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A Reflection On Sun Executive Payouts For Failure
With the Oracle/Sun merger finally completing at the end of January, one former Sun worker has taken the time to reflect a bit on the extravagant compensation and golden parachutes that the former executives at Sun are receiving for failing at their jobs. "I think it's fair to say that, for all the miscues that eventually led to its demise, the company created many products and technologies of value along the way, enough so that Oracle thought it was worth it to acquire them and try to keep them going. However, I think that it's equally fair to conclude that, after years of running losses, including about $2 billion in fiscal 2009, so that a buyout was necessary to avoid looming bankruptcy, Sun's executives did nothing to deserve lavish rewards, by any conceivable meaning of the word 'deserve.' But what actually happened is by now a familiar story. [...] And here's a prediction that I feel quite certain of: if, against expectations and my hopes, Ellison drops the ball and things start going south for Oracle, it's the employees who will suffer for it, and he'll be doing just fine."
How Companies Work
There are a few top managers, and they run the company for their own interests. If they have stockholders, they have to make some pretense that they are working for the stockholders, but look how much stock _they_ are getting out of the company. Sometimes they collect a $1/year salary to look good, while they get many Millions of dollars in stock per year. Rarely do people at this level work for anyone but themselves.
Then there are a number of second-tier managers, whose goal is to make the most out of the company that they can, or to make it to that top level so that they can run the company for their own interest. Sometimes people at this level have other motivations.
Then there are lots of other people. Often these people haven't even thought very deeply about what their motivations are. They are essentially treated as work-units which keep the company operating, but they are as expendible as a server in a rack. Fortunately, companies do need their talents, at least for now.
Then there are the small stockholders. They cross their fingers and hope the managers will do a good job for them, but they really do not have any power to influence the company.
Then there is the government. The government's job is to protect little guys with no power (the general population) from big guys with lots of power. But unfortunately the big guys essentially own the government, because of the fact that they pay for political campaigns and in other ways influence politicians, and because they are gate-keepers on jobs for voters.
All of this motivated self-interest is supposed to result in a good working system for the general population. It doesn't work terribly well. However, there are many other systems that work even worse, so people are reluctant to change it. Also, the average person can not be bothered to concern himself enough so that in the aggregate with other people that person can effect change.
Bruce Perens.
While there's no doubt golden parachutes in contracts are often excessive, in this case (from a quick scan of the article), the bulk of the compensation these guys received are from the buyout of the stock. They owned lots of stock (due to stock grants and options from the company, most likely), and so they get a big payout when Oracle buys all of that stock. Yes, they got a straight cash parachute too, but the bulk seems to be from stock.
So, isn't the fact that they owned a lot of stock in the company, and thus their personal fortunes were tied directly to the company's performance, a good thing? We can argue all day as to whether or not their compensation in general was excessive (and it probably was), but it seems to me the fact that most of their golden parachute was due to the buyout of stock they already owned is a good thing.
This is what the economists call the "principal-agent" problem. The principal (shareholders) hire a bunch of people to do things in their best interests (get the company to make money and give that money to the principals) but the agents (CEOs, and his own agents) are "looking out for their own interests" and just set things up so they get rich one way or another.
It's "evil and wrong when somebody else does it" in this case because they're supposedly being paid to do better. It's "normal and acceptable" to some extent when you do it, because you're usually doing it with your own life and your own resources, unless you aren't, in which case that's just hypocrisy, which is nothing new in the world one way or another....
The World Wide Web is dying. Soon, we shall have only the Internet.
In the introduction I referred to what I call the "Reaganist dogma" of the free market, my description of what a Republican might refer to as "capitalism" as opposed to "socialism".
Reagan got that from the economists. He didn't think that up himself. That's one of the incorrect assumptions economists use in their models and theories - free markets always work and that the market is rational.
Free markets work only within a narrow range of economic activity. If they exceed those ranges then you get bubbles and collapses. That's why the Fed was created to try to eliminate those things. Of course, if you get a Randian dogmatic believer in the free markets of a Fed Chairman (Greenspan), then you end up with serial bubbles: stock market and real estate.
There's a few other blanket assumptions that economists make that are horribly incorrect in the real World, but I'll save those for another time.
Oh, and economists need to get over their physics envy. They develop these impressive mathematical models and everything but the underlying assumptions are incorrect. As in this example, the assumption is that markets are rational. As we have seen, they are hardly rational.
Reading assignment: rational irrationality.
Oh, OK the last thing: the behavioral economists are redeeming the whole "profession"! :-P
Some people can look out for their own interests without dicking over others. For some people, viewing other people's interests as an integral part of their own is "natural".
The difference between "looking out for your own interests" and "looking out for your own interests by fucking over everyone else" is subtle, I admit, but once you grasp the nuance you'll see why behaviors that are on the surface the same are ultimately different, and why one is evil and the other is acceptable.
The enemies of Democracy are
Well, not that you mention it... :)
Diatribe or not (no, I didn't bother to read it), I don't think Oracle's is going to be anywhere near the kind of situation Sun ended up in for the foreseeable future. Sun had multiple sources of direct competition across a good deal of their product range and many IT budgets just couldn't justify paying the extra cash for the few extras Sun brought to the equation. Oracle, on the otherhand, has seen off almost all of its competition: DB2, Ingres and Informix are either history or essentially relegated to also-rans in the marketplace for high-end DB servers with paid-for support and an SLA that you could take to court if you had to. It's going to take a screw-up of positively epic proportions for Oracle to go down the pan; "dropping the ball" wouldn't even come close...
UNIX? They're not even circumcised! Savages!
Stealing is looking out for your own interests too. However, society has rightfully restricted some selfish behaviors like stealing and fraud because they harm others. The ideal economic system would harness selfish desire to expand markets, increase efficiency and encourage innovation (ideal capitalism). When the economic system encourages self interest to the point of destroying others' wealth it's crony capitalism.
Sigs are too short to say anything truly profound so read the above post instead.
Exactly. A board is supposed to be a "trustee", a "custodian" to the shareholders.
Unfortunately, there are still numerous methods of "legal" *ahem* acquisition of funds by those in power on the corporate board. Enron was the first case where boards were whacked, and you can see the effect that it has had in such board rooms. The aforementioned people in power are very mindful that they don't wind up walking to the gallows. (And of course by gallows I mean at worst a small country club resort for a few months/ maybe a year.)
The severance deals such as poison pills and golden parachutes usually end up poisoning the shareholders and being a golden shower on the hard working employees. They very rarely do anything but line the pockets of executives.
But hey, thuggery, buggery and some skullduggery. A CEO's life for me!
Science advances one funeral at a time- Max Planck
Techies often have trouble understanding this, coming as they do from a very strongly meritocratic culture: the world at large is so far from being meritocratic that the sheer extent of its non-meritocracy strains the imagination. Professional academics often run into the same blank wall of incomprehension.
By no means am I saying that this is a good thing, or even that it is strictly necessary (though that is certainly a possibility given primate psychology), but the fact remains that the normal means of acquiring wealth is by conniving, cheating, swindling, and deceiving to one degree or another. If wealth was awarded on the basis of hard work, knowledge, or creativity, then the world would be full of super-rich construction workers, mathematicians, and artists. Instead, it is awarded on the basis of how good you are at talking (or coercing) people into giving it to you. Period. Things like quality, reliability, creativity, and utility are, at most, means to an end, and are by no means indispensable, except perhaps as grist for motivational speeches given to the people who do the work by the people who receive the rewards.
Proud member of the Weirdo-American community.
Here is a theory that I heard expressed by a C level corporate executive :
The top people should be paid enough to make the people on the rung just below them green with envy, so that they will work their butts off to get to the top, and so on, proportionally, down the line. (In other words, the motivation is not greed, but envy.)
I haven't heard this expressed much in public, but it explains the high payments and bonuses in bad times much better than the "we pay them for their successes" theory.
In my mind it is the scope of reward that is evil and wrong. In the article, it is mentioned that one of the Sun executives is getting a severance package worth $175 MILLION dollars. That compensation package is enough to pay 1750 employees $100,000 for a year. Those 1750 imaginary employees who would be making that $100,000 are employees who are doing the jobs given to them by senior management. For all intents and purposes, those people are probably doing their jobs competently. Despite the fact that they are competent at their job, they are getting laid off.
People who are competent get laid off. The person responsibility for the health of the company gets enough money that he could pay 1749 other people a significant amount of money, even though he completely failed to keep the company going.
As the blog post mentions, the problem is fiduciary responsibility and the fact that in many cases (including Sun), the major share holders are also the executives themselves. So the CEO, CFO, Chairman of the Board and the rest of the executives set things up so that even in failing, they increased their stock value 42%. Thousands of employees lose their jobs, but those guys at the top get hundreds of millions of dollars among them.
There is a saying that "There is no greater sin than not knowing when you have enough." Corporate America is out of wack. The guys at the top fail so seriously that their companies go bankrupt. Despite that, they get millions of dollars. Employees who do their jobs don't get millions of dollars, and when the company fails they get assed out.
The "evil" that you don't understand is the rewarding of failure that leads to the suffering of others.
To make it easier to understand and to make a more basic explanation, lets replace "money" with "food". Lets say that the executive in charge of Sun has a machine that makes food for thousands of people. He runs the machine so poorly that it breaks down, and thousands of people no longer have access to the food it provides. In the process of breaking the machine, he manages to engineer it so that the very last time he runs the machine, it makes enough food to feed him, his family and his friends' families for a couple hundred years if they manage the food he created properly.
If there weren't laws in place to protect the asshole running the machine, the masses would tear him apart and divvy up the food he set aside for himself. Since there are laws in place, the asshole gets labeled "evil and wrong".
If there were justice in the world, or if the person running the machine were moral, he'd divvy up the remains equally among the tribe who helped him run the machine. There isn't justice in the world, and the man running the machine isn't moral. He took the lions share of what the machine produced and left everyone else out in the cold.
That may be the job title...but how is that any different than other job titles like general manager, breakroom supervisor, technician, janitor. All of those people also have 'jobs' that support the interests of others...and in a less direct way, even the stockholders too. But you seem to have this thought, from your writing, that the top boss should somehow be more altruistic about their jobs vs their survival instincts.
All anyone is saying is that they should be rewarded/reprimanded based on how well they do their *job*, not how cleverly worded their compensation contract is that lets them only show up two months a year, drive the company into the ground, then walk away with enough money to last them the rest of their miserable lives. Until executive election becomes more transparent in cases like this, it should rightly be criticized for what it is, nothing more than an elitist cabal designed to enrich the wallets of those holding positions of power; by the elite, for the elite.
You seem to think that just because they make obscene amounts of money, and that people like you don't really know what it is that they do or how it is that they got their job, that they shouldn't be held to any measure of accountability and instead should be able to finagle any amount of money out of the company they want to, and be able to walk away scot-free when it turns out that they spent the past 2 years working in the exact opposite way they were supposed to be.
Many high level executives run their companies right, and recognize that they have a huge responsibility on their shoulders. Just because people like you have no problem robbing a company blind (out of self-described 'self interest') as soon as there was no one looking over your shoulder, doesn't mean that it should be acceptable.