Management has no stake in the company

[C......N......C]

From 20 year old movie Wall Street. Nothing new and nothing changing.

[On the Road]

1. Especially Since the 80s,

top management has frequently had an enormous stake in their companies through stock ownership and options. The idea was to address exactly the problem you refer to by rewarding management when they increased the value of the company.

AIG insiders, for example, held 230 milion shares of stock, or 7% of the company. So over the last year, when the stock dropped from over $50 to less than $1, AIG management lost over $1.4B of personal savings. A lot of the losses were undoubtedly incurred by lower-level employees who had nothing to do with the CDS hijinx. But that $1.4B figure alone alone should make anyone pause before accepting the accusation that the crisis was orchestrated to enrich management.

Of course, management shouldn't own quite that much to begin with -- it's another part of the out-of-control executive compensation. But it should be enough so that self-interest should prevent harming the company for short-term personal gain.

[C......N......C]

2. "it's another part of the out-of-control executive compensation"

There has to be a reason in logic for this. Was it just assuring others that they would be treated the same to make it alright?

[On the Road]

3. I Don't Understand the Comment

What I was pointing out was that the original idea of stock ownership was good and addressed exactly the issue of nonaccountability you were raising. The amounts just got out of control and it didn't prevent management from killing their companies by taking unecessary risks.

There was change in attitudes beginning in the Reagan administration that allowed top management salaries to escalate to unbelievable heights.

But even though there was more acquiescence to higher executive salaries, the public and shareholders still would balked at a straight salary of, say, $100 million. So most of the compensation was spread around in the form of stock grants, stock options, and performance bonuses. The fact that it was tied to corporate performance allowed management to claim that they were justly earned, and that all management was doing was taking a share of the market value they created.

The goals tended to be set so that bonuses were generally earned, and the goalposts were gradually moved over a couple of decades to allow for enormous compensation packages. But during the kind of crisis we've experienced, they look (and are) completely out of place.

[C......N......C]

4. I was wondering if it got out of control because it was getting so high and

it was like stealing. They gave each other the raises to make it alright. A good thing rode to the death ! When they first started getting paid, they based their compensation on reason. I don't think they ever thought there would be that much money for the taking. Then when there was more money than they could burn, they found ways to give it to themselves based on the initial payment plan. I don't think they ever thought that it would get that high. I have been around a long time and it only seems fair that if you can consistently beat the state lotto, that you should give some of the money back or at lest say " I am getting too much, something is wrong here". I was at a Festival supporting the local volunteer fire department. There was a gambling game that I saw how to figure out. My friends and myself had them stop the game, too many people were winning. The Fire Department wasn't going to benefit. There should be a safety net on the top end also, that keeps people from taking advantage of a good thing. I bet these same multi million dollar bankers and brokers are against welfare and universal health care.. Basically my point is that it is not fair.

[Democracyinkind]

5. I like that observation ... we're so 80'ies, it's insane

..it's pretty much the argument J.K. Galbraight makes in his book "The Economics of Innocent Fraud: Truth for Our Time" ... I couldn't agree more.. no stake in the company = no steaks for us