Chattermailbox: How Often Do You Vote Your Shares?
Tim,
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StumbleUponIf you agree with me that CEO pay is outrageous on social and ethical grounds, I don't understand why you frown on using the tax system to redistribute some of it. How and what a society taxes has every bit to do with social norms about fairness. (When you say the tax system shouldn't be a vehicle for "confiscating" money from people who have too much of it, you sound like Sean Hannity.)
If you believe shareholders can and will do a better job constraining CEO pay than a higher marginal tax would, you need to offer some evidence for this dubious proposition. The Sanders and Hambrick study, which you repeatedly mention, suggests quite the opposite. It says stock options haven't been good for shareholders. Yet, as you know, stock options continue to multiply. You say you "have to believe" stockholders and boards will wise up eventually. I say: Get real. Shareholder democracy is a sham. If you doubt me, do your own mental experiment. You probably have savings tucked away in some pension or mutual fund. How often have you actually voted the shares of the stocks you own through such a fund?
You note that 35 CEOs of large corporations gave their investors a healthy return on their investments last year despite receiving an average of $10.8 million, a relatively paltry sum as CEO pay goes these days. I'm not sure whether this proves that CEOs can be as motivated for this modest amount as they can be for twice as much, or that returns to investors have less to do with CEO performance than with other variables. But it doesn't prove that shareholders are wising up to anything.
Kudos to Evelyn Davis for persevering at the age of 78. Kudos to anyone for persevering at whatever their passion may be, by age 78. But anyone genuinely concerned about social injustice ought to persevere at something that counts. Income and wealth inequality in America is a huge and growing problem—worth our attention and effort. Yet we'll never make any headway on it if we continue to attend to the wrong things. Shareholders want a high return on their investments. Period. And notwithstanding the recent perturbations on Wall Street, shareholders have been doing just fine.
I'm going to continue fighting for quixotic causes, Tim, but shareholder rights isn't among them. A fairer tax system is.
I've enjoyed this exchange. Many thanks.
Bob
E-mail Timothy Noah at .
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Remarks from the Fray:
High CEO salaries don't make the CEOs work harder or reward what they do as CEOs. They reward hard work and luck when the person was not yet a CEO. In short, they are an incentive for the workers who aspire to be a CEO. In this sense, they are inspiration for others rather than pay for the CEOs.
The system isn't less 'fair' than it was - back when you had to be the boss' son to make that leap. Actually, perhaps it works better. It inspires more people to aspire. That 2 million a year + 7.5 million parachute in case I fail? That could be mine, if I just work hard enough to enter the promised land... so think 600 mid-level execs who work their tails off, cross their fingers and pray. And the board hopes that this draft pick they are hiring works out and their stock goes up.
Is there a class divide? Yes - but the pool of people who can make the jump to the upper reaches of the filthy rich is pretty large, these days, compared to in the past. The aspiration is for the few highly educated professionals and middle management - to which the children of the blue collar and white collar can apsire. Ok, so it takes 2-3 generations to move from fairly poor to filthy rich. That's still pretty good, in historical perspective.
This takes quite a bit out of the moral sting of CEO salaries, which are certainly unfair and ridiculous as payment for services rendered during a tenure as a successful - or especially unsuccessful - CEO.
--BenK
(To reply, click here.)
We know that appearances matter; they affect valuation. We also know that in an exuberant market, valuation trumps dividends when it comes to stock owners. They're not worrying about a steady 5% return on investment. They're interested in the Big Cash-Out when stocks have gone from 15 bucks a share to 350. Hence there is an appetite in the market for feel-good CEOs. CEOs who are adept at painting a smiley on results. CEOs who are clever enough to hide risks off the books. CEOs who are not managers, they're manipulators.
Manipulators are cheesy, immoral, smart, ruthless risk-takers. Some of them, through pure statistical chance if nothing else, will have a track record of successful risk-taking. Those CEOs become the sought-after darlings, the object of a CEO-compensation bidding war, on the belief that if they succeeded in the past, they must know how to succeed again.
Those CEOs raking in hundreds of millions in compensation are invariably those who score highest in both image-making and deal-making. A CEO with a positive track record in both can name his price, and it will be paid. The fact that both image-making and deal-making are risky, and that past success might not always lead to future success where risks are concerned, is lost in greed's distorting lens.
Only a relatively small number of CEOs play the risk game and manage to look good doing it. But their stratospheric compensation exerts a positive pressure on compensations for the rest of industry - just like in the NBA, where even the lowliest performer is a millionaire, because he suits up next to superstars and passes them the ball.
--UrgeIt
(To reply, click here.)
The Eisenhower appeal is bogus. After World War 2, Asia and Europe were left in ruins. The colonial empires sinking. Their currencies tattered. Their industries, struggling to recover. Fortress America was not only untouched, but had the benefit of being the world's creditor, and rebuilder.
So, with the competition temporarily out of service, and US Goods and Services in high demand, are we to expect anything but good times for America? I'll note that Stalinist Russia had superior economic growth compared to every Western nation except the US, does that mean Stalinism is a great economic policy? Since Stalinism couldn't hurt Russia's economic during WW2 recovery, I doubt a 91% marginal rate could either.
Either way, Noah continually demonstrates the lengths to which he will go to justify his interventionist fantasies.
--Cromwellian
(To reply, click here.)
Evelyn Y. Davis has raised some important issues but she would not have persisted as long as she has if she was not so convenient for corporate executives. She makes it easy for them to marginalize all shareholder activists as colorful kooks.
But the journey begun by the Gilberts will be completed not by Evelyn Y. Davis but by the large institutional investors like the pension fund for the members of AFSCME and CalPERS. These investors are behind highly credible and effective shareholder initiatives on "say on pay" and withholding approval for directors who approve outrageous pay packages. Home Depot would not have gone from one of the worst pay packages in history to one of the best without the pressure of the significant, principled, persistent investors who are the best prospect for a genuine market response and the best guarantee of efficient markets.
There's a lot of pressure for "say on pay" and legislation passed the House with overwhelming support. But I think the more effective approach will come from majorty vote requirements, giving shareholders the ability to jettison negigent or corrupt directors.
--nellminow
(To reply, click here.)
(11/17)