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Old 11-30-2012, 08:00 AM  
Direckshun Direckshun is offline
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Why are corporations doing so well as the economy struggles?

This is something I'd like to see your explanations on.

Corporations are recording record profits in 2012. Not good profits, record profits.

And yet our economy struggles at a little under 3% growth and a high unemployment rate.

Why, in your opinion, is the economy so bad yet businesses are doing so great?

http://economix.blogs.nytimes.com/20...orate-profits/

Record Corporate Profits
United States corporate profits reached a record high in the third quarter of this year, even adjusted for inflation, according to a report from the Bureau of Economic Analysis.
By CATHERINE RAMPELL
November 29, 2012, 3:00 pm



The increase from the second quarter was entirely a result of stronger business at home. Profits received from American-owned businesses abroad fell slightly in the third quarter, which may not be surprising given the recession in Europe and the slowdown in China.

Additionally, all of the growth in domestic corporate profits was accounted for by the financial sector.

Domestic profits of financial corporations rose $71.3 billion in the third quarter, after falling $39.7 billion in the second. Domestic profits of nonfinancial corporations, on the other hand, decreased $1 billion in the third quarter, after rising $27.8 billion in the second quarter.

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Old 12-05-2012, 03:38 PM   #151
chiefzilla1501 chiefzilla1501 is online now
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Thats true up to a point. As you state it it is 100% correct. But if that option represents a substantial part of your compensation and it drops to the negative side, then in essence what you hoped, or had valued it in your planning, then you just took a hell of a hit in income.

Its a matter of perspective at that point.
So then you would agree that an executive may be motivated to boost short term initiatives that drive up the stock price in order to exercise options instead of long term initiatives to boost long term value? You have three years vested which isn't bad (I've heard people say 4 is optimal) but in situations where you have less, that just encourages CEOs to inflate value, cash out, then claim that problems in the future are somebody else's problem.

Not to mention the way issuing options dilutes shareholder value by giving them significantly less ownership stake in a company.

I am a firm believer that executives will take what they're given. Again, this is less of an indictment on executives as it is the compensation structure that encourages bad behavior.
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Old 12-05-2012, 03:48 PM   #152
HonestChieffan HonestChieffan is offline
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Originally Posted by chiefzilla1501 View Post
So then you would agree that an executive may be motivated to boost short term initiatives that drive up the stock price in order to exercise options instead of long term initiatives to boost long term value? You have three years vested which isn't bad (I've heard people say 4 is optimal) but in situations where you have less, that just encourages CEOs to inflate value, cash out, then claim that problems in the future are somebody else's problem.

Not to mention the way issuing options dilutes shareholder value by giving them significantly less ownership stake in a company.

I am a firm believer that executives will take what they're given. Again, this is less of an indictment on executives as it is the compensation structure that encourages bad behavior.

The longer required time the better for an option, yes. But I may be wrong but I believe IRS rules define the terms of any option nowadays. Its been a while since I was involved in options and in incentive awards. (Nowdays, I have to give myself a performance review and usually I reward myself with something outlandish like a fishing reel or a new pair of insulated carharts and a few chainsaw blades.)

That said, I know my compensation was strongly tied to our business plan, I had to deliver on both sales as well as net, and I had to manage the budgets for the business. I had metics applied to all of those as well as the non numeric measurements applied to how well I did by job managing my staff and how well I did in participation on our strategic planning team and the information management team. Each level of compensation was tied to a lot of other things so that we did not have bad long term decisions that were only made to look good for a year or a quarter.

I worked for two outstanding fortune 500s. Both managed extremely well. And both would hang your ass if you did things that were not in the best interest of your sphere of responsibility and not in keeping with the 5 year plan that consistently drove business decisions.
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Old 12-05-2012, 07:15 PM   #153
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Old 12-05-2012, 08:41 PM   #154
chiefzilla1501 chiefzilla1501 is online now
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Originally Posted by HonestChieffan View Post
The longer required time the better for an option, yes. But I may be wrong but I believe IRS rules define the terms of any option nowadays. Its been a while since I was involved in options and in incentive awards. (Nowdays, I have to give myself a performance review and usually I reward myself with something outlandish like a fishing reel or a new pair of insulated carharts and a few chainsaw blades.)

That said, I know my compensation was strongly tied to our business plan, I had to deliver on both sales as well as net, and I had to manage the budgets for the business. I had metics applied to all of those as well as the non numeric measurements applied to how well I did by job managing my staff and how well I did in participation on our strategic planning team and the information management team. Each level of compensation was tied to a lot of other things so that we did not have bad long term decisions that were only made to look good for a year or a quarter.

I worked for two outstanding fortune 500s. Both managed extremely well. And both would hang your ass if you did things that were not in the best interest of your sphere of responsibility and not in keeping with the 5 year plan that consistently drove business decisions.
I think you've just been fortunate. Again, you've challenged me to find evidence beyond a sweeping assumption. I don't have direct evidence on the average vesting period but what we are seeing is median compensation going up in a down economy and a high % of cash outs even though the stock market has been struggling. And the overwhelming sentiment on options from credible publications like the Wall Street Journal and HBR consistently say option-based incentives are poorly aligning with shareholder incentives.

Pretty clear that there is a widespread problem. Good news is, some things seem to be working. I don't like Dodd Frank, but "say on pay" seems to be forcing boards to realize they can't just get away with murder and that crony relationships with executives will get them "fired" from the board.
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