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Forum Post: The solution that CEO's are trying to desperately hide (Part 1)

Posted 2 years ago on Jan. 1, 2012, 5:59 p.m. EST by dvc321 (1)
This content is user submitted and not an official statement

EXTREMELY IMPORTANT-- PLEASE READ IN ITS ENTIRETY. (Due to its length, the balance of this message will be carried over into the comments) PLEASE help spread this message. It is imperative that the power of this election is not lost.

If you are familiar with Edmund Burke’s proposition that “All that is necessary for the triumph of evil is that good men do nothing" then you will understand why this article needed to be written. Circumstances have come together to create a rare opportunity for meaningful change to occur. A President who appears to be on the side of the people, a growing movement (Occupy Wall Street) that has accurately identified executive greed as the primary villain in this economic crisis, and an upcoming national election together form the perfect storm for meaningful change. I hope the President reads this because it provides the blueprint for fixing the economy, restoring confidence in the government and righting past wrongs all at the same time. If he doesn’t read it, perhaps the Occupy Movement can draw his attention to it. This plan would dynamically strengthen the economy by stimulating job growth and, just as importantly, would make this country’s economy more resilient going forward by restoring and stabilizing consumer confidence. It would reduce the burden on Federal and Local Governments . The best part about this solution is that it is perfectly appropriate. The plan does not require anyone to shoulder an unfair burden. It addresses a major flaw in the current system and would simultaneously restore confidence in the government. How can all this be done? The answer is infuriatingly simple – by closing a legal void that CEO’s, their Board of Directors and fellow executives of publicly traded corporations have exploited for decades. These executives have been able to siphon off such obscene amounts of corporate profits into their own pockets that it makes Bernie Madoff’s billions look utterly trivial. These corporate earnings should have been used to first provide stability and security for the very employees that made the company successful, then as higher dividends to shareholders as a more reasonable return on their investments. By not doing so, theses executives have effectively “skimmed off the top” at a substantial cost to the country’s economy and to society in general. These executives were able to accomplish this massive heist by creating a simple fiction. Most states impose upon these executives a basic fiduciary duty to their shareholders. The executives easily danced around that obligation by defining themselves as a “unique talent”. Once they defined themselves as a mystical unique talent, the executives painfully rationalized that it would be in the best interest of the corporation to compensate that fictitious unique talent an exorbitant amount of money. Once the door was opened by the first corporation, other corporations followed. Very much like a price fixing scheme, they created their own inflated market. Having never encountered any meaningful, organized resistance, these executives became more brazen through the years. With each passing year, they exponentially increased their compensation packages and simultaneously jackhammered away at the stability and security below their fellow employees’ feet. Retirement programs were marginalized, crippled or completely eliminated. Health plans have consistently offered less coverage and higher deductibles. Severance packages for laid off personnel were, in the vast majority of cases, entirely eliminated. Employees with 30 years of service were shown the door empty handed. All of this was done at a substantial cost to society. Whether it was as taxpayers contributing to state and federal unemployment programs, corporate bailouts that were ultimately used to pay executives, or as homeowners whose property values continue to tumble because of neighborhood foreclosures, society has continually paid the price for the executive’s unabashed greed. The drain on the country’s economy has been like driving a car with the emergency brake on. Each year they would exponentially increase their own compensation package not only at the expense of the company’s employees, but the company’s shareholders as well. Profits that should have been doled out in the form of higher dividends to shareholders were instead diverted to executives. These executives have been gorging themselves on corporate profits for so long that they have deluded themselves into actually believing that they are that “unique talent” and deserve that obscene amount of money. As captains of the ship, these executives should be at the back, not the front of the line. Nobody is actually asking the executives to “go down with the ship” but they should not be rewarded for throwing their passengers overboard without a life preserver. (Part 2 following)

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[-] 1 points by dvc321 (1) 2 years ago

(part 2)----- The Remedy The remedy will involve the imposition of a federal fiduciary duty on executives of publicly traded corporations. More specifically, the plan will call for a Federal Statute that will not only strengthen the executive’s fiduciary duty to the company’s shareholders but, for the first time, will also create a long overdue federal fiduciary duty to the company’s employees. The basic goal of the statute will be to put excessive executive compensation where it rightfully belongs- at the back of the line. The statute will limit the amount an executive can receive in compensation until the company’s investors and rank and file employees are adequately protected. - Protection for Employees To protect employees of publicly traded corporations, the statute would create a severance account for employees that have been laid off since the beginning of the recession. It would make it a breach of an executive’s fiduciary duty to the company’s employees for an executive to receive compensation in excess of $500,000 prior to the full funding of the severance account. The account would be deemed fully funded once it contains an amount equal to a year’s salary of each employee that was laid off since, for example, January 1, 2008. Until the severance account is fully funded, any executive’s employment contract, would be deemed void as against public policy to the extent it provides for compensation of any kind over the $500,000 threshold. The effective date of the contract would be irrelevant. There would be no “grandfathering” of any contract. All compensation above that $500,000 threshold would instead go towards funding the severance account. The analysis would begin with the CEO’s compensation package and would work its way down the corporate ladder. Each executive’s compensation package would be reduced to the $500,000 threshold until the severance account is properly funded. It is extremely important that the statute contain a provision that would prohibit the executives from passing their fiduciary duty and the obligation to fund this account onto the corporation itself. Remember the corporate entity is as innocent as the employees and should not be saddled with bailing out the executives. The corporation, to the extent allowed by its executives, has served the public well by being a source of tax revenues, employment opportunities and dividends to its investors. As a result, any attempt to pass this obligation onto the corporation must be a breach of the executive’s fiduciary duty. To allow otherwise would make this plan largely ineffective. Not only will the decades long abuse by the executives be left unaddressed, it would also negatively impact corporate earnings to the detriment of society as a hole. Administration of the severance account The key feature of the severance account will be how it is administered. The laid off employee will have to earn the money set aside for him by participating in a “severance pay” program. Based on the employee’s skill set, the program will assign the participant to a supervised position in a local, state or federal public project that would otherwise stay grounded due to insufficient funding. Another option would be to assign the participant to an approved private sector position such as a small business venture that would otherwise lack sufficient funds to get off the ground. Not only would the struggling, small business entrepreneur benefit, but it would also be an opportunity for the participant to learn a new skill making him more employable going forward. The employee would be paid at the same rate at his previous job. To be able to collect his salary, his work must be verified by his supervisor.
For the first six months the employee would work five days a week and would receive five days salary. For the next three months, the employee would work only four days and receive four days salary. The non-working day would be spent searching for another job. To collect the salary, the employee would need to have his work verified by his supervisor and show proof of his job search. After nine months, the employee would be reduced to a three day salary and would be required to show proof of a two day job search. The gradual weaning off feature of the program will help encourage the participant to aggressively seek a new position. As soon as another position is obtained by the participant, any unused funds would be made available to the executives as deferred compensation. - Added protection for investors Executive’s ability to reduce corporate earnings by excessive executive compensation before dividend payout are established should no longer be tolerated. The federal fiduciary statute should make it a breach of fiduciary duty to investors to reduce the company’s net income on which the dividend payout ratio is based by more than $500,000 per executive. In other words, dividends must be based on corporate earnings that are NOT reduced by more than $500,000 per executive. If the dividend payout ratio remains the same, the dividend amount distributed to investors would be much higher. Serious thought should also be put into setting a minimum dividend payout ratio. Since the 1930’s, the dividend payout ratio has been reduced from nearly 90% to about 30% in recent years. This reduction has robbed investors and the general public of an incredible amount of money that should have found its way back into the economy.

(Part three following in comments) -