News: Dunning on the Debates, Bailout Analysis and Opinion

Reader Elmer sends today's Corning Leader opinion page [pdf] (and jump [pdf]), where Joe Dunning analyzes Kuhl's reluctance to debate in a public forum. He concludes that Kuhl's "accessibility has diminished" over the past two years. The whole column is worth a read.

The Messenger-Post has a long piece on the bailout. It sees local concern about Wall Street, especially among those with 401(k)s, but sees no concern in the real-estate market. It quotes Kuhl's opposition to the Paulson plan.

The Democrat and Chronicle's editorial on the bailout castigates the local Republican delegation as follows:

Moreover, most of the House Republican minority, which includes area Reps. Randy Kuhl, Tom Reynolds and Jim Walsh, say they are being led by a desire to stop a $700 billion bailout. But what they are really doing is representing the views of the same Wall Street fast-money types who created this crisis. They want government support without any strings — no restrictions on CEO pay, no taxpayer stake, no congressional oversight.

In Kuhl's case, that's just factually wrong. Kuhl has said the opposite, " I will OPPOSE the Bush Administration’s proposal if it does not include provisions to protect the taxpayer." A simple fact-check on Kuhl's latest press release takes a couple of seconds. There's no excuse for that kind of sloppiness.


I do not like the idea of any cap being put on anyone's salary or bonuses. What is needed are active shareholders and board members who are not afraid to toss CEOs under the bus if need be.

I agree that it's the board's responsibility.

Unfortunately, these CEOs have negotiated contracts that guarantee multi-million dollar payouts even if they are fired. Even if the board tosses them out, they feel no pain.

So I don't see why the taxpayers should be on the hook for those payouts.

Perhaps there should be a limit on what a CEO can make after his or her employment is terminated. I could live with that.

Yes. I think there are two cases here.

The first is the group of companies that are getting a bailout. Since the taxpayers are effectively becoming stockholders (we're apparently getting warrants for non-voting shares), I think we should be able to have a say on executive comp at those companies. I don't think it's the most important issue in the bailout, by far, but it's politically necessary. And, it's pretty common that special equity deals like this come with lots of strings attached.

The second case is other, healthy companies in the US. For those companies, I think some kind of reform is needed.

In the past few years, C-level players along with executive comp consultants have worked to build up really unhealthy executive comp plans. The plans give incredible downside protection. For example, Washington Mutual's CEO was on the job for 17 days and will get $20 million in comp., most of which is a severance package. When someone's getting more than a million dollars a day, things are badly broken. (,2933,428641,00.html)

One possible reform would mandate that big comp plans go up for a separate, fully transparent shareholder vote separate from other votes. If shareholders are OK with a gigantic comp plan, that's fine. What's happening today is that boards are getting rolled by executive comp consultants and the shareholders aren't given a voice on compensation.

How far off base am I on this:

My perception is that board members are essentially political appointees. Top management often influences the composition of the board. It controls communications and information, and of course, the day to day operation of the company. Stockholders are numerous, diverse and ephemeral, so they have little influence over management. It seems to me that this imbalance of power in the corporation is at the heart of the problem.

I think that's how it was in the pre-Enron, pre-Sarbanes/Oxley days. A board membership was a well-paid milk run.

Now, though Sarbanes/Oxley did not directly address compensation, board oversight in general is beginning to be taken more seriously. The better boards are already creating smarter comp plans. Here's an example from American Express:

Ken Chennault might become fabulously wealthy from this comp plan, but if he does, so will the stockholders of Amex.

I'm not as perturbed by the absolute wealth of a CEO as I am by CEOs becoming wealthy no matter how their company performs. I think it's rational for stockholders to approve comp plans with significant upsides. A comp plan that still makes the CEO rich even when the company goes bankrupt (like the WAMU plan), is a regulatory issue.

Thanks for the explanation and the link. Let's hope that the current crisis will encourage more of the kind of responsible behavior that AmX is trying.