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It'd be great for investors if the top positions were paid mostly / entirely in stock. That way we can entice a good CEO with high pay and our interests will st

It'd be great for investors if the top positions were paid mostly / entirely in stock. That way we can entice a good CEO with high pay and our interests will still align.

silvestrov 3y ago
That leads to short term thinking and pumping of stocks, often done by firing R&D and maintenance people.
- lotsofpulp 3y ago
  There exist both long term and short term incentive plans. See page 10: https://www.zurich.com/-/media/project/zurich/dotcom/investor-relations/docs/general/board-of-directors-report-zig-march-2020.pdf?rev=79425b28e8b04719b94d040267b85311&sc_lang=en&hash=037DB574EE518259A9915200C00A8EFC https://www.zurich.com/-/media/project/zurich/dotcom/investo...
- aurizon 3y ago
  A major example of this was the decline of Intel (that they are trying to reverse) that was driven by an inane diversion of $$ by accountants who spent billions on 'share buybacks' instead of R&D = the inexorable fall from grace. I have never understood this buyback philosophy and spoke against it(my whispers in a hurricane). It was done to increase the share price - it failed, buckets with no bottoms are hard to fill. Intel now has the chips program they now hope will fill the bucket - they should spend more on the bottom. TBF to Intel, they have stopped the BB and have (hopefully) repaired the bucket and might regain their lost stature. I see another bad act in the form of patent 'mining', a high brow form of trolling.
  - lotsofpulp 3y ago
    > I have never understood this buyback philosophy and spoke against it(my whispers in a hurricane) Buybacks come from net income (profit). A business always has a choice of using the profit to pay the business’s owners (via dividend or buybacks) or to invest it back into the business (such as spending on R&D). Obviously, what portion of the profit is ideal to spend on R&D and what portion of the profit to pay to owners is not an objective truth. And buybacks are nothing special, except that they allow more flexibility in how to reward the owners.
    - yborg 3y ago
      >Buybacks come from net income (profit) Never confuse the textbook economics with the reality of individual incentives. Company management used the low interest rate environment of the recent past to borrow money that was then used in buybacks. Executive management generally is in a no-lose situation with regard to compensation, there may be long-term incentives, but the CEO generally can exit within the term of their employment contract with a sizable payout even if they blow up the company. The board is supposed to prevent such tactics, but US corporate governance is largely about cross-pollinating memberships so that CEOs can all vote 'yes' on each other's pay packages.
      - lotsofpulp 3y ago
        > Company management used the low interest rate environment of the recent past to borrow money that was then used in buybacks. Are people who buy stocks not incorporating the increased debt levels of the business in their valuation of the share price?
        Retric 3y ago
        What’s the alternative? Due to inflation people with large amounts of capital have little choice but to invest somewhere. Ultra safe bonds are also ultra low yield which limits options.
        lotsofpulp 3y ago
        The alternative to buying a business that has borrowed too much and hence will have poor return on investment is to not invest in the business. It is always a choice to take more risks than the bare minimum (i.e. buying USG debt). If a business borrows money, and people still buy the shares, then that means people are willing to bet the amount borrowed will still allow for a sufficient return on investment. So where is the problem?
        Retric 3y ago
lotsofpulp 3y ago
They do. In the case of Farmers, see page 13. https://www.zurich.com/-/media/project/zurich/dotcom/investor-relations/docs/general/board-of-directors-report-zig-march-2020.pdf?rev=79425b28e8b04719b94d040267b85311&sc_lang=en&hash=037DB574EE518259A9915200C00A8EFC https://www.zurich.com/-/media/project/zurich/dotcom/investo... You can see executive compensation details in any 10-K. But people still like to use the nominal values of the shares to stoke emotions.
gorjusborg 3y ago
I'd also be great if we collectively admitted that one person (no matter who they are) can determine the success of a large organization of people. Today, we compensate them like they are doing the lion's share of the work.
- Invictus0 3y ago
  Not seeing many successful CEO-less companies. When you start your democratic/committee-led company, please let us know.
  - gorjusborg 3y ago
    I'll assume you are arguing in good faith, but I doubt it, considering your tone. I did not say anything about a leaderless company. I said that the current perceived value of C-suite contributor is way over-inflated. That culture can and should change.
    - Invictus0 3y ago
      Ok, let's look at how a bad CEO can affect a company. When Zuckerberg decided to pursue the Metaverse, he took Meta's market cap from $1.1T in September '21 to $244B in October '22. 1 year, $850 billion in value destroyed. So, it should be clear now that one person can have a lot of power over the business. How much should they be compensated when they wield that much power? I'm guessing you think it's less than $1M per year.
      - gorjusborg 3y ago
        I don't have a number in mind, my feeling is directional. I also don't think compensation is the only/best tool to prevent or punish bad decsion making. There have been cases where developer/dba have put companies out of business with a poor decisions. We don't pay them millions of dollars to 'get the best' we put processes in place to prevent issues like that. Otherwise, I'd suggest doing the same thing to the bad CEO that you'd do to other employees: fire them. That's why you have a board.
Retric 3y ago
Paying people with stock is more expensive than paying with cash because of the uncertainty involved. Executives adjust for risk premiums just like anyone else. Further, suppose you setup long term options and the stock tanks for something completely outside of an executive’s control. They aren’t going to sit around waiting for useless options to vest so you need to increase their compensation package to keep them. Thus they aren’t taking the same risks as investors.

It'd be great for investors if the top positions were paid mostly / entirely in stock. That way we can entice a good CEO with high pay and our interests will still align.

silvestrov 3y ago

That leads to short term thinking and pumping of stocks, often done by firing R&D and maintenance people.

lotsofpulp 3y ago
There exist both long term and short term incentive plans. See page 10: https://www.zurich.com/-/media/project/zurich/dotcom/investor-relations/docs/general/board-of-directors-report-zig-march-2020.pdf?rev=79425b28e8b04719b94d040267b85311&sc_lang=en&hash=037DB574EE518259A9915200C00A8EFC https://www.zurich.com/-/media/project/zurich/dotcom/investo...
aurizon 3y ago
A major example of this was the decline of Intel (that they are trying to reverse) that was driven by an inane diversion of $$ by accountants who spent billions on 'share buybacks' instead of R&D = the inexorable fall from grace. I have never understood this buyback philosophy and spoke against it(my whispers in a hurricane). It was done to increase the share price - it failed, buckets with no bottoms are hard to fill. Intel now has the chips program they now hope will fill the bucket - they should spend more on the bottom. TBF to Intel, they have stopped the BB and have (hopefully) repaired the bucket and might regain their lost stature. I see another bad act in the form of patent 'mining', a high brow form of trolling.
- lotsofpulp 3y ago
  > I have never understood this buyback philosophy and spoke against it(my whispers in a hurricane) Buybacks come from net income (profit). A business always has a choice of using the profit to pay the business’s owners (via dividend or buybacks) or to invest it back into the business (such as spending on R&D). Obviously, what portion of the profit is ideal to spend on R&D and what portion of the profit to pay to owners is not an objective truth. And buybacks are nothing special, except that they allow more flexibility in how to reward the owners.
  - yborg 3y ago
    >Buybacks come from net income (profit) Never confuse the textbook economics with the reality of individual incentives. Company management used the low interest rate environment of the recent past to borrow money that was then used in buybacks. Executive management generally is in a no-lose situation with regard to compensation, there may be long-term incentives, but the CEO generally can exit within the term of their employment contract with a sizable payout even if they blow up the company. The board is supposed to prevent such tactics, but US corporate governance is largely about cross-pollinating memberships so that CEOs can all vote 'yes' on each other's pay packages.
    - lotsofpulp 3y ago
      > Company management used the low interest rate environment of the recent past to borrow money that was then used in buybacks. Are people who buy stocks not incorporating the increased debt levels of the business in their valuation of the share price?
      - Retric 3y ago
        What’s the alternative? Due to inflation people with large amounts of capital have little choice but to invest somewhere. Ultra safe bonds are also ultra low yield which limits options.
        lotsofpulp 3y ago
        The alternative to buying a business that has borrowed too much and hence will have poor return on investment is to not invest in the business. It is always a choice to take more risks than the bare minimum (i.e. buying USG debt). If a business borrows money, and people still buy the shares, then that means people are willing to bet the amount borrowed will still allow for a sufficient return on investment. So where is the problem?
        Retric 3y ago

lotsofpulp 3y ago

They do. In the case of Farmers, see page 13. https://www.zurich.com/-/media/project/zurich/dotcom/investor-relations/docs/general/board-of-directors-report-zig-march-2020.pdf?rev=79425b28e8b04719b94d040267b85311&sc_lang=en&hash=037DB574EE518259A9915200C00A8EFC https://www.zurich.com/-/media/project/zurich/dotcom/investo... You can see executive compensation details in any 10-K. But people still like to use the nominal values of the shares to stoke emotions.

gorjusborg 3y ago

I'd also be great if we collectively admitted that one person (no matter who they are) can determine the success of a large organization of people. Today, we compensate them like they are doing the lion's share of the work.

Invictus0 3y ago
Not seeing many successful CEO-less companies. When you start your democratic/committee-led company, please let us know.
- gorjusborg 3y ago
  I'll assume you are arguing in good faith, but I doubt it, considering your tone. I did not say anything about a leaderless company. I said that the current perceived value of C-suite contributor is way over-inflated. That culture can and should change.
  - Invictus0 3y ago
    Ok, let's look at how a bad CEO can affect a company. When Zuckerberg decided to pursue the Metaverse, he took Meta's market cap from $1.1T in September '21 to $244B in October '22. 1 year, $850 billion in value destroyed. So, it should be clear now that one person can have a lot of power over the business. How much should they be compensated when they wield that much power? I'm guessing you think it's less than $1M per year.
    - gorjusborg 3y ago
      I don't have a number in mind, my feeling is directional. I also don't think compensation is the only/best tool to prevent or punish bad decsion making. There have been cases where developer/dba have put companies out of business with a poor decisions. We don't pay them millions of dollars to 'get the best' we put processes in place to prevent issues like that. Otherwise, I'd suggest doing the same thing to the bad CEO that you'd do to other employees: fire them. That's why you have a board.

Retric 3y ago

Paying people with stock is more expensive than paying with cash because of the uncertainty involved. Executives adjust for risk premiums just like anyone else. Further, suppose you setup long term options and the stock tanks for something completely outside of an executive’s control. They aren’t going to sit around waiting for useless options to vest so you need to increase their compensation package to keep them. Thus they aren’t taking the same risks as investors.