22 December, 2006

Important Thoughts, Financial and Economic Advice

Posted by alex in Financial Column, George Lenz at 7:05 pm | Permanent Link

By George Lenz

For some time already it has been clear that the compensation and payroll system in United States is broken beyond repair, and requires extensive government intervention to be fixed. The recent wave of record Wall Street bonuses only further proves the validity of the point. Especially appalling is the 56+ mln. USD bonus, Goldman Sachs awarded to its jewish head, and 160+ mln USD awarded to 11 of its executives, all of them jewish. Some would say: what’s wrong with the bonuses for top performers, it’s how the market system is supposed to function? However such advocates for capitalism forget, that money paid to executives comes not from their private enterprises, but out of shareholders’ pockets, many of which are large institutional investors, often pension funds. Thus every extra million in compensation paid to a jewish or masonic executive takes 500 dollars or more out of pensions of a thousand 20+ White men and women, who are so eagerly encouraged to invest their incomes, the more the better, in various stock pension schemes.

The decline of the U. S. compensation system started in the 1970s with the invention of stock options, and wholesale granting of such options to executives in large jewish-owned investment banks. A number of economic theories that started to circulate within the academic community around that time providing an intellectual justification for such grants; claiming that sustained productivity growth requires large-scale differentiation both between executive and workers’ compensation and between executives of various ranks. The academic community largely bought the argument, but American industry, to its credit, did not: for a decades stock options remain a marginal phenomenon, confined largely to investment banking. One of the unrecognized heroes of American industry in this regard was Thomas J. Watson – jr., the legendary IBM Chairman, who after initial grant of a few stock options to top executives, discontinued the practice as “excessive and unearned compensation, detrimental to IBM shareholders’ interest.”

The beginning of the information technology (IT) era changed all that. The newly created companies needed a way to attract and retain highly qualified staff without the huge costs of compensation that would otherwise have been incurred. Thus stock options became a normal way of executive compensation at most IT companies, pioneered by Apple and Microsoft. Soon the practice was extended to specialists, and with the beginning of the dotcom boom, was practiced on a larger and larger scale – at the expense of shareholders. At the peak of the boom, after a successful initial public offering (IPO), one of the founders of a software conglomerate and his two associates pocketed a 1.2 billion USD in stock options as an annual compensation, only to see stock fall four times in value after the boom ended. The practice spread like fire to non-IT companies, where executives were awarding to each other even larger stock options. It came to the current dismal state of things, where the annual CEO compensation at jewish-owned investment bank is roughly 560 times higher than a starting salary in this bank, while two decades ago a multiple of more than 15 was considered excessive. That’s the power of corruption in business.

How should a just and equitable compensation system be organized? An acquaintance of mine runs a medium-sized industrial facility, where compensation system was recently acknowledged as fair by both managers and workers. All the employees, managers and workers alike, have a particular pay category, starting from the starting salary and increasing by a multiple of two with each promotion to a higher category. There are five such categories. Additionally if an employee works a year at the facility he is automatically granted 25% raise, if an employee works five years at the facility he is granted further 25% raise. All performance bonuses are tied both to individual and company’s performance and cannot exceed 50% of the basic category pay. Thus any increase in compensation can come primarily from the raise in start-up salary, that reflects the long-established economic fact, that improvements in business performance come from the effort of the whole team of managers and workers, and not from just one individual, or performance of a specialist is dependent upon the extensive and expensive investment the company undertakes into equipment that allows him to function. Hence if a starting salary at a facility is around 24 000 euros per year, a CEO can earn between 120 000 and 240 000 euros per year, that is viewed as adequate by managers, workers and shareholders alike. No wonder the facility does not have a problem in recruiting and retaining qualified workers, while at competitive establishments the annual turnover rate exceeds 20%.

A helpful factor is also the attention the government security regulator and labor office pay to executive compensation. Recently, a Swiss-born Deutsche Bank Chairman, Herr Ackermann, attempted to introduce stock options to Germany, awarding himself and his associates huge stock options – a move unheard of in Germany. He soon faced criminal charges from the shareholders and the Germans’ stock regulator: he was duly charges with defrauding the company and breaching shareholders’ trust, and had to forgo excessive compensation to avoid the lengthy jail term he was facing. Unfortunately, in the U. S. the interests of the common pensioner or investor cannot compete with the interests of the jewish CEO, protected by his extensive jewish social support network; and the SEC constantly refuses to press charges in cases of excessive compensation. The law empowering individual shareholders and compelling the SEC automatically to press such charges, should compensation exceed a reasonable amount, is urgently needed; perhaps a Democrat-controlled Congress will finally move in this direction.

* * *

The euro is gradually growing to 1.32 USD/EUR; I expect adjustment to 1.45-1.5 USD/EUR to complete by the mid-2007. Gold is down to 620 USD per ounce, silver still at 12.0-12.5, so far avoiding a forecasted correction to 10.00-11.00 USD per once.

Looking back at the previous year, my two best U. S. stock picks were XOM and C: both exceeded my estimates, and I still hold those positions open. I wish respected VNN readers a happy and prosperous new year – may our wishes, dreams and desires finally come true, and may all our efforts be successful. Next time: the analysis of insurance policies: what works for whom, and where to get a reasonably priced policy.


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  7. 3 Responses to “Important Thoughts, Financial and Economic Advice”

    1. New America Says:

      Two quick observations:

      One, battles about management compensation in the present economic system are doomed to failure; one hand holds the whip, and that is that.

      Two, back in grad school I learned of something called the Glacier Metals Project, an analysis of compensation that derived a very useful principle that has stood the test of experience:

      A REAL Manager, as distinct from a proforma figurehead, makes about 75% more than the person right beneath him (or her) in the System.

      This gives rise to the 1.75 Law – take the lowest paid employes, and pay each level of “Management” above that person 175% of THEIR salary.

      Unskilled labor – $8.00 USD/hr – $320 USD/wk

      Their Managers – $14.00 USD/hr – $560 USD/wk

      THEIR Managers – $24.50 USD/hr – $980 USD/wk

      Their Managers – $42.87 USD/hr. – $1,751 USD/wk

      Their Managers – $75.43 USD/hr – $3,000 USD/wk

      Their Managers – $131.43 USD/hr – $5,250 USD/wk

      Three, you quickly realize that the ideal corporation would need no more than seven levels of management, and would do very well with five.

      This was the insight of Taiichi Ohno, the production genius (who was inspired by his experience at Ford Motor!) who is the father of the Toyota Production System.

      Pre-Ohno, Toyota has roughly fourteen levels of “management,” most of whom brought more heat than light to the system.

      Ohno forced this down to SEVEN, and said his goal was to get it to FIVE.

      The 1.75 Rule makes this very possible.

      Four, Open Book Management – the inspiring example of blue collar America with Springfield Remanufacturing Corporation – see Jack Stack’s books on “The Great Game of Business,” or go to the great game of business website – opens the door to a true revolution, an organic revolution, from the bottom up.

      A masterful book to read, as well, is “Maverick,” by Ricardo Semler. Pay particular attention to his inspiring analysis of organization design in Chapter 24, “Rounding the Pyramid,” which, taking this discussion full circle, demonstrates you truly need only five levels of management AT MOST to run the largest of transnational corporations.

      ALL of these ideas are well worth considering in the formation of a National Socialist society.

      Let’s not blindly adopt the mistakes of the so-called “Greatest Generation,” whose business structures adopted the systems used by the armed forces in World War II, and which have not been used by the armed forces to win one war since then…

      Oh, sorry. I almost forgot.

      Grenada.

      We beat Grenada.

      New America

      An Idea Whose Time Is HERE!

    2. NT Says:

      With the surpluses that are generated it is no wonder that what would otherwise be absolutely rejected social agendas are railroaded though with money going to whoever and whatever is necessary to get the job done. Money is not just for pleasure, but power…

      If only the 160 million dollars for a year of being alive and being driven to work was to be spent only on bimbos and 10000 dollar bottles of wine.

    3. Anglo Saxon Is True Israel Says:

      The simple truth of the matter is: Jews are doing what they do best.

      Isa 10:1 Woe unto them that decree unrighteous decrees, and that write grievousness which they have prescribed;
      Isa 10:2 To turn aside the needy from judgment, and to take away the right from the poor of my people, that widows may be their prey, and that they may rob the fatherless!
      Joh 10:10 The thief cometh not, but for to steal, and to kill, and to destroy: I am come that they might have life, and that they might have it more abundantly.