If owners had a say over managers’ pay, American capitalism would benefit

In America you can usually count on people to stand up for their rights. Oddly, though, the shareholders in American companies are like the disenfranchised citizens of a rotten borough.

Investors in capitalism’s heartland have remarkably little sway over managers in the companies they own. Rather than chivvying them to perform better, investors shrug their shoulders, sell up and move on. Disputes between managers and owners are settled not so much by consultants as by litigation.

This week Congress got to work on a bill that would greatly extend shareholder democracy by giving investors a vote over executive pay. That is the area in which shareholders and managers clash most often. Horrified executives maintain that if this power is granted, special interests will use it to advance their pet causes. But the bosses should welcome this reform as being in their own interests. There is much bad feeling in America between managers and shareholders; and the best way to dispel it would be to invite investors in, not to bar the door to them.

Wage war, make peace

Managers pay has grown at an extraordinary pace since the mid-1980s. But the widespread notion that this is the result of corporate misgovernance is wrong. For one thing, pay has risen even as governance has strengthened. American executives are far more tightly controlled, both by government and by shareholders, than they were in the 1960s and 1970s, when bosses’ pay was relatively modest. Why did powerful executives back then fail to take advantage of something their weaker successors have so eagerly exploited?

,started to reward managers for profits. Shareholders have duly benefited from an era of extremely high returns. Ever larger companies can afford to bid ever more to get the manager they want, because he will leverage even more assets.

The bill before the House of Representatives’ Committee on financial services gives shareholders an advisory vote on managers’ pay, as well as a vote if executives gain a golden parachute while their company is being sold. But if misgovernance is not the cause of the general rise in executive pay, strengthening corporate governance is surely not the solution.

It is, because the problem is not the general rise in pay but individual cases of abuse. Even if average pay is reasonable, some American bosses get outrageous salaries. That is because pay is complex and boards sometimes make mistakes. A shareholder vote might help avert them – by, for instance, curbing the excessive award of stock options in the bull market. It would also ensure that, when mistakes are made, shareholders would not be able to blame the clowns on the board, for they would be implicated too.

 

The Economist

 

 

VI. The scheme below is the so-called mind-mapping which helps you to summarize the

Contents of any text. Study it carefully and make your own additions or alterations if any.

 

 

 

SOLUTIONS

 

 

	Turn to US experience				Part of the overall strategy of a company		Turn your back to complex human resources departments

 

 

Basic pay – what the market pays in similar organizations

 

Vocabulary Review

I. Translate into Russian:

takeover bid; to frustrate a deal; to break up a company; to commit funds to education; the collapse of dot.coms; productivity gains; enterprising; rate of return; bond yield; Treasury securities; obsolescence; emerging market; job security; tight market; to upgrade skills; to redeploy valuable resources; to have qualifications for the job; operational work; peer review of an employee’s performance; corporate raider; buying spree; shallow recession; overvalued currency; in an endeavor to do smth; to fine-tune; attrition.

 

II. Translate into English:

«сжатие» кредита; повысить уровень жизни; решать проблемы; обратная связь; неустойчивый фондовый рынок; предпринимательство; устанавливать процентные ставки; передавать часть работ субподрядчикам; в корне изменить стратегию; критерии оценки деятельности компании; прорыв, достижение; система организации труда; отказаться от принципов; переосмысление производственного процесса; обязательства перед клиентами; издержки на единицу продукции; изменение положения компании к лучшему; трудовые процессы; штрих-код; молчание – знак согласия; управление системой поставок; оптимальный объём ТМЗ; излишек производственных мощностей; повышать качество; текучесть рабочей силы; специалист по найму новых работников.

 

Unit 18

 

Corporate Employees

Get Piece of Profit Pie

By Michael A. Hilzik

LOS ANGELES - Employees of major companies have complained in recent years that they have been working harder while getting a shrinking share of the expanding pie of corporate wealth.

That now appears to be changing.

Many management experts say last week’s announcement by Levi Strauss & Co. that it will reward its entire work force for meeting enhanced growth targets through 2001 reflects a new corporate mind-set that business success means giving the worker a tangible stake in corporate profits.

Throughout American industry more corporations are considering or instituting stock option plans and other bonus programs aimed at aligning the interests of not just top managers, but huge portions of the work force with the interests of shareholders or other corporate owners.

Of course, nobody suggests that employees are about to displace shareholders as the corporate constituency most likely to be coddled by management. Companies seeking to cut costs still look first to the labor force, either by cutting employment outright or by «outsourcing» more production to outside workers who don’t get as much in wages or fringe benefits as regular full-timers.

Nor are rank-and-file employees in line to receive the rich option payouts still enjoyed by top executives and even middle managers at top U.S. companies.

But recent management surveys indicate that more workers are being offered a piece of the pie.

About 3 percent of the top 1,000 publicly held companies in the United States make some grant of options or restricted stock to all employees, according to a survey by the newsletter Executive Compensation Reports; 56 have board authorizations to do so but have not yet implemented programs, according to the newsletter.

Of those programs, half have been implemented since 1994. Only one predates 1989. (The exception is the egalitarian and successful Hewlett-Packard, whose option program was established in 1957.)

Other surveys indicate that many more companies grant stock or stock options broadly through their organizations, even if not to everybody. Between 8.5 percent and 13 percent of top U.S. corporations have made such grants to at least 60 percent of their workers in recent years.

«You just didn’t see this in the 1980s,» says Corey Rosen, California-based National Center for Employee Ownership, who adds that the number of corporations asking his organization for help in devising such plans has burgeoned. Employee options programs commonly take several forms. The simplest versions grant workers a given number of shares if they remain at the company for a certain period of time. Because the option price is generally set at the time of the original grant, the employees pocket whatever gain has been racked up in the interim.

More elaborate programs require corporate performance or share price to clear certain hurdles in order for the options to kick in, theoretically giving the work force and management a shared goal.

The expansion of share ownership to wider groups of workers is at least partially a reaction to intense criticism of corporations for focusing heavily - many say excessively - on maximizing shareholder profits at the expense of most other participants in the corporate culture.

Throughout the 1990s, critics observe, companies turned out record profits and rewarded shareholders with historic gains. But employees suffered mass layoffs and corporate philanthropy shriveled.