Talk about Boards with Conflicts of Interest!
Melvyn D. Magree
Originally published in the
Northland Reader
now the
Reader Weekly
April 27, 2000
Revised October 20, 2006, February 9, 2017
In the last election, some criticized candidates for the school board who were teachers or spouses of teachers. The critics claimed this was a conflict of interest. The same criticism was raised during the contract negotiations in January.
The contract that was signed called for an 11.4 percent or 6.4 million dollar raise over two years. (Duluth News-Tribune, Jan. 25, 2000) Six million dollars seems like a lot of money to most of us, but let’s see what it means to an average teacher. There are approximately 1,000 teachers in the Duluth Public Schools. That means the average teacher would get a $6,400 raise over two years or $3,200 each year. If that is an 11.4 percent raise, then the average teacher got $28,000 per year ($6,400 divided by 0.114 divided by 2 years). For the second year of the contract, the average teacher will receive $34,400 per year.
Is it any wonder there is a teacher shortage? Many college graduates can get that as starting pay in some companies, especially those involved with technology. Why be a math or science teacher?
What does 6.4 million dollars buy in private industry? How about more than ten times that? A single CEO! The CEO of Hewlett Packard, Carleton (Carly) Fiorina had pay of 69.4 million dollars in the fiscal year ending October 1999. (1) Granted her salary is exceptionally high, but many executives take home 6.4 million dollars or more a year. Forbes Magazine published the total compensation of fifty executives this month. (2) Thirty-five of the fifty had compensation for the 1999 fiscal year in excess of 6.4 million dollars.
Well, they earned it because the stockholders decided these CEOs increased the value of the company; at least that is how many justify these salaries. But is it the stockholders that really decide the executive pay? The mechanics are that the boards of directors decide the executive compensation. Who sits on the boards of directors? The CEO who is often also board chair. Academics, foundation heads, former politicians, and executives from other corporations.
For example, the board of Hewlett-Packard includes Philip M. Condit, CEO of Boeing, and Patricia C. Dunn, chairman and CEO of Barclays Global Investors. The board of Boeing includes Lewis E. Platt, former CEO of Hewlett-Packard. Ms. Dunn sits on the Group Executive Committee of the parent Barclays PLC and Barclays Bank PLC. The chairman of the Executive Team is Sir Peter Middleton who is also on the board of Bass PLC. Bass PLC owns Holiday Inns. (3)
I didn’t think the Barclays path would lead to as close ties as the Hewlett-Packard/Boeing tie, and so I decided to try some of the largest Minnesota companies. Wow! What a community!
I started with http://finance.yahoo.com/ and entered the symbols for several of the largest Minnesota-based corporations. I looked at the profile of each company then clicked on the link to their home pages. From the home pages I searched for “board of directors” or worked from investor relations. The only exception was Cargill which is privately traded. For it I went to http://www.cargill.com/ and then searched for the relevant pages. I looked at these pages on March 17-18, 2000 with a few rechecks on April 5, 2000.
Let’s start with Michael R. Bonsignore, CEO of Honeywell, recently merged with Allied Signal. He was listed on the boards of Cargill, The St. Paul Companies, and Medtronic. He was on the compensation committee of The St. Paul Companies and Medtronic. He has resigned from the board of Cargill according to a Cargill press release. The Honeywell 1999 Annual Report lists him as on the Medtronic board.
William W. George is the CEO of Medtronic. He is also on the board of Target. Medtronic’s board includes Richard L. Schall, consultant and retired vice chairman, Dayton Hudson Corporation now known as Target Corporation.
Robert J. Ulrich is the CEO of the Target Corporation. I didn’t find him listed on any other boards, but Target’s board includes Livio D. DeSimone, CEO of 3M; Richard M. Kovacevich, CEO of Wells Fargo & Co. which recently merged with Norwest Banks; William W. George, CEO of Medtronic; Stephen W. Sanger, CEO of General Mills; and Solomon D. Trujillo, CEO of US West. Messrs. Sanger and Trujillo are on the compensation committee.
Charles M. Lillis is an executive vice president of US West. He serves on the board of SuperValu.
Michael W. Wright is the CEO of SuperValu. He serves on the boards of Cargill and Honeywell.
There are more links than these, but your mind is probably boggled by now. Maybe an example line of links would make the kind of relations clearer.
Honeywell -> Medtronic -> Target -> US West -> SuperValu -> Honeywell
I’ll leave it to you to decide if this little network and others like it are “old boy networks” (even if they contain some middle-aged women) and “foxes guarding the chicken coop” (as some critics described teachers on the school board) or if it is merely shared expertise to enhance shareholder value.
(1) Many of the original sources are no longer available online. When I did a search on October 20, 2006, I found only six sites with "fiorina pay '69.4 million'"; only one had much relevant detail -
The Winner-Steal-All Society and the persistence of the CEO-market myth
I also found her employment agreement when she was hired by Hewlett-Packard. You'll have to calculate her total pay for her first year from all the details. Interestingly, she was given 600,000 shares of HP stock at a price determined by the 1995 Employee Incentive Plan. What that price really was is harder to come by. I accessed these October 20, 2006.
(2) Forbes Magazine, April 3, 2000. The online article is no longer available.
(3) Barclays has changed much since I wrote this article. If you would like to do your own tracing, you could start at "About Barclays", https://www.home.barclays/about-barclays.html
©2000, 2006, 2007, 2017 Melvyn D. Magree
Showing posts with label executive pay. Show all posts
Showing posts with label executive pay. Show all posts
Thursday, February 09, 2017
Thursday, November 29, 2012
Let's Look at Entitlements
Political reporting is full of stories about the need to rein in entitlements, mostly meaning Social Security and Medicare. Remember these are insurance programs for which people pay premiums.
Consider auto insurance. Suppose you buy a car and buy collision insurance for it. The day after you pay your annual premium of, say $1,000, you are involved in a crash that totals your car. Is the insurance reimbursement an entitlement? Of course it is. Is it an unjustified entitlement. Well, if you've been paying car insurance payments for years and never had a claim, you might think so. It's your premiums that are giving the owner who had made only one payment the reimbursement.
The question with Social Security and Medicare is if enough premiums are being paid in to cover the payouts, not whether those who paid in are entitled to the benefits or not. One can question the level of payouts but not the fact that payouts are made.
In both the auto insurance and Social Security cases, the recipients are not determining the benefits. It is either the insurance companies or the Federal Government.
However, there are other benefits that are being determined by the recipients, not some "disinterested" second party.
Consider CEO salaries. It is not an independent group of shareholders that are determining the ever increasing CEO salaries. It is a board often picked by the CEO!
Consider board member salaries and fees. Who determines that board members will get $100,000 plus for five or six board meetings a year plus expenses? The board members! Who determines the stock benefits given to executives and board members to "align their interests with those of the shareholders"? It's certainly not the shareholders.
Consider the "golden parachutes" given to fired executives. Do you think a laid-off worker would receive a few million dollars and lifetime high-value health insurance? If the worker receives any benefits at all, they are often considered entitlements, especially if part of a union contract. Why don't more supporters of "capitalism" recognize the golden parachutes as undeserved "entitlements"?
Consider that corporations depend on employees and customers to succeed. Employees are often treated as costs rather than investments. Customers are often treated as annoyances rather than supporters and free advertisers. And too often, executive pay is inversely related to customer satisfaction. See "Executive Pay and Customer Satisfaction". That certainly smacks of entitlement on the part of the executives.
Consider that the owners of professional sport teams strong-arm cities and states to provide a larger portion of their increasingly expensive stadiums. They argue that the newer, bigger stadium will be an investment in the local economy. I wonder how many of these owners are willing to pay for all the schools, roads, sewers, and so on that modern communities need and provide. Oh, the stadium will pay for those. That sounds like a multi-million dollar entitlement to me.
My guess is that the "entitlement" of Social Security puts more money into a local economy than all the corporate entitlements. My guess is that the "entitlement" of Medicare gives a lot of support to the local health care facilities than all the corporate entitlements, plus the employees of those facilities spend a lot of their wages in the local economy.
In short, an entitlement is something others receive, we only receive what is due us.
Consider auto insurance. Suppose you buy a car and buy collision insurance for it. The day after you pay your annual premium of, say $1,000, you are involved in a crash that totals your car. Is the insurance reimbursement an entitlement? Of course it is. Is it an unjustified entitlement. Well, if you've been paying car insurance payments for years and never had a claim, you might think so. It's your premiums that are giving the owner who had made only one payment the reimbursement.
The question with Social Security and Medicare is if enough premiums are being paid in to cover the payouts, not whether those who paid in are entitled to the benefits or not. One can question the level of payouts but not the fact that payouts are made.
In both the auto insurance and Social Security cases, the recipients are not determining the benefits. It is either the insurance companies or the Federal Government.
However, there are other benefits that are being determined by the recipients, not some "disinterested" second party.
Consider CEO salaries. It is not an independent group of shareholders that are determining the ever increasing CEO salaries. It is a board often picked by the CEO!
Consider board member salaries and fees. Who determines that board members will get $100,000 plus for five or six board meetings a year plus expenses? The board members! Who determines the stock benefits given to executives and board members to "align their interests with those of the shareholders"? It's certainly not the shareholders.
Consider the "golden parachutes" given to fired executives. Do you think a laid-off worker would receive a few million dollars and lifetime high-value health insurance? If the worker receives any benefits at all, they are often considered entitlements, especially if part of a union contract. Why don't more supporters of "capitalism" recognize the golden parachutes as undeserved "entitlements"?
Consider that corporations depend on employees and customers to succeed. Employees are often treated as costs rather than investments. Customers are often treated as annoyances rather than supporters and free advertisers. And too often, executive pay is inversely related to customer satisfaction. See "Executive Pay and Customer Satisfaction". That certainly smacks of entitlement on the part of the executives.
Consider that the owners of professional sport teams strong-arm cities and states to provide a larger portion of their increasingly expensive stadiums. They argue that the newer, bigger stadium will be an investment in the local economy. I wonder how many of these owners are willing to pay for all the schools, roads, sewers, and so on that modern communities need and provide. Oh, the stadium will pay for those. That sounds like a multi-million dollar entitlement to me.
My guess is that the "entitlement" of Social Security puts more money into a local economy than all the corporate entitlements. My guess is that the "entitlement" of Medicare gives a lot of support to the local health care facilities than all the corporate entitlements, plus the employees of those facilities spend a lot of their wages in the local economy.
In short, an entitlement is something others receive, we only receive what is due us.
Monday, November 19, 2012
The economy ran into trouble when…
...When employees became associates;
...When personnel became human resources;
...When employee pay stagnated and executive pay soared;
...When executives were more concerned with the bottom line than with employee safety;
...When executives complained more about regulation instead of examining their own business.
...When personnel became human resources;
...When employee pay stagnated and executive pay soared;
...When executives were more concerned with the bottom line than with employee safety;
...When executives complained more about regulation instead of examining their own business.
Friday, November 16, 2012
Pain for the low, gain for the high
Labor unrest and union activity seem to be gaining. Some workers even they feel they have to sacrifice their jobs so that others may have it better.
"[We] know we will probably lose our jobs, but if we accept these concessions, standards for bakers and other workers will keep going down. We are taking it on the chin for workers all over." - a striking Hostess employee
"Some companies need to make cuts to say alive. Firms don't always have a choice about how to run themselves and closings and concessions are part of business," said Kurtz. ""You can't just have a visceral reaction. Both sides need to be involved in a thoughtful process." - Dave Kurtz, a partner in the Edwards Wildman's Labor & Employment Group.
"And workers are saying to companies, 'why do we have to take cuts when other parts of your business, like suppliers are not. Why is it on our backs?'" - Jim Matthews, a partner at Fox Rothschild and co-chair of the firm's Labor and Employment practice
Have you heard of many cuts in the executive suite? How many $4,000/hour executives are willing to cut their pay by even ten percent. That cut would provide twenty $10/hour jobs (assuming that overhead costs may match direct pay).
The above quotes are from "Beyond Twinkies: Why More Workers Are Striking", Mark Koba, CNBC, 2012-11-16.
The article also has a link to an interview with Colby Harris, a protesting Wal-Mart employee in Dallas.
See also "So you want to join a union", Part I and Part II.
"[We] know we will probably lose our jobs, but if we accept these concessions, standards for bakers and other workers will keep going down. We are taking it on the chin for workers all over." - a striking Hostess employee
"Some companies need to make cuts to say alive. Firms don't always have a choice about how to run themselves and closings and concessions are part of business," said Kurtz. ""You can't just have a visceral reaction. Both sides need to be involved in a thoughtful process." - Dave Kurtz, a partner in the Edwards Wildman's Labor & Employment Group.
"And workers are saying to companies, 'why do we have to take cuts when other parts of your business, like suppliers are not. Why is it on our backs?'" - Jim Matthews, a partner at Fox Rothschild and co-chair of the firm's Labor and Employment practice
Have you heard of many cuts in the executive suite? How many $4,000/hour executives are willing to cut their pay by even ten percent. That cut would provide twenty $10/hour jobs (assuming that overhead costs may match direct pay).
The above quotes are from "Beyond Twinkies: Why More Workers Are Striking", Mark Koba, CNBC, 2012-11-16.
The article also has a link to an interview with Colby Harris, a protesting Wal-Mart employee in Dallas.
See also "So you want to join a union", Part I and Part II.
Tuesday, July 03, 2012
Executive pay and customer satisfaction
Yahoo had a list of 15 worst companies for customer satisfaction. http://finance.yahoo.com/news/the-15-most-disliked-companies-in-america.html I wondered how the CEOs of these companies ranked in pay. I found a list of the top 500 highest-paid CEOs at "Gravity Defying CEO Pay". h
Matching the two lists, I found the following selection:
Time Warner 6th worst, Jeffrey L. Bewkes, 62nd highest, 19.79 million annual pay, 10.3
Comcast, 4th worst, Brian L. Roberts, 70th highest, 18.77 million annual pay, 17.5
Century Link, 11th worst, Glen F. Post III, 121st highest, 13.74 million annual pay, 1.25
Delta Airlines, 10th worst, Richard H. Anderson, 130th highest, 13.17 million annual pay, 1.37
Aetna, 13th worst, Mark T. Bertolini, 329th highest, 4.76 million annual pay, 0.37
United Airlines, 5th worst, Jeffrey A. Smisek, 346th highest, 4.36 million annual pay, 0.87
American Airlines, 8th worst, Thomas W. Horton, 482nd highest, 1.25 million annual pay, 0.16
Bank of America, 15th worst, Brian T. Moynihan, 447th highest, 2.26 million annual pay, 0.15
Charter Communications, 3rd worst, Thomas M. Rutledge, 460th highest, 2.00 million annual pay, 0.67
The final figure in the above list is the annual pay divided by the Forbes ranking on worst customer service. Notice how the top two highly paid CEO have the worst ranking. To be fair, I haven't ranked those companies with good or excellent service. But could these CEOs executive excessive salaries be partly because they aren't involved in "free market" capitalism? How much competition do phone and cable companies have? How much real competition do airlines have? I am thankful that there are still local banks to provide competition for the mega-banks.
Who was at the bottom of the highest paid list? Larry Page of Google with zero salary. However, he does have over 16 billion dollars worth of Google shares out of nearly 192 billion of capitalization. Many of us have a love-hate relationship with Google, how many of us can go a day without using some Google service?
Should anybody get nearly 20 million dollars for making a lot of people unhappy? Should anybody get even 1.25 million dollars for poor service?
Where do I get good service? From locally-owned businesses - BAM Style, Minnesota Surplus, Denny's Lawn and Garden, and many others. Some of the owners may be millionaires, but that is their net worth, not their annual salary. And I get to talk directly with the owners. Do you think Glen F. Post at 13.17 million per year would talk to me about Century Link's customer service? See "Who is worth more, the CEO with rigid rules or the employee giving excellent service?"
Matching the two lists, I found the following selection:
Time Warner 6th worst, Jeffrey L. Bewkes, 62nd highest, 19.79 million annual pay, 10.3
Comcast, 4th worst, Brian L. Roberts, 70th highest, 18.77 million annual pay, 17.5
Century Link, 11th worst, Glen F. Post III, 121st highest, 13.74 million annual pay, 1.25
Delta Airlines, 10th worst, Richard H. Anderson, 130th highest, 13.17 million annual pay, 1.37
Aetna, 13th worst, Mark T. Bertolini, 329th highest, 4.76 million annual pay, 0.37
United Airlines, 5th worst, Jeffrey A. Smisek, 346th highest, 4.36 million annual pay, 0.87
American Airlines, 8th worst, Thomas W. Horton, 482nd highest, 1.25 million annual pay, 0.16
Bank of America, 15th worst, Brian T. Moynihan, 447th highest, 2.26 million annual pay, 0.15
Charter Communications, 3rd worst, Thomas M. Rutledge, 460th highest, 2.00 million annual pay, 0.67
The final figure in the above list is the annual pay divided by the Forbes ranking on worst customer service. Notice how the top two highly paid CEO have the worst ranking. To be fair, I haven't ranked those companies with good or excellent service. But could these CEOs executive excessive salaries be partly because they aren't involved in "free market" capitalism? How much competition do phone and cable companies have? How much real competition do airlines have? I am thankful that there are still local banks to provide competition for the mega-banks.
Who was at the bottom of the highest paid list? Larry Page of Google with zero salary. However, he does have over 16 billion dollars worth of Google shares out of nearly 192 billion of capitalization. Many of us have a love-hate relationship with Google, how many of us can go a day without using some Google service?
Should anybody get nearly 20 million dollars for making a lot of people unhappy? Should anybody get even 1.25 million dollars for poor service?
Where do I get good service? From locally-owned businesses - BAM Style, Minnesota Surplus, Denny's Lawn and Garden, and many others. Some of the owners may be millionaires, but that is their net worth, not their annual salary. And I get to talk directly with the owners. Do you think Glen F. Post at 13.17 million per year would talk to me about Century Link's customer service? See "Who is worth more, the CEO with rigid rules or the employee giving excellent service?"
Sunday, July 01, 2012
Who is worth more, the CEO with rigid rules or the employee giving excellent service?
For background, see "What Customers Want, Companies That Bend the Rules", Elaine Pofeldt, Forbes, 2012-06-30
How often have you gone around and around with a "help" person following a script? How often have you gotten above and beyond help that solved your problem in minutes? I bet in both cases the CEOs got huge salaries that make us wish we had their pay for one year in a bank. I bet in the first case the person got a meager salary to keep "expenses" down. I bet in the second case the person was give some free rein in making sure the customer was satisfied.
A friend often wasn't getting my emails. Sometimes he did, sometimes he didn't. I went to his house to see what his setting were. I could find nothing unusual.
I had taken my laptop and tried sending him email. His provider, CenturyLink, wouldn't let me. I tried the usual tricks of changing the settings in my mail program, Microsoft Outlook. Nothing worked.
I called my ISP, Hickory Tech (also CPInternet), and spoke with a knowledgeable person in Minnesota. He said that CenturyLink blocked access through other ISPs (or something like that). Almost every time I've called my ISP, I have received helpful service.
I called CenturyLink. The support person, probably half-way around the world, never understood the problem. She put me on hold several times to consult with "higher support". We just went around and around with me repeating the same thing over and over again. I finally told her that we were getting nowhere and I hung up.
Ironically, my friend is getting all my emails now. Did "higher support" diddle with something? We'll never know.
From something I read recently, CenturyLink's call center might be in the Phillipines, now competing on price with India. I'm rather certain that Hickory Tech's support is in Mankato, Minnesota. The latter are probably making more in a day than the former in a week or even a month.
Interestingly, if I want to use DSL, my only choice is CenturyLink. Back from the dialup days, I've been using a local ISP that was bought out by a Minnesota telecommunications company. I had a choice in selecting the ISP. I've heard that CenturyLink wants take that choice away.
The size of a company is not always a measure of customer service. Small companies might ignore customers and big companies might give excellent advice.
When my previous laptop went belly-up, three weeks after the AppleCare contract expired, I went to Best Buy to get a new one. The Geek Squad took out my old hard drive and sold me a USB case to put it in for use as an external hard drive.
Things went fine until I upgraded to a new OS level. Suddenly my computer wouldn't recognize the external hard drive, my wife's with an older OS would. I sent email to the manufacturer of the hard drive case and never received a reply. I went to Best Buy for another reason and asked about the hard drive. The Geek Squad employee, the same woman that did the diagnosis on my older computer, told me to check the preferences. I didn't find it in System Preferences, but I did find it in Finder Preferences – showing external drives in the sidebar was not checked.
Say what you will about Best Buy, but it made a smart move buying The Geek Squad and giving them some latitude in helping customers.
How often have you gone around and around with a "help" person following a script? How often have you gotten above and beyond help that solved your problem in minutes? I bet in both cases the CEOs got huge salaries that make us wish we had their pay for one year in a bank. I bet in the first case the person got a meager salary to keep "expenses" down. I bet in the second case the person was give some free rein in making sure the customer was satisfied.
A friend often wasn't getting my emails. Sometimes he did, sometimes he didn't. I went to his house to see what his setting were. I could find nothing unusual.
I had taken my laptop and tried sending him email. His provider, CenturyLink, wouldn't let me. I tried the usual tricks of changing the settings in my mail program, Microsoft Outlook. Nothing worked.
I called my ISP, Hickory Tech (also CPInternet), and spoke with a knowledgeable person in Minnesota. He said that CenturyLink blocked access through other ISPs (or something like that). Almost every time I've called my ISP, I have received helpful service.
I called CenturyLink. The support person, probably half-way around the world, never understood the problem. She put me on hold several times to consult with "higher support". We just went around and around with me repeating the same thing over and over again. I finally told her that we were getting nowhere and I hung up.
Ironically, my friend is getting all my emails now. Did "higher support" diddle with something? We'll never know.
From something I read recently, CenturyLink's call center might be in the Phillipines, now competing on price with India. I'm rather certain that Hickory Tech's support is in Mankato, Minnesota. The latter are probably making more in a day than the former in a week or even a month.
Interestingly, if I want to use DSL, my only choice is CenturyLink. Back from the dialup days, I've been using a local ISP that was bought out by a Minnesota telecommunications company. I had a choice in selecting the ISP. I've heard that CenturyLink wants take that choice away.
The size of a company is not always a measure of customer service. Small companies might ignore customers and big companies might give excellent advice.
When my previous laptop went belly-up, three weeks after the AppleCare contract expired, I went to Best Buy to get a new one. The Geek Squad took out my old hard drive and sold me a USB case to put it in for use as an external hard drive.
Things went fine until I upgraded to a new OS level. Suddenly my computer wouldn't recognize the external hard drive, my wife's with an older OS would. I sent email to the manufacturer of the hard drive case and never received a reply. I went to Best Buy for another reason and asked about the hard drive. The Geek Squad employee, the same woman that did the diagnosis on my older computer, told me to check the preferences. I didn't find it in System Preferences, but I did find it in Finder Preferences – showing external drives in the sidebar was not checked.
Say what you will about Best Buy, but it made a smart move buying The Geek Squad and giving them some latitude in helping customers.
Thursday, April 19, 2012
The kleptocracy of corporate boards
Many corporations fight vigorously against unions, claiming that they would ask too much in pay.
But executives and board members of these corporations never seem to recognize that they have a union that determines their own pay. I just checked the executive pay of Radio Shack - over $11 million for seven current and former executives for 2011. The board of ten grants each of its members $150,000 in stock each year. Talk about the foxes guarding the chicken coop.
Oh, yes, Radio Shack's stock dropped by a half over the past year. The above compensation is not pay for performance but kleptocracy - rule by thievery.
I single out Radio Shack because its proxy statement is the latest that I read. Corporation after corporation rewards their top executives and board members quite well regardless of how well the corporation fared.
If corporations are sending work to lower wage countries, why not send CEO jobs to countries like Sweden, Norway, France, or Belgium? CEOs in these countries average a third of less the total compensation of U.S. CEOs. See "CEO Compensation: US and other countries", Ben Lorica, last updated Oct 2011. Better yet, why not export the CEO jobs to India or China? I haven't checked, but I bet CEO pay is a lot lower than in Europe.
But things are changing. Citigroup shareholders voted no on the CEO's compensation. The shareholders of three other companies did likewise. As of today, a search of "Executive Pay" yields many articles about the ongoing revolt against CEO pay - from unions to church groups to large investors.
P.S. See "Director pay: how high can it go?", footnoted*, Michelle Leder, 2012-04-13.
But executives and board members of these corporations never seem to recognize that they have a union that determines their own pay. I just checked the executive pay of Radio Shack - over $11 million for seven current and former executives for 2011. The board of ten grants each of its members $150,000 in stock each year. Talk about the foxes guarding the chicken coop.
Oh, yes, Radio Shack's stock dropped by a half over the past year. The above compensation is not pay for performance but kleptocracy - rule by thievery.
I single out Radio Shack because its proxy statement is the latest that I read. Corporation after corporation rewards their top executives and board members quite well regardless of how well the corporation fared.
If corporations are sending work to lower wage countries, why not send CEO jobs to countries like Sweden, Norway, France, or Belgium? CEOs in these countries average a third of less the total compensation of U.S. CEOs. See "CEO Compensation: US and other countries", Ben Lorica, last updated Oct 2011. Better yet, why not export the CEO jobs to India or China? I haven't checked, but I bet CEO pay is a lot lower than in Europe.
But things are changing. Citigroup shareholders voted no on the CEO's compensation. The shareholders of three other companies did likewise. As of today, a search of "Executive Pay" yields many articles about the ongoing revolt against CEO pay - from unions to church groups to large investors.
P.S. See "Director pay: how high can it go?", footnoted*, Michelle Leder, 2012-04-13.
Sunday, April 17, 2011
More examples of corporate inefficiency
I know and you know that many corporations are not perfect; after all, they are run by imperfect people. I know and you know that many governments are not perfect; after all… However, because there are so many commentators who forcefully state the second statement and deny the first, I feel the urge to provide examples of the first.
In addition to the "Star Tribune can't live within its means", I found that the Star Tribune is very inefficient in collecting its money. Over two weeks after raising its price 33-1/3 percent, it still has not fixed its boxes to reflect the price increase.
Every morning I go out with seven quarters for the Duluth News Tribune (still 75 cents for its few sheets) and for the Star Tribune. Every morning I come back with one of the quarters because the Star Tribune box still says 75 cents and still opens when I put in 75 cents.
Hewlett-Packard, with its multi-million dollar CEOs (see "Talk about boards with conflict of interest"), can't seem to write documentation that matches its products.
For years, my printer periodically makes horrible ratcheting sounds as it feeds paper. For years, I've looked in vain on the HP site for a solution. The only references are a cleaning kit for PCs (not Macs) and pictures and directions that don't look like my printer.
Today I gave another try at finding a solution. Yay! I found a page that tells about using the HP Utility for OS 10.5 and 10.6. It lists:
Paper Feed Cleaning : If the product is not picking paper correctly, this procedure cleans components inside the product to improve paper picking.
http://h10025.www1.hp.com/ewfrf/wc/document?docname=c02019145&cc=us&dlc=en&lc=en&jumpid=reg_R1002_USEN
Boo! "Paper Feed Cleaning" is not in the items displayed in the HP Utility window on my computer!
Ah! The fine print at the bottom of the web page says, "NOTE: The availability of these features depends on the product model."
But, I found this page by searching the Hewlett-Packard website with the model number of my printer.
Go figure!
In addition to the "Star Tribune can't live within its means", I found that the Star Tribune is very inefficient in collecting its money. Over two weeks after raising its price 33-1/3 percent, it still has not fixed its boxes to reflect the price increase.
Every morning I go out with seven quarters for the Duluth News Tribune (still 75 cents for its few sheets) and for the Star Tribune. Every morning I come back with one of the quarters because the Star Tribune box still says 75 cents and still opens when I put in 75 cents.
Hewlett-Packard, with its multi-million dollar CEOs (see "Talk about boards with conflict of interest"), can't seem to write documentation that matches its products.
For years, my printer periodically makes horrible ratcheting sounds as it feeds paper. For years, I've looked in vain on the HP site for a solution. The only references are a cleaning kit for PCs (not Macs) and pictures and directions that don't look like my printer.
Today I gave another try at finding a solution. Yay! I found a page that tells about using the HP Utility for OS 10.5 and 10.6. It lists:
Paper Feed Cleaning : If the product is not picking paper correctly, this procedure cleans components inside the product to improve paper picking.
http://h10025.www1.hp.com/ewfrf/wc/document?docname=c02019145&cc=us&dlc=en&lc=en&jumpid=reg_R1002_USEN
Boo! "Paper Feed Cleaning" is not in the items displayed in the HP Utility window on my computer!
Ah! The fine print at the bottom of the web page says, "NOTE: The availability of these features depends on the product model."
But, I found this page by searching the Hewlett-Packard website with the model number of my printer.
Go figure!
Wednesday, March 30, 2011
Greedy corporate boards
Eric Jackson, The Street wrote "How Do You Slow Down Executive Pay?", Yahoo! Finance, 2011-03-11. He thinks that we don't need the gimmicks live shareholder advisories on pay. He says shareholders should simply throw the votes out.
I added the following comment to the article.
"I agree with Eric Jackson; vote the bums out.
I've felt like a lone voice for years. I withhold my vote when the CEO gets over a million dollars a year or when the members of the board get over $100,000 a year. The latter is nice work if you can get it; show up five times a year (not every board meeting!!!). Many of us would be in the gravy with that pay.
And what is a CEO doing on the boards of other companies? Isn't he or she being paid a lot of money to run one company? Maybe the pay for being on other boards should be reimbursed to the company the CEO is running."
And later I added:
"Oh, I almost forgot about these boards gradually stealing the company from the shareholders that bought their shares on the open market.
To "align the interest of the board and the executives with the interests of the shareholders", they grant themselves stock, either directly or through options (the ability to buy shares at way below market value). The net result is they are granting themselves more and more votes at a discount from what the regular shareholders paid.
In other circumstances, isn't this called skimming and either criminal or unethical? Now, to put any kind of restraint on this behavior is called anti-business."
I didn't add that when I worked for Sperry Univac in the 70s, somebody published an article about attending a Sperry Board meeting. The directors were served an elaborate meal that many hardly touched. Some of the directors slept through parts of the meeting or said very little.
I've heard that in many companies, the board just agrees to what the company executives propose and go home. Nice work if you can get it.
I added the following comment to the article.
"I agree with Eric Jackson; vote the bums out.
I've felt like a lone voice for years. I withhold my vote when the CEO gets over a million dollars a year or when the members of the board get over $100,000 a year. The latter is nice work if you can get it; show up five times a year (not every board meeting!!!). Many of us would be in the gravy with that pay.
And what is a CEO doing on the boards of other companies? Isn't he or she being paid a lot of money to run one company? Maybe the pay for being on other boards should be reimbursed to the company the CEO is running."
And later I added:
"Oh, I almost forgot about these boards gradually stealing the company from the shareholders that bought their shares on the open market.
To "align the interest of the board and the executives with the interests of the shareholders", they grant themselves stock, either directly or through options (the ability to buy shares at way below market value). The net result is they are granting themselves more and more votes at a discount from what the regular shareholders paid.
In other circumstances, isn't this called skimming and either criminal or unethical? Now, to put any kind of restraint on this behavior is called anti-business."
I didn't add that when I worked for Sperry Univac in the 70s, somebody published an article about attending a Sperry Board meeting. The directors were served an elaborate meal that many hardly touched. Some of the directors slept through parts of the meeting or said very little.
I've heard that in many companies, the board just agrees to what the company executives propose and go home. Nice work if you can get it.
Monday, June 07, 2010
Source for Carly Fiorina and the "real world"
The article I referenced in "Carly Fiorina, get real!" was the Huffington Post, "Carly Fiorina Gets the Demon Sheep Treatment From DSCC, California Democrats", Sam Stein, 2010-05-06.
She ran a "Demon Sheep" spot against her opponent in the Republican Senate primary for California, Tom Campbell. Campbell was the architect of Gov. Arnold Schwarzenegger's budget.
I got it backwards that she was running for the Governor of California; she's running to oust Democrat Barbara Boxer from the Senate. Meg Whitman, another über-rich former CEO (EBay) is running for Governor of California.
The Democrats produced their own campaign video, "Demon Sheep II". In it, they have have a clip of Carly Fiorina saying, "Those of us who do live in the real world…" See "Demon Sheep II" in Sam Stein's article above.
Many of us may be envious of her "real world" with millions of dollars in the bank and the power she had as CEO of Hewlett-Packard, but I think most of us prefer our own "hum-drum" "real world".
She ran a "Demon Sheep" spot against her opponent in the Republican Senate primary for California, Tom Campbell. Campbell was the architect of Gov. Arnold Schwarzenegger's budget.
I got it backwards that she was running for the Governor of California; she's running to oust Democrat Barbara Boxer from the Senate. Meg Whitman, another über-rich former CEO (EBay) is running for Governor of California.
The Democrats produced their own campaign video, "Demon Sheep II". In it, they have have a clip of Carly Fiorina saying, "Those of us who do live in the real world…" See "Demon Sheep II" in Sam Stein's article above.
Many of us may be envious of her "real world" with millions of dollars in the bank and the power she had as CEO of Hewlett-Packard, but I think most of us prefer our own "hum-drum" "real world".
Saturday, June 05, 2010
Carly Fiorina, get real!
Carly Fiorina, former CEO of Hewlett-Packard, is running for governor of California. I saw a snippet of one of her ads, on The Huffington Post, I think. In it, she says something like politicians should join the real world.
Come on, Carly, when were you last part of the real world? Your first year at HP you had compensation of over 69 million dollars. Is that a real-world salary? That's over a thousand times what many people wish they could make in a year.
A few years later, you were fired from HP with a severance pay of 22 million dollars. A lot of people in the real world aren't making one thousandth of that every year and when they get laid off they get zilch.
Now you're trying to buy your way into being the CEO of California. Are you going to arrange to buy Nevada like you bought Compaq?
Sadly, the so-called capitalist system as run by CEOs and their crony boards is getting worse than what I wrote about ten years ago in "Talk about Boards with Conflicts of Interest", Reader Weekly, 2000-04-26. One thousand teachers in Duluth were trying to get a two-year raise that was one-tenth for all of them of what you got in a single-year.
Come on, Carly, when were you last part of the real world? Your first year at HP you had compensation of over 69 million dollars. Is that a real-world salary? That's over a thousand times what many people wish they could make in a year.
A few years later, you were fired from HP with a severance pay of 22 million dollars. A lot of people in the real world aren't making one thousandth of that every year and when they get laid off they get zilch.
Now you're trying to buy your way into being the CEO of California. Are you going to arrange to buy Nevada like you bought Compaq?
Sadly, the so-called capitalist system as run by CEOs and their crony boards is getting worse than what I wrote about ten years ago in "Talk about Boards with Conflicts of Interest", Reader Weekly, 2000-04-26. One thousand teachers in Duluth were trying to get a two-year raise that was one-tenth for all of them of what you got in a single-year.
Wednesday, April 21, 2010
Some perspective on UnitedHealth Group's profit
Yesterday UnitedHealth Group reported first quarter earnings of $1.19 billion and revenue of $23.19 billion.
Assuming the population of the United States is 300 million, $1.19 billion means nearly $4 for each man, woman, and child and $23.19 billion means about $77 for each person. That's just for the first quarter. If the figures stay about the same for the next three quarters, then the per person figures will be $16 and $308, respectively.
The CEO of UnitedHealth received $98.6 million compensation last year. That's about thirty-three cents per person("UnitedHealth CEO reaps nearly $100 million from stock options", David Hilzenrath, Washington Post, 2010-04-16).
One commentator said that the CEOs pay was not that exorbitant because much of it was the exercise of options granted several years ago. But where did the stock come from when the options were exercised? I bet the 4.9 million shares came from the UnitedHealth treasurer, that is, shares set aside at the time of granting the options. Stephen Hemsley paid $8.72 per share when they were trading for $28.94. If UnitedHealth had sold those shares on the market, it could have gotten about $98 million more. That could go a long way to reducing health care premiums for a lot of people.
Assuming the population of the United States is 300 million, $1.19 billion means nearly $4 for each man, woman, and child and $23.19 billion means about $77 for each person. That's just for the first quarter. If the figures stay about the same for the next three quarters, then the per person figures will be $16 and $308, respectively.
The CEO of UnitedHealth received $98.6 million compensation last year. That's about thirty-three cents per person("UnitedHealth CEO reaps nearly $100 million from stock options", David Hilzenrath, Washington Post, 2010-04-16).
One commentator said that the CEOs pay was not that exorbitant because much of it was the exercise of options granted several years ago. But where did the stock come from when the options were exercised? I bet the 4.9 million shares came from the UnitedHealth treasurer, that is, shares set aside at the time of granting the options. Stephen Hemsley paid $8.72 per share when they were trading for $28.94. If UnitedHealth had sold those shares on the market, it could have gotten about $98 million more. That could go a long way to reducing health care premiums for a lot of people.
Tuesday, December 08, 2009
Racing to the top to reward the top
Bank of America is rushing to repay its government bailout funds, not because it has more money, but it doesn't want a government cap on CEO pay ("Bailout Refund Is All About Pay, Pay, Pay", Andrew Ross Sorkin, New York Times, 2009-12-08).
BofA and other large corporations want to pay their executives "competitively" to attract "top talent". My question is what has happened to "rising through the ranks"? Wouldn't people inside the company know more about running the company than an outsider? And if someone inside the company who was a real contributor, feeling shunted aside in favor of an outsider, quit to go elsewhere for a top job. This person would be contributing to the company's competitors and speeding the upward spiral of executive compensation.
Of course, if the board hires an outsider at a "competitive" salary, then they will have to pay themselves a competitive salary. I often think a board should work only for the long-term benefit of the personal investment they made in shares.
I think this behavior belies the myth of capitalism and free enterprise. Many corporations are run for the benefit of the top executives with employees, small shareholders, customers, and communities coming in a distant second.
See also my columns "Talk about Boards with Conflicts of Interest!", Reader Weekly, 2000-04-27 and. "Sauce for the goose is sauce for the gander", Reader Weekly, 2006-04-27.
But for the real clincher, see "Why Changing the CEO May Not Change the Company", Jason Zweig, Wall Street Journal, 2009-12-01. Hm! this sounds like a liberal opinion coming from the Wall Street Journal:) Note that the link may be temporary.
BofA and other large corporations want to pay their executives "competitively" to attract "top talent". My question is what has happened to "rising through the ranks"? Wouldn't people inside the company know more about running the company than an outsider? And if someone inside the company who was a real contributor, feeling shunted aside in favor of an outsider, quit to go elsewhere for a top job. This person would be contributing to the company's competitors and speeding the upward spiral of executive compensation.
Of course, if the board hires an outsider at a "competitive" salary, then they will have to pay themselves a competitive salary. I often think a board should work only for the long-term benefit of the personal investment they made in shares.
I think this behavior belies the myth of capitalism and free enterprise. Many corporations are run for the benefit of the top executives with employees, small shareholders, customers, and communities coming in a distant second.
See also my columns "Talk about Boards with Conflicts of Interest!", Reader Weekly, 2000-04-27 and. "Sauce for the goose is sauce for the gander", Reader Weekly, 2006-04-27.
But for the real clincher, see "Why Changing the CEO May Not Change the Company", Jason Zweig, Wall Street Journal, 2009-12-01. Hm! this sounds like a liberal opinion coming from the Wall Street Journal:) Note that the link may be temporary.
Wednesday, May 13, 2009
What are you doing about excessive executive compensation?
Many of us think CEOs are way overpaid, especially those whose companies are losing money. Talk about pay for performance. How can we expect to pay teachers for performance when we overpay executives for underperformance?
You can find a good article on just how broken the system is at "Pay dirt: the executive pay system is broken", by Alistair Barr and Matt Andrejczak, MarketWatch, 2009-05-12
The authors describe a spiraling of cozy relations that make it harder and harder for people to say no. Some, but not enough, CEOs, board members, and shareholders are saying enough is enough.
What can you do?
If you own shares directly, be sure to vote your shares against board members and other compensation matters. I really think it is bad for somebody to get $50,000 a year for a part time job as a board member and for executives to get over $1,000,000 in salary. I also think it is bad to dilute shares by giving away shares or selling them at well-below market value to those who voted to give themselves the shares. I am finding that I almost always vote to withhold my vote for board members.
And should any employee of the company be on the board of directors? Maybe a founder, but not an outsider. Too many times the CEO being on the board is a conflict of interest.
If you own shares of a mutual fund, let the mutual fund know that you think executive compensation is out of line. Ask that they consider your interests in reigning in executive compensation. If they waffle, let them know you may put future money in a mutual fund that does agree with you.
Enough rant! You'll fall asleep if I write anything more.
See also "Talk about Boards with Conflicts of Interest", Melvyn Magree, Reader Weekly, 2000-04-27
You can find a good article on just how broken the system is at "Pay dirt: the executive pay system is broken", by Alistair Barr and Matt Andrejczak, MarketWatch, 2009-05-12
The authors describe a spiraling of cozy relations that make it harder and harder for people to say no. Some, but not enough, CEOs, board members, and shareholders are saying enough is enough.
What can you do?
If you own shares directly, be sure to vote your shares against board members and other compensation matters. I really think it is bad for somebody to get $50,000 a year for a part time job as a board member and for executives to get over $1,000,000 in salary. I also think it is bad to dilute shares by giving away shares or selling them at well-below market value to those who voted to give themselves the shares. I am finding that I almost always vote to withhold my vote for board members.
And should any employee of the company be on the board of directors? Maybe a founder, but not an outsider. Too many times the CEO being on the board is a conflict of interest.
If you own shares of a mutual fund, let the mutual fund know that you think executive compensation is out of line. Ask that they consider your interests in reigning in executive compensation. If they waffle, let them know you may put future money in a mutual fund that does agree with you.
Enough rant! You'll fall asleep if I write anything more.
See also "Talk about Boards with Conflicts of Interest", Melvyn Magree, Reader Weekly, 2000-04-27
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