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We all (OK, maybe just me) agree that the free market is the way to go, competition, prosperity, etc. But the free market is an ideal which is easy to game. CE

by bh42 16y ago

We all (OK, maybe just me) agree that the free market is the way to go, competition, prosperity, etc. But the free market is an ideal which is easy to game. CEOs hand picking the board, and the board then turning around and deciding on the CEOs compensation is an example of the free market being gamed. It's a bit more complicated then that, it requires the government enforced and defined legal entity that is a corporation, but it's still market inefficiency, mostly agency risk. So in a way, it is the public's concern to remove market inefficiencies.

ihodes 16y ago
But it's not. If the company can succeed with the inefficiency, then it's not that big an inefficiency. It's a much more difficult argument to say that it is the public's concern to eliminate every inefficiency. God, imagine the employment opportunities for fixing poorly designed enterprise software... But no one is arguing that we do that. It is so easy to agree to not let an individual get rich from an inefficiency. This is not to say I don't agree that it's a terrible, idiotic practice. But it's not my decision to step in.
- sprout 16y ago
  The point is you're already stepping in. There are tons of laws just like this one on the books, and the whole concept of a corporation falls apart without these laws. Throwing up your arms and saying "it's not my decision to step in" is silly. The public is already stepping in through hundreds of regulators, and it seems pretty self-evident that these regulators need a better framework. (Or we could get rid of them, but we can't really do that without getting rid of the corporations, and even then we're looking at something that probably is not really as good an idea as it might sound.)
anamax 16y ago
> But the free market is an ideal which is easy to game. CEOs hand picking the board, and the board then turning around and deciding on the CEOs compensation is an example of the free market being gamed. I want to own stock in such corporations. (Seriously. None of the "good governance" stuff has ever correlated with the thing that I want out of a stock, namely, return on my investment. I've no objection to you investing in companies to feel good about yourself, but I'm in it for the money.) If you think that a given company's CEO compensation is wrong, don't own the stock.
- bh42 16y ago
  If you think that a given company's CEO compensation is wrong, don't own the stock. This assumes good competition among CEO compensations. But when I say "game", I mean that there's essentially a cartel of CEO compensation among all publicly traded companies, so that you can not just invest in a company which does not overpay the CEO.
  - anamax 16y ago
    > I mean that there's essentially a cartel of CEO compensation among all publicly traded companies, so that you can not just invest in a company which does not overpay the CEO. Oh really? Google and Apple's CEOs make $1. Forbes regularly profiles companies whose CEOs make significantly less (and more) than what you claim is the only game in town. And if you think that other countries do it better, you can buy stock in many of their companies via ADRs. (IIRC, Japan's CEO pay works somewhat like you'd like.) I note that you didn't acknowledge that CEO pay practices don't have investor benefits, so why do you care? More to the point, since you can easily choose companies that work the way that you'd like, why should my choices be limited?
    - isleyaardvark 16y ago
      Compensation is more a side effect of the issue discussed in the link. Shareholders are unable to even make a nomination for the board of directors, so the very people who own the company are unable to make decisions regarding how the company is run. There's more info in this Motley Fool article: http://www.fool.com/investing/general/2010/06/18/dont-let-washington-kill-shareholder-rights.aspx http://www.fool.com/investing/general/2010/06/18/dont-let-wa... Even huge pension funds typically hold no more than 0.3% to 0.5% of large and medium-sized companies, so it's impossible to picture that happening very often.

by bh42 16y ago

ihodes 16y ago

But it's not. If the company can succeed with the inefficiency, then it's not that big an inefficiency. It's a much more difficult argument to say that it is the public's concern to eliminate every inefficiency. God, imagine the employment opportunities for fixing poorly designed enterprise software... But no one is arguing that we do that. It is so easy to agree to not let an individual get rich from an inefficiency. This is not to say I don't agree that it's a terrible, idiotic practice. But it's not my decision to step in.

sprout 16y ago
The point is you're already stepping in. There are tons of laws just like this one on the books, and the whole concept of a corporation falls apart without these laws. Throwing up your arms and saying "it's not my decision to step in" is silly. The public is already stepping in through hundreds of regulators, and it seems pretty self-evident that these regulators need a better framework. (Or we could get rid of them, but we can't really do that without getting rid of the corporations, and even then we're looking at something that probably is not really as good an idea as it might sound.)

anamax 16y ago

> But the free market is an ideal which is easy to game. CEOs hand picking the board, and the board then turning around and deciding on the CEOs compensation is an example of the free market being gamed. I want to own stock in such corporations. (Seriously. None of the "good governance" stuff has ever correlated with the thing that I want out of a stock, namely, return on my investment. I've no objection to you investing in companies to feel good about yourself, but I'm in it for the money.) If you think that a given company's CEO compensation is wrong, don't own the stock.

bh42 16y ago
If you think that a given company's CEO compensation is wrong, don't own the stock. This assumes good competition among CEO compensations. But when I say "game", I mean that there's essentially a cartel of CEO compensation among all publicly traded companies, so that you can not just invest in a company which does not overpay the CEO.
- anamax 16y ago
  > I mean that there's essentially a cartel of CEO compensation among all publicly traded companies, so that you can not just invest in a company which does not overpay the CEO. Oh really? Google and Apple's CEOs make $1. Forbes regularly profiles companies whose CEOs make significantly less (and more) than what you claim is the only game in town. And if you think that other countries do it better, you can buy stock in many of their companies via ADRs. (IIRC, Japan's CEO pay works somewhat like you'd like.) I note that you didn't acknowledge that CEO pay practices don't have investor benefits, so why do you care? More to the point, since you can easily choose companies that work the way that you'd like, why should my choices be limited?
  - isleyaardvark 16y ago
    Compensation is more a side effect of the issue discussed in the link. Shareholders are unable to even make a nomination for the board of directors, so the very people who own the company are unable to make decisions regarding how the company is run. There's more info in this Motley Fool article: http://www.fool.com/investing/general/2010/06/18/dont-let-washington-kill-shareholder-rights.aspx http://www.fool.com/investing/general/2010/06/18/dont-let-wa... Even huge pension funds typically hold no more than 0.3% to 0.5% of large and medium-sized companies, so it's impossible to picture that happening very often.