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Old 04-27-2012, 07:41 AM   #81
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Also, a bitter pill for me was seeing our CEO sell out our company in a so called merger of equals, that was really a buy out. Saw many great execs bailout as result with significant $ loss, while our former CEO made out like a bandit.

This occured at my company in 2008 where the pay for my position drifted back to 1989 rates and the departing CEO left with a very well funded retirement package. He received free health care for life while raising the premiums for the employees.
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Old 04-27-2012, 11:42 AM   #82
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I worked at a health care organization which was always under scrutiny by the press. There was constant haranguing about spending on administration (which was actually amongst the lowest in the country) and about the "enormous" salary of the CEO. For my money, outstanding leadership of an organization serving close to a million customers, with almost 30,000 staff and physicians, is worth way more than the CEO was getting. In the private sector he would have earned at least 3 times that amount.
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Old 04-27-2012, 11:51 AM   #83
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For my money, outstanding leadership of an organization serving close to a million customers, with almost 30,000 staff and physicians, is worth way more than the CEO was getting. In the private sector he would have earned at least 3 times that amount.
I don't think there's necessarily a backlash against what the best CEOs are making. I think it's a perception that there's little correlation between perceived performance and their compensation.

At least in sports you pretty much can see when someone is All-Star caliber and can pay up accordingly. It's pretty obvious to just about everyone who even remotely understands how to evaluate performance of (say) a shortstop or a power forward. There's very little transparency to the public and unconnected smaller shareholders with respect to just how much the CEO is contributing to the success (or lack of success) of a business. Yes, we see the financials that are in required SEC filings, but there's no good way in the general case to see how much of that performance was really driven by the executives.

Some CEOs would be almost impossible to overpay based on the value they added to their businesses. Warren Buffett and Steve Jobs come to mind here; whatever you paid them, they added MUCH more shareholder value than they ever took out of the business. I don't think the public generally has a big problem with superstar pay for superstar performance. But I also think there is a feeling that they're all being paid like superstars even when they are mediocrities, that they take more value *out* of the business than they put in with their efforts -- and that it's too hard for the "unwashed masses" to get enough information or understand what *makes* a superstar (except in the extreme cases like Jobs and Buffett). This causes shareholders and rank-and-file level employees to get some heartburn.
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Old 04-27-2012, 11:56 AM   #84
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At least in sports you pretty much can see when someone is All-Star caliber and can pay up accordingly.
True... but once you start paying them you never know if they will stay that way... EG Carl Crawford, $147 million, Boston Red Sox... Horrible year last year and will miss at least half this season.
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Old 04-27-2012, 11:59 AM   #85
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True... but once you start paying them you never know if they will stay that way... EG Carl Crawford, $147 million, Boston Red Sox... Horrible year last year and will miss at least half this season.
In sports as in investing, "prior performance is not a guarantee of future results"....
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Old 04-27-2012, 12:52 PM   #86
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I don't think the public generally has a big problem with superstar pay for superstar performance. But I also think there is a feeling that they're all being paid like superstars even when they are mediocrities, that they take more value *out* of the business than they put in with their efforts -- and that it's too hard for the "unwashed masses" to get enough information or understand what *makes* a superstar (except in the extreme cases like Jobs and Buffett). This causes shareholders and rank-and-file level employees to get some heartburn.
Thats a good point, but when well informed shareholders and some employees that truly know what is going on and they get heartburn, thats a totally different matter compared to Joe public's perception.
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Old 04-27-2012, 01:06 PM   #87
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There are a few bad apples, but as a group CEO's got to where they are by working hard, taking risks/sacrifices, and planning ahead. Not all that different from those who FIRE (there are people out there who begrudge FIRE individuals, calling them lucky, privileged, the 1%... etc).

The vast majority got to where they are for a reason, and deserve to be rewarded for it.
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Old 04-27-2012, 01:22 PM   #88
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Thank goodness for capitalism and market forces placing checks on government actions!
Exactly! Look at how all those government regs nearly sunk the world economy in 2008! Thank goodness the free market and good ol' capitalism came in and saved the day!
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Old 04-27-2012, 01:35 PM   #89
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There are a few bad apples, but as a group CEO's got to where they are by working hard, taking risks/sacrifices, and planning ahead. Not all that different from those who FIRE (there are people out there who begrudge FIRE individuals, calling them lucky, privileged, the 1%... etc).

The vast majority got to where they are for a reason, and deserve to be rewarded for it.
Yes, in most cases I agree with you, but in others ....power can corrupt and lead to excessive greed and thats where the angst is. Same could be said about those that go to Washington.
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Old 04-27-2012, 01:45 PM   #90
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In the year since this thread began nothing has really changed. There is still an enormous conflict of interest in how CEO compensation is determined and shareholders are not allowed to directly approve or reject.
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Old 04-27-2012, 02:59 PM   #91
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In the year since this thread began nothing has really changed. There is still an enormous conflict of interest in how CEO compensation is determined and shareholders are not allowed to directly approve or reject.
Aside from the bad/criminal examples, they always seem to fall back on 'competitive wages' - is that real or self-fulfilling prophecy, I really don't know but I want to believe the latter. It's hard to fathom how they could collectively be worth 9 figure or more incomes, especially hearing of examples of other multinational CEOs from other countries who don't pay themselves nearly as much, Japan comes to mind. However, corporate compensation abuses are not limited to the USA either from what I've read over the years.
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Old 04-27-2012, 03:33 PM   #92
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It just boggles my mind that one person can earn >$100 million in one year for being CEO of a company. I mean, did they cure cancer? Eradicate polio? Give everyone World Peace?

Follow this dude's example Jim Sinegal: Costco CEO Focuses on Employees - US News and World Report
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Old 04-27-2012, 04:15 PM   #93
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The vast majority got to where they are for a reason, and deserve to be rewarded for it.
I'm not sure about that. I suspect that a lot of them got to 2 rungs below CEO for a reason, but since then the Peter Principle has been operating, redoubled in spades.
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Old 04-27-2012, 04:32 PM   #94
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+1

It often looks to me like the worst CEO's are also often some of the best compensated.

I've got nothing against extremely high compensation, as long as it is clear that the person receiving it is actually adding that much value, and not just riding a tide not of their creation.

The fundamental question is "if you replaced this person with another reasonably sharp, hard-working person making a high but reasonable salary, how much worse would the business have done?"

It's not an easy question to answer, but I think we need to find better ways of answering it than we currently have.


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I don't think there's necessarily a backlash against what the best CEOs are making. I think it's a perception that there's little correlation between perceived performance and their compensation.

At least in sports you pretty much can see when someone is All-Star caliber and can pay up accordingly. It's pretty obvious to just about everyone who even remotely understands how to evaluate performance of (say) a shortstop or a power forward. There's very little transparency to the public and unconnected smaller shareholders with respect to just how much the CEO is contributing to the success (or lack of success) of a business. Yes, we see the financials that are in required SEC filings, but there's no good way in the general case to see how much of that performance was really driven by the executives.

Some CEOs would be almost impossible to overpay based on the value they added to their businesses. Warren Buffett and Steve Jobs come to mind here; whatever you paid them, they added MUCH more shareholder value than they ever took out of the business. I don't think the public generally has a big problem with superstar pay for superstar performance. But I also think there is a feeling that they're all being paid like superstars even when they are mediocrities, that they take more value *out* of the business than they put in with their efforts -- and that it's too hard for the "unwashed masses" to get enough information or understand what *makes* a superstar (except in the extreme cases like Jobs and Buffett). This causes shareholders and rank-and-file level employees to get some heartburn.
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Old 04-27-2012, 04:34 PM   #95
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In the year since this thread began nothing has really changed. There is still an enormous conflict of interest in how CEO compensation is determined and shareholders are not allowed to directly approve or reject.

I mostly agree but there are a few encouraging signs. The recent shareholder rejection of $15 million pay package for Citigroup CEO Vikram Pandit was a modest victory and one of the better things to come out of Dodd Frank.

Unfortunately for the most part institutional shareholders that are doing this are primarily CalPERS a few other pension funds, and often Fidelity.

Neither Schwab or Vanguard ever seem to active in these situation. One of my biggest complaints about index funds, and particular Vanguard is they have completely abandon their duty as owners. I have started pressing Schwab on what are you guys doing reign in excessive CEO pay.
I think it is worthwhile if you care about CEO pay to press Vanguard to take a more active role. I suspect that Vanguard gets several thousand calls a year from forum members. When they ask is there anything more you can do? Simply say matter or fact there is; next time there is shareholder vote on CEO that you think is excessive. Vote against it and put out a press release.

The point to make to Vanguard is that can save shareholders more money by reducing excessive executive compensation than can by reducing expenses another basis point or two.
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Old 04-27-2012, 06:45 PM   #96
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I mostly agree but there are a few encouraging signs. The recent shareholder rejection of $15 million pay package for Citigroup CEO Vikram Pandit was a modest victory and one of the better things to come out of Dodd Frank.

Unfortunately for the most part institutional shareholders that are doing this are primarily CalPERS a few other pension funds, and often Fidelity.

Neither Schwab or Vanguard ever seem to active in these situation. One of my biggest complaints about index funds, and particular Vanguard is they have completely abandon their duty as owners. I have started pressing Schwab on what are you guys doing reign in excessive CEO pay.
I think it is worthwhile if you care about CEO pay to press Vanguard to take a more active role. I suspect that Vanguard gets several thousand calls a year from forum members. When they ask is there anything more you can do? Simply say matter or fact there is; next time there is shareholder vote on CEO that you think is excessive. Vote against it and put out a press release.

The point to make to Vanguard is that can save shareholders more money by reducing excessive executive compensation than can by reducing expenses another basis point or two.
I'd heard this criticism before WRT Vanguard, maybe they're listening https://personal.vanguard.com/us/con...rdsContent.jsp. They voted against "Adopt/amend employee compensation plan" proposals 17% of the time if I'm reading this right. However, they voted against shareholder compensation proposals overwhelmingly too...
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Old 04-27-2012, 07:43 PM   #97
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Thanks for finding this. I do not think that the Adopt/Amend employee compensation plans is the same as the CEO compensation.

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By the end of the proxy season in June, the funds supported the vast majority (98%) of Say on Pay proposals, though the voting results don’t adequately reflect the level of engagement and dialogue in which we engaged with company officials. This is the same level of approval as the prior year, though the number of proposals has increased more than ten-fold under Dodd-Frank. Furthermore, this level of support is consistent with the market overall, with only 1.5% of companies failing to garner majority support in their Say on Pay votes.
.
To me CalPERS is much more on track. I saw in an interview with an CalPERS that said that vote against about 15% of the Say on Pay proposals including the CitiGroup. This still says that 85% of the time they are ok, which even as pretty dedicated free market capitalism feels on the high side.

I am pretty sure that if Vanguard surveyed their members/owners that very few would agree that 98% of CEOs are being properly compensated.

When Vikram took over Citigroup in Dec 2007 Cit stock (C) was trading about in $340 it is now $33.50. Over the last year the stock has been flat and trailed both the S&P and large bank stocks by wide margins. While Citi is making a profit, it is awfully small (.6% on assets 6.5% ROE). I don't have a problem with the guy making his base salary of just under $2 million, but $15 million is crazy.

Vanguard screwed up by not opposing this IMO and if they did oppose, they should have made it more visible so that Google search would find Vanguard's name.

If people are fine with CEO pay cool but if you aren't. I am just suggesting that letting your mutual fund know you aren't happy with how they are voting your shares is way of a making a modest difference.
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Old 04-27-2012, 08:01 PM   #98
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I thought I'd put some numbers around this.
The S&P 500 will earn around 1 trillion dollars in 2012. It is hard to find numbers but I expect CEO to make a bit more than the did in 2007 of $14 million on average say $16 million.

So of the $1 trillion roughly $8 billion goes to the CEO or .8%. Now if owner/shareholder activism can cut total CEO compensation by 25% that is the equivalent a .2% reduction in expenses or more than Vanguard charges in fees. For a million dollar stock portfolio $2K year, which falls in the real money category IMO.

I screwed up this calculation. I really should be comparing the total cost of CEO $8 billion vs the total market cap of the S&P 500 12.7 trillion or the equivalent of 6 to 7 basis on the expense ratio. A number which is still fairly large relative to the expense ratio of most index funds but probably <$100/year for most forum portfolios.
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Old 04-27-2012, 08:01 PM   #99
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Over the past couple of decades CEO pay has increased exponentially. It's all part of the destruction of the middle class. CEO's now claim membership in a dynasty at the expense of employees who actually do an honest days work. Unfortunately, the common workers who make corporations successful subsidize these lone corporate rock stars.
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Old 04-27-2012, 10:24 PM   #100
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The fundamental question is "if you replaced this person with another reasonably sharp, hard-working person making a high but reasonable salary, how much worse would the business have done?"
I know business isn't baseball, but many baseball analysts who embrace the new era of "sabermetrics" have a statistic called "WAR", or "wins above replacement." And what it means is basically this: How many wins in a year does a particular player give me above and beyond what a lower-paid "replacement level" player in the high minor leagues or weak major league backup would give? A really good player may have 5-6 WAR. That means a superstar player in the lineup gives you 5-6 more wins in a season than a strong minor league prospect or a marginal major league bench player would give you as a replacement. It's not a perfect stat but it has some merit, and it gives some idea of how much a player is worth above and beyond the level of mediocrity.

There's really no way to measure business executives that way. There are too many moving parts there -- you can't easily tell the true value most executives add compared to a reasonably qualified but not highly experienced business school grad.
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