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"However, my point is that unchecked executive pay is not good for anyone. We don't live in a free market. There ought to be some way to cap pay." Why? To all

by edanm 9y ago

"However, my point is that unchecked executive pay is not good for anyone. We don't live in a free market. There ought to be some way to cap pay." Why? To all those questions. I mean, in some specific cases you might be right, but in the case of shareholders, who own a company, deciding how much to pay to the executive that they choose to run that company, why would someone else need to be involved in that decision? Who is supposedly losing out here? The shareholders themselves? They (vicariously) own the money in the company, and choose how much of it to pay to the executive, because they believe that's the best way to make more money in the long run. Why do you think you know better than them, when they're actually betting money on it? Or is someone else being hurt here? Also, as far as I understand it, you're mixing two different things by proposing to "fix" this with an income tax. You said in the paragraph above that executive pay is not good for anyone, which I presumed to be about (or at least to include) the shareholders of the company. But by introducing taxing, you are quite literally talking about taking money from the shareholders and giving it to the government. So at least in this way of doing it, you're quite literally not protecting the shareholders but rather "harming" them. (This doesn't make income taxes bad or anything, I'm just pointing out that one thing they're not good for is to protect shareholdres, IMO).

ebbv 9y ago
The idea that shareholders own the company and are therefore good, objective arbiters of CEO pay sounds good on paper but even the simplest of examinations of how this functions in reality should tell you what the problems are. First, the board who decides the CEO pay are not objective. They are friends with the CEO. They are not objective. The social circles of boards of large companies and the CEOs they hire is not that big, and they do not think objectively about each other. Second, there's no real motive for them to be strict with the CEO; there's every motive to be overly generous. If they give the CEO ultra generous pay and bonuses, they then expect (and receive) to be treated in the same way when the shoe is on the other foot. When the CEO is on a board for a company they are an executive at. Executve pay has been on an insane runaway explosion for years. You can say "That's because the companies are so successful!" But Yahoo is evidence success has nothing to do with it. And I would argue even if it were due to success; the workers should be benefit at least as much as executives, and they don't.
- edanm 9y ago
  "First, the board who decides the CEO pay are not objective. They are friends with the CEO. They are not objective." Well you might be right, but aren't hostile takeovers, activist shareholders, etc. disproof of that? In fact, the article mentions that it was activist investors who had Marissa Mayer instated, though I don't really know the history of Yahoo that well. "Executve pay has been on an insane runaway explosion for years. You can say "That's because the companies are so successful!" But Yahoo is evidence success has nothing to do with it." It's pretty weak evidence, considering that Yahoo was very succesful for its shareholders. I mean it's one thing to make the argument when the company fails, which I still don't buy. But to make the argument when a company succeeds, by claiming it didn't succeed enough, or that the CEO wasn't enough responsible for the success?! (Defining success as what shareholders care about in this case, which is making money). We can see examples of CEOs who do much worse and destroy lots of value. And I'm not even talking about the fact that they had to pay Marissa Mayer enough to take the risk, or that you can't judge investments solely on whether they succeed or not, since all investments are risks. But I'm still left with one thing I simply don't understand here - who are you trying to protect that is getting hurt? The shareholders? How are you protecting them by limiting the ways in which they can use their money? If you really think that shareholders aren't well represented and therefore make bad decisions, then maybe you're right, but wouldn't the solution be to fix that problem, instead of attacking a symptom? "And I would argue even if it were due to success; the workers should be benefit at least as much as executives, and they don't." Not sure what you mean by "at least as much", but workers do benefit. They tend to hold shares of the company, which have increased in value just as much as the CEO's shares. Salaries in e.g. tech companies are much higher, which is another way in which workers benefit.
  - ebbv 9y ago
    Workers in general do not hold shares of companies. It is a small minority of workers in the US who have shares of their company. The workers are who I'm concerned about, not the board members. The workers suffer from the current trend of executives and boards looking out only for themselves and their fellow large shareholders. Even when workers do have some shares of their company; I'm sure most Yahoo employees who were laid off would rather still have their jobs than get a final small dividend when Yahoo was sold off.
soVeryTired 9y ago
Which shareholders exactly, though? Asset managers like vanguard, blackrock and others control a large block of shares in many large companies, and don't really have skin in the game in the same way small investors do. Blackrock in particular have changed their tune recently, but in 2016 they voted in favour of 99% of all executive pay packages: http://m.pionline.com/article/20170418/ONLINE/170419868/blackrock-opposes-shareholder-proposal-critical-of-firms-proxy-voting-on-executive-compensation http://m.pionline.com/article/20170418/ONLINE/170419868/blac...
- chimeracoder 9y ago
  > Which shareholders exactly, though? Asset managers like vanguard, blackrock and others control a large block of shares in many large companies, and don't really have skin in the game in the same way small investors do. If you want to make the argument that investors don't have leverage over Fortune 500 companies, Yahoo is a pretty bad example to argue that case. Yahoo has succumbed more than once to pressure from investors during Mayer's tenure - look at the Alibaba spinoff, for example. (That was halted, but only because the IRS changed the tax treatment, making it no longer financially viable for investors). As for Vanguard and the like, that's a red herring. Vanguard has as much of a skin in the game as its individual shareholders do. If they don't see a problem with the way a company is operating, then that's pretty much all there is to say. If the operations end up affecting the bottom line, they'll put pressure on the company, put pressure on the board, or they'll divest - and we've seen all three of those happen with Yahoo and many other large companies in recent years.
  - soVeryTired 9y ago
    I don't think vanguard do have skin in the game to the same extent that an individual shareholder does. They care about tracking an index, not micromanaging individual companies
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by edanm 9y ago

ebbv 9y ago

The idea that shareholders own the company and are therefore good, objective arbiters of CEO pay sounds good on paper but even the simplest of examinations of how this functions in reality should tell you what the problems are. First, the board who decides the CEO pay are not objective. They are friends with the CEO. They are not objective. The social circles of boards of large companies and the CEOs they hire is not that big, and they do not think objectively about each other. Second, there's no real motive for them to be strict with the CEO; there's every motive to be overly generous. If they give the CEO ultra generous pay and bonuses, they then expect (and receive) to be treated in the same way when the shoe is on the other foot. When the CEO is on a board for a company they are an executive at. Executve pay has been on an insane runaway explosion for years. You can say "That's because the companies are so successful!" But Yahoo is evidence success has nothing to do with it. And I would argue even if it were due to success; the workers should be benefit at least as much as executives, and they don't.

edanm 9y ago
"First, the board who decides the CEO pay are not objective. They are friends with the CEO. They are not objective." Well you might be right, but aren't hostile takeovers, activist shareholders, etc. disproof of that? In fact, the article mentions that it was activist investors who had Marissa Mayer instated, though I don't really know the history of Yahoo that well. "Executve pay has been on an insane runaway explosion for years. You can say "That's because the companies are so successful!" But Yahoo is evidence success has nothing to do with it." It's pretty weak evidence, considering that Yahoo was very succesful for its shareholders. I mean it's one thing to make the argument when the company fails, which I still don't buy. But to make the argument when a company succeeds, by claiming it didn't succeed enough, or that the CEO wasn't enough responsible for the success?! (Defining success as what shareholders care about in this case, which is making money). We can see examples of CEOs who do much worse and destroy lots of value. And I'm not even talking about the fact that they had to pay Marissa Mayer enough to take the risk, or that you can't judge investments solely on whether they succeed or not, since all investments are risks. But I'm still left with one thing I simply don't understand here - who are you trying to protect that is getting hurt? The shareholders? How are you protecting them by limiting the ways in which they can use their money? If you really think that shareholders aren't well represented and therefore make bad decisions, then maybe you're right, but wouldn't the solution be to fix that problem, instead of attacking a symptom? "And I would argue even if it were due to success; the workers should be benefit at least as much as executives, and they don't." Not sure what you mean by "at least as much", but workers do benefit. They tend to hold shares of the company, which have increased in value just as much as the CEO's shares. Salaries in e.g. tech companies are much higher, which is another way in which workers benefit.
- ebbv 9y ago
  Workers in general do not hold shares of companies. It is a small minority of workers in the US who have shares of their company. The workers are who I'm concerned about, not the board members. The workers suffer from the current trend of executives and boards looking out only for themselves and their fellow large shareholders. Even when workers do have some shares of their company; I'm sure most Yahoo employees who were laid off would rather still have their jobs than get a final small dividend when Yahoo was sold off.

soVeryTired 9y ago

Which shareholders exactly, though? Asset managers like vanguard, blackrock and others control a large block of shares in many large companies, and don't really have skin in the game in the same way small investors do. Blackrock in particular have changed their tune recently, but in 2016 they voted in favour of 99% of all executive pay packages: http://m.pionline.com/article/20170418/ONLINE/170419868/blackrock-opposes-shareholder-proposal-critical-of-firms-proxy-voting-on-executive-compensation http://m.pionline.com/article/20170418/ONLINE/170419868/blac...

chimeracoder 9y ago
> Which shareholders exactly, though? Asset managers like vanguard, blackrock and others control a large block of shares in many large companies, and don't really have skin in the game in the same way small investors do. If you want to make the argument that investors don't have leverage over Fortune 500 companies, Yahoo is a pretty bad example to argue that case. Yahoo has succumbed more than once to pressure from investors during Mayer's tenure - look at the Alibaba spinoff, for example. (That was halted, but only because the IRS changed the tax treatment, making it no longer financially viable for investors). As for Vanguard and the like, that's a red herring. Vanguard has as much of a skin in the game as its individual shareholders do. If they don't see a problem with the way a company is operating, then that's pretty much all there is to say. If the operations end up affecting the bottom line, they'll put pressure on the company, put pressure on the board, or they'll divest - and we've seen all three of those happen with Yahoo and many other large companies in recent years.
- soVeryTired 9y ago
  I don't think vanguard do have skin in the game to the same extent that an individual shareholder does. They care about tracking an index, not micromanaging individual companies
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