As CEO of AOL, Randy Falco purchased Bebo for $850 million. Bebo was a disastrous purchase, and is going to be sold at a substantial loss. For all of his hard work in costing AOL billions, Randy Falco was given an $8.5 million bonus.
CEOs are hugely compensated through acts of fraud and dishonesty. Here is how the scam works:
1. The Board of Directors, usually cronies of the CEO (often hand picked by him) forms a compensation committee. To appear “objective,” the committee hires an outside compensation consultant.
2. The compensation consultants are themselves well paid whores, who rather than turning tricks outside the Holland tunnel, offer up absurdly generous comp package. They deliver what they are paid to: They provide cover for the boards to make an otherwise indefensible giveaway of shareholder monies in the form of cash and stock options. It is typically called “Pay for Performance,” but that is a horrific misnomer, as we see in step #3. The comp committee approves the consultants’ nonsense, forwards it to the Board, who rubber stamps it.
3. Here’s where things get interesting: If the stock price rallies, the exec can exercise and cash out, risk free. If the stock price falls, the exec requests a new round of options — or even easier, asks for a repricing of the old ones.
Even though there is an obvious solution to this fraud - e.g., giving shareholders a say on pay - libertarians oppose any reform. They scream about free markets and freedom.
The bailouts should have been a wake-up call for libertarians. Yet none of my libertarian friends have reflected on their political philosophy. This is a disappointment. Once an idea fails, you scrap it. You don't hold onto ideas like a sentimental knickknacks. Bad ideas must be thrown into the trash, even if that requires you to re-examine your life.
Indeed, there aren't many communists remaining. Yet communism took years to die because a Marxists replied to all criticisms by saying: "The Soviet Union is merely the misappropriation of Marxism! Some country will get it right!" No one was persuaded. Based on what we know about human beings, communism will always lead to oppression and the destruction of innovation. Finally communism died.
Yet today libertarians oppose higher taxes on the super-rich - even though one rarely gets super-rich in Modern America without government help. Shouldn't the CEO of Goldman Sachs pay at least a 50% income tax? After all, Goldman's CEO would have made nothing this year had we taxpayers not bailed him out. Isn't allowing someone to keep 50% of stolen money still exceptionally generous?
"Mike, you're wrong! You can't walk away from libertarianism in the United States because it's merely been misappropriate! We must give Goldman Sachs more freedom, not less." This is slave morality, and unworthy thoughts for a serious person.
People who defend executive compensation restrictions and oppose tax increases are mere stooges for the power elite. How does aggregate freedom increase by allowing CEOs to steal from publicly-traded companies? How does aggregate freedom increase by allowing hedge fund managers to pay only 15% in federal income taxes?
There is no free market in America. The United States government decides who will win, and who will lose. Those of you who oppose executive pay restrictions are patsies for overpaid CEOs and other power-elites. You are Catholics in denial. It's time to stop letting the super rich and powerful use you.
