

Carly Fiorina: Government shouldn't decide executive pay - jasonlbaptiste
http://www.cnn.com/2009/POLITICS/02/05/fiorina.pay/index.html?eref=rss_topstories

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indiejade
Relative to the bailout money received, it certainly _should_ have a say. As
stated on one of the non-linkable comments:

"A loan is a contractual agreement. Banks attach conditions to loans all the
time...and, usually, the riskier the loan the tougher the conditions. The same
holds true here. If a failing corporation accepts a loan from the government,
it must also accept its terms. Ms. Fiorina, don't forget capitalism can't
exist without the freedom to contract...the same freedom that allows people
and corporations in America to "decide what each job is worth."

Good comment!

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jmtulloss
Well certainly they can attach conditions, and the government has. A bank
should not, however, attach conditions which almost certainly detract from the
client's ability to pay back the loan. It's bad business, something the
government seems to be quite good at.

By limiting CEO pay to companies that are heavily invested in by the
government, you assure that some bright, competent CEO will never take over
your company except for the sheer, masochistic joy of bringing a dead company
back to life. Instead, you will be stuck with the incompetents who got you
into the situation in the first place and are just happy to keep their jobs,
multi-million/billion dollar pay cut or not.

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homme
_Instead, you will be stuck with the incompetents who got you into the
situation in the first place and are just happy to keep their jobs, multi-
million/billion dollar pay cut or not._

Or clearly superior talent like John Thain, et al.

Do you seriously mean to imply that there are no individuals out there making
less than 500k per annum who could not pull off a deleveraging and
conservative restructuring of a business? No one?

Who are these individuals who will work for no less than several million per
annum who have pulled off such miracles that no mere person earning less than
half a million per year at the moment clearly outclass?

Certainly they have not been at the helm of any financial institution I am
aware of. Hell, I nominate mynameishere for one of the positions, as he seems
to have a clearer grasp than most of the idiots at the helm last go-round:

<http://news.ycombinator.com/item?id=308425>

And he probably is available for 500k/yr.

~~~
bwd
Deleveraging and conservative restructuring may work for a commercial bank,
but not the hybrid commercial and investment banks that we're talking about
here. These companies are involved in many diverse business lines and,
bungling in the mortgage-backed business aside, many of these businesses are
hugely profitable. This is why institutions like Goldman Sachs and Morgan
Stanley were able to report large losses instead of collapsing: mortgage
losses have been mostly offset by gains in other businesses. A CEO will need
to continue to invest in the profitable business lines, with an eye on risk,
to avoid being shut out of them by aggressive competitors, leaving the bank
with nothing but toxic assets and low margin operations.

In "How to Make Wealth" pg wrote about how salesmen are an exception to
compensation rules because their performance can easily be measured. The same
is true for traders who do not deal in positions that must be held for a long
time the way mortgage bonds are. If a trader makes $30 million in this way, he
is in a position to demand, say, $5 million to $10 million or he will be happy
to join a different firm that will pay him that amount. Thus, the reduction of
compensation at the top levels cannot trickle down to the lower levels without
destroying the firm by causing its top performers to leave.

~~~
Retric
Traders are actually one of the hardest professions to measure. They are
risking other peoples money so for example making 50% in an up market at the
risk of drooping to 0% in a down one are easy with leverage. It's the choice
of when and how much to leverage that takes skill. And this skill is only
demonstrated as markets move. This past mess was built from people making a
bet with high odds and low payoff with a lot of other peoples money and
skimming the fat of the top. Basically, no earthquake today you get 50k until
the day when there was an earthquake and they are down 100 billion.

PS: One of the secrets to creating mutual funds is to make 100 of the things
with a few million on hand and take lot's of risks. Over time some will
preform better, you use their past performance to gather more money and you
end up with a small number that have a lot of money and have made the early
movers lot's of money but have not necessarily generated a lot of profits for
the late adopters. It's like a legal pyramid scheme, but when it stops working
they can move you to the next fund with a great track record, and the next,
...

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okeumeni
After driving HP down the drain I don’t think Carly Fiorina is best to tell
what is good for businesses.

~~~
vaksel
especially since she got something like 40 million in her golden parachute
after doing it

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arebop
Government also shouldn't give free money to failed businesses. We should
either properly socialize the businesses by exchanging money for voting
shares, or let capitalism work.

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kyochan
Better question, why are taxpayers willing to foot the bill in hundreds of
billions in toxic assets for the right determine executive pay and bonuses?

Considering almost all Post-TARP financial institution are worth less than the
amount of TARP accepted, if taxpayers are in a punishing mood they should just
let them go bankrupt.

Now that these companies are no longer "too big to fail", that in my opinion
is a viable option.

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teyc
She didn't say that. She said the reverse: "Ultimately, it is the owners of a
company who must determine whether a CEO's rewards are justified by a CEO's
performance. And because the American taxpayer is now a partial owner in many
companies, the government can get a vote as well -- in some cases a very
sizeable vote."

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breck
The government _isn't_ deciding. If you take bailout money, exec pay will be
capped. Seems to me like it's the companies that have the choice.

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motherwell
I actually agree with her but IN REVERSE: Ultimately, it is the owners of a
company who must determine whether a CEO's rewards are justified by a CEO's
performance.

It is up to sharegholders to decide if a CEOs performance justifies pay, AND
TO HOLD CEOs ACCOUNTABLE or shareholders should LOSE EVERYTHING.

That's what's missing here. Shareholders deserve to be wiped out, for failing
to provide the required oversight of their own investmanets.

Wiping out shareholders provides the last line of defence (self
responsibility) for a system that is rapidly failing at all level.

~~~
captainobvious
That's going to take a change to the way the whole mutual fund system works.
People that buy into mutual funds (typically because it is their only choice
in their work 401k's) don't vote. Fund managers do. There is a whole good 'ol
boys network between fund managers and corporation managers that has perverse
incentive written all over it.

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blackguardx
I work for an HP spin-off and am told all the time about the terrible job she
did as CEO. That being said, this article is very well written and makes a lot
of sense.

The reforms she is advocating are far reaching and would affect more companies
than just the banks. They would create much needed incentives to look beyond
just the next quarter. I think encouraging long term vision would be good for
the country.

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iuguy
It's a tough one. On the one hand it's easy to get bitter about these bonuses.
On the other hand the banks will lose people who (despite the mistakes they've
made) are the most experienced in their fields when it comes to handling the
banks and won't be able to attract staff of any quality without the bonuses as
it's a systemic issue.

On the other hand as other smart people on this site have pointed out, where
the government has lended or invested it should have a say in the decision.

Personally I'd be happy to let them have their bonuses providing their balls
were strapped to a device that checks the stock price every 30 seconds and
administers electric shocks when the share price drops below a certain level.
If they manage to make it through the year without singed balls or resigning
from the pain, I think they might deserve the bonus.

~~~
dablya
Where are these talented people going to go? If there are still banks around
that are able to pay them what they want (without taking bailout money), why
is there a need for the bailouts at all?

~~~
homme
Who is this talent? Name them. What have they done/are doing that their
leaving any of these companies will cause a greater apocalypse? What crucial
functions do they serve that make them irreplaceable?

~~~
iuguy
Lets say you have a hospital. The guys that run the hospital pay themselves
large bonuses, because all hospitals pay large bonuses at the board. The board
screws up (as in people start dying), and you tell them that they won't get
any more bonuses. Soon members of the board leave and find other jobs, because
all other hospitals pay such bonuses at this level. Then you find that you
can't get people from other hospitals to replace them, because you don't get
bonuses.

This is a crappy analogy to what we're looking at. It's not just the bankers
at the top getting the bonuses, it's the traders, the front and back office,
legal, every bit of the business that brings in money (or not as the case may
be). It's a systemic problem requiring a systemic solution.

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mattmaroon
The answer is to align the interests of executives and the board members who
determine their compensation with those of the shareholders. They've become
progressively more out of whack over the last 20 or so years, and that's why
we are where we are today.

If CEOs of financial corporations had been paid largely in stock with a 10
year vesting period, they wouldn't have taken the exorbitant risks that led to
this bailout.

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fizx
I would love to see some sort of executive pay regulation. I don't think that
pay should be limited, but rather execs and traders held accountable for
losses (vesting??).

If you keep 10% of winnings and are fired (with no personal loss) upon losing,
the Martingale sure looks like a good strategy. That's a problem.

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diN0bot
as long as people are self-serving and short-sighted, they will always try to
get ahead of other people unless regulated. people can't help trying to do
better than their peers, regardless of where the bar is set. i'm optimistic
that over time we're headed towards a fundamentally different culture that
teaches self-enlightenment and the big picture. i see these regulations as
part of the wake up call inspiring a cultural revolution. (i know, there have
been many before, but we're making progress and doing our best)

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dustineichler
how is she even relevant, she kissed her career goodbye when she ruined hp.
the government isn't doing this b/c it wants to, it's doing this b/c it has
to.

