Loyal reader, Anonymous, raised an interesting quest in response to last week's musings about corporate pay concerning the role of the compensation committee of a Board of Directors. The question went to the independence of such a committee, but that is only a portion of the real question regarding the proper disposition and activities of such groupings, or as been too often the case in past years, groupies.
You might remember that in my posting MY FRIEND DICK, I described a man who was not afraid to tell David Rockefeller that he was looking at an early termination of his banking career unless the performance of the Chase Bank improved immediately. Frankly, it is the CHARACTER of the individuals on a Board that is important rather than personal or corporate relationships that they may or may not possess that will determine their performance. If the character of the man (or woman) is such that there is a full understanding that he or she represents the shareholder in all matters, any relationship, no matter how close is irrelevant and all questions become moot. In recent years the character of too many board members must be questioned and I know that this will bring shouts of outrage from some readers who have sat, or now sit on corporate boards but consider this: could or would you walk into the office of one of your closest friends--David Rockefeller or not--and tell him he's about to get canned? If your answer is not an unequivocal YES, resign immediately. And yet, I must admit that the movement especially in regard to financial holding companies to replace retiring directors with ostensibly completely independent ones is a welcome development. IMHO, Citigroup has greatly upgraded its board in recent months. But somewhere along the way, we have lost our way. You are correct, Anon., we have a problem still.
However, in regard to the direct question of compensation, there seems to be a new mind-set that the object is not to have everyone compensated to the greatest extent in regard to their contribution but to level the compensation playing field. This of course fits in with The Leader's idea of the redistribution of wealth within this society. The disagreement arises not where one individual objects to another making a dramatically higher salary but where the solution is to reduce the top tier rather than raising the lower tier and doing so through fiscal measures such as taxes to fund either direct transfer of monetary wealth or services. I can remember being an ex-pat in England a number of years ago and having an English colleague approach me with the Brit version of his W-2 at the end of the years. He was a managing director of our bank and according to the law, he owed us money for working there in the last two months of the year due to his tax bracket and the lack of adequate withholding. Now there's redistribution!! The effect upon the higher earners was as imagined. Either one lost all incentive to earn beyond a certain level or one engaged in every legal--and illegal--method available to reduce one's tax bill--not to mention the "Brain Drain" that was crippling to the UK until the Thatcher revolution. Human nature being what it is, the same can happen here. Unintelligent compensation and tax theorists can and will create a generation of tax cheats and avoiders to an extent not yet seen in this country. Consider a few free-standing facts.
We have a voluntary tax system. Oh, forget about all the penalties one faces for tax cheating. Very few people in this country cheat on their taxes. Very few people hide income by working off the books. That is NOT the case with a great number of countries in the world. NOBODY pays taxes in Italy. NOBODY pays taxes in Argentina. NOBODY pays taxes in Mexico or certainly not the full amount of what is owed. MY FRIEND DICK knew a lot about Latin America and when he spoke of Argentina he used to say, "Twenty feet of top soil," and laugh! The richest country in the world and the most corrupt. Why did Argentina regress? There was no money for the government to supply the services a government is meant to supply and it became every man for himself with class and social warfare a very real environment. Change the attitude of this country"s people, especially the most productive, make them feel oppressed, and you begin to change the very fabric of society. My advice to The Leader and his followers? Be very, very careful of that which you propose. Comprende, Che?
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