Pay For Performance; Maximum Wages Are Here!

Pay For Performance Act of 2009
"To Prohibit Unreasonable and Excessive Compensation and Compensation Not Based on Performance Standards"

Back in January and early February I railed about a Maximum Wage Initiative that was coming to America. Am I prophetic? I would like to think so, but in reality with our Democratically controlled Congress and President I felt that it would be easy to predict. Now Barney "Sylvester Da Fat Cat" Frank (he sounds like the cartoon cat) and his ilk have passed a bill that would set pay for performance standards in companies receiving bailout monies for ALL employees not just executives (yes it would include the janitor and secretary too). And we know that it won't stop there. The next extension will be any company with a federal government contract then ALL companies in America. It will spread because of the sheep that constantly attack achievement and success of others. Always looking at their neighbors and saying that they don't deserve that boat, that car, that house nor that salary saying "something ought to be done."

This bill will be applied retroactively to compensation that is already in place and once again seeks to punish rather than encourage. It would give Turbo Tax Tim the authority to determine pay and to decide what is 'excessive' and 'unreasonable.' He that was tripped up by tax software that is almost idiot proof, will also come up with the method to evaluate the performance of the executive or employee receiving payments.

This comes on the heels of the failed attempt to retroactively legislate 90% taxes on the AIG executive bonuses. Since when has our federal government been able to tell any company what performance is. The government does not even know what the concept of performance looks like nor can it be able to determine how to measure it. "Sylvester" Frank wants to be able to recover money from ANY worker that he deems has not been worthy of taxpayer supported wages. In other words did not meet the performance standards set by Congress or Turbo Tax Tim. And you and I know that these standards will be a moving target and random in enforcement. This bill passed with 247 in favor and 171 in opposition with 12 abstaining. See how your congressional representative voted.

If you cannot recognize that our Congress is seeking to place a Maximum Wage for all workers in this country then you have fallen asleep and should not be shocked when your pay is adjusted down because you have not met performance standards. American business has always had a performance standard. If you do a good job you get to keep your job and you receive a modest pay increase. If you do a great job, you get to keep your job and you get a great pay increase or promotion. If you do a lousy job then you get promoted to customer except if you are a member of a repressive union.

O.K. Mr Frank all I did was give a rant but where is the solution. Here is the beginning.

Let's start with you and the rest of Congress. Your performance has not been up to standard (my measures) for quite some time and you are not worthy of your taxpayer supported salary. You work a relatively part-time job with vacation perks, meals, parking, expenses, office staff and allowance, etc. yet you get paid a healthy salary for this work. You are a public servant and should serve the public. All of you should work for $51, 000 per year. Because of all the perks you get in D.C. you really would not need any more than that. Giving back the $123, 000 to the taxpayers would go a long way to feeling the pain and spreading the wealth. Kruella D' Pelosi would be harder hit with a return of $173,000 to the taxpayers. This would also cut down on the professional politician if they knew that their salary would be equal to the average guy they claim to represent.

How did I come to the $51,000 amount? Brain fart! Just the same way the President and Congress has said that no executive should earn more than $500,000 annually. No rhyme, no reason just plain brain fart! Barney Frank and Congress put your money where your mouth is. Lower your salary, since my expectations are higher and you have not met them thus you are not worthy of your $174,000 annual salary. Give it back or go get a private sector job. The closest you have come to running one is when your lover was running a prostitution ring out of your D.C. apartment.

The 2010 elections must usher in some immediate changes in our country or this country that we have loved and lived in will disappear. People you have to be afraid. Be very afraid. This is going to doom our competitive spirit and destroy our country.

That's my word. Please post yours!

Doing Due Diligence and AIG

When buying a company you should always conduct your due diligence in examining how that company operates, is financed and what ongoing contracts or obligations it has. In other words you ask for their financial books and you begin your due diligence discovery. On May 1, 2008, Delta Airlines and Northwest Airlines agreed to create the world's largest airline through a merger of the two companies. At some point prior to this announcement they both had to open their books for financial review to see if this potential marriage would work.

Along comes our Federal Government with its gotta get something done now mentality and buys $170 billion of American International Group, Inc. better known as AIG. Former Treasury Secretary, Hank Paulson, called the Wall Street company to Washington D.C. to iron out a proposed bailout of AIG which had gotten into deep money troubles with the collapse of our financial industry. What Paulson and the rest of the Washington knuckleheads did not do was ask all of the banks that were being bailed out to allow the government to examine their financial books thoroughly. $170 billion dollars later everyone is an uproar about $165 million in bonuses being paid out by AIG. In other words all of these intellectual dimwits did not do their due diligence for the American taxpayer. You and I spend more time reading our escape clause in our cell phone contracts than what was done here.

If this had occured just maybe someone would have seen the contracts for these bonuses. Because we are a country based upon the rule of law there is nothing anyone from Barney Franks, to Chris Dodd, to Nancy Pelosi or even Barack Obama can do. These bonuses are contractual and were already in place prior to the sky falling in for AIG. One way that these bonuses could have been eliminated is to have allowed AIG to go into a controlled bankruptcy and then the people who were slated to be paid bonuses for 2008 would have to get in line with the rest of the creditors as AIG tried to emerge from bankruptcy. Another way would have been to ask that the bonuses be deferred as long as the company was in trouble and owed the taxpayers.

Now that everyone on Capitol Hill is ranting about the timing of these payouts; they should look in the mirror. They are responsible for this not AIG. Had they taken the necessary time instead of rushing to the rescue there would have been better opportunity to review all of the operations of AIG and others. Paulson also set up the bailout so that these companies did not have to report how they planned to spend the monies lent to them. No court in this land will override the decision of AIG to pay these bonuses. Contracts are binding unless there was fraud by one party and since the recipients are getting what they expected and AIG indicates these bonuses are due then who was defrauded? Not the Federal Government. They never did their due diligence.

AIG is a holding company for many different companies. AIG has businesses in general insurance, financial services, asset management and life insurance & retirement services. And because we do not know who exactly will receive these bonuses and how each of the many companies under the AIG umbrella performed; it is not prudent to assume that someone is not deserving of their bonus. Nor do we know how each of the many companies performed individually. Some divisions of this organization may have been performing well above expectations and that is what helped trigger their contractual bonus payout. If it turns out that AIG is just paying bonuses to pay bonuses without the necessary performance triggers then shame on them and they deserve the intense scrutiny they are receiving. But our government set it up that they did not have to report as to how they are spending your money. Due Diligence not done! Necessary precautions not taken! No common or business sense. Government at its very best! You see what happens when Congress does things in haste. The good thing is that Obama and his team did not set these arrangements up but he did vote yes to the $750 billion bailout as Senator and Presidential candidate.

I am not opposed to anyone at AIG or any other bailout company receiving bonus payouts that were agreed to as long as the terms of the performance were met. Mr. Obama issued more of his rhetoric today, that Treasury Secretary, Timothy Geithner would be using any legal means necessary to stop or reverse these payments. This is the same Mr. Geithner that has yet to produce the plan for shoring up our financial and banking industry. The same Treasury Department that has yet to get a Deputy Treasury Secretary to assist Mr. Geithner. When is he going to have the time for this assignment? I'll wait......

That's my word! Please post yours!

Will We Have A Maximum Wage Initiative?

Coming to a workplace near you…..

The Maximum Wage

On May 25, 2007, President George W. Bush, signed into law a bill that permitted the rise of the Federal Minimum Wage. This was historic because the minimum wage had not been increased in over 10 years. The AFL-CIO argued that the minimum wage earner had not had a raise for 10 years. Common sense would dispute that reasoning as no one would work for the same rate for 10 years at any job. The bill was hotly debated by our representatives and Mr. Bush signed this legislation partly because it included funding for the War on Terror in Iraq. The minimum wage was increased in .70¢ increases over three years. Currently the Federal Minimum Wage is $6.55 with another increase in July of this year to $7.25. We can debate the economic impact of the minimum wage some other time.

I bring this up because of all of the hoopla recently over executive compensation at corporations around the country. My thoughts are that if the Federal Government can set a lawfully mandated minimum wage then what is preventing it from setting a lawfully mandated maximum wage. Our economic life has been turned upside down over the past several months with a $700B bailout of our financial markets (and more to come), requests by the automotive industry for bailout money and now states and local municipalities readying to lobby Congress for their bailout.

The primary reason anyone is raising any ire on executive compensation is because of the amount of money the CEO’s received as their companies began to fail. When we hear that General Motors CEO, G. Richard Wagoner, Jr. received compensation of $10M, there is some sense of disgust. No one looks at the fact that Mr. Wagoner did not set his compensation, his bonuses nor his equity positions in General Motors. They were all determined by an executive compensation committee, approved by a board of directors and negotiated by Mr. Wagoner’s representative prior to taking the job. His actual salary is $1.6M along with $1.8M in bonuses and non-equity compensation making his total cash compensation at $3.4M. I am sure that in his bonus calculations there are certain levers that must be met to achieve different parts of that bonus. These were either negotiated or decided by the compensation team to incent the leader to perform. Bank of America’s Kenneth D. Lewis received $1.5M base salary, $4.3M bonus and non-equity for total cash compensation of $5.8M. He does have an equity position (options and stock awards) worth $15.6M. However, as the stock market goes so does the value of his stock awards. Of the mentioned CEO’s they both are contracted and are entitled to their compensation by contract or the company could be in for a legal battle which it would certainly lose unless they could prove blatant mismanagement.

Yet the Congress, President and the American public demand that Executive compensation be “brought into line”. In line with what I ask? These people are asked to run these companies and to take the necessary risk to build wealth for their investors (you and me as stock holders via our mutual funds, 401K and pension funds). To run a comparison on salaries lets see if you can attribute these salaries to the correct person:

a.) $8M Total compensation. $5M base with $3M bonus
b.) $27.7M Total compensation. $2.5M base with $25.2M bonus.
c.) $15.0M Total compensation. $1.0M base $10.4M bonus/non equity $3.6M equity.
d.) $10.0M Total compensation. $8.5M base $1.5M bonus.
e.) $1 Total compensation
f.) $21.7M Total compensation. $2.0M base $7.0M bonus/non equity $11.3 equity
g.) $14.0M Total compensation. $1.9M base $12.1M bonus.
h.) $23.4M Total compensation
i.) $28.0M Total compensation

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Answers to above:
a.) Tom Brady, Quarterback New England Patriots
b.) Ben Roethlisberger, Quarterback Pittsburg Steelers
c.) Charles O. Prince, CEO Citi Group, Inc.
d.) Eli Manning, Quarterback New York Giants
e.) Steve Jobs, CEO Apple (only $1 in compensation)
f.) Alan Mulally, CEO Ford Motor Company
g.) Randy Moss, Wide Receiver New England Patriots
h.) Jason Giambi, Designated Hitter New York Yankees
i.) Alex Rodriguez, Third Baseman New York Yankees

The reason that I have included the compensation of the professional athletes here is because I am not hearing a congressional outcry on their pay. Their compensation is negotiated by agents, agreed to by a team owner and may include bonuses (some guaranteed) and levers to achieve those bonuses. Some levers could be making the All-Star team or Pro-Bowl, becoming the rookie of the year or even leading the league in rushing yards or scoring. You see the market determines their pay and they get to keep it whether their team wins a championship or not. The Yankees have one of the highest payrolls in the professional sports but has not won a championship in eight years. Yet they pay two players over $51M and these guys get to keep it all. And all of these millionaire players are represented by a player union to ensure that they continue to get maximum pay. Yeah, I know that MLB, NFL, NBA or NHL have not asked for a bailout....yet! So why can’t CEO’s get their compensation negotiated and agreed to in advance. The difference is that if the board decides a CEO is not performing they let him go “pursue other interests”. Well it may also be that many of these same companies are asking the Imperial Federal Government for taxpayer relief to save their beleaguered asses. Are these executives paid more than their employees? Hell yeah they are. If the guy putting the wheels on the Chevy Tahoe could run the company, then promote him and pay him as well but he can’t and he does not have the fortitude nor the skill to lead a multi-national corporation. You pay for success or you wind up with mediocrity. Will salaries going forward be looked at more closely? You bet. With Congressional oversight executive pay will be challenged at every stage and many of America’s proud corporations will disappear with mediocre leadership. You get what you pay for.

Some will argue that if these men and women were so smart then why are their companies failing? Well, other than the U.S. Military, what part of Government is efficient yet we want these people to regulate salaries of the successful. Yes, it pains me to see a failed C-Level executive leave a company that he/she has failed to make into a success and go lead another company. Remember that he is not hiring himself. The new company saw something in this executive to want to have him to lead their company. That is the same for a professional quarterback. The Greenbay Packers have not been to the Super Bowl since 1998 yet they stuck with Bret Favre until 2008 where he was finally traded to the New York Jets and the Jets did not make the playoffs this year. So did the Jets hire a failure at quarterback? Was Bret Favre a failure? Do not give me 22 players on a football field argument. The same goes for a corporation.

So if we allow the Congress of the United States of America to set a minimum wage then what is preventing them from setting a maximum wage? Not a thing. And if you think that they will settle on executive salaries then you are dead wrong. In order to move to a more socialist society then wages have to be fair. And to be fair, your job and your salary may be set to a maximum so that you do not out earn those who are less educated, less motivated or less fortunate than yourself. Remember it is all about Fairness and Spreading the Wealth.

That’s my word but not the final word. Post your thoughts.