Posted by: spacewritinguy | September 17, 2008

Cures Worse Than the Illness

A coworker groused to me today about how “all these CEOs are getting rich” in the midst of bankruptcies. I pointed out to him that the biggest mess at this point (after AIG) is Freddie Mac/Fannie Mae, and that that was a government operation. He was not satisfied with that retort, so he said, “You’ve still got business people scratching each other’s back with big bonuses because they know government is going to bail them out. They’re not acting in the interests of the stockholders.”

Okay, I could’ve gone off on a tear about why stock options were created–because government was on the verge of putting a cap on corporate executive compensation. I could’ve taken the tack (which I did, sort of) that the stock option/bonus issue is a matter for corporate governance, and should be tied to performance, not time served. Instead, I decided to go for the jugular because I’m tired of hearing that “Capitalism is evil and government needs to do something about it.” I said, “You know what? You’re right. We should let the government put a ceiling on CEO salaries. And while we’re at it, let’s put a cap on technical writers’ salaries. I think they’re making too much. They shouldn’t make more than 30 grand a year.” Horrified silence. Which was, of course, the point of my rejoinder. It’s always fun to gore someone else’s oxen.

The libertarian in me still thinks that a change in corporate governance could fix the long-term “executive compensation” issue that gets liberals so upset. The stock options are there to incentivize performance: if the company does well, then the stock options they receive X years after assuming the job will be worth more. Maybe companies just need to enforce a double incentive on executive compensation:

“Corporate officers will receive [X number] of shares only if the following conditions are met:

  • They have completed [Y number] years of service, and
  • Corporate stock price (accounting for splits, etc.) has improved by at least [Z percent] for each of the years said officers hold their position.

If corporate stock price has risen only in some years, officers will receive stock options on a sliding scale based on the number of years the company stock price improved, and by what percentage.”

That’s actually a pretty sane stockholder proposal compared to some I’ve read (the Sisters of Mercy have been trying to get Lockheed Martin, Boeing, etc. to stop selling arms to dangerous people for as long as I’ve been signing proxy statements).

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