compensation consultant

32 results back to index


pages: 304 words: 80,965

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Swan, buy and hold, centralized clearinghouse, clean water, compensation consultant, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial innovation, financial intermediation, fixed income, Flash crash, income inequality, index fund, information asymmetry, invisible hand, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

The trend toward mechanistic formulaes in the remuneration of CEOs allows directors, CEOs, shareowners, and others to pretend there is a level of precision in compensation that just doesn’t exist. Every time an anomaly arises, ever more complexity is added to the remuneration package. Directors are able to exercise ever less judgment. Supporters of this false precision—and they include shareowners, compensation consultants, directors, and intermediaries who advise institutional investors how to vote on compensation issues—claim that formulaic compensation is necessary to reduce subjectivity. But it doesn’t. A study by Income Data Services compared executive remuneration to company performance over the first thirteen years of this century.

In reality, small misalignments of interest along the way result in those corporations being governed through what academics call “agency capitalism,” in which the institutions are, for their own economic reasons, “rationally reticent” to be active owners.34 Once a company’s shares are bought, of course, a whole other set of intermediaries enter the scene, from the company’s directors and executives to the lawyers, compensation consultants, accountants, and others who advise them. Let us cite two examples of how the chain of agents may not always act in your best interests. One is from the money management part of the agent chain and the other from the corporate part. As we noted earlier, most fund managers compete on relative performance over short time horizons: they are looking to outperform their rivals from month to month and quarter to quarter.

As a European bank official admitted, compensation has become a slot machine: directors pull a lever, and three years later, out comes a trickle of coins or a fountain of folding money.56 Deciding to pay CEOs and other executives in cash would allow directors to direct, while it would remove the myopic focus on stock price. Of course, virtually every participant who benefits from the current dysfunctional system would have to accept change (an agency capitalism problem in itself). Compensation consultants would have to change their focus; boards would have to get used to making judgments, explaining them and standing behind them; proxy advisory services would have to change how they judge “alignment”; and institutional investors would have to devote resources to understanding, for each company they invested in, why directors were making the decisions they were.


pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

assortative mating, autonomous vehicles, Bear Stearns, blue-collar work, Bonfire of the Vanities, Branko Milanovic, business cycle, call centre, collective bargaining, compensation consultant, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, easy for humans, difficult for computers, Erik Brynjolfsson, Everybody Ought to Be Rich, feminist movement, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, Gunnar Myrdal, income inequality, independent contractor, industrial robot, invisible hand, job automation, Joseph Schumpeter, longitudinal study, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, Paul Samuelson, performance metric, positional goods, post-industrial society, postindustrial economy, purchasing power parity, refrigerator car, rent control, Richard Feynman, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, Stephen Hawking, Steve Jobs, The Spirit Level, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, union organizing, upwardly mobile, very high income, Vilfredo Pareto, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, Yom Kippur War

Unsurprisingly, corporate boards resisted indexing chief executives’ stock options throughout the bull market of the 1990s, with the predictable result that the value of awarded stock options reflected mainly … the bull market of the 1990s. Another cure that proved worse than the disease was the advent of compensation consultants. Under fire from stockholders for maintaining a too-cozy relationship with CEOs, corporate compensation committees turned to outside consultants to set pay levels for top executives. But a 2007 study by the Corporate Library, a corporate-governance watchdog that Minow cofounded, revealed that companies that hired such consultants actually paid their CEOs more than companies that didn’t, and that these higher pay levels were not associated with greater returns to shareholders.

Even when they aren’t hired directly by the CEO—as, amazingly, has sometimes occurred in the past (only recently was this made illegal)—consultants don’t want to be the ones to screw up an important hire. Though tasked with calculating what individuals in comparable positions have been paid elsewhere, “consultants can pretty much find high comparable income data to support paying a high amount to the CEO,” Campos explained. “No compensation consultant gets fired for saying ‘you’re underpaid,’ “ Minow told me. Indeed, the consultant may cast so wide a net that he discovers perks that the board might never have heard about otherwise. “CEO perks at one company are quickly copied elsewhere,” the financier Warren Buffett, a frequent critic of CEO pay, wrote in his 2007 “chairman’s letter” to shareholders in his company, Berkshire Hathaway. “ ‘All the other kids have one’ may seem a thought too juvenile to use as a rationale in the boardroom.

Delves, Stock Options and the New Rules of Corporate Accountability: Measuring, Managing, and Rewarding Executive Performance (New York: McGraw-Hill, 2004), 47–49; “Congress and the Accounting Wars,” Web page for PBS Frontline documentary, Hedrick Smith interview with Arthur Levitt, March 12, 2002, at http://www.pbs.org/wgbh/pages/frontline/shows/regulation/interviews/levitt.html. 18. Alexandra Higgins, “The Effect of Compensation Consultants: A Study of Market Share and Compensation Policy Advice” (New York: Corporate Library, Oct. 2007), 4–5 and 12–13; Roel C. Campos, “Remarks Before the 2007 Summit on Executive Compensation,” Jan. 23, 2007, at http://www.sec.gov/news/speech/2007/spch012307rcc.htm; Nell Minow interview; Warren Buffett, Berkshire Hathaway Chairman’s Letter, Feb. 28, 2007, 20, at http://www.berkshirehathaway.com/letters/2006ltr.pdf. 19.


pages: 297 words: 93,882

Winning Now, Winning Later by David M. Cote

activist fund / activist shareholder / activist investor, Asian financial crisis, business cycle, business process, compensation consultant, hiring and firing, Internet of things, Parkinson's law, Paul Samuelson, Silicon Valley, six sigma, Steve Jobs, Toyota Production System, trickle-down economics

Why wait until someone else tried to steal them away before paying them what the market said they were worth? Our corporate compensation consultant felt we were overpaying, and as proof they pointed to the low turnover we were seeing among our senior leaders. I was incredulous: stability in the leadership ranks is a bad thing? To achieve strong short- and long-term performance, you want strong performers to stay put, even if they are recruited by other companies (as many of our senior leaders were). Paying them handsomely for their contributions goes a long way. As I explained to that foolish compensation consultant, people did leave Honeywell . . . when I wanted them to!

The plan proved a great success, bringing about a sudden and very welcome increase in retention, and helping a One Honeywell spirit take hold. Leaders were working hard, and for a change, they were seeing both financial rewards and eventually a stock market bump in response. If a compensation plan pays out well, directors and compensation consultants sometimes assume the plan wasn’t rigorous enough. A well-constructed plan, they suggest, would pay out exactly 100 percent of projected compensation; otherwise, the original goals were obviously too easy to meet. How absurd! It’s true the original goals might have been too easy, but perhaps the higher payouts reflected exceptional performance relative to a leader’s peers.


pages: 339 words: 109,331

The Clash of the Cultures by John C. Bogle

asset allocation, buy and hold, collateralized debt obligation, commoditize, compensation consultant, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, Flash crash, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, market bubble, market clearing, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Ponzi scheme, post-work, principal–agent problem, profit motive, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, statistical arbitrage, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, Vanguard fund, William of Occam, zero-sum game

I know of no explanation but that these directors failed to consider the fiduciary duty that they owed to the shareholders who elected them. Even before the recent financial crisis fell upon us, Warren Buffett noted that even “intelligent and decent directors have failed miserably,” calling them “tail-wagging puppy dogs” who meekly follow recommendations by compensation consultants. Buffett is even more critical of mutual fund directors. Here, he expands his metaphor from “puppy-dogs” to “lap-dogs,” who were expected to be “Dobermans” but turned out to be “cocker spaniels.” His criticism is right on the mark. Where were the fund directors who oversaw the mutual funds that participated in the market timing scandals uncovered by New York Attorney General Eliot Spitzer in 2003?

Warren Buffett got it just right: “When the price of Berkshire Hathaway stock temporarily overperforms or underperforms the business, a limited number of shareholders—either sellers or buyers—receive outsized benefits at the expense of those they trade with. [But] over time, the aggregate gains made by Berkshire shareholders must of necessity match the business gains of the company.” The Ratchet Effect The rise of the executive compensation consultant is also heavily responsible for our flawed system of CEO compensation. First, consider what those in the business of recommending executive compensation must do to stay in business: lots of good analysis, yes; handsome presentations, yes; persuasiveness, of course. But above all, never recommend lower pay or tougher standards for CEO compensation.

And so the cycle repeats, onward and upward over the years, almost always with the encouragement of an ostensibly impartial overseer retained by the board of directors, who is at least tacitly endorsed by the CEO. So the so-called “free market” that sets CEO compensation doesn’t exist. Rather it is a controlled market that is essentially created by compensation consultants.10 Such a methodology is fundamentally flawed, and has the obvious effect: The figures in these compensation grids almost always go up for the group, and almost never go down. Again, Warren Buffett pointedly describes the typical consulting firm by naming it, tongue-in-cheek, “Ratchet, Ratchet, and Bingo.”


pages: 554 words: 167,247

America's Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System by Steven Brill

Affordable Care Act / Obamacare, barriers to entry, Bernie Sanders, business process, call centre, collapse of Lehman Brothers, collective bargaining, compensation consultant, crony capitalism, desegregation, Donald Trump, Edward Snowden, employer provided health coverage, medical malpractice, Menlo Park, Nate Silver, obamacare, Potemkin village, Ronald Reagan, Saturday Night Live, side project, Silicon Valley, the payments system, young professional

Asked why salaries at Sloan Kettering are so much higher than those at equally wealthy nonprofits such as the Met and Harvard, Gunn replied, “All of us hospitals have the same compensation consultants, so I guess it’s a self-fulfilling prophecy.” Compensation consultants advise clients on what the market-based salary is for executives in a given peer group—CEOs or chief fund-raisers at hospitals of a certain size, for example. So if the same hospital compensation consultants set high salaries for a large portion of the people in each hospital peer group, then those salaries are destined to stay high while still being deemed consistent with the “market.”

In all, eleven New York–Presbyterian executives were paid over $1 million. The hospital had even paid Corwin’s semiretired predecessor $5.6 million in 2012 for his work as a vice chairman helping with fund-raising and lobbying on behalf of the hospital’s academic centers. I got the usual answer about how complicated the business they managed was and about how compensation consultants reviewed their salaries with the board to make sure they were on a par with industry standards. But I also got more. New York–Presbyterian has a board of financial, business, and civic luminaries, and Corwin provided a detailed explanation of how the board sets bonuses, which typically account for about half of each executive’s overall income.


pages: 400 words: 124,678

The Investment Checklist: The Art of In-Depth Research by Michael Shearn

Asian financial crisis, barriers to entry, Bear Stearns, business cycle, call centre, Clayton Christensen, collective bargaining, commoditize, compensation consultant, compound rate of return, Credit Default Swap, estate planning, intangible asset, Jeff Bezos, London Interbank Offered Rate, margin call, Mark Zuckerberg, money market fund, Network effects, pink-collar, risk tolerance, shareholder value, six sigma, Skype, Steve Jobs, supply-chain management, technology bubble, time value of money, transaction costs, urban planning, women in the workforce, young professional

This gives you great insight into his character, and this is the type of CEO you should look for as a long-term partner. Beware of Companies that Use Compensation Consultants If a compensation package is determined by consultants hired by the board of directors, this should serve as a red flag. This kind of compensation benchmarking is usually not about the performance of the business, but rather a comparison to what others in the industry make. However, the peer groups used are often in completely unrelated business lines. You will find that the majority of compensation plans are determined in this way. For example, in FY 2010, jewelry retailer Zale hired a compensation consultant who put together a list of 21 companies as a peer group.

See cash conversion cycle CEMEX centralized management, decentralized versus Chambers, John chief executive officer salary self-promoting Child, Bill China Choice Hotels balance sheet of Christensen, Clayton Cialdini, Robert Cisco closed-ended questions Coach The Coca-Cola Company commodity resources communications, consistent Compagnie Financiére Richemont SA comparisons, limitations on Compass Minerals International compensation consultants compensation plans, long-term performance and compensation system, setup compensation, management competition amount of fierceness of intensity of competitive advantage deteriorating expanding finding business with sources of competitive landscape, understanding competitors competitors, failure of concentrated customer base conference call conscious capitalism Conseco conservative accounting standards Continental Bank continuous improvement contracts, employment copying, competing on core business model, changes to core competencies, acquisitions and core customer cost advantages cost synergies Costco Wholesale costs cutting unnecessary identifying reducing countercyclical Country Risk Reports country risks Cover Girl coverage ratios credit card firms, metrics for criteria as investment filter checklist culture, business currency risks current liabilities Custom House customer base business’ impact on manager experience with customer perspective customer research customer retention acquisitions and customer-orientation, signs of customer-retention rates customers core ease of purchase foreign market taste differences management closeness with pain cyclical Daft, Douglas Darling International database, of interviews DaVita debt-maturity schedule debt ability to pay advantages of low financing acquisitions interest rate maturity motivation for off-balance sheet recourse versus non-recourse using conservatively decentralized management, centralized versus Dell Dell, Michael dependence on new products deteriorating advantage development phase, investment gains and Dimon, Jamie Discovery Communications discretionary costs, manipulating dissenters, hiring diversified customer base dividends, increasing Dollar Financial Dorsey, Pat Dunlap, Albert E&P.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

"Robert Solow", Andrei Shleifer, asset-backed security, Bear Stearns, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, compensation consultant, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, the new new thing, The Predators' Ball, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

Crystal, In Search of Excess: The Overcompensation of American Executives (New York: W. W. Norton, 1991), especially pp. 46–47. Jenny Chu, Jonathan Faasse, and P. Raghavendra Rau have shown that management-retained consultants (in contrast to board-retained consultants) generate large increases in management pay: Chu, Faasse, and Rau, “Do Compensation Consultants Enable Higher CEO Pay? New Evidence from Recent Disclosure Rule Changes” (September 23, 2014), p. 23, accessed May 27, 2015, http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2500054. 4. W. Braddock Hickman, Corporate Bond Quality and Investor Experience (Princeton: National Bureau of Economic Research and Princeton University Press, 1958).

New York: Macmillan, 1927. Chen, M. Keith, Venkat Lakshminarayanan, and Laurie R. Santos. “How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior.” Journal of Political Economy 114, no. 3 (June 2006): 517–37. Chu, Jenny, Jonathan Faasse, and P. Raghavendra Rau. “Do Compensation Consultants Enable Higher CEO Pay? New Evidence from Recent Disclosure Rule Changes.” September 23, 2014. Accessed May 27, 2015. http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2500054. Cialdini, Robert B. Influence: The Psychology of Persuasion. New York: Harper-Collins, 2007. “Cinnabon.” Wikipedia.


pages: 383 words: 108,266

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely

air freight, Al Roth, Bear Stearns, Bernie Madoff, Burning Man, butterfly effect, Cass Sunstein, collateralized debt obligation, compensation consultant, computer vision, corporate governance, credit crunch, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, endowment effect, financial innovation, fudge factor, Gordon Gekko, greed is good, housing crisis, IKEA effect, invisible hand, lake wobegon effect, late fees, loss aversion, market bubble, Murray Gell-Mann, payday loans, placebo effect, price anchoring, Richard Thaler, second-price auction, Silicon Valley, Skype, The Wealth of Nations by Adam Smith, Upton Sinclair

Once salaries became public information, the media regularly ran special stories ranking CEOs by pay. Rather than suppressing the executive perks, the publicity had CEOs in America comparing their pay with that of everyone else. In response, executives’ salaries skyrocketed. The trend was further “helped” by compensation consulting firms (scathingly dubbed “Ratchet, Ratchet, and Bingo” by the investor Warren Buffett) that advised their CEO clients to demand outrageous raises. The result? Now the average CEO makes about 369 times as much as the average worker—about three times the salary before executive compensation went public.

Dunkin’ Donuts, 37–39, 47 upscale ambience and, 39, 159–60 cognitive limitations, taking account of, 327 Coke, taste tests of Pepsi and, 166–68 cold remedies, price and efficacy of, 184 colds, antibiotics as placebo for, 189 collateralized debt obligations (CDOs), 279–80 comparisons, see relativity compensation: cash vs. gift rewards and, 82–83, 253–54 for bankers, calculating correct amount of, 319–24 of CEOs, 16–17, 18, 310 poetry reading experiment and, 40–42 erosion of public trust and, 306, 310, 311 Obama’s call for “commonsense” guidelines for, 323–24 recent cuts in benefits and, 82 social exchange in workplace and, 80–83 and transformation of activity into work, 39–43 see also bonuses; salaries compensation consulting firms, 17 conditioning, placebo effect and, 179 condoms: importance of widespread availability of, 100–102 and willingness to engage in unprotected sex when aroused, 89, 95, 96–97, 99, 107 conflicts: expectations and perception of, 156–57, 171–72 neutral third party and, 172 conflicts of interest, 291–96 in banking and financial industries, 291, 294–96, 311 cheating and, 292–93, 294 elimination of, 295–96, 311 in health care, 293, 295 theory of rational crime and, 291–92 conformity, ordering food and drink and, 238 Congress, U.S., 151, 152, 228 ethics reforms in, 204–6 consumerism, 109–10 context effects, 240 control, perception of: learned helplessness and, 312–16 mistaken, 243 corporate scandals, xiv, 196, 204, 214, 219, 222–23 cost-benefit analysis: dishonesty and, 202–3, 204, 292–93 relative value and, 64–65 theory of rational crime and, 291–92 credit cards, 110, 204, 304 FREE!


pages: 166 words: 49,639

Start It Up: Why Running Your Own Business Is Easier Than You Think by Luke Johnson

Albert Einstein, barriers to entry, Bear Stearns, Bernie Madoff, business cycle, collapse of Lehman Brothers, compensation consultant, corporate governance, corporate social responsibility, creative destruction, credit crunch, Grace Hopper, happiness index / gross national happiness, high net worth, James Dyson, Jarndyce and Jarndyce, Jarndyce and Jarndyce, Kickstarter, mass immigration, mittelstand, Network effects, North Sea oil, Northern Rock, patent troll, Plutocrats, plutocrats, Ponzi scheme, profit motive, Ralph Waldo Emerson, Silicon Valley, software patent, stealth mode startup, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, traveling salesman, tulip mania, Vilfredo Pareto, wealth creators

If they don’t deliver, you don’t pay and you can replace them. It is a grave error to give in to the pressure for departmental fiefdoms: effective leaders care about results, not process or turf. Typically an apparatus builds up around divisions like HR to expand their role and cost more money. Compensation consultants are hired to come up with justifications for paying everyone more. Training advisors are employed to distract everyone from doing their job with pointless courses. Appraisal experts are contracted to critique staff relations. Experts are drafted in to devise an appropriate Corporate Social Responsibility Agenda – whatever that is.


pages: 200 words: 54,897

Flash Boys: Not So Fast: An Insider's Perspective on High-Frequency Trading by Peter Kovac

bank run, barriers to entry, bash_history, Bernie Madoff, compensation consultant, computerized markets, computerized trading, Flash crash, housing crisis, index fund, locking in a profit, London Whale, market microstructure, merger arbitrage, prediction markets, price discovery process, Sergey Aleynikov, Spread Networks laid a new fibre optics cable between New York and Chicago, transaction costs, zero day

Average compensation is actually well below Wall Street standards – Katsuyama’s salary of $2 million is higher than any total employee compensation package I have ever offered a high-frequency trader. Obviously his “opening bid” of $3 million a year was higher too. A brief conversation with a compensation consultant about high-frequency norms, or perhaps a chat with an employee of a high-frequency firm, would have set Lewis straight on this score.[49] Undoubtedly, employees are well compensated but they could make much more money at Goldman Sachs, or even RBC, they just choose not to work in a big bank.


pages: 535 words: 158,863

Superclass: The Global Power Elite and the World They Are Making by David Rothkopf

airport security, anti-communist, asset allocation, Ayatollah Khomeini, bank run, barriers to entry, Bear Stearns, Berlin Wall, Bob Geldof, Branko Milanovic, Bretton Woods, BRICs, business cycle, carried interest, clean water, compensation consultant, corporate governance, creative destruction, crony capitalism, David Brooks, Doha Development Round, Donald Trump, financial innovation, fixed income, Francis Fukuyama: the end of history, Gini coefficient, global village, high net worth, income inequality, industrial cluster, informal economy, Internet Archive, Jeff Bezos, jimmy wales, joint-stock company, knowledge economy, liberal capitalism, Live Aid, Long Term Capital Management, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, Martin Wolf, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, Nelson Mandela, old-boy network, open borders, Plutocrats, plutocrats, Ponzi scheme, price mechanism, Savings and loan crisis, shareholder value, Skype, special economic zone, Steve Jobs, Thorstein Veblen, too big to fail, trade liberalization, trickle-down economics, upwardly mobile, Vilfredo Pareto, Washington Consensus, William Langewiesche

Among firms in the S&P 1500, for example, a chief executive whose firm was in the top fifth of well-connected companies received a 10 percent higher salary and a 13 percent larger pay package than a CEO whose firm was in the bottom fifth. Another important aspect of CEO compensation is the increasingly influential role of compensation consultants, who advise the contract negotiation process. Since they benefit according to the size of the contracts, they have a vested interest in driving companies to raise CEO pay. Despite having profited enormously from the system in which they thrive, Barry Diller opined in 2006 that “the whole consultant group should be flushed into the East River and no loss would ever be seen by man.”

Calderón, Felipe Calmy-Rey, Micheline campaign finance capitalism and communism, struggle between Carlucci, Frank Carlyle Group Carnegie, Andrew Carnegie Endowment for International Peace Carter, Jimmy Carville, James Case, Steve Castro, Fidel celebrities and entertainers Center for American Progress central bankers Cerf, Vint Chao, Elaine Chávez, Hugo Cheney, Dick Chernow, Ron Chicago school of economics China National Offshore Oil Corporation (CNOOC) China’s seventeenth-century elites Chirac, Jacques Chongzhen, Chinese Emperor Chubais, Anatoly Churchill, Winston Clark, Helen Clark, Wesley Claro, Ricardo Clean Sky project Cleisthenes Clement XII, Pope Clinton, Bill Clinton, Hillary Rodham Clinton Global Initiative (CGI) Coelho, Paulo Cohen, William S. Coll, Steve Communist Manifesto, The (Marx and Engels) compensation consultants compensation of superstars conflicts of asymmetry Conservation International conspiracy theories about plotting elites Conway, William, Jr. corporate elites agenda-setting and concentrated power among corporation-to-country power comparisons energy elites executive pay and exercise of influence in global way global institutions/governance and globalization and governments, power over linkages and collaboration among Mills’s views on philanthropy by revolving door between government and corporate communities revolving door between military and corporate communities Russian oligarchs wealth of Correa, Rafael Corrigan, Gerald corruption by corporations Corzine, Jon Council on Foreign Relations Cox, Harvey Cramer, Jim Cronkite, Walter Crutzen, Paul Culture of Conspiracy, The (Barkun) Cypselus of Corinth Dabdoub, Ibrahim Dalai Lama D’Alema, Massimo Dalton, John H.


pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

Andrei Shleifer, banking crisis, Bear Stearns, Bernie Madoff, business cycle, collateralized debt obligation, collective bargaining, compensation consultant, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, market bubble, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, oil shock, Ponzi scheme, price stability, profit maximization, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, savings glut, shareholder value, short selling, statistical model, too big to fail, transaction costs, very high income

For then every day that you stay in you make a lot of money, and you know that when the bubble bursts you'll be okay because you have negotiated a generous severance package with your board of directors. Limited liability is a factor too; neither an executive heavily invested in his company's stock nor any other shareholder will be personally liable for the company's losses should it go broke. And how do executives get such a sweet deal? Well, the board will have hired a compensation consultant who will have advised generosity in fixing the compensation of senior management and as part of that largesse will have recommended that senior executives receive a fat severance package (a "golden parachute") if they are terminated. The consultant will have told the board this because if the board is generous to senior management, senior management may out of gratitude hire the consultant to do other consulting for the firm.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

banking crisis, banks create money, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, mobile money, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nixon triggered the end of the Bretton Woods system, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, Savings and loan crisis, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

If it is massively overpriced, this represents institutional governance flaws, especially the so-called agency problem. Boards too often do not effectively represent shareholder interest, but are creatures of the professional management of the firm. Pay practices, legitimized by a specialized executive compensation consulting industry, reflect this and can charitably be called a market failure. Large public companies are more like feudal kingdoms than embodiments of market capitalism. Oddly, although market capitalism is under siege in the political world—see the Financial Times series “Capitalism in Crisis” for a range of views—large financial institutions and public companies have never fully embraced its rigors.


pages: 219 words: 15,438

The Essays of Warren Buffett: Lessons for Corporate America by Warren E. Buffett, Lawrence A. Cunningham

buy and hold, compensation consultant, compound rate of return, corporate governance, Dissolution of the Soviet Union, diversified portfolio, dividend-yielding stocks, fixed income, George Santayana, index fund, intangible asset, invisible hand, large denomination, low cost airline, low cost carrier, oil shock, passive investing, price stability, Ronald Reagan, Tax Reform Act of 1986, the market place, transaction costs, Yogi Berra, zero-coupon bond

I have yet to see this vital point spelled out in a proxy statement asking shareholders to approve an option plan. I can't resist mentioning that our compensation arrangement with Ralph Schey was worked out in about five minutes, immediately upon our purchase of Scott Fetzer and without the "help" of lawyers or compensation consultants. This arrangement embodies a few very simple ideas-not the kind of terms favored by consultants who cannot easily send a large bill unless they have established that you have a large problem (and one, of course, that requires an annual review). Our agreement with Ralph has never been changed.


pages: 297 words: 84,009

Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, compensation consultant, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, experimental economics, Filter Bubble, financial innovation, financial intermediation, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

For some recalculations of the Jensen and Murphy results, see Conyon 2006, Frydman and Saks 2007, and Frydman and Jenter 2010, who discuss the prewar era as well. It is a little-known fact that the current use of high-powered financial incentives for American CEOs still has not reattained the level it held in the pre–Second World War period. 26.   See Giertz and Mortenson 2013. Sometimes you hear the claim that the hiring of compensation consultants favors the interests of an entrenched CEO and boosts pay. You can find serious studies on both sides of this issue, but for the time being it is probably best to judge it as a toss-up. It does seem in statistical studies that the composition of the compensation committee does not matter for the level of compensation, although it still could be argued that some directors are cronyist picks in a manner that is not detected by standard measures of who is a crony or close associate.


pages: 340 words: 100,151

Secrets of Sand Hill Road: Venture Capital and How to Get It by Scott Kupor

activist fund / activist shareholder / activist investor, Airbnb, Amazon Web Services, asset allocation, barriers to entry, Ben Horowitz, carried interest, cloud computing, compensation consultant, corporate governance, cryptocurrency, discounted cash flows, diversification, diversified portfolio, estate planning, family office, fixed income, high net worth, index fund, information asymmetry, Lean Startup, low cost airline, Lyft, Marc Andreessen, Myron Scholes, Network effects, Paul Graham, pets.com, price stability, ride hailing / ride sharing, rolodex, Sand Hill Road, shareholder value, Silicon Valley, software as a service, sovereign wealth fund, Startup school, Travis Kalanick, uber lyft, VA Linux, Y Combinator, zero-sum game

This shows that you were not trying to hoard the opportunity for yourself but rather reacting to a true lack of market interest. If you can hire a banker to run this process, even better. Be careful not to entangle new option grants to employees too closely with the inside financing. It’s customary to want to reincent the team, but doing so after the financing closes (versus before) and employing a compensation consultant to gauge the size of an appropriate grant would help eliminate any suspicion that an executive board member’s vote was contingent upon her receiving a new option grant. Give other investors (and particularly major common shareholders) the opportunity to participate in the deal.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, compensation consultant, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, Money creation, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Savings and loan crisis, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

“The Formation of ‘Modern’ Economics: Engineering and Ideology.” London School of Economics Department of Economic History Working Paper 62/01. Muller, Karl A. III, Monica Neamtiu and Edward J. Riedl. 2009. “Insider Trading Preceding Goodwill Impairments.” Working paper. Murphy, Kevin J. and Tatiana Sandino. 2010. “Executive Pay and ‘Independent’ Compensation Consultants.” Journal of Accounting and Economics 49: 247–62. Narayanan, M. P. and H. Nejat Seyhun. 2008. “The Dating Game: Do Managers Designate Option Grant Dates to Increase Their Compensation?” Review of Financial Studies 21: 1907–45. Nettels, Curtis P. 1962. The Emergence of a National Economy 1715–1815.


The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us by Robert H. Frank, Philip J. Cook

accounting loophole / creative accounting, air freight, Alvin Roth, Apple's 1984 Super Bowl advert, business cycle, compensation consultant, Daniel Kahneman / Amos Tversky, delayed gratification, Garrett Hardin, global village, haute couture, income inequality, independent contractor, invisible hand, labor-force participation, longitudinal study, Marshall McLuhan, medical malpractice, Network effects, positional goods, prisoner's dilemma, rent-seeking, rising living standards, Ronald Reagan, school choice, Shoshana Zuboff, Stephen Hawking, Tragedy of the Commons, transaction costs, trickle-down economics, winner-take-all economy

There ensued a period of spectacular financial success for Disney. The company's earnings rose from 15 cents per share in the fiscal year just before Eisner's appointment to $6 per share in the fiscal year end­ ing in September 1990.9 Eisner's perfonnance has been handsomely rewarded. As fonner compensation consultant Graef Crystal describes the Disney chief's pay package: In 1990, he received · a bonus of $10.5 million in addition to his $750,000 per year base salary. But the real payoff has come from his stock option grants . . . . Calculated off a late March 199 1 market price of $1 19.25 per share, his unexercised option gains were likely on the order of $240 million.


pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, compensation consultant, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, Herbert Marcuse, income inequality, independent contractor, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, Plutocrats, plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, you are the product, zero-sum game

Managers should certainly be compensated for the difficult work they do, but it is hard to believe CEOs, as a group, are now ten times more valuable relative to workers than they were in the 1970s. Part of the issue is that, originally management pay was determined according to “internal equity.” A manager's value to the firm was determined by his or her performance relative to other employees. In the 1970s, with the rise of executive compensation consulting, the focus shifted to “external equity” – or comparing CEOs to what others were being paid across the industry. Boards and compensation committees agree to compensation packages based on benchmarking against other comparable companies, but they are all benchmarking against each other in a never-ending infinite loop of salary increases.


pages: 374 words: 114,660

The Great Escape: Health, Wealth, and the Origins of Inequality by Angus Deaton

"Robert Solow", Admiral Zheng, agricultural Revolution, Branko Milanovic, BRICs, British Empire, call centre, clean water, colonial exploitation, Columbian Exchange, compensation consultant, creative destruction, declining real wages, Downton Abbey, end world poverty, financial innovation, germ theory of disease, Gini coefficient, illegal immigration, income inequality, invention of agriculture, invisible hand, John Snow's cholera map, knowledge economy, Louis Pasteur, low skilled workers, new economy, purchasing power parity, randomized controlled trial, rent-seeking, rising living standards, Ronald Reagan, Simon Kuznets, Steve Jobs, Steven Pinker, structural adjustment programs, The Spirit Level, too big to fail, trade route, Tragedy of the Commons, very high income, War on Poverty

Compensation committees typically set top salaries, and their members are nominally independent directors. But, as has been noted by Warren Buffett among others, the members of these boards often receive a large share of their own total income from board membership and are effectively under the control of the CEO. Buffett has also drawn attention to the role of firms of compensation consultants (“Ratchet, Ratchet, and Bingo!”), who help spread giant packages from one company to another. The use of these firms, together with the common practice of CEOs sitting on each other’s boards, might explain how jumbo compensation packages spread from financial firms to the broader corporate world.


pages: 397 words: 110,130

Smarter Than You Think: How Technology Is Changing Our Minds for the Better by Clive Thompson

4chan, A Declaration of the Independence of Cyberspace, Andy Carvin, augmented reality, barriers to entry, Benjamin Mako Hill, butterfly effect, citizen journalism, Claude Shannon: information theory, compensation consultant, conceptual framework, corporate governance, crowdsourcing, Deng Xiaoping, discovery of penicillin, disruptive innovation, Douglas Engelbart, Douglas Engelbart, drone strike, Edward Glaeser, Edward Thorp, en.wikipedia.org, experimental subject, Filter Bubble, Freestyle chess, Galaxy Zoo, Google Earth, Google Glasses, Gunnar Myrdal, Henri Poincaré, hindsight bias, hive mind, Howard Rheingold, Ian Bogost, information retrieval, iterative process, jimmy wales, Kevin Kelly, Khan Academy, knowledge worker, lifelogging, Mark Zuckerberg, Marshall McLuhan, Menlo Park, Netflix Prize, Nicholas Carr, Panopticon Jeremy Bentham, patent troll, pattern recognition, pre–internet, Richard Feynman, Ronald Coase, Ronald Reagan, Rubik’s Cube, sentiment analysis, Silicon Valley, Skype, Snapchat, Socratic dialogue, spaced repetition, superconnector, telepresence, telepresence robot, The future is already here, The Nature of the Firm, the scientific method, the strength of weak ties, The Wisdom of Crowds, theory of mind, transaction costs, Vannevar Bush, Watson beat the top human players on Jeopardy!, WikiLeaks, X Prize, éminence grise

To fix it, you need to analyze what’s going on each city and suburb block, for hundreds of miles across an entire state, parsing an absolutely Olympian mountain of information (maps, databases, dense charts of voting data, and so on.) As a result, a professional class of map riggers has emerged, lushly compensated consultants hired by politicians to guarantee victory. The evils of this system are protected by the byzantine nature of the problem. Voters have little chance of figuring out why things are going so wrong, let alone of fixing it. “The average citizen throws up their arms and tunes out,” Panagopoulos says.


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, Edward Thorp, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, selling pickaxes during a gold rush, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

“Is it any wonder then,” they wrote in the Harvard Business Review in 1990, “that so many CEOs act like bureaucrats rather than the value-maximizing entrepreneurs companies need to enhance their standing in world markets?”20 These may have been the most influential of the many influential words Jensen wrote. Of course CEOs shouldn’t be paid like bureaucrats, everyone from shareholder activists to compensation consultants to journalists to corporate board members to CEOs themselves agreed. They should be paid for performance. Measuring executive performance has its complications, of course. What’s the relevant time period—a quarter, a year, five years, ten? What’s the right metric—profits, cash flow, free cash flow minus the cost of capital?


pages: 493 words: 139,845

Women Leaders at Work: Untold Tales of Women Achieving Their Ambitions by Elizabeth Ghaffari

Albert Einstein, AltaVista, Bear Stearns, business cycle, business process, cloud computing, Columbine, compensation consultant, corporate governance, corporate social responsibility, dark matter, family office, Fellow of the Royal Society, financial independence, follow your passion, glass ceiling, Grace Hopper, high net worth, knowledge worker, Long Term Capital Management, longitudinal study, performance metric, pink-collar, profit maximization, profit motive, recommendation engine, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, thinkpad, trickle-down economics, urban planning, women in the workforce, young professional

I am certain that I will have many years to give back to the world the many gifts I have received. Robin Ferracone Founder and Executive Chair, Farient Advisors LLC Born 1953 in Englewood, New Jersey. Robin Ferracone is founder and executive chair of Farient Advisors LLC, an independent executive compensation consulting firm that she founded in October 2007. The firm is based in Los Angeles, California, and New York. Ms. Ferracone is also CEO of RAF Capital LLC, a private, portfolio-management firm that she founded in April 2007 to make strategic investments in companies within the human resources software, information, and consulting fields.


pages: 372 words: 152

The End of Work by Jeremy Rifkin

banking crisis, Bertrand Russell: In Praise of Idleness, blue-collar work, cashless society, collective bargaining, compensation consultant, computer age, deskilling, Dissolution of the Soviet Union, employer provided health coverage, Erik Brynjolfsson, full employment, future of work, general-purpose programming language, George Gilder, global village, Herbert Marcuse, hiring and firing, informal economy, interchangeable parts, invention of the telegraph, Jacques de Vaucanson, job automation, John Maynard Keynes: technological unemployment, knowledge economy, knowledge worker, land reform, low skilled workers, means of production, new economy, New Urbanism, Paul Samuelson, pink-collar, post-industrial society, Productivity paradox, Richard Florida, Ronald Reagan, Silicon Valley, speech recognition, strikebreaker, technoutopianism, Thorstein Veblen, Toyota Production System, trade route, trickle-down economics, women in the workforce, working poor, working-age population, Works Progress Administration

In 1993 temporary agencies leased more than 348,000 temporary workers a day to the nation's manufacturing companies, up from 224,000 in 1992 .40 Professional employment is also becoming temporary. The Executive Recruiter News reports that more than 125,000 professionals work as temps every day. "Professionals are the fastest growing group of temporary workers," says David Hofrichter, managing director of the Chicago office of the Hay Group compensation consultants. Many companies, according to Dr. Adela Oliver, president of Oliver Human Resources Consultants, are eliminating entire departments because they know they can quickly pick up experts in different areas on a contract basis."41 Dick Ferrington, an employee-training expert, is typical of the new professional temps.


We Are the Nerds: The Birth and Tumultuous Life of Reddit, the Internet's Culture Laboratory by Christine Lagorio-Chafkin

4chan, Airbnb, Amazon Web Services, Bernie Sanders, big-box store, bitcoin, blockchain, Brewster Kahle, Burning Man, compensation consultant, crowdsourcing, cryptocurrency, David Heinemeier Hansson, disinformation, Donald Trump, East Village, game design, Golden Gate Park, hiring and firing, independent contractor, Internet Archive, Jacob Appelbaum, Jeff Bezos, jimmy wales, Joi Ito, Justin.tv, Kickstarter, Lean Startup, Lyft, Marc Andreessen, Mark Zuckerberg, medical residency, minimum viable product, natural language processing, Paul Buchheit, Paul Graham, paypal mafia, Peter Thiel, Plutocrats, plutocrats, QR code, recommendation engine, RFID, rolodex, Ruby on Rails, Sam Altman, Sand Hill Road, Saturday Night Live, self-driving car, semantic web, side project, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, slashdot, Snapchat, social web, South of Market, San Francisco, Startup school, Stephen Hawking, Steve Bannon, Steve Jobs, Steve Wozniak, technoutopianism, uber lyft, web application, WeWork, WikiLeaks, Y Combinator

Wong obsessed over the concept known as “runway,” a term popular among startups, which use it to describe the amount of time a company has before it runs out of money. As general manager, Martin had made a meaningful attempt to get Reddit to break even. Wong, though, had changed the curve by adding funding—but with it he had also grown head count, which meant his math was more complex. With every hire, every well-compensated consultant—and there were several—the roughly $20 million financial runway the company had to taxi down would grow shorter and shorter. Wong figured, at best, the company had a year and a half of funding. Reddit by this time was making money in three ways: advertising, Reddit Gold, and Reddit Gifts.


pages: 526 words: 158,913

Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America by Greg Farrell

Airbus A320, Apple's 1984 Super Bowl advert, bank run, banking crisis, Bear Stearns, bonus culture, call centre, Captain Sullenberger Hudson, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, glass ceiling, high net worth, Long Term Capital Management, mass affluent, Mexican peso crisis / tequila crisis, Nelson Mandela, Plutocrats, plutocrats, Ronald Reagan, six sigma, sovereign wealth fund, technology bubble, too big to fail, US Airways Flight 1549, yield curve

Like McCann, Fleming had received no bonus in 2007 and it wasn’t fair for him to have to miss out on a bonus for the second straight year, the CEO argued. His argument over, the board prepared to go into executive session without Thain to discuss the matter further. But Thain wouldn’t budge. He refused to let the directors bring their lawyers and compensation consultants into the room, and he was adamant about not leaving. Instead, he wanted to hear from the directors themselves what they felt about bonuses, not receive a message that had been filtered through paid advocates. Finnegan implored Thain to step outside, so that the board could deliberate on its own, but the CEO stubbornly resisted.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Bear Stearns, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, compensation consultant, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, Ida Tarbell, income inequality, independent contractor, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, Money creation, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, Plutocrats, plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

In fact, no consistent connection has yet been made between CEO pay and corporate performance levels as measured by financial indicators such as stock price, profits, and sales.”46 Professors Alex Edmans from the Wharton School of Business at the University of Pennsylvania and Xavier Gabaix from the Stern School of Business at New York University concluded similar research in 2010 by noting, “Many CEOs are richly paid, even if their performance has been poor.”47 The iconic compensation expert Graef Crystal in 2009 examined the pay of 271 CEOs, using formulas he devised during his 30 years as compensation consultant to Fortune 500 firms like CBS and Coca-Cola. “Simply put, companies don’t pay for performance.”48 University of Southern California economist Murphy reached the same conclusion. While at the University of Rochester in 1990, Murphy and Jensen of Harvard parsed a database of 2,505 CEOs at 1,400 large firms over the period 1974 to 1988; they found that “in most publicly held companies, the compensation of top executives is virtually independent of performance….


pages: 716 words: 192,143

The Enlightened Capitalists by James O'Toole

activist fund / activist shareholder / activist investor, anti-communist, Ayatollah Khomeini, Bernie Madoff, British Empire, business cycle, business process, California gold rush, carbon footprint, City Beautiful movement, collective bargaining, compensation consultant, corporate governance, corporate social responsibility, Credit Default Swap, crowdsourcing, cryptocurrency, desegregation, Donald Trump, double entry bookkeeping, end world poverty, equal pay for equal work, Frederick Winslow Taylor, full employment, garden city movement, germ theory of disease, glass ceiling, God and Mammon, greed is good, hiring and firing, income inequality, indoor plumbing, inventory management, invisible hand, James Hargreaves, job satisfaction, joint-stock company, Kickstarter, knowledge worker, Lao Tzu, longitudinal study, Louis Pasteur, Lyft, means of production, Menlo Park, North Sea oil, passive investing, Ponzi scheme, profit maximization, profit motive, Ralph Waldo Emerson, rolodex, Ronald Reagan, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, Socratic dialogue, sovereign wealth fund, spinning jenny, Steve Jobs, Steve Wozniak, stocks for the long run, stocks for the long term, The Fortune at the Bottom of the Pyramid, The Wealth of Nations by Adam Smith, Tim Cook: Apple, traveling salesman, Uber and Lyft, uber lyft, union organizing, Vanguard fund, white flight, women in the workforce, young professional

However, several informants told me that, not long after the executive had assumed office, company morale ebbed to an all-time low, and several key employees decided to leave in search of greener pastures. The turmoil that followed led to declining productivity, sales, and profitability. The CEO—unsure how to respond to the looming crisis—hired a compensation consultant, who in effect assumed the role of co–chief executive. After a quick study of the situation, she gave the CEO what turned out to be poor advice, concluding that the most effective way to quickly cut costs was to fire a large number of long-term executives and managers who, she felt, had grown stale in their jobs.


The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

"Robert Solow", addicted to oil, air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, compensation consultant, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, special economic zone, stocks for the long run, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

Taxpayer funds are not involved. I was aware of the tendency toward "excess" compensation a generation ago. I recall a discussion of the salaries of the senior officers of Mobil Corporation at a compensation-committee meeting in the early 1980s. Management had hired Graef "Bud" Crystal, a well-known executive compensation consultant, to "assist" the committee in determining appropriate salary levels.* He put up a series of charts showing that the salaries of Mobil's top officers were only average relative to their corporate peers'. Obviously, Crystal asserted, Mobil would want its executive salaries to be above average.


pages: 976 words: 235,576

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite by Daniel Markovits

"Robert Solow", 8-hour work day, activist fund / activist shareholder / activist investor, affirmative action, Anton Chekhov, asset-backed security, assortative mating, basic income, Bernie Sanders, big-box store, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, carried interest, collateralized debt obligation, collective bargaining, compensation consultant, computer age, corporate governance, corporate raider, crony capitalism, David Brooks, deskilling, Detroit bankruptcy, disruptive innovation, Donald Trump, Edward Glaeser, Emanuel Derman, equity premium, European colonialism, everywhere but in the productivity statistics, fear of failure, financial innovation, financial intermediation, fixed income, Ford paid five dollars a day, Frederick Winslow Taylor, full employment, future of work, gender pay gap, George Akerlof, Gini coefficient, glass ceiling, helicopter parent, Herbert Marcuse, high net worth, hiring and firing, income inequality, industrial robot, interchangeable parts, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, Kodak vs Instagram, labor-force participation, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass incarceration, medical residency, minimum wage unemployment, Myron Scholes, Nate Silver, New Economic Geography, new economy, offshore financial centre, Paul Samuelson, payday loans, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, purchasing power parity, rent-seeking, Richard Florida, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, school choice, shareholder value, Silicon Valley, Simon Kuznets, six sigma, Skype, stakhanovite, stem cell, Steve Jobs, supply-chain management, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Theory of the Leisure Class by Thorstein Veblen, Thomas Davenport, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, traveling salesman, universal basic income, unpaid internship, Vanguard fund, War on Poverty, Winter of Discontent, women in the workforce, working poor, Yochai Benkler, young professional, zero-sum game

Meritocracy’s champions develop these intuitions. They insist that grades and test scores measure students’ academic achievements, that wages track workers’ output, and that both processes align private advantage and the public interest. Meritocratic practices reinforce these associations. Entire professions—educational testing, compensation consulting—work to improve and to ratify the connections. In these ways, meritocracy makes industry—effort and skill, converted into economic and social product—into the measure of advantage. These connections enabled the meritocratic revolution to push aside dull, sluggish, and inert aristocrats, to open the elite to anyone who is ambitious and talented, and to arouse the superordinate workers whose vigor and dynamism now light up the culture and drive the economy forward.


pages: 827 words: 239,762

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite by Duff McDonald

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Albert Einstein, barriers to entry, Bayesian statistics, Bear Stearns, Bernie Madoff, Bob Noyce, Bonfire of the Vanities, business cycle, business process, butterfly effect, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collateralized debt obligation, collective bargaining, commoditize, compensation consultant, corporate governance, corporate raider, corporate social responsibility, creative destruction, deskilling, discounted cash flows, disintermediation, disruptive innovation, Donald Trump, eat what you kill, family office, financial innovation, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global pandemic, Gordon Gekko, hiring and firing, Ida Tarbell, impact investing, income inequality, invisible hand, Jeff Bezos, job-hopping, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, Kōnosuke Matsushita, London Whale, Long Term Capital Management, market fundamentalism, Menlo Park, new economy, obamacare, oil shock, pattern recognition, performance metric, Peter Thiel, Plutocrats, plutocrats, profit maximization, profit motive, pushing on a string, Ralph Nader, Ralph Waldo Emerson, RAND corporation, random walk, rent-seeking, Ronald Coase, Ronald Reagan, Sam Altman, Sand Hill Road, Saturday Night Live, shareholder value, Silicon Valley, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, survivorship bias, The Nature of the Firm, the scientific method, Thorstein Veblen, Tragedy of the Commons, union organizing, urban renewal, Vilfredo Pareto, War on Poverty, William Shockley: the traitorous eight, women in the workforce, Y Combinator

They eat what they kill, whereas the majority of corporate executives eat what they want. More to the point, they eat what they think they deserve, which is more than they do. While the majority of corporate boards have compensation committees that determine executive pay, those boards all tend to use compensation consultants, and those consultants base their estimates on prevailing compensation, which is set by boards with a heavy presence of current or former CEOs of other firms. In other words, it’s one of the most intricately designed circle jerks in business history. CEOs are paid what other CEOs think they should be paid, which is based on what other CEOs have been paid.


pages: 898 words: 266,274

The Irrational Bundle by Dan Ariely

accounting loophole / creative accounting, air freight, Albert Einstein, Alvin Roth, assortative mating, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, Broken windows theory, Burning Man, business process, cashless society, Cass Sunstein, clean water, cognitive dissonance, compensation consultant, computer vision, corporate governance, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, end world poverty, endowment effect, Exxon Valdez, first-price auction, Frederick Winslow Taylor, fudge factor, Garrett Hardin, George Akerlof, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, Kenneth Arrow, knowledge economy, knowledge worker, lake wobegon effect, late fees, loss aversion, Murray Gell-Mann, new economy, Peter Singer: altruism, placebo effect, price anchoring, Richard Feynman, Richard Thaler, Saturday Night Live, Schrödinger's Cat, second-price auction, Shai Danziger, shareholder value, Silicon Valley, Skype, software as a service, Steve Jobs, sunk-cost fallacy, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tragedy of the Commons, ultimatum game, Upton Sinclair, Walter Mischel, young professional

Once salaries became public information, the media regularly ran special stories ranking CEOs by pay. Rather than suppressing the executive perks, the publicity had CEOs in America comparing their pay with that of everyone else. In response, executives’ salaries skyrocketed. The trend was further “helped” by compensation consulting firms (scathingly dubbed “Ratchet, Ratchet, and Bingo” by the investor Warren Buffett) that advised their CEO clients to demand outrageous raises. The result? Now the average CEO makes about 369 times as much as the average worker—about three times the salary before executive compensation went public.