Counterparties: Hoard of directors

April 1, 2013

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Of the 27 million Americans working part-time jobs, very few land positions that pay $488,709. That’s the average annual pay for a director at Goldman Sachs, Susanne Craig writes:

Some of the firm’s 13 directors make more than $500,000 because they have extra responsibilities… Goldman’s board is the best compensated of any big American bank and the fifth-highest paid of any company in the country… Some of its rivals are not that far behind. The nation’s biggest banks paid their directors over $95,000 a year more on average in 2011 than what other large corporations paid.

A Goldman spokesman notes that director compensation is increasing because of the firm’s rising share price, but that fails to address the size of the initial equity award. As Felix has noted, the best way to pay directors is to emulate how Warren Buffett does it, giving them “a modest four-figure sum”.

Despite (or because of) their exorbitant compensation, oversight from directors at US banks was largely nonexistent in the run-up to the financial crisis. Now banks insist that because of increased legal risks and time requirements, largely resulting from the financial crisis their boards did little to mitigate, they have to pay top dollar to attract qualified directors. But the caliber of bank board members is hardly awe-inspiring. Take JP Morgan: none of the directors on the board’s risk committee has worked at a bank or as a financial risk manager.

It’s not just bank boards that have problems. James Stewart details just how hard it is to get rid of directors, even after they’ve made boneheaded decisions. Despite running the company like a “tawdry reality TV show”, with disastrous financial results, each member of the HP board was re-elected last month. HP isn’t an isolated case, either. Stewart cites statistics from Institutional Shareholder Services showing that of 17,081 director nominees at US companies, only 61, or 0.36%, failed to get support from a majority of shareholders last year.

Barclays’ new chairman, David Walker, is trying to make his pay more defensible: he’ll be working at least four days a week to overhaul the board he leads, albeit on a $1.17 million annual salary. Walker is at least committing to do more than dial-in to the odd conference call, and show up to vote yes on management’s decisions once a quarter. Working more is the other way to make your work-to-pay ratio more defensible. — Ben Walsh

On to today’s links:

The Fed
Why we should thank the Fed for crushing savers – James Surowiecki

EU Mess
Why the Euro is doomed in four steps – Matthew O’Brien

Popular Myths
“There’s simply no statistical evidence of a broader renaissance” in US manufacturing – WSJ

Annals of gender diversity, Pimco edition – Felix

5 dumb mistakes for investing in the QE era – WSJ
Only 30% of SAC’s AUM comes from outside the firm – Katie Benner

The “meme hustler”: A lengthy attack of one of the web’s most prominent evangelists – Evgeny Morozov

The simple, boring reason why disability insurance has exploded: demographics – Brad Plumer
Why you should care about a divergence in two main inflation indicators – Greg Ip
The remarkable persistence of US economic growth, 1790-present – Conversable Economist

The housing market is coming back — but it’s still hard to get a new mortgage – Nick Timiraos

Online journalism “a bad business so far”, say slideshow manufacturers – Choire Sicha

Oliver Blanchard’s 5 lessons for economists from the financial crisis – WSJ

Corporate Largesse
Regulatory filing of the day: Wynn pays for an execs’ $9.3 million house renovation – Footnoted

Board members spending more time being board members, board members report – WSJ

Steve Jobs’ first boss: “Very few companies would hire Steve, even today” – Mercury News

New Normal
There are 284,000 American college graduates working in minimum-wage jobs – WSJ

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