The Annual Corporate Rip-off

                                                             Photo by WLK Photography

It is only a few days into 2011 and at Incoming  BYTES   we have already seen a news story  that must  generate complete distrust of the corporate world.  To wit:   CEO bonuses, the annual corporate rip-off.   As investors and corporate customers, shall we say allow this travesty to continue?  I suggest not.

 According to the latest published  figures, Canadian Chief executive officers received  approximately 155 times the average  $44,000 salary of Canadians. Notice that the term “earned” was not applied.    Hard-working Canadians and Americans fully recognize the difference between “earning” something and just  “getting it” by any means available to them.
 North America is home to some very happy CEO’s.  They “get it” without “earning it”.  There is little reason to believe the practice is any different in the United States of America.

 How do CEO’s  manage to repeat this stunt successfully every year?  Simple.  Perhaps an individual CEO  sits  as Chief Executive Officer  for two or more  large corporations.  Their happy,  cooperative  board members in turn sit on his board.  They routinely and reciprocally   approve mutually beneficial  stock options and other perks. Annually, they  hand  the executive officers  huge cash bonuses that in some cases, add up to many millions of dollars.
 Are there blatant cases of   “You vote for  my multi-million dollar bonus again this year,  and I’ll show up and  help you get yours” ?  The reader is encouraged to think carefully about the intent and convenience of such arrangements.

As what  should such manipulative actions be classified?   What can this process  be except orchestrated, unethical  corporate theft?  Chief executive officers clearly  siphon  the profitability from corporations and millions of  dollars in bonuses. Some individuals bank  as much as 10  million dollars or more  in cash bonuses each year.
How is it possible  this process is considered  legal or justifiable?  How does it go unnoticed?  Is there no governance in force to prevent blatant corporate theft?  Is government willfully blind? Where are the lines of ethical corporate executive  behavior crossed?   It is suggested they have been substantially crossed, and increasingly so, with disdain. 

The economic effects of such bonuses are obvious. Product prices clearly  must be increased to  pay for them. Stock values are lessened.  The public has come to distrust corporate ethics.
Entry-level working people in the same  corporations often get paid minimum wage.  Jobs are being shipped overseas to countries that pay workers  pennies per hour to produce shoddy goods. Cutbacks, downsizing, and lay-offs are common, --yet bonuses are still  paid to executives and CEO’s, in spite losses, bankruptcy, or even financial meltdowns  complete with  taxpayer bailout.  
 
It should not go unmentioned  that patient investors and shareholders holding shares of the same  corporations may get paid NO  annual dividends. For their investment and loyalty,  investors receive little or no increase in stock value, in fact they often end up with   lower share prices, and receive  no interest on their investment dollar.  To make that bad investment  even less attractive, shares are subject to  “ stock consolidations” at corporate whim,  which reduces the number of shares held by an individual  instantaneously.   To make that fact even worse, ultimately, after a “corporate-deemed-appropriate and manipulated interval”,  usually a few weeks  --the ‘consolidated’  price of those remaining consolidated shares held  invariably begins to deteriorate, at times very rapidly.   Where does such corporate value so quickly evaporate to?      It does not take much imagination after reading about annual CEO bonuses.  

                                                            Photo by WLK Photography

What are investors left with?  Chump change.
Think about it.  “ Let us naive, average, and small  investors claim total idiocy while we   happily rush to pay rich  executives millions of dollars in bonuses so our stock certificates can be worth less.”   How predictable. 
    
 If   corporations are raped by greedy CEO’s , and governments blindly refuse to outlaw such practices, by what stretch of the imagination should ordinary investors place their trust and  hard-earned money in jeopardy,  knowing there can be total loss of capital, or at best little or no return to be had --while executives reward themselves with millions of dollars annually?   

How about “managed funds”?    Shall we “leave investment to the professionals”  and buy managed funds as an investment? 
“Managed funds” promise great returns  but too often  report minimal and even  negative results each quarter.   In spite of that aberration,  the same funds manage to pay millions in “management fees” and year-end bonuses  to incompetent,  less than honest fund managers and executives.  Why is this practice allowed?

 What does this mean to the average investor, Canadian or American?
 Given the existing economic  environment, the average investor  must  logically  ask:  Why bother to invest ?  

What about the implied moral contract  to conduct corporate business and internal corporate affairs with ethics,  integrity and honesty?
Unethical  mismanagement, obscene CEO bonuses,  lack of corporate honesty, the absence of  governance, justice and  remediation –are all adding up to one very big  reason not to invest.
 The smell.  Something is rotten  in Corporate North America.