The State of the Economy Speech: Hurrah!

by Dual Income No Kids on January 31, 2007 · 0 comments

In case you haven’t guessed by now, my wife and both tend to vote democrat. We don’t blog about politics much and instead have tried to stay focused on personal finance because the blog should be open and accessible to all, democrat or republican.

That said, I just caught the headlines from the President Bush’s “State of the Economy Speech”. All I can say is: Hurrah! The president made one important point that I think bears some commentary. A the end of his speech he said that execute compensation needs to be merit based.

In case you’re not up on the issues surrounding executive performance, I’ll quickly summarize for you. First, many corporate executives are being paid a lot for doing a bad job. (For some examples, click here and here). Second, the ongoing stock options scandal means that companies were/are cooking the books to give more money to the bosses.

In response to these trends, the SEC changed reporting rules to make executive compensation more transparent. Under the SEC’s new guidelines, it will be much harder for bosses to claim big salaries when they are doing a bad job, therefore adjusting pay to match performance. This is good because it builds integrity into the corporate model. With greater transparency, shareholders can vote poor performing executives out of office (if you own shares directly in a company, you are entitled to get a vote).

W, good for you.

Best,

James

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