Private accounts, good for CEOs

Professor Bainbridge says that he’s looking for advice on Social Security private accounts.

Well, I’m in favor of private accounts because they are good for CEOs.

First off, I presume that much of the funds invested in the private accounts will go into the stock market. This will have the effect of re-inflating the bubble that partially burst back in 2000. And that will be good for CEOs because nearly all of us have options that are out of the money when given to us.

Secondly, there is the matter of corporate governance. Theoretically, the CEO is responsible to the Board of Directors who are elected by the shareholders. But in most large corporations, the shareholders are too spread out to have any strong influence over the BoD. The biggest shareholders are mutual funds, and mutual funds are real softies when it comes to their relationship with management. Usually, the companies that own the mutual funds hope to sell us investment banking services or pension fund/401k services, so they suck up to management rather than challenge us.

Private accounts will increase the proportional share of corporations owned by mutual funds, which means that a smaller percentage of the stock will be owned by the type of shareholders who might want to rock the boat. The result will be higher salaries and better job security for CEOs and senior management.

Comments

[David Foster]

Except that small individual shareholders don't really have much leverage...do you really pay all that much attention to someone who owns $10K or even $100K worth of stock? Those whohave been able to swing the biggest club so far seem to be either pension funds or very substantial private investors.

It strikes me that if there were more incentives to hold a stock for a long time, governance might be improved. If a shareholder thinks a company has management problems, his inclination is going to be simply to sell, rather than work to fix it. If you knew you were going to be holding the stock for 5 years, you would be much more incented to get the tar and feathers and throw the rascals out.

As much as it pains me to even raise the possibility, maybe this is something that should be addressed in the tax code.....

[James C. Hess]

One question on private SS accounts: Since the payroll taxes are still being deducted from an employee's paycheck by the employer, but being routed to a private SS account, does the company get to carry the value of the account on its books? For example, a company with ten employees. All ten employees opt for the private accounts. Each employee sets aside a thousand dollars a year into their respective accounts. That's ten thousand dollars. Not much, but if all ten employees stay with the company for ten years, that means at least one hundred thousand dollars set aside.

Who claims that? The company, since they administer the payroll tax deducations?

[josh kerbel]

The one thing I can respect about your view point is its honesty (no matter how self serving), despite the fact that you like to keep your real name hidden.

Yes, pumping Social Security cash in to the market will help out companies, as all boats rise when the tide comes it, but given the casino nature of the stock market plus the element of human greed and mismangement when it comes to money, this move just amounts to a transfer of wealth from pensioners to executive stock holders (with the assistance of piss poor money managers)