Thursday, October 29, 2009

Excessive Executive Compensation

I read and hear CEO's of airlines stating that executive bonus programs are needed to retain the talent in management. Companies will be left with inferior executives without such programs. This clearly is one of the biggest scams in the business world. And it's not just in aviation, but in every category of business in the US.

It perpetuates because the members of the boards of directors as well as major stockholders are in on the scam. Congress won't do anything about it because many of them also profit from the scam (airlines reportedly outspend airline unions 10 to 1 in political contributions). You don't see that same phenomenon in foreign-owned businesses of the same size. Their execs seem to be compensated at a much more reasonable level.

It has long been my observation that few senior execs stay with one company or even one industry for more than a few years. They quit and move on before anyone recognizes their utter incompetence.

Most senior execs seem to look at their positions merely as a way to add to their stock portfolio with discounted stock. They almost never look for the opportunity to make a positive difference for the company's bottom line or for the employees.

I was watching the well-orchestrated ballet of activity around my airplane after my arrival the other day. That impressive display of organization is put together by people earning perhaps $50k or less per year. I doubt any senior exec of any US air carrier has the organizational skills to accomplish the same feat.

I am opposed to government taking steps to limit executive pay. That is outside their constitutional role. But, I do believe that stockholders need to hold boards of directors accountable for excessive executive compensation -- including compensation for board members.

I also believe both businesses and labor unions should publish CEO total compensation figures, campaign against abuse, and focus employees, union members and public attention on the problem. I suppose neither businesses nor the unions do this, however, because that'd be the pot calling the kettle black. Sadly, most union execs, like corporate and government executives, are compensated far in excess of their ability and responsibility.

Another big part of the problem is the bailout mentality to which we've grown accustomed. Government must stop bailing out unions, banks, auto-makers, and other businesses that get into financial trouble. When the government does so, it eliminates the financial incentives that corporate boards of directors need to have in order to hold CEOs accountable for job performance. With bailouts, there is no penalty for incompetence and poor judgement.

No comments:

Post a Comment