Monthly Archives: April 2009

Republican Budget: No Respect

Far be it from me to defend the GOPers budget alternative.  I may not like, but I’d like a little more than what The Washington Post offered this morning.  Less than 12 column inches, the budget story was buried on page A6.  Here’s why:

While the minority party in Congress typically offers an alternative budget plan that is widely ignored, this year’s proposal has drawn fresh attention thanks to the scathing GOP criticism of Obama’s budget plans and the president’s challenge to the GOP to offer a constructive alternative.

Two points here.  One, because it has little chance of being passed, The Post decided that people don’t really need to know what the Repugs are offering.  I disagree, and not only because I want it more widely ridiculed.  If the positions were reversed, I’d like more people to see what the Dems were offering.  If you want an informed electorate, then you need to give voters the information needed to make  judgments.  In the 2010 elections, it would be helpful to know how the opposition might govern.  If you know what that alternative is early on, voters can make judgments along the way on how things might be different leading up to the 2010 vote.  The second point is that if the situation were reversed, Dems would do well to offer full throated criticism of a GOP president’s budget.  Making a lot of noise just might draw “fresh attention.”  That’s PR 101, but Dems don’t seem to understand that.

LBJ: A Leader to Love

LBJ knew how to win legislative battles:

Uncooperative legislators paid a price for their independence. When Senator Frank Church, an Idaho Democrat, justified a vote against a Johnson bill by saying that columnist Walter Lippmann shared his view, Johnson scolded him: “Frank, next time you want a dam in Idaho, you call Walter Lippmann and let him put it through.”

CEO Pay Relative to Shareholder Value

Many defenders of extravagant CEO pay say it is justified because their expertise results in shareholder value.  On CBNC today, they discussed the issue and gave us these comparison between CEO pay last year and what the shareholder return was last year

Company CEO compensation Stock Performance
AT&T $15 mil Down 34%
Verizon $20,2 mil Down 26%
Macy’s $14.8 mil Down 66%
JC Penney $14.9 mil Down 57%
Met Life $12 mil. Down 45%
Dow Chemical $19.3 mil Down 53%
Martha Stewart $6.9 mil. Down 70%
Sprint $14.2 mil. Down 87%

And before you say, “Well, the stock market was down overall,”  let me point out that the S&P last year fell 39.3%.  Which means that only two of the eight companies above beat the average.  What shareholder value?


UPDATE:  Listen to this discussion on CEO pay later today.  Note that the hyperactive Jim Cramer and faux journalist Erin Burnett touch on two points: 

1.  Compensation committees on boards of directors can’t really evaluate what the CEO should be paid and therefore relies on compensation consultants.

2.  Pay is forced upwards by the “comparison” approach; it just bids up the prices.

Are Boards of Directors AWOL?

A Washington Post article this morning on the GM board provided insight into an issue that I don’t think The Post or other media have focused on nearly enough.  This relates to culpability of boards of directors in not just the carmakers strategic decisions but those of banks as well.  Have boards been AWOL on the collapse of the banking industry?  And if so, why?  Do boards have any real power?  For example, is the decision to return TARP money one that CEOs can make without any board input, especially if the decision is largely for the purposes of protecting CEO pay?

A related issue is executive compensation.  Is the relationship between directors and CEO pay incestuous?  I believe directors are often compensated well for their minimal work.  How well

  • Median total board compensation for S&P 500 firms is more than $2 million.
  • Median total compensation for individual directors of S&P 500 companies is just under

Does that compensation then influence what boards agree to pay CEOs and other senior execs? 

Opponents and critics point out that because the CEO’s pay is set by the board of directors and the CEO determines the board’s tenure, selection and committee assignments, and compensation consultants, an inherent conflict of interest occurs and effectively prevents effective price competition.

On the compensation issue, what evidence is there that the extravagant salaries and bonuses are necessary – as business leaders contend – to attract top talent

“Our findings do indicate that compensation consultants are associated with companies that pay at levels higher than the market median. Further, these higher levels of pay are in general not associated with higher levels of shareholder return,” said Alexandra Higgins, Research Associate at The Corporate Library and author of the report.

Are huge compensation packages nothing more than boards trying to CYA from accusations that, should the company founder, they didn’t pay well enough to get the best talent?


I would welcome an article that examined these questions.

On an unrelated issue, the Post reporters include this line in their report.

Some critics characterize the White House’s removal of Wagoner as a move toward European socialism. 

Are European markets such as those you find in Germany, France and Great Britain really closer to 1950s style Russian socialism or are they close to U.S. capitalism?  Isn’t “European socialism” simply the term corporate apologists and Republicans want reporters to use?