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Saving Capitalism

Feb 17, 2014, Vol. 19, No. 22 • By IRWIN M. STELZER
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Whether the 74 percent raise to $20 million that the compensation committee decided upon is the correct mixture of reward for past and incentive for future performance I leave to experts in the field of compensation. According to the usually well-informed James Stewart, writing in the New York Times, most compensation experts seem satisfied that Raymond and his colleagues did a reasonable job of balancing all the factors that go into pay. They avoided having Dimon opt for free agency by letting the $6 billion “London Whale” trading fiasco and other management failures be bygones, while punishing Dimon by leaving him $3 million short of his 2011 compensation.

But here’s the rub. Stewart reports that Professor David Larcker, a corporate compensation expert who is director of Stanford’s Corporate Governance Research Program, stressed, in Stewart’s words, that “the board’s duty is to shareholders, not the public at large.” Negative reaction by the public, one member of the compensation committee told Stewart, was not allowed to influence the committee’s decision.

Which is why corporate America desperately needs advice from conservatives. Public reaction matters. In a period of protracted high unemployment, with middle-class wages stagnant, and millions of workers too discouraged to continue pounding the pavements and their computer keyboards in search of work, a decision to pay someone with Dimon’s mixed record some $20 million, however that compensation package may be structured, is of relevance to more than shareholders.

I am not arguing that the decision was wrong, given the frame of reference within which it was considered. After all, it is foolish to quarrel with Warren Buffett, who said, “If I owned JPMorgan Chase, [Dimon] would .  .  . be making more money than the directors are paying him.” Rather, I am suggesting that it would be in the long-term interest of America if its corporate leaders were to consider, along with the usual factors, a question more important than whether the shareholders will be pleased now, right now, with their decisions. To adopt such a narrow focus is to misunderstand the situation in which market capitalism finds itself. Irving Kristol famously noted that when businessmen slapped him on the back and urged him to go back to the academy and carry the flag for capitalism by explaining what a splendid thing the profit motive is, “Since such occasions do not lend themselves to philosophical discussion, I smile weakly, mumble something unintelligible, and change the subject as quickly as possible.”

Unfortunately, we find ourselves in times when a smile and a mumble just won’t do. Attention must be paid lest we stumble into a new, unattractive form of economic organization that can produce neither the freedom nor the well-being of our current system.

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