What the World Needs Now: New CEO Bonus & Pay Metrics?

What the World Needs Now: New CEO Bonus & Pay Metrics?

The Koch brothers spent tens of millions of dollars to get the tax law passed and continue to build support for it. The changes are expected to save the brothers and their company more than $1 billion a year in taxes. Charles Koch, his wife and Koch Industries gave Speaker of the House Paul Ryan (R-Wis.) and his political action committee $500,000 in campaign contributions just days after the House passed its version of the tax bill. 

• Huffington Post: Charles Koch Complains About Corporate Influence In Politics In Surprising Op-Ed

By J.M. Hamilton (3-18-2018)

Since the delivery of the Citizens United decision, Americans have become increasingly aware of the exceptional power billionaires and multinationals wield over our democracy, the economy, the electoral process, and politicians.  Indeed, the oligarchy holds vast power over the Federal and State courts, as well as, the executive & legislative branches.

But the corruption, hubris, and myopia that surrounds some of the world’s most powerful billionaires and CEOs not only is widely noticed, but it also means the country is being ruled by men, who often place the C-Suite and shareholder short term interests above the long term health of the nation and its citizens.

And some wonder why the nation is in the shape its in: a slow motion fiscal train wreck is playing out before our very eyes, where the GOP has voted in tax cuts for the wealthy (paid for on credit and the backs of future generations) and annual deficits are projected to soar; bailing out Wall Street banks, and keeping America’s perennial credit card wars financed, the Federal Reserve resorted to interest rate suppression, and only in the last year ended quantitive easing (essentially the printing of money to keep the Federal Ponzi scheme going… the Fed was rolling over assets from QE from its greater than four trillion - plus balance sheet, up until last year); and Americans have grown ravenous for political change, due to the instability caused by oligarchical rule.

Recently four individuals caught JMH’s eye that sum up the problems the US now faces in our Neo-Gilded Age, that is in allowing monied interests to call the shots in Washington.

Koch Industries:  The Koch brothers never fail to amaze; their hypocrisy was on full display recently when they wrote a Washington Post editorial, decrying - get this - crony capitalism.  Despite their verbal & written libertarian political positions, the Koch brothers define “crony capitalism,” which they generally justify as necessary to stay competitive (or everyone else is exploiting Washington, so Koch Industries must participate too).  This time, the hundred billion dollar gorilla - the Koch brothers - was upset that POTUS Trump, for a change, actually attempted to take a baby step forward in helping America’s long forgotten middle class, by enacting steel tariffs.  

The brothers, of course, loved the Trump tax cuts, and poured millions into lobbying for the GOP tax cut law (undoubtedly, creating a tremendous windfall for Koch Industries).  But the Kochs - like any other despots - aren’t happy unless they define the rules of the game, and that includes defining “capitalism, free markets, and free trade” on their terms, exclusively.  That the Kochs’ actions favor crony government, free trade agreements negotiated - exclusively - from the multinational vantage point (that usurps the power of nation states and the people), and the formation Any Randian cartels and monopolies -that are antithetical to capitalism and free markets - apparently is beside the point.  

It’s as if the nation has returned to rule by divine right of kings.

Wells Fargo & CEO Sloan:  Wells Fargo - once adored and loved by Mr. Buffett - has been fighting for number one pole position, for the most corrupt Wall Street mega-bank.  The list of Wells Fargo's, alleged & proven, crimes against its customers, and investors, is exhaustive, and well enumerated in a recent Vanity Fair Hive piece.   So when Mr. Sloan was awarded millions in annual compensation - at a time that Wells Fargo’s corporate culture appears congenitally corrupt, and is presently, under SEC investigation - perhaps a wiser CEO would have flown below the radar.

Instead, the CEO Sloan, unwisely, attacked - a possible Democratic Presidential frontrunner for 2020 - Senator Elizabeth Warren.  Mr. Sloan stated, in response to a Twitter barb issued by Senator Warren (as reported in the same Hive piece): 

It’s not surprising I disagree with almost everything Elizabeth Warren says, Sloan told reporters on Thursday after speaking to the Detroit Economic Club.  Most of her comments are both ill-informed and inappropriate.

Note to Mr. Sloan: Americans are tired of (top-down) trickle-down: fiscal, foreign, monetary, & trade policies.  These policies have been in place for the last 38 years, and they’ve been an abject failure, except to grossly enrich an elite few (at the expense of many).  And pray Mr. Sloan… yes, pray… Senator Warren doesn’t soon become POTUS Warren.  Given Mr. Mueller’s progress, and the current mood of American voters, increasingly, not an improbable event.

Apple & CEO Tim Cook:  What does it say about the most powerful CEO perhaps in the world, and certainly in charge of the company with the largest market cap, that he rants at Western governments w/ derision and great scorn. But when it comes to China and its Dear Leader - who recently had China’s Communist party appoint him Dear Leader for life - Mr. Cook, quickly, rejected principle and parroted China’s Communist party line (particularly on Web censorship and state control of the internet & internet content)?  

1984? Indeed.

All this speaks to the moral failing of America’s corporate leadership.  It speaks to the problem of multinationals - like Apple - exploiting China’s slave labor pool, at the expense of American workers, so as to maximize short term profit mark ups, and investor returns (that are nothing short of astounding).  

What then of Apple donating and lobbying for U.S. government policies that favor its interests, both domestic & foreign?

POTUS Trump - sensing the voters’ shift in mood - has been going on the offensive against unfair trade agreements, and has targeted nation states (and trade agreements) that have benefited at America’s expense.  

But here’s a questions for the Trump administration, and the US Trade Rep, Lighthizer, in particular....

Are American multinationals - who exploit foreign labor, regs, and tax loopholes - any less guilty of dumping product on U.S. shores (to the detriment of the U.S. business, the economy, labor, and our tax base)?  This administration has done everything to help the plutocratic donor class; it's time to help out the citizens, who - and who did not -  place Trump into power.  

Renegotiating trade agreements is a great start.

The brothers Grimm?…  far more frightening, the brothers Koch.

At the end of the day, these three examples say as much about our nation’s commercial leadership, as they do about the very people who run this nation from the shadows.

And Americans are boiling w/ rage.  There are at least two solutions, one political, and the second, market based.  The political solution is campaign finance reform.  Given the oligarchy’s desire to control politicians and the political process, and many politicians apparent love of graft & money, the odds of passing true campaign finance reform are extremely low.

The more likely reform is market based, and that is for investors to insist upon changing CEO and C- Suite pay packages, so that executives aren’t incented, solely, by short term gain; but rather, by the long term interests of the country, and society as a whole.  

For example, reformed CEO compensation might reward organic growth, R&D, and customer service performance, and penalize financial engineering (consolidation, loading the company up w/ debt to pay dividends, M&A, stock buybacks, etc.).  Reforms might further reward paying employees a living wage, and penalize, a scenario where employees are paid a non-living wage.  If executive compensation reform was adopted industry wide, no single CEO could claim that he was placed at an unfair competitive disadvantage. 

It’s interesting, as noted in JMH’s last piece, true reform - after the latest catastrophic mass shooting - hasn’t arrived from the cowards in Congress, or even the Executive branch… but rather, from the multinationals and large corporations that retail guns, and service the NRA.  The consumer, and public relations, likely forced many CEOs to change course in regards the NRA, but one would like to think some of them did it purely because it was the right thing to do.  

Might the consumer, employees, investors, and public relations also force a change in the manner the C-Suite class is paid?

Americans may not be able to reform our government; but, perhaps better still, they may have greater luck in reforming the bonus and pay incentives of the puppet masters, who run our crony government.  Hedge, mutual, and retirement funds (and University endowments) might help clear a path.  

As for the billionaire class, nothing short of a tax on crony wealth will remedy that situation. 

Copyright JM Hamilton Publishing 2018

Unfinished Business…

Unfinished Business…

"And I sincerely believe with you, that banking establishments are more dangerous than standing armies; & that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

– Thomas Jefferson

“When we saw what happened in Parkland, we were so disturbed and upset.  We love these kids and their rallying cry, ‘Enough is enough.’ It got to us.” 

- Edward Stack, CEO Dick’s Sporting Goods

By J.M. Hamilton (3-4-2018)

This coming September 15, 2018 will mark the 10th anniversary of the Lehman event (to this day, the largest bankruptcy ever recorded).  

An event that many Americans will remember contributed to the largest bank bailout in the nation's history, the financial crisis, and the Great Recession.  The financial contagion was not confined to the U.S. but many countries throughout the West suffered from TBTF banks that were leveraged to the hilt, and gambling w/ depositor - and ultimately, taxpayer - money.  Economies have since healed to varying degrees, but not all have recovered (e.g. Greece and Italy), and arguably, none have fully recovered.

In fact, the bailouts continue to this very day... see the ECB and Federal Reserve's hyper accommodative monetary policies, where real yields over the last decade - adjusted for inflation - have often been negative or below 1%.  Basically providing banks a handout w/ free money, and transferring wealth from depositors to banks, shadow banking, and private equity.

Economist Paul Romer once famously said, "A crisis is a terrible thing to waste."  And the 2008 crisis was truly wasted.  Instead of taking time to analyze TBTF (too big to fail) banks, the casino atmosphere on Wall Street - backstopped by the American taxpayer, and the structural defects w/in our economy that have led to explosive wage & wealth inequality ... the entire crisis was papered over by Republican - and succeeding Democratic - administrations.  Congress - both parties - owned by the Wall Street banking oligopoly quickly fell into line, and voted for the bailout (but there was no such relief for 99%, especially on the scale banks received, and many people lost their homes and jobs).

Of course bank lobbyist today, w/ the crisis in the rearview mirror & banks making record profits, want to see most of the post-crisis reforms & regulations undone, particularly the Volcker Rule. The Volcker Rule, in lieu of the simple reinstatement of Glass-Steagall, sets limits on banks gambling w/ depositor money (as well as taxpayer money, as many bank deposits are federally insured).  And many of the pirates that ran these TBTF banks are still in charge of their respective institutions to this very day (see Messrs. Blankfein and Dimon).

Perhaps what was most remarkable about the bailout, however, was the argument put forth that these institutions were TBTF, and so critical to the American economy that there was no other recourse but to adopt the emergency measures that were passed.  Trillions - in an alphabet soup of programs (remember TARP?) and free Fed money - were thrown at these institutions.  And yet, no strings were attached to the bailout money.  The banks were so arrogant about both the crisis and the subsequent bailout that one CEO was reported to have said that the banks, leading up to the crisis, were merely: "... doing god's work."

Banks may not only be key to the American economy, but they are also central to the transmission of monetary policy, which given the sorry state of U.S. fiscal policy (now at record debt levels) is the only game in town.  And yet, these all important Wall Street banks are operated by a men's only club, who are restricted in their actions by: their bonus plan, the value of their respective bank’s stock, activist investors, and stock analyst buy & sell recommendations.  The CEOs of these major banks are highly political men, and certainly play no small role in the dispersion of campaign, PAC, lobbying, and dark money contributions. 

And given their awesome power, they can even make or break an economy - and an administration in power - by their collective action or inaction.

All of which begs the question:  Should institutions - w/ virtually no checks upon their power - have this degree of control over the economy, the government, and the political process?  Much has been made about the Russian hacking of the 2016 election, but how about the daily money-hack Wall Street lobbyist engage in w/ our elected politicians?  Does the House of Representatives dance for Putin, or do they dance for Wall Street bank executives?

Beyond breaking up TBTF institutions and - under the most optimistic scenario - reenacting Glass-Steagall, should such powerful institutions be allowed to exist in their present structure?  

To cut to the chase, should commercial lending institutions - given that they are the cornerstone of the economy & possess awesome power over the government - be operated as not-for-profit institutions?  If we drill down and are honest w/ ourselves, it was the fact that these institutions are - so concentrated, under tremendous pressure to make profits, and absolutely key, bank executive compensation incentives drives decision making that is often not in the best interests of the country - that directly led to the 2008 crisis.

Do we want the crooks in Congress running Wall Street commercial lending... absolutely NOT.  Does the private sector do many wonderful things?  

Answer: Absolutely, particularly in a functioning free market, w/ many competing entrants w/in a given market place or economic sector.  

But would the American economy - as well as the health of our democracy/republic - be better served by a Wall Street commercial lending group that was run as not-for-profits?    

JMH believes that case could easily be made for this manner of economic structural reform ...  Sure allow investment banks to continue to be operated by the profit motive (albeit no longer backstopped by the taxpayer, that is to say, federally insured).  Take away the profit motive, excessive Wall Street pay packages & incentives, the continual grind to push the stock price ever higher, and instead, incentivize not-for-profit, commercial lending banks to increase loan to deposit ratios, responsibly, at the lowest possible interest rate, w/out bankrupting the institution or shafting depositors. 

What U.S. citizens are likely to end up w/ is a much safer banking industry, a stronger economy, a better monetary policy conduit, and the end of future financial crisis (at least the end of financial crisis initiated by commercial lending institutions, as presently operated).

Then again, perhaps, the shifting of commercial lending from a for profit to a nonprofit model isn't necessary.  To hear BOE's Governor, Mr. Mark Carney, tell it last week, on Bloomberg Surveillance, cryptocurrency may ultimately eliminate banking intermediaries (aka the bankster middleman), altogether.  Hence, the rush to regulate cyber currency, and for banks to begin co-opting many cryptocurrency attributes.

JMH isn't the only person thinking not-for-profits are an excellent hedge against a corrupt U.S. government, or private sector excess.  Messrs. Bezos, Buffett, & Dimon have been talking about setting up not-for-profit healthcare for their employees, as a means to mitigate and possibly control ever spiraling healthcare costs. 

The not-for-profit model argues for maximum efficiency, while eliminating - or mitigating - cutthroat profit taking and government corruption.

It's as if many corporations - most recently - have taken Mr. Fink's (of BlackRock fame) advice to heart, and have opted not only to make money, but to act in a more socially responsible manner.  In some instances, CEOs are demonstrating leadership, where owned politicians fear tread.

Against the backdrop of the latest mass shooting, several corporations have stepped forward to either disassociate, if not outright cut ties with - the extremist & terrorist group - The NRA (the lobbying arm for the gun industry). 

These socially conscious businesses are to be commended, and further encouraged to take responsible action, and support politicians, who will - in turn - advance the same agenda. 

There are too many stories like the ones that ran on Disney last week. Namely, that while Disney is minting billions, many of its employees are living in cars. 

Might corporations and multinationals, given exceptional profits and low tax rates, begin to support a living wage and gender pay parity?  Some estimate that gender pay parity would add trillions to the global economy.

The bottom line is a company can enhance their bottom line by doing the right and socially responsible thing.  Just as there are boycotts, there are also buycotts, where consumers reward socially responsible companies by purchasing more of their product.

Isn’t that the way it should be?  Some might call this consumers voting w/ their purses and wallets.

Selah.

Copyright JM Hamilton Publishing 2018