Archive for May, 2009

Regulating Compensation: I’m Not Optimistic

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Published in Seeking Alpha May 31, 2009 b James Kwak

In my opinion, one of the biggest contributors to the crisis we know so well was compensation schemes that gave individuals at financial institutions – from junior traders all the way up to CEOs – the incentive to take massive bets. Put people in a situation where the individually rational thing to do is take lots of risk, and they will take lots of risk – especially if they are generally ambitious, money-loving, and predisposed to think that if the market is giving it to them, they must deserve it.

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How Do You Get a Lawyer to Smile?

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expert perspective telescopeExpert Perspective by Grahall’s OmniMedia Editor

Last October, on Halloween to be precise, Carl Icahn posted an article on www.icahnreport.com that leads with “Executive pay is out of control in this country.”  Well he certainly was neither the first nor the last person to make that observation.   He takes direct aim at the people he believes are to blame for this problem:  Compensation Consultants.  His caustic observations along these lines made me realize that it might be harder to be a compensation consultant these days, than it is to be a lawyer.  And it reminded me of a joke:
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Management, Boards and Comp Consultants: A Change of Heart?

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expert perspective telescopeExpert Perspective by Grahall’s OmniMedia Editor

I was fascinated to see the Eliot Spitzer (yes THAT Eliot Spitzer) had an article published in Slate.com but was even more interested to see that the subject was the apparent change of heart of one of the most prominently conservative federal judges, Richard Posner. Spitzer notes that “[Posner] is both the creator and the defender of the free-market theory that has guided deregulation for the past 30 years.” Further Spitzer notes that in a dissenting opinion, “Posner wrote that there is growing indications that CEO pay ‘is excessive because of the feeble incentives of the board of directors to police compensation…’”. Wow that is pretty left wing for Posner.
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What It Really Means to Have Only a 401(k) Plan for Your Retirement

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expert perspective telescopeExpert Perspective from Grahall’s Michael Dennis Graham.

The SHRM article titled “Milestone: Most Fortune 100 Firms Offer Only 401(k)s to Salaried New Hires“, shares that for the first time more than half (that would be 55) of the Fortune 100 companies offer only 401(k) plans to newly hired salaried workers.  The only thing that surprises us about this statistic is how long it was in coming.  401(k) plans grew in popularity with employees (well, at least until account balance growth slowed, stopped and then reversed) and were popular with companies looking to avoid the balance sheet implications of pension plans.  It’s been over 25 years now since section 401(k) was added to the internal revenue code and changed the relationship between workers and organizations, ultimately giving employees responsibility for their own retirement.
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Woodstock for Capitalists Revisited

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 Expert Perspective by Grahall’s OmniMedia Editorial Board

The Berkshire Hathaway Annual Meeting, held on May 2, 2009, is reported to have met expectations on all fronts:  entertaining, folksy, touching and of course informative.  The meeting this year was attended by more than 35,00 people which might attest to the interest that people have in Buffet’s investing style, in Berkshire Hathaway itself, or perhaps it might speak to the reach of eBay, where Berkshire Hathaway was selling admission passes to the public for $5 a piece.
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Crazy Compensation and the Crisis

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Published in The Wall Street Journal May 28, 2009 by Alan S. Blinder

Despite the vast outpouring of commentary and outrage over the financial crisis, one of its most fundamental causes has received surprisingly little attention. I refer to the perverse incentives built into the compensation plans of many financial firms, incentives that encourage excessive risk-taking with OPM — Other People’s Money.

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Goldman Shareholders Suffered as Blankfein Earned $43 Million

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Published in Bloomberg May 28, 2009 by Ian Katz

Citigroup Inc. Chief Executive Officer Vikrim Pandit weathered almost six hours of grilling from shareholders at the bank’s annual meeting on April 21. He had a lot of explaining to do: The company lost $27.7 billion in 2008 and stayed afloat only with help from a $45 billion government bailout.

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Incentives for the Long Run: An Executive Compensation Plan That Looks Beyond the Next Quarter

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Published May 27, 2009 in Knowledge at Wharton.

The public outrage over bonuses paid to AIG executives, and resulting government proposals to cap pay at companies receiving federal bailouts, illustrate rising concerns about executive compensation. Indeed, some analysts contend that ineffective compensation structures encouraged Wall Street executives to take on excess risk in the hopes of winning huge payouts, which in turn contributed to the continuing financial crisis and recession.

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Read Grahall’s Micahel Dennis Graham’s Expert Perspective on this subject.

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Citi, BofA to Raise Pay, Too?

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Published in The Wall Street Journal May 27, 2009 by Joe Bel Bruno

Citigroup Inc. and Bank of America Corp. are expected to soon raise base salaries for investment bankers to compensate for limits on annual bonuses, according to people familiar with the matter.

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The CEO’s Price Tag

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Published in Investopedia, May 26, 2009 by Will Ashworth

On average, CEOs make 344 times the average American’s salary. Thirty years ago, the disparity was just 30 times the average.

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