“It’s déjà vu all over again,” Yogi Berra reportedly
said as he watched Yankee teammates Mickey Mantle and Roger Maris smack
back-to-back home runs for the umpteenth time.
Americans are experiencing déjà vu all over again,
too. Sure, the prospect of another fiscal showdown doesn’t electrify a crowd
like a couple of major league home runs. All the same, investors’ response to
the possibility the U.S. government might partially shut down on October 1 was
muted. Some U.S. stock markets gave back a little for the week; others moved
higher. All remained up year-to-date.
So, are investors confident America’s elected
officials will do the right thing? Or, have they become complacent? Are they so
accustomed to debate and delay that it doesn’t faze them? According to The Economist:
“[U.S.] Federal
spending comes in two types: discretionary which must be authorized every year;
and mandatory which is set in law. These labels are confusing because much
discretionary spending is anything but: it includes funding for the justice
system and defense. Since 1976 Congress has required itself to pass a dozen
appropriations bills annually to cover this stuff. Unfortunately, it has missed
its deadline every year since 1994. To keep the lights on it has resorted to
temporary resolutions to finance discretionary spending at existing levels
until agreement can be reached, sometimes after a brief pause for effect.”
As it turns out, government funding has expired 10
times since 1981, and the government has closed down each time. Nine of the 10 closures
occurred over weekends so they had limited impact. The tenth lasted for 21 days
during 1995 and 1996. We should learn how this round will turn out pretty
quickly.
merit-based systems are all the rage… One definition for ‘merit’ in the
Merriam-Webster Dictionary is: Character or conduct deserving reward, honor, or
esteem (also: achievement). If someone performs well, we want to reward them.
If they don’t, well, maybe we won’t.
Merit-based
systems are everywhere. For companies trying to retain top talent, recognition
and rewards systems are essential. Almost 83 percent of employers use merit
raises, according to the Compdata BenchmarkPro 2012 survey. In 2012, the
average worker pay increase for merit was 2.7 percent. That’s expected to
increase to 2.8 percent for 2013.
Corporations
aren’t the only ones who tie pay to performance. In some school districts,
teachers’ income is linked to student performance, and about 20 percent of
state aid for undergraduate students is tied to achievement in the United
States. Under the Affordable Care Act, the income of public and private
hospitals will be tied to performance measures such as patient outcomes and
cost containment. Earlier this year, hospitals in New York City negotiated with
physicians unions to link doctors pay to performance, too. A study published in
The Journal of the American Medical Association in September found providing
financial incentives to clinicians for achieving better health outcomes was
effective over the short term.
One
tricky thing about merit-based pay systems is deciding how to measure
performance. According to The Wall Street
Journal, CEO pay may be measured against a variety of benchmarks:
“Compensation
awarded to CEOs of 300 U.S. companies rose a median 3.6% to $10.1 million, the
analysis found. The total includes salary and annual bonuses, plus the value of
restricted stock and stock options at the time they were granted… CEO pay
increased slightly faster than profit which rose 2.1% at the companies
surveyed. But, it lagged behind the median 14% increase in total shareholder
return for those companies which includes share-price movement and dividends.”
The
article reported investor influence exercised through ‘say-on-pay’ votes – annual
non-binding votes on CEO pay – has inspired greater consistency in CEO pay. In
fact, for the first time in the history of the survey cited, the largest piece
of the CEO pay puzzle was linked to financial or stock performance.
Weekly Focus – Think About It
“Success
consists of going from failure to failure without loss of enthusiasm.”
--Winston Churchill, British Prime Minister
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