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Corporate Compensation

Tue Jun 25, 2002 10:31 pm

Here's a hot potato for you!!
With the Enron and other scandals suggesting extreme unethical, if not illegal, behavior of senior officers in large corporations making the news regularly; the issue of corporate compensation is being raised again.
My opinion is that corporation compensation is based more on what the individual can get and not what the individual is worth. With a bidding war between companies for the "better" executives and with many boards of directors, who are responsible for determining corporate compensation, including officers of the company and having the CEO as chairman; there has been no effective oversight in the management of corporate compensation.
Only recently, with the value of their portfolios continuing to fall, have independent groups of share holders even challenged the "status quo". As a knee jerk reaction in order to gain political advantage, new laws are being proposed, which may in the long term either generate more problems than they fix or just not be enforced after the publicity cools off. Other politicians, who have benefitted from significant contibutions from these companies advocate just ignoring the problem and it will go away.
I don't have a panacea, but I do believe that some corrective action is required with independent oversight and control of the process.
What do you think?

RE: Corporate Compensation

Tue Jun 25, 2002 11:17 pm

When a price climbs too high or drops too low relative to the value of the good or service provided, the market will eventually self-correct the problem as long as it is left to its own devices. All that's needed is patience.

The politicians need to keep their hands off. I can assure you that any elected official making public pronouncements one way or another on this issue is doing so to:

a.) Obtain re-election financing.

b.) Build up political capital by getting media coverage and looking like a crusader.

c.) Both of the above.

Posts: 1299
Joined: Wed Apr 24, 2002 8:04 pm

RE: Corporate Compensation

Wed Jun 26, 2002 5:35 am

On an theoretical plane you are correct, the system will correct itself. The problem is that the current system is going to self-perpetuate itself until the brink of economic misery is reached (I hate the word "collapse" that the press dearly loves). By that time, many people are hurting; employees through down sizing, investors in the loss of their nest egg, the loss in confidence in the system as a whole, etc. Look at the great depression of the late '20's and 30's.
I'm not enchanted with self-serving politicians and generally their motives are to be re-elected and doing the right thing can lead open to illogical attack and loss of the one issue voter. It takes a very brave person to put their career on the line for a "Noble Cause" for which there is little or no reward in the short term.
John Kennedy wrote a book called "Profiles in Courage" that illustrates cases of men doing the right thing and how it cost them politically.
In my MBA program, I had a professor who debunked both classical Capitolism and classical Communism in one lecture, light weight course. Where man is involved (like or not, we always are), pure systems generally don't survive on a grand scale; I believe that there must be some control mechanism, that is contrary to the core belief, to keep them close to being on track.
Also look at Communal Societies, that were promising religious, economic, political, and/or scientific experiments, that have cropped up only to fade.
New Harmony, Indiana and Salem, North Carolina come to mind as good examples of this.

RE: Corporate Compensation

Wed Jun 26, 2002 7:29 am

It's up to private companies to learn from their own mistakes.

Some corporations have already learned a few things from the '90s downsizing fad. Many companies found that downsizing didn't improve their fortunes. In some cases, savings achieved by lower labour costs were offset by lost customers, higher voluntary turnover (with the most skilled and productive people often being the first to resign), increased absenteeism, internal feuding for scarce resources and increases in internal theft and sabotage.

So much for the assumption of simply saving money by spreading the same amount of work over fewer people and using sheer pressure to improve productivity.

So too are companies constantly learning about how to make compensation more effective and how to make management more accountable to the board and to shareholders. Just give it time: practices that work will become more commonplace; practices that don't work will eventually be discredited.

I only wish governments were as quick as corporations to learn from their mistakes and adopt better practices. That's why I'm cool to the idea of having them step into the corporate compensation debate.

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