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Jul. 27 2010 — 11:29 am | 141 views | 0 recommendations | 0 comments

Why non-profit execs are not paid too much

Boys and Girls Clubs of America logo

Image via Wikipedia

Anger over executive salaries is fast turning into a witch hunt. We’ve no longer just down on financiers, but also on state employees, on teachers, on just about everyone. It seems everyone — except ourselves, of course — is paid too much.

And the latest target is non-profit execs. According to a piece in the NYTimes, New Jersey and Vermont are both looking to limit salaries of execs at non-profits that have contracts with the state. New Hampshire is scrutinizing heads of non-profit hospitals. And of course Washington is getting into the act:

On Capitol Hill, four senators this spring refused to approve a $425 million package of federal grants for the Boys & Girls Clubs of America after staff members looked at the organization’s tax forms as part of a routine vetting process and were surprised to learn that the organization paid its chief executive almost $1 million in 2008 — $510,774 in salary and bonus and $477,817 in retirement and other benefits.

“A nearly $1 million salary and benefit package for a nonprofit executive is not only questionable on its face but also raises questions about how the organization manages its finances in other areas,” said Senator Tom Coburn, Republican of Oklahoma.

Allow me to disagree. In these days of hyper-inflationary salaries, a $1 million package is not that big at all. C’mon — Lloyd Blankfein’s $9 million bonus represented a huge cut! And these numbers are including contributions to retirement funds and bonuses (which most often really are linked to performance — programs offered, funds raised, etc.).

Many of these people really have proven to be stellar leaders, the types of folks who would easily command multi-million packages if they worked for the private sector. And in many cases, their work is almost identical to their private sector counterparts. Do you really believe that operating a non-profit hospital is a cushier job than operating a for-profit one? That curating an art museum is easier than running a private art collection? Or that opening new Boys & Girls Clubs is somehow less logistically grueling than opening the same number of Starbucks?

Kudos to Rick Goings, who sits on Boys & Girls board and loudly, uncategorically defends the nearly-million-dollar pay package that Roxanne Spillett, its leader, pulled down in 2008:

Mr. Goings noted that during Ms. Spillett’s 14-year tenure as chief executive, the number of clubs had risen to 4,000 from 800 and the combined revenue of the national office and the local clubs jumped to $1.4 billion from $438 million.

“They don’t seem to appreciate that the Boys & Girls Clubs today are a fairly sophisticated business run by fairly sophisticated business people,” said Mr. Goings, who is also chief executive of Tupperware Brands. “Do they really think we’d waste their money? Or anyone’s money?”

I’m as against excessive pay as anyone. But we still pay mega-millions to people whose sole contribution to society is pushing useless (and often toxic) pieces of paper around. So do I mind if we pay close to $1 million to people who are effectively running organizations that genuinely bring aid and comfort and health to human beings? Not at all.

Jul. 26 2010 — 5:26 pm | 50 views | 0 recommendations | 0 comments

Nostalgia trumps technology — yippee!

A very dusty/scratched vinyl record being played.

Okay, okay, we know I’m one of the fogies, the folks who insist that the old days — whoops, ’scuse me, I mean the good old days — were better in many respects than the techno-crazed present. Anyone who’s been in my home has seen proof of my fogiedom — I use a VCR instead of Tivo, I have a 19” tube TV (two of them, in fact), I lovingly use chamois cloths on my collection of vinyl albums.

So it was with delight that I read in the New York Times magazine that even the IPhone generation is coming around to my way of thinking — and actually paying for the privilege of turning back the techno-clock.

Progress toward perfection has genuine skeptics, who insist on sticking with marginalized tools. The newer thing may seem less flawed or simply easier, such traditionalists insist, but it sacrifices warmth, soul, depth, personality, chance and the human touch. They must have a point, because practically every antiquated creative process ends up inspiring some kind of digital filter, effect or add-on designed explicitly to mimic its singular properties. The upshot is a form of progress toward perfecting flaws.

Examples abound. There’s a new digital camera that produces “a soft, out-of-focus feel that brings back the feeling of your old Super 8mm home movies.” IZotope Vinyl recording software lets users “create authentic ‘vinyl’ simulation,” right down to filters to suggest the amount of dust on a record and the degree of warping. There’s software that mimics handwriting — we’re not talking calligraphy here, we’re talking messy, smudgy scrawls.

And don’t think for a moment that these items are languishing. There’s an I-Phone app that turns pics snapped with the smartphone into dead ringers for ones “taken with an unreliable plastic camera.” According to the Times piece, this month it was the 17th-most-popular paid app in the iTunes store.

The craving for simpler times, in the form of older products, is no new thing, of course. Antiques have always been coveted. And remember, as kids, how we used to try to scuff our new sneakers so they looked lived in — and how, as young adults, we preferred pre-washed faded jeans?

But the difference is, we thought old things were better — that hand-made antique furniture, for example, was better made than modern assembly-line items. The current nostalgia craze seems aimed at the fact that the technologies of the past were charmingly flawed. And the psychological reasoning the Times writer offers seems to ring true:

The unifying theme is the link between the flawed and the interesting. A boringly perfect digital picture of a flower makes no impression. But an equally boring one marred by (digitally recreated) light leaks, exposure mistakes and focus inconsistencies presses the aesthetic button that suggests deeper meaning. Specifically, the image looks like one from a time before taking a thousand pictures in a weekend was routine. It taps into a language that predates digital abundance in order to layer on implied significance where, as often as not, none exists.

All that may be well and good. Personally, I’m just delighted to discover that instead of being a luddite, I’m actually on the cutting edge. Be impressed, all you IPhone owners! Unless you use the right apps to disguise your modernity, I have been officially declared cooler than you!

Jul. 25 2010 — 5:03 pm | 131 views | 0 recommendations | 4 comments

BP axes Tony Hayward: Should investors flock back?

PORT FOURCHON, LA - MAY 24:  BP CEO Tony Haywa...

Image by Getty Images North America via @daylife

Remember social investing’s good old days?

Before Apartheid was struck down, a growing number of socially conscious investors refused to own shares in Chase Manhattan and other companies that invested in South Africa.  No one particularly cared who was running the companies, they cared about the policies.

Many social investors still refuse to own shares in companies that sell tobacco — or in mutual funds that hold shares in such companies.  “Green” funds have become a staple of the investor landscape, comprised of shares of companies that have been deemed environmental good actors by the environmental movement. (Ironically, I think BP was once considered good to go for such funds…)  Again, none of those investors buy or sell shares because of  who is or is not occupying the corner office, only on  the company’s proven track record on the particular issue in question.

Which explains the jaundiced reaction I am having to the reason that BP has decided to toss its foot-in-mouth-disease-afflicted CEO:

This uncertainty about BP’s future business, its ultimate liabilities and its public relations debacle continue to weigh on the company’s share price, which is down about 40 percent since the spill started.

“The key issue now is whether investors and BP’s board think Tony Hayward is the right person to move the company forward,” said Matthew J. Slaughter, a professor at Dartmouth College’s Tuck School of Business. “Is this a BP problem or is this a Tony Hayward problem?”


Regardless of who leads the company, BP’s top executives have a lot to tackle. They need to convince the company’s constituents — its shareholders, regulators and government officials in the United States and other countries where BP has operations — that BP can pay all costs related to the spill, clean up the Gulf Coast, and still manage to grow its business around the world, analysts said.

via As BP Lays Out Future, It Will Not Include Tony Hayward – NYTimes.com.

Yeah, well, it should have to convince investors of one heck of a lot more.  The “problem” here is the fact that BP has demonstrated flagrant disregard for the safety or its workers and of the oceans in which it operates. That it appears to be stalling on paying damages to fishermen and others whose livelihood the oil spill has pretty much destroyed.  That it doctored the photographs of its spill cleanup that appear on its web site.

All this is reprehensible in its own right, whether or not it can afford its liabilities, or whether Robert Dudley, the guy who is  replacing Hayward, turns out to be a slick, smooth talker.

Dudley, in fact, is a pretty slick choice on the part of BP’s board.  He is BP’s most senior American executive, in charge of BP’s Gulf of Mexico operations.  Presumably he’ll have a better idea of how to deal with the American press, of how to properly use American idioms (e.g., he’ll know better than to use “small people” as a synonym for hard-working folks), of how to position BP as simultaneously blameless and deeply remorseful (in the world of spin, there is no such thing as an oxymoron).  And he undoubtedly has experience hobnobbing with American politicos — experience that BP sorely needs right now, since Congress has been rumbling about banning the company from new offshore ventures.

There’s no indication that he has any firmer moral compass than any other BP executive.  But to hear analysts speak, that does not — and should not — matter one whit to investors:

Bruce Lanni, an energy portfolio strategist at Nollenberger Capital Partners, said the fact that no more oil was spilling the gulf was “an inflection point” for BP.

“There are a lot of good things now going in BP’s favor,” Mr. Lanni said. “There has been an overreaction to the cost of the spill. BP has the opportunity to emerge as a stronger company. I think this is where investors are missing a window of opportunity.”

Some investors, however, are still concerned about the ultimate price tag for the spill. Uncertainty over BP’s liabilities is keeping its shares under considerable pressure, although they rebounded somewhat in recent weeks. BP stock closed at $36.86 on Friday, valuing the company at $115 billion.

“Right now the market is just guessing what the liability might be for BP,” Jay Singhania, a vice president at Westwood Management. “If BP could help outline exactly what the costs would be, then investors could gain more confidence.”

This would be a pretty good time for the socially conscious investing community to wake up. Say you don’t want a change in faces and accents, but a demonstrable change in policy and behavior.  And if you don’t get that, publicly, loudly, dump the shares.

Jul. 24 2010 — 7:37 am | 196 views | 0 recommendations | 8 comments

Why I want the names of the best-paid financiers

Throw cash at the problem

Image by Lomo-Cam via Flickr

There’s nothing surprising about the latest — and probably final — report that Ken Feinberg,  who is about to trade his role as Washington’s pay czar for one as it’s BP czar, just issued about excess bonuses at beleaguered banks.

With the financial system on the verge of collapse in late 2008, a group of troubled banks doled out more than $2 billion in bonuses and other payments to their highest earners. Now, the federal authority on banker pay says that nearly 80 percent of that sum was unmerited.

In a report to be released on Friday, Kenneth R. Feinberg, the Obama administration’s special master for executive compensation, is expected to name 17 financial companies that made questionable payouts totaling $1.58 billion immediately after accepting billions of dollars of taxpayer aid, according to two government officials with knowledge of his findings who requested anonymity because of the sensitivity of the report.

via Feinberg Says Bonuses Paid by Troubled Banks Were Unmerited – NYTimes.com.

Yeah, Ken, we knew that. And it ticks us off mightily. (No, that’s not the royal or editorial “we” — I’m assuming that I’m speaking for the vast majority of Americans).

But we also know there’s not a darned thing you can do about it. Most of those companies have already repaid their bailout funds, pretty much removing them from your jurisdiction.  And even at those that are still officially in Washington’s debt — and thus under it’s thumb –  many of those payouts were made under the terms of ironclad contracts written long before the economy imploded.

But the one thing that we can do is shame them.  So what really bothered me is this:  “Mr. Feinberg is not expected to name individual executives who received the highest awards. ”

Why the heck not? Seems to me, traders and others who genuinely believe they earned that money should be proud to tell the world of their stellar performance.  Andrew Hall, the Phibro trader at Citigroup who received a $100 million bonus (amidst such public anger that Citigroup had to sell the unit), never showed the slightest embarrassment about it.  Way he saw it, he made tons for his employer, why shouldn’t he grab a huge chunk of the wealth?  Truthfully, I can’t argue with him about that.

But those who know that their performance probably warranted a payout of at most $1 for the year should at least be held up to scorn. If nothing else, it could shame them into donating a huge chunk of their ill-gotten gains to charities, which sorely need the infusions right about now.

I don’t know of anything in privacy law that makes it illegal to publish the names and compensation packages of high earners.  Indeed, by law proxies must include information about compensation  packages of  top officers.  And the argument for anonymity that was offered back when AIG gave $165 million of our money to its people — that their lives would be in danger — doesn’t cut it for me.  All rich people are at risk of being ripped off — drive a BMW through a poor neighborhood, see how safe you feel.   If you got a huge bonus that you didn’t deserve, then spend some of it on round-the-clock security, if it makes you feel safer.  Not my problem. I just want your name out there — your country club colleagues will applaud you, but others will spit.  I’d rather get the money back, but I’ll settle for that.

Jul. 22 2010 — 5:20 pm | 112 views | 0 recommendations | 12 comments

Watch out, G.M. — that’s a tightrope you’re walking

A General Motors dealer displays a banner prom...

Image by AFP/Getty Images via @daylife

General Motors just spent $3.5 billion to buy Americredit, a subprime lender. I guess it’s good news — first, that G.M. actually HAS $3.5 billion (probably from the huge revenues it’s been reaping in China), and second, that it can now give Americans an easier path to buying its cars.

But the news still sent a shiver down my spine. Subprime lending — isn’t that what toppled several once-stellar financial firms, and came close to toppling the entire economy?

G.M.’s motives, of course, are clear. This from today’s New York Times:

“Our dealers have been telling us that not having an in-house finance arm hurt our ability to finance certain loans and leases,” Edward E. Whitacre Jr., G.M.’s chief executive, said in a conference call. “It hurt our ability to meet rising customer demand for G.M. cars and trucks. Now we’re going to fix that.”

In fact, some experts say that the ability to extend financing could boost G.M.’s domestic sales by 20%. Hard to argue with that.

What worries me, though, is that dealers make money when they sell cars, so won’t they be monumentally tempted to extend credit to people with poor chances of paying it back? Is there a real difference between a sub-prime car loan and a sub-prime mortgage?

I’m probably over-reacting. If someone defaults on a $15,000 loan, it’s not as dangerous to the company — or to the economy — as when someone defaults on a $500,000 loan. Nor is repossessing and reselling a car as complicated as foreclosing on a mortgage. And there are an awful lot of people with low credit scores who, in fact, are safe bets for repaying loans. Jesse Toprak, the vice president of industry trends and insights at TrueCar.com, makes a good case for that:

Mr. Toprak said many consumers have low credit scores because of isolated negative events like late bill payments but otherwise pose a low risk of default. As a result, they are being turned away by lenders who tightened their credit standards after subprime mortgages helped cause the recession.

“They’re basically being ignored simply because of the paranoia. It used to be there was lending like drunken sailors, but now it’s the opposite,” Mr. Toprak said. “If G.M. can fill in that void, there’s a big potential for return for them.”

Fersure. But why would we believe that Americredit and GM dealers would be any better at filtering out the potential deadbeats from the safe bets? Are they really that much smarter — and that much more conservative — than the pre-recession mortage brokers? I have no reason to believe they are. And as I said above, a dealer will do most anything to make a sale.

Again, I hope I’m having an unwarranted, knee-jerk negative reaction. But I don’t feel good about this…

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    I graduated from Cornell with a degree in child psychology, enough years ago so that all you needed to break into journalism was willingness to starve. I went into business journalism because, in the 60s, the business press was the crusading press, the ones that wrote about environment, race relations, etc. Since then I have worked for Business Week, Chemical Week and, from 1984 through May 2008, BizDay at the New York Times. I remain bored by and ignorant of esoteric financial instruments; I remain fascinated and pretty knowledgeable about management, marketing, environment, all the non-financial aspects of business. But my true passions? Tennis, both playing and watching, and food, both cooking and eating.

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