The real executive compensation solution...and a bid for some terrorists I can call my own...

Posted By David Rothkopf Friday, June 12, 2009 - 9:02 PM Share

Maybe the problem in the United States isn't that we're paying our business executives too much. Perhaps it's that we pay our government officials too little.

The Obama administration has made headlines this week by appointing yet another czar, this one to ensure we don't pay too much to the executives of the financial institutions the United States has bailed out. They have also made noises about trying to tackle the broader issue of executive pay in the United States. The second point is idle posturing that almost certainly will amount to little constructive change. The first has already sent the companies we bailed out scurrying to the exits of the TARP program and it will be a while before we see whether this is a healthy step, getting them off the dole, or an unhealthy one, with institutions hopping out of their hospital beds before they were fully cured. I also can't help but wonder if cutting executive pay is the best way to attract the kind of brains and efforts that will be needed to fix our busted banks.

Meanwhile, I have arrived in Singapore, home according to one count, of the 30 highest paid government officials in the world. And trust me, given the extraordinary success this city state has enjoyed, none of the people with whom I met today were complaining that those officials were overcompensated. This country wants the best minds in the government and recognizes that they have to pay to get them there otherwise they go work in the financial community, sell their souls and ultimately add to the overcrowding problem that is currently one of the biggest social issues facing Hell.

Come to think of it, the overcrowding in Hell probably plays directly into the hands of management down there. I know this because I was in Mumbai airport last night. And for all my enthusiasm for India, Mumbai airport, thronged with people as the late night flights prepare to depart, hot, fetid, and chaotic, would have had Beezelebub feeling right at home and Hieronymus Bosch reaching for his paint brush. In fact, I think I may actually have seen the Prince of Darkness himself there. He was manning a security line and he gave me such a thorough pat down that I think we are now engaged.

It would have been unbearable were it not for the staff of Singapore Airlines who met us, mere ticket holders albeit of premium tickets, at the door and whisked us through the crowds and ultimately onto the plane. And once on the plane, I knew exactly how Dante felt once he left Virgil behind and had reconnected after all those years with his old squeeze Beatrice.

Suffice it to say that it does not appear that Singapore Airlines is even in the same business as American Airlines or United. From the meticulous, exceptionally well-appointed aircraft to a seemingly enthusiastic commitment to service, the airline that was one of the first of the businesses created by the Singapore government when it gained its independence in 1965, is achieving its strategic goal. It makes you want to travel through Singapore on every flight. Treat me like they did last night and I'd be happy to have a Singapore Airlines connection on my next flight to New York from DC. Especially when the only other option is travel on run down U.S. airlines whose flight attendants seem to have been trained under some footbridge somewhere by a particularly obnoxious family of trolls.

Then you arrive at Singapore's Changi Airport and you are powerfully reminded that the excellence of the airline is not a fluke. This is the best airport in the world, spacious, efficient, and attractive. As such, it is the perfect preparation for Singapore itself, almost certainly the best run political entity on the planet. Admittedly, the country, led from the start by the man who is now known as its Minister Mentor Lee Kwan Yew, has practiced what I would characterize as constrained form of democracy but few places have ever so compellingly made the case that what is trade away in terms of the occasional citation for spitting gum on the sidewalk is more than made up for in a society that is prosperous (Asia's second richest), innovative, and safe.

It is a government that has led the way by behaving in many ways like a corporation, taking ideas like competitiveness and strategic planning seriously. (At dinner tonight with a senior business executive who is one of the country's great entrepreneurial success stories, she said, "In the beginning, in Singapore, the state was the entrepreneur." And that was said with a genuine appreciation for all the state achieved in that role.) Even in the midst of a global recession it has been seen as not just responsive, but creatively responsive, promoting retraining of workers and focus on new growth industries.

Part of the credit must go to its unique system of senior government official compensation. Ministers are paid via a formula: two thirds of the average of the eight highest salaries in six key professions (lawyer, accountant, banker, multinational executive, local manufacturer, and engineer). As a result in recent years the president and the prime minister have made in excess of $2 million a year in salary and other ministers in excess of $1 million. The result is that many of the best minds will be found in the government, zero corruption and terrific results. Want an example of the innovation? The president, prime minister, and ministers took an almost one-fifth pay cut this year because of the recession. What? Accountability among public officials? Real incentives? Imagine the loud "gak" you would get out of the U.S. government as they choked on those ideas.

I could go on regarding the innovation here, and perhaps I will tomorrow, but while we're on the subject of incentives, one last thought. Yesterday, I noticed that in exchange for taking those 17 Uighur terrorists, Palau was getting $200 million from the U.S. government. That's $14 million or so per terrorist. And incentives being what they are, I immediately concluded that I want some of that terrorist action.

I will take 100 of them or however many they have left. 100 will fetch me $1.4 billion. With this I will spend maybe $200 million on a small island on which to house them (and my appropriately comfortable warden's compound). Maybe I could buy Devil's Island from the French space agency -- which apparently currently controls it -- for about that much. Then I would set aside another $200 million to care for the prisoners (at $50K per year for an average of 40 years each that would cover it). And I'll pocket the billion as my fee. Secretary of Defense Gates or his representatives can contact me at FP to work out the details.

luxtonnerre/flickr

EXPLORE:FINANCE, FINANCIAL CRISIS, INDIA, OBAMA ADMINISTRATION

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BLUE13326

2:51 AM ET

June 13, 2009

I don't get where he got the

I don't get where he got the $200m from. Wasn't the problem with relocating them here that Congress wouldn't vote him the money for it? $200m used to be a lot of money, so where is it coming from?

As far as executive compensation, we've tried different ways to square that circle; the point of giving massive stock option grants was so that executives would take less now and focus more on building their company's future, and cashing in when the stock rose. That didn't work out very well. It's the old conflict that you learn in corporate law 101: Without a decent ownership stake, mgmt. has the incentive to run the company in perpetuity to collect its paycheck, no matter how badly things are going, and no matter how much it's messed things up, and to not tell the truth about it; with decent ownership stakes, mgmt. has the incentive to maximize value, but on a short-term basis, so it can cash out. It's a thorny problem, and I doubt anyone in this administration is bright enough to find a way out.

One possibility is to end the practice of having the company indemnify management for certain claims, although this would make it much harder to find top talent; or make it easier to 'pierce the veil' in certain lawsuits.

ANILK

9:40 AM ET

June 14, 2009

Mumbai airport ....

You are right about Bombay airport ..... the place is an unholy mess. They say they are upgrading .... I just dont know when it will be finished.

What you wrote about Singapore bureaucracy was quite enlightening. India's bureacracy also includes some of the best minds from India (with the IAS exams and all that) but their pay is abysmal and probably one of the chief reasons why they are not too motivated to transform India.

Btw, can I have one of those Gitmo guys?

How/where can I start the process of being listed as a "haven" provider .... ?

Anil K

TRULYSINGAPORE

1:52 AM ET

June 23, 2009

Utter rubbish

Dear Mr. David Rothkopf,

Do you consider President Obama as talent? If an annual salary of less than half a million dollars is sufficient to attract talent to run the world's most prosperous country, I don't see why corporations need a lot more to attract top brains.

The reason why you haven't met anyone who has complained about the grossly unfair salaries that our ministers have been getting is because you are cushioned by govt or semi-govt officials all around you. Ask any average Singaporean, ask a taxi driver, go to Singapore Internet forums and you will see deep seated anger and resentment at the obscene amount of pay our ministers have been getting.

And for the record, the extraordinary success of Singapore has less to do with our govt and more to do with Singaporeans as a people. Because Singapore is not the only extraordinary success on the face of this earth. It is merely one of four East Asian dragons who have all been extraordinary in comparison to other third world countries struggling for prosperity over the last four decades. Think about it, what is common amongst the East Asian dragons? Simply said, we are East Asians and this is what we do - we compete, we strive, we excel. Without this reasoning, it would be difficult to explain why of all the developing countries around the world, only four achieved extraordinary success and somehow miraculously, all four happen to be in East Asia. The growing success of China and the already successful Japan further support this thesis. Where there are East Asians, there tends to be prosperity. Here in Singapore, most of our ancestors have East Asian roots too.

It is precisely because the govt has been paying themselves so well that top brains can afford to rot themselves in the ministries so much so that our private enterprise has suffered a lot. Apart from the SIA, we have no technological big names like those of Korea and Taiwan to boast of. Here in Singapore, we have the opposite of the problem you described. Our ministries are over crowded and lowering compensations would be a good way to lessen the crowd. Just as lessening executive pay in the US would help to alleviate over crowding in private enterprise too.

Your admiration for Singapore's Changi airport is understandable because it is indeed an excellent airport, one that its people can be proud of. But if you do not already know, this year's airport rankings have seen both Korea and Hong Kong overtake Singapore. So in the case of airports, once again we see that excellence is not a uniquely Singaporean trait, it runs in the other East Asian dragons too, further supporting the thesis that it is who we are as a nation of people that makes a difference.

The so-called best run political entity is merely a facade. Yes, you see a beautiful facade. But behind that facade is untold suffering that you as a foreigner would find hard to see. It is hidden in small pigeon holes in HDB estates and surfaces every now and then when people commit suicide by getting themselves run over by the train.

The country wasn't led from the start by Lee Kuan Yew. Rather, Lee Kuan Yew inherited a very strong legacy left behind by the British and also had crucial support from Dtuch and Israeli advisors. Constrained democracy is a mere nicety for virtual absolutism and dictatorship.

So you are being mistaken when you say that we had to trade freedom for prosperity. For the other three East Asian dragons - Hong Kong, Taiwan and Korea have achieved prosperity without compromising freedom. So the need to trade freedom for prosperity is a myth that is being perpetuated by people like yourself to lock the Singaporean mentality into perpetual slavery. Singapore, like the other East Asian dragons achieved prosperity because of who we are as a people, not because of the govt. In fact, as a British colony way before Lee Kuan Yew was born, Singapore was already a prosperous city in Southeast Asia and it still is.

Of course a state representative would be inclined to say that the state was the entrepreneur from the beginning. But a cursory understanding of Singapore's history would tell you that some of the most successful early enterpreneurs in Singapore like Tan Kah Kee and Lee Kong Chian have made their mark perhaps even before Lee Kuan Yew finished primary school. So this is again nothing but a bunch of falsehoods that govt / semi-govt officials would be most pleased to serve you.

Uniqueness in government compensation does not mean it is necessarily right or acceptable. The people are frustrated but have no say. Only in an autocratic country would you find such a situation. So uniqueness in this case simply means autocracy.

It is also a falsehood to say that mulit-million dollar salaries led to zero corruption. There was little or no corruption right from the start when there were no mulit-million dollar salaries too. If there was no corruption to begin with, it would be false to say that money helped to eliminate corruption. Furthermore, what is the difference between using money to fight corruption and corruption itself? In both cases, money is taken isn't it?

You call a one-fifth pay cut an innovation? I tell you what is innovation. A tiny dot of a country where leaders command 500% the salary of the leader of the world's most prosperous country is an even bigger innovation.