Some Good News On Public Employee Pensions
If this is true, I'll give Liu etc. their due. But it won't matter unless dividends rise as well.
"New York’s public pension funds, with $118 billion under management, have found a measure of success in pressing companies to end what most experts agree is an egregious practice — CEOs getting paid from company coffers to cover millions of dollars of their golden parachute tax liability. This year the pension fund, which includes the New York City Employees Retirement System, has negotiated behind the scenes with board members of at least four companies — Motorola Solutions Inc., Anadarko Petroleum Corp, WellPoint Inc., and R.R. Donnelley & Sons Co. After those talks, all of the companies revised their change-of-control pay plans."
That's a start. But remember the rule.
No company employee should earn more in up front pay than the President of the United States, unless that company is paying a dividend yield greater than the interest rate on 10 year U.S. Treasury bonds. And those dividends should be paid out of cash earnings in excess of the reinvestment required to maintain the value of the firm. Dividends paid with borrowed money, sold assets, or disinvestment don't count.
For pension plans it really doesn't matter if stock prices go up or down, unless the plan is being terminated and the members paid off as the stocks are sold. An ongoing plan has ongoing obligations, and only cash interest and dividends can be used to pay benefits. So companies paying high dividends while reinvesting can pay their executives what they want in my view.
Those companies not able to pay such dividends, however, should limit their up front pay to the President's pay. The President's pay, adjusted for inflation from the last time it was changed, is about $500,000 plus a house which is also used for business.
Additional executive pay in low dividend companies should be both deferred and conditional -- on the eventual total return being at least equal to the return on 10 year U.S. Treasury bonds in the year that potential deferred pay was awarded. If the investors can wait for their return, the executives can wait for pay in excess of what the President gets. A return equal to super-safe (well, not that safe but that's another story) U.S. Treasury bonds isn't too much to ask of executives who pay themselves enough to accumulate dynastic wealth.
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