Monday, April 19, 2010

Looking at Executive Compensation

In 1981 I bought 100 shares of Exxon stock. It has been the best long-term investment that I have made in my life. The company itself (now known as ExxonMobil) is one of the largest and most influential companies in the world. Because I own the stock and receive its annual report, I was able to gather the following information about the compensation of its chief executive officer (CEO).

Let me preface this report with a brief statement. American companies devote many pages in their annual reports explaining the rationale for and the details about the compensation of their executives. The rationale is that a CEO should be rewarded for the successful leadership he (or occasionally she) has provided for the company. In addition, the executive’s interests should be aligned with the interests of the company, which means they should receive a large portion of their income based on the successful performance of the company’s stock. In order to enhance this alignment of interests, a significant portion of the executive’s compensation involves the granting of shares of company stock or options to purchase shares of the stock at a fixed price. In essence, the owners (the shareholders) of the company are giving away a portion of the company each year to the executives so that the executives will do the job for which they are being paid better than they would if they were just paid like the rest of the company’s employees. Many companies give their executives the equivalent of two or three percent of the company every five years. In 150 years they will have virtually given away the entire company (in actuality, the shareowners’ ownership is merely being diluted).

Decisions about executive compensation are made by a board of directors elected by the shareholders (though nominated by the currently entrenched board of directors, which generally is composed of CEOs of other companies). In the case of ExxonMobil, the members of this board of directors are paid $240,000 to $614,000 a year to oversee the performance of the company. [To put this in perspective, directors are being paid $1,000-$2361 per work day if they worked 260 days per year.] Some of this director compensation also is designed to align the interests of the directors with the company by giving them stock grants and stock options. It seems that the money they are paid is not a sufficient enough motivation for the day or two per month they spend in oversight of the company’s and shareholders’ interests (if they actually devote two days a month to their duties as directors, their daily compensation rises to $10,000-$25,583 per day)

Now let’s look at the annual compensation of ExxonMobil’s CEO for 2009:

Salary -- $2,057,000 ($7,911 per work day, or the equivalent of the annual compensation of 136 minimum-wage workers)
Bonus -- $2,400,000 ($9,230 per work day, or the equivalent of the annual compensation of 159 minimum-wage workers)
Stock Awards -- $16,963,875 ($65,245 per work day, or the equivalent of the annual compensation of 1,125 minimum-wage workers)
Change in pension value -- $5,466,517 ($21,025 per work day, or the equivalent of the annual compensation of 362 minimum-wage workers)
In addition the CEO received other benefits (life insurance, savings plan, personal security, personal aircraft usage, financial planning help, etc.) worth $280,925 ($1,080 per work day, or the equivalent of the annual compensation of 16 minimum-wage workers)

By the way, the CEO also owned 1,325,613 shares of company stock (that $88 million current valuation alone would seem to me to be sufficient alignment with the interests of the company).

My question is not merely, “Why are executives paid so much?” My questions are, “Why are people who are paid so much showing so little concern for the poor? Why are they so intent on keeping the minimum wage so low? Why are they so worked up about paying taxes that support education, health care, and other social services? Why are they ignoring the Lazaruses who are lying at their doorsteps (Luke 16:19-31)?

Monday, April 12, 2010

Perspectives on Sorcery and Other Occult Practices

OCCULT PRACTICES REFERENCED IN THE BIBLE: Sorcery, magic, witchcraft, divination, omens, spells, mediums, spiritualists, astrology, dream interpretation, enchanters, and false prophecy


Exodus 7:8-12—After Moses and Aaron performed “a miracle” or “a miraculous sign” before Pharaoh by turning a staff into a snake (cf. Exod. 7:9 with Deut. 6:22; Ps 78:43; 105:27), Pharaoh summoned wise men, sorcerers, and magicians who practiced “secret arts,” who were able to duplicate the act.

Exodus 22:18—God commanded Moses, “Do not allow a sorceress to live.”

Deuteronomy 18:10—Moses told Israel that when they entered the Promised Land, they would encounter a number of detestable practices. Among these were child sacrifice, the practice of divination or sorcery, interpreting omens, witchcraft, and casting spells. Mediums, spiritualists, and those who consult the dead also were mentioned. These practices were to be banished from Israel, and Israel was to be blameless before the Lord.

2 Kings 9:22—Jezebel was accused of idolatry and practicing witchcraft.

2 Chronicles 33:1-6—Manasseh, the king of Judah, followed “the detestable practices of the nations” and “did much evil in the eyes of God.” Among these practices were child sacrifice, sorcery, divination, witchcraft, and consulting mediums and spiritualists.

Isaiah 47:8-13—Isaiah mentioned sorceries, potent or magic spells, astrologers, and stargazers as powerless to prevent God’s judgment.

Isaiah 57:3—Isaiah called the wicked “sons of a sorceress.”

Jeremiah 27:9—Jeremiah stated the neither prophets, diviners, interpreters of dreams, mediums, or sorcerers could turn aside God’s judgment that would put Judah in subjection to Babylon.

Daniel 2:2—Nebuchadnezzar summoned magicians, enchanters, sorcerers, and astrologers to interpret his troubling dreams.

Micah 5:12—Micah prophesied that God would destroy witchcraft and casting of spells among his people.

Nahum 3:4—Nahum viewed the sorceries and witchcraft in Nineveh as evidence of their evil influence over nations under their sway.

Malachi 3:1—Malachi says that God will testify against sorcerers and will judge them.

Acts 8:9-24—A boastful sorcerer named Simon, who amazed all the people in Samaria with his magic, became a believer after hearing Philip preach. He was astonished by the great signs and miracles Philip performed. When Peter and John came to Samaria and laid their hands on some of these new believers, the believers received the Holy Spirit. Simon offered Peter and John money to bestow this power on him so that he could dispense the Holy Spirit to others. Peter rebuked him for this “wickedness,” seeing that he was “full of bitterness and captive to sin.” Peter called on him to repent.

Acts 13:6-12—When Paul and Barnabas visited Paphos on Cyprus, they encountered a Jewish sorcerer and false prophet who was an attendant of the Roman proconsul. When the sorcerer opposed them, Paul announced that the Lord was going to blind him for a time. Paul called him “a child of the devil and an enemy of everything that is right.” He was “full of deceit and trickery” and was “perverting the right ways of the Lord.” As a result of his attendant’s being blinded, the proconsul became a believer.

Galatians 5:20-21—Paul listed witchcraft as one of the acts of a sinful nature and said those who live with such practices will not inherit the kingdom of God.

MY OBSERVATIONS AND CONCLUSIONS: I am amazed that occult practices have continued into our modern, scientific world. Almost all of this ancient “wickedness” can be found in our communities. Some of these practices (like a president’s wife who regularly consulted with astrologers) actually reach into high levels of our society, and many of our most prominent newspapers and publications perpetuate such practices. The power in them has to be more than ignorance and superstition.

At the bottom line, these practices contend against faith in God. They promise guidance for the present and insight into the future. They promise a power that will astonish us, an insight into our unalterable fate, and an explanation of realities that are beyond our physical senses. They promise good luck, a charmed life, and hope for success; but if you are on the wrong side of their powers, you can be cursed with bad luck, misfortune, and even the threat of death.

Many people look at these practices with amusement and don’t take them seriously. Practitioners are viewed generally as hucksters who are basically harmless; and if they take advantage of some people’s gullibility, so what? Have a little fun! On the other hand, if evil is an active reality in our world, maybe the occult deserves a second look. In spite of the fact that much of the evil in our world is perpetuated under the guise of religion, maybe we ought to acknowledge that the occult is an alternate religion that contends for faith, power, influence, and allegiance. Just as Malachi confronted Israel with its syncretism that allowed the occult to get in the door, maybe we too should be focusing on “pure and undefiled religion in the sight of our God and Father” (James 1:27). James argues for a faith that will keep us “from being polluted by the world” while expressing itself in ministry to the “orphans and widows in their distress.” That’s a pretty good balance for all of us to seek.

Friday, April 9, 2010

Leveraged Debt: A Letter to Vanguard

Mr. F. William McNabb III
The Vanguard Group
P.O. Box 1110
Valley Forge, PA 19482-1110

Dear Mr. McNabb:

I am a long-time investor with and admirer of Vanguard. I am proud of my association with a fund management company that places its investors first. I also appreciate the reputation that Vanguard has established so that when Vanguard speaks, others listen. I am writing to suggest a general investment philosophy that I think will address some of the debt-related ills on Wall Street and will piggyback on what is happening in the way of reform brought on by the over-leveraging of financial firms. I think Vanguard could play a significant role in a practice that I believe takes money out of investors’ pockets and lines the pockets of “investors” in hedge funds. Let me explain.

I realize that prudent hedging has a role in investments, but the extremes we have seen among investment banks and others in recent years has jeopardized the security of our country, our businesses, and investors like Vanguard’s customers. While those concerns are being addressed, another aspect of them has not been—the leveraged buyouts of well-capitalized companies which are resold to investors after the LBO has stripped the company of its assets and loaded it down with debt. Investment management firms that sell stocks when the LBO is buying up the company and then repurchase the reissued stocks after they are loaded down with debt are allowing their investors to be ripped off. The hedge funds are reaping great returns, but investors are getting weakened companies that are hampered in their growth by overhanging debt. I think that high levels of debt weaken companies, make them more vulnerable to failure if the economy shifts, and hinder their ability to grow and expand in a competitive economy.

I am suggesting that Vanguard consider the following ideas in developing guidelines for investments made by Vanguard based on Vanguard’s desire to preserve, protect, and grow its customers’ assets. I also suggest that Vanguard utilize these policies to distinguish its commitment to protecting investor interests and to influence investment policies in general.

1. Vanguard recognizes that high levels of corporate debt weaken a company’s opportunities for long-term growth and make these companies less attractive opportunities for investment.

2. While an appropriate level of debt will vary from industry to industry based on the need for capital and how that capital is employed, Vanguard will use an appropriate level of corporate debt as a criterion in its investment decisions. I suggest that Vanguard begin with a guideline that no investment will be made in any company whose debt/equity ratio is greater than .8. I suggest that a long-term strategy be implemented to gradually reduce that guideline to .4. I further suggest that Vanguard consider offering a fund whose portfolio is built around companies with little or no debt (.05 or less).

3. Vanguard should adopt a policy that its funds will not purchase debt instruments, invest in any debt securities, or assist in any way in financing the leveraged buyout of any company.

4. In representing the interests of its clients, Vanguard will encourage company management and boards of directors to evaluate their debt levels carefully and to ensure that investors are rewarded for their investments and not management, directors, or LBO specialists. Mergers, acquisitions, and buy-outs should reward current stockholders only.

I really would like to see American tax policy focused on reducing personal and corporate debt and especially removing the deductibility of debt service for repaying LBOs. I think a better approach would be to get someone to address the debt issues in our economy both at the personal and at the corporate level. I believe Vanguard, in its concern for its customers and their debt loads and in its development of sound investment policies, could address these issues and give them prominence. I believe your customers and our nation would be in a better and more competitive position if the problems related to debt were addressed.

Thank you for giving attention to these concerns.