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Is CEO pay really unfair?

Khaos_Mage
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1/16/2013 4:23:53 PM
Posted: 3 years ago
When people complain about CEO, how do they measure "unfair"?

It took some research, but I found that in 2011, of the 35 companies shown from the Fortune 50 (not 500), only 8 had total compensation of at least one-half of one percent of profits, with two additional companies having losses (only 3 CEOs made more than 1% of total profits).

Furthermore, only 7 of these companies pay their typical employee (median wage) less than $50,000: two banks, three retailers, one pharmacy/retail, and Berkshire Hathaway owned by a Mr. Warren Buffet.

Keep in mind that profits are less than revenue, and compare that with a local union president pulling in 4.85% of revenue...

So, if one bothers you and the other doesn't, what metric do you use?

http://money.cnn.com...
http://990s.foundationcenter.org...
My work here is, finally, done.
wrichcirw
Posts: 11,196
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1/16/2013 4:37:45 PM
Posted: 3 years ago
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:
When people complain about CEO, how do they measure "unfair"?

It took some research, but I found that in 2011, of the 35 companies shown from the Fortune 50 (not 500), only 8 had total compensation of at least one-half of one percent of profits, with two additional companies having losses (only 3 CEOs made more than 1% of total profits).

Furthermore, only 7 of these companies pay their typical employee (median wage) less than $50,000: two banks, three retailers, one pharmacy/retail, and Berkshire Hathaway owned by a Mr. Warren Buffet.

Keep in mind that profits are less than revenue, and compare that with a local union president pulling in 4.85% of revenue...

So, if one bothers you and the other doesn't, what metric do you use?

http://money.cnn.com...
http://990s.foundationcenter.org...

Interesting, I finished a debate on this not too long ago...the topic is complex and I could not even finish my initial argument in the debate.
http://debate.org...

1) On worker to CEO pay, I think it is a flawed metric to use. I stated the reasoning in a forum thread I started on this topic:
http://debate.org...

"Lets assume that in 1990, McDonald's had only 100,000 workers, and One CEO. The workers receive $20,000 annually, and just for argument's sake, the CEO received $1 million annually. That's 50 times a worker's salary. I think most people can accept that a CEO's job is a lot more demanding and requires compensation close to this level.

"Let's also assume that today, McDonald's has 400,000 workers, and One CEO. The workers still receive $20,000 annually. Should the CEO still receive $1 million? No. If he really did grow this business by four times, the CEO should be paid four times what he was paid in 1990, i.e. the CEO SHOULD be paid $4 million. That's 200 times a worker's salary, AND IT IS FULLY JUSTIFIED.

"This is because as the work force expands, leadership does not. Leadership CANNOT expand, because it would cause ridiculous gridlock - you don't want 50 CEOS shouting over each other trying to get things done."


In your links, Steven Ballmer is noted as a "fair CEO". This really has nothing to do with fairness...MSFT employees are typically paid a LOT more than MCD employees. Ballmer is also one of the largest shareholders in MSFT stock, so he does not pay himself nearly as much as the average CEO for the S&P 500. I think CEOs = large shareholder is a great way to manage/lead the company, although in Ballmer's case, a P&G executive running a software firm is probably not going to make the best software-related decisions.

2) On CEO pay related to company profits, ideally the CEO's pay should reflect total shareholder return. Their own pay should correlate much more to what a shareholder would expect to get when investing in the company - the CEO is the executor of shareholder interests, much more so than any other employee of the company. The proposal I floated in the debate does exactly this - it aligns CEO pay to shareholder interests.

What this translates to regarding CEO pay is that if the CEO is able to achieve large, sustainable profits for the company, shareholders and CEOs will receive gigantic returns, whereas the rest of the workforce much less so. This is appropriate, IMHO - this is exactly what Goizueta did (Coke CEO I mentioned often in the debate).
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
malcolmxy
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1/16/2013 4:41:09 PM
Posted: 3 years ago
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:
When people complain about CEO, how do they measure "unfair"?

It took some research, but I found that in 2011, of the 35 companies shown from the Fortune 50 (not 500), only 8 had total compensation of at least one-half of one percent of profits, with two additional companies having losses (only 3 CEOs made more than 1% of total profits).

Furthermore, only 7 of these companies pay their typical employee (median wage) less than $50,000: two banks, three retailers, one pharmacy/retail, and Berkshire Hathaway owned by a Mr. Warren Buffet.

Keep in mind that profits are less than revenue, and compare that with a local union president pulling in 4.85% of revenue...

So, if one bothers you and the other doesn't, what metric do you use?

http://money.cnn.com...
http://990s.foundationcenter.org...

The measure that should be used is the delta in profit. Was the company MORE profitable after the CEO took the reigns? Also, it's not the CEO's yearly pay that is the issue. It is the so-called golden parachute (more like a golden shower) that allows a failing CEO to gang rape employees and investors that is the detestable portion of their compensation.

In addition, I'm guessing you've not included interest free loans and stock options, etc as part of your analysis, though I freely admit that I did not check this for myself.
War is over, if you want it.

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wrichcirw
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1/16/2013 4:53:27 PM
Posted: 3 years ago
At 1/16/2013 4:41:09 PM, malcolmxy wrote:
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:

The measure that should be used is the delta in profit. Was the company MORE profitable after the CEO took the reigns? Also, it's not the CEO's yearly pay that is the issue. It is the so-called golden parachute (more like a golden shower) that allows a failing CEO to gang rape employees and investors that is the detestable portion of their compensation.

In addition, I'm guessing you've not included interest free loans and stock options, etc as part of your analysis, though I freely admit that I did not check this for myself.

LOL, yeah, a golden parachute for the CEO, a golden shower for the rest of us. :)
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
malcolmxy
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1/16/2013 5:01:09 PM
Posted: 3 years ago
At 1/16/2013 4:37:45 PM, wrichcirw wrote:

I think CEOs = large shareholder is a great way to manage/lead the company, although in Ballmer's case, a P&G executive running a software firm is probably not going to make the best software-related decisions.

There is a requirement of a certain percentage of stock ownership for CEOs (2% of outstanding common stock? Something like that. I don't feel like looking it up), though I can't recall what that is (it supposedly incentivizes success, which I believe it actually does, though with Ballmer, obviously his higher % of ownership incentivizes this to a higher degree).
War is over, if you want it.

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Khaos_Mage
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1/16/2013 5:18:52 PM
Posted: 3 years ago
At 1/16/2013 4:41:09 PM, malcolmxy wrote:
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:
When people complain about CEO, how do they measure "unfair"?

It took some research, but I found that in 2011, of the 35 companies shown from the Fortune 50 (not 500), only 8 had total compensation of at least one-half of one percent of profits, with two additional companies having losses (only 3 CEOs made more than 1% of total profits).

Furthermore, only 7 of these companies pay their typical employee (median wage) less than $50,000: two banks, three retailers, one pharmacy/retail, and Berkshire Hathaway owned by a Mr. Warren Buffet.

Keep in mind that profits are less than revenue, and compare that with a local union president pulling in 4.85% of revenue...

So, if one bothers you and the other doesn't, what metric do you use?

http://money.cnn.com...
http://990s.foundationcenter.org...

The measure that should be used is the delta in profit. Was the company MORE profitable after the CEO took the reigns?
So, if a CEO enters into a failing company, and no improvements have been realized for two years (as things take time), should he not be paid? Should the delta in profit be used when paying managers?

Profits are good, obviously, but that isn't always the goal of a company. For example, during expansion or improvements, profits are unlikely as there are uncommon expenses due. Using previous profits to pay for these expansion costs will make a company have a loss, but not necessarily put them in a worse position, or truly affect their ultimate profitability, as their revenues - normal expenses remained the same. Also, is an equal amount of profit worse with increased market share and/or revenue any worse than flat everything?

Also, it's not the CEO's yearly pay that is the issue. It is the so-called golden parachute (more like a golden shower) that allows a failing CEO to gang rape employees and investors that is the detestable portion of their compensation.

It leaves a bad taste in my mouth, but should it? Are not employees at least partly to blame for the tanking business? Should they not be aware of the sinking ship and act accordingly?
As for investors, shareholders elect the board who hire the CEO and negotiate his contract. So, the shareholders are raping themselves. Bondholders were already taking a risk, so they are not raped any worse off.
Plus, you are assuming that the specific goals of the company are to make a profit. It could be to weather a storm, expand, or increase market share. So, while the CEO did a "bad job" in our opinions and doesn't seem to deserve a bonus, perhaps he succeeded in his goals of which we are unaware.

In addition, I'm guessing you've not included interest free loans and stock options, etc as part of your analysis, though I freely admit that I did not check this for myself.

From the article's graphic:
"Total CEO compensation is calculated as the sum of base salary, discretionary and performance-based cash bonuses, the grant date value of stock and option awards, and other compensation such as benefits and perks."

I do not know if this would include the specific items you addressed, but I would not count them as compensation. A stock option is not income unless it is sold, and the income only comes with my investment. A lot of companies offer stock options to their employees, and I don't know if those are exercised or not, or counted or not. The loan is likely not included, but it shouldn't be, as it is not income, it is a loan. You do not count your credit card purchase as income, do you? At best, the only income should be the saved interest, which may be included.
My work here is, finally, done.
Khaos_Mage
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1/16/2013 5:21:54 PM
Posted: 3 years ago
At 1/16/2013 5:01:09 PM, malcolmxy wrote:
At 1/16/2013 4:37:45 PM, wrichcirw wrote:

I think CEOs = large shareholder is a great way to manage/lead the company, although in Ballmer's case, a P&G executive running a software firm is probably not going to make the best software-related decisions.

There is a requirement of a certain percentage of stock ownership for CEOs (2% of outstanding common stock? Something like that. I don't feel like looking it up), though I can't recall what that is (it supposedly incentivizes success, which I believe it actually does, though with Ballmer, obviously his higher % of ownership incentivizes this to a higher degree).

I can't imagine this is a law. An industry standard, maybe, or a company bylaw, perhaps. But I have a hard time believing there is an actual requirement by the SEC or other government body that demands a certain level of ownership.

I do agree that this should incentivize the new CEO, which is probably why most, if not all, companies follow it. Plus, there is likely to be less conflict of interest.
My work here is, finally, done.
Khaos_Mage
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1/16/2013 5:32:30 PM
Posted: 3 years ago
At 1/16/2013 4:37:45 PM, wrichcirw wrote:
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:

Interesting, I finished a debate on this not too long ago...the topic is complex and I could not even finish my initial argument in the debate.
http://debate.org...

1) On worker to CEO pay, I think it is a flawed metric to use. I stated the reasoning in a forum thread I started on this topic:
http://debate.org...

"Lets assume that in 1990, McDonald's had only 100,000 workers, and One CEO. The workers receive $20,000 annually, and just for argument's sake, the CEO received $1 million annually. That's 50 times a worker's salary. I think most people can accept that a CEO's job is a lot more demanding and requires compensation close to this level.

"Let's also assume that today, McDonald's has 400,000 workers, and One CEO. The workers still receive $20,000 annually. Should the CEO still receive $1 million? No. If he really did grow this business by four times, the CEO should be paid four times what he was paid in 1990, i.e. the CEO SHOULD be paid $4 million. That's 200 times a worker's salary, AND IT IS FULLY JUSTIFIED.

This is why I hate those statstics from unions. The world was much different in the 70s. There was less global competition, less workers (i.e. women), and corporations were smaller. There are many reasons for the increase in the ratio, and most, if not all, are justified. Fair, maybe not, but justified.

"This is because as the work force expands, leadership does not. Leadership CANNOT expand, because it would cause ridiculous gridlock - you don't want 50 CEOS shouting over each other trying to get things done."


In your links, Steven Ballmer is noted as a "fair CEO". This really has nothing to do with fairness...MSFT employees are typically paid a LOT more than MCD employees. Ballmer is also one of the largest shareholders in MSFT stock, so he does not pay himself nearly as much as the average CEO for the S&P 500. I think CEOs = large shareholder is a great way to manage/lead the company, although in Ballmer's case, a P&G executive running a software firm is probably not going to make the best software-related decisions.

CEOs do get dividends, so that aids in their lower compensation (see: Warren Buffet). But, by this chart, the average CEO compensation is less than what people think. In real life, people are always talking about how CEOs make hundreds of millions of dollars. In this chart, only two make more than $30 million: one just barely and the other is Apple's CEO of $378 million.

2) On CEO pay related to company profits, ideally the CEO's pay should reflect total shareholder return. Their own pay should correlate much more to what a shareholder would expect to get when investing in the company - the CEO is the executor of shareholder interests, much more so than any other employee of the company. The proposal I floated in the debate does exactly this - it aligns CEO pay to shareholder interests.

What this translates to regarding CEO pay is that if the CEO is able to achieve large, sustainable profits for the company, shareholders and CEOs will receive gigantic returns, whereas the rest of the workforce much less so. This is appropriate, IMHO - this is exactly what Goizueta did (Coke CEO I mentioned often in the debate).

Pay should be based on performance, which is not always to make the most profit every year. I think the arguments against the golden parachute are unfounded, largely because people claim the company is worse off than when the 2-year CEO took over, and yet he gets a huge bonus. This may be true, but we, as the public, do not know what the contract was for, and what the goal was. For example, if the company was headed for bankruptcy in two years, and now, while still in bad shape, the company can survive for another five, that is an improvement, even if no profits were posted and layoffs occurred.
My work here is, finally, done.
malcolmxy
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1/16/2013 5:51:01 PM
Posted: 3 years ago
At 1/16/2013 5:18:52 PM, Khaos_Mage wrote:

So, if a CEO enters into a failing company, and no improvements have been realized for two years (as things take time), should he not be paid? Should the delta in profit be used when paying managers?

No, he shouldn't be paid. Risk vs Reward. When the reward is great, there must necessarily be risk.

Profit should be used to pay EVERYONE at least as far as any bonuses are concerned, but in the absence of profit, CEOs should receive no more than the state mandated minimum wage for their (failing) efforts.

Also, remember, if a company was operating at a loss, and then operated at a lesser loss, that is a positive delta in profit.

Profits are good, obviously, but that isn't always the goal of a company.

for corporations, yes it is. it is, in fact, the only goal.

For example, during expansion or improvements, profits are unlikely as there are uncommon expenses due.

these are amortized, as well as financed through debt. their effect on the income statement is typically 1/20th of their actual cost. Don't confuse a balance sheet with an income statement.

Using previous profits to pay for these expansion costs will make a company have a loss, but not necessarily put them in a worse position, or truly affect their ultimate profitability, as their revenues - normal expenses remained the same. Also, is an equal amount of profit worse with increased market share and/or revenue any worse than flat everything?

those things will lead to future profit. if the ceo rides out the expansion, they will realize these fruits of their labors. it's what happens to those in an equity position. why not to the ceo?


Also, it's not the CEO's yearly pay that is the issue. It is the so-called golden parachute (more like a golden shower) that allows a failing CEO to gang rape employees and investors that is the detestable portion of their compensation.

It leaves a bad taste in my mouth, but should it? Are not employees at least partly to blame for the tanking business? Should they not be aware of the sinking ship and act accordingly?

OK, give employees a golden parachute as well and we'll call that a wash.

As for investors, shareholders elect the board who hire the CEO and negotiate his contract. So, the shareholders are raping themselves. Bondholders were already taking a risk, so they are not raped any worse off.

A FEW shareholders, typically those with the stock as a position in a mutual fund, decide the CEO. The average investor doesn't have the juice to have any effect on the election of a CEO.

Plus, you are assuming that the specific goals of the company are to make a profit. It could be to weather a storm, expand, or increase market share. So, while the CEO did a "bad job" in our opinions and doesn't seem to deserve a bonus, perhaps he succeeded in his goals of which we are unaware.

Corporations, with stockholders ALWAYS have the goal of making a profit. It is the ethical duty of the board, in fact, to ensure this goal is met at all costs.

No making excuses. They're either an effective CEO or they're not.


In addition, I'm guessing you've not included interest free loans and stock options, etc as part of your analysis, though I freely admit that I did not check this for myself.

From the article's graphic:
"Total CEO compensation is calculated as the sum of base salary, discretionary and performance-based cash bonuses, the grant date value of stock and option awards, and other compensation such as benefits and perks."

OK, it did...like I said, I didn't check.


I do not know if this would include the specific items you addressed, but I would not count them as compensation. A stock option is not income unless it is sold, and the income only comes with my investment.

Yes it is. It has value the moment it issued, and if you don't understand this, you can check out the options market and see it for yourself.

A lot of companies offer stock options to their employees, and I don't know if those are exercised or not, or counted or not.

These are typically high performing companies. Equity = incentive. Still, 100 stock options with a strike price above the current market value of the stock and 25,000 options at a strike price of half the market value of the stock are two very different things, no? Isn't one inherently MORE valuable?

The loan is likely not included, but it shouldn't be, as it is not income, it is a loan.

Actually, it likely is (perk). But, can you get an interest free loan for $1 million? If you don't realize that this is compensation, then you don't understand compensation. The company could, presumably, take that money and, at the very least, make 3% in an enhanced money market account. Instead they are allowing a CEO to use it at no cost to the CEO whatsoever.

How could a company make money doing this? Volume? No, that is compensation for a corporate officer (also, there is typically no payment schedule on these loans, and they are almost without fail "forgiven" when the CEO leaves the company. They're income, dude)

You do not count your credit card purchase as income, do you? At best, the only income should be the saved interest, which may be included.

If I got a special perk of a 0% credit card on which I was under no obligation to make monthly payments I would. You're g0ddam right I would, in fact.
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malcolmxy
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1/16/2013 5:58:56 PM
Posted: 3 years ago
If a CEO was worth it, I'd have no problem with them making 10% of a company's yearly profit. They're just usually not worth .10% of said profit, and they shouldn't be compensated like they're worth more if they're not.
War is over, if you want it.

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malcolmxy
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1/16/2013 6:02:14 PM
Posted: 3 years ago
You ridiculous advocates for CEO salaries are all for a free market until the risk in that market necessarily is bore by your precious CEOs.

Like any other employee, a CEO deserves a portion of the value added from his/her employment at that company, NO MORE, but certainly no less either.
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malcolmxy
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1/16/2013 6:05:57 PM
Posted: 3 years ago
A regular employee shouldn't be forced to take on near the risk of a CEO (though, again, any bonus should be tied to overall company profit, whether they have a direct influence on it or not), because their reward isn't anywhere near what a CEO's potential for reward is.

Y'all do believe in free market economics, right? Well, there are two sides to the coin. Sometimes you get the bull, and sometimes the bull gets you. You can't have your bullocks and eat it, too.

If potential income is as stratospheric as it is, there must also be a potential for loss or the market doesn't function correctly.
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Khaos_Mage
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1/16/2013 6:55:08 PM
Posted: 3 years ago
At 1/16/2013 5:51:01 PM, malcolmxy wrote:
At 1/16/2013 5:18:52 PM, Khaos_Mage wrote:

So, if a CEO enters into a failing company, and no improvements have been realized for two years (as things take time), should he not be paid? Should the delta in profit be used when paying managers?

No, he shouldn't be paid. Risk vs Reward. When the reward is great, there must necessarily be risk.
Why should an employee not be paid? The owners are the shareholders, not the CEO. Granted the CEO generally owns a good deal of stock, but his capacity makes him an employee.

Profit should be used to pay EVERYONE at least as far as any bonuses are concerned, but in the absence of profit, CEOs should receive no more than the state mandated minimum wage for their (failing) efforts.
If the contract says this, then fine. If not, that's good, too. The question is, why would a company that demands a profit offer a bonus to a man who does not deliver?

Also, remember, if a company was operating at a loss, and then operated at a lesser loss, that is a positive delta in profit.
Good point, I overlooked this. But a loss is still a loss, and you say a bonus should not be paid, even if $10 billion more was profited this year over last.

Profits are good, obviously, but that isn't always the goal of a company.

for corporations, yes it is. it is, in fact, the only goal.
Let me rephrase: Short-term losses are sometimes necessary for long-term success. So, should a CEO lose income due to, say a lawsuit that was paid off.
For example, during expansion or improvements, profits are unlikely as there are uncommon expenses due.

these are amortized, as well as financed through debt. their effect on the income statement is typically 1/20th of their actual cost. Don't confuse a balance sheet with an income statement.

Not all expenses are amortized, but thanks for the reality check (#sincere). There are items that could produce a loss, such as an immediate write-off due to selling property, which is uncommon, will yeild future profitability, and was a prudent move. Also, a lower profit could result in freeing cash flow, by paying off debts early. Should these actions be punished because delta profit is affected?

Using previous profits to pay for these expansion costs will make a company have a loss, but not necessarily put them in a worse position, or truly affect their ultimate profitability, as their revenues - normal expenses remained the same. Also, is an equal amount of profit worse with increased market share and/or revenue any worse than flat everything?

those things will lead to future profit. if the ceo rides out the expansion, they will realize these fruits of their labors. it's what happens to those in an equity position. why not to the ceo?
Why is an employee in an equity position?
Is it fair if the CEO were to die before these profits were realized?


Also, it's not the CEO's yearly pay that is the issue. It is the so-called golden parachute (more like a golden shower) that allows a failing CEO to gang rape employees and investors that is the detestable portion of their compensation.

It leaves a bad taste in my mouth, but should it? Are not employees at least partly to blame for the tanking business? Should they not be aware of the sinking ship and act accordingly?

OK, give employees a golden parachute as well and we'll call that a wash.

Employees have less risk and are generally more mobile. It is not a fair comparison. If a company goes bankrupt, and people are playing fair (i.e. not CEOs raiding cash reserves), the employees are paid first. I assume bonuses, if any, are paid after that, then the shareholders.
As for investors, shareholders elect the board who hire the CEO and negotiate his contract. So, the shareholders are raping themselves. Bondholders were already taking a risk, so they are not raped any worse off.

A FEW shareholders, typically those with the stock as a position in a mutual fund, decide the CEO. The average investor doesn't have the juice to have any effect on the election of a CEO.
Again, why would they opt to pay for a bonus?

Plus, you are assuming that the specific goals of the company are to make a profit. It could be to weather a storm, expand, or increase market share. So, while the CEO did a "bad job" in our opinions and doesn't seem to deserve a bonus, perhaps he succeeded in his goals of which we are unaware.

Corporations, with stockholders ALWAYS have the goal of making a profit. It is the ethical duty of the board, in fact, to ensure this goal is met at all costs.
I would think the ethical duty of the board is to ensure the success and longevity of the company, not profits per se.
Operating at a loss to weather a recession is more important than posting a profit, in the short-term. Obviously, after a while, profits need to be realized, but not necessarily in any specific quarter or year.

No making excuses. They're either an effective CEO or they're not.
It is not an excuse if a monopoly, say Apple and their iPods, is not competitive and loses market share with MP3s. Or, if all of a sudden a specific company loses business, like a pizza place has bad PR due to a viral video of dumbass employees.

I do not know if this would include the specific items you addressed, but I would not count them as compensation. A stock option is not income unless it is sold, and the income only comes with my investment.

Yes it is. It has value the moment it issued, and if you don't understand this, you can check out the options market and see it for yourself.
I didn't say it has value, but it is not income. If I am able to buy 1 million shares at $8/share and sell them for $10/share, I would make $2 million in income. However, if I don't sell them, I made no income, and I spent $8 million. The income is only realized when I choose to sell them.

A lot of companies offer stock options to their employees, and I don't know if those are exercised or not, or counted or not.

These are typically high performing companies. Equity = incentive. Still, 100 stock options with a strike price above the current market value of the stock and 25,000 options at a strike price of half the market value of the stock are two very different things, no? Isn't one inherently MORE valuable?
The amount is irrelevant, and I don't see why one is offered a lesser option than the other, as, to my understanding, options are to be offered at the lesser of the current traded value or the lowest amount in X period of time, generally one year. Why would the CEO get a lower option cost than an employee?

The fact is, neither are considered income, and I doubt options are factored into the employee's wages stats. You say it is big companies, but this is the Fortune 50; if not them, who else would offer options to employees.

The loan is likely not included, but it shouldn't be, as it is not income, it is a loan.

Actually, it likely is (perk)...
Fair enough, but I like to compare income to income, and a loan is not income. It is compensation, or at least the lost interest revenue is, but I would not call it income.

If the debt is forgiven, then it is income, just as credit card debt is income if it is written-off. (1099-C)

You do not count your credit card purchase as income, do you? At best, the only income should be the saved interest, which may be included.

If I got a special perk of a 0% credit card on which I was under no obligation to make monthly payments I would. You're g0ddam right I would, in fact.
You would call that income, or you would take the card? I still would not call it income, until it was written-off.
My work here is, finally, done.
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1/16/2013 7:00:57 PM
Posted: 3 years ago
At 1/16/2013 6:02:14 PM, malcolmxy wrote:
You ridiculous advocates for CEO salaries are all for a free market until the risk in that market necessarily is bore by your precious CEOs.

Like any other employee, a CEO deserves a portion of the value added from his/her employment at that company, NO MORE, but certainly no less either.

I wasn't aware that a voluntary contract, which awards a bonus for poor performance, was not a free-market idea...

I have no source, but from what I have seen over the last couple of years, the majority of CEO compensation is stock awards and stock options. Neither of these are direct costs to the company.
My work here is, finally, done.
Khaos_Mage
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1/16/2013 7:01:30 PM
Posted: 3 years ago
At 1/16/2013 7:00:57 PM, Khaos_Mage wrote:
At 1/16/2013 6:02:14 PM, malcolmxy wrote:
You ridiculous advocates for CEO salaries are all for a free market until the risk in that market necessarily is bore by your precious CEOs.

Like any other employee, a CEO deserves a portion of the value added from his/her employment at that company, NO MORE, but certainly no less either.

I wasn't aware that a voluntary contract, which awards a bonus for poor performance, was not a free-market idea...

I have no source, but from what I have seen over the last couple of years, the majority of CEO compensation is stock awards and stock options. Neither of these are direct costs to the company.

And, if anything, should piss off the shareholders, as it dilutes their shares.
My work here is, finally, done.
darkkermit
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1/16/2013 7:05:08 PM
Posted: 3 years ago
At 1/16/2013 7:01:30 PM, Khaos_Mage wrote:
At 1/16/2013 7:00:57 PM, Khaos_Mage wrote:
At 1/16/2013 6:02:14 PM, malcolmxy wrote:
You ridiculous advocates for CEO salaries are all for a free market until the risk in that market necessarily is bore by your precious CEOs.

Like any other employee, a CEO deserves a portion of the value added from his/her employment at that company, NO MORE, but certainly no less either.

I wasn't aware that a voluntary contract, which awards a bonus for poor performance, was not a free-market idea...

I have no source, but from what I have seen over the last couple of years, the majority of CEO compensation is stock awards and stock options. Neither of these are direct costs to the company.

And, if anything, should piss off the shareholders, as it dilutes their shares.

Not necessarily if the stocks already exist within the company and they're just giving it to the CEO.
Open borders debate:
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malcolmxy
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1/16/2013 7:13:26 PM
Posted: 3 years ago
At 1/16/2013 7:01:30 PM, Khaos_Mage wrote:
At 1/16/2013 7:00:57 PM, Khaos_Mage wrote:
At 1/16/2013 6:02:14 PM, malcolmxy wrote:
You ridiculous advocates for CEO salaries are all for a free market until the risk in that market necessarily is bore by your precious CEOs.

Like any other employee, a CEO deserves a portion of the value added from his/her employment at that company, NO MORE, but certainly no less either.

I wasn't aware that a voluntary contract, which awards a bonus for poor performance, was not a free-market idea...

I have no source, but from what I have seen over the last couple of years, the majority of CEO compensation is stock awards and stock options. Neither of these are direct costs to the company.

And, if anything, should piss off the shareholders, as it dilutes their shares.

shareholders ARE the company. Once you own ALL the equity in a home, you own the home.

Shareholders, when combined, own all the equity in a company.

However, options don't create shares of stock. If the option is not immediately exercised and then sold (an option with an option, typically),the stock comes out of the shares the company has repurchased from those outstanding on the market (also what is used in an immediate sell scenario, but then they are immediately reacquired...it costs the company the difference between strike price and market price at the time the option is exercised)
War is over, if you want it.

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Double_R
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1/16/2013 7:24:40 PM
Posted: 3 years ago
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:
When people complain about CEO, how do they measure "unfair"?...

So, if one bothers you and the other doesn't, what metric do you use?

I think that when most people complain about CEO salaries they are talking strictly from a moral perspective and don't have an exact formula. You don't need one to realize that when a man is making what 6,258 of his employees combined made, something is wrong.
http://money.cnn.com...

What I think that people realize is that it is not the person who makes the money, but rather the system. Does a typical McDonald's need some superstar GM to make $1M profit? No, it just needs someone to properly operate the system, which isn't very hard to find. That is why most McDonalds GM's make $40k. CEO's are really not much different, but you wouldn't know that by looking at their salaries.
malcolmxy
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1/16/2013 8:19:23 PM
Posted: 3 years ago
At 1/16/2013 6:55:08 PM, Khaos_Mage wrote:

Why should an employee not be paid? The owners are the shareholders, not the CEO. Granted the CEO generally owns a good deal of stock, but his capacity makes him an employee.

First of all, I didn't say don't pay him. That would be illegal. The CEO, absent results, should be paid minimum wage. They are the employee with the most influence over the profit of the company, and if the company is not profitable, it is more likely than not the fault of the CEO (they don't get to take credit for good and shuttle off responsibility for bad...buck stops here and all)

If the contract says this, then fine. If not, that's good, too. The question is, why would a company that demands a profit offer a bonus to a man who does not deliver?

Profit would be one component of bonus criteria. Obviously, performance metrics would be a measure as well.

But, ask yourself that question one more time, except focus on the CEO.

Good point, I overlooked this. But a loss is still a loss, and you say a bonus should not be paid, even if $10 billion more was profited this year over last.

No, I said delta in profit. Less loss is a positive delta in profit and the CEO deserves consideration for this.

Let me rephrase: Short-term losses are sometimes necessary for long-term success. So, should a CEO lose income due to, say a lawsuit that was paid off.

Then, knowing this, they have incentive to stick around for the long term and realize that gain that you are promising will be the result of these short term losses. New employees are expensive, and new CEOs are even more so. If there is this longevity built into the job, that's better for the long term health of the company.

Not all expenses are amortized, but thanks for the reality check (#sincere). There are items that could produce a loss, such as an immediate write-off due to selling property, which is uncommon, will yeild future profitability, and was a prudent move. Also, a lower profit could result in freeing cash flow, by paying off debts early. Should these actions be punished because delta profit is affected?

I don't think you exactly understand how financial accounting works. "Previous Profit" is just cash on hand, or some other asset that was purchased with this profit that now exists on the debit side of the balance sheet.

And, these losses can, in fact, be amortized, should a CEO choose to do so (though, this would be a drag on future profit and the better long term decision would be to take the hit immediately and free up future quarters for additional profitability)


Using previous profits to pay for these expansion costs will make a company have a loss, but not necessarily put them in a worse position, or truly affect their ultimate profitability, as their revenues - normal expenses remained the same. Also, is an equal amount of profit worse with increased market share and/or revenue any worse than flat everything?

Again, not how it works.



Why is an employee in an equity position?
Is it fair if the CEO were to die before these profits were realized?

Life is full of risk, and it's not inherently fair. Is it fair that a CEO comes in, ruins a company, puts them in chapter 11 and an employee loses the pension they've worked their whole life to earn?

The CEO has a massive upside potential, more than any other employee in the company BY FAR. Sorry, but that necessitates some additional risk.

OK, give employees a golden parachute as well and we'll call that a wash.

Employees have less risk and are generally more mobile.

Not if you have your way...CEOs get everything, no matter what the result of their performance is...in the interest of "fairness"? You realize how ridiculous you sound ridiculous when you say that, right?

It is not a fair comparison. If a company goes bankrupt, and people are playing fair (i.e. not CEOs raiding cash reserves), the employees are paid first. I assume bonuses, if any, are paid after that, then the shareholders.

This is as it should be. Giving your labor in return for compensation is the greatest risk most can take in a society, and while a CEO is doing the same, AGAIN, their upside income potential is so enormous that they are not in anything close to the position of the regular employee should that compensation not occur.

Again, why would they opt to pay for a bonus?

I don't understand what you're saying here.

Plus, you are assuming that the specific goals of the company are to make a profit. It could be to weather a storm, expand, or increase market share. So, while the CEO did a "bad job" in our opinions and doesn't seem to deserve a bonus, perhaps he succeeded in his goals of which we are unaware.

Nope, it's make a profit. That is the ONLY goal of a corporation.

I would think the ethical duty of the board is to ensure the success and longevity of the company, not profits per se.

You'd be wrong.

Operating at a loss to weather a recession is more important than posting a profit, in the short-term. Obviously, after a while, profits need to be realized, but not necessarily in any specific quarter or year.

Do you have any idea how huge of a profit is available in a recession if you know what you're doing and have the capital to do it? More millionaires are created during recession than are during boom-time.

It is not an excuse if a monopoly, say Apple and their iPods, is not competitive and loses market share with MP3s. Or, if all of a sudden a specific company loses business, like a pizza place has bad PR due to a viral video of dumbass employees.

Oh...poor monopolist...(seriously...SERIOUSLY!?!?)

I didn't say it has value, but it is not income. ...

Here is a pile of gold if you mow my lawn. The gold has not been converted into dollars, but it easily can be...JUST LIKE OPTIONS. Did you make the income when you received the gold or when you sold it for dollars (and, options are at least as liquid as gold)



The amount is irrelevant,

Having been on both sides of those offers, let me tell you, it's not.

and I don't see why one is offered a lesser option than the other, as, to my understanding, options are to be offered at the lesser of the current traded value or the lowest amount in X period of time, generally one year. Why would the CEO get a lower option cost than an employee?

Options are offered at a variety of strike prices to various levels of employees. Options are a contract, and companies are under no obligation to offer every employee the same contract in this instance.


The fact is, neither are considered income, and I doubt options are factored into the employee's wages stats. You say it is big companies, but this is the Fortune 50; if not them, who else would offer options to employees.

At the 100 shares level where those shares are at a high strike price and don't mature for years, they shouldn't be. These are not indicative of CEO stock options, though.

Actually, it likely is (perk)...
Fair enough, but I like to compare income to income, and a loan is not income. It is compensation, or at least the lost interest revenue is, but I would not call it income.

The free interest is income...as it should be accruing but isn't.


If the debt is forgiven, then it is income, just as credit card debt is income if it is written-off. (1099-C)

yes, principal is not income until forgiven.

If I got a special perk of a 0% credit card on which I was under no obligation to make monthly payments I would. You're g0ddam right I would, in fact.
You would call that income, or you would take the card? I still would not call it income, until it was written-off.

Again, market interest rate which is not accruing is income.
War is over, if you want it.

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Greyparrot
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1/16/2013 8:39:39 PM
Posted: 3 years ago
Centrally planned economies suck. Why do you think it is a good idea to have some concerned and likely unqualified entity force a businesses to what they can invest in and how to spend their own money?
malcolmxy
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1/16/2013 8:41:14 PM
Posted: 3 years ago
At 1/16/2013 8:39:39 PM, Greyparrot wrote:
Centrally planned economies suck. Why do you think it is a good idea to have some concerned and likely unqualified entity force a businesses to what they can invest in and how to spend their own money?

because short term profiteering leads to long term inefficiency?
War is over, if you want it.

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Greyparrot
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1/16/2013 8:44:58 PM
Posted: 3 years ago
Of course- the age old mantra of the left, "We need to be saved from our own human nature." Too bad the government is not run by aliens, or are they?
darkkermit
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1/16/2013 8:52:16 PM
Posted: 3 years ago
At 1/16/2013 8:44:58 PM, Greyparrot wrote:
Of course- the age old mantra of the left, "We need to be saved from our own human nature." Too bad the government is not run by aliens, or are they?

Greyparrot, stop being a fvcking idiot. The government is run by reptilians not aliens. The aliens merely assist government officials.
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Greyparrot
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1/16/2013 9:25:45 PM
Posted: 3 years ago
At 1/16/2013 8:52:16 PM, darkkermit wrote:
At 1/16/2013 8:44:58 PM, Greyparrot wrote:
Of course- the age old mantra of the left, "We need to be saved from our own human nature." Too bad the government is not run by aliens, or are they?

Greyparrot, stop being a fvcking idiot. The government is run by reptilians not aliens. The aliens merely assist government officials.

my bad.
wrichcirw
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1/16/2013 9:27:47 PM
Posted: 3 years ago
At 1/16/2013 5:32:30 PM, Khaos_Mage wrote:
At 1/16/2013 4:37:45 PM, wrichcirw wrote:
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:

This is why I hate those statstics from unions. The world was much different in the 70s. There was less global competition, less workers (i.e. women), and corporations were smaller. There are many reasons for the increase in the ratio, and most, if not all, are justified. Fair, maybe not, but justified.

Agree.

CEOs do get dividends, so that aids in their lower compensation (see: Warren Buffet). But, by this chart, the average CEO compensation is less than what people think. In real life, people are always talking about how CEOs make hundreds of millions of dollars. In this chart, only two make more than $30 million: one just barely and the other is Apple's CEO of $378 million.

This gets somewhat complicated. Dividends, if any, usually make up a small fraction of CEO pay. Pay is predominately cash and stock options, maybe some restricted stock. Stock options ostensibly track CEO pay to performance, however, options are rife with abuse. Not too long ago, there was a gigantic back-dating scandal, where most senior executives of many, many companies were setting the strike price of their options at the low points of market action. This essentially divorced CEO pay from performance, and married it to outright corruption and greed. If memory serves, the only CEOs caught with accusations were CEOs that were "unlucky" enough to still be within the statute of limitations of their alleged misdoings.

Restricted stock is much less subject to this kind of abuse.

Pay should be based on performance, which is not always to make the most profit every year. I think the arguments against the golden parachute are unfounded, largely because people claim the company is worse off than when the 2-year CEO took over, and yet he gets a huge bonus. This may be true, but we, as the public, do not know what the contract was for, and what the goal was. For example, if the company was headed for bankruptcy in two years, and now, while still in bad shape, the company can survive for another five, that is an improvement, even if no profits were posted and layoffs occurred.

This gets to very nebulous ground. A corporation has one and only one goal - to make a profit. How exactly it goes about doing this is where we get the various corporations we see in the market. A CEO therefore has one charge - to get the company to generate maximum profit given the assets and capital at his/her disposal. A CEO is not paid to take a company into bankruptcy...a CEO is paid to turn the company around and get it to post profit again. If a CEO is let go upon bankruptcy, it is because the CEO was responsible for the bankruptcy. One example of where corporate America got it right was in refusing John Thain a golden parachute (CEO of Merrill Lynch for the two years before it merged with BofA). Merrill was responsible for BofA requiring the large bailouts it got via TARP. Does it sound unfair, given that Thain was not the one that set the gears in motion that turned Merrill into such a time bomb? Of course it's unfair, but still appropriate. What is far less appropriate was to pay Thain's predecessors large CASH payouts upon retirement, as they were largely responsible for setting Merrill on a path to oblivion. Those former CEOs should have been given stock that was restricted until the long term, meaning that the fate of their wealth would have been tied with the fate of the company. Such pay packages would have made CEOs much more conscious of longer term strategy instead of being myopically aware of the short term.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
wrichcirw
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1/16/2013 9:42:12 PM
Posted: 3 years ago
At 1/16/2013 5:18:52 PM, Khaos_Mage wrote:
At 1/16/2013 4:41:09 PM, malcolmxy wrote:
At 1/16/2013 4:23:53 PM, Khaos_Mage wrote:
When people complain about CEO, how do they measure "unfair"?

It took some research, but I found that in 2011, of the 35 companies shown from the Fortune 50 (not 500), only 8 had total compensation of at least one-half of one percent of profits, with two additional companies having losses (only 3 CEOs made more than 1% of total profits).

Furthermore, only 7 of these companies pay their typical employee (median wage) less than $50,000: two banks, three retailers, one pharmacy/retail, and Berkshire Hathaway owned by a Mr. Warren Buffet.

Keep in mind that profits are less than revenue, and compare that with a local union president pulling in 4.85% of revenue...

So, if one bothers you and the other doesn't, what metric do you use?

http://money.cnn.com...
http://990s.foundationcenter.org...

The measure that should be used is the delta in profit. Was the company MORE profitable after the CEO took the reigns?
So, if a CEO enters into a failing company, and no improvements have been realized for two years (as things take time), should he not be paid? Should the delta in profit be used when paying managers?

In my proposal in the debate, I proposed that CEOs should just get a gigantic lump sum of restricted company stock. There would be a token dividend from this stock, and this dividend would essentially be the CEO's salary. Therefore, if a CEO enters into a failing company and is able to stem the bleeding, but unable to completely turn it around, their salary would be unaffected...however the restricted company stock would languish until the CEO did turn the company around. This ties CEO pay to performance, and forces/motivates a CEO to really turn the company around and get it profitable again. If a CEO can't he/she deserves to fail, and to receive little if any pay from shareholders. Keep in mind that if a CEO leads a company to bankruptcy, shareholders get royally f***ed. A CEO's job is to execute the will of the shareholder, and there is not a shareholder in the world that wants their company to be taken into bankruptcy if it is in any way preventable.

Profits are good, obviously, but that isn't always the goal of a company. For example, during expansion or improvements, profits are unlikely as there are uncommon expenses due. Using previous profits to pay for these expansion costs will make a company have a loss, but not necessarily put them in a worse position, or truly affect their ultimate profitability, as their revenues - normal expenses remained the same. Also, is an equal amount of profit worse with increased market share and/or revenue any worse than flat everything?

All of these things, expansion, improvements, etc...ALL contribute to profitability. Sure, in the short term there may be some losses...this is why the concept of TOTAL SHAREHOLDER RETURN is so important. Investments in plant and equipment still show as assets on a company's balance sheet, and while the amortization of such assets may show up as losses in the short term, in the longer term these assets are expected to produce far more profit for the firm than if they simply paid out the capital as dividends to shareholders.

Therefore, what I bolded in your comment is simply not correct. PROFIT IS ALWAYS THE GOAL OF ANY COMPANY.

Also, it's not the CEO's yearly pay that is the issue. It is the so-called golden parachute (more like a golden shower) that allows a failing CEO to gang rape employees and investors that is the detestable portion of their compensation.

It leaves a bad taste in my mouth, but should it? Are not employees at least partly to blame for the tanking business? Should they not be aware of the sinking ship and act accordingly?

Employees get fired, and do get a parachute of some sort, if they're lucky.

As for investors, shareholders elect the board who hire the CEO and negotiate his contract. So, the shareholders are raping themselves. Bondholders were already taking a risk, so they are not raped any worse off.

This is the primary problem. The solution is to abolish the practice of giving a CEO a lavish golden parachute upon wrecking a company.

Plus, you are assuming that the specific goals of the company are to make a profit. It could be to weather a storm, expand, or increase market share. So, while the CEO did a "bad job" in our opinions and doesn't seem to deserve a bonus, perhaps he succeeded in his goals of which we are unaware.

Everything in bold is geared towards one purpose - PROFIT. If the path to profitability is not clear, it does not matter how much market share, weathering of storms, or expansions a company undergoes. If there is no profit in doing so, the company deserves to fail. Shareholders get f***ed, and CEOs should get f***ed as well.

In addition, I'm guessing you've not included interest free loans and stock options, etc as part of your analysis, though I freely admit that I did not check this for myself.

From the article's graphic:
"Total CEO compensation is calculated as the sum of base salary, discretionary and performance-based cash bonuses, the grant date value of stock and option awards, and other compensation such as benefits and perks."

I do not know if this would include the specific items you addressed, but I would not count them as compensation. A stock option is not income unless it is sold, and the income only comes with my investment. A lot of companies offer stock options to their employees, and I don't know if those are exercised or not, or counted or not. The loan is likely not included, but it shouldn't be, as it is not income, it is a loan. You do not count your credit card purchase as income, do you? At best, the only income should be the saved interest, which may be included.

A stock option is a cash equivalent. It is not supposed to be, but CEOs, especially when they sit on their own compensation committees in the boards of their own companies, get very creative in turning stock options into a printing press that churns cash out for themselves regardless of company performance. It is income, it is typically included as pay in a CEO's pay package, and it is probably the most problematic component of a CEO's pay package because of how easily it can be abused.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
malcolmxy
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1/16/2013 9:44:11 PM
Posted: 3 years ago
At 1/16/2013 8:44:58 PM, Greyparrot wrote:
Of course- the age old mantra of the left, "We need to be saved from our own human nature." Too bad the government is not run by aliens, or are they?

I'll take Weathering Recession for $800, Alex.

...and the answer is -

A VIDEO DAILY DOUBLE

This economic powerhouse, located in Asia, has weathered the current global financial crisis to a much lesser degree of loss than nearly any other nation on the planet.
War is over, if you want it.

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malcolmxy
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1/16/2013 9:46:16 PM
Posted: 3 years ago
At 1/16/2013 9:42:12 PM, wrichcirw wrote:

^^^what he said (which is eerily exactly the same as what I said.)
War is over, if you want it.

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Greyparrot
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1/16/2013 9:46:18 PM
Posted: 3 years ago
At 1/16/2013 9:44:11 PM, malcolmxy wrote:
At 1/16/2013 8:44:58 PM, Greyparrot wrote:
Of course- the age old mantra of the left, "We need to be saved from our own human nature." Too bad the government is not run by aliens, or are they?

I'll take Weathering Recession for $800, Alex.

...and the answer is -

A VIDEO DAILY DOUBLE

This economic powerhouse, located in Asia, has weathered the current global financial crisis to a much lesser degree of loss than nearly any other nation on the planet.



Cause CEO's are responsible for government stimulated bubbles? KK gameshow host.
wrichcirw
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1/16/2013 9:50:48 PM
Posted: 3 years ago
At 1/16/2013 7:13:26 PM, malcolmxy wrote:
At 1/16/2013 7:01:30 PM, Khaos_Mage wrote:
At 1/16/2013 7:00:57 PM, Khaos_Mage wrote:
At 1/16/2013 6:02:14 PM, malcolmxy wrote:
You ridiculous advocates for CEO salaries are all for a free market until the risk in that market necessarily is bore by your precious CEOs.

Like any other employee, a CEO deserves a portion of the value added from his/her employment at that company, NO MORE, but certainly no less either.

I wasn't aware that a voluntary contract, which awards a bonus for poor performance, was not a free-market idea...

I have no source, but from what I have seen over the last couple of years, the majority of CEO compensation is stock awards and stock options. Neither of these are direct costs to the company.

They are direct costs to shareholders via dilution. Malcolmxy is right below, in that shareholders combined ARE The company, and therefore anything that is a cost to the shareholder is a cost to the company. Dilution essentially siphons off part of the company's earning stream and directs it into the newly created shares. Earnings dilution is not a way to increase total shareholder return.

And, if anything, should piss off the shareholders, as it dilutes their shares.

shareholders ARE the company. Once you own ALL the equity in a home, you own the home.

Shareholders, when combined, own all the equity in a company.

However, options don't create shares of stock. If the option is not immediately exercised and then sold (an option with an option, typically),the stock comes out of the shares the company has repurchased from those outstanding on the market (also what is used in an immediate sell scenario, but then they are immediately reacquired...it costs the company the difference between strike price and market price at the time the option is exercised)

Options create obligations for a company to repurchase stock, if the company does not simply issue more shares and force dilution. Either path is not preferable to shareholders, as the former is a drain on company cash, whereas the latter is never desirable for shareholders.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?