Mitch, nice job. Your last few lines had me laughing.

This is what I love about blogs. I've never been to, and likely never will visit, the UHC lobby. I actually thought Coleman's description was interesting, until you gave another description of the lobby sculpture.

Because it's not like the Strib is going to pring any letters from readers who point out such inconsistencies in his writing.

Maybe you could spring for a copy of the book Naked Economics for Nick so that he could learn how economics really works. That book is ideal for him because there is no math in it. I've heard a rumor that he knows how to read.

I'll be waiting for the Nick column deriding the perky Katie Couric who makes $85,000 a day for being an airhead.

Glad to see the GOP can always be counted on to defend the wealthiest amoung us.

No one disputes that someone should benefit from the tremendous success UHC has had over the years. You think Bill McGurire should get all the dough. I think the wealth should go to the people who did the most to create it: the other 30,000 employees of UHC and the shareholders of UHC.

After all without Bill McGuire UHC would have done almost as well, without the 30,000 and the shareholders UHC would have disappeared.

RickDFL-

"After all without Bill McGuire UHC would have done almost as well"

How can you possibly know that? In hindsight, such claims are always easy to make, but it's quite possible that under different leadership UHC would have floundered and its stock value appreciated little. Obviously the board thought that McGuire was a big part of the company's success and took the actions they thought necessary to retain him.

The idea that McGuire got "all the dough" is absurd. I think the shareholders of UHC have done okay over the years.

Did Coleman at least mention UHC's stock performance in this column? He wrote a piece a few weeks back about McGuire's earnings without once ever mentioning the success that the company had enjoyed under his leadership.

What the media did not ever talk about when discussing his $1,800,000,000 in current stock options was the cost to execute those options. Anyone got the number on that one?

However, my guess is that some of his options were granted well under the current market price of the stock when granted, which as a shareholder would be a practice that should not be tolerated.

Also, it didn't help to have all those reports about the Exxon (?) executive who made $115,000 per day during his tenure.

Fulcrum

Rick,

"You think Bill McGurire should get all the dough. "

Before you write another word, Rick, show me where I said that.

UHG shareholders, as Elder notes, have done just fine. In fact, someone who bought $1,000 worth of UHG in 1990, and held the stock, would be sitting on WELL over $50K today. Years of economically-illiterate reporting have trained too many consumers to think that every highly-paid executive is a Ken Lay, plundering a company that's really just a shell to cover a scam. This would seem not to be the case at UHG.

"without Bill McGuire UHC would have done almost as well,"

You're DFLer enough to put it in your handle, so I expect illiteracy about business. But Rick, the statment is at best (I'll be charitable) unverifiable and hypothetical to the point of fantasy. Do you have any idea how many companies have started in that market space in the past twenty years? And how few have succeeded?

Leadership and vision are what makes the difference; McGuire has both, and the company's performance (and the fact that the shareholders - the company's *owners* - have re-elected him and his board for the better part of two decades.

Did Nick Coleman mention that a typical nurse would have to work FOUR years to earn what Nick Coleman earns in a year for his three columns a week?

No?

"but it's quite possible that under different leadership UHC would have floundered and its stock value appreciated little."

Actually, if memory serves, McGuire came in in the mid-late eighties, when the company was on the verge of foundering. The stock was under a buck.

It'd be fair to credit McGuire for navigating the company out of that particular crisis - one that most companies in that space have not survived.

Mitch-
" 'You think Bill McGurire should get all the dough. '

Before you write another word, Rick, show me where I said that."

Fair enough, I was trying to be charitable and assume that you had the guts to take a position on whether McGurie deserved 50 million a year. I infered this from your tone of hostility towards an author who claimed BM did not seserve this much and your use of variously weasel formulations to avoid saying you thought he didn't deserve to 50 million a year. But you are rigth, from a strictly logical point of view you have not made any claim about how much BM deserved to be paid. So, before you write another word how about saying how much you think BM deserved to get paid.

"UHG shareholders, as Elder notes, have done just fine."

I love how you just ignore how my point that the 30,000 employees at UHC deserve some of the 50 million a year that went to BM. It is good to know that Republicans will always ignore the suggestion that average workers might deserve a bigger share of the profits.
But to your point, shareholders have not done 'just fine'. Lets say 10 million was the most BM should be paid. If we follow the Republican 'stiff the 30,000 employees' plan, that means shareholders were losing 40 million a year to BM's salary. Every dollar overpaid to a CEO is a dollar taken from shareholders.

Is BM overpaid? That is a far larger question but if the average UHC employee makes say 50,000 a year I don't think BM deserves more than 200 times what the average employee made. Yes "leadership and vision" make a difference, but every single employee at UHC contributed their "leadership and vision" to the bottom line. I don't think BM provided a much effort as 1000 employees every year.

The other thing that people ignore is that a lot of the compensation is in the form of stock options. Stock options do not really cost the issueing company anything.

Example:

The company issues the option to the executive saying that in 2 years he can purchase stock from the company at a price. For example $4 per share. Now in 2 years the market price is $3. The executive has not managed the company for shareholder wealth enough to get the stock to above $4 share. What happens? The options expire, the executive gets nothing.

Now suppose is 2 years the stock price is $8 dollars a share. The executive has managed the company for shareholder value. The executive now has to pay the company the $4 option price. The company either issues new stock, or removes it from treasury stock previously purchased. The executive "earns" the difference between the $4 option price and the $8 market price. It cost the company what? Despite accounting tricks, actually nothing, in fact the company realized $4 a share of new capital. Shareholders did experience some dilution, having to split future profits into more pieces, which should cause the market price to drop marginally.

RickDFL-

A couple of points:

"It is good to know that Republicans will always ignore the suggestion that average workers might deserve a bigger share of the profits."

I happen to know that UHC has a rather generous company stock buying program for their employees. Those who have taken advantage of it have benefited quite nicely from the stock's surge under McGuire's leadership. This isn't a 19th century textile factory we're talking about here with greedy management getting rich off the backs of the poor laborers.

"So, before you write another word how about saying how much you think BM deserved to get paid."

Holman Jenkins addresses this in a piece in today's Wall Street Journal and explains it quite well:

"Notice we don't use the language of "deserve" or "worth" or "reward," common in complaints about CEO pay. These are after-the-fact judgments, and any board that dishes up large pay for performance that's already in the books isn't doing shareholders any favor. "Pay for performance" is paying for the past, not the future, which is what stock prices care about.

That's why CEO pay is about incentives -- the incentive to commit to the job in the first place, the incentive to make decisions that benefit shareholders. Should a company go for broke on a new investment project or play it safe? Should it conserve cash or spend lavishly on customer service and advertising? Should it pay bonuses to employees or direct the same cash to the bottom line?

A shareholder is hardpressed to make these calls from the sidelines. Meanwhile, tugging at a CEO's elbow all the time are competing constituents who also want something at the company's expense. Hence the use of stock options, unabated by controversy and fully supported by valuations in the stock market, to put CEOs in the place of owners when making these choices. In turn, the market sits in judgment on a CEO's every move, adding or subtracting in a nanosecond a sum from the company's market value that dwarfs even the CEO's pay package."

Hey Ricky-DFL:

I know you are enjoying this bashing of a private sector CEO. But while your having your fun, how about demanding Lois Quam fork over a pile of her dough too. She's a high-level exec, although not a CEO. And she has benefited JUST as much as McGuire from the increase in stock price and soaring benefits from her stock options.

Oh yeah...that's right...Lois is also known as Mrs. Matt Entenza. And Lois was the one responsible for the pile of money that 'ol Matty boy laundered through Washington DC for the last campaign cycle, in an attempt to buy the State House election.

I just love how when conservatives defend basic economic principles the left immediately accuses us of only caring about the wealthy.

As an employee of a large company with a CEO that has a large salary and an even larger bonus, I don’t mind. The employees are treated good and the company is doing well. Now, I think if the company was going down the tubes, then you would have a much better argument. Also, don’t get me wrong, if there was any monkey-business with the time of the option grants, then I think he should be investigated. But, I have no problem with large compensation packages for CEO’s, especially if the company does well under his watch.

I also love the left’s socialistic mantra of wealth redistribution. It sounds good to the masses. Johnny Lunch-Bucket thinks “If could get some of that money the boss is making, like the left says I should, then I would be rolling in it.” Of course, the left, like Nick Coleman, seem to be mathematically challenged. Do the math. If you split Mr. McGuire’s $50 million a year between the 30,000 employees, everyone would get $1,660 (at my company, if you split the CEO’s bonus between the employees I would get about $46). And that doesn’t factor in any adjustment for seniority or anything like that. It is not the socialistic dream that the left believes it is.

When in doubt, do the research.

For the sake of illustration, since the stock was under a buck, let's say it was 75 cents a share when McGuire took over UHC. Let's also say, for the sake of illustration, a union member's pension fund purchases 1000 shares and holds them all the way up to today. Those 1000 shares at the time of purchase would be worth $750. How much would those 1000 shares be worth today, in my illustration?

1.6 million.

There were five different 2-1 splits during the 90s(if you had one share, you would now be holding 32 shares.) The union pension fund would now have 32,000 shares with each share worth $50 as the average price the last year.

Think McGuire hasn't benefitted the shareholders? Even just the last ten years?

I agree with Elder regarding CEO incentives..but where is the incentive when this is the business practice?

"The Wall Street Journal has reported that in 1997, 1999, and 2000, McGuire was granted stock options on the day the shares hit their low for the year. It also reported that until last year, he could choose the day his options would be granted by giving "oral notification" to the chairman of the company's compensation committee."

-Fulcrum

The shame of it is that nincompoops like Coleman obscure an important topic with their idiotic rhetoric. It really is worthwhile examining whether stock grants, as opposed to options, with laddered windows after the CEO has retired, is a better way to align a CEO's interests with the shareholders. There really is principal/agent problem in corporate governance, wherein the board of directors and senior management are often inadequate in serving shareholders' interests. When the argument becomes, however, "Look at how much money that guy has!", these important issues are ignored as twits like Coleman foam at the mouth.

I think more is at work with our friend RickDFL.

I'm OK with Paul McCartney being worth 500 mil or whatever the real number is. But it turns my stomach to watch these shows with Eminem or Kid Rock or the rapper-du-jour and showing how much they have and how much they've made. Why? Because I don't value their contribution. I don't care for their art, I don't think what they've done deserves their compensation. I say all this realizing Snoop Dogg has as much right to make a buck as Josh Groban. I can intellectualize that. But my emotions betray me, as they say.

That's the thing with Rick. Maybe I'm reading to much into what he wrote, but I get the feeling he doesn't value CEOs contributions at all. He doesn't think a CEO could EVER do anything to make him worth 500 times more than the 19 year old they just hired in the mail room.

I wonder if Rick has a real job.

Rick is under the delusion that "effort" is the key element to profit and loss, and thus questions whether a CEO gives as much effort as 1000 employees. Yes, effort is essential, but it is only the beginning, and thus it is a given, or should be, that every employee is giving a very strong effort. The unfortunate fact is that there are plenty of failed businesses where management and employees have tried very, very, hard; they gave a huge effort. That ain't even close to being enough, however. What is required, and what needs to be rewarded, is innovation, so as to deliver a product or service which is superior to others delivering a competing product or service. I have no problem believing that MacGuire has been a 1000 times more innovative than the typical United employee, for the simple fact that the typical member of a 30,000 person bureaucracy is usually not very innovative at all.

Loren:

"Stock options do not really cost the issueing company anything"

Please remember the sacred text of Milton Friedman - 'there is no such thing as a free lunch'. Stock options do not cost a company anything if the stock price falls. If it rises they must either pay the difference to purchase the stock or issue new shares which dilutes the value of current shares. This costs shareholders, exactly the same amount as the first option would cost the company.

Fulcrum is correct that there may have been something fishy about the dating (or possible back-dating) of some of McGuire's options as reported extensively in the WSJ. Although I don't believe it is technically illegal, it certainly raises some ethical issues. That, and not the amount that McGuire received or how many times more he makes than the average UHC worker, should be the focus of the story.

Armchair Squirrel -

"As an employee of a large company with a CEO that has a large salary and an even larger bonus, I don’t mind. "
Good for you. Some other people have more self-respect and desire to provide for their families.

"If you split Mr. McGuire’s $50 million a year between the 30,000 employees, everyone would get $1,660 (at my company, if you split the CEO’s bonus between the employees I would get about $46)."

Show of hands. How many people at UHC would like an extra $1,660 a year?
I suspect you would not be similarly indifferent to a $1660 per person tax increase.

"Some other people have more self-respect and desire to provide for their families."

"Show of hands. How many people at UHC would like an extra $1,660 a year?

I suspect you would not be similarly indifferent to a $1660 per person tax increase."

Some other people don't hint at carving up someone else's ass to provide for their families by engaging in class envy.

Paul:

"When in doubt, do the research."

When in doubt read what your opponent says.

No one said "McGuire hasn't benefitted the shareholders." The question is whether he benefited them enough to deserve $50 million per year, because his salary and options certainly took resources that could have gone to other employees or stockholders. Sure UHC stock did well. I think it would have done even better if McGuire was paid 40 million less a year. If so McGuire was stealing from shareholders just a sure as he crawled in their window and raided their piggy banks.

"The question is whether he benefited them enough to deserve $50 million per year, because his salary and options certainly took resources that could have gone to other employees or stockholders."

Read the numbers, RickDFL. One share of stock worth seventy-five cents is now 32 shares worth $1600. In the stock market, that's astronomical.

Stealing from shareholders?

"Stealing" implies sneakiness, illegality, swindle.

Was McGuire's salary set by the Board? Was the formula not in the annual report?

Rick, you're acting like you're onto another Enron here. You're not.

Would a UHC employee like $1,660 a year? Dunno - but since there'd be 30,000 fewer jobs without McGuire's acumen in running a company (when I worked at UHC, it was way under 10,000), you could start there.

UHC pays well, is VERY highly regarded, and has among the best benefits in town. They are *extremely* highly regarded as a progressive employer.

Care to trade that for $1,600?

Rick -- So, if someone can do your job as well as you do for less money, does that mean that you are 'stealing' from your employer and co-workers 'just as sure as (you) crawled in their window and raided their piggy banks'??

John M in MN -

"Rick. Maybe I'm reading to much into what he wrote, but I get the feeling he doesn't value CEOs contributions at all."

I am all for paying him 10 million a year! That is a lot of value in my book.

"He doesn't think a CEO could EVER do anything to make him worth 500 times more than the 19 year old they just hired in the mail room."

Pretty much. There was a time in this country when people were proud of holding themselves equal to all others.

Paul: "Read the numbers, RickDFL. One share of stock worth seventy-five cents is now 32 shares worth $1600. In the stock market, that's astronomical."

RickDFL: "We'll just pass a law mandating that level of growth!"

Will Allen -

"I have no problem believing that MacGuire has been a 1000 times more innovative than the typical United employee, for the simple fact that the typical member of a 30,000 person bureaucracy is usually not very innovative at all."

Put Bill McGuire in a room with 30,000 UHC employees and let him say this to their faces. If all 30,000 stop inovating, UHC goes down the toilet fast. The 'typical member' of a succesfull organization is a very capable and innovative person.

RickDFL: "We'll just pass a law mandating that level of growth!"

Paul: Thank you for demonstating your complete lack of intelligence in these matters.

"Put Bill McGuire in a room with 30,000 UHC employees and let him say this to their faces."

Well, that'd truly be the mark of a stupid CEO.

Now - let any of those 30,000 employees step to the helm of a company with about 1,000 employees that is in the brink of failure and bring it thence to #37 in the Fortune 500, increase the stock and market cap by several orders of magnitude, and turn it into one of the region's top employers. If they can, then they should earn what they're worth for it, too.

" If all 30,000 stop inovating, UHC goes down the toilet fast."

Right. And a company full of RickDFLs might do exactly that - petulantly stop working out of misplaced envy, to get back at their CEO. And they'd be out of work quickly. Deservedly so.

Remember - someone had to bring those 30,000 together. Someone had to hire the talent that hired the talent that hired all that movitvated, innovative talent.

And at the very beginning of it all, that someone is Bill McGuire.

" The 'typical member' of a succesfull organization is a very capable and innovative person."

Yep. But that same member is not someone who is going to bring together capital and talent on a colossal scale.

McGuire is. And the shareholders have resoundingly approved, not only of the job he's done, but of the compensation he makes.

Shareholder meetings are nothing if not democracy in action.

Mitch -

"UHC pays well, is VERY highly regarded, and has among the best benefits in town. They are *extremely* highly regarded as a progressive employer.

Care to trade that for $1,600?"

No I want all of that plus the $1600. Pay McGuire $10 million a year, get the same coporate / stock performance or better because more dollars are invested in company, employees, or given to shareholders.

Your say I would say "We'll just pass a law mandating that level of growth!"

No. See the sacred text of Milton Friedman. This is a basic question of resource allocation. I think that the growth of UHC would have been superior if, instead of giving an extra $40 million a year to Bill McGuire, that money had been invested in new technology, improved salaries for workers, or distributed to shareholders.

It is a hypothetical question I admit and we can debate it, but quit pretending like what I propose violates some economic principle.

Well-said, Mitch.

Paul -

"Some other people don't hint at carving up someone else's ass to provide for their families by engaging in class envy."

Right, they are called suckers and/or drags on the economy.

An employee who accepts less than the full value of their work contributes in some small way to an unproductive distribution of assets.

We can argue all day about what the most productive way to distribute resources would be and how to deterime it, but I find the absolute indifference to the question baffling.

"No I want all of that plus the $1600. Pay McGuire $10 million a year, get the same coporate / stock performance or better because more dollars are invested in company, employees, or given to shareholders..."

OK. Make that trade; dock McGuire to 10 million, and take that $1,600 raise.

Soon you had your 30,000 coworkers have...nothing. Or maybe 25,000 of you do, and the rest of you are taking pay cuts (or frozen salaries so that you'll leave by attrition and be replaced by lower-paid people), because Bill McGuire will leave and start another company, "Diversified Healthcare", and use his talents (and those of the execs he'll bring with him, along with key innovators throughout the organization who want to work with a proven winner). Diversified, led by the best, most experienced front office in the business, will clobber United. Soon, Diversified will be #30 on the Fortune 500, and United - led by a less-qualified CEO - will have dropped market share and stock value (OR hired someone of McGuire's caliber, who will fetch more than 10 million...)

"No. See the sacred text of Milton Friedman. This is a basic question of resource allocation. I think that the growth of UHC would have been superior if, instead of giving an extra $40 million a year to Bill McGuire, that money had been invested in new technology, improved salaries for workers, or distributed to shareholders."

Then, Rick, you understand neither Friedman nor resource allocation nor the market. It's only an issue of "resource allocation" if the resources are static over time. They are not. Most of McGuire's salary is in stock options (grants?) whose worth if pegged by the market to performance. If the company isn't growing and prospering, either is the CEO. If the $50 Mil CEO doesn't deliver $50 mil in peformance, the stock IS only worth a relative fraction.

"It is a hypothetical question I admit and we can debate it, but quit pretending like what I propose violates some economic principle."

It doesn't "violate" them so much as get them totally wrong.

UHC, by the way, invests a lot on technology, and has a reputation in the local market for paying quite well.

Nothing hypothetical about it.

RickDFL:

"We can argue all day about what the most productive way to distribute resources would be and how to determine it, but I find the absolute indifference to the question baffling."

Absolute indifference? There certainly isn't any indifference here on this thread. As for the rest of the world, considering how much the subject of who makes what is discussed, there isn't any indifference. Certain members of the DFL and the Left in general have seen to that.

Mitch -

"Bill McGuire will leave and start another company, "Diversified Healthcare""

Obviously it would be pointless to just reduce CEO pay at UHC. The goal is to reduce it across the board so that more resources go to workers or shareholders. Do that and you take away this option.

Rick, it seesm to escape you that it isn't your, or any other outsiders', decision to make. The decision belongs to people who have actually ponied up dough to own part of the company, the shareholders, and before the predictable lament of "What about the workers?!", let it be noted that they are perfectly welcome to purchase shares, and become owners themselves.

Now, to the degree that shareholders' interests are inadequately represented by the board of directors, THAT is a real problem in corporate governance, albeit one that is extremely difficult to solve without creating more unintended negative effects, because all dreams of the central planners aside, it is extremely hard to optimally manage the extraordinarily complex American economy via directives from 536 political hacks residing in Washington D.C..

Having said that, and fully acknowledging that it may yet turn out to be the case here that the board did not represent shareholders well, anything which can give shareholders more input into the behavior of the board of directors in large corporations should be explored. That doesn't have much to do with simply exclaiming, "CEO Smith is too rich!", however, and as of yet the shareholders of United do not seem displeased. Save your ire for the CEO who pockets millions despite earning the ire of the shareholders.

Finally, I must say it is amazing to me how many people fail to recognize how exceedingly rare the individual is who can effectively manage an organization comprised of thousands upon thousands of people. It is far, far, less than one in a thousand. The bigger challenge is trying to avoid paying mountains of money to individuals who aren't very good at it, in the never-ending struggle to identify those that are good at it.

"before the predictable lament of "What about the workers?!", let it be noted that they are perfectly welcome to purchase shares, and become owners themselves."

Or they are prefectly welcome to leave their jobs at the 'unfairly-compensating-the-CEO' company and find another job somewhere else, where they think they are getting what they deserve. Free markets mean companies pay what they think an employee is worth, and an employee works for what they think they are worth. 30,000 people must be morons in RickDFL's mind. Wait, no... "suckers and/or drags on the economy."

Bring Bill McGuire in front of those 30,000 people to tell them they are not innovative, and bring RickDFL in front of those 30,000 people to tell them they are "suckers and/or drags on the economy" because they're not fighting for an 80% reduction in their CEO's compensation. Who do you think will fare better?

So RickDFL thinks BM makes too much. What next? Who decides what BM is worth, if not the people who own the company and their proxy-persons who make the decisions on the board? The only step left after that is enforcing salary rules at gunpoint.

When laws are passed saying what a PRIVATE corporation can pay it's employees, we no longer live in a free society. And look how well communist/socialist economies perform compared to captialist economies.

The typhoon generated from the jerking knees of the class-envy crowd never ceases to amaze me.

Mitch's thought experiment actually provides a nice way to explain why excessive CEO pay is so economically irrational.
Say BM leaves UHC to start DH and takes half the investors and clients with him so both firms start equal. Now BM's first move is to pay himself 25 million a year or half his previous salary. Next, the second most talanted executive at the old UHC (call em BM2) takes the helm of the new UHC with a 5 million salary.

Next they divide up the remaining 30,000 employees. The new UHC will get to pay each one on average $1333 more than the $50000 average salary at the new DH. Obviously, since UHC can fill each position at a higher salary, the 15,000 new UHC employees will all be better and more productive on average than their DH conterpart. BM will have to be enormously more productive than BM2 in order to make up for the fact that the other 15,000 workers at the new DH is less productive on average than the equivelant worker at the new UHC. The productivity difference between BM and BM 2 will have to be greater than the sum of the productity difference between 15,000 new UHC workers and their DH conterpart. Frankly I would bet on the new UHC.

Will Allen:

"it is extremely hard to optimally manage the extraordinarily complex American economy via directives from 536 political hacks residing in Washington D.C."

Agreed. Instead 1. reform U.S. labor laws so that the 50% of American workers who want to be in a union can join one. That will force CEOs to negotiate their salaries on something like a level playing field.
2. Change the laws regarding pension and other retirement funds, so that workers have a more direct say in how those shares are voted. For example instead of letting Tim Pawlenty, Mike Hatch, Pat Awada, and Mary Kiffmeyer determine how to vote the stocks invested in the retirement funds of Minnesota State employees, why not have four of their fellow union members. I suspect the latter would prove more willing to challenge excessive CEO pay.

See no big government. No politicians making economic decisions. Just managers, workers, and direct representatives of shareholders negotiating on a level playing field.

I'm wondering when someone will take a look at the compensation package that Matt Entenza's wife is taking out of there.

Bill C -
"bring RickDFL in front of those 30,000 people to tell them they are "suckers and/or drags on the economy" because they're not fighting for an 80% reduction in their CEO's compensation. Who do you think will fare better"

If I get to hand them a $1,333 check if the agree with me, I will take my chances.

Ok, I'll take Rick's bet, but I suppose he'll complain my that my winnings are unfairly high.

Maybe they don't teach about "free markets" in school anymore, but Rick obviously realizes that restricting what one company pays its employees (including CEOs) won't work unless ALL companies are restricted. So, sure, let's be fair and put a cap on the most anyone can make (regardless of ability) and take the difference and distribute fairly to everyone at the company (again, regardless of ability). Oops, take ability (or call it performance, or competition) out of the equation and investors don't have a way to judge, predict or guess where to invest so they hold onto their capital or invest it in businesses in another country or state where they can get a better return on their risk. The stock price falls (lowering the value of the CEO's options, making everyone happy), except that the employees' share also goes down (and probably at a greater negative impact on their lifestyle than the CEOs). Of course, as part of our commitment to fairness we've also decreed that no one can lose their job so the diminished returns must be spread among the same number of people (we're certainly not going to hire any more people). Well, it's just not right that people with capital can choose to withhold their money or invest it elsewhere, so naturally it is up to us to take their fair share in taxes and spread it around, minus all the administrative costs required to do this of course (bureaucrats gotta eat too). Yeah, that's the ticket.

Or not. Springtime in Paris wasn't so lovely this year (even though it was the French who came up with the term "laissez faire.")

NightWriter -
"Maybe they don't teach about "free markets" in school anymore"

I wouldn't know, but they did teach me how to read the stock pages.

Vanguard's Total U.S. stock index fund. Up 8.92% annually over the last 10 years.

Vanguard's Total European stock index fund. Up 10.74% in the last 10 years.

http://flagship4.vanguard.com/VGApp/hnw/FundsIndexOnly

Those wacky Euro socialists and their low-pay CEOs seem to be beating us to the tune of 1.82% per year.

What is French for pay up?

Rick, yes 25% unemployment for "youths" is the hallmark of a thriving French economy.

Chris S -
Do you people never tire or mindlessly repeating boring old talking points. Do you never ask you critical questions.

Answer no: http://www.motherjones.com/mojoblog/archives/2006/04/french_unemploy.html

"France's youth unemployment-to-population ratio (8.6) is actually nearly identical to that in the United States (8.3). France's "official" youth unemployment rate is higher primarily because very few French students enrolled in school actually work, while a lot of our college kids get jobs, so the ratio of unemployed youths to working youths is higher in France than it is here."

And more

"Interestingly, though, the percentage of 20 to 24-year-olds who aren't in school and are unemployed is actually a bit lower [in France](14.1) than it is in the United States (14.4)."

And more
"It's also worth noting that the share of young French adults still enrolled in education is much higher than it is in the United States (51.1 versus 35.0 percent)."

Which may explain why "French workers are, on average, 6 to 16 percent more productive than American workers".

What part is not thriving?

RickDFL-

Please don't tell me that you're using two stock funds to compare the US and European economies. You're kidding right?

Uh, Rick, who do you suppose will reform U.S. labor law other than the 536 political hacks? Are the 50% of workers wishing to belong to a union being prevented from doing so by Pinkerton thugs, like in the 1930s? Or perhaps it is more likely that they say they wish to, as long as there isn't much exertion involved, meaning it really isn't all that high a priority?

Instead of treating workers like serfs who need to be taken care of by pension managers, why not have individuals manage their own retirement assets? Oh, I know.... they can't possibly be competent to do so.

As to your 7:07 post to mitch, your supposition is weakened, if not destroyed by, the numerous instances in which a entrepreneur has built an enterprise to substantial profitability, sold it to far less competent managers, only to buy it back at a fraction of the cost later, and built it back up to substantial profitability again. You would lose your bet miserably. Managing people effectively is far more important that being able to offer them an additional $1333/year.

Finally, taking an arbitrarily determined starting point, especially one in the relatively recent past, such as ten years, looking at stock market percentage increases for that period, in order to determine which economy is more dynamic, is simply too silly for words. There is not a reputable economist of any political leaning on the planet who would describe the French economy as being better positioned for growth. That you use such a painfully silly rhetorical device to infer otherwise indicates you really aren't interested in an intellectually honest exchange.

Will -

For starters please explain "the elder" how an index fund works. After so many assertions about my economic illiteracy, I don't have the energy to explain something so basic to an actual illiterate.

Next, check the statistics on how often a worker involved in a union organizing drive gets fired then we can swap stories about the Pinkertons.

Of course my thought experiment was artifical, that is what a thought experiment is. We just disagree on the effect of the various salaries. Lets just agree to let the professional economists sort that out.

I have no objection to having workers own a 401K instead of a pension fund. The question is who gets to 'vote' their shares. Worker savings are too small to be invested directly in shares without taking on excessive risk (in general), so there will always be pension, mutual funds, or some variation. I just want worker representatives to have a vote on those bodies.

10 years too short to compare the European and US stock market returns. How about 15. Since 6-18-1990 (the peak of the 80s expansion) the Vanguard Euro index fund is up 10.24% Since 4/27/1992 (the bottom of the Bush recession) the U.S. is up 10.8%.

How can the stock market be a fair estimate of McGuires performance, but not of the Euro and US economies?

Finally you say:
"There is not a reputable economist of any political leaning on the planet who would describe the French economy as being better positioned for growth. That you use such a painfully silly rhetorical device to infer otherwise indicates you really aren't interested in an intellectually honest exchange."

Since when are facts 'painfully silly rhetorical devices'? Tell me the facts I cited are wrong. Tell me they don't tell the whole story. But don't tell me about rhetoric.

As far as reputable econmists, a lot of them would disagree with you. Here is a fairly even-handed review of the debate.

http://www.nybooks.com/articles/17726

The most troubling part -

"In 1970 GDP per hour in the EU was 35 percent below that of the US; today the gap is less than 7 percent and closing fast. Productivity per hour of work in Italy, Austria, and Denmark is similar to that of the United States; but the US is now distinctly outperformed in this key measure by Ireland, the Netherlands, Norway, Belgium, Luxembourg, Germany, ...and France."

Yes Rick, productivity per hour is a useful measure, but the numbers can make it appear that the economy with the higher productivity per hour is growing faster, unless one accounts for declining number of hours worked. As to your other question, if stock market A is worth x, and stock market B is worth x-y, simply saying that B grew at a higher percentage than A doesn't tell us enough. If General Electric's stock price grows at a 10% rate, it is a much more significant development than if a company half it's size does so.

Finally, I don't have time to deconstruct your "even-handed review", but if you wish to belive that the Franch will vacation themselves to greater prosperity than the United States, well, you just go right ahead.

Rick said: "How can the stock market be a fair estimate of McGuires performance, but not of the Euro and US economies?"
Because it is McGuire's JOB to increase stock value for shareholders -- to create wealth. However, I am sure that you understand that the stock market is not a complete picture of the economic health of a country.
God save us from the economic "growth" of old Europe. An entire generation of young people who aspire to civil service jobs from which it is impossible to get fired. Of the largest 25 companies in France not one of them was founded less than 40 years ago. Yes, productivity per hour is better, but hours worked are a fraction. I know, I know, Americans "live to work" and Euros "work to live." Whatever. That will help a lot when this generation of workers wants to retire at 50 and there's no workers left to pay their pensions. The demographic time bomb they face is way worse than ours.
Here's the true measure of economic health and vitality: Would you rather be a class of 2006 college grad in the US or in France? Where is your future brighter? (Assuming that you haven't rung up $100,000 in debt while earning a degree in philosophy, in which case you deserve whatever fate awaits.)
http://www.theage.com.au/news/business/france-pays-price-of-liberal-jobless-benefits/2005/08/30/1125302569771.html
10% unemployment in France, as of 3Q 2005. Decreased consumer spending. 0.1% growth 2Q 2005. All the hallmarks of a vibrant economy. de Villepin charged by Chiraq with 'putting France back to work.' And when Dominique (who is a man) tries to make it possible for employers to fire incompetent workers in the first 2 years on the job French "youths" resort to their favorite pastime: Citroen BBQs.
Sorry for the mindless recitation of talking points. I'm not the ground breaking original thinker you are.

Rick said: "How can the stock market be a fair estimate of McGuires performance, but not of the Euro and US economies?"
Because it is McGuire's JOB to increase stock value for shareholders -- to create wealth. However, I am sure that you understand that the stock market is not a complete picture of the economic health of a country.
God save us from the economic "growth" of old Europe. An entire generation of young people who aspire to civil service jobs from which it is impossible to get fired. Of the largest 25 companies in France not one of them was founded less than 40 years ago. Yes, productivity per hour is better, but hours worked are a fraction. I know, I know, Americans "live to work" and Euros "work to live." Whatever. That will help a lot when this generation of workers wants to retire at 50 and there's no workers left to pay their pensions. The demographic time bomb they face is way worse than ours.
Here's the true measure of economic health and vitality: Would you rather be a class of 2006 college grad in the US or in France? Where is your future brighter? (Assuming that you haven't rung up $100,000 in debt while earning a degree in philosophy, in which case you deserve whatever fate awaits.)
http://www.theage.com.au/news/business/france-pays-price-of-liberal-jobless-benefits/2005/08/30/1125302569771.html
10% unemployment in France, as of 3Q 2005. Decreased consumer spending. 0.1% growth 2Q 2005. All the hallmarks of a vibrant economy. de Villepin charged by Chiraq with 'putting France back to work.' And when Dominique (who is a man) tries to make it possible for employers to fire incompetent workers in the first 2 years on the job French "youths" resort to their favorite pastime: Citroen BBQs.
Sorry for the mindless recitation of talking points. I'm not the ground breaking original thinker you are.

Rick said: "How can the stock market be a fair estimate of McGuires performance, but not of the Euro and US economies?"
Because it is McGuire's JOB to increase stock value for shareholders -- to create wealth. However, I am sure that you understand that the stock market is not a complete picture of the economic health of a country.
God save us from the economic "growth" of old Europe. An entire generation of young people who aspire to civil service jobs from which it is impossible to get fired. Of the largest 25 companies in France not one of them was founded less than 40 years ago. Yes, productivity per hour is better, but hours worked are a fraction. I know, I know, Americans "live to work" and Euros "work to live." Whatever. That will help a lot when this generation of workers wants to retire at 50 and there's no workers left to pay their pensions. The demographic time bomb they face is way worse than ours.
Here's the true measure of economic health and vitality: Would you rather be a class of 2006 college grad in the US or in France? Where is your future brighter? (Assuming that you haven't rung up $100,000 in debt while earning a degree in philosophy, in which case you deserve whatever fate awaits.)
http://www.theage.com.au/news/business/france-pays-price-of-liberal-jobless-benefits/2005/08/30/1125302569771.html
10% unemployment in France, as of 3Q 2005. Decreased consumer spending. 0.1% growth 2Q 2005. All the hallmarks of a vibrant economy. de Villepin charged by Chiraq with 'putting France back to work.' And when Dominique (who is a man) tries to make it possible for employers to fire incompetent workers in the first 2 years on the job French "youths" resort to their favorite pastime: Citroen BBQs.
Sorry for the mindless recitation of talking points. I'm not the ground breaking original thinker you are.

Gah! Sorry for the triple post. It was rambling enough the first time.

RickDFL:"Please remember the sacred text of Milton Friedman - 'there is no such thing as a free lunch'. ... If it rises they must either pay the difference to purchase the stock or issue new shares which dilutes the value of current shares. This costs shareholders, exactly the same amount as the first option would cost the company."

Please note I mentioned dilution in my original post.

Please show that a publicly traded company expenditure of an additional $10 million dollars always results in an immediate drop of total market value of $10 million.

Finally in a pure economic analysis, if the company has to purchase option stock on the open market, the increased demand caused by the purchase will cause the stock price to rise which will offset the drop caused by the lowered earnings of the option expense.

I think the majority of options are granted with either new issuance or treasury stock already held, I don't know what method was used here

RickDFL-

For a guy who's trying to make an argument that France has a better economy that the US, you probably shouldn't be tossing around charges of economic illiteracy lightly.

Of course I know what an index fund is. My point was that simply using the ten year performance of 605 European stocks, less than 15% of which are French companies by the way--35% from the UK, against the ten year performance of 3700 some US stocks is probably not the primary method that most economists would use to compare the relative strength of economies.

wow has this discussion gotten off track.

What I also find troubling in our CEO ranks in America is the incestual relationship among board members and CEOs. It seems like an "old boys network" where they all sit on each other's boards and have no problem granting very large salaries - in some cases justified, in others not.

Another governance issue that is hard to tackle is shareholder voting. A majority of shares of publically traded companies are held in pensions/mutual funds etc, where those groups don't have seem to use the voting leverage in anyway...

Fulcrum

-the elder -

I used the Vanguard US and Euro stock indexes because they were easy to find. Of course, they are not the best or the most complete evidence, but they are evidence. If you or anyone else here has better evidence, lay it out. I am not a free research service.

-will-
"if you wish to belive that the Franch will vacation themselves to greater prosperity than the United States, well, you just go right ahead."

Most people would consider extensive paid vacation an important component of properity.

-chris s -

"Here's the true measure of economic health and vitality: Would you rather be a class of 2006 college grad in the US or in France? Where is your future brighter?"

Lets see. The French grad has no student loans and has access to better health care at 2/3rds the total cost (public and private) the American will pay. He will live longer (despite smoking more) and be more likely to surpass his parents economically.

Both economies have problems, but I suspect it will be easier to fix the high productivity economy that needs additional labor inputs than to fix the low productivity economy that has alreasy maxed out its labor inputs.

Still all in all, I would rather be an American. We love a good challenge.

Kiiiiiiing?

Rick, I've been self-employed nearly my entire working life, so I have no illusions about what the term "paid vacation" means, which is you go have fun while temporarily pausing from maximal wealth generation. Now, I'm all in favor of this, but it is a shame that so many people, having been somewhat narrow-minded employees, think that taking a paid vacation means somebody goes and picks a little more from the money tree. France cannot vacation and retire itself to greater prosperity, because people who aren't working aren't generating wealth. Yes, you can sometimes achieve greater productivity per hour worked by cutting the work week, but ultimately you have to work the hours to produce the wealth. Remember when I said effort was a given? I meant it.

Look, if you wish for employees to have greater input on company management, here's what I suggest; start a mutual fund which explicitly states that one of it's primary goals will be to influence management to have the sort of labor policies you propose. If enough people agree with you as to the primacy of those goals, in other words, if they are willing to put their money up to achieve them, then you can have some influence on the decisons that management makes, and I fully support efforts by shareholders to expand their influence over boards and senior management. Until somebody is willing to take the risk of ownership, however, their opinions as to how much somebody should be compensated are of extremely limited value.

I don't have much of an opinion as to this particular CEO's compensation yet (this could change depending on further information), because I'm not a shareholder in the company, and I've seen no indication that the shareholder's wishes are being stymied, or that any significant number of them believe that their interests have not been served.

Recent stats from The Economist Magazine:

GDP growth
US 3.5%
Euro area 1.7%

2007 GDP Forecast
US 2.8%
Euro area 1.7%

Industrial Production Growth
US 3.6%
Euro area 3.2%

Retail Sales Growth
US 5.1%
Euro area 1.0%

Unemployment Rate
US 4.7%
Euro area 8.8%

Comparing the US and France using these same indicators is even more lopsided. For example the French unemployment rate was 9.5% in March and industrial production actually declined in February.

Please note that the GDP figures I cited are year over year (Q1 2006 versus Q1 2005). The current quarter over previous quarter figures are 4.8% for the US and 1.0% for the Euro area.

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