Saturday, January 23, 2010

Executive Bonuses and Compensation

NPR had a good discusion of executive compensation particularly those at investment banks such as Goldman Sachs, particularly from the point of view of stock holders.

Relatedly, the AARP Bulletin in its Jan Feb 2010 issue ( Volume 51 Number One Page Six)said:

In 2008, the top five hundred S&P companies put
44.5 billion into stok grants and options for their top execf
39.5 billion to pension funds
Financial service companies the ratio was $2.30 to top executive stock options to employee fund contrivutions.

Boards of Directors are not necessarily aligned wit the long-term share holder--some are paid by management. (One interviewee referred to this as an oligarchy that has hijacked the statement.) We have propsed two solutions here:

  1. Sortition democracy where the stock holders can approve financial decisions directly. Every payout (including executive) is approved by a sortition jury of the share holders. Thus, if A is a pension holder or 401B holder in Company X, then there is a probability proportional to the number of share sthey indirectly own that they would be asked to sit on a sortition jury.
  2. Executives should not be able to spend the money in their bonus until quite some time after the executive had joined the firm and become a senior executive. That way one can know the long-term results of the payment.

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