A Reflection On Sun Executive Payouts For Failure 316
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."
thnx, but no thnx. (Score:4, Insightful)
The system will regulate itself? HAH! yeah, keep voting for the big bucks ...
Past performance no guarantee of future gains... (Score:3, Insightful)
Don't worry, I'm sure they'll do better at their new jobs with Goldman Sachs, J.P. Morgan Chase, AIG, ... (sigh)
How Companies Work (Score:5, Insightful)
How Companies Work
There are a few top managers, and they run the company for their own interests. If they have stockholders, they have to make some pretense that they are working for the stockholders, but look how much stock _they_ are getting out of the company. Sometimes they collect a $1/year salary to look good, while they get many Millions of dollars in stock per year. Rarely do people at this level work for anyone but themselves.
Then there are a number of second-tier managers, whose goal is to make the most out of the company that they can, or to make it to that top level so that they can run the company for their own interest. Sometimes people at this level have other motivations.
Then there are lots of other people. Often these people haven't even thought very deeply about what their motivations are. They are essentially treated as work-units which keep the company operating, but they are as expendible as a server in a rack. Fortunately, companies do need their talents, at least for now.
Then there are the small stockholders. They cross their fingers and hope the managers will do a good job for them, but they really do not have any power to influence the company.
Then there is the government. The government's job is to protect little guys with no power (the general population) from big guys with lots of power. But unfortunately the big guys essentially own the government, because of the fact that they pay for political campaigns and in other ways influence politicians, and because they are gate-keepers on jobs for voters.
All of this motivated self-interest is supposed to result in a good working system for the general population. It doesn't work terribly well. However, there are many other systems that work even worse, so people are reluctant to change it. Also, the average person can not be bothered to concern himself enough so that in the aggregate with other people that person can effect change.
Re:To quote Mel: "Its good to be the King" (Score:5, Insightful)
So, isn't the fact that they owned a lot of stock in the company, and thus their personal fortunes were tied directly to the company's performance, a good thing? We can argue all day as to whether or not their compensation in general was excessive (and it probably was), but it seems to me the fact that most of their golden parachute was due to the buyout of stock they already owned is a good thing.
Re:To quote Mel: "Its good to be the King" (Score:3, Insightful)
Why is it that people doing what people do naturally -- looking out for their own interests -- is normal and acceptable when you do it, but evil and wrong when somebody else does it?
It's different when the "someone else" is the board of a publicly owned company.
That said, that sort of behavior is also to be expected due to inherent differences of interests in the principal-agent relationship.
Re:To quote Mel: "Its good to be the King" (Score:5, Insightful)
This is what the economists call the "principal-agent" problem. The principal (shareholders) hire a bunch of people to do things in their best interests (get the company to make money and give that money to the principals) but the agents (CEOs, and his own agents) are "looking out for their own interests" and just set things up so they get rich one way or another.
It's "evil and wrong when somebody else does it" in this case because they're supposedly being paid to do better. It's "normal and acceptable" to some extent when you do it, because you're usually doing it with your own life and your own resources, unless you aren't, in which case that's just hypocrisy, which is nothing new in the world one way or another....
Reaganist? No, Economists. (Score:5, Insightful)
In the introduction I referred to what I call the "Reaganist dogma" of the free market, my description of what a Republican might refer to as "capitalism" as opposed to "socialism".
Reagan got that from the economists. He didn't think that up himself. That's one of the incorrect assumptions economists use in their models and theories - free markets always work and that the market is rational.
Free markets work only within a narrow range of economic activity. If they exceed those ranges then you get bubbles and collapses. That's why the Fed was created to try to eliminate those things. Of course, if you get a Randian dogmatic believer in the free markets of a Fed Chairman (Greenspan), then you end up with serial bubbles: stock market and real estate.
There's a few other blanket assumptions that economists make that are horribly incorrect in the real World, but I'll save those for another time.
Oh, and economists need to get over their physics envy. They develop these impressive mathematical models and everything but the underlying assumptions are incorrect. As in this example, the assumption is that markets are rational. As we have seen, they are hardly rational.
Reading assignment: rational irrationality.
Oh, OK the last thing: the behavioral economists are redeeming the whole "profession"! :-P
Re:To quote Mel: "Its good to be the King" (Score:5, Insightful)
Some people can look out for their own interests without dicking over others. For some people, viewing other people's interests as an integral part of their own is "natural".
The difference between "looking out for your own interests" and "looking out for your own interests by fucking over everyone else" is subtle, I admit, but once you grasp the nuance you'll see why behaviors that are on the surface the same are ultimately different, and why one is evil and the other is acceptable.
Re:Link to DailyKos diatribe? (Score:5, Insightful)
Diatribe or not (no, I didn't bother to read it), I don't think Oracle's is going to be anywhere near the kind of situation Sun ended up in for the foreseeable future. Sun had multiple sources of direct competition across a good deal of their product range and many IT budgets just couldn't justify paying the extra cash for the few extras Sun brought to the equation. Oracle, on the otherhand, has seen off almost all of its competition: DB2, Ingres and Informix are either history or essentially relegated to also-rans in the marketplace for high-end DB servers with paid-for support and an SLA that you could take to court if you had to. It's going to take a screw-up of positively epic proportions for Oracle to go down the pan; "dropping the ball" wouldn't even come close...
Re:How Companies Work (Score:5, Insightful)
If those top managers are being paid in stock instead of in dollars, then clearly they are stockholders and hence their interests are one and the same as the stockholders. Which is the entire idea behind such compensation schemes.
The real issue is that the stockholders are getting exactly what the want. Short term performance, and who cares about the long term. Since most of the shares are owned by mutual funds and so on and what they care about is how they did on last quarter's performance numbers.
That the company will go broke in 5 years is irrelevant, they just want to perform better than their competitors this quarter. And since they make up the bulk of the owners that's how it is supposed to work.
If the owners cared about long term performance they would structure compensation schemes to reflect that - mind you that is easier said than done. Short term stock price incentives, however, are just about the worst way possible to do that.
Re:Ahh, the good old days... (Score:4, Insightful)
Year's salary as compensation and he complains? (Score:1, Insightful)
As with most dailykos stories this one leaves me confused. SUN's former managers were so greedy that he got a year's severance? Oh he's just angry that someone got more than him.
Re:How Companies Work (Score:3, Insightful)
the average person can not be bothered to concern himself enough so that in the aggregate with other people that person can effect change.
This is because the average person probably isn't thinking much farther ahead than what he'll have for lunch tomorrow. By the time he realizes he won't have anything for lunch tomorrow he's no longer in a position to do anything about it.
And those who are thinking beyond tomorrow's lunch are often deluded into believing that through sheer hard work and determination they can one day be at the top of this pile.
At that level... (Score:4, Insightful)
Look at execs from AOL, Yahoo, now Sun... hell, Carly Fiorina is running a campaign to do to California what she did to HP. Ask anybody who worked at HP while she was there, or any stockholder, how that works out. At least the citizens of California will have some say over whether she is taken on. Hard to believe such a tech-savvy state would fall for her, but...
And Sun execs. Oh ho, they're brilliant. "We hate Linux! We're doing Solaris x86! Linux rules! We're cancelling Solaris x86! Linux is GARBAGE! We're the biggest Linux providers in the world! No, wait: screw those customers. Oh hey, we have Solaris x86! I mean Linux! I mean OpenSolaris! Okay, now it's really open! It runs all that great OSS stuff without that horrible Linux!"
Yeah. They've done very well by themselves. And will continue to do so.
Re:How Companies Work (Score:4, Insightful)
Arbeit macht frei.
They are not "payouts for failure". (Score:4, Insightful)
They are payouts as specified in the executives' employment contracts. Next time you hire executives try to negotiate better contracts.
Re:To quote Mel: "Its good to be the King" (Score:5, Insightful)
Stealing is looking out for your own interests too. However, society has rightfully restricted some selfish behaviors like stealing and fraud because they harm others. The ideal economic system would harness selfish desire to expand markets, increase efficiency and encourage innovation (ideal capitalism). When the economic system encourages self interest to the point of destroying others' wealth it's crony capitalism.
Re:To quote Mel: "Its good to be the King" (Score:5, Insightful)
Unfortunately, there are still numerous methods of "legal" *ahem* acquisition of funds by those in power on the corporate board. Enron was the first case where boards were whacked, and you can see the effect that it has had in such board rooms. The aforementioned people in power are very mindful that they don't wind up walking to the gallows. (And of course by gallows I mean at worst a small country club resort for a few months/ maybe a year.)
The severance deals such as poison pills and golden parachutes usually end up poisoning the shareholders and being a golden shower on the hard working employees. They very rarely do anything but line the pockets of executives.
But hey, thuggery, buggery and some skullduggery. A CEO's life for me!
Not very shocking (Score:5, Insightful)
Techies often have trouble understanding this, coming as they do from a very strongly meritocratic culture: the world at large is so far from being meritocratic that the sheer extent of its non-meritocracy strains the imagination. Professional academics often run into the same blank wall of incomprehension.
By no means am I saying that this is a good thing, or even that it is strictly necessary (though that is certainly a possibility given primate psychology), but the fact remains that the normal means of acquiring wealth is by conniving, cheating, swindling, and deceiving to one degree or another. If wealth was awarded on the basis of hard work, knowledge, or creativity, then the world would be full of super-rich construction workers, mathematicians, and artists. Instead, it is awarded on the basis of how good you are at talking (or coercing) people into giving it to you. Period. Things like quality, reliability, creativity, and utility are, at most, means to an end, and are by no means indispensable, except perhaps as grist for motivational speeches given to the people who do the work by the people who receive the rewards.
Here is a theory (Score:5, Insightful)
Here is a theory that I heard expressed by a C level corporate executive :
The top people should be paid enough to make the people on the rung just below them green with envy, so that they will work their butts off to get to the top, and so on, proportionally, down the line. (In other words, the motivation is not greed, but envy.)
I haven't heard this expressed much in public, but it explains the high payments and bonuses in bad times much better than the "we pay them for their successes" theory.
A Stockholder Menality Change (Score:1, Insightful)
The only way this golden parachute will cease to exist is if the stockholders stop allowing these Executives from creating gold parachutes. Unfortunately stockholders don't do their jobs. Workers need to demand a parachute for themselves in this case. why? because if the stockholders are asleep at the wheel, it's time to steal from the stationary closet.
Re:To quote Mel: "Its good to be the King" (Score:5, Insightful)
In my mind it is the scope of reward that is evil and wrong. In the article, it is mentioned that one of the Sun executives is getting a severance package worth $175 MILLION dollars. That compensation package is enough to pay 1750 employees $100,000 for a year. Those 1750 imaginary employees who would be making that $100,000 are employees who are doing the jobs given to them by senior management. For all intents and purposes, those people are probably doing their jobs competently. Despite the fact that they are competent at their job, they are getting laid off.
People who are competent get laid off. The person responsibility for the health of the company gets enough money that he could pay 1749 other people a significant amount of money, even though he completely failed to keep the company going.
As the blog post mentions, the problem is fiduciary responsibility and the fact that in many cases (including Sun), the major share holders are also the executives themselves. So the CEO, CFO, Chairman of the Board and the rest of the executives set things up so that even in failing, they increased their stock value 42%. Thousands of employees lose their jobs, but those guys at the top get hundreds of millions of dollars among them.
There is a saying that "There is no greater sin than not knowing when you have enough." Corporate America is out of wack. The guys at the top fail so seriously that their companies go bankrupt. Despite that, they get millions of dollars. Employees who do their jobs don't get millions of dollars, and when the company fails they get assed out.
The "evil" that you don't understand is the rewarding of failure that leads to the suffering of others.
To make it easier to understand and to make a more basic explanation, lets replace "money" with "food". Lets say that the executive in charge of Sun has a machine that makes food for thousands of people. He runs the machine so poorly that it breaks down, and thousands of people no longer have access to the food it provides. In the process of breaking the machine, he manages to engineer it so that the very last time he runs the machine, it makes enough food to feed him, his family and his friends' families for a couple hundred years if they manage the food he created properly.
If there weren't laws in place to protect the asshole running the machine, the masses would tear him apart and divvy up the food he set aside for himself. Since there are laws in place, the asshole gets labeled "evil and wrong".
If there were justice in the world, or if the person running the machine were moral, he'd divvy up the remains equally among the tribe who helped him run the machine. There isn't justice in the world, and the man running the machine isn't moral. He took the lions share of what the machine produced and left everyone else out in the cold.
Re:To quote Mel: "Its good to be the King" (Score:2, Insightful)
That may be the job title...but how is that any different than other job titles like general manager, breakroom supervisor, technician, janitor. All of those people also have 'jobs' that support the interests of others...and in a less direct way, even the stockholders too. But you seem to have this thought, from your writing, that the top boss should somehow be more altruistic about their jobs vs their survival instincts. I don't think that way. When it comes to supporting my lifestyle and means of living (money) I pretty much think only of myself and MY survival if it ever comes down to it.
Don't get me wrong...I love my friends, my family and anyone around me, and as long as I have the means, I like to help out, pay for things...and I've done that with a number of my friends who have been out of work for awhile. But that is when things are flush with me. If it gets tough for me, well, that well shuts off. My sense of self preservation is priority #1. I expect no less or no more from others. I guess some give till it hurts, and that's their prerogative, but, I don't expect it and I'm not sure why anyone ever expects it from the higher up bosses, just because their survival instincts and practices involve so much more money that other peoples'.
Re:To quote Mel: "Its good to be the King" (Score:5, Insightful)
That may be the job title...but how is that any different than other job titles like general manager, breakroom supervisor, technician, janitor. All of those people also have 'jobs' that support the interests of others...and in a less direct way, even the stockholders too. But you seem to have this thought, from your writing, that the top boss should somehow be more altruistic about their jobs vs their survival instincts.
All anyone is saying is that they should be rewarded/reprimanded based on how well they do their *job*, not how cleverly worded their compensation contract is that lets them only show up two months a year, drive the company into the ground, then walk away with enough money to last them the rest of their miserable lives. Until executive election becomes more transparent in cases like this, it should rightly be criticized for what it is, nothing more than an elitist cabal designed to enrich the wallets of those holding positions of power; by the elite, for the elite.
You seem to think that just because they make obscene amounts of money, and that people like you don't really know what it is that they do or how it is that they got their job, that they shouldn't be held to any measure of accountability and instead should be able to finagle any amount of money out of the company they want to, and be able to walk away scot-free when it turns out that they spent the past 2 years working in the exact opposite way they were supposed to be.
Many high level executives run their companies right, and recognize that they have a huge responsibility on their shoulders. Just because people like you have no problem robbing a company blind (out of self-described 'self interest') as soon as there was no one looking over your shoulder, doesn't mean that it should be acceptable.
Re:They are not "payouts for failure". (Score:4, Insightful)
Re:To quote Mel: "Its good to be the King" (Score:3, Insightful)
Where is the motivation to move the world forward? If everyone followed your rules, we would still be living in caves clubbing each other for a share of elk meat. You have been brainwashed to think that as long as you only look out for yourself, and that others do the same, that we will all live prosperous lives marked by hard work and individual success. The truth is that without cooperation we would be nothing as a society, and with as quick as you (and jerkoffs like you) are to forget what cooperation means, we are headed back to the stone age faster than ever.
Wake up and realize that responsibility means more than getting your pie all to yourself.
Re:To quote Mel: "Its good to be the King" (Score:3, Insightful)
Corporations incorporated in states where the stockholders votes are advisory and lack binding authority.
Large blocks of stock owned by hedge funds which are run by other wealthy people.
Lunch tomorrow... (Score:3, Insightful)
And if he's a manager, he'll steal your lunch and blame it on the bad economy.
Re:Link to DailyKos diatribe? (Score:4, Insightful)
What's wrong with a site where anybody can post any kind of opinion?
Nothing. You just have to remember that. Posts on a places like dKos only speak for the poster, not "liberalism" or even "the Democratic Party", even the editorial policy of the site. The purpose of dKos is to help get Democrats elected. The vast majority of what is there does nothing useful for anyone, other than to provide Bill O'Reilly a fishing ground for something to rage at on a slow news day, Hell, he doesn't even have to wait for an outageous comment, he could post one himself. Not that i think he does, mind you. There'd be no point with an infinite number of monkeys at his beck and call.
Basically dKos is too large to police. If you are an abuser and you get noticed, you will be summarily canned, but that often takes a long time and you can simply sign up under a different name. So you can get just about anything on dKos, from astroturfing provocateurs, the usual contingent of sincere loonies, and quite a few intelligent, thoughtful people trying to make themselves heard of the bedlam.
Want to blame somebody? Blame Bush. It was the anti-Bush fervor that took dKos from a fairly interesting site to the madhouse it is today. [Note deliberate use of irony here]
Alternatively, blame the design of the site, which encourages a desperate contest to get noticed before your post falls into oblivion.
But whatever the cause, you're on your own when it comes to content posted there. It doesn't necessarily reflect the philosophy of the site's owners. It may not reflect the political philosophy of the person posting it. Most of it is junk. Some of it is worth reading. All of it is worth taking with a grain of salt.
Re:American companies are unique in this respect. (Score:1, Insightful)
Was the American CEO worth his pay?
Sorry, but the question itself is dumb and pointless. If owners of some company decide that they are going to pay CEO hueg amount of $, then for them he is worth it. It's their money and their decision, not yours. Want CEOs who get less money? start your own company and hire them on your own terms.
Re:Cut the republican bs. (Score:3, Insightful)
Frankly, I would prefer that the government take half of my investment in taxes for the greater good of society at large than to continue to permit insiders like Madoff and McNeally walk away with essentially all of it because it is legal for them to do so.
An interesting position for a "shareholder". Precisely which companies do you own and how many shares? I have never heard anyone who actually owns shares say that they would prefer for the government to receive half "for the greater good of society at large". People with positions like that are very rarely owners of anything substantial; least of all stocks or bonds in my experience. I don't believe you when you say that you own shares with a position like that.
As for Bernard Madoff, I would never have been taken in by the likes of him because I have always managed my own accounts. I don't need to pay someone else to loose my money for me, I can do that well enough for myself (believe me) and if I do have gains then those are all mine too. I would remind you that Madoff was running a ponzi scheme as a "money manager"; he was not and never billed himself as an officer of any publicly traded corporation.
How many more Ken Lay's, Bernie Madoff, and Scott McNeally endure before people like you wake up to the reality of what the "its all socialism", and "reduce all regulation"
Let the buyer beware. If you don't like the quarterly reports or you aren't willing to take on risk, don't invest; it's that simple.
People. This is why the guilotine was invented (Score:3, Insightful)
You think the executives of Sun are a problem?
Trillions to the bankers who are still being paid bonuses.