Monday, November 23, 2015

Taking Carrot and Stick to Executive Compensation

As noted in the previous post, greedy CEOs place their own financial interests above those of the companies they are responsible for and the needs of their workers.

And boards of directors, seemingly accustomed to such executive palm-geasing in their own organizations, look the other way, or cover their behinds by pointing to so-called so-called “compensation consultants” (also overpaid).

So here are the results of some thinking that followed the composition of the previous post.…

I recommended that CEOs and top executives (including college football coaches, university presidents and executives of non-profits) be compensated at a rate no more than five times the compensation of the average worker in their organization. (Note: Executive compensation - pay and benefits - can't be used to compute the average.)

Right now in this country among large institutions, the ratio is, shamefully, on the order of 300 to one.

The proposal also addresses the complaint about “high corporate taxes.” IF the top officers cut their compensation as described, I suggest that current taxes on their corporations be frozen (or possibly even lowered...see below.)

As noted in my previous post if the average compensation for employees is $50k, under this proposal, the higher-ups in the executive suite would get no more than $250k.

Because they are so smart, the executives should be able to manage on 250 grand a year. Rumor has it that quite a few folks do.

If the executives want to raise their compensation, they can so it by raising the compensation of employees. A $10,000 raise to the average employee, raises executive compensation $50,000.

Still not a lot by current executive pay standards, but that’s the point!

Now the flip side. If the corporations and their board do NOT make these changes, the corporate tax rate gets doubled (or made high enough to provide the "stick" to stop to the greed). Call this the "greed is bad" tax.

In short, fair and reasonable pay is rewarded; greed is punished. “Compensation consultants” are shown the door.

Those with sharp pencils might even be able to show that compensation fairness would actually increase tax revenues, if it encourages raising pay for all. The more the average worker makes the higher the total tax revenues from them. The amount might even bring in more revenue than now, even accounting for the “loss” resulting from lower taxes paid by reasonably paid executives.

If the new law results in significantly more tax revenue, the proposal just might allow for an actual reduction in corporate taxes.

Finally, higher paid workers will presumably buy more, which creates more jobs and more tax revenues. It also helps the economy…to say nothing of employee moral. The list of benefits is long.

One item on it might even be the postponement of the revolution, perhaps indefinitely.

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Saturday, November 21, 2015

Include executive compensation in corporate tax stories

Whenever reporters write of corporate executives' complaints about  high corporate taxes, editors should require them to include the executives’ annual compensation…just to put things in perspective.

One of the biggest  “taxes” around comes through exorbitant executive compensation. The big salaries and benefits tax shareholders and ultimately middle-class taxpayers.

How happy these executives are to boost our taxes to pay for their compensation. Those taxes have gone up and up and up as executives are paid more.

Executive compensation is a business tax write-off. In short, Lithia’s taxes to the state are lower as  it pays its executives more.

And the higher the write-off and executive compensation, the more we taxpayers pay to make up for it.

On today’s Oregonian front page, we have one John North, the chief financial officer of Ashland-based Lithia Moters, complaining that a proposed higher state corporate tax would drive Lithia and other "low margin" businesses out of the state. That, of course, would cost jobs here etc.

In the same story, we have Ken Thrasher, a former Fred Meyer CEO, quoted to similar effect. Groceries are also considered "low-margin."

Question: What is Mr. Thrashers, retirement package from Fred Meyer? What is it compared to that of a checker at Fred Meyer? What does the current CEO at Fred Meyer make? Could Freddie's margins be made less "low" if executives were paid less?

Question: What is Mr. North’s own salary, particularly compared to those who work on the floor or the backshops in Lithia’s dealerships. What is the compensation for Mr. North’s own boss and other top executives?

Part of the solution to the tax-revenue problem is that executive compensation above a set amount shouldn’t be allowed as a tax write off. In that way, corporate taxes would be “raised” and shareholders would presumably benefit.

Or if corporations still want the compensation write off, they should compensate workers more, in part addressing the pressing problem of gross pay inequity in corporate America.

A ratio of executive salary to the pay of the average worker could be set in law. Something like five-to-one. Nationally, the ratio now is something like 300 to 1.

Suppose the average worker at Lithia makes $50,000. Under a new law, Mr. North and others in the executive suite would not be able to make more than $250,000.

With their financial know-how, executives should manage to get by on that.

Could you? Could I?

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Monday, November 16, 2015

MODA: a local case study in exorbitant executive compensation

Any CEO who accepts or demands exorbitant compensation, particularly in comparison to the compensation of the company's line workers, should be considered unfit to lead.

Such grotesque inequitable compensation should be outlawed.

Consider the case here in Portland of the publicly-supported Oregon Health Sciences University (OHSU), its questionable financial dealings with the private MODA Health Plan and the compensation of MODA CEO Robert Gootee.

A little background:

The Oregonian reported on Nov. 6 that OHSU lent MODA Health Plan, $50 million at the end of last year. Suffice to say that the two institutions do a lot of business together.

So much so that MODA, according to OHSU officials, is yet another one of those private institutions “too big to fail.” And so the public’s subsidy money gets shoveled to MODA, via OHSU.

It turns out that if MODA does fail, we, fellow taxpayer take the hit. OHSU, Portland’s largest employer, is really, REALLY too big to fail.

OHSU’s board of directors approved the loan last December. A month after the vote, OHSU president Joe Robertson joined MODA’s board. He was paid $26,000 for his services, according to the Oregonian, before leaving the board in two months ago, when MODA’s most recent financial problems came to light.

The paper also reported that Robertson donated his MODA fees to OHSU. One wonders what the money will be used for. Part of another loan to MODA perhaps?

The Oregonian story is long at 36 paragraphs. But it’s not until paragraph 30 that we find out that in 2013 MODA’s CEO Robert Gootee was paid $13 million. Of that $8.9 million was a “one-time” payment for “a terminated retirement plan and deferred compensation he has not yet received.” But in 2012, Gootee received $10.4 million 2012.

Why didn’t Gootee simply drop his shameful compensation to help MODA financially?

The Oregonian apparently didn't ask for an explanation or was refused one, but reporter Jeff Manning does write, “OHSU, meanwhile, still collects millions of dollars a year from Oregon taxpayers. Last spring, weeks after the MODA loan, the Oregon Legislature approved another $270 million for the institution,” which is a public corporation.

The lead to this story could easily have been: “Oregon taxpayers helped OHSU lend health insurance company MODA $50 million last year, one year after, MODA paid its CEO $13 million.”

Kudos to The Oregonian and Manning for revealing the the taxpayer-backed loan, but a juicy rotten tomato for not spotlighting Gootee compensation package…and delving into the question of conflicts of interest and a culture in which executive compensation and greed come first.

Footnote: The MODA in question is the same outfit that has slapped its name on what was once “The Rose Garden." The cost of the glitzy naming rights has been put at $40 million over 10 years.

MODA officials say the number is too high but won’t disclose what it is.

One wonders why....

Update: Today it was reported that OHSU will convert its $50 million loan into a a 25 percent stake in MODA Health Plan.  Question: what will it pay the "new" MODA's CEO?

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Wednesday, October 28, 2015

A losing Trump will declare victory and quit

Putting aside how high the stakes of the Republican presidential nomination race are, I find that trying to read the mind and psyche (to say nothing of the popularity) of one Donald Trump is an intriguing puzzle.

In recent days I’ve concluded that Trump will drop out of the contest…and soon.

Consider his recent pleading with Iowa voters to return him to the top of the Republican Caucus polls in the Hawkeye state.

Trump reportedly feeds polls, but his portion of the numbers is dwindling. He’s beginning to starve for political popularity.

In his plea to Iowa Republicans, he, in full egotistical fervor, doesn’t continence that he, The Donald, may himself be doing something wrong, No, he blames Republicans who now prefer the mild-mannered Ben Carson to the petulant, mercurial Trump.

Accusations do not win votes.

Blaming “the other” not withstanding, Trump must sense that he could be — gasp!— a LOSER. That must be a nightmare scenario. Trump’s oft-repeated label for those he deplores is “loser.”

So imagine the shock of the narcissistic Trump’s looking in the mirror of polled public opinion and suddenly seeing a loser.

His answer has to be to blame the mirror, both it (the polls) and what it reflects (purportedly voter sentiment).

Which gets us to why Trump will certainly drop out. Rather that be stuck with the loser label, he will want to do what leaders of losing causes frequently do: declare victory and quit.

Somewhere he’ll find a new mirror with a new image that distorts his self-absorption to his liking.

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