It's nontrivial to sketch a model where senior management obviously benefits from reducing junior employee wages; it's much easier to sketch a model where senior management obviously benefits by raiding shareholder wealth. The loss to junior employees automatically follows.
I do wonder whether there is some systematic but non-obvious flaw in the way the market for corporate control was liberalized at the same time institutional investors started sloshing money-like securities around.
ronya on
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Through what process is a CEO compensated without costing a company in some way? If you issue equity to the CEO, then that is equity you could have issued for cash elsewhere but did not.
In my experience, companies generally authorize signifigantly more stock than they ever intend to issue, and they plan for executive awards in designing their share model. The effect is that companies can issue stock options, and take significant deductions, with some small amount of shareholder dilution as the only real cost. The calculus changes for private companies (which tend to issue much less stock, thereby increasing thr dilutive effect) but the basic idea holds.
Um. It still costs the company even if the company planned on meeting that cost. Yes, after they have agreed to delegate shares to compensation instead of cash, they don't need to delegate more shares to compensation instead of cash. But that is hardly the point.
They start with more shares than they will ever issue, so it's not really forgone revenue, since, but for the awards, they would not have issued those shares. There is actually an argument that it is beneficial to the company to issue options, since they take what would have been authorized but unissued shares and turn them into a deduction.
I mean... it's an accounting trick that makes it a separate cash pool.
It's all the same cash pool.
Not only that, but this executive cash pool keeps managing to get bigger and bigger...while this other cash pool, that pays other workers? It keeps getting smaller and smaller.
If the best you can come up with against someone who's patently ignorant is to yell back at him, "Yeah? Well there's BOOKS, and they say you're WRONG!"
Then honestly you're not coming out of this looking great either.
Through what process is a CEO compensated without costing a company in some way? If you issue equity to the CEO, then that is equity you could have issued for cash elsewhere but did not.
In my experience, companies generally authorize signifigantly more stock than they ever intend to issue, and they plan for executive awards in designing their share model. The effect is that companies can issue stock options, and take significant deductions, with some small amount of shareholder dilution as the only real cost. The calculus changes for private companies (which tend to issue much less stock, thereby increasing thr dilutive effect) but the basic idea holds.
Um. It still costs the company even if the company planned on meeting that cost. Yes, after they have agreed to delegate shares to compensation instead of cash, they don't need to delegate more shares to compensation instead of cash. But that is hardly the point.
They start with more shares than they will ever issue, so it's not really forgone revenue, since, but for the awards, they would not have issued those shares. There is actually an argument that it is beneficial to the company to issue options, since they take what would have been authorized but unissued shares and turn them into a deduction.
Yes, I realize you're quite well versed in the many byzantine methods that both corporations and those that run them have for extracting value from the lower classes. Whether through lower pay, layoffs, diminished shareholder value, reduced tax burden, whatever the flavor. And have found a way to do quite well for yourself with that knowledge.
I might suggest that this has something to do with your patriotism. If I had found a way to get rich (or at least working-rich) off how fucked up our whole system is, I'd probably love America at least a little more, too.
Through what process is a CEO compensated without costing a company in some way? If you issue equity to the CEO, then that is equity you could have issued for cash elsewhere but did not.
In my experience, companies generally authorize signifigantly more stock than they ever intend to issue, and they plan for executive awards in designing their share model. The effect is that companies can issue stock options, and take significant deductions, with some small amount of shareholder dilution as the only real cost. The calculus changes for private companies (which tend to issue much less stock, thereby increasing thr dilutive effect) but the basic idea holds.
Um. It still costs the company even if the company planned on meeting that cost. Yes, after they have agreed to delegate shares to compensation instead of cash, they don't need to delegate more shares to compensation instead of cash. But that is hardly the point.
They start with more shares than they will ever issue, so it's not really forgone revenue, since, but for the awards, they would not have issued those shares. There is actually an argument that it is beneficial to the company to issue options, since they take what would have been authorized but unissued shares and turn them into a deduction.
It's forgone shareholder value, then. And not just "some small amount" - by definition the dilution needs to be what is needed to cover management compensation and since we're sitting around complaining about the size of this compensation, the corresponding loss in investor wealth must be at least that large, yes?
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
It's forgone shareholder value, then. And not just "some small amount" - by definition the dilution needs to be what is needed to cover management compensation and since we're sitting around complaining about the size of this compensation, the corresponding loss in investor wealth must be at least that large, yes?
That is what I meant when I said that grants are dilutive. But, since the number of shares granted to executives is generally small relative to the total number of shares outstanding, the dilutive effect should not be that large. Remember, high value awards generally mean awards of shares in companies with highly valued shares.
The company could have diluted shares by exactly the same amount and raised revenue instead, so we're going in circles.
That is true, and the only answer I can give is that companies decide how many shares they intend to issue at formation, and then set aside shares for awards over and apart from the shares they will sell.
IMO, the real abuse is when companies agree to allow executives to surrender options to pay the taxes due on their awards when they vest, since that literally means the companies are going out of pocket to pay the executive's taxes.
And, lo, the next step in the circle: that is beside the point; it still costs the company even if the company planned on meeting that cost. Yes, after they have agreed to set aside shares for compensation instead of cash, they don't need to delegate more shares to compensation instead of cash. So? If senior management were less costly, they wouldn't need to set aside so many shares!
You go to the store and you buy an apple. Is it supposed to be meaningfully different if you take out a dollar bill from your wallet and put it in your pocket, go to the store, and say: aha, this apple is free, for I can pay for it from my pocket instead of my wallet. What?!
IMO, the real abuse is when companies agree to allow executives to surrender options to pay the taxes due on their awards when they vest, since that literally means the companies are going out of pocket to pay the executive's taxes.
Shouldn't companies take this tax out of the agreed compensation level beforehand?
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
And, lo, the next step in the circle: that is beside the point; it still costs the company even if the company planned on meeting that cost. Yes, after they have agreed to set aside shares for compensation instead of cash, they don't need to delegate more shares to compensation instead of cash. So? If senior management were less costly, they wouldn't need to set aside so many shares!
You go to the store and you buy an apple. Is it supposed to be meaningfully different if you take out a dollar bill from your wallet and put it in your pocket, go to the store, and say: aha, this apple is free, for I can pay for it from my pocket instead of my wallet. What?!
I agree that we are stuck in a circle here. All I can say is that everything you are saying is right, and logical, but it doesn't comport with how options are handled by companies in the real world. All they care about is the dilutive effect, which they handle by setting the number of shares available for grant, in the same way that they set the maximum number of shares that they are willing to sell, and that for whatever reason they think of the two share pools as being completely distinct from each other and from the pool of issued shares.
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
IMO, the real abuse is when companies agree to allow executives to surrender options to pay the taxes due on their awards when they vest, since that literally means the companies are going out of pocket to pay the executive's taxes.
Shouldn't companies take this tax out of the agreed compensation level beforehand?
Yes, they probably should, but they do not, in my experience. Fortunately, this is a practice that is on its way out due to changes in accounting standards.
You know, if corporate practice is simply too stupid to handle changes in how senior management compensation is arranged, and senior management is therefore compensated excessively because of this - this really is as pure a case of raiding the national capital stock as it can get.
e: which makes CU more troubling; this is already a system incapable of pursuing the basic goal of "maximize shareholder value" and disproportionately awards senior management; now you want it to also pursue "advocate shareholder politics" without disproportionately advocating senior management interests? Good luck.
You know, if corporate practice is simply too stupid to handle changes in how senior management compensation is arranged, and senior management is therefore compensated excessively because of this - this really is as pure a case of raiding the national capital stock as it can get.
There's a quote out there about the Wall Street crash that goes something like "Never before have so many worked so hard to lose so much money."
I agree that we are stuck in a circle here. All I can say is that everything you are saying is right, and logical, but it doesn't comport with how options are handled by companies in the real world. All they care about is the dilutive effect, which they handle by setting the number of shares available for grant, in the same way that they set the maximum number of shares that they are willing to sell, and that for whatever reason they think of the two share pools as being completely distinct from each other and from the pool of issued shares.
So does this alone not evidence, perhaps, a problem? Companies are incapable of even correctly valuing workers within their system and it's lead to top-heavy excessive executive compensation. Which is egregious considering an executive actually brings to a company by and large is not one based on merit or actual ability to lead but rather a portfolio of Rich connections. In short, paying a Rich guy to sit on the board because he's Rich and keeps a lot of the right Rich friends on speed dial, despite any history of past blunders.
So do we want entities this intelligent and self-destructive to the economy, workers and the environment, to be able to spend unlimited amounts of other people's money on political campaigns without their consent...what could go wrong, right? ;p
If the best you can come up with against someone who's patently ignorant is to yell back at him, "Yeah? Well there's BOOKS, and they say you're WRONG!"
Then honestly you're not coming out of this looking great either.
Can you point to examples of where a company has pursued legislation to inhibit competition instead of working to maximize its profits? This seems like a straw man in most cases, to me.
If a company is working to maximize its profits it must, by definition of competitive markets, be pursing legislation to inhibit competition...
The easiest things to point to are intellectual property legislation, "tort reform", and patent law changes which make challenging patents harder.
Equity grants generally do not actually cost a company cash, and depending on the form, can actually raise revenue for the Company.
Wrong. The accounting can make it look like that, but the economics means it cannot happen in any way in which the equity is compensation which would be taxed.
People support a political party or candidate because they believe that candidate will advance their interests. Those interests may be financial, social or ideological. A corporate entity is, at the end of the day, comprised of owners and managers. When they buy political ads, they are hoping to advance their interests, just like anyone else who gets involved in politics.
I don't really see the distinction between and individual spending piles of money versus a corporate entity doing the same.
Managers are not principles. If a corporation wants to advance the political interests of its capital owners, give the money to their capital owners and let them decide how it is spent.
Ah, so the money may be siphoned from the pension funds and other long-term investors, rather than direct layoffs or direct worker pay.
Spiff.
Not defending the practice. Just explaining that most of exec comp is no paid from the same cash pool that is needed to pay rank and file employees.
opportunity costs and fungible money yo, they literally cannot pay the executive in a way that is not needed to pay the rank and file employees it is actually, by the actual laws of physicsal interactions as we know them, impossible. (so long as we are willing to acquiesce to the concept that labor and capital can be used for multiple uses, which is not a stretch)
If exec's are are paid in X, where X is not cash, that X could be exchanged for its value in cash and now is part of the cash pool. The value of capital transfer is the value that it can be sold for cash and put into the cash pool.
If a corporation simply expands its stock equity base then the excess value comes from a reduction in value of the stock to the rest of the owners. The corporation could have, instead of issuing that money to the executive, sold that new stock on the market, wherein it would have cash that it could then pay to workers.
Goumindong on
0
Options
AManFromEarthLet's get to twerk!The King in the SwampRegistered Userregular
How is this even a debate? People shouldn't be able to just buy fucking elections. Jesus Christ.
It's bad enough that people can do it on their own, fuck letting corporations do it. You work for a corporation, maybe you even have some stock in it. Now say you're a Republican. Do you want the CEO/Board/Whatever giving a shit ton of money to a PAC for a Democratic candidate? (And let's assume it's Sane Republican and Sane Democrat for the sake of argument)
I'm willing to acknowledge that In The Short Run the fungibility of corporate warchest funds, junior employee compensation, and senior management compensation might well be weak, and if there is a (non-obvious) continual pressure of structural change then every run is the short run. Adjustment keeps lagging, so to speak.
The result of such a market imperfection is rent, which in this case goes to senior executives.
I don't buy that. In the "short run" it holds, but the short run it holds for is too short to matter. If you cannot figure out how to change your assets into cash in the years under which your contracts run for then i wonder how businesses even operate. Like, we have to be into "too dumb to sell your products" territory. Buying/trading/re-arranging capital is one of the primary administrative tasks that companies partake in, they decide how many assets to hold, in what proportions and under what structure. They similarly do this for funding sources.
It is just not believable that such actions resulting in this pay are anything but either competitive choices or organizational capture by managers.
Yes: organizational capture. Obviously, managers always exercise a degree of control that cannot be perfectly monitored by the shareholder and from the manager's perspective, corporate funds and funds that contribute to manager compensation (including, say, the quality of office chairs) are obviously not quite identical. It is an open question of whether the usual mechanisms for restraining the principal-agent problem can "keep up" if conditions keep changing to favor the agent. Perhaps it simply doesn't.
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
I don't buy that. In the "short run" it holds, but the short run it holds for is too short to matter. If you cannot figure out how to change your assets into cash in the years under which your contracts run for then i wonder how businesses even operate. Like, we have to be into "too dumb to sell your products" territory. Buying/trading/re-arranging capital is one of the primary administrative tasks that companies partake in, they decide how many assets to hold, in what proportions and under what structure. They similarly do this for funding sources.
It is just not believable that such actions resulting in this pay are anything but either competitive choices or organizational capture by managers.
But what if you are a private company that can only sell shares to a limited pool of investors, each of whom has already purchased the maximum number of shares it is contractually permitted to buy? This is exactly how most private equity club deals are structured.
But what if you are a private company that can only sell shares to a limited pool of investors, each of whom has already purchased the maximum number of shares it is contractually permitted to buy? This is exactly how most private equity club deals are structured.
1 ) Is that a structure of the company or a structure of the law.
2 ) If you cant sell shares why can you give them away?
3 ) Why does this then mean that executives pay pool is separate from employees?
If we say that the pay pool is in equity and is separate from the ability to sell, but not give away in exchange for services (see: The definition of "sell"). Then we still have pay coming at the expense of the capital owners, who are having their capital devalued as a result*.
This must either be made up in higher payouts of dividends, divested capital at the end of the allotted period, or we have accrual of rents. In the non-rent version of the story that money has to come from somewhere, and that somewhere will be fungible with the pay pool of the rest of the employees. If we have rents then well... see my comments on organizational capture
*this is true even if the capital comes from a pool of owned and not issued capital that the "company" is holding, since profits and payments of that capital will at the end of the day, by divested to owners and not management.
Goumindong on
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
1 ) Is that a structure of the company or a structure of the law.
2 ) If you cant sell shares why can you give them away?
3 ) Why does this then mean that executives pay pool is separate from employees?
If we say that the pay pool is in equity and is separate from the ability to sell, but not give away in exchange for services (see: The definition of "sell"). Then we still have pay coming at the expense of the capital owners, who are having their capital devalued as a result*.
This must either be made up in higher payouts of dividends, divested capital at the end of the allotted period, or we have accrual of rents. In the non-rent version of the story that money has to come from somewhere, and that somewhere will be fungible with the pay pool of the rest of the employees. If we have rents then well... see my comments on organizational capture
*this is true even if the capital comes from a pool of owned and not issued capital that the "company" is holding, since profits and payments of that capital will at the end of the day, by divested to owners and not management.
1) it is a structural feature of the company's post acquisition capital structure. It is in no way required by or rooted in law, other than the necessary desire to avoid inadvertently making your private company subject to registration because you have too many shareholders. You can safely give equity to executives without requiring registration in many cases.
2) See above. You can give shares to execs (or even sell them to execs) without requiring registration in most cases. But, law aside, the owners don't want unknown 3rd parties coming in and buying interests Inthe companies, and by also don't want to risk upsetting the agreed on voting controll by allowing existing owners to buy more shares. The result is often a moratorium on sales to 3rd parties. We don't care when execs get grants because they never get enough to control board seats.
3) The pay pools are separate because they are set up that way by contract. The company may do whatever it wants regarding cash pay for execs and rank and file, but in addition, per governing documents, the company can pay execs with stock). This doesn't mean that you can't give rank and file employees stock from this pool (I have seen companies where people who are not even at the VP (let alone the exec vp) level with over a million in company stock) but in general, only people who are already wealthy or up are being paid a lot of cash can afford to be compensated largely in stock. It's hard to imagine someone making $30k agreeing to take half of that in stock, but execs often make 50-90% of their comp in equity in my experience.
I agree completely with the SH cost point (I even raised it myself as part of my initial post on the subject of how execs are paid). The equity holders just factor this into the price they are paying (remember, we are talking private companies, which do not have easily determinable share prices).
spacekungfuman on
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
I don't buy that. In the "short run" it holds, but the short run it holds for is too short to matter. If you cannot figure out how to change your assets into cash in the years under which your contracts run for then i wonder how businesses even operate. Like, we have to be into "too dumb to sell your products" territory. Buying/trading/re-arranging capital is one of the primary administrative tasks that companies partake in, they decide how many assets to hold, in what proportions and under what structure. They similarly do this for funding sources.
It is just not believable that such actions resulting in this pay are anything but either competitive choices or organizational capture by managers.
Almost all comp decisions are made in connection with organizational change. When everything is business as usual, the execs just get paid pursuant to the deals negotiated the last time the company was sold or reorganized. There is literally no time outside the short run for purposes of this discussion, in most cases.
1) it is a structural feature of the company's post acquisition capital structure. It is in no way required by or rooted in law, other than the necessary desire to avoid inadvertently making your private company subject to registration because you have too many shareholders. You can safely give equity to executives without requiring registration in many cases.
An executive who owns shares is a shareholder. How in the world does this even make sense?
2) See above. [..]The result is often a moratorium on sales to 3rd parties. We don't care when execs get grants because they never get enough to control board seats.
Except we aren't talking about board seats, we are talking about compensation. You're claiming that you can pay the execs from this pool, but not sell the pool, or pay anyone else with that pool and that you can do so costlessly. You simply cannot.
Look, if you're paying execs in stock that they cannot vote with then you can simply sell not voting stock. If you're paying execs in stock they cannot vote with and cannot sell then you're simply deferring their compensation.
Almost all comp decisions are made in connection with organizational change. When everything is business as usual, the execs just get paid pursuant to the deals negotiated the last time the company was sold or reorganized. There is literally no time outside the short run for purposes of this discussion, in most cases.
You're confusing what the short run means. If we are talking about a period of time that covers the negotiated deal we are not talking about the short run. Ronya's point was that "there are times when it may not be able to change". But when you are structuring a company and negotiating deals with an executive it can change.
Um. It still costs the company even if the company planned on meeting that cost. Yes, after they have agreed to delegate shares to compensation instead of cash, they don't need to delegate more shares to compensation instead of cash. But that is hardly the point.
They start with more shares than they will ever issue, so it's not really forgone revenue, since, but for the awards, they would not have issued those shares. There is actually an argument that it is beneficial to the company to issue options, since they take what would have been authorized but unissued shares and turn them into a deduction.
Aren't execs paid twice? Or more than that*? I mean, first they get the "salary" which is still some unholy amount of money most blue collar workers never see in their life times then they get shares, too. Which they can cash in when they leave earning them another payday, which can match or be higher then their usual "salary" each year.
Why are execs paid so differently to workers?
* the new Yahoo CEO in the Deadline report in a prior post got paid in several installments, in the millions in a single year. There's no way he deserves that, especially in a poor financial atmosphere in America right now. That's just greed.
1 ) Is that a structure of the company or a structure of the law.
2 ) If you cant sell shares why can you give them away?
3 ) Why does this then mean that executives pay pool is separate from employees?
If we say that the pay pool is in equity and is separate from the ability to sell, but not give away in exchange for services (see: The definition of "sell"). Then we still have pay coming at the expense of the capital owners, who are having their capital devalued as a result*.
This must either be made up in higher payouts of dividends, divested capital at the end of the allotted period, or we have accrual of rents. In the non-rent version of the story that money has to come from somewhere, and that somewhere will be fungible with the pay pool of the rest of the employees. If we have rents then well... see my comments on organizational capture
*this is true even if the capital comes from a pool of owned and not issued capital that the "company" is holding, since profits and payments of that capital will at the end of the day, by divested to owners and not management.
1) it is a structural feature of the company's post acquisition capital structure. It is in no way required by or rooted in law, other than the necessary desire to avoid inadvertently making your private company subject to registration because you have too many shareholders. You can safely give equity to executives without requiring registration in many cases.
2) See above. You can give shares to execs (or even sell them to execs) without requiring registration in most cases. But, law aside, the owners don't want unknown 3rd parties coming in and buying interests Inthe companies, and by also don't want to risk upsetting the agreed on voting controll by allowing existing owners to buy more shares. The result is often a moratorium on sales to 3rd parties. We don't care when execs get grants because they never get enough to control board seats.
3) The pay pools are separate because they are set up that way by contract. The company may do whatever it wants regarding cash pay for execs and rank and file, but in addition, per governing documents, the company can pay execs with stock). This doesn't mean that you can't give rank and file employees stock from this pool (I have seen companies where people who are not even at the VP (let alone the exec vp) level with over a million in company stock) but in general, only people who are already wealthy or up are being paid a lot of cash can afford to be compensated largely in stock. It's hard to imagine someone making $30k agreeing to take half of that in stock, but execs often make 50-90% of their comp in equity in my experience.
I agree completely with the SH cost point (I even raised it myself as part of my initial post on the subject of how execs are paid). The equity holders just factor this into the price they are paying (remember, we are talking private companies, which do not have easily determinable share prices).
The government should make all that open to the public or to a government division responsible for overlooking this. Too much of the business world is "off the books" IMO.
Space, since the pay pool are separate does this mean accountants in either section don't know what the other is doing or how large the other pool is? Is that why the management keeps it divided from the workers pay pool?
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
The government should make all that open to the public or to a government division responsible for overlooking this. Too much of the business world is "off the books" IMO.
Space, since the pay pool are separate does this mean accountants in either section don't know what the other is doing or how large the other pool is? Is that why the management keeps it divided from the workers pay pool?
I'm not sure what oversight would really mean, or if you could change this. We could put the deals out in the public view, but since the shareholders already get disclosure, I'm not sure who this protects. What it would do is make the terms of deals publicly available to competitors, which would probably be harmful to the PE industry, and result in pushes for more comp by execs. One of the great lies in the PE industry is that the sponsors are giving execs their "standard exec package" when they really give execs as little as they can without the execs sabotaging the deal.
3rd party accountants will definitely always be aware of the whole comp picture, as will the CFO. How much rank and file accountants internal to a company are privy too varies wildly from company to company. There are literally companies where only the CEO and CFO know what the CEO and CFO are paid, and how.
1) Publicly-traded companies have their leverage ratio capped by regulation. 10:1 seems like a number that is ridiculously high that might bring things down from the fucking stratosphere they're in now, though I think 5:1 would be much better.
2) Publicly-traded companies are required to disclose how much each of their employees makes. In order to make a capitalist society function properly, it's best if information is kept as symmetrical as possible, and the asymmetrical information that goes along with hiding employee pay is inherently unfair to the workers.
I posted this in chat originally, but decided to stick it here too. Posting at six in the morning with a fussy baby in my lap may be a bad idea, but I was annoyed:
I mean seriously, the goal of the OP couldn't last one post? Patriotism is simply pride in your country, and no one could come up with one damn thing to be proud of their country for? How cynical and self-centered can we be?
You know what, the French kick ass at blending their wine and their food, and I absolutely love them for it. And Americans c-r-u-s-h at beer. Not just the quality and variety you can get here, which is greater than anywhere I've ever been (variety in particular; astounding) from England to Germany to any of the 16 other countries I've visited, but just our knowledge of it. I can walk into nearly any bar or restaurant in the country and get a couple good recommendations on beer based on my favorite brand. That's awesome and amazing to me. And it makes me patriotic.
There is no level of leverage save 1:1 which will immunize your central bank from having to act as LOLR to, of course, the most grandiose and careless lender.
No argument on disclosure, though, albeit it may be more useful to know what each institution owns.
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Taking leverage out of buyouts is really a commentary on what kinds of deals you want to happen, not what the terms of the deals are. PE firms buy undervalued companies, but buying an u devalued company without debt greatly restricts their available options. I have worked on cash only deals during the credit freeze u but they were all tiny $100 mill or less companies. That is bad for the business model, which relies on buying multiple companies in a field and combining them into one more efficient company. Also, tr take private transactions here a PE firm buys a public company would not be possible without leverage. It's really a decisions of hat we want the landscape to allow, but I'm not sure why we would want to en either of these practices.
You can find out what a PE fund owns very easily. The acquisitions are all punchy announced, and the PE firms post their portfolio companies on true web sites in most cases. But I still say requiring disclosure of the deal documents will led to every CEO demanding a pay pakage on par with the biggest one any PE firm has ever given.
You can find out what a PE fund owns very easily. The acquisitions are all punchy announced, and the PE firms post their portfolio companies on true web sites in most cases. But I still say requiring disclosure of the deal documents will led to every CEO demanding a pay pakage on par with the biggest one any PE firm has ever given.
Then the companies should treat their greed like every other workers - no or little negotiation and there's always someone else who can take the job instead. Take their power away. I'd love to see them react to that.
0
Options
spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
But don't forget, the execs at a private company are often the owners or founders, and may be able to block the deal. Sometimes we give people we plan on firing big enough packages to make them think we will keep them on, and then treat it as a transaction cost.
I posted this in chat originally, but decided to stick it here too. Posting at six in the morning with a fussy baby in my lap may be a bad idea, but I was annoyed:
I mean seriously, the goal of the OP couldn't last one post? Patriotism is simply pride in your country, and no one could come up with one damn thing to be proud of their country for? How cynical and self-centered can we be?
This thread has nothing to do with cynicism or self-centeredness. Pretty much everyone disagreed with a few things kungfu said, such as being overjoyed that Americans will work into an early grave for peanuts, and the thread has been that argument.
I don't believe it's cynical to question the necessity of 'pride' when it comes to your country. I certainly appreciate the country I live in, but why must I be prideful?
I don't believe it's cynical to question the necessity of 'pride' when it comes to your country. I certainly appreciate the country I live in, but why must I be prideful?
Do you root for your country's athletes when you watch the Olympics? For me, these athletes are strangers right up until they light the torch and suddenly these strangers transform into unofficial ambassadors who must crush the puny Belgians.
I DIDN'T KNOW WHO MICHAEL PHELPS WAS IN 2007 BUT HE JUST WON THE MOST GOLD MEDALS EVER! USA USA!!
Posts
I mean... it's an accounting trick that makes it a separate cash pool.
It's all the same cash pool.
I do wonder whether there is some systematic but non-obvious flaw in the way the market for corporate control was liberalized at the same time institutional investors started sloshing money-like securities around.
They start with more shares than they will ever issue, so it's not really forgone revenue, since, but for the awards, they would not have issued those shares. There is actually an argument that it is beneficial to the company to issue options, since they take what would have been authorized but unissued shares and turn them into a deduction.
Not only that, but this executive cash pool keeps managing to get bigger and bigger...while this other cash pool, that pays other workers? It keeps getting smaller and smaller.
Suspicious, no?
Yes, I realize you're quite well versed in the many byzantine methods that both corporations and those that run them have for extracting value from the lower classes. Whether through lower pay, layoffs, diminished shareholder value, reduced tax burden, whatever the flavor. And have found a way to do quite well for yourself with that knowledge.
I might suggest that this has something to do with your patriotism. If I had found a way to get rich (or at least working-rich) off how fucked up our whole system is, I'd probably love America at least a little more, too.
I'm getting there, though. Maybe someday.
It's forgone shareholder value, then. And not just "some small amount" - by definition the dilution needs to be what is needed to cover management compensation and since we're sitting around complaining about the size of this compensation, the corresponding loss in investor wealth must be at least that large, yes?
That is what I meant when I said that grants are dilutive. But, since the number of shares granted to executives is generally small relative to the total number of shares outstanding, the dilutive effect should not be that large. Remember, high value awards generally mean awards of shares in companies with highly valued shares.
That is true, and the only answer I can give is that companies decide how many shares they intend to issue at formation, and then set aside shares for awards over and apart from the shares they will sell.
IMO, the real abuse is when companies agree to allow executives to surrender options to pay the taxes due on their awards when they vest, since that literally means the companies are going out of pocket to pay the executive's taxes.
I don't think you're going in circles. You make perfect sense, and I keep being astonished by the mad responses you're getting.
You go to the store and you buy an apple. Is it supposed to be meaningfully different if you take out a dollar bill from your wallet and put it in your pocket, go to the store, and say: aha, this apple is free, for I can pay for it from my pocket instead of my wallet. What?!
Shouldn't companies take this tax out of the agreed compensation level beforehand?
I agree that we are stuck in a circle here. All I can say is that everything you are saying is right, and logical, but it doesn't comport with how options are handled by companies in the real world. All they care about is the dilutive effect, which they handle by setting the number of shares available for grant, in the same way that they set the maximum number of shares that they are willing to sell, and that for whatever reason they think of the two share pools as being completely distinct from each other and from the pool of issued shares.
Yes, they probably should, but they do not, in my experience. Fortunately, this is a practice that is on its way out due to changes in accounting standards.
e: which makes CU more troubling; this is already a system incapable of pursuing the basic goal of "maximize shareholder value" and disproportionately awards senior management; now you want it to also pursue "advocate shareholder politics" without disproportionately advocating senior management interests? Good luck.
There's a quote out there about the Wall Street crash that goes something like "Never before have so many worked so hard to lose so much money."
So does this alone not evidence, perhaps, a problem? Companies are incapable of even correctly valuing workers within their system and it's lead to top-heavy excessive executive compensation. Which is egregious considering an executive actually brings to a company by and large is not one based on merit or actual ability to lead but rather a portfolio of Rich connections. In short, paying a Rich guy to sit on the board because he's Rich and keeps a lot of the right Rich friends on speed dial, despite any history of past blunders.
So do we want entities this intelligent and self-destructive to the economy, workers and the environment, to be able to spend unlimited amounts of other people's money on political campaigns without their consent...what could go wrong, right? ;p
If a company is working to maximize its profits it must, by definition of competitive markets, be pursing legislation to inhibit competition...
The easiest things to point to are intellectual property legislation, "tort reform", and patent law changes which make challenging patents harder.
Wrong. The accounting can make it look like that, but the economics means it cannot happen in any way in which the equity is compensation which would be taxed.
Managers are not principles. If a corporation wants to advance the political interests of its capital owners, give the money to their capital owners and let them decide how it is spent.
opportunity costs and fungible money yo, they literally cannot pay the executive in a way that is not needed to pay the rank and file employees it is actually, by the actual laws of physicsal interactions as we know them, impossible. (so long as we are willing to acquiesce to the concept that labor and capital can be used for multiple uses, which is not a stretch)
If exec's are are paid in X, where X is not cash, that X could be exchanged for its value in cash and now is part of the cash pool. The value of capital transfer is the value that it can be sold for cash and put into the cash pool.
If a corporation simply expands its stock equity base then the excess value comes from a reduction in value of the stock to the rest of the owners. The corporation could have, instead of issuing that money to the executive, sold that new stock on the market, wherein it would have cash that it could then pay to workers.
It's bad enough that people can do it on their own, fuck letting corporations do it. You work for a corporation, maybe you even have some stock in it. Now say you're a Republican. Do you want the CEO/Board/Whatever giving a shit ton of money to a PAC for a Democratic candidate? (And let's assume it's Sane Republican and Sane Democrat for the sake of argument)
The result of such a market imperfection is rent, which in this case goes to senior executives.
It is just not believable that such actions resulting in this pay are anything but either competitive choices or organizational capture by managers.
But what if you are a private company that can only sell shares to a limited pool of investors, each of whom has already purchased the maximum number of shares it is contractually permitted to buy? This is exactly how most private equity club deals are structured.
1 ) Is that a structure of the company or a structure of the law.
2 ) If you cant sell shares why can you give them away?
3 ) Why does this then mean that executives pay pool is separate from employees?
If we say that the pay pool is in equity and is separate from the ability to sell, but not give away in exchange for services (see: The definition of "sell"). Then we still have pay coming at the expense of the capital owners, who are having their capital devalued as a result*.
This must either be made up in higher payouts of dividends, divested capital at the end of the allotted period, or we have accrual of rents. In the non-rent version of the story that money has to come from somewhere, and that somewhere will be fungible with the pay pool of the rest of the employees. If we have rents then well... see my comments on organizational capture
*this is true even if the capital comes from a pool of owned and not issued capital that the "company" is holding, since profits and payments of that capital will at the end of the day, by divested to owners and not management.
1) it is a structural feature of the company's post acquisition capital structure. It is in no way required by or rooted in law, other than the necessary desire to avoid inadvertently making your private company subject to registration because you have too many shareholders. You can safely give equity to executives without requiring registration in many cases.
2) See above. You can give shares to execs (or even sell them to execs) without requiring registration in most cases. But, law aside, the owners don't want unknown 3rd parties coming in and buying interests Inthe companies, and by also don't want to risk upsetting the agreed on voting controll by allowing existing owners to buy more shares. The result is often a moratorium on sales to 3rd parties. We don't care when execs get grants because they never get enough to control board seats.
3) The pay pools are separate because they are set up that way by contract. The company may do whatever it wants regarding cash pay for execs and rank and file, but in addition, per governing documents, the company can pay execs with stock). This doesn't mean that you can't give rank and file employees stock from this pool (I have seen companies where people who are not even at the VP (let alone the exec vp) level with over a million in company stock) but in general, only people who are already wealthy or up are being paid a lot of cash can afford to be compensated largely in stock. It's hard to imagine someone making $30k agreeing to take half of that in stock, but execs often make 50-90% of their comp in equity in my experience.
I agree completely with the SH cost point (I even raised it myself as part of my initial post on the subject of how execs are paid). The equity holders just factor this into the price they are paying (remember, we are talking private companies, which do not have easily determinable share prices).
Almost all comp decisions are made in connection with organizational change. When everything is business as usual, the execs just get paid pursuant to the deals negotiated the last time the company was sold or reorganized. There is literally no time outside the short run for purposes of this discussion, in most cases.
An executive who owns shares is a shareholder. How in the world does this even make sense?
Except we aren't talking about board seats, we are talking about compensation. You're claiming that you can pay the execs from this pool, but not sell the pool, or pay anyone else with that pool and that you can do so costlessly. You simply cannot.
Look, if you're paying execs in stock that they cannot vote with then you can simply sell not voting stock. If you're paying execs in stock they cannot vote with and cannot sell then you're simply deferring their compensation.
You're confusing what the short run means. If we are talking about a period of time that covers the negotiated deal we are not talking about the short run. Ronya's point was that "there are times when it may not be able to change". But when you are structuring a company and negotiating deals with an executive it can change.
Aren't execs paid twice? Or more than that*? I mean, first they get the "salary" which is still some unholy amount of money most blue collar workers never see in their life times then they get shares, too. Which they can cash in when they leave earning them another payday, which can match or be higher then their usual "salary" each year.
Why are execs paid so differently to workers?
* the new Yahoo CEO in the Deadline report in a prior post got paid in several installments, in the millions in a single year. There's no way he deserves that, especially in a poor financial atmosphere in America right now. That's just greed.
The government should make all that open to the public or to a government division responsible for overlooking this. Too much of the business world is "off the books" IMO.
Space, since the pay pool are separate does this mean accountants in either section don't know what the other is doing or how large the other pool is? Is that why the management keeps it divided from the workers pay pool?
I'm not sure what oversight would really mean, or if you could change this. We could put the deals out in the public view, but since the shareholders already get disclosure, I'm not sure who this protects. What it would do is make the terms of deals publicly available to competitors, which would probably be harmful to the PE industry, and result in pushes for more comp by execs. One of the great lies in the PE industry is that the sponsors are giving execs their "standard exec package" when they really give execs as little as they can without the execs sabotaging the deal.
3rd party accountants will definitely always be aware of the whole comp picture, as will the CFO. How much rank and file accountants internal to a company are privy too varies wildly from company to company. There are literally companies where only the CEO and CFO know what the CEO and CFO are paid, and how.
1) Publicly-traded companies have their leverage ratio capped by regulation. 10:1 seems like a number that is ridiculously high that might bring things down from the fucking stratosphere they're in now, though I think 5:1 would be much better.
2) Publicly-traded companies are required to disclose how much each of their employees makes. In order to make a capitalist society function properly, it's best if information is kept as symmetrical as possible, and the asymmetrical information that goes along with hiding employee pay is inherently unfair to the workers.
I mean seriously, the goal of the OP couldn't last one post? Patriotism is simply pride in your country, and no one could come up with one damn thing to be proud of their country for? How cynical and self-centered can we be?
You know what, the French kick ass at blending their wine and their food, and I absolutely love them for it. And Americans c-r-u-s-h at beer. Not just the quality and variety you can get here, which is greater than anywhere I've ever been (variety in particular; astounding) from England to Germany to any of the 16 other countries I've visited, but just our knowledge of it. I can walk into nearly any bar or restaurant in the country and get a couple good recommendations on beer based on my favorite brand. That's awesome and amazing to me. And it makes me patriotic.
Bunch'a curmudgeons.
--LeVar Burton
No argument on disclosure, though, albeit it may be more useful to know what each institution owns.
You can find out what a PE fund owns very easily. The acquisitions are all punchy announced, and the PE firms post their portfolio companies on true web sites in most cases. But I still say requiring disclosure of the deal documents will led to every CEO demanding a pay pakage on par with the biggest one any PE firm has ever given.
Then the companies should treat their greed like every other workers - no or little negotiation and there's always someone else who can take the job instead. Take their power away. I'd love to see them react to that.
Do you root for your country's athletes when you watch the Olympics? For me, these athletes are strangers right up until they light the torch and suddenly these strangers transform into unofficial ambassadors who must crush the puny Belgians.
I DIDN'T KNOW WHO MICHAEL PHELPS WAS IN 2007 BUT HE JUST WON THE MOST GOLD MEDALS EVER! USA USA!!