JEREMYCWILSON.COM

Hello JC:

I am a frequent visitor on your blog however this is the first post I have fully read. I would like to commend you for covering a wide range of issues related to education, public policy, careers management, management, economics, law etc…

I just wanted to make a few remarks.

1)Actual US unemployment rate: The monthly unemployment rate released by the BLS paints an inaccurate picture of the US unemployment rate. The actual US unemployment rate is at about 16.5%. Please read the following article from MSN Money if you wish to know how this number came about: http://tinyurl.com/uslabor16

2)Executive compensation: I think you are being too soft about Executive pay. Please take a look at actual top 100 CEO compensation AFL/CIO…UNBIASED LIST…offering SEC computation and AFL/CIO computation: http://tinyurl.com/ceopay08
Most stock options if not all stock options have a grant or strike price below the market price so CEOs are almost always guaranteed to make a profit. By the way if the stock price plummet, they don't have to exercise the option. CEO can also hedge their options or even make announcements aimed at artificially inflating the company's stock. The point I am trying to make is that you are discounting the value of stock options rather too easily. Last but no least, some of the executive cash bonuses are ridiculous.

3)Cash bonuses: As far as Wall Street firms are concerned, most of the bonuses being talked about are cash bonuses. Often those bonuses are like advance payment with a condition for the employee to perform at a certain level. I am sure you have friends investment bankers, ask them how the bonus scheme works.

The issues you talked about in this post are in tune with the current socio-economic realities of the US and to some extent the rest of the G-20.
I think the overall news coverage of the issues leaves to be desired. In fact I believe that a lot of homework is needed if one desires to get the facts.

Hi Jeremy–Great post on labor day. I am also a frequent visitor to your blog and like that you talk about a variety of issues here.

On your labor day entry, I also like your point on "visible compensation". I think you're spot on that the compensation values are exaggerated by the media and that the majority of people don't understand how much value a CEO walks away with. I'd be interested to hear more about your experience with you about compensation and stock valuations.

Good luck with school!

@thestudentcpa–My apologies for taking a few days to get back to you. It’s been a pretty hectic week of law school this week.

But thanks for taking the time to read my blog and to comment. My goal is definitely to write about a wide range of issues, rather than solely MBA admissions or life in b-school/ law school, so I’m glad that this shines through in my posts.

I’d like to take a moment to briefly respond to a couple of your comments. I hope they come off as objective and not subjective/contentious/agreeing:

1) I definitely agree with you that there are a lot of numbers out there for unemployment rates, none of which are 100% correct, as lot of people under odd circumstances end up being left off the respective lists. I mention that in an older post here. http://bit.ly/bsFPk For this specific post, I opted to use the labor statistics household survey which seems to be the standard at least in terms of what people are looking at now. I think the source suffices for the intention of my post, which is moreso about labor trends and less about statistical analysis

2) My thought process in writing my post was not to make any claims over exact valuation methodologies, rather just to say that executives pay levels have also taken a hit. This fact is undisputable and verifiable if you take a look at year-over-year valuations.

If you’d like to chat further about valuations specifically, I’d be happy to do so. As a consultant in my former life, I’ve spent a lot of time performing valuations not only of companies but also of compensation packages, including executive pay plans for dozens of the Fortune 100 firms. Because of its complexity, I didn’t go into too much detail in my post, but could be willing to share some specific details if you’re interested in how services firms perform valuations and in the mechanics of stock option plans. But generally, valuations are done very cautiously, and black-scholes and other option pricing models typically assume 20%-30% for a typical company, based on a fairly steady volatility.

3) To be a slight stickler for words, it’s not that most bonuses are paid in cash, its that nearly ALL bonuses are paid in cash, including banker bonuses. Exceptions might include fancy stock or performance cash plans but those are typically not considered "bonuses". Also, bonuses are rarely given as an advanced payment. In today’s pay-for-performance environment, a board would be fired and replaced immediately if they chose to do so.

In terms of mechanics, bonuses generally reflect one’s level of responsibility at a firm. To ensure accountability and to reward an employee for actual accomplishments, companies tie portions of employees' pay to both individual and company successes. The only way to actually keep a bonus tied to these things would be to pay out the bonus afterward. I think you might be mistaking bonus targets (targeted bonus amount at the end of the year if goals are achieved) with actual bonus payouts (payout based on actual performance). But again bonuses are rarely paid out ahead of time.

But thanks so much for your insight. I love to hear people’s opinions and perspectives regarding labor and the economy as well as pay packages that executives receive. Please keep reading my blog and feel free to post comments along the way.

Take care,
Jeremy

@Anonymous–Compensation valuation is a very difficult topic and takes years to master. There are folks who do this for a living and they still debate many of these assumptions among themselves. Thanks for the kind words about my blog & post.

Hey Jeremy,

I agree on the meta-trends you've highlighted, but don't think the future is as grim as it seems.

They say a holy grail for the boomer generation was home ownership. Legislative and business bent over time to accommodate this goal (i.e. more lenient credit risk assessments, larger loans, optimistic bucketing of home as an ever-appreciating investment).

Lately, I've been hearing comments to the effect that this grail has been replaced for many by success = working for oneself. While many of the trends you've highlighted threaten career aspirations predicated on job security, they also enable a more entrepreneurial ambition to come through.

(PS internship was awesome. Not sure what the future brings, beyond CO and a role with a high degree of autonomy. We'll see if I'm able to add value for them on those terms. 😀 )

@M!NU5–Thanks for the comment, and I certainly hope you're right about the future. There seem to be a lot of good signs that the economy will recover as a whole. I think my post is more reflective of my perspective, as personally I always like to keep some of my focus on the individual and on the common guy, to whom I'd argue the economy still seems grim. I think this is why my post isn't a bit more optimistic.

I do really like your point about entrepreneurship. The good thing about the capital markets system is that whenever more established opportunities are eliminated, new opportunities are always spawning, as you suggested. What I didn't make mention of here, or in many posts at all yet, is that aside from employment/labor/careers issues, I'm also largely interested in entrepreneurship. So I really do like your point.

Glad you enjoyed your internship. Good luck in your career decisions over the next year.

J.C

Many thanks for your rebuttal.

Just wanted to acknowledge that I inadvertently mischaracterized the bonus payments as advanced payments. Nevertheless, there are some practices about bonus awards on Wall Street such as guaranteed bonuses (regardless of performance) that deserve to be scrutinized. In addition, the parameters for awarding bonuses on Wall Street are such that brokers and traders make calls for short term gains as opposed to long term gains. Anyway, each company is free to compensate its employees the way it sees fit, however that doesn't shield them from being criticized.

@thestudentcpa–Thanks for the clarification.