[QUOTE=fivemack;237822]
I don't think I have the necessary capability to figure out what the third level of managers at BP should be paid, any more than I have the necessary capability to figure out how many Type 45 frigates the Royal Navy should be ordering: in principle I vote for the board of directors who are professionals tasked with making that decision, just as I vote for an MP who is a professional tasked with the naval decision.

Maybe the underlying issue is that no company has a Loyal Opposition.[/QUOTE]

However:

The ones who make the decisions about how many frigates to build do
not themselves personally profit from their decision!

In many cases boards of directors do. Perhaps we should have a
requirment that anyone who can personally profit from a board decision
not be allowed to sit on the board??? Maybe the same should apply to
senior management?

Rewards need to come from an *external* source. One should not be allowed
to make decisions as an employee if one directly benefits from that decision.

i.e. get rid of conflicts of interest??


Just another idea........

[QUOTE=R.D. Silverman;237824]I'm just seeking ideas.......[/QUOTE]

If I understand correctly, the law states that the Board of Directors and the company officers have a fiduciary responsibility to act in the best interest of the shareholders.

So, in theory we have all the laws we need on the books already. Why aren't the current laws working? Because the judicial system almost always sides with the Board and company officers.

I've seen cases where, in the face of a takeover, the Board passes a "poison pill" to save their own jobs, the stock immediately tanks, and the courts uphold that is in the best interest of the shareholders! Ridiculous.

This needs to change -- and I don't know how you do that. Perhaps Congress needs to pass new laws clarifying what "best interest of the shareholders" really means.

If we give our greedy shyster lawyer class a fighting chance in juicy lawsuits when Boards go way overboard on compensation the problem will quickly resolve itself.

[QUOTE=Prime95;237828]If I understand correctly, the law states that the Board of Directors and the company officers have a fiduciary responsibility to act in the best interest of the shareholders.

.[/QUOTE]

Explain to me how awarding huge bonuses to EMPLOYEES is in the
best interests of the shareholders...?

Doing so takes money out of the shareholders' pockets and puts it into
the hands of the employees.

[QUOTE=R.D. Silverman;237833]Explain to me how awarding huge bonuses to EMPLOYEES is in the
best interests of the shareholders...?.[/QUOTE]

I can't explain it to you, but the courts buy into the Board's arguments that huge salaries and bonuses are in the shareholder's best interest.

[QUOTE=R.D. Silverman;237833]Explain to me how awarding huge bonuses to EMPLOYEES is in the
best interests of the shareholders...?

Doing so takes money out of the shareholders' pockets and puts it into
the hands of the employees.[/QUOTE]
Incentives to the right people in the right way can make a difference.
[url]http://www.smh.com.au/business/santa-clive-gives-mercs-to-workers-20101119-180r9.html[/url]
Admittedly the article is not much more than a press release, but hey...

[QUOTE=Prime95;237840]I can't explain it to you, but the courts buy into the Board's arguments that huge salaries and bonuses are in the shareholder's best interest.[/QUOTE]
I think the theory is that "a properly incentivized employee will work harder to provide value-add to the company, thus increasing shareholder value." This is one of those somewhat-subjective (since cause and effect are impossible to precisely correlate when it comes to such things as human behavior) optimization problems which allow for a range of "what is optimal" judgment large enough to drive a proverbial truck through, rather like the "what is the optimal level of taxation" one.

At the low-compensation extreme, paying someone nothing to work would be strongly disincentivizing for most - only people of independent means who will do the work out of some non-monetary motivation would work under those circumstances. Interestingly, the volunteer-work model actually works very well for charities, but we are talking here about competitive capitalistic enterprise.

Moving up the scale: Once you get to a "reasonable" pay grade, i.e. sufficient to cover an employee's living expenses and allow them to feel reasonably financially secure, then they are at least "reasonably incentivized", and the main reason to pay them more is that you want to retain their services and doing so would be unlikely at their current pay. This is the "best and the brightest" argument, the one which Wall Street likes to stretch to extremes.

So the big question is: At what pay level does the law of diminishing (or even negative) returns come into play? Negative returns at very high compensation levels is IMO an issue much-neglected by economists, because it is the kind of perverse outcome which is hard to fit into their nice clean "rational" models. (Also. admitting such outcomes are possible might make it hard for an academic economist to justify getting paid big $ to sit on corporate boards - think Paul Krugman and Enron, for example). But it seems to me the effect is not only real, but at stratospheric compensation levels is nearly ubiquitous. Immense wealth, like immense power, is both addictive and behavior-warping. This is not to say that all billionaires are busy driving their companies into the dirt ... Steve Jobs at Apple is still creating very great value for shareholders. But compare his incentive structure to the perverse ones which in the past few decades have come to dominate on Wall Street, and you'll see a key difference. If you concoct an incentive structure which rewards people for taking outsized risks irrespective of long-term consequences, why would expect any kind of self-restraint to reign?

[QUOTE=markr;237845]Incentives to the right people in the right way can make a difference.
[url]http://www.smh.com.au/business/santa-clive-gives-mercs-to-workers-20101119-180r9.html[/url]
Admittedly the article is not much more than a press release, but hey...[/QUOTE]

OK, But Mr. Palmer, who made the decision to reward the employees
was the plant's OWNER.

[QUOTE=ewmayer;237857]Moving up the scale: Once you get to a "reasonable" pay grade, i.e. sufficient to cover an employee's living expenses and allow them to feel reasonably financially secure, then they are at least "reasonably incentivized", and the main reason to pay them more is that you want to retain their services and doing so would be unlikely at their current pay. This is the "best and the brightest" argument, the one which Wall Street likes to stretch to extremes.

.[/QUOTE]

It is horseshit. I am nowhere close to being paid what Wall Street pays,
but the company does not need to pay me more to retain my services.

[QUOTE=R.D. Silverman;237863]It is horseshit. I am nowhere close to being paid what Wall Street pays,
but the company does not need to pay me more to retain my services.[/QUOTE]

So by definition, your company does not need to pay you more to retain your services. OTOH, if you felt underpaid and made them aware of the fact, they might pay you more ... or decide that you're a greedy asshole and fire you.

Also, as you - perhaps unintentionally - note, pay is a very context-dependent thing. Let's say you're a programmer/software-geek working in Silicon Valley. You make low 6 figures working on some interesting coding and algorithmic problems, and are perfectly happy doing so. One day, a big Wall Street firm comes along, says they need people like you for their quant-finance/HFT-algo group, and offers you twice what you're presently making. (This is not entirely a hypothetical example I'm concocting here ... a couple years ago I found myself the object of a serious recruiting pitch by D.E. Shaw, the somewhat-mysterious hedge fund for which Larry Summers used to work. From what I could glean, they were working on some kind of ultra-secret custom-architected supercomputer ... I'm guessing it wasn't for climate simulations.)

You take the job, move to NYC, and a couple years later find yourself feeling naggingly underpaid and discontented. Why? Because your new line of work has no potential for satisfaction aside from making money - it's all about the money here, the money colors everything and reminds you of the fact wherever you go. And you find yourself making other people very rich, and surrounded by people who make unbelievable amounts of money, in a milieu which values that, and only that.

[QUOTE=ewmayer;237869]So by definition, your company does not need to pay you more to retain your services. OTOH, if you felt underpaid and made them aware of the fact, they might pay you more ... or decide that you're a greedy asshole and fire you.
[/QUOTE]

It would not matter if I did make them aware. The company has very formal
rules about raises. One can't just ask for a raise. OTOH, if I said that
I was dissatisfied with my salary during the formal annual review process,
my guess is that your last surmission would apply....

[QUOTE]

<snip>

You take the job, move to NYC, and a couple years later find yourself feeling naggingly underpaid and discontented. Why? Because your new line of work has no potential for satisfaction aside from making money - it's all about the money here, the money colors everything and reminds you of the fact wherever you go. And you find yourself making other people very rich, and surrounded by people who make unbelievable amounts of money, in a milieu which values that, and only that.[/QUOTE]

Amusing. I interviewed with D.E. Shaw when I was laid off from RSA.

They did not make me an offer, but I was glad. I did not like some
of the attitude that they conveyed during the interview.

I also interviewed with Goldman-Sachs when I was laid off from MITRE
in 1994. They wanted to hire me, but did not because (essentially)
all of Wall Street put on a hiring freeze at that time. Their attitude
about money came through loud and clear during my interview via
a number of off-hand remarks made by a number of people.

Also note that I would not accept twice my current salary to work on
Wall Street now, because it would not cover the added expense of
having to work in New York. It really is horribly expensive.

One pig is dead, long live the PIGS!!!
 

[url]http://news.yahoo.com/s/ap/eu_ireland_financial_crisis[/url]

[QUOTE]Reflecting the national mood, the Sunday Independent newspaper displayed the photos of Ireland's 15 Cabinet ministers on its front page, expressed hope that the IMF would order the Irish political class to take huge cuts in positions, pay and benefits — and called for Fianna Fail's destruction at the next election.

"Slaughter them after Christmas," the Sunday Independent's lead editorial urged. [/QUOTE]

Not that I have a horse in this race, but it seems to me that blaming the politicians is becoming a national pasttime. Do you think they are to blame for a building driven asset bubble? Of COURSE not, just ask them, same as we can ask Greenspan and others here in the U.S.

To this point, Greece has had to have a bailout triggered by a badly skewed socialist economy with overpaid and underworked entitlement employees. Now Ireland is at the vault snuffling for an initial support loan that will run about 70 Billion Euros and has a high potential to double that amount over the next 2 years. Spain and Portugal are skating on dangerously thin ice with probable need for a bailout within 8 months.

So what is the real risk of these countries going belly up? The overall risk is that they will trigger a cascade where France, then England will be swept up which will collapse the EU with resulting financial devastation. Such an event would cause worldwide fallout.

Somewhere in this world, we need some real pessimists to have an impact. Black Swans continue to surprise these blatherskites.

DarJones