Sunday, March 22, 2009

Populist Charge = Rational Opposition to Continued Greed

When part of a system is optimized, it suboptimizes the whole. When executives optimize their pay, customers and employees are suboptimized. Citizens could've paid attention over the last decade. Did they note?

1. 30% of executives backdated stock option compensation over a 10 year period. The practice is unethical and in most cases illegal. Stock option awards were touted as the most pure form of incentive pay.

2. CEO's received huge bonuses for contracting out production to Asia, costing America over 2 million jobs.

3. The differential between executives and employees grew to 400 times. CEO's make 400 times the average worker.

4. American contractors and Chinese producers don't understand quality. Profit maximizing substitutions killed and sickened living beings, ranging from pets to infants to sick adults needing medication.

5. Many American branded companies get the federal government to do their research. Dr. Chu proposed federal national labs take up where Bell Labs ended. The Department of Energy does drilling research for oil companies.

6. The preferred tax status of carried interest, profits from investments made by private equity underwriters. Congress reigned in unfair AIG compensation, but leaves the PEU boys gravy train alone.

7. The Treasury and the Fed have $13 trillion in interventions to save the financial system. That's the same amount Americans lost in investment holdings. Only most aren't feeling the impact of Uncle Sam's largess.

For years Americans watched these trends. They watched coworkers disappear one by one in a series of buyouts. They noted their pay not keeping up, while executives pocketed millions.

Greed and leverage imploded Wall Street and the fallout took down the global economy. If leverage can reset from 30 or 40 times, executive pay can recalibrate as well.

Concern over executive pay is not angry, populist action. It's a rational response from people who care about their country, their workplaces and want them on a more sustainable track. For real change theory is needed, specifically profound knowledge. It's sorely lacking in corporate board rooms and our hallowed halls of government.

The current plan to restart greed, leverage and reprime the pump of executive incentive compensation is hair of the dog medicine. How bad will the headache be from America's next Obama induced bender?

While President Obama won't respond to anger, he does apply bad management theory. His repetition is taking on fractal like qualities. Can you wait for greedy private companies in public-private partnerships? How about spreading the poison of pay for performance to education and health care? America needs leadership and finds a Skinnerian in the White House. Keep hitting the bar people. Will the legions of mice get pellets or a shock? A perceived lack of reward can come off as punishment. It stifles intrinsic motivation, the natural joy found in learning and doing a good job.

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