Should salaries be capped?

[vern_humphrey]

Um…that didn’t disprove Vern’s statement. He is “bringing in” much more money than he is being paid, in that what he “brings in” is measured by the profitability of the company. Unless they start paying him billions, or their profits fall down to the single-digit millions, you are correct that they aren’t in danger of being bankrupt. Although, if they drop that fast, Mr. Scott probably won’t be there very long.

I’m glad somebody understand economics.

 

[whatevergirl]

Two points:

1. Isn’t it interesting how many people are willing to sacrifice someone else’s money to solve the problems of the world, but not to get to work and earn enough to contribute on the same scale?
2. If the majority of companies were losing money and buying out their CEO’s contracts for big bucks, the stock market wouldn’t be above 13,000. It wouldn’t be above 130!

LOL @ #2…THAT IS FUNNY!

Re: #1…I agree, but the pathway to the top is not as unfettered as we would all hope it to be. I work hard, I make a great living…and I don’t attribute it to hand outs. I don’t have a masters degree, but hard work can get you some place. I don’t really want to be the CEO, for the record! LOL Plus, sitting where I sit as an executive myself, the corporate world (at the tippy top) is still a playground of men, and we women are just thankful that you tolerate us. (I’m um…half joking with that comment)

I think that people can work diligently, and get somewhere…if not where they are presently, they can take their skill set on the road, if they are that good.

I will say to the OP–that maybe the title when you first thought of it, was great in the embryonic state, but it has grown legs now…and looks like capping salaries really isn’t what we’re getting at here at all… lol

I somewhat agree with you MELANSDAD, that capping salaries is not required and will not regain a moral workplace. I think a better way of saying that would be to not hand out huge bonuses to departing CEO’s, who bottomed out a company, (although we know it is not only a CEO’s fault when this happens…) and leave a lot of the staff…jobless. That is more where I have a bone to pick with bonuses being given out that are not profit gains driven.

 

[stinkcat_14]

Um…that didn’t disprove Vern’s statement. He is “bringing in” much more money than he is being paid, in that what he “brings in” is measured by the profitability of the company. Unless they start paying him billions, or their profits fall down to the single-digit millions, you are correct that they aren’t in danger of being bankrupt. Although, if they drop that fast, Mr. Scott probably won’t be there very long.

My question to you is: How do you know that Lee Scott is “bringing in” the money? It reminds me of what happened several years ago at my university. Enrollment started increasing and the administrators were all self congratulatory about what a great job they were doing. My friend then pointed out that 18 years before, birth rates increased, which is the main predictor of college enrollments.

There are two reasons why CEO’s are successful. First, they make good strategic decisions, and second, favorable changes occur in the marketplace. The CEO should be rewarded for the first, but not the second reason. The problem is disentangling the two.

For large companies, Vern is quite wrong because the CEO’s salary is such a small part of overall profits that overpaying the CEO will harm shareholders, but not necessarily bankrupt the company.

 

[vern_humphrey]

My question to you is: How do you know that Lee Scott is “bringing in” the money?

Because the company is making a profit. Profit and loss are laid at the CEO’s door – and the stockholders hold him responsible.

It reminds me of what happened several years ago at my university. Enrollment started increasing and the administrators were all self congratulatory about what a great job they were doing. My friend then pointed out that 18 years before, birth rates increased, which is the main predictor of college enrollments.

Your anology doesn’t hold. College students are not profit and loss. No one would claim that Wal-Mart makes a profit because the amount of money increased several years ago.

There are two reasons why CEO’s are successful. First, they make good strategic decisions,

That’s what they’re hired to do. If the company is making a profit, then their decisions were, by definition, good ones. If it is losing money, they were bad decisions – by the same standard.

and second, favorable changes occur in the marketplace. The CEO should be rewarded for the first, but not the second reason. The problem is disentangling the two.

You fail to understand the dynamic nature of business – good decisions are good because they take advantage of (or avoid the dangers) of “changes occurring in the marketplace.” CEOs who succeed do so because they constantly adapt their strategies to match the situation in the marketplace.

For large companies, Vern is quite wrong because the CEO’s salary is such a small part of overall profits that overpaying the CEO will harm shareholders, but not necessarily bankrupt the company.

For all companies, Stinkcat is quite wrong because the CEO’s are responsible for the company’s performance. While a company might survive a little deadwood in the mailroom, it cannot survive deadwood in the CEO’s office.

The cost of having a bad CEO has little to do with his salary – and everything to do with the company’s balance sheet.

So I repeat: If the majority of companies were losing money and buying out their CEO’s contracts for big bucks, the stock market wouldn’t be above 13,000. It wouldn’t be above 130!

 

[manualman]

LOL, I suppose I can be accused of ‘name-calling’ for using the term ‘Reaganite.’ Would you still find it to be pejorative if I changed it to ‘supply-side trickle-down theorists (as popularized by former president Reagan)?’ Seems rather cumbersome, but we DO need good term definitions, I’ll grant you that.

I should point out that my posts never supported caps on CEO salaries. I believe I was clear in stating that this would probably NOT have the intended effect and would have OTHER unintended effects instead.

But now I’m Hitler because, like rather many popes, I have my eyes open and can see that our current business and tax structures is increasingly concentrating wealth in the hands of a few instead of increasingly dispersing it across a broader spectrum of the population. Oops, Hilter’s ideas never did have any church endorsement, did they?

We all know that Jesus told his disciples “blessed are the rich for their hard work is the sole reason for their success and the wellbeing of their employees.” Actually, now that you mention it, I’m having trouble finding that passage. Can you help me out?

 

[stinkcat_14]

You fail to understand the dynamic nature of business – good decisions are good because they take advantage of (or avoid the dangers) of “changes occurring in the marketplace.” CEOs who succeed do so because they constantly adapt their strategies to match the situation in the marketplace.

What you fail to understand, is that there is a difference between a good decision and a good outcome. Not all good outcomes are the result of good decisons. After all, playing the Powerball is a bad decision from a statistical point of view. But for the winner, the outcome is quite good. Similarly, companies can make bad decisions. Some of these bad decisions will result in bad outcomes, but bad decisions don’t always result in bad outcomes, sometimes the market bails people out.

 

[quasimodo]

I think its a great idea … let’s have the government decide how much money everyone can make. what could go wrong?

And its worked so well every place its been tried, right?

Wherever its been tried nearly everyone is dirt poor - just like nearly everyone else. But that’s OK cuz everyone is the same, which is what we want, right. I won’t have to worry about being envious of anyone else because we’ll all be miserable. I’m for it!!

Of course, those who make the decisions on how to cap salaries will need to make more money than most - how else will we attract the best and brightest to make those tough decisions for us poor bone heads who are too stupid to think for ourselves.

 

[manualman]

Then why are you working so hard to divide us into classes – spreading envy and venom about the “rich,” the “Reaganites” and so on?

It is not envy and venom to point out that the current system lends itself to exploitation by insiders and that reforms are needed. This is the issue that needs to be explored. “Envy and Venom” are smokescreens like “choice” that are designed to mask the substance of the issue.

 

[vern_humphrey]

What you fail to understand, is that there is a difference between a good decision and a good outcome.

What you fail to understand is that there is not a difference between a good decision and a good outcome. CEO’s, after all, are not held responsible for the process they use to make decisions – they are held responsible for outcomes.

Not all good outcomes are the result of good decisons.

He who stakes his all on luck, and discounts skill is likely to be badly disappointed.

After all, playing the Powerball is a bad decision from a statistical point of view. But for the winner, the outcome is quite good.

Wal-Mart does not play Powerball.

Similarly, companies can make bad decisions. Some of these bad decisions will result in bad outcomes, but bad decisions don’t always result in bad outcomes, sometimes the market bails people out.

The quality of the decision is measured by the outcome.

If you disagree, tell us what standard you think stockholders use to measure the quality of CEO’s decisions.

 

[TIME]

I am not sure capping salaries would be productive, but in today’s world it is very very unlikely that 99% of the Sr. Exec’s really deserve the compensation. I have never made a buying design on whether a CEO or other VP added any value to my money.

As to the strategic direction usually a consultant or Exec team makes those recommendation. CEO just makes final design. If things go bad on a product, the people who recommended it get the ax any way.

The good news is everyone answers for what they do. Eternity + 90yrs. = Eternity.

 

[manualman]

So now you are vilinizing the ‘capitalists’ as the problem. Again, go back and see my post about the tactics used by Hitler.

Funny, but I don’t recall anyone here suggesting that unbridled capitalism is the answer. What was suggested is that we don’t need a socialistic form of theory injected into pay rates within private companies. But with regard to capitalism, it was Pope John Paul II who suggested that a democratic form of government, combined with a regulated capitalistic economy like exists in the western nations, is the most socially just form of society. But all that seems to be off the topic of this thread so I’m curious why you even injected the ‘capitalistic’ concept and suggested some form of unregulated capitalism is what some folks here might espouse? Unless you are trying to change topics and confuse the discussion. Obfuscation of the issues was another tactic used by Hitler’s propaganda network.

Again with the Hitler.

A little history lesson for you. Hitler villainized certain groups of PEOPLE and suggested that if the regular folk merely disposed of those PEOPLE, then the problems would go away. Nobody here suggests CEO’s and other insiders be rounded up. A suggestion was made as to a reform to the SYSTEM that would prevent abuses. Note that the solution focused on the SYSTEM which perhaps lends itself to abuse, not on the PEOPLE who allegedly abuse it. So quit with the feeble attempts to cry Nazi.

Note the REGULATED portion of JP’s description of a healthy economy. What we have going on here is a healthy discussion of what sorts of regulation are proper. One suggestion was a CEO salary cap, I proposed alternate ideas. They all share the characteristic that they are potential regulations to avoid the abuses that can result from unbridled capitalism. All entirely on topic, whether you like the ideas or not.

 

[Al_Masetti]

So, once someone reached the magic $1 million mark, he or she would have no need to continue working … no incentive … so they would become beachcombers or golfers.

And if that person happened to have some serious talent, by capping their earnings, then society would be denied their abilities.

And what would happen if an industry or a company was highly cyclical. No earnings and no big paychecks one year, but a capped salary the next year. Or what if the peaks and valleys were spread out over several years.

So you give the executives some “promises” to pay them when profits improved. But if salaries were capped, then there would be no incentive to stick it out through the lean years.

Not everybody works 9-5, 5 days a week with two weeks vacation. A lot of those executives put in staggering hours. Constant travel. A lof of those companies have operating locations all over the world; if you want to talk with the local operating people, it means being on the phone at all hours including from at home.

And the travel … how would you like to be on the road five days a week. Some jobs require just that. And suppose you are working on the plane and need to send or receive a fax. Can’t do that on an airliner, so your company buys an executive plane with all the office tools. But now instead of visiting one location per day, you can visit four or five locations per day.

And you want to cap the person’s pay.

 

[Maui71]

I have read a few posts and found the differing view eye opening. I will just throw my 2 cents in and see what comes out.

I work in public accounting and to tell you the truth 90%+ of our wealthiest clients are not CEO’s in the sense of a publicly listed entity, rather CEO/Managing Member/Partner. Most of these people have an AGI in the excess of 1.5 million. So you might cap or eliminate golden parachutes for publicly traded companies of which there are what 2,000? (I really do not know). But you will not ever limit the distributive share of officer/owners unless you want to eliminate free markets and capitalism. The opposite of free market and capitalism is? I will let you guess.

Floors or Ceilings in a free market is always bad news. The market always corrects it’s self sooner or later. When governments attempt to control market forces they always mess up and make a bigger mess. Look at Venezuela, richest oil producing country in the Americas and you can’t find milk, meat or other basic food staples because of price ceilings on those items to control inflation and U.S. Dollar controls to stop investment capital from fleeing the country. Their economy is in a tailspin because of market caps which in essence is the parallel to CEO Earnings Caps and golden parachute caps.

Basically if there wasn’t a demand for it the market wouldn’t pay it. Also, you can cap “salaries” but what about bonuses? Stock options? Or management agreements through 3 party limited control entities?

And as far as taxes (Someone 3 pages ago) the top 10% of earners pay 50+% of all income tax. the bottom 20% pays little or no tax they usually get money back in excess of what they contributed (EIC)(Child Tax Credit).

Food for thought or fodder for posting…

 

[vern_humphrey]

I am not sure capping salaries would be productive, but in today’s world it is very very unlikely that 99% of the Sr. Exec’s really deserve the compensation. I have never made a buying design on whether a CEO or other VP added any value to my money.

A thing is worth what a willing buyer will offer and a willing seller will accept. The owners of the business offered the CEO his compensation package and he accepted it. Therefore buyer and seller have reached agreement on his economic worth.

 

[manualman]

What you fail to understand is that there is not a difference between a good decision and a good outcome. CEO’s, after all, are not held responsible for the process they use to make decisions – they are held responsible for outcomes.

Vern is right in that this IS how it works on Wall Street. When you post several good quarters in a row, you get to negotiate a fat contract renewal, complete with golden parachute. This is also why corporate America is getting its arse kicked in the global marketplace: other countries still value long term planning and solid strategies. Sure, we still lead in a few industries, but the number is dwindling amongst the established markets. Innovation is all that keeps us ahead, but other nations are rapidly closing that innovation culture gap too.

American CEOs have NO incentive to plan for the company’s growth and success beyond a year or two in advance. Rather, they have a DISincentive to do that since such planning often involves long term investment in R&D, committment to product quality and customer retention. None of that stuff is likely to help much at the next CEO contract negotiation session. Therefore it is often ignored.

It may be how things work, but it is as idiotic and short-sighted as TIME implies.

 

[vern_humphrey]

Vern is right in that this IS how it works on Wall Street. When you post several good quarters in a row, you get to negotiate a fat contract renewal, complete with golden parachute. This is also why corporate America is getting its arse kicked in the global marketplace: other countries still value long term planning and solid strategies. Sure, we still lead in a few industries, but the number is dwindling amongst the established markets. Innovation is all that keeps us ahead, but other nations are rapidly closing that innovation culture gap too.

American CEOs have NO incentive to plan for the company’s growth and success beyond a year or two in advance. Rather, they have a DISincentive to do that since such planning often involves long term investment in R&D, committment to product quality and customer retention. None of that stuff is likely to help much at the next CEO contract negotiation session. Therefore it is often ignored.

It may be how things work, but it is as idiotic and short-sighted as TIME implies.

And yet somehow the quintessential eeeevil corporation, Wal-Mart (the Company Everyone Loves to Hate), posts gains quarter after quarter and has been doing so for more than a generation.

The same is true with the majority of other large businesses – if the situation was as you paint it, most businesses would have gone bankrupt long ago, and the Dow-Jones would be around 130, instead of above 13,000.

 

[Al_Masetti]

Actually, one of the reasons for the “scandal” related to back-dated stock options is that a cap (of sorts) WAS actually imposed by the Internal Revenue Service. Salaries above a certain point are not tax-deductible (as all salaries and wages are).

 

[stinkcat_14]

What you fail to understand is that there is not a difference between a good decision and a good outcome. CEO’s, after all, are not held responsible for the process they use to make decisions – they are held responsible for outcomes.

What you fail to understand is that the business world is risky and in a world with risk and uncertainty, good decisions don’t always lead to good outcomes. Consider the following example: Suppose you are offered an investment with the following possible payoffs, each of which are equally likely: At the end of one year, either get $10,000 or you get nothing. The expected payoff of this investment would be $5000. If this investment costs $2,000, it would be a good decision for a risk neutral investor to buy the investment. Of course, if the investment resulted in a zero payout, the outcome would be bad. However, a bad outcome doesn’t mean it was a bad decision.

He who stakes his all on luck, and discounts skill is likely to be badly disappointed.

Business exist to invest in projects that are risky. If you want to avoid risk, invest in Treasury Bills, no CEO is required for that.

Wal-Mart does not play Powerball.

But they do make risky investments, so given that they are making a risky investment, we cannot say anything about the quality of the decision making by just looking at the outcome.

The quality of the decision is measured by the outcome.

No, my parents bought a house that tripled in value over the past 10 years. It was a good outcome, attributable purely to luck, they could have just as easily moved someplace else where prices were stagnant.

 

[vern_humphrey]

What you fail to understand is that the business world is risky and in a world with risk and uncertainty, good decisions don’t always lead to good outcomes.

What you fail to understand is that the decision is measured by the outcome.

If you disagree, tell us by what standard you think stockholders should measure decisions.

Consider the following example: Suppose you are offered an investment with the following possible payoffs, each of which are equally likely: At the end of one year, either get $10,000 or you get nothing. The expected payoff of this investment would be $5000. If this investment costs $2,000, it would be a good decision for a risk neutral investor to buy the investment. Of course, if the investment resulted in a zero payout, the outcome would be bad. However, a bad outcome doesn’t mean it was a bad decision.

Yes, it does – bad outcome, bad decision.

If you disagree, tell us by what standard you think stockholders should measure decisions.

Business exist to invest in projects that are risky. If you want to avoid risk, invest in Treasury Bills, no CEO is required for that.

Smokescreen.

Decisions are not measured by risk, but by outcome.

If you disagree, tell us by what standard you think stockholders should measure decisions.

But they do make risky investments, so given that they are making a risky investment, we cannot say anything about the quality of the decision making by just looking at the outcome.

We can say everything about the quality of the decision by looking at the outcome.

Decisions are not measured by risk, but by outcome.

If you disagree, tell us by what standard you think stockholders should measure decisions.

No, my parents bought a house that tripled in value over the past 10 years. It was a good outcome, attributable purely to luck, they could have just as easily moved someplace else where prices were stagnant.

And your parents are the CEOs of what publicly-traded company?

 

[manualman]

Vern, to be sure there is plenty of blame to go around. One temptation to which folks can succumb (including me) is to subscribe all economic problems to the rich. Others tend to blame the economic problems of the poor only on the poor. As catholics though, we ought to realize that ALL of us are good, but fallen and subject to temptations. Therefore, we can’t demonize any particular group of PEOPLE as the source of the problems, but must look for problems in the system that tempt people to exploit them.

The point of all that is to prepare to answer your claims. You cite the Dow and WalMart stock results as proof that the system works. Is it? Or can it be explained because A. This economy still is coasting on the momentum boost we got out of World War II and B. People (me included) have a hard time resisting low prices at the consumer level. How will Walmart’s bottom line change if its philosophy permeates the entire marketplace and middle class small business owners are all converted into $7.50 an hour “associates?” Might there eventually be a bit of a shrinking market? In spite of their success over a couple decades, is this really a classic win-win business model?

You suggest that the stock market portrays the level of health of our economy. Why that? Doesn’t the number of people who can afford health insurance count for anything? The number of families that can afford to own their own homes? The number of families that can afford to send their kids to college? The number of families that can afford a catholic education? How are THOSE economic indicators looking to you? Compare the situation of those families today (usually with two incomes) to families in the 70’s (more often with one income) and I wonder if the conclusion is any different?