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02/23/2012

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1. Much of "bonus" today is simply tax-advantageous disguised dividend distribution, where profit is skimmed off the top and re-allocated to the insiders so they get a bigger piece of the gross than shareholders. The shift from guaranteed fixed to contingent variable compensation is highly praised in some circles... but whether it is really contingent or proportional is frequently an open question.

2. On CEO pay ratios, Peter Drucker proposed a cap of 25 times the average employee pay. Relative relationships are absolutely problematic, especially when owners (shareholders) choose to permit "excessive" largesse. After all, it's THEIR money, not ours. I'd suggest we simply lift the employer tax deduction for wages over a cap level. Let them pay it out of after-tax profits if they choose, but don't create an incentive for misallocation.

3. Despite the issues created by complex plans ("schemes," in Brit-speech) that can be "gamed," a return to unbridled arbitrary subjectivity is hardly the solution to perverse incentive situations. Better program design and contingent clawbacks make more sense, overlaid on transparent objective reward criteria rather than potentially biased personal opinion.

Just a quick opinion... others will feel differently, I'm sure.

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