The coolest part is that the CEO who has been on the job for LESS than 3 weeks will get paid $19.1 million.
From the article:
The company’s new chief executive, Alan H. Fishman, was in midair, flying from New York to Seattle at the time the deal was finally brokered, according to people briefed on the situation. Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus
It seems logical, but the problem with basing executive compensation on company performance is that, in a public company, it just incentivizes the executives to chase quarterly profits at the expense of medium- to long-term goals. This means that executives will do anything they can to pump up quarterly numbers, especially if they know that their tenure at the helm of their company is fairly finite.
In a public company, the pressure to chase quarterly profits exists anyway because of the shareholders. If company A does something of questionable morality or risk, but it nets their shareholders a lot of value, it gets hard for the executives at company B to say 'no' to the strategy, even if they know better.
My suspicion is that this is why some companies start out as good and are later perceived as evil. The game changes once you have legal fiduciary responsibilities to shareholders. It seems to me that it can get very hard to defend your strategy of not maximizing profits when others around you are raking it in.
indeed, corporations are in legal terms considered with legal equivalence to an individual, and a public traded company is legally bound to maximise shareholder profit, we have basically created a legal psychopath, they're (the board, ceo etc) legally bound to do anything within the law to generate profit/growth. As you say, hardly surprising that companies with mottos like 'do no evil' end up censoring bloggers in the PR of China.
I've heard this argument a lot and it seems like a solvable problem:
Put the money in a 5 years escrowed account. If the changes that you made were sound and the company continues to succeed, you get it. Otherwise, you forfeit.
What you've just described is a stock option. This is an extremely common form of executive compensation. The problem is that it incentivizes greater (and potentially dangerous) risk taking. Greater risks increase the probability of large payouts and losses. But if there's a great loss, the CEO still makes the base salary -- he can't be held financially responsible for all the company's losses. So to the executive it doesn't really matter whether the company loses small or loses big. But there's a big difference between winning small and winning big.
In China these people would be executed. If I remember correctly that's what happened to the CEO of the company that made all that bad pet food. I'm not saying we need to gather a lynch mob or anything, but we certainly need some kind of balance between that and the fake outrage we have in this country. I don't think jail time would be unreasonable for executives that, through gross negligence, run economy-critical businesses into the ground.
I think it's fairly telling about how bad our situation is when we start comparing our options versus what the Chinese would do... and we use the Chinese option as the POSITIVE side of the argument.
You should have start doing long time ago... savings (China) vs. "deficits don't matter" (USA), being the biggest creditor in the world (China) vs. being the most indebted nation to foreigners in the history of the man-kind (USA)... production and underconsumption (China) vs. spending on credit and overconsumption (USA).
Your situation is bad exactly because you are not paying attention to this how to build an empire (China) vs. collapse one (USA).
Why is it so hard to figure out that certain executives command a certain pay? If Wamu paid less, they wouldn't get the guy they are looking for. It's supply and demand. There are a certain number of top executives when it comes to these searches. Just like top athletes or actors. It's not like these Boards are arbitrarily picking someone from the mail room and giving them $19m.
It's more like they are arbitrarily picking someone from their circle of friends at the country club and giving them 'reasonable compensation'.
Beyond that the board wants to reassure themselves that they are making good decisions, consequently they can justify a slightly larger payday for the new CEO on the grounds that since they are such fine people they have hired an above average CEO and should pay him slightly more than the median compensation for Executives in comparable companies...
Acting like Fishman was appointed CEO just because he was a friend of the board is completely false.
He was preivously the CEO of two other banks: Sovereign Bank and Independence Community Bank. He has 25+ years experience as a senior executive in banking.
This is a gross simplification. Good leaders do exist. The real problems are politics and corruption, which happen to run rampant in...well, politics and public companies. These areas are where the "problem of choosing a good leader" is most pressing.
It would work out nicely if every leader thought leading was so fun that he'd do it for free. Berkshire Hathaway chooses its managers in this way. The people they hire seem to enjoy building something rugged.
Unfortunately, many leadership positions just aren't fun enough for this to be a viable option. And it's not even just a question of choosing the right man for the job. Public companies are notorious for their ruthless owners (the market), which often require different things than what would be necessary for long-term growth and stability. Even if all shareholders were interested in the distant future, the market is nothing if not a committtee. Necessary decisions are sometimes unpopular. No one who masters his craft (in this case domain-specific leadership) wants to be bogged down with politics, but this is exactly what public companies offer.
Hence, these positions attract the wrong type of people - those who are attracted to money or power. The 'right man for the job' is probably enjoying a tenth of the salary leading some small company somewhere, because leading a large market-exposed company just isn't worth it. It's not just a question of choosing the right guy and writing him a big check; he might not want the job.
What kind of board of directors would approve such a retarded amount?
A board of directors in a state of panic. Note that Mr Fishman was serving as Chairman at the third largest mortgage brokerage in the country (who do commercial, industrial and multi-unit residential deals - not sub-prime stuff) - not the type of job to leave for a company about to go under without big incentives.
The kind of board of directors who know what the rest of the market is paying? If you want a certain caliber of employee of any kind, you have to lure them with at least what they'd get elsewhere. It only seems out of joint because the dollar amounts are higher than in (e.g.,) software, but it's the same principle.
They didn't expect to fail, at least not so quickly (but then again, I'm not much of a conspiracy theorist)
It's certainly possible Fishman will decline to take some or all of the compensation, like one of the other failed institution's CEO (can't remember which now)
I know it's probably a stretch to ask this, but: is there a Republican in the house?! Can you please explain to me how it is even remotely morally OK to pay people this much money to do what basically amounts to jack shit?
I'm a former Republican, and I used to say two things:
(1) it's none of our business whether a private citizen is earning $10 or $10,000,000;
(2) supply and demand produces, over the long run, an optimal distribution of resources, because a society's needs (i.e. for goods and services) and abilities (i.e. the ability to provide those goods and services) need to be matched in a way that reflects the actual priorities of that society.
It's hard -- probably impossible -- to justify Wall Street compensation packages on supply-and-demand grounds. In the 70s, CEOs earned about 30 times the earnings of their workers. By 2007, they earned 344 times the average pay of their workers.
CEOs do not provide 10 times the value they produced in the 70s. They are not 10 times more scarce. Corporations are not 10 times more profitable. They are not 10 times more prosperous by any measure -- if they were, they would offer 10 times more compensation, on average, to everyone at their company.
So if I were still a Republican, I'd probably say something like this: banks like Bear Stearns were irrational, and they should pay the consequences. The fewer bad banks we have, the better it is for all of us in the long run.
I don't know how many Republicans would agree with that last bit. Truth be told, most of them aren't even pro-free-trade. They're just anti-socialist. Anything that sounds like socialism sends them running for the hills. "Supply and demand" are useful to them only as a cudgel with which to attack the socialist view.
And this sort of justification is trumpeted only by the educated, Wall-Street-Journal-reading elite of the Republican party. Their popular support base in rural areas couldn't care less about economic issues.
Look at who gets the money from Wall Street. Why? Big biz loves regulation that it can control. (When buying and selling is regulated, regulators are the first thing that will be bought and sold.)
FWIW, Sen Clinton does very well but Sen Obama is clearly at the top of the class. In three years, he got more from Fannie and Freddie than Clinton did in 8 and almost as much as Kerry did in 20. The highest 20 year total is Dodd, but Obama would have passed him by the end of his full term as Senator.
Meanwhile, Barney Frank is still out there arguing that we should be giving mortages to folks who can't pay them.
Because the shareholders, the owners of the company, are free to piss away their money as they so choose.
I think there is an argument to be made for better, more transparent corporate governance rules, that would make it easier for the shareholders to say "uh, no" to stuff like this, but it's ultimately their money.
The shareholders are not making these decisions (directly), the Board of Directors is. And who is on the BOD? Why other CEOs who expect their actions to be reciprocated. This is [logrolling](http://en.wikipedia.org/wiki/Logrolling).
The talk about short term profit taking being driven by the market is BS as well. If a company were to take actions that would depress its earning in the short term for the sake of (demonstrable) long term growth and profits, the smart segment of the market would recognize that and respond favorably.
One partial solution: outlaw stock options in publicly traded companies. Use cash bonuses and have the usual Employee Stock Purchase Plan that provides a 15% discount on investing in the company.
The coolest part is that the CEO who has been on the job for LESS than 3 weeks will get paid $19.1 million.
From the article:
The company’s new chief executive, Alan H. Fishman, was in midair, flying from New York to Seattle at the time the deal was finally brokered, according to people briefed on the situation. Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus