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Tuesday, June 4, 2013

Canadian Bank CEO's make millions a year. Am I angry? Nope. I am indifferent.

"Feels out of balance."

"At some point we have to have some sense of equity."

Last fall, when I was making my way by car from Toronto to Vancouver, I stayed in a lot of hotels. When you do that, you notice certain things about the people who are there to serve you. Some are better than others. Some are a lot better than others. And because of that, I am sure that the ones who are more qualified and do the better job make more money. I am even more certain that those who rise to be managers and maybe even the CEO of the company are the cream of the crop. Not always, because they could just be the child of the founder (see Paris Hilton and others), but for the most part, the cream always rises to the top.
When I was in Nebraska, I stayed at one hotel (Motel actually) which brought this point home crystal clear. It was called America's Best Value. If I really cared, I could have gone to the front desk the next morning and asked what their interpretation of "value" was. 
I arrived around 11pm, which was after a drive from Chicago to Lincoln, Nebraska. It was a long day. At that point, all I was looking for was some sleep and a bit of quiet. I got neither. I had to be on the road again by 7am, because I had a 10 hour drive from Lincoln to Rock Springs, Wyoming. Below is a synopsis of what I encountered.
The two guys running the night shift at the front desk consisted of a hillbilly, trailer trash type of guy who was greasy and certainly not very presentable. Okay, what do I care? I don't. He did seem like a nice guy. I will give him that. But when you add that to the fact that he didn't know how to use the computer, the printer or pretty much anything else, it spoke plenty about his value to the company and where his future was heading. At least he told me he made a great breakfast. As it stands today, I wouldn't know. I didn't stick around to find out. But as I passed the front desk in the morning, it didn't smell good. I wasn't about to find out if it tasted good or if he cleaned the pots and pans the night before. No thanks.
The other guy was a bit smarter, but not by much. And he mocked the hillbilly. But he wasn't smart enough to figure out that you should fix the rooms before the guest arrives. Or, that you should probably not mention every little thing that is wrong with the place, and blame the hillbilly for front of the guest. Does not inspire confidence. All of that I could have accepted. The price was cheap and what did I care. Just there for the nights sleep, as I said before. But then the guy mentioned that the door for my room didn't work properly, and that I would have to fiddle with it to get it open and keep it closed. Oh, and he "should have fixed it, but he was too busy to get around to it."
All that wouldn't have really mattered, except for the extremely rowdy party animal University kids one room over, who kept me up all night. But I had nothing to worry about..seeing as my door was so secure and the night desk was on top of things anyway.
Back in my early working days, I ran a few factories and companies. I was, for the most part, very well compensated for that. I felt I deserved more, because I was smarter, worked harder and did more than the rest. And although many don't like to hear this, there is no way that almost all of the ones below me could have done my job, or at least done it as well. In many ways, I think they knew that and most were happy to do the job they had and happy to have it. That sort of sentiment seems to be lost these days on what I would term the "I want to complain about every little injustice in the world" generation. 
Does that mean that I was a better person than them? Nope. But it means I was more valuable in the workplace, and I was compensated accordingly.
Why did I just tell you the last two stories from my life?
There is significant outrage and just generally distaste for the amount of money certain bankers in Canada, and all over the world, make these days. It is certainly tough to swallow when you look at your bank account at the end of the month and realize that you likely are two or three paychecks away from being dead broke. This is in spite of likely working most or all of your adult life and doing all the right things, the things that society tells you to do. Pay your taxes, work hard, raise a family, save for retirement, etc. I get that frustration and anger. But is it always justified? No, it is not. Lets take a look at the latest furor and target of that frustration.
News came out this week (covered in the video clip I posted above) that most of the CEO's of the countries big banks make 7 to 12 million dollars per year. That is certainly not news. What is news to most is how big the gap is becoming between what the common man makes now relative to the CEO and how much greater that gap has become.
In many cases, in the early to late 1960's, a CEO made about 20 times what the average mid level manager made. Today, it is closer to 200 times, and in many cases it is 400 times greater. Or larger.

"No man is worth 4 times another."

But let us not forget who is getting paid and who is paying them.
The Royal Bank of Canada (and all banks) is a private institution. What they decide to pay any of their employees, be that a teller, Bank Manager or the CEO at the top is none of my business. If it really bothers me on a personal, moral or any level, I can simply choose not to do business with them.
Here is what I know about any business: If they could get away with it they would pay any employee as little as they could  while still getting the best value and performance out of them. So, if they pay Gord Nixon (The CEO of the Royal Bank) 12 million dollars a year, he must be worth it. As well, others could not do that job and get the returns for the bank that Nixon does. If they didn't give him fair market value, another bank or mutual fund would steal him away and pay him more. Simple law of supply and demand.
According to the report, Mr. Nixon "led the bank to record profits in 2012." Could you do that? Probably not. I am pretty smart financially and I certainly could not. He gets paid what he does because the people that pay him think he is worth that. He likely had a pretty good track record long before he got the job. He certainly didn't start at the top. Nobody does. He proved his worthiness and he has delivered the results expected. That is why he continues to be paid the way he is.
There is some argument that it is the Canadian laws and government, and its banking system that insures that Canadian banks don't suffer the fate that the rest of the Global crisis caused, and because of that, it doesn't really matter who is running the show. Is that true? 
Maybe, to some extent. But even so, that doesn't mean they would make a great rate of return in the good times too. Because each makes a different amount for stockholders. So, that is why one CEO is inherently better than the other. If they weren't, all the banks would make exactly the same amount of profit. One has to be that much better than the other, and in so thinking, much better than you or I in terms of doing whatever it is that they do.That we can't.
No Canadian banks needed bailing out in the 2008 financial crash and crisis. Why was that? Because they are well managed, and in spite of the huge losses big banks like Citigroup, Bank of America and others incurred, Canadian banks still made huge profits during that period. That has got to be worth something. It is.
The issue isn't why Gord Nixon gets 12 million for performance, it should be why American and European bankers get that and more for non performance, and then you and me have to pay out of our taxes to square that up.

Now that bothers me. 

It shouldn't happen. When people do great work and the people that pay them or invest with them benefit, we should never complain that they are compensated well for that. That is supposed to be the basis for our system. 
We used to complain about the Communist way of life. But, aren't we simply saying now that we have a problem with Capitalism and the reality that some do better than others because of it? I think so. But, because of Capitalism, we could argue that most of us do pretty well, relative to the rest of the world.Would you want that to change? I wouldn't. I like the fact that I can do better for myself if I do better for others.
Work hard and smart and prosper and you will be rewarded. If the system didn't work that way, what motivation would most have to gain more knowledge, work harder and do a better job. The desk clerk in the Motel in Nebraska has to have that hope that he can work his way out of that job to at least attain whatever level he is qualified to have. If not, then the system is rigged from the start. None of us want that.
Maybe the desk clerk simply gave up and can't be bothered trying to improve his lot in life. That is his choice to make. But at least he has a choice, as do we all. It isn't about what others make, it is about what opportunity we have to help ourselves.
We pay our Prime Minister about a million a year. Yet, ultimately, he is responsible for trillions of dollars. Does that make sense? Nope. We complain that the leaders we elect don't do a great job. I would argue that is because the cream of the crop doesn't want the job. The rewards don't match up with the performance expected. It isn't surprising that they fail when you start from that point of view.
If you are producing great results for your employer, and you feel you are not getting your slice of the pie, what would you do?

1) Quit and go elsewhere
2) demand more money
3) make the case why you should get more and your employer will lose (net effect) if it isn't you in that position.

It is all about fairness. Return for services rendered. It is too bad that almost all of us can't be at the top of the food chain, but that is how life is. We can still have a very good life and we do. 
We often complain about many things in life. 

Walmart is sending jobs to China and ghettoizing towns and the whole country.

Don't shop at Walmart.

Monsanto is controlling the whole food chain with the things they do.

Don't eat GMO foods.

Big banks are paying obscene sums of money to CEO's and traders.

Don't bank at banks that seem to be greedy and immoral.

Most companies are using slave labor in places like Bangladesh, China and Mexico to maximize profit and undercut the actual price of production.

Don't buy clothes at stores that use cheap slave labor.

Job outsourcing. Service fees. Fake food. Slave labor. You have options. Speak with your wallet. That is where you can actually make a difference. Getting angry about something that has no real effect on your life because it just doesn't seem fair and equitable is just a waste of your time.

Here is a newsflash for you ostriches who have not been paying attention to the world since you entered kindergarten. The world isn't balanced, fair and equitable. Those who are special, who are smarter, faster, can do more and produce will get a lot more reward for whatever they do than you will. That was true then, it is true now and it will be true in the future. Just because you don't like it, doesn't mean it won't keep happening. It isn't something to really fret over, so stop doing that. If it really bugs you, don't give them your business. That is the statement you can make.
The bottom line is this: The banks are not public entities. We don't really have a say in how they pay their staff. The people who own the entity do, and those are the shareholders and depositors. If they are unhappy, or don't feel they are getting value for their investment of salary, they will get someone else who gives them more for their money. Currently, they aren't doing that.

"If they can afford to give these high paychecks to the CEO's, then they can afford to lower service fees"

It doesn't work like that. That is a backwards argument. Service fees are based on price vs. service relative to what the overall market offers. If the bank down the street gives me the same services for 20 percent less cost, then I can go and get that service there. What the CEO makes is not relevant to that. 
What this really boils down to is that we feel that the people who make the top dollar and those who pay them that money aren't held accountable if they fail. And in that respect, we are complaining about the wrong thing. When they fail, we should make sure now (not later when it happens) that they don't get to put their hand out and want us to cover their losses. If the shareholders want to pay them the big bucks, they are the ones who should be left holding the bag when it backfires on them. If there is anything to be angry about, it is that our government seems so deep in the pockets of these bankers, because we don't pay them (the government officials) enough in the first place, that they let the system get rigged by the bankers. In that way, they get us coming and going. They make the big bucks when they are right, and we pay out of our taxes when they are wrong.
Now, that is something to be angry about. We should focus on fixing the thing that is actually wrong, not whining about the part that isn't.  
No bailouts. That is the key. If they want to do it their way, and pay what they do, then the big banks, their top people and the shareholders shouldn't be looking for a bailout when they fail to execute. That is what deposit insurance is for.
And if you invest in stocks, then who would you rather have trying to increase the value and dividends paid on those stocks? The nicer, better person, or the person who, at the end of the day makes you the most money after you pay them. And if they fail, you would not expect the government to bail you (the shareholders) out and they (the CEO's) would be fired for non performance. That is how it works in the real world.
So, all I can say is that I am indifferent to how much money a bank CEO makes. It doesn't matter either way to me and I don't bother with it. But if and when the day comes that the government that was elected by the will of the people then decides to take my tax money and give them a piece of that, then I get angry. 
At that point, it becomes my business. Otherwise, it makes no difference to me. And it shouldn't to you either. It isn't your money the bank is paying the CEO's with. That is a tough thing for most to realize, but it is the fact of the matter. You might not like that the world is not a seemingly fair place, but it is.

(Note. All quotes in this blog taken from the video at the start.)

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