Western Railroad Discussion > Are rail execs paid too much?

The Wall Street Journal has an article this morning about the trend among mining companies to change the way senior execs are paid. Their focus on the stock price, and payment basd largely on options, seems to encourage short term high risk taking actions.  And riding up booms they had nothing to do with creating, like China sucking all the copper etc in the world. Maybe there's a lesson for railroads in this. Most senior managers are paid a mix of cash, restricted stock (can't sell for several years), and options to buy stock in the future at a favorable price. Plus lots of special benefits. The criteria usually include performance of the stock, performance versus competitors, internal measurements like market share, operating ratio, and the like.

Proposals include holding back stock awards for five years or more, to assure the decisions weren't short term, and destructve to the company's long term interests.  (Like CN and CP ripping up second track in many places, only to encounter huge bottlenecks later)  Creating a basket of objectives, and making them count for a larger part of CEO etc comp is also being considered.  Make customer satisfaction a larger element in the rating scale, for example. Or development of new and efficient fuels and operations.

Then, there's the sticky question of how much is too much. Is $16 nillion a year too much for somebody who directs the fortunes of a hundred billion dollar company? (Or, throws a ball through a hoop a hundred days a year, for that matter). If you lost good, creative execs to a competitor paying more, this program would be suspect immediately.

Engaging on senitive issues, like the impact of sea level rise, or environmental degradation in mined areas, is another consideration for the miners.  How actively is the railroad seeking to capture over the road intermodal business with reliable and consistent service? How much should execs be penalized for acts of nature like Nebraska, Missouri, and Mississippi flooding which clobber grain planting, or tariff actions which limit grain shipments?

FWIW, one problem is the voting shares for most US companies are overwhelmingly in the hads of pension plans, college endowments, and other passive investors who largely don't care what results the firm created other than this quarter's share total returns. Employees as a group own next to no shares, and execs as a group rarely own 2% or more.  Although some firms do require senior management to own a multiple of their salary in shares. The CEO might be required to buy and hold 5x their annual pay in shares, VPs must hold 2x, etc.

Likely a paywall  https://www.wsj.com/articles/miners-want-to-take-the-boom-and-bust-out-of-ceo-pay-packages-11573131602?mod=lead_feature_below_a_pos1

Isn't this the major problem for US companies today?  Hedge funds and pension plans being the largest stockholders and executives on stock incentive plans?
As a "Mom and Pop" investor, I listened to my father when he said most of the executive pay plans favored insiders and have routinely voted against them.  
And it is obscene that people are paid thirty million plus a year to play a game, any game.  Short term profits do not seem to be the best solution to long term
business success.  JMHO.

Nick Tharalson,
Marion, IA

Why shouldn't entertainers, including athletes, be paid for what their efforts bring in to the studios, teams, etc. they are employed by?   Ever look at the valuations of pro sports teams,  or the income from hit movies?  Without the stars, those numbers are zilch.  In the case of corporations if a CEO increases the value he should be paid for said results;  but if he's like the hapless Jeff Immelt, to point to an example, who ran GE into the ground over 18 years,  he too should be paid according to his result,  assuming they didn't sack him in the meantime.  

Lackawanna484 Wrote:
-------------------------------------------------------
> Their focus on the stock price, and payment basd largely on
> options, seems to encourage short term high risk
> taking actions. 

Seems to?!

> Most senior managers are paid a mix of cash, restricted stock (can't
> sell for several years), and options to buy stock
> in the future at a favorable price. 

Last week I read an analysis of Texas Instruments with respect to their stock performance over the last several years and saw the parallels with railraods managing for stock price.  It was on Zero Hedge if you are interested.
Wasn't there a corporate tax law change in the Clinton years which made stock compensation more favorable to executives above a certain pay level than more money?

RRTom Wrote:
-------------------------------------------------------
> Lackawanna484 Wrote:
> --------------------------------------------------
> -----
> > Their focus on the stock price, and payment
> basd largely on
> > options, seems to encourage short term high
> risk
> > taking actions. 
>
> Seems to?!
>
> > Most senior managers are paid a mix of cash,
> restricted stock (can't
> > sell for several years), and options to buy
> stock
> > in the future at a favorable price. 
>
> Last week I read an analysis of Texas Instruments
> with respect to their stock performance over the
> last several years and saw the parallels
> with railraods managing for stock price.  It was
> on Zero Hedge if you are interested.
> Wasn't there a corporate tax law change in the
> Clinton years which made stock compensation more
> favorable to executives above a certain pay level
> than more money?

Without analyzing every public company and their alternatives, the Wall Street Journal likely felt more comfortable in saying "seems to" rather than making a definitive of it..

Most corporate tax law changes are written by lobbyists and advisers to the people who pay their bills. The R and D folks who pass the bills and sign them are just doing what they're told. By the people who buy and sell legislation.

It's no surprise that the recent corporate tax bill kept some huge tax breaks in place for hedge funds and private equity.  There's way too much money involved in carried interest for anyone R or D to change it and begin taxing those funds...

ntharalson Wrote: > ... And it is obscene that people are paid thirty million plus a year to play a game, any game ...

NO SIR, it is most definitely NOT obscene!!!!! Professional athletes are merely taking what was offered them in the first place. If you wanna make such a blindly stupid statement, then you need to go blame Daddy Big Bucks billionaire a$$hole George Steinbrenner. In the 1970s in his greed & misogynistic attempt to buy himself a World Series title he whipped out his big bully checkbook and changed the game of baseball, and in turn the professional sports world forever. He did the players a HUGE favor by being who he was. And I have a good hunch fellow sports franchise owners reviled him for years afterword. And let me say this: More power to the players! They made the fatcat owners untold wealth for a century prior to Steinbrenner's greed showing up. In the 100s of $$$ I've spent over the decades attending Major League Baseball games I NEVER SPENT A SINGLE DIME to go see a G**-damned owner...
 



Edited 3 time(s). Last edit at 11/10/19 16:10 by santafe199.

If a corporation decided Hunter Harrison was worth a zillion dollars, how is that different than a basketball team deciding that LeBron James is worth a zillion dollars?

Posted from Android

Supply and demand.

Performance of an athlete is far more tangible and obvious than a coporate 'performer'. Corporate 'performers'/executives can get where they are and improve their position with politicing, skulduggery and all manner of hidden schenanigans...

santafe199 Wrote:
-------------------------------------------------------
> ntharalson Wrote: > ... And it is obscene that
> people are paid thirty million plus a year to
> play a game, any game ...
>
> NO SIR, it is most definitely NOT obscene!!!!!
> Professional athletes are merely taking what was
> offered them in the first place. If you wanna make
> such a blindly stupid statement, then you need
> to go blame Daddy Big Bucks billionaire a$$hole
> Georger Steinbrenner. In the 1970s in his greed &
> misogynistic attempt to buy himself a World
> Series title he whipped out his big bully
> checkbook and changed the game of baseball, and
> in turn the prefessional sports world forever. He
> did the players a HUGE favor by being who he was.
> And I have a good hunch fellow sports
> franchise owners reviled him for years
> afterword. And let me say this: More power to the
> players! They made the fatcat owners untold
> wealth for a century prior to Steinbrenner's greed
> showing up. In the 100s of $$$ I've spent over the
> decades attending Major League Baseball games I
> NEVER SPENT A SINGLE DIME to go see a G**-damned
> owner...

Post of the year.  Thank you.

In  case of  railroad corporations or other types, I would porpose the cheif exec. receives pay no more than  equal to 75 times the lowest paid employee.  Example, employee makes $40,000 a year, CEO gets $3,000,000.maximum. including bonuses, stock options, whatever..  If he is worth more money then so are the employees who do the work. You can jigger the figures however you want but the employees should share in the success of the corporation.

tomstp Wrote:
-------------------------------------------------------
> In  case of  railroad corporations or other
> types, I would porpose the cheif exec. receives
> pay no more than  equal to 75 times the lowest
> paid employee.  Example, employee makes $40,000 a
> year, CEO gets $3,000,000.maximum. including
> bonuses, stock options, whatever..  If he is
> worth more money then so are the employees who do
> the work. You can jigger the figures however you
> want but the employees should share in the success
> of the corporation.

No. I agree that executive compensation is often out of balance, but to arbitrarily set a ratio goes against my free market tendencies. I firmly believe the compensation problem stems from boards of directors that are unresponsive to shareholders. Look at a company's board. How many are CEO or at least upper level management at their company, or are capital investment related nabobs? They know that if they want their piece of the pie to grow that they damn well will make sure the CEO of the company they direct is gonna be compensated big time.

Another thing is the non stop escalation of ANY compensation plan, be it executive pay, municipal contract or whatever, that put forth the usual bs about how the pay will be the average of "comparable" company, police force, park attendant or whatever. Well, guess what? Every contract will always go up. The comparison groups do the same thang and the average always increases. 

You know the only worker I know that gets paid fairly is someone self-employed. You get paid based on your knowledge, your effort, and your hustle at adding to the enterprise. Want to make more? It's all up to you. 

I think there is a lack of awareness when it comes to CEOs in any industry.  How many CEOs are there? One for every company, which is a relative few given the population, especially if we are talking about major corporations.  In order to get to that position, the person has to put in ungodly hours, sacrifice all sorts of things for the sake of the company, and weather a number of high-level storms all while making hugely consequential decisions.  It is a hard job, a high-risk job, and it takes a special type of person to do it.  They didn't just graduate from college and become CEO, they worked far harder than a lot of people realize, and for that reason, I think they earn their salaries.  I bristle at the notion there should be some sort of arbitrary cap on what CEOs or anyone can earn.  The free market is the most appropriate arbiter of such things.  

exhaustED Wrote:
-------------------------------------------------------
> Performance of an athlete is far more tangible and
> obvious than a coporate 'performer'. Corporate
> 'performers'/executives can get where they are and
> improve their position with politicing,
> skulduggery and all manner of hidden
> schenanigans...

And CEOs of struggling corporations often wind up leaving with huge golden parachutes in spite of their failures...

ALL executives of ALL companies are overpaid!

Buff said!

Mike

Many points of view, that's for sure.

Posted from Android

tomstp Wrote:
-------------------------------------------------------
> In  case of  railroad corporations or other
> types, I would porpose the cheif exec. receives
> pay no more than  equal to 75 times the lowest
> paid employee.  Example, employee makes $40,000 a
> year, CEO gets $3,000,000.maximum. including
> bonuses, stock options, whatever..  If he is
> worth more money then so are the employees who do
> the work. You can jigger the figures however you
> want but the employees should share in the success
> of the corporation.



How about a council of workers decide management salaries?  Maybe include a advisory group of the wisest railfans?
 

I'm a free market capitalist, and I believe people are worth what someone is willing to pay them.  My concern is when results are not on par with compensation, and I lay that blame directly at the feet of the board members. Pardon me for asserting that many corporations could get equal or better results with a CEO making far less than they are paying, but there seems to be little incentive to keep CEO pay in line with actual demand or performance the way there is in most jobs.   I will also contend that stock price is a piss poor metric of actual job performance, because it is based more on speculation and manipulation than actual results.  Tesla stock is $335 a share, and that company has never made a dime.  

junctiontower Wrote:
-------------------------------------------------------
> I'm a free market capitalist, and I believe people
> are worth what someone is willing to pay them. 
> My concern is when results are not on par with
> compensation, and I lay that blame directly at the
> feet of the board members. Pardon me for asserting
> that many corporations could get equal or better
> results with a CEO making far less than they are
> paying, but there seems to be little incentive to
> keep CEO pay in line with actual demand or
> performance the way there is in most jobs.   I
> will also contend that stock price is a piss poor
> metric of actual job performance, because it is
> based more on speculation and manipulation than
> actual results.  Tesla stock is $335 a share, and
> that company has never made a dime.  

Many CEOs sit on the boards of people who sit on their boards. And often sit on the compensation committees. And they pick people "just like themselves" to sit on their own boards.

Most proxy and 10-K forms have boilerplate language that they seek the best and brightest CEO and senior staff team. And, they pay these geniuses at a rate greater than the average of their peer group. And they name the peer group of companies.

The problem with this is obvious.  The peer companies list THEIR peer companies, which includes the original firm. So, the average spirals upward for everyone, as each company pays above the average.

Fortune Magazine does a list each year of the most over paid CEOs, based on the prior year's data. Those whose pay and share total return over five years is most out of alignment. People make a decent amount of money shorting some of those firms over time. Hunter Harrison made the 2019 list. Considering the price of the shares doubled, that's a huge amount of money.

https://fortune.com/2019/02/25/most-overpaid-ceos/

junctiontower Wrote:
-------------------------------------------------------
> I'm a free market capitalist, and I believe people
> are worth what someone is willing to pay them. 
> My concern is when results are not on par with
> compensation, and I lay that blame directly at the
> feet of the board members. Pardon me for asserting
> that many corporations could get equal or better
> results with a CEO making far less than they are
> paying, but there seems to be little incentive to
> keep CEO pay in line with actual demand or
> performance the way there is in most jobs.   I
> will also contend that stock price is a piss poor
> metric of actual job performance, because it is
> based more on speculation and manipulation than
> actual results.  Tesla stock is $335 a share, and
> that company has never made a dime.  

Stock prices to a degree represent rich guys playing poker