Executive pay and corporate governance

[KrazyHorse]

Originally posted by Ramo
The dependence of executive compensation on social norms is something that doesn't get emphasized enough

The pay is AT market levels, unlike the pay in other countries (where things like extremely high marginal tax rates, legal restrictions on pay and social mores make it impossible for companies to pay their executives what they'd like).

[KrazyHorse]

I think Dan's hit on the real point. The problem is not exec pay per se, rather that exec pay is a SIGN that something may be wrong. If shareholder and exec interests can be perfectly aligned other than in the area of exec compensation then the problem really is minor. If they're non-aligned in some more meaningful area then this can be a major problem.

[KrazyHorse]

Originally posted by DanS
Index funds are starting to have some heft, which as yet they have not exercised. I'm not sure how I feel as to whether they should assume a more activist role.

As much as I like index funds personally, they are destroying a public good (the market). As such, there should perhaps be a small tax on them.

[TCO]

Originally posted by KrazyHorse


As much as I like index funds personally, they are destroying a public good (the market). As such, there should perhaps be a small tax on them.

Nah, there's plenty of idiots at LTCM and Goldman and Cramer's mad money and the like day-trading to keep the market lubricated. It's like taxing people for breathing.

[KrazyHorse]

Cramer's mad money

Whatever that guy destroys in capital productivity he more than makes up for in entertainment value.

[DanS]

One area where shareholders' interests are not being adequately considered is in M&A activities. It has long been known/thought that most M&A activity is a detriment to the buying company's shareholder value (would be interested in hearing information otherwise, though). Yet M&A activity continues apace.

[KrazyHorse]

Navy, the worry is not necessarily that it's shutting down markets completely. Just that it's shutting down a lot of the saner parts of market (long term buy and hold) and that it might swallow this completely at some point unless something is done.

[KrazyHorse]

Originally posted by DanS
One area where shareholders' interests are not being adequately considered is in M&A activities. It has long been known that most M&A activity is a detriment to the buying company's shareholder value (would be interested in hearing counterarguments, though). Yet M&A activity continues apace.

I agree with this.

[DanS]

I don't think dividends are a problem, but stock buybacks have an interesting impact on stockholder value. There has been some talk lately about companies buying their own stock at highs and suspending these purchases at lows. Dividends don't tend to vary nearly as much.

[KrazyHorse]

Dividends decrease the amount of capital available to execs to engage in growth or M&A. I would think that the execs would engage in hoarding rather than disbursing dividends. Also, if incentives are for share price and do not include effect of dividend disbursement it will mean that they will hate dividends.

[DanS]

A question that comes to mind is to what extent organic growth is something to be encouraged with shareholder money. At first blush, it would seem worthwhile to maximize this growth, but would be interested in hearing counterarguments.

[KrazyHorse]

At first blush, it would seem worthwhile to maximize this growth

Why?

It locks in capital based on past growth rather than probable future growth. Major argument for large dividends or stock buyback is precisely this.

[DanS]

Cash hoarding is a very interesting topic. I have heard that in the 50s, high cash levels were much more prevalent than they are today. But dividend yields were fairly high during that time period.

[Japher]

I for one hope that executive pay doesn't decrease in my life time. It give me motive and a dream that one day I might be able to bankrupt a company and fall lightly with my golden parachute.

[DanS]

Originally posted by KrazyHorse

At first blush, it would seem worthwhile to maximize this growth

Why?

It locks in capital based on past growth rather than probable future growth. Major argument for large dividends or stock buyback is precisely this.

Can you give an example? I'd like to hear more about this.