Say on Pay

There is a movement in the US to allow shareholders to vote on pay packages for top executives. Not directly, mind you, but as an advisory vote to the board of directors. Several European countries have a system like this, and claim it keeps CEO salaries in check. First one has to get the firm to agree to let the say on pay to be part of the annual proxy procedure. So far no vote in favor of this proposal has passed at a US firm, even though several large pension funds have been backing the proposal. It's in the news again. Here's a good overview: Getting a say on pay for execs [April 2007] And here's a more recent story on what's upcoming: 'Say on pay' could help relationships with US shareholders
American companies would benefit from Britain's "say on pay" shareholder voting system to improve dialogue about ballooning seven-digit boardroom pay packages, according to a Yale University study. Research by the influential Millstein Centre for corporate governance suggests that US firms are hiding behind largely imaginary legal barriers to avoid communicating with investors about their remuneration policies. ... At annual meetings scheduled over the next few months, many of America's biggest companies including Wal-Mart, Citigroup and General Electric will face resolutions urging the introduction of "say on pay" votes.
Surely they jest if they think that such a proposal would make headway at Walmart. Even if it passed (which it can't since the Waltons have a controlling interest), the board would never allow the rabble to have a say in compensation packages. That would be taking food out of poor Jim and Robson Walton's mouth. We can't have that now, can we?

7 Responses to “Say on Pay”

  1. UncleBob says:

    You’d think this post could have been made without the wealth-envy.

  2. UncleBob:

    For some reason libertarians can’t differentiate between honestly earned wealth and the other kind.

    I have no problem with a sports figure or movie star making as much money as they can – they earn it. All I ask is that they pay a fair level of taxes on it.

    I do have a problem with those who inherit their money and then think they need the rules bent in their favor so that they can hold on to it without having to pay taxes. I also have a problem with those who make their money by breaking the rules or gaming the system.

    There have been numerous studies by business professors about the connection between high executive salaries (and perks) and the quality of their leadership and the performance of the companies they run. There is no strong correlation. The myth that one needs to provide CEO’s with “incentives” so that they will do a better job is not borne out by the data.

    How bad does just plain greed have to get before you realize that we don’t live in a meritocracy?

    Just today there is a study out which shows that the stock of firms whose CEO’s give large amounts of their stock to their private foundations declines afterwards at a rate that can’t be explained by chance. The study’s author guesses that the CEO’s are using insider information (which is not currently illegal since there is no public trading of the stock involved, but is gaming the system) or are back dating the gifts.

    Who benefits from this scam – the CEO. He gets to take a bigger tax deduction because of the higher stock price at the time of the gift. Who loses – the public which has to make up the lost tax revenue.

    Why is it so hard to realize that the majority of the wealthy these days didn’t earn their money the “old fashioned way” – they stole, inherited or gamed the system for it. Wake up and smell the corruption.

  3. UncleBob says:

    What I find so interesting about you is this statement:

    “they stole, inherited or gamed the system for it.”

    You are including the act of inheriting money with illegal or questionable acts.

  4. No, I’m including using shadowy political means to get the tax laws altered so that those who inherited large sums of money can avoid paying taxes on it.

    Try reading this study and you will see that less than 20 families have been behind the estate tax repeal effort. You (and almost everyone else) aren’t aware of this because they have done their darnedest to keep their fingerprints off the effort.

    http://www.citizen.org/documents/EstateTaxFinal.pdf

  5. UncleBob says:

    Let me get this straight…
    PersonX has a crap ton of money.
    PersonX dies.
    Simply because PersonX wants to leave their money to Personx, the government gets to leverage a huge fine on that money.

    And that’s okay with you?

  6. UncleBob:

    Your understanding of how the tax laws work is so woefully inadequate that it makes have a discussion with you an exercise in futility.

    I’ll just cite one simple fact that you might want to learn something about.

    Under present law if a person own an asset that appreciates in value and they sell it they pay a capital gains tax on the profit.

    If, however, you die and your estate now owns the property then the value of the property gets reset to its value at the time of death, thus escaping all the capital gains tax. If the property now gets transferred to the heirs without paying an estate tax then no taxes will ever have been paid on the profits.

    In the case of super wealthy families we aren’t talking small potatoes. The Walton family stands to escape some $40 billion being subject to taxes because of this.

    Now, I don’t know who you are, perhaps you are a member of one of these super wealthy families and have a financial interest in getting as much of the inheritance as you can. In that case your attitude is perfectly logical – self interest.

    On the other hand, if you are just an average Joe then that $40 billion not subject to taxation means that the shortfall in revenue to the government will have to be made up elsewhere. Guess where? Your pocket.

    The current revisions to the estate tax laws will probably exempt estates up to $5 million from taxation (but they will have to pay the capital gains tax instead). Are you in that bracket?

    Why all the concern for people who have more money than they know what to do with? They certainly don’t give a fig about you.

  7. UncleBob says:

    >”Under present law if a person own an asset that appreciates in value and they sell it they pay a capital gains tax on the profit.”

    I understand this – and I completely disagree with it.

    Trust me, I’m not one of the super-wealthy.

    I’m merely one of those crazy Americans who feel our current tax system is far too embedded in the way we run our every day lives. If you’re successful, you’re punished by being forced to pay a higher percentage of taxes. If you’re not successful, well, here, have some government handouts (paid for, of course, with money seized from those who are successful).

    Face it, you make money, you pay taxes. You spend money, you pay taxes. You invest money, you pay taxes. You save money, you pay taxes. You die, you pay taxes.

    The only way to *not* have to pay in up to 50% of what you earn is to not earn anything. It’s no wonder so many Americans don’t even bother to try.

    This blog commonly talks about how American companies go overseas to use cheap labor – yet I never hear anyone talk about our crushing tax system that sends both investments and businesses (and thus, jobs) overseas to escape our awful tax system.

    >”$40 billion not subject to taxation means that the shortfall in revenue to the government will have to be made up elsewhere.”

    This is another huge problem with our government. The system should not be “Let’s spend all this money, then figure out how to make the tax payers pay for it.” Could you imangine if you ran your house that way? Could you imangine *any* business being ran that way?

    Instead, it should be a simple process of “We have $X to spend this year. Not a penny more.” Just like how any sensible business or household is ran. It’s a crazy, crazy thought, I know. Now, imangine, just for a moment, a government, that not only spends only what it has – but actually works to spend less by keeping expenses down – just like any respectable business or household?

    Naw… that’s too crazy.

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