A Reflection On Sun Executive Payouts For Failure 316
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by
ScuttleMonkey
from the lavishly-rewarded-for-failure dept.
from the lavishly-rewarded-for-failure dept.
With the Oracle/Sun merger finally completing at the end of January, one former Sun worker has taken the time to reflect a bit on the extravagant compensation and golden parachutes that the former executives at Sun are receiving for failing at their jobs. "I think it's fair to say that, for all the miscues that eventually led to its demise, the company created many products and technologies of value along the way, enough so that Oracle thought it was worth it to acquire them and try to keep them going. However, I think that it's equally fair to conclude that, after years of running losses, including about $2 billion in fiscal 2009, so that a buyout was necessary to avoid looming bankruptcy, Sun's executives did nothing to deserve lavish rewards, by any conceivable meaning of the word 'deserve.' But what actually happened is by now a familiar story. [...] And here's a prediction that I feel quite certain of: if, against expectations and my hopes, Ellison drops the ball and things start going south for Oracle, it's the employees who will suffer for it, and he'll be doing just fine."
Can everybody say "principal–agent problem"? (Score:3, Informative)
Missing the point. (Score:2, Informative)
Re:Link to DailyKos diatribe? (Score:3, Informative)
I'm thinking that DailyKos got the link on this one because everyone else got done talking about the potential golden parachutes back in June of 2009.
http://www.theregister.co.uk/2009/06/12/sun_network_gets_it/ [theregister.co.uk]
Shocking (Score:3, Informative)
...if Ellison drops the ball and things start going south for Oracle, it's the employees who will suffer for it, and he'll be doing just fine.
Welcome to the real world. This is the way of things. Get used to it because it's never going to change.
Re:Executives are employees, too (Score:4, Informative)
Why do shareholders tolerate this?
Because the ones who are small have no real recourse, and the ones that are large are mostly institutions with upper management making these decisions, and why should they want to rock this boat ?
American companies are unique in this respect. (Score:5, Informative)
1. USA
2. Europe
3. Japan
Here, "relative" means dividing (1) the annual income of the chief executive officer by (2) the average annual income of the employees who are not part of the management structure.
Table 2 on page 6 of an interesting document analyzing the financial compensation of American CEOs [americanprogress.org] is instructive. For the sake of this discussion, we can reasonably assume that figure in the aformentioned category #2 is approximately the same throughout the West.
Table 2 then, in effect, gives us the relative compensation of the CEOs in the West. The typical American CEO in 2003 received annual compensation that is worth $2.2 million. The typical European CEO received $700,000. The typical Japanese CEO received $460,000.
Was the American CEO worth his pay? American neoconservatives answer, "Yes." They say that such compensation enables American companies to be top-notch competitors in high-technology.
On 2009 November 5, "The Economist" issued a startling report [economist.com]. It asserts, with plenty of evidence, that Japanese companies are the sole manufacturers of numerous components that are critical to the operation of high-technology devices ranging from tiny disk drives to huge nuclear reactors.
So, who is telling the truth? American neoconservatives or the "The Economist"?
Re:To quote Mel: "Its good to be the King" (Score:4, Informative)
Since many board members are senior executives at other firms and sit on each others boards, there really isn't much incentive for them to not grant large parachutes and such. It simply wouldn't be rational to potentially jeopardize their own upcoming reward.
Unfortunately, that also means there aren't many actual controls on executive compensation.
Re:To quote Mel: "Its good to be the King" (Score:5, Informative)
One of my own personal lessons: when WaMu was in the dumper, I bought a few hundred shares of their stock, feeling quite certain that they would be purchased by one of the more solvent banks, and at the worst, my stocks would retain their value in a trade for the new parent company's.
I was half-right. Chase bought WaMu, paid off their executives handsomely (one guy who'd been there three weeks got $18M), and then somehow said, "We're buying all the assets, but not the liabilities." The stock that was held by John Q. Public (i.e. me) was associated with the organization which retained all the liabilities, and is now worth just a few pennies. I would offload it, but the cost of the transaction ($9.99) would eclipse the value of my WaMu stock.
So it's all well and good to say that execs' fortunes are tied to those of their companies, but as it turns out, even that is not entirely true. There's always a way to game the system, and unless you're in the board room when it happens, there are very few protections out there.
The cost of the lesson to me? $600.00. Luckily, I could afford it. On the flip side, my grandfather was heavily invested in Enron based on his retirement fund manager's advice, and when they went down, he lost a thousand times that while their execs walked away richer than Croesus.
Re:To quote Mel: "Its good to be the King" (Score:3, Informative)
Foolhardy, yes. Wealthy enough not to miss $600K? Hell no.
Re:Clap Clap... (Score:4, Informative)
I don't discuss my finances on the net, unlike another Open Source evangelist who once made a really big fool of himself this way, because he says he lost it all. However, I play or have played all of the roles I discussed.
Wow, you just don't understand any of this, do you (Score:5, Informative)
All three parts of your claim there are wrong, which makes you completely wrong, not "half-right." From : [wikipedia.org]
To understand that passage, it's important to know that publically-owned banks in the USA are structured as a public holding company, which privately owns a bank. This is important because what you bought was shares of Washington Mutual Inc. (let's call it WMI), the holding company for Washington Mutual Bank (WMB). WMB failed, so the OTS seized it away from WMI and gave it to the FDIC, which then disposes of the assets and liabilities of WMB in order to make insured deposits and secured debtholders whole. At that point, WMI is bankrupt, so your stock investment is not really worth nothing anymore.
But the more important thing to note is that Chase didn't buy WMI from the shareholders; they bought from FDIC the WMB assets and obligations that the FDIC was on the hook for.
You're also wrong about the "buying all the assets, but not the liabilities part." From the FDIC statement on the closure [fdic.gov]:
This is a standard FDIC bank closure; the FDIC takes care of insured deposits and secured debt of the banks it takes over, and only if there's anything left over from the bank's assets, then unsecured creditors and shareholders get some (in that order). Chase bought the WMB's assets and all the liabilities that the FDIC is on the hook for. The liabilities that Chase didn't get are the ones that the FDIC doesn't normally cover. So basically, the folks who are owed those debts were wiped out by the FDIC takeover, not by the sale to Chase.
And thirdly, the WaMu executives that you claim got paid off handsomely were not paid by Chase. They were paid by WMI, the holding company that went bankrupt. Though the $17.5 million guy actually declined it:
So basically, you made a bet on a bank that was about to fail, without understanding even a single iota of what happens when banks fail, and then you failed to learn how your investment failed. I can certainly understand and sympathize the part about making the bet on something you don't understand, if you hedge your bet accordingly (which you certainly seem to have done). What I can't understand is your inability or refusal to actually learn how your investment failed.
Options (Score:4, Informative)
You can't be serious. OK, maybe you are serious, but in that case you're missing a whole lot.
Your typical employee stock grant vests after four years at a fixed strike price, which is generally set at some price the stock reached at some arbitrary point previous to the start of those four years, generally around when the board decided on the employee stock plan. So, the employee is actually being granted a sort of stock future. If the stock goes up, the option has some value. If the stock goes down and stays there, the option is never exercised. So, the non-employee and management stockholders only get diluted when the stock goes up (in which case they make money anyway). And the company takes on its balance sheet not the current price of the stock at the time the option is exercised, but the strike price set in the option grant, which is of course less. The funds gained by the employee come from the sale of the stock to the public at the time the option is exercised. not from the company.