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Crossing The Line

August 1, 2002 -- As a strong advocate of the capitalism system in the United States, I believe it is the right of every individual to achieve wealth based upon on his or her legal endeavors. It might be as an inventor, small business owner, athlete, creative talent, or executive.

 

I also think that most who have been fortunate enough to financially capitalize on their abilities and/or talents would not change their approach to excel in their efforts even if the dollar return was considerably less.

 

Why?  Well, because the overwhelming majority of the people who fall into this remarkable group achieve far less monetary compensation than the relatively few who are currently in the media spotlight and being used for political gain in Washington D.C. Also, most of these unknown successful people are small business owners / executives who probably earn less than the President, Vice President, or a Senator of the United States. (The value of a small business is a separate matter and involves the contribution by all employees . . . and cannot be compared to stock options.)

 

Now, with that said . . . the problem is with these few associated with publicly held corporations who have been allowed to achieve compensation and wealth that most would consider beyond acceptable relative to respective contributions. (I wonder how many believe a CEO of a billion dollar corporation is worth over $5 million a year, especially if it is losing money and laying off many who are earning under $75,000 per year.)

 

And while there is no easy guideline concerning what is enough, the majority of the shareholders can determine what is the right compensation levels for officers and other senior level executives of each respective corporation. (It should not be up to the U.S. Congress.) That means being active and not a rubberstamp. Instead of just voting as suggested on a proxy or assigning voting rights, review the proxy statement carefully and do additional research if you are not satisfied with senior level compensation or other matters. (You might even discover major institutional holders might have similar concerns.)

 

Remember that . . .

  • Shareholders can influence / control compensation packages of any CEO and other top executives through informal or formal approaches. Letting the Board of Directors know at annual meetings and other forms of communications might be enough if it is understood that the votes are there if it were presented to all shareholders.

  • A CEO and other senior level executives compensation package can be similar to what is provided for much needed lower level executives. What is so bad about a comfortable base salary with an incentive / bonus (2 to 10 times base) tied into corporate performance factors? Even stock options can be part of it with a strictly enforced time limit to exercise and applying appropriate accounting procedures. (Other much less costly perks usually apply, as well.)

  • You will probably agree with most suggested actions in a proxy statement even after becoming more informed.

Of course, there might be considerably more people looking at the respective compensation line concerning what the stars make in movies, television, music, and professional sports. How much more are consumers willing to pay so someone can earn another $0.5 to ? million more a year. Just look at the possible strike by major league baseball players . . . Is it reaching or crossing the line here?

 

David G. Bancroft
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