American Capitalism

Last night I saw an old archived Frontline program that highlighted the 2008-2009 financial meltdown.  And it got me thinking - about the American brand of capitalism.  I have always said - the American brand of capitalism is like the Iranian brand of democracy.  Both are very similar - Iran has a democracy where people vote for their president, but only candidates whetted by the theocracy can be on the ballot.  When I think of capitalism, I think of the board representing the owners of the company and supervising the employees of the company (which includes the CEO and all the executives).  However, in our version of capitalism, the board of a company is selected by the management - and the CEO, who is an employee of the company, sits on the board and represents the owners.  This would make sense if the CEO has a large ownership stake and ran in a 'true' election.  Which brings me to my main point - why are board of management positions open to any shareholder?  If this was true capitalism, any shareholder (even individuals who have only 1 share) would be eligible to run as board members.  All elected board members would be answerable to the share holders - and would look out for the shareholders.  No more crooked sweet deals for CEOs (see Ray Irani).  No more outlandish pay packages for CEOs.

This brings me to my pet peeve about American capitalism.  Why is it that executives have a separate bonus structure than other employees.  Remember, all executives are employees and should be treated as such.  If they executives are so good at what they do, why don't they fire all the employees and do all the work themselves. And if they cannot do that, then the board should have a uniform bonus structure for all employees (say everyone get 10% - or whatever number is deemed appropriate - of their salary as an annual bonus).  And why is it that a CEO's compensation package contains more than just dollars.  The argument that I have heard is that CEOs take a huge risk and should be compensated for taking that risk.  Hence, they are paid using company stock.  Hah!  Why doesn't the board offer this 'risky' package to all employees?  I for one, would love to have this 'risky' compensation package.  I can almost guarantee that I will come out ahead.  Also, I would end up paying much less in taxes since I would cash most of my stock gains as capital gains.  So, here are my simple rules for how all employees of a company should be paid:

• All compensation should be pure cash (no stock or options or other fancy instruments)
• The salary of no employee in the US (this includes all executives at all companies) should be more than that of the President of the US.
• All other compensation should be as a bonus.
• The bonus structure should be uniform for all employees (one flat bonus % for all employees)
• For all public companies, the bonus structure should be tied to the finances of the company.  But all payments should be in cash.
• And finally, bonuses should be paid out over 5 years.

I believe that if some, if not all, of these changes were put in to effect, our capitalism would be more robust, more individuals would be aligned to its success and more individuals would benefit from the fruits of their labor (which is the primary goal of capitalism).

What do you think?  As always, I would love to hear from you.