Mark Cuban on CEO Pay

Here is one more reason Mark Cuban should get more credit--besides the day spent working at Dairy Queen, besides his rabblerousing to make the NBA a better league, and besides transforming the Mavericks franchise into a contender--he has a delightful blog:

http://www.blogmaverick.com/2008/04/15/my-2-cents-on-ceo-pay/

The above entry is his take on CEO pay, and Mr. Cuban's idea is absolutely ingenious. It wasn't too long ago that companies were refusing to include the true cost of any stock option grants in their accounting reports. Mr. Cuban's idea makes the ability to fudge the numbers even more difficult, because it's hard to miss money coming out of the cash flow till. His idea would probably also accomplish what many shareholder compensation resolutions are trying to do--lower the ratio between the CEO's pay and the average worker. Here is Mr. Cuban's idea, in his words:

Make companies generate 100pct of their compensation in cash that is 100pct expensable in the quarter paid. Thats not to say they cant own stock. Hell yes they can own stock. But make them buy it either on the open market, or as part of the programs that make stock available to every company employee, on the same terms. They are getting paid enough in cash and if they believe in their ability to run the company, they can put their money where their mouth is. Eliminate all the free lottery tickets. Make them buy stock, options, warrants, whatever, on the same terms as everyone else can.

Shareholders tend to ignore how much stock is given to management, they don't ignore cash. Companies will always be a lot more stringent with their cash, whether its paid to the CEO or anyone else. CEO cash compensation will go way up, but total compensation will come way down. More importantly , CEOs getting paid huge sums in cash will stand out like a sore thumb when things arent going so well. They will be treated like everyone else in the cash zone and held far more accountable for their work.

I naively believed that this kind of out-of-control compensation would not happen after 2002, when E-Trade's CEO, Christos Cotsakos, received 77 million dollars at a time when his company lost 242 million dollars. The resulting outrage caused him to pay back some of the money, but obviously, no lasting changes occurred. Here is a link about that incident:

http://www.businessweek.com/bwdaily/dnflash/may2002/nf20020517_7164.htm