The Time Has Come (the Walrus said) Archives

Shareholders of the World: Unite

The problem

We are now coming down from the exalted heights of a few years of good times, when CEO’s pay has grown by outrageous multiples. The pay of the CEO has grown to the point where it is in the millions. Where once the guy who ran a company was paid perhaps 10 times average earnings, they are now paid around 100 times, if not more.

This has been justified over the years by the Remuneration Committees who set CEO pay. These committees are formed from the board members of the company setting the pay. The pay levels are often justified as being needed because good management is a rarity, good managers exist in a world market, so we have to pay world market prices.

The fallacy of this argument becomes apparent when we import CEO’s from other countries (remember AMP under George Trumball?), and then find to our shock and horror that their reign-of-error ends in disaster. Likewise the various other managers and CEO’s who do a seagull: come in, make a big flap, crap everwhere, and then piss off.

The boards and advisors who set remuneration are usually members of the ex-CEO’s club, so it’s hardly surprising that they help their mates to stick their trotters further into the trough.

To add insult to injury, there are two other common practices when setting a CEO’s pay: giving them shares in the company, or issuing options.

In both cases, the reason given is “to align the interests of management with those of shareholders”. What utter piffle. Read on.

The Fallacy

Giving a manager shares (at no cost)  allows that person to share in the upside, if the shares rise in value they do nicely. Naturally there is an incentive there for them to work to increase the value of the shares. But remember, if the shares don’t rise in value for whatever reason, the executive concerned started with nothing and still has something. And something is better than nothing. So they can’t lose: Shareholders share the upside and the downside, free shares given to executives allow them to share only the upside and not the downside.

Options are even more insidious. The option is a right to purchase shares at some time in the future, but at a price set now. The time of purchase is called the exercise time, the price is called the strike or exercise price. Normally, options will be priced in such a way that all concerned hope the shares will be worth more, at the exercide time, than the strike or exercise price. So the executive gets to buy below market. The incentive here is for the executive to work to get the price nice and high so they can exercise the options and make an instant paper capital gain.

Both approaches are often dressed up in all sorts of other variations. You can get “performance rights”, and “executive option plan vesting shares” and god knows what else. Fundamentally they are all either a grant of shares, or of options.

Fortunately the bad old days of options being issued with a price of 1 or 2 cents are gone. Those were the ultimate get-rich-schemes for executives.

All these schemes amount to a free ride for the executives.

Here’s why:

  • Shares in a company are an ownership stake. If you own shares, you own a little part of the company.
  • Grants of shares and options come at a cost to the ordinary shareholder who had to use real money to buy the shares.
  • Granting shares to executives dilutes the holdings of the other shareholders.
  • Irrespective of how you pitch it,  the executives bear no downside risk. Apart, perhaps, from to their reputation. But not in monetary terms.

And finally, and most fundamentally, executives are there to work for the good of the company owners: the shareholders. It’s their job. If the executives are broken, get rid of them and get some new ones that work.

The Solution

If executives want to own shares in the company they work for, they should pay for them. Just like anybody else. Then they have a real ownership stake, and feel real pain when the share price falls.

Nothing else counts.

The Manifesto

So, shareholders large and small: sign up to the shareholders manifesto. Three little things you need to do and remember:

  • I will vote in company elections at the Annual General Meeting.

Always. Without exception.

  • I will vote against pay rises for the board members.

The board are there to represent the owners, not to get rich.

  • I will vote against all issues of shares or options to executives.

Always. Without exeception.

If you want, vote against the Remuneration Report as well. This sends the board a strong message that you, the owers don’t like the excessive pay packets of the management of your company.

Do these things! Help to begin and then maintain the ejecting of bloated executive entitlement princesses from the their palaces.

Make business better by thinking and behaving like an owner.

London – but where? (take 2)

Man in Moon Passage. Why? What man? Which moon?

I can’t find any historical reference as to how the name came about.

By the way, it’s off Regent Street.

Rick Wagoner

Has nobody else noticed the irony?

The CEO of General Motors (now advancing with begging bowl outstretched to the US government) is Rick Wagoner.


For something completely different to the previous post, although it is a piece of blatant advertising…

This is humourous.


This morning I’ve been to the last of the Saturday morning school cricket matches for this year.

Today’s match was at a school which shall remain nameless, in the very-deep northern suburbs.

Looking around, I noticed that the school swimming pool, so carefully fenced to a height of 2 metres, has been filled in. The changing rooms sit there, abandoned, with pigeons cooing from the rafters. The school is a strange mix of transportable wooden buildings from about 1950, and a few more modern brick buildings – from the 1960’s. That’s modern. There are windows that have been broken and boarded up, grass grows through cracks in the paving.

The one thing, the only thing, going for this school is the oval. Which is not an oval, because its a long rectangle. But it’s green, and they have a group of parents and kids out who are having a crack at playing cricket.

This school, and this neighbourhood, is a shithole. Lowest of the low working class, permanently poor. At least a few of them are getting out and trying.

And while sitting there and watching, I’m reading the paper. With an article in it about how parents are suffering because private school fees have gone up so much more than inflation.

This comes after a week where the Federal government have had a big fuss about accountability of private schools who receive over $20 BILLION of federal taxpayers money.

And contrast this with a few months ago when, done southish with friends, we went for a walk to a nearby school to kick a ball around. This was a private school, but we used the grounds anyhow (stuff em, my bloody taxes are paying for some of it). I felt literally sick – the amount of new building work being done (a new computer complex AND gymnasium) is obscene.

Those who want private schools to be unaccountable for their funding sources, and those who defend the right of private schools to get government money, should take a look. Take a good look, at the private schools with the endless building and improvement programs. Include in those the “independent” schools – usually religious, who have likewise grown like mad in the last decade. And take a look in the working class areas at the public schools. Walk around through the grounds of both. Do it on the same day.

We have, through deliberate government action, created a two-tier education system. It was done in the name of equity. That equity has failed miserably.

Something’s wrong, folks. And nobody is brave enought to fix it. All they want to do is whine about how hard it is to pay the private fees. Boo f$#@ing hoo.

The Willows

Time for a bit of free publicity.

Many years ago – probably just after they opened – we discovered “The Willows Vineyard”, at Light Pass in the Barossa Valley. The Scholz family have been living there, and growing grapes, for a long time. The grapes were sold to others, and that was that.

As I understand it, about 20 or so years ago, one of the Scholz’s ended up working as a winemaker for Peter Lehmann Wines, and then decided to have a go at making his own from the family’s own grapes.

We discovered them on one of those wine-tasting weekends of about 20 years ago, and have since been going back every now and again. I’m on the mailing list, and each year they send a very simple single page, with a very brief description of their activities, and a price list.

Now the reason for writing this is twofold:

- last night I opened a bottle of 1995 (not that is not a mistake) Willows Cabernet Sauvignon. Apart from the cork being pretty stuffed and needing to be fished out in bits with a teaspoon, it is very very very good. A great many modern wines will not survive for 13 years after bottling. This one sure has.

- and now today I’m tidying up piles of paperwork and junk that’s been accumulating for weeks. I found the latest Willows newsletter / pricelist. They are selling a 2005 Shiraz which won a Gold medal in this years Barossa Wine Show, and for a mere $20. Not many places you can get a gold medal winning red, with 3 years age already on it, for that price. A steal.

This is not the only time they have won awards, though. Their reds have been picking off awards from one place or another for years, but this doesn’t seem to have gone to their heads. Where others jack the prices up to something silly ($40 or more), The Willows just keeps on plugging away selling excellent wine at good prices.

You will struggle to find them in bottle shops, but if in the Barossa, make a side-trip out the sticks (Light Pass is flat, rather dull, and a 3-building township) and search out The Willows. It’ll be worth the effort.


Obligatory disclaimer: I’ve got nothing to do with The Willows apart from being a fan of a good product!

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