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Fat cat CEO/CFO pay, does it really matter?


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Money Week issued an article today in which the Editor-in-Chief had a rant about an interview she did with an unnamed CEO and his rather blase attitude to his £2million pay; citing that other were paid more, he cant afford all the things he wants even on that (i.e. he wants more!) and anyway his pay is set by a committee...  The jist of the article is that despite it being legal it is morally wrong to pay managers so much, they just manage they are not entrepreneurs.  This is what the Americans call "pay for pulse".

 

I remember an interview with some City bod a while ago who responded in the affirmative when asked if Bob Diamond was worth his pay package (in the region of £11million pa if memory serves).  The idea being that shareholders need to pay top dollar for the best who will in turn run the company well and deliver great returns.  But anyone who has worked near the top of a major listed company, as I have, will know this is preposterous!  Management by and large is mediocre in my experience and such management thrives on strong brands and products just flying off the shelves (i.e. the work of others in the past who built the company).  They drive the ***** out of the machine to maximise their bonus pots and are so short term focused they make crazy decision to meet quarterly and interim targets, never mind end of financial year stuff.

 

That may be well and good in boom times (it isn't as lack of R&D and investment will catch up eventually) by when the economy is lackluster or worse what does all this translate to?  Think financial engineering!  Making the targets by hook or by crook, crazy M&A and share buybacks at all time highs to drive up the EPS (the normal measure for management remuneration...).  Take about bad investments!  And a ot of this is being financed by low interest loans (debt up to their eyeballs!).

 

Since 2009 the market has been driven chiefly, in my view, by Central Bank interference: QE and low interest rates.  The economic recovery from the recession has been sluggish, if indeed it has recovered.  Many think, myself included, that by "saving" the banks the Central Bankers have merely postponed the inevitable and also that by doing so the crash, when it comes, will be even bigger and more painful (think depression rather than recession).  Why did they do this?  Self interest of course, just like the CEOs and CFOs.  Mates in the banks, their own fortune tied up there too, political pressure and so on.  You could call it corruption?  Maybe, even though it is technically legal.  But being legal doesn't stop something from being morally repugnant.

 

So what does it all mean?  Exec pay has been accelerating as share prices shot up but execs have had little to do with driving higher share prices except financial engineering and now it seems that share buybacks are at an all time high in the US.  In fact some commentators say this is what is driving the market, not investors!  I think share buybacks could be the next big scandal.

 

For me this means we are indeed heading for a massive bust too clear all this out (both corporates and governments alike need a clear out).  I may be wrong here but the last time this happened was in the late 1920s right?

 

Fundamentals vs Technicals?  Not even a question in this environment!

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LOL!  (Really I did!). If that happens I'm selling up and moving to an uninhabited island with a Sat phone for internet to wait out the carnage...  Hopefully the markets will do what the so called leaders are unable to do and correct naturally and sooner rather than later.  And also perhaps the electorate, though the thought of President Trump is troubling...  Oh look, has it started already?

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