Market Driven
Quoth Senator Ding Dong:
Democratic presidential candidate Barack Obama will push on Friday for passage of a bill to put the huge pay packages of some U.S. corporate executives under greater scrutiny.
The Illinois senator has introduced “say-on-pay” legislation that would give investors more of a voice in setting executive compensation packages.
“We’ve seen what happens when CEOs are paid for doing a job no matter how bad a job they’re doing. We can’t afford to postpone reform any longer,” Obama said in prepared remarks for delivery later on Friday.
“That’s why Washington needs to act immediately to pass this legislation.”
I know that this is driven by class envy—that “the bosses” need to be “reined in”—and we should all therefore castigate this moron wannabe-president for his political philosophy.
But that’s not the point. This is.
Lest we forget, the CEO “class” of 2001 - 2007 oversaw the continuation of one of the greatest economic booms in U.S. history, a boom which continued despite the dragging costs of a massive war effort and the debilitating effect of the greatest onslaught on our home soil since Pearl Harbor.
Rather than trying to “rein in” CEO pay, therefore, we should be striving to keep the wheels turning in the same direction.
And yes, I know, there are all those stories of CEOs who were in essence rewarded for failure—getting massive bonuses and salaries despite their companies’ poor financial performance—but that number was completely overshadowed by the number of companies which thrived and prospered, and delivered massive dividends to the shareholders.
I am completely against Senator Obama’s idea that “shareholders” should have a say in executive compensation. If I may be blunt, for a change: shareholders don’t know diddly about compensation, or the market in which the company has to compete, or how much money it takes to attract someone with the skills and experience to manage a corporation. Worse than that, shareholders are a skittish bunch, and because they’re driven by the quarterly cycle, are less likely to adopt a proper long-term strategy, and more likely to pull the plug (most often prematurely) at the first sign of trouble, or if gains are not immediately apparent.
I hate to beat this drum time and time again, but I need to say it once more: there are probably fewer than 300 top-flight CEOs available in the market to manage the Fortune 500 (note the delta)—and the compensation packages of CEOs takes that into account.
Even more telling is that a huge amount of the CEO talent is dispersed outside the Fortune 500, in startup companies and emerging markets—where by definition good results are even more elusive than in the “maintenance” environment of the major corporations, and talent is even more in demand.
Of course, to doctrinaire socialists like Obama and moronic populists like, oh, Bill O’Reilly, there is always anecdotal fodder to trumpet about “results-driven” compensation—as though the market would not already have employed such a tool if it had been a proven success.
The plain fact is that CEOs are disproportionately rewarded because a.) it’s a buyer’s market because of the scarcity of talent and b.) because there’s no guarantee of success in capitalism, so corporations’ boards try to stack the deck in their own favor by buying the best talent available.
Unknown is the fact that if a company does poorly under a particular CEO’s management is how much worse it might have done under a lesser individual, one not as well-compensated as the original choice.
It’s the market, folks, and the more we leave it to its own devices, and the more we are able to keep it out of the grasp of know-nothing politicians and (even worse) proponents of failed economic systems (those would be socialism and communism), the better off we’ll all be, in the long run.
