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Monday, February 23, 2009

Incentive Pay

There is a chapter in my book titled “Incentive Pay”. I wrote it back in 2005, or so. Incentive pay made no sense to me then and makes no more sense to me now. In the intervening years, though, the public outcry against these vehicles of fortune has grown steadily louder. Why? Well, let’s take a look at that, but allow me a short look back at words previously penned.

Most of us have a job of some sort that pays us for our labor. The pay keeps us toiling away in our chosen field. So our pay is the incentive to our continued effort. Hence, incentive pay! Each of us, theoretically, does our best to bring fame and fortune to our employers. That effort results in our continued employment, theoretically, and a slice of that fortune. Your doctor receives nothing extra for a successful operation nor does your airline pilot receive additional compensation for an uneventful flight. Likewise, an attorney receives a given fee for services rendered, regardless of the legal outcome. To provide extra money for a job well done is ludicrous. “An individual should simply be paid what they’re paid,” I wrote. “At the end of the year, or season, a look back at the successes may warrant a bonus. So be it, but if we’re going to take a “look back”, we’re obligated to take note of failures, too. And failure should result in a reduction of that wage just as success raised it. Now there’s incentive!”

It seems that, as of late, hefty sums have been granted to executives who have performed less than admirably in steering their companies through troubled waters. Rewarding failure, in other words. The underlying mentality of this type of behavior is intriguing as well as disgusting. I submit an unholy alliance exists between upper management and their respective Board of Directors. This is cozy relationship couched around the “I’ll wash your back if you’ll wash mine” mantra. The Board continues to receive perks and payment from a management team that continues to receive incentive bonuses and golden parachutes from the Board. Pretty neat, huh?

Add to this mix the fact that corporate loyalty is no longer practiced, and we end up with a strong company slowly drained of its life-blood by a group uninterested in any long term viability. Take the money and run to the next outfit hungry for your corporate acumen. I’m reminded of old vampire movies.

While the providing of incentive pay is nothing new, why, then, has society become only recently agitated? Well, in better times it seemed that all boats were rising. Corporate bonuses of ever increasing amounts were accepted because, after all, everyone was doing better. Weren’t they? Hell. no, they weren’t. The middle class was enveloped in a fac̢ade of home equity loans and ever increasing debt loads to maintain their lifestyle. Buy now...pay later...sell the house...make a shitload of money...don’t worry...be happy.

Today, as the sham of affluence is rapidly being pulled away from many households, the aforementioned middle class is realizing that the fortunes of CEO’s and their ilk were gained at the expense of the worker bees who, in reality, were not in a boat that was rising at all. Falling home values, job insecurity, and large credit balances have combined to create a financial miasma for many who just recently thought they were doing OK.

So now it’s not OK for the corporate nabobs to continue reaping huge rewards. It was probably never OK, but society’s resistance has finally spilled into the streets and executives are being held to the same standard as everyone else. This is a good thing, but long overdue. Countless folks, families, and companies will fall by the wayside as a testament against the “greed is good” tenet of Gordon Gecko. One caveat: do not unilaterally hold higher salaries against those that earn them. Rather, make sure those higher returns reflect honest gains in profitability instead of smoke-and-mirror machinations that eventually collapse upon the backs of the true producers.

If we hold any interest in any company, whether through active sweat equity or investment, we are obligated to hold the respective Board of Directors and management teams to high standards and renewed scrutiny. They will resist, to be sure. Shareholder proposals seeking greater control are routinely introduced and routinely defeated. But the margin of defeat is narrowing and the time is at hand where future proposals may well emerge victorious from annual shareholder meetings. A brave new world? Perhaps. But a better balanced one, without a doubt.

Sunday, February 15, 2009

Eight Isn't Enough?

In their roles as harried parents, Dick Van Patten and Betty Buckley illustrated the point that eight is, indeed, enough! But in a “life imitating art” irony, Nadya Suleman, the mother of new octuplets is trying to prove that fourteen is just fine. And a fire storm of controversy has resulted with closer looks at the mother, Dr. Michael Kamrava (her fertility doctor), and the perception of an unalienable right to bear children. Wow! My plate is full on this one, but here goes...

First of all,the doctor: While Dr. Kamrava may have exceeded guidelines, there is no law broken on his part. The fertility doctor and the patient basically come to an agreement on how to proceed and that, basically, is that. Insurance companies have no say because such procedures are not covered.

The mother: Nadya already has six children. Three of them receive disability payments. The family qualifies and receives food stamps. Additionally, she has amassed $50,000 of student loans and hospital bills from the birth and care of her octuplets are running into six-figure amounts.

The ethics: There appears to be little debate over the fact that Ms Suleman has a warped and exaggerated view of motherhood. Her passion has crossed the line into the state of zealotry. Now, if she were zealous over stamp collecting and amassed an unbelievably large collection of same, no one would notice because stamps require little attention and are self-sufficient in that they simply lay upon a page. But kids are something else altogether. They require care, feeding, attention and the associated financial wherewithal. Children should not be amassed to satisfy the needs of the parent. Rather they should be considered an adjunct to the human condition and brought into this world only when and if the means are present to properly support them. In light of her current financial challenges, it is doubtful that Nadya will be able to support her family without additional and continued assistance from social programs.

Dr. Kamrava is under scrutiny for unethical behavior. Tell me what “ethical” would be in this case? Six embryos? Four? Two? One could make the argument that, in light of the six young’uns already in the family, “none” might be the best response.

And that brings us to the “right” bear children. Granted, this right exists much like the right to buy a dog, a cat, a horse, or any other living thing. But with that right comes the responsibility to provide proper care and funding. Animals that are not treated properly become wards of the local SPCA. Children are unique, though, and rightfully so. Our society claims nothing supersedes the mother and child connection. Hence, numerous social programs exist to ensure moms and kidlets stay together.

There are too many unfortunate parents who fall on unforeseen hard times and need society’s help to continue caring for children born during better times. Aid to Dependent Children, food stamps, and such are designed to provide this support. But when a child is introduced to the world in a family already disadvantaged, should similar programs reach out and offer assistance? Doesn’t parental responsibility begin at conception? If I’m unemployed and have no visible means of support, why the hell am I compounding my problems with a newborn? Conversely, if I’ve the means and desire to have an exceedingly large family, more power to me. It is none of society’s business because I’m not asking society to help me raise my brood. And herein lies the rub with Ms Suleman.

I risk public hanging in making the proposal of asking would-be parents to explore their abilities to raise a child before exercising their right to bear that child. Otherwise, should public funding be required, the public should have the ability to raise the baby through adoption, foster homes,or the like. There should be a limited time frame in which the parents are given an opportunity to get back on their feet, but if they are unable (or unwilling) to do so, their children are made available to those more prepared for the rigors of parenthood. And forget about fertility treatments for those receiving benefits of any kind...especially benefits for existing children.

Sunday, February 8, 2009

Stimulation...Simplified

The debate continues to rage over the need for an economic stimulus program and, if needed, how big it should be and, most importantly, will it work. The consensus, for the time being anyway, confirms the need, but the size and chances of success both depend on who is asked. Lest there be any doubt: I am not an economist and that may be a good thing because it’s hard as hell for me to follow any train of thought in which an economist is the engineer. I’m a pretty good observer, though, and have a way with analogies, so let me try one on you for size.

Let’s think of our economic conundrum as a water pump. No, not a newfangled, electric wizard; rather, the old-fashioned kind with a handle and a spigot. Below the pump lies an aquifer full of water and along side of the pump sits a jar of water with which to prime it. And today’s goal is to get some water flowing out of that pump. With me so far? Good...

OK, the aquifer represents the potential of our economy, but it must flow through the pump to be realized and greater flow equals a more robust economy. The jar with priming fluid represents the stimulus package Uncle Sam is currently considering. And the amount of water in the jar represents the size of the stimulus package. And we all know that if there isn’t enough water in the jar our attempts to prime the pump will fail and we’ll be forced to go in search of yet another jar of water before we can think about getting some meaningful flow. Conversely, if there’s too much water in the jar, it doesn’t really matter because once we’ve got water coming out of the pump we can fill up the jar again. So I’d say we’re safer with a bigger stimulus amount than a smaller one. And finally, we come to the invaluable handle for, without it, we have no means to pump the pump! The role of “economic handle” is played by the lenders, borrowers, consumers, and such that provide our economic muscle. And here, folks, is where the greatest unknown lies.

If we take our jar of water and prime the pump without anyone working the handle we’ve just poured a jarful of water down the proverbial hole in the ground and have nary a thing to show for it. The original TARP funds prove my point: they were distributed to banks who chose to use them to shore up their internal financial problems. Lending wasn’t any easier because money wasn’t any more available. No borrowing, no buying, no hiring. Down the drain, in other words. Now we need another jar of water. And even if the funds are made available we need an optimistic consumer with secure employment to venture back into the marketplace.

The key in getting our water (or economic) pump gushing H2O (or dollars) lies in the pump handle and the Federal government (or state or local) has no real control over those supposed to work that handle. Once the money is thrown into the private sector, it’s up to the private sector to do its part. Timing is just as important: you don’t pour the water into the pump and then take a break. No, you’d better, by god, be pumping the moment you pour or, once again, your effort is for naught. Similarly, the banks had better be ready to lend to folks ready to borrow.

I almost forgot...we need one more thing: patience. If you’ve ever worked a dry water pump you know what I’m talking about. That water doesn’t start spewing after a couple of pumps. Chances are good that your arms are going to get tired and you’re going to start cursing under your breath before you hear the long-awaited gurgling and splashing. Our economic pump is no different. Good times will not return overnight and, what with our 15 minute attention span, we need to extend our focus a little farther down the time line. Think positive and pump like hell, folks.

The bottom line in both enterprises is that we’ve no guarantee in slaking our thirst or reinvigorating our economy. We pour, pump, and (hopefully) at the end of the day we’re better off than the beginning. Both enterprises offer alternatives, too. We can choose to sit by the pump and hope that a passer-by offers us some water and we can, likewise, choose to let the financial system continue its downward spiral and hope that something productive rises out of the ashes. I’m for pumping rather than hoping, but can offer no concrete evidence that it is the better alternative. It seems to feel better doing something about something, though, doesn’t it?