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Thursday, 03 December, 2020

Executive Pay

Date: 01 July, 2007

By: Chief

Imagever the last close to 20 years pay, perks and privileges (the 3P's) for company CEOs has sky rocketed. Now I don't have any problem paying people well when they produce a top shelf product. No problem whatsoever. However, my snivel or gripe, call it what you will, with CEOs is simply this — just what in the world do they actually produce?

Think about it for a moment. Does the CEO of General Motors actually produce a car? I hardly think so. Or how about Terry Semel, the CEO of Yahoo. Does he actually get his pinkies dirty on a keyboard developing code? Obviously not. Yet these guys make a financial killing — producing nothing.

Currently GM is laying off or has already laid off thousands of employees and shuttered numerous plants. And GM is still losing money hand over fist. Yahoo has gone straight down the toilet (flush twice — it is a long way to capitol hill) and appears to be picking up speed in their quest for a total meltdown.

Continuing on about Yahoo, according to the AP:

"Yahoo Inc.'s Terry Semel, whose Internet company has lagged behind Google Inc. in profit growth and stock performance, led the pack with total compensation last year of $71.7 million, according to the AP formula used to analyze those filings."

Now I ask you — if you are a gambler, er, investor and you had gambled, er, invested some of your hard earned income (I'm talking about actually working for it, not the Paris Hilton on her knees method) by purchasing some stock in either GM or Yahoo, would you be just more than a little tic'd off right about now? Your stock is worth less than the purchase price, both companies are, to say the least, under-performing and yet the CEOs are making out like bandits.

Me? I would be more than just a little tic'd off. The only thing I can see that either of these two CEOs have produced is red ink.

But hold on just a second, believe or not there is more and it ain't pretty. Quoting the AP:

"Consider the case of Occidental Petroleum's Irani, who topped a separate Top 10 list of executives who exercised previously awarded stock options, compiled for the AP by Capital IQ, a division of Standard & Poor's. His net gain, before taxes, on shares he exercised in 2006 was $270.2 million — an amount not included in AP's pay total.

"But it's worth noting that three hedge fund managers - James Simons of Renaissance Technologies Corp., Kenneth Griffin of Citadel Investment Group and Sears Holding Corp. Chairman Edward Lampert, who also runs ESL Investments - together earned more than the 386 CEOs the AP studied combined. They collectively earned $4.4 billion last year, according to Alpha magazine, published by Institutional Investor" (emphasis added).

Not too bloody shabby an annual income eh? So allow me to ask again — just what do executives actually produce?

Let me put this into some kind of realistic context. I am not even sure that is possible considering that the executive 3P's are just simply mind numbing, but I'll give it a try anyway.

If, for example, the minimum wage had been increased at the exact same rate as the executive 3P's since 1990, the minimum wage today would be somewhere between $50 - $62 dollars per hour. The AP says executive pay has increased "on average, 179 times as much as rank and file workers, double the 90-to-1 ratio in 1994."

There is some good news (dripping with sarcasm) the minimum wage is to increase in July to a whopping $5.85, the first increase in a mere decade.

No say you, not all CEOs take such an enormous pay check. Some take only a dollar a year.

'Tis true, I must admit. Steve Jobs of Apple infamy is one such executive. Per the AP:

"Apple's Steve Jobs, who's been treading water at that level for the last three years. But Jobs, 52, also owns more than 5.4 million Apple shares that are now worth more than $660 million."

Oh, since I blasted Yahoo's CEO, maybe I should look at the much more philanthropic Eric Schmidt, CEO of Google. Quoting the AP:

"[Schmidt] took home exactly $1 in salary. And his overall compensation totaled $557,466, a fraction of the $71.7 million granted last year to competitor Yahoo Inc. CEO Terry Semel, the No. 1 executive on the AP pay list.

"Almost all of Schmidt's package covered the cost of $532,755 for personal security. Schmidt, [ ... ] owns 10.7 million shares currently worth $5.5 billion."

When was the last time you saw Jobs or Schmidt actually doing something productive? Productive in the sense of building a computer or working on an algorithm. When? At a minimum it has been a very, very long time. Decades perhaps.

CEO pay, perks and privileges are normally not subject to a vote by the entire board of directors of a public company. No, instead a "compensation committee" determines what the 3P's will be for a CEO. As such Joe Gambler, er, Investor does not have any input at all. None whatsoever. And that stinks.

These CEOs making such enormous pay checks all have one thing in common (other than no one can figure out what they actually produce) — employees who do the actual producing. If every employee at Apple, Google, Yahoo, GM or whatever company you wish to name just walked off the job or called in sick for one day, just one single day, how much money would said company lose? Multiply that by all the public companies in the U.S. and you are talking billions of dollars lost — in just one single "business day."

Can you imagine what would happen to the railroads? Most consumer goods, once the goods hit our ports, are shipped across our country via rail. Additionally most of the electrical energy for the northeast states, southern and southwest states are generated by coal fired plants. All of that coal arrives at the various plants by rail. And should the rank and file workers determine enough is enough and take a day or a week off — there ain't one God dog thing a CEO can do to stop it. Nothing. Nada. Zip. Ain't that loverly?

Hence a CEO's lavish or, far more appropriate, outlandish compensation can be disrupted and possibly destroyed by the people who actually produce — Joe Rank and File. It must scare the BeJesus out of CEOs. And it should.

As CEOs produce nothing, yet make millions per year producing nothing, maybe it is time for all the Joe Rank and Files to say enough is enough, and then actually do something about it.

Lastly is the issue of company performance. Or more aptly put — a CEO being held accountable for the actions, inactions, poor performance or illegal actions the company has done. With the exceptions of companies such as Enron, Global Crossing or World Com most CEOs can run a company right down a rat hole and nothing will happen. Darl McBride, CEO of the SCO Group is one such person. There are numerous others as well. You see what I mean? Something really, and I do mean really, bad has got to happen before a typical CEO starts feeling any heat. And that is wrong. Just plain wrong.

I'll tell you what, until CEOs are held accountable and their pay, privileges and perks brought back down to Earth CEOs will continue to milk an already broken system on the backs of those who actually make or break a company — the rank and file people. The real people. The people who produce.

I would love nothing more than hearing CEOs and former CEOs singing Johnny Paycheck's immortal song — "Take This Job and Shove It."

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