Fixing Executive Compensation

I have a simple question.  Why are profitable companies laying off people?  I can see if a company’s survival is at stake.  If payroll can’t be met. If debt can’t be paid. Then layoffs are a necessary evil. Even if companies have created cash flow deficits through their own mistakes, that’s the nature of business. Mistakes are made.  What I have a problem with is that discussion of executive pay never includes whether or not the executive has been good enough to pre empt or prevent layoffs.

Executives are not stupid. Usually. They recognize that killing off employees can juice a stock price. Even in this market. Which in turn can juice the value of their options and compensation.  At the companies I run, we have cut raises, put a freeze on hiring, done what we need to do, but we have done all we can to avoid layoffs. Why? Because its the right thing to do. Its the patriotic thing to do. I’m selfish enough and arrogant enough to think that maybe if I pay attention to the big picture that I can impact the big picture.

As a shareholder, where possible, I would prefer that the companies I own shares in do the same thing.

I own stock in some firms whose backs are up against the wall because of debt. Unfortunately, they don’t have a choice but to cut jobs in order to save jobs. I understand this reality. It’s unfortunate, but a fact of life.  I also own stock in firms that are profitable.  Put a freeze on hiring. Put a freeze on all raises to employees of all levels, including yours.  You don’t have to try to squeeze every nickel to the bottom line. I realize these are extrodinary times.  I’m happy to accept a P/E ratio that is 20pct or 50pct higher (lower earnings vs the current price) . I want you to manage for the long term benefit of the company rather than manage to the stock price.

As the discussion on executive pay continues, my message is simple.  Give credit to those executives who bust their asses to avoid layoffs except in cases where its an absolute necessity. Pay ‘em a premium vs those who cut jobs in profitable companies.

Capitalism isn’t about having the biggest bottom line for the current quarter.  Capitalism is about individuals busting their asses to maximize value for shareholders.  Sometimes you have to look at the bigger picture in order to reap the biggest returns. Not all rewards are short term.

About Mark Cuban 144 Articles

Mark Cuban is the owner of the Dallas Mavericks basketball team, billionaire internet entrepreneur, and chairman and owner of the high definition television channel HDNet.

Mark made business history when at the age of 32 he sold his computer consulting firm MicroSolutions to corporate giant CompuServe and became fabulously wealthy overnight. Cuban later did the same with yet another enterprise, the live streaming Internet operation, and sold it to Yahoo! for a record breaking price that pushed his own net worth into the billions.

He publishes his own blog at Blog Maverick where he speaks freely about basketball, technology, business, and the Internet.

Visit: Blog Maverick

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