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Posted by on Jun 5, 2012 in Business, Economy, Guest Contributor, Politics | 1 comment

A Corporate Fix (Guest Voice)

A Corporate Fix
by Robert Coutinho

Having been equated to a Nazi due to my most recent article, I suspect I am finally getting the hang of this article writing business. An immediate disclaimer is that (as anyone who has read the bio at the bottom of my articles already knows) I am not a university-trained economist. That does not, however, mean that I have not studied the subject. When in college, I took business courses as blow-off courses. Freshman business majors struggled in these courses while I paid only minor attention to them and had easy A’s.

Our legislators (once again I am dealing with the Federal Government unless when I specify otherwise) had a mandate that, surprisingly, they have used for all sorts of things it may not have really been intended for, yet failed to use it for something it clearly WAS intended for. I am talking, of course, about the Interstate Commerce Clause (ICC) of the Constitution. One would expect, if coming from another planet for instance, that Congress would create the laws to govern all interstate commerce and the corporations that participate in such. This would seem to be a no-brainer. Why, then, do we have corporations that are almost entirely unregulated (at least by the Federal Government) concerning their compensation, activities, and overall functioning?

Many people today (I would venture most being a good adjective) believe that there is too much economic disparity in the United States. Corporate CEO’s and top officers are getting paid enormous sums of money while, in real terms, many of the rest of us are hardly gaining any ground at all. Depending on whose figures you use, CEO’s are getting anywhere from 170 times as much as average workers up to over 400 times as much. Where the outrage for such high salaries hits the most is when said CEO’s get paid such salaries while concurrently running their corporations into the ground. I happen to believe that this type of compensation is unfair. If you think it is fair, please feel free to disregard the rest of my article.

I have proposed to my legislators a fix to the problem. Here are the suggestions:

First off remember that we are talking about corporations that are publicly traded and involved in interstate (and international) commerce. If someone privately owns a company, she is entitled to all of its profits (barring violations of existing laws and incorporating the payment of taxes as a given). These public corporations are SUPPOSED to be regulated by Congressional laws. The ICC virtually requires it. If there is any question as to this, then we need to amend the Constitution to force the issue.

1. Such corporations may not pay employees more than twenty times the amount that the lowest-paid employee working for their corporation is paid, including benefits (assuming full time work for both individuals). The distinction of “working for their corporation” is necessary due to the likelihood that some services will be outsourced (for example: cleaning, security, etc.). All such workers are included. There are exceptions to the rule.

2. Exception 1: employees that perform services that immediately realize income for the corporation are exempted. These would include those who get commissions for goods and services that are immediately paid for. Sales people, entertainers, sports figures, etc. would be included in this clause. Those finance people creating loans would not (as the income would occur in the future, not immediately).

3. Exception 2: employees may be compensated above the limit with stock options. These options MUST be set at the time the employee first obtained the job or at the time of issuance, whichever is higher. In addition, the stock options may not be used until three years after the date of issuance.

The reasoning goes as follows: if a huge portion of your compensation is dependent on your company being profitable in the future, you are unlikely to make decisions that work in the short term but are damaging in the long term. If you are truly worth a lot to the company (for instance if you are worth the spectacularly high salaries of some hedge fund managers and CEO’s) then your company’s stock will rise accordingly and your stock options would be worth millions or even billions. If, on the other hand, you are terrible at your job as CEO and the stock price plummets, you do not get to be offered a sweetheart deal just to bring it back to where it was before you destroyed it. Your stock options are based on the price before you killed the company.

If a salesperson is able to sell ten million sets of cookware in a year, the company will realize the profit that year. The salesperson has earned the commissions—thus the exception. If a singer performs a concert, the ticket sales are immediate. The singer has earned his payment. Sports figures are drawing immediate fans, with ticket sales, jersey sales, television advertisement revenue, etc. They have earned immediate salary.

Michael Eisner took over the Disney Corporation in the early 1980’s. I calculated (a while back, if you want the exact figures you can use Google to get them—my disability precludes my capacity to do such research at the moment) that Mr. Eisner took the Disney stock from (iirc) under one dollar to (counting in the stock splits) around two hundred seventy-two dollars in the early 1990’s. Under these rules, if he were given a million stock options at the time of his appointment as CEO, he could have easily obtained a compensation of $271,000,000. That would be just for those initial options, not even counting in options he could have been offered while on the way to such success. In my humble opinion, Mr. Eisner earned the compensation. Very few Americans would disagree. We have little problem with those who earn their way to the top.

The above rules will generally prevent corporate espionage by way of taking top people from one’s competitors. Those people would still have stock options (unrealized) with their former company and would generally not want to jeopardize the income from those options. With all the top people (and very possibly some of the mid-level or lower ones) thinking about the long-term viability of the company, most of our companies would not only survive but thrive. In addition, if such thinking became mainstream for Americans, they might choose politicians who also started thinking long-term. In addition, if a CEO’s pay (and other top officers) is tied to the lowest-paid employee, that gives the CEO a good incentive to compensate all employees well. Thus all workers would likely benefit from the success of the company.

For those who think that the poor CEO’s that I’m picking on will have to take initial, immediate, Draconian pay-cuts, consider: if the lowest-paid employee is paid $50,000, the CEO could be given $1 million. If, on the other hand, top people in a start-up biotech company decided to virtualize the entire company by outsourcing all of the actual jobs (i.e. analytical, manufacturing, cleaning, animal testing, clinical testing, etc.), they would still have to watch out what the contractors paid their employees. Remember, anyone who works most of his time for your company counts towards the limit of your pay. In case you think I am suggesting a non-event, I worked in the biotech industry for a while and there were companies that were in the process of turning themselves into virtual companies.

I welcome any alternate plans on how to get America back into the process of building things, compensating regular people fairly, getting politicians to think about the future, and stopping the shrinking of the middle class. Meanwhile, these are just my suggestions. Also, remember, it is not the individual state governments that are supposed to regulate interstate and international commerce, it is the Federal Government. That is one of the few actual mandates that was given in the original Constitution. That mandate PREDATED the first ten amendments. So…why hasn’t Congress bothered to do its job in over two hundred years?

Robert Coutinho is a disabled pharmaceutical chemist living in Massachusetts. He has been learning about life, the universe, and everything since he was born in 1963. He has had little else to do since his disability began in 1997.

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  • dduck

    You make some valid points. Some top officers may not have the incentive to manage for the best “overall” corporate welfare, including the welfare of customers and shareholders. Some ideas like you propose might lead to there looking out less for themselves and there crony BOD. and more for long-term corporate health and wealth with a smattering of ethical behavior and concern for the “little guys”.

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