|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.