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Sherwood's Soapbox

Renumeration for Company Officers

I can hear the squeals from here...

Right now icorporate executives of large companies are paid very large salaries with even larger bonuses, bonuses that they seem to get even as they waddle up to the trough for a government bailout.

There is no incentive to think beyond the next quarter, or at most, next bonus period. I watched an interview on one of the news documentary shows where an official admitted he knew the bubble would burst, but was going to make money as long as he could, then walk away.

Never mind bears and bulls, Wall Street seems to be owned by pigs. I'm sure I'm casting aspersions on many solid officers. Bad apples and all that. But where is the incentive to think beyond the next annual report?

Here's a solution. Tell me why it won't work:

Suppose that Company officers were paid a reasonable stipend -- no better than, say, a good doctor or senior engineer, but also received the dividends from a block of common shares of the company for the next 20 years. They would not receive the stock. Only the dividents from the stock. Or if they did receive the stock, it could not be sold until the 20 years was up.

So I get an offer to be CEO of Almagamated Consolidated. I get an up front salary of $200,000 per year. I also get the dividend from 100,000 shares of AlCo. Now AlCo has been a good company, and pays $4 a year in dividends. This, in effect, triples my salary. And, even if I quit AlCo this year, I will get another 19 years of dividends from AlCo. If I do a good job of running AlCo and the dividend rises to $6, then I've raised my salary for that year by a healthy amount.

Next year I get another 200,000 salary, and another block of shares' dividends.

At the end of 20 years I'm getting dividends from 2,000,000 shares of Almalgamated Consolidated. If I've done a good job of running the company, this should be a tidy bit of change. If ownership of the shares was part of the package at this point I can now sell the first block of shares. But even if I retire today, the payments will continue for another 20 years, and I'll be holding shares for another 20 years. I'd better leave the company in good shape with a good man at the helm.

Look at what this does:

The people who run the company now have a huge incentive not to look at the next quarter's earnings, but to try to plan for the long haul.

I won't guarantee that I've picked the right numbers. Depending on the goals of the company it might be 10 years. Or 30 years. It's not a stock option. It's a stock compulsion.

Indeed I think that this form of remuneration should carry down through the ranks. This would build a financial backing to company loyalty as well as make life run more smoothly when layoffs happen.

And wouldn't that be an exciting change?

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Won't work? Send me a line and tell me why not. Convince me, and I'll issue a retraction, and grant you a kudo for correcting my ignorance.

Send email to soapbox@sherwoods-forests.com

Note, that unless you tell me otherwise in your letter, I may publish it, or quote it in a future rant