Principals, Agents, and Payments

By |2017-01-04T12:58:19-04:00January 4th, 2017|Categories: Global Market Update|Tags: , , |

Is CEO pay too high? Photo: Jonny Linder. Source: Pixabay In 1977 management guru Peter Drucker suggested that CEOs shouldn’t make more than 25 times the average salary at their companies. He thought that wider gaps bring resentment and falling morale. In 1983 the a CEO made 43 times the median worker’s salary. In 1993, Congress passed an IRS rule that required executive pay above $1 million to be performance-based in order qualify as tax-deductible. The result [...]

Follow the Money (Part 4)

By |2016-11-17T15:46:13-04:00July 11th, 2016|Categories: Global Market Update|Tags: , , |

Can’t we all just work together? Photo: Roy Lister. Source: Wikipedia Every employer’s dream is to have their workers act like owners. They want their employees to be diligent and energetic, and to treat customers well. They want workers to look out for the top line and the bottom line—growing revenues and maximizing earnings. And they want their people to behave in an ethical, sustainable way. But how do you get there? The principal-agent problem can’t just [...]

Follow the Money (Part 3)

By |2016-11-17T15:46:16-04:00July 8th, 2016|Categories: Global Market Update|Tags: , , , |

Do salaries create conflict, too? Source: Gratisography Salaries have also been around a while. Our word “salary” comes from a Latin word for salt. Roman soldiers were given “salt money” as pay; we still may say that workers are “worth their salt,” meaning that they earn their pay. Salaries are set monthly, or annually. Salaries became more common during the industrial revolution. They were used to pay administrators and managers whose work was difficult to measure, but [...]

Rating Agency Issues

By |2016-11-17T15:48:04-04:00June 20th, 2016|Categories: Global Market Update|Tags: , , |

Can the ratings agencies be saved? Blind Justice. Photo: Itojyuku Themis. Source: Wikipedia Investors, companies, and regulators all benefit from having a cheap and easy way to measure credit risk. There are all kinds of institutions with a public mission that need to invest in bonds, and they need their bonds to be low-risk. Investment-grade or A-level credit ratings provide this. But the credit agencies are paid by the bond issuers—a clear conflict of interest. Can this [...]

Standing on Principals

By |2016-11-17T16:01:14-04:00January 25th, 2016|Categories: Global Market Update|Tags: , , |

Do we have too many principals? Principal-Agent Illustration. Source: Wikipedia. 40 years ago we didn’t. That’s when several researchers described the “agency problem,” where principals own the assets, but agents make the decisions. This can lead to conflicts, like when executives decide commercial air travel is too inconvenient, so they buy a corporate jet instead. Who decides whether the jet is a productivity tool or a luxury? When executives use corporate resources for cushy perks, it’s bad [...]