Executive Pay

[bduke]

I have been absent from this site for many months, mostly because it was almost impossible to access.

However, due to yodelling coyotes at 2AM.... and my inability to resume sleeping.... I came to the office and removed Norton from this comp.

Still wide awake I perused A-V ....and caught up on this world of perspectives and opinions.

While watching Liddy of AIG on BNN, and the recent media mania regarding say on pay, exec pay, bonuses etc., I thought of One-Earth Farms.

So Agri-Ville faithful, what are your thoughts on compensation philosophies and principles? Current and future?

What about target pay? ....and mix i.e. base pay....bonuses...options....share awards...cliff vesting ?

How would you measure performance?.....and what process(es) would you use?

I am interested in all opinions......and I am sure some of you are applying various plans in your farms and agri-businesses.

How would you pay Larry and fred?...Bill

[Hopperbin]

Things work very simple on my farm.
The work got done on time.
The work done was very good.
There was a huge profit at year end.
All workers plus their wives, husbands, got a bonus trip to mexico for a week plus a thousand dollars after tax.
Not sure what AIG based their bonus on but it sure was not work done well, or on account of profit. With so many people out of work these days cannot some of these people be replaced? Well really cannot comment anything else.

[checking]

I believe AIG paid bonuses because it was in the executive contracts. It was obliged to fulfill the deal just like any of us would be obliged to fulfill a grain delivery contract under terms that had a meeting of the minds between a buyer and a seller, and the accompanying signatures. --------------- I continue to hear that company executives are vital, they can't be replaced by the guy on the street, yet given the downturn there has to be lots of executive talent looking for employment. What can't be tolerated when these employment contracts come up for renewal is a furtherance of bonuses that are not tied to performance, particularly when taxpayer bailout money has been given. Rewarding failure would grate any normal worker. Yet, it didn't appear to me that Liddy was very receptive to the committeee advise as to how he could have the $165 million returned out of future profits. I would have asked that his $1.00 salary be returned to the treasury, and he to return to his retirement.

[bduke]

Hopperbin.....I tried to access A-V last evening...from 9:15 to 10:27....but commodity marketing would not come up....opening page memo, but no modem activity. I tried on two computers simultaneously....thought it was anti-virus related....wouldn't access from 7:30AM to 8:30AM today either.

However....are you the defacto CEO of your farm?

Do you have employees that are not family members?

Do your employees have opportunity to build equity within your operation?

I don't expect specific info....but you obviously are very successful and I wonder if your model could work for One Earth.........Bill

[bduke]

Checking.....In 1993 the US Omnibus Budget Reconciliation Act eliminated corporation tax deductibility for compensation in excess of 1 million dollars for the CEO and the next 4 highest paid execs. However, this act exempted pay that qualifies as "performance-based".

This dramatically changed exec compensation to base pay of 1 mill or less, and performance bonuses that were based upon historic metrics of day. The tremendous growth and profitability of some sectors in this millenium triggered unbelievable bonuses and the expectations of high achievers became astronomically high.

If my memory is correct,Treasury Secretary Paulson....the CEO of Goldmans...had a total comp value of 37 million for 2005.....one year!.

So how much pay should be based on performance....recognizing the quality of people....and their responsibility?

BTW.....I think many of the AIG bonuses are actually retention guarantess. I'll bet that many of the people being retained are vital to understsnding the derivitave business or were not directly involved in the offside deals/speculations.

Also...employment contracts ...which Liddy inherited....have historically been supported by the courts. The cost of litigation is usually a greater waste of shareholder value. This is why HO is considering retroactive legislation.....much as the Romanow Gov't did with Grip.

Regarding a repayment of the 165 mill to the US Govt.....why not repay the 170 billion....if they survuve....the 165 mill would be included?....Bill

[Hopperbin]

I am a sole owner. So I call myself chief asshole.
Half employees are some sort of family members, so a family farm.
No one but me builds equity.
Actually I would prefer not to have the few employees that I currently have to build equity. The farm will not be for sale when I retire, just handed down to the kids. They don't have to farm it they can rent it out if they want but I will encourage them not to sell. The farm is only 31 quarters in operation. My setup will not work for One Earth. They will have much more problems that I could ever handle.

[bduke]

Hopperbin CA...lol....you put a whole new meaning into the CA designation....

Thanks for the info.....your comment about not wanting some employees to build eguity is salient.

Although establishing a "defined contribution" pension plan....and investing in off farm equities could help secure employees you care to keep.

I'm not sure your system wouldn't work for One Earth.....they will need a go-to person.....someone who is capably accountable...understanding of their operation....and more inclined to give ulcers than to get them!

I hope you have a great year.....Bill

[checking]

Bill, that makes perfect sence the way you've explained the shallowness of base pay vs the depth of performance pay. I've often wondered about the latters excess. Thank you for the explanation. Those committee members telling Liddy the lesser of two evils -giving it back which I took would apply only to AIG (unless other companies were identified and tarred with the same brush of massive public distain of rewarding failure with large bonuses) was much preferable to having legislation coming down the pipe to claw it back (every company would then be equally scrutinized by the law). There would be no place for executives to hide under the radar by taking employment and potential undeserving bonuses elsewhere. Why would those executives not jump at the first option? -------------------------------- Obama heavily favors merit pay for educators. Once upon a time, long long ago, I was a school teacher. I believe the same pay schedule applies today, but I may be wrong. In my time, it required a minimum of four years of University of Education studies including a 1/2 year practicing internship (class 4)to obtain a one degree Professional A teaching certificate. As a first year teacher the base pay was level one representing the first year of teaching experience. Salary brackets increased to ten years of teaching experience which was the maximum pay for that class. I believe the overall difference was in the neighbourhood of 1.5 times salary from top to bottom brachet There were three year certified teachers that were grandfathered (not required to upgrade to the four year university standard), but their salary brackets were less. I happened to have two degrees representing five years of University studies. There were teachers with class six master degrees, and their salary brackets were higher yet. In addition to training differences, salary bracket differences, level differences, there was also tenure which only came after two years of successful evaluation by superintendents, now called directors of education. They had termination powers within those two years, and you as a teacher had no recourse to appeal your required resignation. I suggest you consider this model for whatever executive you hire.

[bduke]

Checking....thanks for your perspective.

The philosophy of meritocracy seems to be the norm in most corporate structures, although "family dominate" companies still practise entitlement.

I am wondering how any operations measure performance....i.e. what metrics are used....what comparisons....how complex or simple is the evaluation....how are benchmarks established...base pay percentage...etc.?

Also, how is judgement adjudicated in areas such as culture....public relations...employee satisfaction...customer satisfaction...
team building....willingness to learn and adjust etc.

It seems to me in this era of measure and manage the trick is to get the metrics and comparitives right.

BTW...in my corporate structure I am the water boy...the gopher...the mechanic...the operator...the janitor...the bin sweeper...the CEO...CFO...COO and, like hopperbin mostly the CA!.....and Liddy's $1 per year salary is infinitely greater than mine..lol....Bill

[Kodiak]

So Bill, your salary is less than $1 per year. I can buy that. So it mine.

But which one of those long list of positions is paid the bonus? Or should I say, how many of those corporate positions are paid a bonus?

I won't ask you how much they are, or if they're based on performance, luck, or entitlement!

[Kodiak]

Before you feel the need to ask - I have the same corporate structure as you do Bill.
My executive and self-employment wage and bonuses are paid on the basis of a balanced scorecard. I think that's relatively the same as the the metrics and measurables you are talking about.
I also set the base pay percentages and do the evaluations
What a wonderful world!

[bduke]

Kodiak......if our operations are the "gold standard" for One Earth to follow, Larry and Fred are going to be very busy boys....and very frugal!

But at least they will have each other to blame for the screw ups...lol...Bill