Friday, September 26, 2008

Golden Parachutes

I oppose "Golden Parachutes" (big severance packages for CEO's) if the money is extorted from taxpayers. If the money comes voluntarily from consumers who chose to buy the goods or services the CEO made possible by managing the corporation, I have no concern.

"But what if the CEO takes his severance package, amounting to tens of millions of dollars, and then the stock collapses and shareholders and investors lose everything and janitors lose their job? Why should the CEO get millions?"

Rick Raddatz has given a libertarian answer. Before I quote him, let me remind readers of a fact pointed out by George Will:

Exxon Mobil does make $1,400 a second in profits -- hear the sharp intakes of breath from liberals with pursed lips -- but pays $4,000 a second in taxes and $15,000 a second in operating costs.

That's a tad bigger than my corporation. And I have to admit, Exxon/Mobil is helping more people get where they want to go than I am.

OK, here's Rick's take on golden parachutes:

CEO Pay and Golden Parachutes are in the news and EVERYBODY seems to be getting this issue wrong. (Republicans and Democrats)

Look - I'm a successful, smart business owner with a 12-year history at Microsoft.

So I'm for real.

BUT -- if you put me in charge of a really big company -- like BOEING -- for example, what would happen?

Within 24 hours, the entire C-level executive team would QUIT because they would not respect me, nor the decision-making skills of their board of directors [for hiring me]. If the board stuck to their decision, the stock would instantly collapse and probably end below the cash-value of the company. UPS, Fed-Ex, and Airlines would all cancel their orders and probably sue. It would become the #1 news story on the PLANET... (in a bad way) -- and that's just the first day.


It means that there are only a handful of people in the world that BIG BIG companies can draw on to recruit when it comes time for a CEO transition.

And they're all busy running other companies.

And the good ones are running them well, enjoying life.

And God forbid your big-big company is in crisis when the transition-time comes -- nobody is going to want to take that job.

Unless.... unless you pay them VERY VERY well and eliminate risk by offering a golden-parachute regardless of performance.

So you see, everyone complains about golden parachutes when things go bad.

I say -- they're missing the point... golden-parachutes are HIRING BONUSES. The person deserves them because they were willing to leave a safe job, and take on risk in order to help a company in trouble.

You want to destroy some companies? Go ahead and limit CEO pay. What a great way to attract the 'not best' to run your company.


As a small business owner, you make money when you analyze situations correctly. If you're in with the crowd complaining about CEO Pay, I encourage you to re-think your position, and then re-think HOW YOU THINK.

I'm serious -- your ability to think through the dynamics of things like CEO Pay also determine your ability to think through the problems you face in your business.

Don't get me wrong... smart people can have reasons to disagree... but in the end, you'll know how good your thinking is overall by how successful you are, and by how many people you help. Usually the two go hand-in-hand, even in the world of non-profits.


- Rick


Of course I welcome comments on Rick's opinions.


Anonymous said...
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Anonymous said...

The Answer to Golden Parachutes is a Simple Tax Law change.
Any serverence Package greater than the person's one year basic salary will be taxed at a rate of 99%
These guys should be able to find other employment in less than a year.

Kevin Craig said...

What do you mean, "The answer to Golden Parachutes...?"

"Golden parachutes" is not a problem that needs an "answer." Golden parachutes is the answer to the problem of finding qualified individuals who know how to run a corporation that employs thousands of people and churns out goods or services needed by millions of people, and are willing to take the risk of heading up a multi-billion dollar corporation that for some reason is looking for someone to run it.

Eliminate golden parachutes, and you eliminate your ability to drive a car, get gas, travel by air, use a credit card, or buy a computer. Huge corporations can only entice qualified CEO's to assume the vast responsibilities of management by giving them Golden Parachutes as a hiring incentive.

And you want to TAX the parachutes away? To give the money to bureaucrats in Washington who produce nothing of value?

Re-read Raddatz' comments.

Kevin Craig said...

AIG recently spent $400,000 on a resort trip for AIG employees. Senate Leader Wants AIG Execs Fired for Retreat. Jim Babka explains why this misses the problem:

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