Friday, February 3, 2012

Executive Pay within the Corporations: What should be done?

Looking back at the rise of corporate America, there has been a recurring theme.  During the latter half of the Industrialization period of America, businessmen made extreme profits because American tax law had not developed to handle this new rising corporate industry.  Corporations like US Steel and Standard Oil and investment firms such as JP Morgan used to make 100% profit because there was no tax laws against them because in essence they were not people, so how could you tax them.  As a result, the 16th amendment created the federal income tax to help allow the government to tax the wealth of people like JP Morgan, Andrew Carnegie, and Rockefeller who profits exceeded far over the rest of the people of the United States.  Even though what they were doing was not legally wrong because they did not break any laws, but in the end it hurt the distribution of wealth, so new laws were formed.  Unfortunately, in today's society we are having the same problem.  CEO's, Board of Directors, and lobbyist are creating excessive wealth for themselves at the expense of the people.  Things need to be done to fix the problem, and bring money and hope back to the stakeholders of the corporation or investment bank and essentially the American people.  Here is my story:

 My whole life I grew up with the best friend anyone could ask.  His family was an honest middle class family who worked hard through perseverance and determination to improve their own lives and the lives of their family and the people around them.  They have been in business for over 20 years, and through that time they challenged themselves to do the best they could and now from that hard work and perseverance they are now quite successful.  I wished this idea was instilled upon everyone, but everyone has grown up in a different environment and way of life. 

  Looking at the job of CEO's and Board of Directors, I see a system that is flawed by people who have a job to protect the welfare of the stakeholders and company which they represent.  Instead, the CEO's of many companies create special interests contracts when they agree to be a CEO of a company, and some but not all look at making short term capital gains and bonuses at the expense of the people they serve.  This does not make any sense whatsoever.  In addition, most of the Board of Directors of corporations is CEO's of other companies which in turn dampers the dreams of knowledgeable young businessmen who cannot get in the circle unless their dad is rich, or they were number 1 in their class at Harvard School of Economics or any Ivy League School for that matter.  But who's to say we do not want an Ivy League graduate running our Corporations as long as they do what’s best for the stakeholders around them.  Most of the CEO's based pay comes from incentives such as Cash Bonuses, Stock Options, and Perks that they receive when they sign their contract.  So what should the government do to regulate this idea?  First off, stock options should only be available after at least 7-10 years or regulate the amount of stock they can get at a time. It should be based upon company performance, but then the CEO could cook the books which is what happened with companies like Enron, but is it not the job of the SEC to look after that especially when one sees a corporation's stock spike at an enormous rate?  Cash bonuses should be relative to the amount of capital the company made during the fiscal year, and should also be overseen by the SEC.  Perks are a way of conducting good business with clients, so in my opinion that should stay the same, but just give the CEO a budget he can spend on things such as penthouse suites, Gulf Stream private jets, and vacations. 

 Too many times do I read in journal articles, textbooks, and on the news about corporate CEO's that think for the short term instead of the long hall?  In my opinion, the CEO is the owner of the company, and in most sole proprietor's and partnerships the people of the company are in it for the long run, and if things get bad they look for new innovations to increase production and revenue again.  In my opinion, that last sentence is the epitome of a good entrepreneur.  Look at Apple for example.  They lead the way for information technology, and then everyone follows, and look now they are the biggest company on Earth with capital fluctuating between 410-425 billion dollars(I watch the stock market every day), and now on Febraury 11, 2012, its now up to 460 billion dollars, and will continue to grow until another company can make a better product.  The CEO made a 378 million dollar bonus, but if your company is doing that well and continues to succeed and set the market than I tip my cap to the person(s) that make that happen.  I am tired of seeing CEO's bring a company to default, but somehow run away with 100 million dollars and every other stakeholder is left with next to nothing.  In the end, history should repeat itself, and the government should intervene and find middle ground, so the distribution of wealth of America does not get any worse.  My generation is going to be significantly contributing to society in the next 10 years, and I hope changes begin now, so my children do not get left with the mess that the generations before me made. 

Kenneth A. Kim. John R. Nofsinger. Derel J. Mohr. Corporate Governance. Third Ed. Pearson Education. 2010.

O.C.Ferrell. John Fraedrich. Linda Ferrell. Business Ethics: Ethical Decision Making and Cases. Seventh Ed. South-Western, Cengage Learning. 2008

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