Vanguard News Network

By George Lenz

For some time already it has been clear that the compensation and payroll system in United States is broken beyond repair, and requires extensive government intervention to be fixed. The recent wave of record Wall Street bonuses only further proves the validity of the point. Especially appalling is the 56+ mln. USD bonus, Goldman Sachs awarded to its jewish head, and 160+ mln USD awarded to 11 of its executives, all of them jewish. Some would say: what’s wrong with the bonuses for top performers, it’s how the market system is supposed to function? However such advocates for capitalism forget, that money paid to executives comes not from their private enterprises, but out of shareholders’ pockets, many of which are large institutional investors, often pension funds. Thus every extra million in compensation paid to a jewish or masonic executive takes 500 dollars or more out of pensions of a thousand 20+ White men and women, who are so eagerly encouraged to invest their incomes, the more the better, in various stock pension schemes.

The decline of the U. S. compensation system started in the 1970s with the invention of stock options, and wholesale granting of such options to executives in large jewish-owned investment banks. A number of economic theories that started to circulate within the academic community around that time providing an intellectual justification for such grants; claiming that sustained productivity growth requires large-scale differentiation both between executive and workers’ compensation and between executives of various ranks. The academic community largely bought the argument, but American industry, to its credit, did not: for a decades stock options remain a marginal phenomenon, confined largely to investment banking. One of the unrecognized heroes of American industry in this regard was Thomas J. Watson – jr., the legendary IBM Chairman, who after initial grant of a few stock options to top executives, discontinued the practice as “excessive and unearned compensation, detrimental to IBM shareholders’ interest.”

The beginning of the information technology (IT) era changed all that. The newly created companies needed a way to attract and retain highly qualified staff without the huge costs of compensation that would otherwise have been incurred. Thus stock options became a normal way of executive compensation at most IT companies, pioneered by Apple and Microsoft. Soon the practice was extended to specialists, and with the beginning of the dotcom boom, was practiced on a larger and larger scale – at the expense of shareholders. At the peak of the boom, after a successful initial public offering (IPO), one of the founders of a software conglomerate and his two associates pocketed a 1.2 billion USD in stock options as an annual compensation, only to see stock fall four times in value after the boom ended. The practice spread like fire to non-IT companies, where executives were awarding to each other even larger stock options. It came to the current dismal state of things, where the annual CEO compensation at jewish-owned investment bank is roughly 560 times higher than a starting salary in this bank, while two decades ago a multiple of more than 15 was considered excessive. That’s the power of corruption in business.

How should a just and equitable compensation system be organized? An acquaintance of mine runs a medium-sized industrial facility, where compensation system was recently acknowledged as fair by both managers and workers. All the employees, managers and workers alike, have a particular pay category, starting from the starting salary and increasing by a multiple of two with each promotion to a higher category. There are five such categories. Additionally if an employee works a year at the facility he is automatically granted 25% raise, if an employee works five years at the facility he is granted further 25% raise. All performance bonuses are tied both to individual and company’s performance and cannot exceed 50% of the basic category pay. Thus any increase in compensation can come primarily from the raise in start-up salary, that reflects the long-established economic fact, that improvements in business performance come from the effort of the whole team of managers and workers, and not from just one individual, or performance of a specialist is dependent upon the extensive and expensive investment the company undertakes into equipment that allows him to function. Hence if a starting salary at a facility is around 24 000 euros per year, a CEO can earn between 120 000 and 240 000 euros per year, that is viewed as adequate by managers, workers and shareholders alike. No wonder the facility does not have a problem in recruiting and retaining qualified workers, while at competitive establishments the annual turnover rate exceeds 20%.

A helpful factor is also the attention the government security regulator and labor office pay to executive compensation. Recently, a Swiss-born Deutsche Bank Chairman, Herr Ackermann, attempted to introduce stock options to Germany, awarding himself and his associates huge stock options – a move unheard of in Germany. He soon faced criminal charges from the shareholders and the Germans’ stock regulator: he was duly charges with defrauding the company and breaching shareholders’ trust, and had to forgo excessive compensation to avoid the lengthy jail term he was facing. Unfortunately, in the U. S. the interests of the common pensioner or investor cannot compete with the interests of the jewish CEO, protected by his extensive jewish social support network; and the SEC constantly refuses to press charges in cases of excessive compensation. The law empowering individual shareholders and compelling the SEC automatically to press such charges, should compensation exceed a reasonable amount, is urgently needed; perhaps a Democrat-controlled Congress will finally move in this direction.

* * *

The euro is gradually growing to 1.32 USD/EUR; I expect adjustment to 1.45-1.5 USD/EUR to complete by the mid-2007. Gold is down to 620 USD per ounce, silver still at 12.0-12.5, so far avoiding a forecasted correction to 10.00-11.00 USD per once.

Looking back at the previous year, my two best U. S. stock picks were XOM and C: both exceeded my estimates, and I still hold those positions open. I wish respected VNN readers a happy and prosperous new year – may our wishes, dreams and desires finally come true, and may all our efforts be successful. Next time: the analysis of insurance policies: what works for whom, and where to get a reasonably priced policy.