A Market Solution to Capping CEO Pay

I personally believe that CEO's of PUBLICLY Traded companies, should never be paid more than 10X the Median income in the State they do business in because of that. It's a publicly traded company, not a completely private firm, doing business with completely private money. However, I DO feel that there definitely should be Stock Options given to attempt to match the pay at private companies.

How would this work?

Let's say that you're the CEO of Fannie Mae, and your pay is around 500,000 a year, which is about 10X the median income in DC, where the company is headquartered.
As part of your compensation package, you also get a pool of Stock Options, let's say 500,000 shares (about 1 for every dollar earned), that you can exercise in 5 years. Let's face it, any decisions you make today, won't really impact the company for at least 3 to 5 years.
Now if you did as the last CEO of Fannie Mae did, and lower the value of the stock from 70 bucks a share down to a couple of bucks today, then your Stock Options would be absolutely worthless. Why? Options are given at the price they are the day they are given. In other words, if the price of a share was say $70.00, and over 5 years went up to say $100.00, then your options would be worth around 30 bucks a share, or 15 Million Dollars. 50% higher than today's average "Big Gun" pay of 10 Million a year, but here's the big difference in my "Market Driven" compensation plan.

If you drove the company into a ditch, as Fannie Mae is in now, the options are worthless and you get ZERO bonus. Since it takes 5 years for the Options to kick in, the "Serial CEO", would be gone. Long term growth and stability would take center stage, instead of this mindset of "Short Term" gains.

A perfect example of this is the guy that went to Sears about 30 years ago, fired all the full timers, replaced them with part timers with no benefits. Since this dramatically cut Sears cost of doing business Profits boomed. Before long, he took MASSIVE bonuses and then left just a few years later, JUST as the effects started being felt that eventually drove the company into bankruptcy. What effects you say? Do you think that Part timers are as dedicated to the long term growth and stability to the Company as are full timers, some of which had been at the company for decades? Of course not Can you imagine going over to Mobil, GE or Boeing and saying, "I'm going to cut all the full timers and hire a bunch of part timers and the company's going to make more money". The board would think you're a nut job and fire you.

This same idiot was then hired by Home Depot, where he tried to do the same thing, cut full timers, cut training budgets, took massive bonuses, then left just as Home Depot stock took a 10 years slide. The problem with these kinds of CEO's is that while there's an IMMEDIATE up-tick to the stock price, because of improved profitability, over the long term, they lose their best employees and end up with a sinking ship.

I have no problem with massive compensation to the top guns that run these companies, as long as it is DIRECTLY tied to their performance as CEO's. Take a look at the banks, still getting multi-million dollar bonuses after they had US bail them out, that's sickening. Can you imagine if Paton Manning, who's getting 14 Million a year, decided to get Fat and Lazy and didn't perform as well as he has? He'd be CUT. His 14M a year GONE.

Why do these CEO's continue to get paid MASSIVE salaries from public companies, Government sponsored Enterprises (GSE's) like Fannie Mae and Freddie Mac, publicly Traded AND publicly funded companies like these top banks, Monopolies like the Utilities and so on. It's insane, and it's definitely NOT capitalism. It's Crony Capitalism, it's "Who do you know". It's almost a Reverse Socialism, where the Super Rich are supported by the little guy.

While I still believe in a very limited government, I do believe that common sense regulations should be in place to protect Wall Street and the public sector from the excessive gluttony that we've seen when it comes to CEO pay. The reason I say this is because it's gotten to the point to where their pay has ABSOLUTELY NOTHING to do with the level of performance at the companies.

Proposals like Obama's 500K cap on pay means absolutely nothing because all the board needs to do is give the CEO's additional pay in the form of direct Stocks, (not stock options like my plan would propose). If the board was hell bent on giving the CEO 5 Million bucks, even if the stock went all the way down to $1.00, they would simply give him 5 million shares.

In the mean time, the Government continues their attack on the true hero of the American Economy, the small business owner. God Forbid, any of these guys make over a Million, we have to tax them to death. These guys aren't taking any public money, they're not taking public stocks and grinding them down to nothing. They're not ruining the Pension funds of America, yet they're made out to be the bad guy. Those "Evil People" over there making more than 250K a year. While we're being RAPED by the bank CEO's.

Why the HealthCare system doesn't work.

I remember when I was a kid, very few people had HMO's. Most had what was called "Indemnity Insurance". Basically the way it worked was very simple. You went to the Doctor, and you paid his fee.

The End.

What? You don't get it? Think of it this way. You have Auto Insurance. Do they pay for Oil changes? No? Why Not, it's Auto Care isn't it? You're right, it's not, it's Auto Insurance. Auto Care probably wouldn't work, because then EVERYONE would start taking their cars to get oil changes 4X a year, just as the Dealers all say we should, then what would happen. There would be an Oil Change Shortage wouldn't there? Prices would go up, but what would we care, we're not paying for it, the Auto Care takes care of that.

Sound ridiculous doesn't it?

Well that's is the problem with the Whole HealthCare system. Where once they used to get involved MAYBE once every 5 to 10 years, when there was some sort of an emergency, the $250.00 to $500.00 deductibles that most policies had, insured that the vast majority of people never used their insurance, which kept the price very, very inexpensive. Now they get involved not only with every Dr. visit, but also every prescription that is filled. Health Insurance companies went from having just a few hundred employees to deal with the occasional claim, to having to hire hundreds of thousands of employees to deal with every single instance of your Medical life. Does that sound cheap to you?

Additionally, how has the health insurance industry impacted the Dr.s Office? Let's compare.

Before, your average Doctor was housed in about a 1000 Sq. Ft. office with a Nurse that doubled as a secretary. In today's dollars, he only had a payroll of maybe $200K Total. If we were to suppose that the good Doctor had a total of about 240 business days in a year doing about 16 appointments per day. Charging around $50.00 a visit would cover his payroll, and he would only need to add in another 10 to 20 bucks or so to pay the Rent and Electric bills and other expenses.

Today your average Doctor needs a couple of Billing Agents to take care of the HMO and PPO Claims, they also need collections people, plus an accountant to keep track of where the money is coming from. Keep in mind that an average Dr. might take about 3 different insurance policies. Additionally, they need a secretary to co-ordinate the calls all these people are getting, plus an office Manager to keep all the employees in line. And let's not forget there's still him and his nurse. Now take a look at Payroll. It has swelled to about $500,000.00! Let's say this doctor had the same number of days, about 240, and does about 16 Appointments per day, one every half hour. Now he needs to charge over $130.00 per visit, JUST to cover the Salaries. Additionally, since he needs a larger space, more phone lines, electricity, computers, repair expenses... you now see why the good Doctor needs to charge around $240.00 for an office visit. How did your health improve?

America has traded the freedom of the medical system for a centrally run insurance conglomerate handling your day to day Medical needs for what? So we would be free of Paperwork? Someone STILL has to do the paperwork, but the Doctor's were NEVER going to do the paperwork for free. It's precisely this system of our NOT wanting to take personal responsibility that took us down this road. Only us taking back our personal responsibility will bring us back from this nightmare.

Before my wife went back to work, I had a Catastrophic Health Policy. It had a very high deductible, I NEVER used it, but it was there to cover JUST THAT, a Catastrophe. If everyone purchased Catastrophic insurance you would not only save THOUSANDS of dollars a year in premiums, but you could demand and get discounts from your Doctors, because you don't NEED the system that he has in place. You are paying him directly, not going through a front group of insurance companies and ultimately that saves him money.

The only reason we went back to an HMO is because the company pays for it. In all honesty if we were given a choice, to have the Cash in our pockets (a Catastrophic Policy with a $5000.00 deductible can be about $10,000.00 a year LESS than an HMO), we would take the Cash and go back to having a $5000.00 a year deductible. Truth is we still have to pay a $25.00 Co-Pay, so really what do we save? $50.00 to $100.00 an office visit? (When I had the Catastrophic Policy, I would negotiate with all the Doctors to let me skate on paying between $75.00 to $125.00 Cash).

HMO's and PPO's place the burden of the Paperwork on the Doctor. The Doctor then has to hire people not only to deal with the Paperwork, but also to collect money from the Companies, for something that the VAST Majority of Americans can afford to pay. He then has to raise his rates accordingly to pay for the expanded payroll. To top it off, we haven't' even talked about the number of people that Insurance Companies have had to hire to go from only occasionally dealing with someone filing a claim going over their deductible to dealing with EVERY SINGLE medical situation. All of these people are additional salaries that have to be paid for, when you pay your insurance premiums and the truth is that it is NOT sustainable. Considering the fact that Government tends to over-regulate things, I don't see them reducing the burden placed on Doctor's that would allow them to reduce staff. We should as a country reconsider the role of HMO's and PPO's in the Health Care debate as a way of curtailing the boom in health care expenditures. While it's clear that the bottom 10% can't afford paying $75.00 for an office visit, we shouldn't design a system with the bottom 10% in mind, that should be a supplemental system put in place AFTER the main system has been fixed.

We need to figure out a system that works for the top 90% of Americans, that lowers costs, keeps Medical inflation in check and gives us the freedom to choose who we want to take care of us. As I've said before, once we've fixed that problem, then we should design a supplemental system to take care of the poor.

A New Perspective

Time to get educated on the new perspective.

The Not So Great Depression of 1920

I remember when I was in Middle School and my history teacher was going over the Great Depression. Of course when talking about the Great Depression, they were speaking about what happened between 1929 and 1944. They spoke about how we should not have increased interest rates and Import duties, since all of these things made things worse. I remember how all the books and teachers talked glowingly about FDR and how he fought so hard for the regular Joe to try to make things better for us. Lesson plans like these are what shaped America's belief that FDR was a great President and was the right guy for the right time. I sometimes wonder however, if our opinion of him would have been very different if they had showed more of who he really was, along with sort of a "Compare and Contrast". Especially a Compare and Contrast to Warren G. Harding, the 29th President of the USA. Robert Murry has written a compelling book that seeks to dispel the myth's surrounding his administration, but for now, let's do some Comparing and Contrasting of our own.

FDR Increased spending by the Federal Government.
-- The result? The Government was in the business of picking winners and losers, and usually the winners were the Big Businesses who had the "Right" connections. Crony Capitalism.

Harding Reduced spending by the Federal Government.
-- The result? Federal Debt was paid off, increasing the amount of private capital available for the Private Sector. Banks now needed to look for opportunities to lend, with the Government not giving them any more "Free" business.

FDR Increased Government regulations on business to force them to be more "fair".
-- The result? Since it's always easier for big business to deal with regulations, smaller businesses suffered the most and were driven out of business, thereby increasing the levels of unemployment.

Harding Reduced Government regulations on business to go back to a state of "Normalcy" from the Wartime regulations.
-- The result? With Government "off their backs" all businesses, especially smaller businesses were able to exercise the kind of freedom that allows businesses to prosper and expand without government intervention, thereby increasing the levels of employment.

On Taxation:

Harding reduced the top marginal rate from 75% to 25%, the resultant boom in the economy brought in a 25% increase in Tax revenue with more people working. By the end of his administration, unemployment had dropped to just 1%, the lowest level EVER recorded.

When Hoover took over, his response to the crash of 1929 was to increase taxes from 25% to 63%. FDR was elected in part with campaign promises to reduce taxes, but instead he increased taxes to 100%! on anything over 50K!

-- The result?

With the incentive to make more money removed, the number of people earning over 50K a year plummeted, thereby DECREASING revenue going to the government in the form of Income taxes. Additionally, with the government confiscating an ever expanding amount of capital from the private sector, there was less capital available to start new businesses. New business creation stagnated.

I could go on and on with this "Compare and Contrast", but I think you get the point. The real hero here was Harding, not FDR. Let's not forget that Harding's Recession (which he inherited from Wilson) while initially much worse, only lasted 18 months, while FDR's inherited mess and meddling ended up lasting for about a decade.

Just as we learned in "48 Liberal Lies of American History", our history is being distorted by people with an Agenda. They want us to believe that Big Government is the only solution to our problems, they want us to believe that higher taxation and regulation will bring us prosperity, when in fact history shows us that the reverse is actually true. Harding and Reagan should have proven beyond all reasonable doubt that the only way back to prosperity is by getting government off our backs, reducing legislation, reducing taxes and reducing the size and scope of the government. If we revisited The New Deal, I think we will find that it was more like "The Raw Deal".

In the wise words of Abraham Lincoln,

You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

Americans won't stay in the dark much longer, they are starting to get educated and they are finally starting to realize what the real truth is.