Comments on: The Importance of Compensation

By: ‘PRESIDENT OBAMA’S REGULATORY REFORMS ANNOUNCEMENT: A VIEWER’S GUIDE,’ by Simon Johnson at : baselinescenario. com. « Want Less Blog

Wed, 17 Jun 2009 11:57:38 +0000

[...] much broader break down of corporate governance in this country, with boards of directors serving no discernible purpose in terms of limiting the excesses of corporate executives in the financial sector but also more broadly? Surely, without a reform [...]

By: President Obama’s Regulatory Reforms Announcement: A Viewer’s Guide « The Baseline Scenario

Tue, 16 Jun 2009 13:03:51 +0000

By: Interesting Reads 6th June 2009 | OneMint

Interesting Reads 6th June 2009 | OneMint — Sat, 06 Jun 2009 08:01:22 +0000

[...] The Importance of Compensation by The Baseline Scenario [...]

By: Social media: coming to a boardroom near you… | AlfadogPR Inc.

Social media: coming to a boardroom near you… | AlfadogPR Inc. — Tue, 02 Jun 2009 21:12:16 +0000

[...] point at which adoption becomes self-reinforcing. I tipped to this point, so to speak, after I read The Importance of Compensation post on The Baseline Scenario. The post and its responses are brilliant in dissecting what went [...]

By: Top Posts « WordPress.com

Top Posts « WordPress.com — Mon, 01 Jun 2009 00:17:47 +0000

[...] The Importance of Compensation In my opinion, one of the biggest contributors to the crisis we know so well was compensation schemes that gave [...] [...]

By: Fed Up

Fed Up — Sun, 31 May 2009 22:23:40 +0000

The real problem is wage and job suppression in the high wage countries that lead to low interest rates that lead to borrowing for the purposes of financial speculation.

Force up wages and raise some prices somewhat. Watch interest rates go up and financial speculation with debt go to almost zero.

By: Fed Up

Fed Up — Sun, 31 May 2009 22:22:52 +0000

Min, did too much consumer debt and too much financial speculation debt cause the Great Depression?

Did those two things just happen again?

By: Fed Up

Fed Up — Sun, 31 May 2009 22:14:57 +0000

“Jobs flee high taxation areas.”

Is it more like spoiled, rich people want to flee high marginal tax areas and want to take the jobs with them?

Let them leave. Keep the jobs!

By: Fed Up

Fed Up — Sun, 31 May 2009 22:11:47 +0000

“Does anyone really think you can tax your way out of our income disparity?”

Partially. The best thing to do is tighten the labor market so middle and lower income people can get raises NO MATTER how much the fed and the spoiled and the rich do NOT like it.

By: Fed Up

Fed Up — Sun, 31 May 2009 22:08:56 +0000

Make it nationwide. If they leave, then don’t trade with whoever they go to.

Keep the jobs and businesses here. Get rid of the greedy people at the top. Replace them and watch as the country does NOT fall apart contrary to what the “people” at the top think!

By: links for 2009-05-31 « Lasting Impression

links for 2009-05-31 « Lasting Impression — Sun, 31 May 2009 19:52:34 +0000

[...] The Importance of Compensation « The Baseline Scenario In my opinion, one of the biggest contributors to the crisis we know so well was compensation schemes that gave individuals at financial institutions – from junior traders all the way up to CEOs – the incentive to take massive bets. Put people in a situation where the individually rational thing to do is take lots of risk, and they will take lots of risk – especially if they are generally ambitious, money-loving, and predisposed to think that if the market is giving it to them, they must deserve it. (tags: banking finance compensation risk reward disney lessons crisis incentives economics simon_johnson management) [...]

By: Min

Min — Sun, 31 May 2009 17:51:34 +0000

Paul: “And on the other hand, every boom since the 20’s has been preceded by a tax cut; the Andrew Mellon cuts in the 20’s, Kennedy cuts in the 60’s, Reagan cuts in the 80’s, Capital gains cuts in the 90’s, and the tax cuts in the Bush II years.

“High taxes have consistently shown to discourage economic growth and job creation. Higher taxes are exactly what we don’t need right now, no matter what illusionary social engineering benefits some think they might have.”

Absolutely right. Now is not the time for high taxes. The time for high taxes was a few years ago, to counteract the incipient bubble. No bubble, no crash.

By: Daniel Colascione

Daniel Colascione — Sun, 31 May 2009 15:46:39 +0000

Your comment is factually incorrect. According to http://www.bls.gov/web/laumstrk.htm New York has a middling unemployment rate. California has its own issues that are unrelated to a progressive income tax.

Yes, you really can tax your way out of income disparity. It worked fine for 40 years before the Reagan “revolution”.

By: Donald Thieman

Donald Thieman — Sun, 31 May 2009 13:03:00 +0000

James Kwak’s analysis is spot-on. I would add that boards are even more unlikely to rein in compensation for executives, because they are themselves drawn from the same business stratum–they are accustomed to feeling entitled to large sums of money per unit of useful work, so it’s very hard for most of them to see the “problem” with outsize compensation for senior executives in the companies they serve.

By: Abby

Abby — Sun, 31 May 2009 02:34:59 +0000

I think that the best way to approach compensation problems is indirectly. First of all, there are tax code issues (I believe they are still around, though it has been a few years since I followed this closely) left over from when congress was worried about empire building and conglomerates. I believe that executive salary above a relatively low level is punitively taxed unless it is “performance related.” It was this tax change that led to the flowering of options, etc. and increased significantly the payoff to risk-taking. It seems to me that congress should stay out of the nature of the exact contract being written. Higher tax rates are fine as long as they apply to income regardless of source.

More importantly, I think that there should be a big push to improve the transmission of information about a company’s performance. If it were clearer how well a company was doing, executives would have more incentives to actually do well, rather than engage in financial engineering to make their financial statements look prettier. I study the economic effects of accounting information for a living, so this may be a case of everything looking like a nail because I have a hammer, but I think that reporting has been an under-discussed issue in all of this.