Government To Assume Role In Setting Executive Compensation

Last week in a blog on this website I observed that executive compensation would be the government's stalking horse -- the example of corporate excess that will justify everything from government's micro-regulation to the takeover of entire industries, and even to making of ultimate determinations of who succeeds and who fails.

It is a sad day for the free market in America and ironically it was not the free market that resulted in the corporate compensation obscenities that is the poster child to justify invasive regulation of corporate America. Rather, it was the substitution of the good old boy network for the free market and the absence of transparency that bastardized market setting mechanisms for executive compensation that results in the news that follows, from today's Bloomberg:

The Obama administration will seek new powers for the Securities and Exchange Commission to force firms to let shareholders vote on executive pay and make directors who set compensation more independent, an administration official said.

Today’s proposal, subject to congressional approval, would cover all public companies. President Barack Obama has long supported giving shareholders nonbinding votes on bonuses, salaries and severance packages. The administration also will name a “special master” to monitor compensation plans for firms receiving exceptional assistance in the financial rescue.

The changes are aimed at reducing systemic risks and quelling a political uproar over bonuses paid to executives whose companies were bailed out by the government. Treasury Secretary Timothy Geithner has repeatedly blamed pay standards tied to short-term profits for contributing to the worst financial crisis since the 1930s.

“It clearly is going to force companies to be more transparent with their disclosure” on compensation, said Irv Becker, national practice leader for Philadelphia-based Hay Group’s executive compensation practice. If the measure is implemented, it likely will take several years before shareholders begin to confront management, he predicted.

“It’ll kind of be novel the first year, maybe the first two, and then likely be a little bit more serious in future years,” said Becker, a former head of compensation and benefits at Goldman Sachs Group Inc.

The Culprit In The Socialization of America

Several years ago I gave a speech to an industry association. In it I posited that the absence of serious, independent corporate governance had resulted in inflated executive compensation and that one day corporate America would pay a severe price for not policing itself.

The speech was not well-received.

Under the heading of "I told you so," we now see the price that has been exacted due to companies existing for the benefit of their officers and upper management rather than for their shareholders. Had boards of directors done their job and paid based on performance and paid based on market, executives would make far less than they do today and would not have made themselves such obvious targets for the class war that has begun in America. Moreover, we would not face the socialization of industry that exists today.

We would not be allowing the government to take control of entire industries and interfere with impugnity the market process of determining compensation at the executive level. Had the market, not the good old boy network, determined executive comepensation all along, just as companies determine the compensation of low-level employees, those who wish to empower government to destroy the free market system would not have the executive compensation banner to raise as evidence that the market doesn't work.

Of course, the problem was never the market. The market was never allowed to work when it came to executive compensation. Regretably, just as my argument years ago did not resonate, neither will this argument if only because the General Public wants to punish corporate America for its excesses, even if it means putting a bullet in the back of the free market.

Corporate America has a lot of work to do to regain a modicum of credibility. They can begin by appointing truly independent boards of directors who hold executive management to high standards, pay based on results delivered, and pay the least, not the most, they can justify in base compensation to garner the talent they need to succeed.

Hysteria Trumps Facts (Again)

If you listen to the government, swine flu is going to doom us all. Traveling out of the country is out of the question. And Mexico, well, Mexico is surely a death sentence. Friends and family have postponed trips, and the tourism industry in Mexico has been decimated, even in light of the facts which are as follows:

FACT: As of April 28, 2009, there have only been 26 laboratory confirmed cases of swine flu in the entire country of Mexico. There have been 64 laboratory confirmed cases in the U.S.

FACT: A total of 0 of those cases occurred in San Miguel de Allende (where we live).

FACT: Although the media is reporting that "152 people have died" in Mexico, these deaths have not been confirmed cases of swine flu and indeed many of them have been confirmed as plain old influenza which, by the way, can be deadly.

FACT: U.S. President Barack Obama began a speech this week imploring Americans not to be alarmed and reminding the globe that both the U.S. and Mexico have sophisticated and well-coordinated systems in place to control and mediate the spread of any disease. Then in an about face suggests that no one travel to Mexico except on an "as needed" basis. Mexico followed suit and has essentially shut down its entire economy.

FACT: 36,000 Americans die each year from the ordinary, regular and common seasonal flu. So although it is expected that the General Public will be alarmed by any contagious disease, particularly one that is transmitted from human-to-human, even the World Health Organization (WHO) has NOT recommended a travel alert, stating "WHO advises no restriction of regular travel or closure of borders." See the WHO's website at: www.who.int/csr/don/2009_04_27/en/index.html.

FACT: Swine flu is just one of many types of influenza, or flu, that originated in pigs. This strain has been transmitted to humans and from human-to-human. That's why the media jumped on it; the occurrence of a flu of this type is out of the ordinary. Indeed, this is at least the third time swine flu has made its way around the world since the 1970's.

FACT: This swine flu is very similar to ordinary seasonal flu in that it appears to respond to antiviral treatment and transmission can be prevented with a few simple, common sense steps. If we wash our hands regularly or use alcohol-based hand cleaners, cover our mouths when we cough (which is also polite), and wipe down surfaces we may touch with an alcohol-based cleaner, we should be fine. (Note: These are ordinary safety precautions, effective even to prevent catching the common cold.)

FACT: Swine flu is safer than your car. In the U.S. alone there are well over 100 deaths every single day caused by automobile related accidents. With swine flu, the odds are far less and chances for recovery are far greater. If you are thinking about not traveling due to swine flu, then you should probably refrain from driving, too, since it is far too dangerous.

Swine flu is just the latest hysteria that has resulted in irrational behavior by the masses. Before swine flu there was Y2K (that was going to shut down all computers in the world and leave us in the dark), mad cow disease (that would surely end the world in a hydrophobic fit, and even the 2007 Peruvian meteorite (that was to be the first of many that would destroy the earth), and the list goes on and on.

Today I am going to walk into beautiful downtown San Miguel de Allende this clear day, dry and about 75 degrees, sit down in my favorite coffee shop and read from one of the many books I have going in my Kindle with nary a thought of swine flu, which doesn't make me braver than most, just better informed.

In life, including our roles as employees and professionals, we would all be happier, less tense, clearer thinking, and more valuable to be counterintuitive rather than following the herd.

Better Employee Relations: A Sure Thing

I have preached (and will continue to preach) employee involvement in community and charity as a way for employers to credibly connect with their employees. Indeed, in tough times it is the best way to illustrate that our individual difficulties pale in comparison to many others -- to help put our lives into context.

One client involved their employees in a battered women's shelter -- donated a thousand dollars and had a group of employees buy what the shelter needed and delivered it. It began as a single opportunity to serve and ended as an "adoption" of the charity by an employer and its employees. The dynamic of giving together has brought this employer and its employees closer together.

Recently, employees from the Wal-Mart Distribution Center in Steubenville, Ohio, walked into the YWCA for a day of painting and minor cleanup work, but they soon knew they had found an adoption. In an old building, the YWCA didn't have the funds available for the remodeling work so the local Wal-Mart and its employees essentially adopted the organization and the building. The volunteers put in nearly 400 hours while Wal-Mart donated $5,000 to the effort.

Do you want better employee relations? If you are ready to do more than talk about it, or lament the economy and what it has done to relationships inside your workplace, do something.

This is a good place to begin.

New Blog/New Program: Employee Free Choice Act: Winning Even When You're The Designated Loser

President-elect Obama and leaders of both Houses of Congress have made the Employee Free Choice Act (“EFCA”) a legislative priority in 2009. Obama co-sponsored the legislation, also known as "card check," in the Senate, and he promised to make passage of it a top priority during his administration.

EFCA would effectively eliminate secret ballot elections in union organizing attempts and require businesses to recognize unions based solely on authorization cards signed by employees. Under EFCA if a union is able to convince, cajole, pressure or threaten a majority of your non-supervisory employees at any of your U.S. facilities to sign union authorization cards, your company will be required to recognize that union as the sole bargaining representative of your employees. You will be required to bargain in good faith to an agreement with the union, and if an agreement cannot be reached with that union on wages, hours, and working conditions within one hundred and twenty (120) days, the government will impose an agreement on you -- that is the government will decide what your employees will earn, the benefits they will receive, and under what, if any, circumstances you can administer policies, discipline and discharge.

I will be speaking and training employers how to avoid the implications of this law or any other that is enacted that makes it easier for unions to organize employees. A description of this new half-day program can be found at: http://www.crediblyconnect.com/Employee-Free-Choice-Act.html

To the end of preparing employers, I will be speaking in San Diego, Los Angeles and Palm Springs later this month and in San Juan, Puerto Rico, in June, and to a variety of industry associations over the next several months. Review the website and if there is anything I can do to prepare your management team, please contact me at jimkarger@mac.com

I have also started a new blog dedicated solely to the proposition of keeping employers up to date on what may be the most damaging labor legislation in the last 50 years. If you want to be added to the recipient list, e-mail me.

President Moves Closer to Organized Labor - We Need to Move Closer to Our Employees

Below are some remarks made today by President Obama at a signing ceremony for certain Labor Executive Orders . . .

“I also believe that we have to reverse many of the policies towards organized labor that we've seen these last eight years, policies with which I've sharply disagreed. I do not view the labor movement as part of the problem, to me it's part of the solution. (Applause.) We need to level the playing field for workers and the unions that represent their interests, because we know that you cannot have a strong middle class without a strong labor movement. We know that strong, vibrant, growing unions can exist side by side with strong, vibrant and growing businesses. This isn't a either/or proposition between the interests of workers and the interests of shareholders. That's the old argument. The new argument is that the American economy is not and has never been a zero-sum game. When workers are prospering, they buy products that make businesses prosper. We can be competitive and lean and mean and still create a situation where workers are thriving in this country.

"So I'm going to be signing three executive orders designed to ensure that federal contracts serve taxpayers efficiently and effectively. One of these orders is going to prevent taxpayer dollars from going to reimburse federal contractors who spend money trying to influence the formation of unions. We will also require that federal contractors inform their employees of their rights under the National Labor Relations Act. Federal labor laws encourage collective bargaining, and employees should know their rights to avoid disruption of federal contracts.”

This is unfortunate for American business and American employees and preliminary to the real goal of organized labor for the last 30 years -- to eliminate the secret ballot election which provides employees an opportunity to express an informed choice after hearing both sides, not just the side of organized labor. Under EFCA (the misnamed "Employee Free Choice Act," employers would have to recognize a union if that union was able to get 50% +1 of their employees to sign union cards. In many cases employers don't even know its happening until well more than 50% are signed up.

What is ironic is that organized labor, who wants their own bailout in the form of EFCA, won 61% of the secret ballot elections they petitioned for last year and for the last two years in a row the percentage of workers who are represented has gone up, not down.

I will be speaking on EFCA and how employers can retain their rights to express themselves and employees keep the right to a secret ballot in trainings I will be providing for individual employers and industry associations. I will begin this effort in February and it will extend at least the ultimate outcome on the EFCA legislation. If your company has an interest in how to avoid this damaging legislation and its effects, contact me at: 214-432-5701.

The Big Three Will Survive . . . But Probably Not Here

In the event you are wondering whether the Big 3 automakers will ever build another assembly plant in the United States, the simple answer is "NO," and here is the reason why:

http://info.detnews.com/video/index.cfm?id=1189

The good news? At least one of the three should get up off their death bed and compete successfully in the global marketplace.