Alain Tanugi asked:


I think it was the Financier Leo J. Hindery Jr who once said: ‘I think there are people, including myself at certain times in my career, who because of their uniqueness warrant whatever the market will bear.’ But the questions beg HOW much is too much? and Should macroeconomic woes slow CEO pay growth?

I recently read in the Associated Press that even as the economy slowed down in America “CEO pay still chugged to yet more dizzying heights last year.’ The top 10 highest paid CEOs took home a total of more than $500 million, but half of those companies saw huge drops in profitability at their companies.

One of the most exasperating things to shareholders and the public is when a CEO receives millions or tens of millions of dollars of compensation regardless of performance. This practice goes fundamentally against the culture of rewarding on the basis of ability and merit that underpins the free market system. Recent examples include: Marriott International chief J Willard Marriott Jr – his 2007 pay was $44m, up 22%, just six percentage points lower than Marriott’s stock price drop or Stan O’Neal, Merrill Lynch’s former boss, left with $159m after losing $8 billion.

Shareholders and politicians are advocating bringing in rules for companies that would allow shareholders to vote on executive pay. Executives in Europe have home far less compensation than their American counterparts in the past. But with leadership compensation in Europe on the rise, these pay increases have citizens in European nations deeply unsettled. The public indignation on both sides of the Atlantic has contributed to a unique political debate over what to do about excessive executive pay. Executive pay figures in Asia are still not as widely accessible as in Europe and America and it is difficult to compare. A recent study conducted by the CFA Institute Centre for Financial Market Integrity said that reporting compensation of executives on an individual basis is the practice in the United States, Britain and Australia and is advocated by institutional investors worldwide. Prevailing regulations and practices in Hong Kong, Japan and Singapore however leave much to be desired.

Jean-Claude Juncker, president of the European Commission’s “Eurogroup” of finance ministers, recently called excessive pay a “social scourge” and demanded action. When L’Expansion, a French business magazine, calculated that pay for the country’s bosses went up 58% in 2007, the finance minister, Christine Lagarde, said it was “scandalous” and threatened regulation. Nicolas Sarkozy, president of France, and Horst Köhler, president of Germany, have also denounced high pay.

New legislation the Netherlands will see the law setting EU500,000 as the level of annual salary or severance payment at which extra taxes must be paid. Germany’s Social Democratic Party is calling for legislation to curb pay, though its partner in government, Angela Merkel’s Christian Democratic Union, has so far resisted. At the same time the European Commission is working on a response to the Eurogroup’s complaint.

Just how extreme IS executive pay in Europe? As European firms compete for global talent it certainly has risen substantially in the last 10 years. Foreign executives now run seven of the firms in France’s CAC 40 index and five of Germany’s DAX 30. American-style bonuses and long-term incentive plans are now commonplace.

However European firms still pay a fraction of what is paid to their counter parts in America. According to Hay Group, a management consultancy, the median European executive earns just 40% as much as his equivalent in America. It’s also notable that both American presidential candidates – John McCain and Barack Obama – have been making compensation a campaign issue.

There is an important difference though companies in Europe seem to be more determined than American ones to link compensation to performance. In America share grants are often not tied to performance, whereas European firms usually attach performance criteria to any share grants, typically depending on a comparison with a peer group. Dan Vasella, boss of Novartis, a Swiss pharmaceutical giant, and a favourite target of pay activists, earned SFr17m ($14m) in 2007, down 33% from 2006, because he missed his targets.

The extreme rise in European executive pay has sparked an intense debate in countries that have been characterised by a relatively strong sense of economic solidarity and impartiality in the past several decades. A July 2007 Financial Times/Harris public opinion poll found that over 60 percent of those surveyed in the UK, France, Italy, and Spain would like to see their government set caps on top business executive pay. In Germany, a 47 percent plurality supports pay caps.

In America, only 32 percent of the public supports an outright pay cap on executive earnings a recent poll shows. However 77 percent of Americans say corporate executives ‘earn too much.’ Some members of Congress have responded by introducing legislation to curb excessive pay through tax reform and giving shareholders the right to vote on pay packages.

I recently saw an interview with Sarah Anderson, who compiles the Executive Excess report on CEO pay on a yearly basis. She discusses some of the issues raised in this column in her interview and I recommend that you take some time to view it. (www.youtube.com/watch?v=X2lKfRFhG0M.)

From what I have read and heard in the last year signs point to a strong possibility that meaningful reforms to rein in excessive executive compensation could be a prospect, as many political leaders in Europe and the United States seem to be finally catching up to the public uproar. It has to be said though that compensation is a complex issue. Different circumstances and industries dictate different packages and even severance pay may be justified if a change of control is the end goal. One would hope though that politicians would reject laws about pay, which are too widespread to be useful. Strict legislation might well compel leaders away from listed companies and create compensation packages even more complex-and so much more difficult to monitor.

Aaron Wilmont asked:

Congress will begin debating if a Consumer Financial Protection Agency should be created, that will help to make credit agreements transparent. Banks complain this would obstruct credit.

All in all, consumer credit counseling services are in demand for many people, because of the lack of understanding of the contracts involved. There have been attempts made to protect borrowers from the confusing agreements with some transparency and Congress is being urged by the present administration to make lenders agreements even more transparent.

On the whole, this is basically an attempt to make it less of a risk for people that are taking loans to understand clearly what is entailed in the loan agreement to the dismay of some lenders.

Having stated this, however, it should be duly noted that this is really not so very different from the Georgia predatory lending laws that were enacted from the fall of 2002 to the spring of 2003 that required investors that purchased secondary mortgages to hold liability for wrongdoing in the original loan.

The predatory lending law was later repealed as it was felt it might prevent credit for the borrower that needed it most. This is what banks are complaining of with the transparency from lenders that Congress is currently debating, the fear of choking off credit from those borrowers that need it.

Regarding the ethics of many of the credit counseling firms as well as the many free and non-profit Debt consolidation and debt help organizations, a good general rule of thumb to use regarding them is that when debt settlement appears too good to be true, in most cases it probably is, and the only way to be sure according to financial experts is seek the advice of a credit counselor prior to agreeing to pay an amount decided upon by a credit card company in general. This is your due diligence as a consumer, as well as good common sense overall.

In many cases with some adjustments to the person’s budget they are able to pay off the debt and when using a licensed credit counseling company it is possible for them to help make arrangement to have the payments lowered to an affordable price. Choosing this type of option rather than agreeing to a payment is the fact that it will not affect the person’s credit rating in the same manner.

There are actually many different places where it is quite possible to find reliable credit counseling companies like the website for the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Just go to your favorite search engine and type those names in and their website url’s will appear along with other related resources. Just remember that when dealing with a non-profit credit counseling company a fee of approximately $20 per month can be expected and in cases where it is not possible to pay one of these companies the fee can be waived until the financial debt issues have been satisfied.

Michael C. Podlesny asked:

It has been over two years since hurricane Katrina devastated Louisiana and Mississsippi. With many homes still not rebuilt, demolished or renovated, it raises the big question about flood insurance and whether or not there should be reform in the insurance industry.

In the September 2007 issue of Mortgage Banking it is reported that the decision of the U.S. House Financial Services Committee to reauthorize and reform the National Flood Insurance Program by moving the Flood Insurance Reform and Modernization Act of 2007 in late July and that the decision would curtail the coverage for second homes while adding for windstorm damage. However, the committee explained that the bill would give advantage to small business owners.

Mortgage companies require flood insurance for homes located in flood-prone areas, but homeowners in lower-risk areas may also consider coverage to protect their property, according to Terri Cullen of The Wall Street Journal. Average premiums for a flood insurance is about $600 a year, but those in high risk areas can pay as much as $5,400 a year. Tenants in low-risk areas may pay about $200 a year or $2,200 for high-risk zones. Leading to the fact that it is very expensive to those who really need it, spawning debate as to whether the government should step in and create legislation for flood insurance in those areas that desperately need it such as we`ve seen along the Gulf Coast.

Heightened interest in the natural catastrophe policy is a plus for supporters of the optional federal charter. Congress has dealt with several natural catastrophe related matters, including the House Financial Services Committee`s vote to expand the National Flood Insurance Program to cover wind risks. A definite win for those who need it.

National Underwriter / Property & Casualty Risk & Benefits Management`s Susanne Sclafane reports of the decision of the New Orleans federal appeals court on the need for the homeowners to purchase the National Flood Insurance Program (NFIP) in New Orleans, Louisiana. It is triggered by the claims on damages caused by the Hurricane Katrina. Justin Roth, senior federal affairs director of the National Association of Mutual Insurance Cos., said that the flood maps of the nation needs an update to make sure that claims are really due to floods to prevent other claims.

With the U.S. House of Representatives approving the H.R. 3121 legislation that intends to expand the National Flood Insurance Program (NFIP), by a vote of 38-29, it aims to offer coverage for wind damage as well. It also includes provisions that would require the Federal Emergency Management Agency to revise the country`s flood maps by 2010 ,and terminate the subsidies for structures built before NFIP`s establishment, which Roth feels is vital.

Flood insurance is vital those homeowners and renters along our country`s coastline and those near larger bodies of water. Although many more bills remain being debated in Washington in regards to flood reform, one thing is clear, for those that need it most, reform can not happen quick enough.

By: Michael C. Podlesny