personal feeling (no studies, no evidence) is that the market is not efficient. There is too much "off-the-books" activity and too much information asymmetry for these efficient-market theories to be of much real world value. Or perhaps I should say they take effect rather slowly - just because the information came out two days ago doesn't mean that people aren't still trading on it today.

I have to assume that because of guys like Kwantsar, there's no point in me running the numbers and trying to trade in the breach. There are people out there running more numbers, more accurately, and more often than I can compete with. Where I do find some value is trying to understand these things as to the personal psychology or behavior of decision makers. The function of the corporation is to make profits, and the function of the CEO is to manage it to that end. But the CEO's primary goal is to keep his job and increase his personal wealth. One can imagine scenarios where the two goals are at odds.

Furthermore the purpose of regulation is to limit activity that if left unregulated the parties would engage in. So it's pretty reasonable to assume that just because X is regulated, the parties wanting to do X to achieve Y will find some other legal way to achieve Y.

Therefore, we know that verizon et al want to make acquisitions, but can't, so the people who own verizon will find a way to own the thing that verizon was going to acquire, and install or influence management to do the things that verizon would have bought them to do. Make sense?
posted by Pastabagel at 11:21 AM on May 4, 2007


Of course, the real reason dividends are paid is that they were paid last year, and discontinuing or reducing them will usually crush the stock.
posted by Kwantsar at 12:41 PM on May 4


Didn't IBM do this back in the 90's when Gerstner took over, or am I remembering wrong? And Ford just did this in September and it's at the same price (after some admittedly wild swings).
posted by Pastabagel at 11:25 AM on May 4, 2007


FPL (1994) is the canonical example, Pastabagel, and if you're really curious, the operative search terms are "dividends" and "costly signal."

Geoff., the point I was making is that an extension of the M&M irrelevance propositions is that corporations don't create value when they do things that investors can do for themselves, such as operating multiple businesses under one structure. The "diversify risk" argument is something that less than 1% (talking out of my arse) of financial economists believe. Either they believe that M&M holds (the conditions aren't actually true, but the conclusion stands), or they believe that the agency costs of free cash flow outweigh the slight reduction in the expected value of costs of financial distress that is achieved by conglomeration.

Now one can argue that revenue synergies or cost synergies are things that investors cannot create on their own, and this is true, but the evidence is pretty overwhelming that conglomerates generally trade not at a premium, but at a discount.
posted by Kwantsar at 11:50 AM on May 4, 2007


If it was cheaper for them to buy AdSense than to develop it internally -- I see nothing wrong with this. Google's search technology is incredibly innovative. The markov state switching approach to page rank is not exactly an intuitive and obvious means of going about it.

I thought I'd address this. Google tried to develop ad technology internally, and it failed, so they bought another company (I can't remember the name). Same story as Google Video leading to buying YouTube, but less visible.

And while PageRank may be great technology, Google doesn't own it. Stanford and the National Science Foundation do.
posted by Pastabagel at 12:02 PM on May 4, 2007


Great thread, guys. This could have been stupid, but it turned out to be very interesting.

Pastabagel writes "And while PageRank may be great technology, Google doesn't own it. "

They hold a perpetual license, though, exclusive through 2011 I think.
posted by mr_roboto at 12:38 PM on May 4, 2007


So....................................................................giving someone $100M for retirement ends up being justified? That's bullshit. No matter how you slice it, that is money being poorly spent.

Who in the fucking fuck needs $100M in retirement?
posted by maxwelton at 1:17 PM on May 4, 2007


Me? Pick me!
posted by onlyconnect at 1:40 PM on May 4, 2007


Whats the reason for the 100 milion payout?
Are CEO's that scarce that they would scoff at a mere 50 million?
posted by Iax at 2:42 PM on May 4, 2007




They hold a perpetual license, though, exclusive through 2011 I think.
posted by mr_roboto at 3:38 PM on May 4


I'm sure they hold an exclusive license, and it may even be royalty free. And the patent expires Jan 2018 anyway.
posted by Pastabagel at 6:38 PM on May 4, 2007


It is about fucking time that some rationality were re-introduced back into the paycheques of those who work.

Average CEO wages went up another 38% this past year.

Did your wage go up? Did it go way up?

Probably not. But it is only because the fuckers at the top took it from you.
posted by five fresh fish at 7:24 PM on May 4, 2007


Riiiiight.

$5,494,000 per year
+$18,805,000 lump sum
/304,180 employees
-------------------------
$80.

I didn't include the other perks, but I didn't amortize the lump sum over the term of service, either.
posted by Kwantsar at 8:02 PM on May 4, 2007


Are you denying that CEO compensation has literally skyrocketed this past twenty-odd years while real working wages have remained more or less static?

I should think not, but I suppose that needn't stop you from doing a silly calculation irrelevent to my point.
posted by five fresh fish at 10:41 PM on May 4, 2007


Apropos to nothing:

BC used to have a well-regulated telephone monopoly.

There were requirements for uptime, coverage, rates, response times, installation costs, upgrades, everything. In essense the telco couldn't fart without permission. It was house-trained, profitable, unionized.

People in the more remote areas of BC (and in BC everywhere but the lower mainland is, essentially, remote) had coverage without outrageous costs. Most of BC's industry is in natural resource extraction. There are a lot of remote communities, yet almost all had contact with the outside world, usually by copper pair, but sometimes by microwave tower or radio-to-satellite. And this, in the early 1970s.

The only reason those people had coverage was because it was required. They certainly were not profitable customers: they didn't make enough calls, and rates were not extortionate. That service was the antithesis of corporate fiscal responsibility, yet necessary for the greater good of our province.

The telcos still made good profits. It's difficult not to when you're a monopoly with a captive market and a reasonable regulatory board. We-the-people certainly didn't want the telco to go tits-up; at the same time we didn't want to take it in the ass.

Then the CRTC was corrupted and competion was introduced.

Uptime, response times, service, upgrades, and more just went shit out the window. For a lot of years it was really ugly; telephone service in this province sucked donkey balls. Now it merely licks them on occassion.

Over the past twenty years of increasing competition, from pure regulated monopoly to a semi-regulated mostly-open market, I have never, ever seen a reduction in my costs, and this without ever having jumped on the wallet-siphoning additional services of voicemail, caller ID, and all that crap.

So to recap:
- in days of regulated monopoly: guarantees, controls, good QoS, and affordable rates.
- in days of free market: no guarantees, few controls, crappy QoS, and affordable rates.

What a deal.
posted by five fresh fish at 1:32 AM on May 5, 2007


FFF, if you don't see how my calculation directly refutes your claim that But it is only because the fuckers at the top took it from you, I don't know what to write.
posted by Kwantsar at 9:36 AM on May 5, 2007


That's okay, Kwantsar. Anything you're likely to write isn't going to shed light on the problem of the gross overcompensation for CEOs these days.
posted by five fresh fish at 7:05 PM on May 5, 2007


No, fff, but it's on you to prove how what CEOs make is immiserating the working class. The numbers don't add up.
posted by Kwantsar at 10:25 PM on May 5, 2007


Fortune Magazine's take on it.

The SEC's take on it.

The US House's take on it.

The Wall Street Journal (pirate copy) has some numbers.

But what the hell, if you simply must have it your way, have it your way. CEOs consuming 10% of the net income for a business have no effect on worker's wages. It probably doesn't affect shareholder returns either, hey?

Whatever the details that distract you so, there's certainly a lot of concern that CEO compensation levels have reached damaging levels.
posted by five fresh fish at 11:51 PM on May 5, 2007


You're changing the subject.

Once again, fff, I want you to substantiate your claim that "your wage (did not) go up only because the fuckers at the top took it from you."
posted by Kwantsar at 12:02 AM on May 6, 2007


CEOs consuming 10% of the net income for a business

This only illustrates my point that the board's comp committee is negligent in its fiduciary duties to the corporation and its shareholders when it devotes this much of the resources of the corporation to someone who has a strong say in who should be a board member in the first place. The whole system is corrupt and fails the shareholders. To many boards, shareholders are nothing more than a necessary evil. You think you are an owner? U R PW33N3D shareholder l0zr, these CEOs R 2 l33t 4 U.
posted by caddis at 12:27 AM on May 6, 2007


Once again, Kwantsar, blow me. It was a throwaway line in a mass of hyperbole, and your autistic obsession is stupid.

The money wasted in excessive executive compensation is money that can not be invested in physical plant upgrades, research and development, marketing, and employee incentive programs. You are a fucking idiot if you think this does not harm the interests of workers including, ultimately, their paycheques.
posted by five fresh fish at 9:58 AM on May 6, 2007


Once again, Kwantsar, blow me. It was a throwaway line in a mass of hyperbole, and your autistic obsession is stupid.

How civil. I called you on your innumerate bullshit, and you finally confess, and move the goalposts to here:

The money wasted in excessive executive compensation is money that can not be invested in physical plant upgrades, research and development, marketing, and employee incentive programs.

Which is true, but absolutely meaningless, as even marginal firms fund all of these programs if they present positive net present values, regardless of how much they pay management.

A firm doesn't say "we can't advertise our products because we spent all of our money on executive compensation, " and believing so makes you the idiot. In a country like the United States, where capital markets are well-functioning, positive NPV projects don't go wanting for capital, and if you think so, you're just wrong.

None of this means that executive compensation is set at its proper level, of course, but everything else you've written shows a profound ignorance of how business works.
posted by Kwantsar at 3:22 PM on May 6, 2007


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