Speaking of CEO compensation....

[Norman Bernstein]

I found this weeks news about Merril Lynch to be interesting. Their CEO, Stanley O'Neal, was brought in to the job in 2002... and has produced truly abysmal results... for which, the stockholders paid him $48M last year. His downfall: investing in subprime 'junk'.

Hell, I coulda done a really bad job for, say, half that price!

http://www.newsweek.com/id/62176

[Gary E]

Since when do the so called stockholders have a say in anything.... The Board of Directors pretty much controls who is pres... remember, some day the other BoD will elect you to pres and give you a whopping load of options too...

Just how ya gona change it? even if you wanted to?

[Tylerdurden]

I read an article where the CEO of Mattel makes 52000 dollars for his employees 1.(Chinese slaves) I don't think Jesus Christ should get paid like that.

This kind of crap must cease, no man is worth 52000 times more than another.

[Phillip Allen]

Been saying it for years...my left wing cousin insists that CEO's are worth more than ordinary people...

[Tylerdurden]

Been saying it for years...my left wing cousin insists that CEO's are worth more than ordinary people...

I love that crap, one step away from eugenics. The Nazi's made good use of those theory's too.

[Paul Pless]

This kind of crap must cease, no man is worth 52000 times more than another.What about 26000 times??? where do you draw the line on compensation? Is it the same place where you draw the line on talent, ability and vision?

[Uncle Duke]

my left wing cousin insists that CEO's are worth more than ordinary people...No problem with that - the question is "how much more"....52000 time average wages seems too much to everybody except the person getting it and (apparently) the company paying it. 5 times would seem OK to everyone.

And how do we balance that off against a baseball player like A-Rod looking for 20-30 million per year or Tom Cruise getting 20 million up-front for 3 months of work of a film? Tiger Woods getting $100 million from Nike?

[Tylerdurden]

How is it a bean counter, a manager or an actor or sportstar are worth more than the compassionate nurse or the rice farmer feeding a village or the mechanic that makes your vehicle safe.

What makes them more special than the "ordinary people"

I understand higher compensation for harder work, risk or skill but how far?

[Kaa]

How is it a bean counter, a manager or an actor or sportstar are worth more than the compassionate nurse or the rice farmer feeding a village or the mechanic that makes your vehicle safe.

They are not "worth more". However people voluntarily agree to give them money -- often more than you think is proper. It's not your money, though, so you don't get to vote.


I understand higher compensation for harder work, risk or skill but how far?

As far as people who are free to do whatever they want with their money are willing to push it.

Kaa

[Bob Adams]

Hey, I can figure out how to fire people, send work to China and close U.S. factories. Can I be a CEO?

[Tylerdurden]

They are not "worth more". However people voluntarily agree to give them money -- often more than you think is proper. It's not your money, though, so you don't get to vote.



As far as people who are free to do whatever they want with their money are willing to push it.

Kaa

Not my vote but I pay the dividends on this behavior. So if I can prove that others and myself have been harmed can I get my pound of flesh?

[Kaa]

Not my vote but I pay the dividends on this behavior. So if I can prove that others and myself have been harmed can I get my pound of flesh?

Sure you can. I haven't observed a lack of lawyers around, class action tort lawyers in particular -- go ahead and sue.

Kaa

[Tylerdurden]

Sure you can. I haven't observed a lack of lawyers around, class action tort lawyers in particular -- go ahead and sue.

Kaa

Don't need no lawyers, don't need no representatives. Just listen for the roar of the crowd and the sounds of broken glass and the cracklin' of flames. This is all building up to something, something that can only be redeemed with fire.
Sorry to get all militant but I have preached avoidance for the longest time now. I stopped a while back because no matter what anyone says you cannot serve the hunger of a crowd with words any longer. The natives are restless and only need a crack in the fence. Seen it happen before with my own eyes, just not to this scale.

[Kaa]

Don't need no lawyers, don't need no representatives. Just listen for the roar of the crowd and the sounds of broken glass and the cracklin' of flames. This is all building up to something, something that can only be redeemed with fire.

Bread and circuses work well with agitated proles :D


The natives are restless and only need a crack in the fence. Seen it happen before with my own eyes, just not to this scale.

So, do you recommend appeasing the restless natives? With blood or will money do?

kaa

[Tylerdurden]

Bread and circuses work well with agitated proles :D

Not after the barbarians showed up.




So, do you recommend appeasing the restless natives? With blood or will money do?

kaa

I think you will need to amplify the French revolution times a hundred. Mix in severe starvation and unimaginable suffering.
Maybe a little nuclear release along with some biological seasoning and then Mother coming back to flush all the badness away about covers it.
Not pretty but we reap what we have sown. You cannot rape and pillage worldwide for better part of a century and have it any other way.

[George Roberts]

" Hell, I coulda done a really bad job for, say, half that price!"

I suspect your chances of doing that well are much less than you imagine.

---

No one is forced to work at the company. No one is forced to own stock in the company. No one is forced to do business with the company.

Too many people want an easy ride to weath.

[Kaa]

I think you will need to amplify the French revolution times a hundred. Mix in severe starvation and unimaginable suffering.
Maybe a little nuclear release along with some biological seasoning and then Mother coming back to flush all the badness away about covers it.
Not pretty but we reap what we have sown. You cannot rape and pillage worldwide for better part of a century and have it any other way.

Dude, why are you not in New Zealand digging you own bomb shelter and laying in supplies for the Armageddon?

Kaa

[Tylerdurden]

" Hell, I coulda done a really bad job for, say, half that price!"

I suspect your chances of doing that well are much less than you imagine.

---

No one is forced to work at the company. No one is forced to own stock in the company. No one is forced to do business with the company.

Too many people want an easy ride to weath.

Total crap! The majority is forced, Its only a matter of who you will screw in the process. You think most people work at a place because they want to? It all boils down to pay and benefits and availability of work. Most people are just trying to survive and find some comfort. Then there are those who specialize in taking advantage of them.
In those rare instances you will find a small number who made it on their own wits without screwing the guy next to him but that is a small number just the same and getting smaller.

[Tylerdurden]

Dude, why are you not in New Zealand digging you own bomb shelter and laying in supplies for the Armageddon?

Kaa

Naked and fearless dude, I will stand above ground thank you very much. I don't go where the moles go.
I have faith that I will be where I need to be and last as long as I need to last. Being afraid is what others do.
My only regret is that I fear the suffering of the innocent. I am not one of those so I will take my medicine along with everyone else.

[Kaa]

Naked and fearless dude, I will stand above ground thank you very much. I don't go where the moles go.
I have faith that I will be where I need to be and last as long as I need to last. Being afraid is what others do.
My only regret is that I fear the suffering of the innocent. I am not one of those so I will take my medicine along with everyone else.

That's all very melodramatic, oh the naked and fearless one, but unfortunately content-free. Monologues out of comic books do not a conversation make.

Cries of of the coming doom are cheap to utter. How about making some specific predictions, specific with regard to time first of all? I tried to get you to make some -- any -- specific forecast last spring when you were ranting full-on about the financial collapse that was coming this summer. Unfortunately, you declined.

Here's another chance -- do you want to predict any specific event happening at a specific time?

Kaa

[Tylerdurden]

I am not Nostradamus and never claimed to be. You want prediction look up Jeane Dixon or whatever.
I just read the writing on the wall. The fall of Rome wasn't pretty and took a good long while. We have all this technology to help speed up the process but who really knows?
The woman I talked with this morning is convinced that by next summer this place will look a whole lot different. I kinda agree but not because of the comet we saw last night. I think the train is intended to come of the rails before the next election but thats just me.
I do think trying to hold on to the conventions we were taught as youngsters is foolhardy at best. I am with George Carlin, America is dead we just don't know it yet because of the I-phones and Hi Def TV.

I can tell you I did meet a family of three who live in their car behind a restaurant where mom and dad work last week. They are saving to move to warmer climes for the winter. Seems dad worked at a papermill making good money until two years ago. In those two years they have slowly slid to where they are today. God Bless them but as a country that is where we are headed.

[Tylerdurden]

Cries of of the coming doom are cheap to utter. How about making some specific predictions, specific with regard to time first of all? I tried to get you to make some -- any -- specific forecast last spring when you were ranting full-on about the financial collapse that was coming this summer. Unfortunately, you declined.

Here's another chance -- do you want to predict any specific event happening at a specific time?

Kaa

What did I get wrong about the financial collapse? Am I missing something or do I get a different Bloomberg home page than you?

[Norman Bernstein]

" Hell, I coulda done a really bad job for, say, half that price!"

I suspect your chances of doing that well are much less than you imagine.



You just don't READ, do ya? I said I could do a really bad job for half that price... I didn't say I'd do as 'well' as the guy! I'd do BADLY!

[Kaa]

What did I get wrong about the financial collapse? Am I missing something or do I get a different Bloomberg home page than you?

Did the markets crash? Did Fannie Mae or Citi go bankrupt? Did the unemployment skyrocket?

Which financial collapse?

Kaa

[Uncle Duke]

Let's look at the original issue again - from another perspective.
Let's say that I'm CEO of a company which has net annual revenues of $50 million dollars. And let's say that they pay me $65,000 per year. That's OK, right? Actually, seems pretty low.
Well, Merrill has net revenues of $36 Billion per year. That same percentage (0.13%) is $48 million. If I work for Merrill, what is the reason that I should take such a smaller percentage than the guy with a smaller company? And.. how much smaller?

[Kaa]

I am not Nostradamus and never claimed to be. You want prediction look up Jeane Dixon or whatever.
I just read the writing on the wall. The fall of Rome wasn't pretty and took a good long while. We have all this technology to help speed up the process but who really knows?

Ah well. In that case I'll join in the fun.

Hear ye hear ye! At some point in the future some things will go BADLY! There will be wailing and gnashing of teeth! People will suffer!! Moreover, sometime in the future our civilization will cease to exist and be replaced by something else! The United States of America will be no more!! And then, and then our star will burn out and die! Yes, the horrors, the Sun will die!!! You've heard it here first!

Kaa

[Tylerdurden]

Did the markets crash? Did Fannie Mae or Citi go bankrupt? Did the unemployment skyrocket?

Which financial collapse?

Kaa

Pull the curtain back Zippy! Hows the dollar doing? How much has the PPT invested to keep it afloat? Why are central banks floating so much money to the credit markets. Hows oil prices? How much have foreclosures risen?

Like a Jamaican making brains out of Ironwood. Duh!

Like I said DOA but the next of kin have not been notified. I heard the ambulance drive by, open your windows.

[George Roberts]

"I didn't say I'd do as 'well' as the guy! I'd do BADLY!"

I don't think you will do as well as you think you will do - you will do much worse than BADLY. (It appears neither of us thinks the other reads well.)

[George Roberts]

"Yes, the horrors, the Sun will die!!! You've heard it here first!"

Most scientists agree. I have a plan to prevent that from happening. It will cost trillions (payable to me) each year, but we can prevent it from happening.

[Kaa]

Pull the curtain back Zippy! Hows the dollar doing? How much has the PPT invested to keep it afloat? Why are central banks floating so much money to the credit markets. Hows oil prices? How much have foreclosures risen?

Dude, if you call this a "financial collapse" you won't have any words left when the markets really collapse, which they have a habit of doing once in a while.

All that happened in August and since then is normal market turbulence. There's ALWAYS something wrong with the markets -- the perfect stable violins-and-roses state of the economy does not exist.

You do know the tale of the boy who cried wolf, don't you?

Kaa

[Tylerdurden]

Dude, if you call this a "financial collapse" you won't have any words left when the markets really collapse, which they have a habit of doing once in a while.

All that happened in August and since then is normal market turbulence. There's ALWAYS something wrong with the markets -- the perfect stable violins-and-roses state of the economy does not exist.

You do know the tale of the boy who cried wolf, don't you?

Kaa

Ironwood.

[peb]

I won't defend a $48M yearly compensation. It is a scandal that it is on par with that industry.

I will argue that he has not done badly for shareholders. He took over in 2002. In 2003, the stock had a total return of 56%, 2004: 3%, 2005: 25%, 2006: 39%. This year it is down -28% YTD. Not great, but it is a risky industry. According to morning star, the securities industry as a whole is down 33% this year. Companies in that industry tend to be highly leverage. Thats why the PE ratios are so low in that industry. A lot can go wrong.

Yes, norman, you could have done a really bad job for half the price. But with an average 5yr total return for stock holders of 12% (versus a industry average of -12%), if I was a stock holder, I would much rather have paid the 24M extra and received a pretty good return.

[Uncle Duke]

I won't defend a $48M yearly compensation. It is a scandal that it is on par with that industry. I won't defend it either - but I think that the 'outrage' is mis-placed or is hiding some other issue.
1: It is, on a percentage basis, about a fifth of what the average CEO of a $50 million net revenue company makes - and in a riskier business.
2: It is less than some athletes and movie stars make - it was reported that in 2005 Oprah made $225 million. Howard Stern made $302 million. That's OK, apparently, but the head of a $36 Billion dollar enterprise is 'disgusting' for taking 20% of what they get?

Seriously, why the anger about this compensation and yet no concern at all about others?

[edited to highlight 'on a percentage basis' so that it's not confusing]

[Norman Bernstein]

I won't defend a $48M yearly compensation. It is a scandal that it is on par with that industry.

Actually, I didn't start this thread to criticize the compensation levels of CEO, per se.... I posted the C&P more to indicate the disconnect between compensation and performance. Some hedge fund manager took in excess of a billion bucks recently, and it's a fair argument to say that if his investors realized a similarly spectacular return, then it would be hard to argue that the compensation was unreasonable. (The unreasonable part, by the way, was the incredible arrogance of hedge fund managers believing their compensation to be taxable at long term cap gains rates... even though it wasn't THEIR money to begin with... Romney is among this crowd).

It wasn't too many years ago, for example, that the CEO of Maxim Semiconductor had a pretty good year... and the board gave him 95% of the entire profit of the corporation as compensation. See what I mean?


I will argue that he has not done badly for shareholders. He took over in 2002. In 2003, the stock had a total return of 56%, 2004: 3%, 2005: 25%, 2006: 39%. This year it is down -28% YTD.

Hmmm.. did Newsweek get it wrong? they said:


Battered by the write-downs, Merrill's stock this morning sat almost exactly where it was in November 2003

I wouldn't describe that as 'not great'.....


Yes, norman, you could have done a really bad job for half the price. But with an average 5yr total return for stock holders of 12% (versus a industry average of -12%), if I was a stock holder, I would much rather have paid the 24M extra and received a pretty good return.

If Newsweek got it right (about being where it was in November of 2003), your happiness would only have been complete if you sold it before the write-down.

[peb]

Uncle Duke, While I agree about the lack of outrage for media stars and athletes compared to CEOs seems to be inexplicable.
to anyone but those with a liberal bias, I don't understand your first point:


1: It is, on a percentage basis, about a fifth of what the average CEO of a $50 million net revenue company makes - and in a riskier business.

Not for sure what you mean by "net revenue" . If you mean profit, your numbers have to be wrong. No company pay 500% of their profit as CEO pay, much less 100%.

[Uncle Duke]

[QUOTEUncle Duke]1: It is, on a percentage basis, about a fifth of what the average CEO of a $50 million net revenue company makes - and in a riskier business.
Not for sure what you mean by "net revenue" . If you mean profit, your numbers have to be wrong. No company pay 500% of their profit as CEO pay, much less 100%.

Merrill does $36 Billion net annual - pays CEO $48 Million = 0.13% of net. Company X does 50 Million net revenue - pays CE0 $325,000 = 0.65%. Key phrase was "on a percentage basis".

I never suggested that the $50 Million company paid anyone $48 Million - was trying to look at percentages of the total pie given to each.

[brad9798]

nothing wrong with that salary ... in fact, at my next board meeting, I think it is time for ME to demand a raise!

:)

[peb]

Norman, in November of 2003, the stock was in the upper 50s (rangin from 59 to 55). This morning it is at 66. So there is at least a 10% increas after that point. I might add that nov 2003 was immediately after a huge run up in the stock (see my previous post for a rough number). It is quite common for stocks to pull back after these, so Newsweek was definely cherry picking its data. The numbers I posted are from Morning star's site, which is sometimes not upto date on the YTD numbers, but besides that it would be much more reliable than a newsweek article.

When he made the 48M last year, the stocks return was 39%!!! This is pretty good.


If Newsweek got it right (about being where it was in November of 2003), your happiness would only have been complete if you sold it before the write-down.

All I can say, if one is a buy and hold investor and does not pay attention to macro economic issues and how these can affect their individual stocks, they would be better off directly their "un-happiness" at themselves.


Finally, if one is going to C&P to make a point, ie the ". I posted the C&P more to indicate the disconnect between compensation and performance", one should do a little bit of homework in order to make sure the C&P article makes sense. In this case, your's C&P does not hold any evidence of a disconnect (see 39% total return for stockholders last year).

If you would have posted the C&P to " criticize the compensation levels of CEO, per se", then the $48M dollare number alone would have sufficed, IMO. But alas, you did not do so.

[peb]

Merrill does $36 Billion net annual - pays CEO $48 Million = 0.13% of net. Company X does 50 Million net revenue - pays CE0 $325,000 = 0.65%. Key phrase was "on a percentage basis".

I never suggested that the $50 Million company paid anyone $48 Million - was trying to look at percentages of the total pie given to each.

That makes more sense, sorry, but it was a little confusing the way you posted it.

[Norman Bernstein]

Not for sure what you mean by "net revenue" . If you mean profit, your numbers have to be wrong. No company pay 500% of their profit as CEO pay, much less 100%.

See the Maxim Semiconductor example I posted.

I can see your point about Newsweek cherry-picking the datapoints. I still don't actually find the $48M compensation necessarily outrageous, if the return to stockholders corresponded. It's the cases where the compensation doesn't correspond to performance that bother me... and there certainly are some.

[TimH]

if I were the CEO of a large corporation, I would outsource as much as I can to China, cash in on a big bonus for all of the money I saved, then use my golden parachute to get out just before the company tanks.
I will make enough in a really short period of time to retire and live life high on the hog. Who cares about the long term? Not me I will be gone before things crumble. I sure am glad they dont tie my compensation to real performance or worse...the long term outlook of the company.

[peb]

See the Maxim Semiconductor example I posted.


Let me reword my claim, I don't think any company would give 100% of profit to the CEO and get away with it. I have not ever followed Maxim (although Dallas Semi-conductor used to be a vendor of my old employer), it seems like they have made it to pink sheet status.


It's the cases where the compensation doesn't correspond to performance that bother me... and there certainly are some.

You are correct, there are some. But, based on the latest data, MER does not qualify. Thats my only point.

[Norman Bernstein]

if I were the CEO of a large corporation, I would outsource as much as I can to China, cash in on a big bonus for all of the money I saved, then use my golden parachute to get out just before the company tanks.

you're thinking about this in the wrong way. Money isn't the motivator; power is. Money is merely the way the score is kept. These guys don't cash out and retire, because that leaves them rich, but powerless.

[Norman Bernstein]

Let me reword my claim, I don't think any company would give 100% of profit to the CEO and get away with it. I have not ever followed Maxim (although Dallas Semi-conductor used to be a vendor of my old employer), it seems like they have made it to pink sheet status.

Dallas was absorbed by Maxim.

Maxim, by the way, has earned a reputation for touting parts they can't build or deliver. Most of my clients have specifically forbid me from spec'ing any Maxim part that isn't a second source for a more reliable vendor.


You are correct, there are some. But, based on the latest data, MER does not qualify. Thats my only point.

Then my apologies are offered for incorrectly holding up MER as an example. I can find others, if you like :D

[peb]

If I remember, we were never too thrilled about Dallas Semiconductors either.

No apologies needed, I was just killing some time and decided to check on the facts in this case.

I think our main disagreement, is as follows: I do not think a $48M executive compensation is ever appropriate. You seem to think it could be.

[Gary E]

Here's the chart of MER... look for yourself
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=mer&sid=0&o_symb=mer&freq=2&time=13

[Norman Bernstein]

I think our main disagreement, is as follows: I do not think a $48M executive compensation is ever appropriate. You seem to think it could be.

I've thought a great deal about this... especially since I have often criticized the way in which taxes have been lowered for the very wealthy in this country... and I'm trying to be as objective as possible.

The Bosox paid $100M to get Dice-K... some hedge fund manager took home over $1 BILLION last year... Some movie stars can command $50-100M per picture. Are any of these people worth it?

If you believe in free enterprise, then the answer is obvious: compensation should reflect what a willing buyer will pay to a willing seller. Therefore, $48M for the CEO of MER is perfectly OK, as long as the board of directors (representing the stockholders) think he's worth it.

I'm not saying that there aren't side effects to this. There's a big controversy, for example, with sporting event ticket sales; taking the family to a Red Sox game on a summer afternoon is well out of the reach of the average or median family... and attending a Patriots game is now the province of the very rich. Baseball and football teams may discover eventually that their fan base will shrink, if fans can't afford to attend the games. Sotckholders may eventually realize that the boards of directors don't ethically represent the interests of stockholders. Movie goers may begin to balk at the price of tickets. This is just normal capitalism at work here... nothing that can be done about it, nor SHOULD it.

TAXING those incredible incomes is a different matter, however.

[brad9798]

To Tim's point, NO ONE cares about the longterm with corporate America ... five year plan? YEA right. Non-existent, other than, perhaps, on paper.

Investors want quarterly returns ... thus, debt gets pushed off until the next fiscal quarter/year ... a LOT of pre-billing happens in the last month of the fiscal year. Rob Peter to pay Paul is how it is done these days.

Debt is CONTINUALLY restructured ... CONTINUALLY!

We are (mostly) all guilty of it ... If I owe a supplier 50,000 payable in terms of 10,000 per month, I will always offer to buy more in order to restructure that debt to 2-3 grand per month and stretch it over years.

That is what investors want to see. They do NOT care about long-term debt ... they wan black ink at every board meeting.

I call it penny-wise, pound-foolish!

Stupid, greedy investors run corporations.

Heck, Wachovia just took over AGEdwards ... although the Edwards family was totally against it.

[Norman Bernstein]

Hey peb.... MSNBC reports that O'Neal is retiring 'effective immediately'.

If you were pissed at his $48M compensation, you'll be infuriated by his severence package... I've read elsewhere that it's in the neighborhood of $200M!

(Even though I disagree with you about whether the compensation is an outrage, I'd be highly inclined to agree with you, if you objected to the severance package. As a mere mortal, myself, if I do a lousy job for a client, I get canned.... and don't get so much as a 'wave goodbye').

[George Roberts]

I heard the package is $160 million, but there is lot of uncertainty.

It is a contractual issue. It appears he did not do anything to forfeit the package.

---

While his pay package seems large, it appears that a large number of much smaller businesses pay almost as well.

[TimH]

Sooner or later CEO positions will be outsourced also.