Abbie Hoffman, Noam Chomsky and other fringe critics of American capitalism must feel pretty smug right now.
Nearly 100 companies have undertaken programs that allow employees, many of them executives, to exchange sharply depreciated stock options for new awards with more generous terms.
The companies, from Google to Silver Spring-based United Therapeutics, argue that the exchange — which increases the chances that executives will be able to collect rewards even though the company stock has plummeted — is necessary to retain and motivate personnel.
Critics say the practice undermines the purpose of performance-based bonuses and puts the company’s executives and workers on a different plane from ordinary shareholders who have no choice but to hold on to battered stocks or sell them at a loss.
This time around “Black Tuesday” marks the moment when the traditional arguments for modern American business linked arms and jumped out a window. It has become hard not to conclude that the concept of ‘risk’, at least as it pertains to executives, is a lie. Remember how salary bonuses rewarded performance? In practice execs saw the same bonuses whether the firm was booming or spinning its wheels.
Now we know a firm can collapse into a smoking hole and bonus checks will still find their way to the executives responsible. That makes salary bonuses into something more like an attendance award, except compared with ordinary workers who get docked for each half-day they miss for an unscheduled cancer treatment it’s not even that. The general contours of the current crisis make the same point – lose some money and you’re screwed, but if enough firms lose enough money everyone gets to start over with public money.
The new argument that we have to treat wealthy earners even more lavishly or else the CEO might downsize himself may be true, but it sort of invalidates the original argument that bonuses represent some sort of risk. That leads more or less directly to the conclusion that Phil Grammish defenders of modern American capitalism were either lying or stupid (as always, both is an option). That does not make capitalism’s various malcontents automatically correct, but it does suggest that if you want observers who are consistently plugged into reality your search should start there.
mama whiskers
Not exactly. Repubes are still desperately hanging onto that window sill with their fingernails screaming "TAX CUUUUUTS"!!
Napoleon
I nearly fell of the exercise bike when I read this story this morning. My favorite line was this one:
Playing the John Galt card. It is a complete crock of s–t. Those executives have no where to go. Its just a BS arguemet you see repeatedly as a justification to loot a company.
Atanarjuat
I understand the point being made here, but consider the larger concern: if the liberal wet dream finally comes true and all the rich people in America are bled dry or forced to depart to tax-friendlier shores, who will be left finance these massive, welfare-expanding Porkulus Projects that the left favor so much?
You can only tax the non-rich rabble so much before they protest and openly revolt, so what’s left?
Please think this through. This country needs the rich to maintain stability and order far more than your hardcore leftist ideology would care to acknowledge.
-A
aimai
Maybe its time to bring back full liability instead of limited liability? As you say, it seems wrong that the very people who drove a company and its stocks into the ground should continue to be employed at a high salary while the tax payers and the shareholders take the bath. But by the same token it seems wrong that such people should be allowed simply to resign, or be fired, without a clawback provision on their salary and options or without a criminal provision. I mean, if I hire a guy to come fix my furnace and he rips out all the copper in the house, sells it off, and sets fire to my house by definition he’s not operating within the scope of the original job for which I hired him and I have a variety of laws I can sue him under to try to make myself whole. The limited liability of the corporation is protecting its employees from a whole lot more than the ordinary risks of the venture at this point. Just my modest suggestion which I know will have as much luck of being adopted as the eating of irish babies.
aimai
Josh Hueco
@Atanarjuat:
To which I say, GO! LEAVE! America is a big country with millions of ambitious, intelligent sociopaths who would be more than happy to take the places of so many departed rich pricks.
Dennis-SGMM
But, but, but, I thought Capitalism was a meritocracy where those who were the most able and successful earned the most rewards and anyone who wasn’t making a ton of money was just stupid and lazy.
Ash Can
This bonus bullshit slays me. Bonuses need to be paid to persuade "talent" to stay with the firm? Why in the world would a supposedly talented person want to stay with a firm whose idiot management ran the company into the ground? Anyone with that level of smarts would see the downside of working for a bunch of morons and find a job at an outfit with decent management. And if, in this case, there’s really nowhere to go because all of the financial firms are paying the price for their own idiocy? Then it makes no difference if this "talent" leaves or not; like Napoleon says above, there’s nowhere for them to go.
Dennis-SGMM
If killing the goose that laid golden eggs isn’t worth a bonus then I don’t know what is.
Michael
They talk a good game on going John Galt over compensation, but they’re too gutless to do it for real.
After all, among that crowd, pretense and posturing is everything. They’re a bunch of goddamned physical and emotional cowards, though, without the rectitude to follow through.
Deep down, they do realize that there is nothing special about them or their training that can’t be replaced by thousands of people.
What they have over most people is membership in the "Lucky Sperm" club, in that they’re born to great wealth, or at least enough to get them educated in places where they get hooked up with the scions of wealth. Oh sure, the Ivys will admit the poor, provided that they’re a couple of standard deviations in front of everybody else in terms of talent, however, the Ivys are overloaded with average achievers who are there only because of legacy wealth.
Michael
Somalia beckons them. I’m sure it offers a fine lifestyle, and they can trust in the stability of the infrastructure and their personal safety from violence in perpetuity.
Or maybe Dubai or the UAE would be more to their liking?
Dennis-SGMM
They’ll always have Argentina.
bob h
Since the shareholders are not going to do anything about this, the only course of action is to put confiscatory taxes on excessive compensation. Your self-awarded compensation rises above 40x the average employee salary, or whatever, ZAP!
opit
Who said Dilbert was fiction ?
smartalek
"if the liberal wet dream finally comes true and all the rich people in America are bled dry or forced to depart to tax-friendlier shores"
What "shores" would those be, hm?
The US has the lowest tax rates of any country such people would deem "civilized" — except Japan, where they’d be the Other, as the Japanese tend to look down on the gaijin.
http://www.nationmaster.com/graph/tax_tot_tax_as_of_gdp-taxation-total-as-of-gdp
demimondian
[Ob disc: my employer is one of those which has offered an options exchange.]
Although options repricing sounds like an always-bad thing, it’s not as clear as it seems. Google’s not doing badly, you know, but its share price is down from a peak of roughly 700 to barely 300. Unfortunately for the company, its employees *do* have other places to go, and can expect pay raises if they leave. Google *does* have to compete for them. United Technologies’ stock has fallen from above 80 to barely 35 over the last year — but it’s not like a P/E of 7 and an annual dividend of $0.38 (1% of the stock price) is a bad ROI. Yes, the oil equipment market is bad — but UT makes a bunch of other stuff, too.
Many of the hundred companies who’ve repriced options legally (unlike, say, Apple) have done so because they really are in competitive environments for large chunks of their employees. The fact that employees for which there’s no competition also benefited is perhaps a bad thing — but those employees should be individually removed.
flounder
If the "productive" members of our society keep up with this system-gaming crap, eventually some real Communists (not the Communists that they invent out of mainline, vanilla Democrats) are going to turn up and start forcing them up against the wall.
I lost so much money in the last week I don’t even want to talk about it, and these creeps just get to say do-over? Lame.
Oliver's Neck
@Atanarjuat:
Your premise is flawed. The rich take wealth from the rest of us, they don’t create it. While, within financial (versus productive) capitalism, they may play games of selling worthless abstractions back and forth to one another and increasing the "value" they attach to those abstractions, that’s not the same thing as creating wealth.
So, to answer your question (not that you’re an honest interlocutor who wants one), we will fund these things in the same way that everything else is actually funded – via the labor of those who actually do the work.
Moreover, history indicates that the wealthy are in far more danger of the rest of us rebelling – and it’s never pretty (for the rich) when that happens.
Atanarjuat
@Oliver’s Neck:
Oliver, the labor of those who do the actual work that increases the wealth and stability of this nation are the rich. They’re the ones who have the capital to invest and to be able to fund the projects that help society move forward.
What is being proposed here is that Golden Goose should be violated, plucked, boiled, beheaded, then split wide open to get at that nice golden egg inside. That’s rather short-sighted, in my opinion, since it’s a one-shot deal. Instead, we should all be thinking long-term prosperity and growth here, and the moneyed class are a vital component in this regard.
-A
kommrade reproductive vigor
Fxd.
Oliver's Neck
@Atanarjuat:
Again, if you were a serious interlocutor I would explain to you that the notion that one is wealthy because they’ve done something productive is deeply, empirically flawed. But, based upon the things you say here at BJ, either you’re an idiot, a child, or you’re aware of that fact and are arguing in bad faith.
Your argument might have validity if you were talking exclusively about people like, say, Dean Kamen or Steve Wozniak. However, you’re mostly talking about people who either inherited their wealth and/or are like Jack Welch – aristocrats who are leeches upon the productive body of labor.
Whatever though, you’re on the wrong side of history – and you’re boring. Have a fun saturday.
b-psycho
In practice, the term "free-market capitalism" has been a contradiction forever. That capital gets all the breaks & loopholes (and even when they STILL fail that just means they get tax dollars on top of this) is no surprise.
Look at the words. We understand So-cial-ism as government ownership of the means of production ostensibly for the benefit of the larger society, and Com-munism as a total centralized command and control economy. Why does capitalism still get read as "free market", instead of as a system deliberately designed to value & protect concentrations of capital?
Tom Fitz
More than 30 years ago John Kenneth Galbraith demonstrated how corporate management insolates itself from market forces in The New Industrial State. When I was in high school somebody told me to read Atlas Shrugged, said it was the greatest book ever written. Even 45 years ago I could see the John Galt bullsh*t wasn’t remotely credible.
Atanarjuat
@Oliver’s Neck:
Okay, Ollie, I made the error of taking you seriously and responded in kind. Apparently, you didn’t really have any counterpoint based on substance to refute my prior view, so you resort to name-calling and condescension.
That’s OK. It just confirms that my point vis-a-vis the value of the rich in America contains are a lot more truth than my liberal opponents are willing to concede.
Whatever, it’s nothing worth getting upset over. Better luck to you this Saturday with trying deceiving others, because you failed with me.
-A
KRK
@aimai:
I sympathize with the impulse, but limited liability doesn’t protect a corporation’s employees from anything; it protects the owners from personal liability for the corporation’s debts. Even at full liability, a corporation’s employees would never be at risk for corporate debts except to the extent that they are also shareholders.
Michael
@oliver’s neck
The current corporatists argue that controllers of capital (both inherited and contributed by others) are entitled to the lion’s share of profits just by virtue of their investment. Randroids to the core, they discount the function of work or the contribution of the entirety of the employee/professional base behind the enterprise.
In their false worldview, the individual who contributes capital is indispensable, while everybody else in the organization is easily replaced. To them, it is inconceivable that a particular block of capital may be decoupled from the genius of the person providing it, thus the reward is outsized.
When I was young, long term investing strategies talked about 5-8% gains on average being good if you weren’t materially participating in the business. Nowadays, that wouldn’t satisfy any of the Randroids currently infesting Corporate America – they’d be offended about such parsimonious returns, and would come up with risky financial devices to ratchet that number.
gwangung
See Hollywood producers, who see writers, actors and directors as interchangeable parts, where each artists’ contribution is pretty much the same as another’s.
It’s a sentiment that’s widespread in this country (see sentiments that backed the producers over the writers in the recent writers’ strike). It’s fundamentally wrong-headed and stupid; by that logic, you could replace a Manny Rameriz with a Willie Bloomquist with no problem at all.
Oliver's Neck
@Michael:
True enough. Though I seriously doubt that our trolly-pal has even that level of rationalization going on.
The notion that privately held capital is the only source of prosperity is akin to the notion that all prosperity derives from the King. Some people, like Atanarjuat, are more comfortable bowing and scraping. Like democracy (at least in concept) has largely replaced the "divine right", economic democracy will slowly but surely replace capitalism – and even our trolly-pal will be happier and better off for it.
Dennis-SGMM
We are so fucked if Paris Hilton goes Galt.
El Cid
What’s funny is that if you take the attitude among Randroid capitalists seriously, then you conclude that the ONLY thing of value about wealthy investors is merely their wealth, and as individuals they contribute nothing.
Thus you have completely undercut any argument that there is something special of talent or rarity about these individuals, and since there’s nothing of societal value about them other than their wealth, you’ve just justified taxing the sh*t out of them in order to make some productive gains out of them.
Oliver's Neck
@El Cid:
Not to be fanboi-ish, but I enjoy your commentary wherever on the ‘tubes I find it. Thanks.
b-psycho
Ayn Rand contradicted her entire philosophy merely by sharing it. If selfishness is such a virtue, then you violate Objectivism by attempting to spread it, since the reason to do so would be that you believe it to be useful to others.
This would be one example of why even before I shifted from die-hard Catoite to left-anarchist I thought Rand was fucking ridiculous. Was funny dealing with people at the time who couldn’t believe a libertarian rejected Objectivism.
Michael
I don’t see what we’ve got right now as anything close to capitalism. As ineffectively reactive and backward-looking as it is, genuine capitalism offers some accountability by having zero protection from both economic collapse and personal legal liability by the participants.
What we’ve allowed to develop is neither – it is corporatist, where the primary beneficiaries are not the shareholders, but instead those in leadership. Think about it – everybody up and down the line is insulated from the consequences of their mistakes and misconduct. Shareholders are protected from legal consequences so they’re not careful about selecting directors. Thirty years of conservative*spit* jurisprudence has immunized directors and officers from liability to shareholders, and pretty much nobody is personally responsible for the things the entity does to customers and others.
And to top it off, they get perpetual duration, favorable tax rules and are allowed to get so large that the government has to bail them out if they get in any real trouble.
Michael
In my mind, she’s such a Dagny.
I can see her begging John.
Mike G
Executives who are always calling for ‘discipline’ and ‘competitiveness’ that always seems to result in more work for less compensation, always magically find an excuse to exclude themselves from the ‘market forces’ they preach about. It always turns into a heads-I-win-tails-you-lose situation.
Meritocracy my ass. The large majority of executives in corporate America are George W. Bush-types — not smarter or more talented, just better-connected ass-kissing bullies unconstrained by the sense of ethics or conscience that stops most of us from ruthlessly screwing people over. If they want to ‘go Galt’, good riddance and no loss to the rest of us.
Oliver's Neck
@Michael:
But what you’re describing is the necessary outcome of capitalism. Capitalism concentrates wealth, which concentrates power. Once that wealth/power are concentrated, those who have it are disinclined from allowing the systems of accountability you mention.
So, when I use the term "economic democracy" I’m meaning to point to a post-capitalist economic system which contains the accountability you (rightly, in my opinion) see as necessary. That accountability arises from devolving power as broadly as possible and creating systems of incentive for creativity, hard work, entrepreneurship, and innovation which are not predicated on the concentration of power. You can call that "accountable capitalism" if you like, I call it economic democracy.
Comrade Kevin
@Atanarjuat:
Country First and all that, eh?
NonyNony
@El Cid:
I find your views intriguing, and I would like to subscribe to your newsletter/blog/mailed rantings written in crayon.
Which is to say – bravo. I’m totally stealing this, using it with my friends, and pretending that I thought of such a succinct analysis myself.
J Bean
@Atanarjuat:
Oh for pete, fucking sakes. The administration is proposing a 3% increase on the top marginal rate. "Bled dry"? Some investment banker moron in the LA Times today referred to the same increase as "a full scale assault on capitalism". Is it necessary to be such a bunch of whiners? Three stinking percent doesn’t even rise to the level of a kick to capitalism’s shins.
I make a bunch of money. Not, admittedly, enough to be affected by the greater than $250K increase, but still, it wouldn’t hurt me to pay a little bit more in taxes. There must be some Republicans who aren’t idiots, but I couldn’t name one.
Quaker in a Basement
Chomsky maybe. Hoffman, though, isn’t feel smug or much of anything else these days.
TheWesson
> if the liberal wet dream finally comes true and all the rich people in America are bled dry or forced to depart to tax-friendlier shores, who will be left finance these massive, welfare-expanding Porkulus Projects that the left favor so much?
The wealth of the country is in its resources – natural resources, labor, inventions, ideas …
Money is just resource coupons.
Devoting your life to accumulating more of those coupons is, regrettably, not the same as ensuring that more resources come to exist and are used better.
guest
@Comrade Kevin:
they want to leave? fine. but don’t expect to have access to our market.
the authors of unjust desserts appeared on cspan and they pointed out that the biggest economic boom this country has seen was during the post war years. the marginal tax rate under eisenhower was 91%. now, according to rightwing dogma, that’s an impossibility, to have growth and a tax rate that high. so cry me a river bitching about something in the 30s.
(sorry kevin, didn’t mean to reply to you, meant the other guy)