A Telling Anecdote on CEO Greed
Today’s excellent Globe Report on Business story on Potash Corp CEO William Doyle
http://www.theglobeandmail.com/servlet/story/RTGAM.20080508.wrpotash08/BNStory/energy/home
scarcely requires additional commentary. But here goes –
Apparently, his stock options are now worth $600 Million, up from $7 Million at the end of 2003. This huge windfall reflects soaring potash prices, up from $100 to $600 per tonne over more or less the same period. To state the obvious, Mr. Doyle cannot have played much if any role in the run-up in global demand for potash which inflated his options in such a spectacular fashion, but he is cashing in big time nonetheless.
Why should shareholders accept compensation structures which allow a small elite of corporate executive insiders to capture huge windfalls from rising resource rents? Why, as Jim Stanford asks today, should we allow shareholders and insiders to collect even higher windfall resource rents via deep corporate tax cuts? Why, as a society, should we tolerate the huge, huge inequalities which result from allowing the very, very few to profit so handsomely, with so little apparent additional effort?
Its especially egregious that Mr. Doyle lives in Chicago so will be unlikely to pay Canadian income tax on his Made in Canada resource rents, and that the head of Potash Corp’s compensation committee sees fit to comment that Mr. Doyle should be commended for boldly stepping into the spotlight rather than taking the easy way out by exercising his options sooner and leaving cash on the table.
The part I really shake my head on these compensation issues of the upper crust, is the rational that they have somehow earned these pack packets.
Is any one persons output on this planet really worth that much. Of course not, yet the linkage between the share price and pay is just a way to keep the shareholders happy. (not all the time as these CEOs still have large pay in th event the stock falls.) I have been to my share of negotiations where the objective has been to figure out a “pay for performance” add on to base salaries. These notions are similar but when dollar figures are brought in, the jaw dropping amounts are ludicrous.
I am just if they was some kind of big red button that fixed this, shareholders would be burning out the switch that switch on that button from banging on it.
That kind of travesty is what keeps those contradictions alive and well and growing. When will it lead to change though is what ought to be considered.
Paul.
sorry that should read
If there was some kind of big red button that fixed this for shareholders, I am sure they would be pushing it.
The Conservative/Liberal deep corporate tax-cuts are my biggest beef with S.Dion and probably J.Layton’s biggest policy strength.
For now I’m giving up in my attempt to develop a counter-cyclical fiscal policy industry basket. I think the worst could be avoided if employment is kept high. I was looking at the idea of indexing labour-intensive industry (like wind turbine manufacturers) tax rates to the employment rate, but the idea choked on how to ensure the employee-friendly industries are growing (nursing-aides) and/or well paid (teachers). You wouldn’t want to turn all your autoworkers into Grand Banks fishermen. Then I reasoned small businesses are employee-intensive. And at the ends of two US recessions, people naturally formed them out out of frustration. But in Canada, the most employee-intensive small business is a sole-proprietorship. These aren’t taxed as registered small-businesses are. And I don’t know how much tax creativity is acceptible in minimizing the personal salary in one’s small business to claim small business income at a reduced rate…
The latter research unearthed that the bigger the business in Canada, the less the R+D performed. And banks and oil players are not employee intensive. Business tax-rates should steepen the way personal income tax rates do.
Another way the illiquid Canadian options game is BS is that only wealthy people are allowed to trade them. If you go to a Canadian bank to open a limited-liability options account, it is treated as if you are opening an unlimited liability derivatives or margin account. If you are an 18 year old with a few thousand dollars, wishing to purchase banking LEAPs in 1999; assets far safer than anything in most Canadian bank’s balance sheets last summer (despite the CEO stock options), you are asked to prove you have $60000. If not, you are asked to demonstrate a ten year *trading* history and prompted to explain retardedly esoteric plays only a bank would ever dream of wasting money on. The options game is (at least was) structured to ensure only those with rich parents or a middle age demographic, can participate. If I had that $25000 or so in 2004, I wouldn’t have wound up in a homeless shelter and I’d now be a lot less sympathic to those who use force to attack Western greed.
The US company I work for posted a 13% increase in profits this year to $26.8 billion. We’ve all been working hard to cut costs for them and it was announced that our pay will be cut, undoubtedly to increase profits further. What a wonderful ‘thank you’.