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(New Math) x (SEC Rules) + Proxy = Confusion

online.wsj.com — A look at the mind-numbing formulas used to explain executive compensation....

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  • nahsrocketeer75, on 03/22/2008, -0/+18Bottom line: If it takes complicated math to explain, it's more than they deserve.
    • graemee, on 03/22/2008, -0/+2And someone is cheating on taxes or their wife.
    • ryan00davis, on 03/23/2008, -0/+1it may be a long equation, but not complicated math, if i had to guess this would be somewhere around the 8th grade algebra level.
  • lekahe, on 03/22/2008, -0/+4This is totally hilarious!!
  • fredricko, on 03/22/2008, -4/+2I had a physics professor who used to work at applied materials who uses a very 'interesting' process to curve test grades. I think it's just a thing they do there.
  • akatsuki, on 03/22/2008, -1/+10They decide how much to give everyone and then figure out calculations to get there. Much like judges decide cases.
  • ElAssoWipo, on 03/22/2008, -0/+6That's not complicated. That's ridiculously simple.

    I expected really weird formulas that end up with a completely arbitrary formula, but they were all based on quantitative variables, so it's just a simple equation. A x (b + c) = salary.

    The only "complicated' part is defining the variables except all you have to is look at the guy's figures and you end up with solid numbers.

    "Applied's proxy doesn't reveal some crucial information, such as the target to which the company would like to see its market share increase"

    You got the result and the equation you dumbass. Just do it backwards.
    • ch33sehead, on 03/22/2008, -0/+1Yeah, but sometimes the equation involves 20 variables, and all you've got is a result. You can isolate for the variable, but then it would be in terms of the other 19 variables. And what if you're not provided with the values for the other 19 variables?
      • thadudesbro, on 03/22/2008, -0/+1Most of the variables are included, or at least easily estimated. The adjusted EPS is included at the end of the income statement. I don't see why one would care what percentage of sales was allocated to a particular executive. I think the SEC was correct in pushing for the total compensation, but I think they've pushed to far on this issue.
      • fitzfan, on 03/22/2008, -0/+1Aslong as they are using EPS it is fairly easy. It gets complicated when they start taking weighted averages of cash flow from operations growth, EBITDA, EBIT, revenue growth, etc.
  • cheeselord, on 03/22/2008, -6/+0Buried for extreme stupidity of the submitter.
  • PhilMoskowitz, on 03/22/2008, -0/+7Bottom line, you people need to pick up the torches and pitchforks. It's time for the tree of liberty to be refreshed..
  • trispear, on 03/22/2008, -0/+11America is one of the countries with the highest executive compensation. For instance, in the 1990s, I think the CEO of Daimler-Benz (German Company) was getting about $2M with bonuses/etcetera not being more than 10% salary. 2M for leading a leading car manufacturer, aeronautical, etcetera firm worth 10s of billions. And it went down from there.

    Don't get me wrong - there are good American companies -- Costco is exemplary for treating its workers well (esp healthcare) and yet the founder/CEO gives himself only 200,000 a year and the salaries go down from there for his executives. Of course, Wall Street screams bloody murder for Costco treating the employees well (health care, starting salary of 16.50 per hour).

    But then there are many companies like Ebay. The last CEO of ebay was Meg Whitman (she left). She earned through stock option $3B (BILLION!) even though she joined the company AFTER it became sucessful and she caused a series of missteps (ebay Magazine, buying Butterfields & Butterfields as expensive failures) and arguably her successes were few and obvious steps to take (buying half.com and paypal) and she really just raised revenue by squeezing the balls of every seller on the site.

    When people on top are earning 10000x more than the average worker even if their performance is merely par or subpar, I really question the mentality behind it all. Wall Street cries about giving the average worker a living wage and necessities but does not see the problem of spending hundreds of millions or even billions for one executive who may not be doing a whole lot of good or is really only average.

    I fully support giving an superior CEO a superior salary, but after 100x an accomplished worker's wage -- it just starts become the difference of being rich or being obnoxiously well-off to the detriment of others.
    • fitzfan, on 03/22/2008, -1/+1I have yet yo see an accurate comparison of a CEO to a average worker. No one takes into account the fact that the CEO is working twice as many hours as the average worker, the CEO cant just go home at 4pm and forget about the company, has to travel constantly, he puts a strain on his family, he is held responsible for the whole business regardless of whether or not its his fault, a factory worker never worries about being fired for something a worker in a completely seperate factory did.
    • RationalXubrnce, on 03/22/2008, -1/+2 I think everyone takes that into account.
  • borez, on 03/22/2008, -0/+2Mind-numbing formulas = mind-numbingly easy
  • zacharytelschow, on 03/22/2008, -3/+2...and let the whining about executive compensation begin. If what you think what they do is easy and they are overpaid, why don't you go do it?
    • cosmos411, on 03/22/2008, -1/+1I would if I could. Unfortunately upper management has a tendency to restructure whenever salaries start getting too high (not including their own of course). They don't like seeing people with experience getting paid what they deserve, it hurts the bottom dollar and everything is about profit today, at ANY cost. Better to fire them and repopulate with lower experienced people who you can pay much less, or better yet outsource. That whole concept was/is a wet dream for suits. So, now what you have are people getting fired before they can prove themselves in upper management positions, i.e. more or less stuck at their current level. Sure there are some that make it through the process, but if you haven't noticed, most high level positions get filled from outside the company, rarely do you see a promotion from within. And before you start calling me a pinko. I have and always will be a capitalist. I just have the ability to appreciate what it's like to work hard for a dollar as well. I can't stand it when people make obscene amounts of money while screwing the little guy. Ever hear of profit sharing? It used to be a corporate tactic for incentive. Seems they prefer the threat of losing your job now. It's much better for the bottom dollar.
    • ThugThrasher, on 03/22/2008, -1/+1I'd LOVE to do their job, but chances are I won't have the option, no matter how good at it I would be. Because if you don't know the right people (the easiest way to do that is to have the right amount of $ in your family), you don't have the option of taking over an established company and making billions. It's not AS big an issue to me for the people who built their company from the ground up, they usually spent YEARS making little to get it off the ground, so they're being paid back to an extent. Those are also the people who USUALLY aren't the biggest offenders here.
      The problem with CEO compensation is that it is SO above and beyond what the people below them make and that they basically set their own salaries. If you're a CEO of one company, chances are you are on the Board at another company (or more). It is also likely that many of the people on the Board at YOUR company are CEOs from other companies. The Board sets the salaries of the CEOs, so it behooves those who are Board members AND CEOs at various companies to slowly but surely increase the 'market value' of a CEO. The though process goes something like this: "If I give George a raise, he's more likely to give ME a raise."
    • ASalazarMX, on 03/22/2008, -1/+1It's about networking. Usually you get jobs similar than those of your contacts. When was the last time you played golf with the directors?
    • izackcarson, on 03/22/2008, -1/+2it's not a matter of degree of difficulty. all workers in a company have a hand in creating any profits. fairness dictates that all should be compensated. those who put in more time and effort should receive a greater share of profits. having ceo pay of 100x avg worker pay is not fair though. it is obscene and theft.
    • dupswapdrop, on 03/22/2008, -1/+1Well lets see my daddy didn't leave me any millions to buy a CEO job.
  • oldgal, on 03/22/2008, -0/+1Too often these performance measures are based on tasks, not strategic objectives. To get the good bonus scores, one must complete the tasks on time. Rarely are qualitative measures employed, so if you do a terrible job but complete the task on schedule you get your points towards bonus. These task lists are contractual for a year, and not negotiable or changeable once signed. This creates a very top-down, rigid management style which is incapable of adapting to change or taking advantage of new-found opportunity. It has led to leadership being defined as an org chart and process flow. It is how a Sr. Exec. can mess up a company and still get huge bonuses.
  • 5dGuy, on 03/22/2008, -0/+0Why are these mind-numbing?
  • hamobu, on 03/22/2008, -1/+2Here is an idea: Japanese CEOs are just as capable as the American ones, but their compensation is limited by law to around $200,000. We should outsource senior management to Japan and save tens of millions for the stock holders.
  • ASalazarMX, on 03/22/2008, -0/+0Here in Mexico there is a law that gives employees the right to 10% of the annual profit. The solution? You set up a second company who absorbs all expenses, and enroll all non-VIP employees there. The VIP employees stay in the first company, and as a bonus get a bigger profit sharing. Sad but true. New foreign companies learn fast the tricks to evade taxes here.
    Also, taxes are collected before salary payment. Who do you think ends up paying most of the country's taxes?
  • kurtwinter, on 03/22/2008, -1/+1Executive compensation is the straw that is breaking the camel's back. While rank and file employees are asked to make do without raises, with stagnant starting salaries all in the face of inflation (a quick look on Monster will reveal that a lead desktop tech's salary has actually declined over the last 8 years), executives still manage to cook the books to take home ridiculous salaries. Even when the company is facing bankruptcy, as was the case with airlines who needed bailouts after 9/11, the first most pressing outlay of cash was executive compensation. Why? The most profitable products in most companies weren't even developed or promoted by the top leadership, they came from the middle, think of Intel - while the company was busy pushing Pentium IV core chips, a developer in a now defunct division developed the Pentium M, a forerunner to the Core series, the platform that allowed Intel to overtake AMD after years of losing market share. What I am saying is that there should be no gaps between salaries that is only expressed in exponential terms. This is causing the middle class to sink, the housing market to tank, and will lead to a world wide depression if left unchecked - because executive compensation doesn't go back into the economy, it leaves the economy, ends up in foreign bank accounts and does not add to the GDP.
    The more you give to people at the bottom of the org chart, the more money goes back to the economy. The poorest spend all of their paycheck, with less and less going back into the economy every notch up. Giving executives salaries that are between 1 and 5 million will mean that their money too stays in the economy. Giving packages worth 30 million only steals money from the packages of the rank and file, and the investors who should be compensated with dividends. The whole system stinks to high heaven and it is rest of us who will pay the price.
  • dupswapdrop, on 03/22/2008, -1/+1Well if outsourcing workers is a good idea then outsourcing management is better as they make much more money and cause to many problems.
  • fitzfan, on 03/22/2008, -0/+1There is really no reason for anyone to complain about CEO pay unless they are a shareholder of that company. Otherwise it has no effect on you, you arent paying his compensation why do you care?
  • americangoy, on 03/23/2008, -0/+3Nothing confusing.
    Bear Stearns was not allowed to go bankrupt for 2 main reasons:

    1) Going bankrupt would forfeit the CEO and other high level guys salaries - can't have that!
    and
    2) If allowed to go bankrupt, the WHOLE USA FINANCIAL SYSTEM HOUSE OF CARDS WILL COLLAPSE. Yes, seriously - there was a big danger of that so the FED had to act to bail them out with our tax money.

    So in effect, the moral of this story is: Kids! As a CEO/CFO etc. do immoral, risky behavior to make your money, like ARM and subprime loans and hedge funds, then get bailed out by the FED, keep your bonuses and salaries and laugh at your employees and investors as they will get $2 from their $100 shares...
    ...as you golf in Hawai'i with your $200+ million dollar retirement (google "James Cayne" if you don't believe me).

    http://americangoy.blogspot.com/2008/03/bear-stear ...
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