Cap’n Ken’s Homespun Wisdom

It turns out that St. Louis Cardinals” pitcher Josh Hancock had a blood alcohol level of 0.157, wasn”t wearing a seatbelt and may have been talking on his cellphone when he killed himself by slamming into the back of a tow truck going 68 miles per hour (in a 55 zone).

That”s a whole lot of stupidity to invest in a single human.

The tornadoes that ripped through suburban Nashville Friday did some pretty bad damage - in my wife”s hometown and along a path near where just about all of her extended family lives.

That big church that was “destroyed” (note to the news media - the church wasn”t destroyed; its face was just ripped off) is just three miles south of my in-laws” house:

And as fate would have it, the wife and I had to be in Nashville this weekend, so we saw a good bit of the damage in person and a lot more of it on local TV coverage. It was bad. Just to the east in Gallatin, very nice and well-built homes were completely blown apart by the storm and in all about a dozen people were killed in Tennessee.

The sheer force of a tornado and the random and sudden nature of the destruction is truly scary. On an individual basis, there”s not much that can compare to the fear that must come from being huddled in a closet with a twister outside and the death and destruction that can arise in a day that starts and ends with beautiful blue skies.

But being around the tornado damage this weekend made me realize just how insignificant - in the global view - even a large-scale tornadic event is.

My world, of course, is colored by what I”ve seen up close and personal in coastal Mississippi and New Orleans during the last 7 months. I don”t want to diminish the personal loss of tornado victims - losing your home is losing your home; losing a friend or relative is losing a friend or relative - but what Katrina did in Mississippi and flood-protection failures did in New Orleans goes far, far beyond personal loss.

In Tennessee, they”ll haul off the splinters and bricks, re-string the power lines, bury the dead and move on. It”s a tragedy for the community, but not much will change. In Mississippi and New Orleans, at best those communities are changed forever. In most cases, a re-shaped community will arise - but some will just cease to be.

Again, this is not to discount the personal tragedy or the fear that arises during such storms - it”s tough to watch your wife try to account for all the family members after the storm or later hear their stories of hiding in closets - but in the wake of Katrina there”s just a new standard for “tragedy”.

I don”t know how Mardi Gras will end up shaking out for New Orleans this year - hopefully it”ll hit the reduced expectations and show tourism to be viable down there again - but the season ending at the six-month mark after Katrina makes it a good time to think about the city moving from “recovery” to “restoration”.

There”s a big distinction in my mind between those two concepts. Recovery gets the city back on its feet. Restoration is about truly bringing New Orleans back to its former glory. And in a city with such a rich and unique culture, a true restoration is critical. Nobody wants a shiny, bland, new New Orleans. We want old New Orleans back. The problem is that replacing the old New Orleans with a new New Orleans is the easier, cheaper route. Scrape away the flooded neighborhoods; build new homes and apartments outside of the flood plain and just chase away the part of the population that doesn”t fit the new model. With the federal government paying the tab and calling the shots, that could be the future New Orleans faces.

If the city is to avoid this fate and win true restoration, it needs a solid strategy and an unwavering focus on self-interest. I”d like to suggest an approach I call “Lie. Cheat. Steal.”:

Lie - Propaganda is the city”s best friend right now. The world needs to know Mardi Gras was great, Jazz Fest will be bigger and better than ever, hotels and restaurants are open and all the tourists are coming back now. The world also needs to know the levee failures were 100% the fault of the Corps of Engineers, the city and state are doing a great job and it”s the federal government that”s responsible for all those destroyed neighborhoods still looking like they do.

Cheat - Got a guy whose sister is your U.S. Senator? Make him the mayor. Got a guy who was your U.S. Senator for 18 years, has tons of connections in Washington and is generally regarded as a uniting force by both Democrats and Republicans? Make him your governor. Louisiana can”t afford to have an adversarial relationship with Washington, so stack the deck with these powerful insiders you have sitting around. Hell, you might even want to get your ex-governor out of prison and see what kind of cash he can raise from his Las Vegas and South Korean friends.

Steal - Louisiana doesn”t have the resources to restore New Orleans. And it”s really not the role of the federal government to cover all the city”s losses and put billions more into new flood protection systems, tax incentives and other cash infusions. But so what? This isn”t the time to worry about fiscal responsibility, fairness or precedents about federal relief spending. New Orleans should fight for every dollar it deserves and every undeserved dollar it can get. I”ll bitch about federal spending when Los Angeles falls into the ocean.

Personally, I”m putting my principles aside for the sake of New Orleans. I can”t defend this strategy on any grounds other than my selfish interest in New Orleans” future.

The fact is that Louisiana is a backwards, corrupt state that has squandered just about all of its opportunities in the past. Because of that, it really doesn”t deserve the faith of the federal government and probably won”t get much sympathy from the American public. And that makes “Lie. Cheat. Steal.” that much more important.

The wife and I just watched WAL-MART: The High Cost of Low Prices, the much-acclaimed documentary about everybody”s favorite corporate bully.

What a supreme waste of an opportunity. Heavy on emotion, light on facts and completely devoid of analysis, the film surely painted Wal-Mart as a bad player - and it is. The company uses its size and power to strong-arm communities, squeeze its suppliers and screw its workers, all in the name of “Always Low Prices”.

But the heart of the Wal-Mart problem lies in a conspiracy - one between the company and its customers. Wal-Mart and the people who shop there benefit from this conspiracy at the expense of Wal-Mart workers, suppliers, local merchants and communities impacted by Wal-Mart”s operations. Simply put, if nobody shopped at Wal-Mart, Wal-Mart wouldn”t be a problem. There are, for sure, a good number of people who shop at Wal-Mart out of necessity. Those people who line up on “Black Friday” for $29 DVD players typically don”t have a lot of other options. Likewise, people living out in the middle of nowhere may have few choices about where to shop.

It”s hard to blame those with few choices (whether based on economics or geography) for choosing Wal-Mart. But the middle-class and better suburbanites who participate in this conspiracy are just as culpable as Wal-Mart for the sins of the world”s biggest retailer.

If you have a choice, choosing anyplace other than Wal-Mart helps keep the monster in check. It doesn”t have to be some mom-and-pop store. Shopping at Target helps the balance, too. Every dollar diverted from Wal-Mart is one dollar less of influence the company has. And as Wal-Mart tries to go more upscale, the choice becomes more important.

For my part, I personally spent $32 at Wal-Mart last year - for two pairs of cheap rubber boots because Target and Lowe”s didn”t have them and I couldn”t think of anywhere else to buy them. I bought $80 in Wal-Mart gift cards for my niece and nephews at Christmas (after trying to talk my sister into some other kind of card) and the wife and I spent $200 on a Wal-Mart card to help out friends after Katrina (figuring “Always Low Prices” and a huge selection was a good choice for friends who suddenly had next to nothing).

Otherwise, I refuse to participate in the conspiracy.

Judging from my conversation with a good-ole-boy exterminator today, Georgia rednecks have mostly adjusted to using the word “blacks” - rather than their former chosen derogatory term - when talking about “all the blacks around here” with a complete stranger.

However, they still don”t seem to have a problem using Asian slurs - such as “I just sold my house to a couple of Japs. Man, they”ll ask you for everything” - in front of another white person they”ve never met before.

It looks like the SEC (The Securities & Exchange Commission, not the NCAA”s best conference) may push ahead with this plan to require “total cost” disclosures for public company executives. The idea here is that requiring public companies to declare a single, total compensation number for its executives will somehow keep executive pay in check.

First of all, some people argue that such high-profile disclosures will actually lead to higher executive pay, as each top executive - like each NBA player - will know how much his peers are making and therefore demand equal pay. And this would create an upward spiral of compensation.

There”s a lot of validity to that argument. Pro athletes and movie stars are prime examples of workers who push each other”s pay up by constant visibility into earnings. TCL will tell you how this also happens in the legal profession (at least here in Atlanta), where new associate pay packages for the top firms are public knowledge, and those disclosures create an upward pressure on pay.

But that”s not what I”m writing about here. For the record, however, I have no problem with anybody”s salary or earnings. And unless you can ever envision a time when you tell your employer “No thanks, I really don”t deserve that much money”, neither should you.

What irked me this evening is the AJC”s piece about the proposed SEC rules. I”ll quote their piece rather than linking to the site they run that requires you to register a fake email address before reading their articles.

Here”s the story lead, as written by notorious anti-business writer Marilyn Geewax:

In recent years, many large companies have angered shareholders by rewarding top executives with huge compensation packages, sometimes involving hundreds of millions of dollars for a year”s work.

Today, federal regulators are expected to approve measures intended to restrain compensation excesses.

The proposed rules would force publicly traded companies to more clearly disclose what riches are being bestowed upon the boss, including such goodies as personal trips in the corporate jet.

Note the language. “huge compensation packages”, “hundreds of millions of dollars for a year”s work”, “restrain compensation excesses”, “riches” being “bestowed”, “goodies”. The guts of the story involve a fairly straight-forward look at the issue, but the lead clearly sets the anti-”rich” tone for which the AJC is famous. The headline, at least in the online version, is “Stealth pay, perks may be over”. What, exactly, is “stealth” about every dollar of compensation being reported in public documents?

But that”s fine. We expect that from the AJC (which is owned, by the way, by two sisters tied for No. 12 on the list of richest Americans - worth a combined $25 billion - and who have never seen fit to allow their employees or others to own shares in the newspaper company). But what really got me was a bit later on in the story meant to demonstrate how hard figuring out executive pay can be:

Investor advocates point out, for example, that last year, Forbes magazine ranked Terry Semel, chief executive of Yahoo, as the country”s highest-paid executive, with annual compensation totaling $230.6 million for 2004. But many shareholders wouldn”t have been able to figure that out because the Yahoo proxy statement split up compensation information into separate listings for salary, bonus, stock options and other compensation.

It took me less than two minutes to find the Yahoo proxy and add up Semel”s compensation listed there ($600,000 salary, $1,920 in other compensation, $229,951,740.78 in option exercises). If “many shareholders wouldn”t have been able to figure that out”, then “many shareholders” have no business whatsoever owning stock.

But I guess that”s not easy enough. Yahoo”s proxy should start off with “TERRY SEMEL - $230 MILLION FUCKING DOLLARS!“.

Beyond the sorry statement these rules would make about the intelligence of American investors, getting investors to focus on a “headline” compensation number would take some of the context out of things like stock grants. From the time he came onboard in 2001 to the end of 2004, Semel helped create about $40 billion in market cap for Yahoo. The proxy devotes no less than 699 words to explaining exactly how the company came to award Semel the stock options - which, by the way, would be worthless if he didn”t do his job well - that resulted in his $230 million exercise in 2004:

The Compensation Committee believes that Mr. Semel”s leadership has contributed to the Company”s success in establishing its brand and creating shareholder value. There is also recognition that Mr. Semel”s unique skills, experience spanning the internet and media industries, and repeated past success make him an attractive candidate to competing organizations that believe they could leverage his compensation into significant shareholder returns. Consequently, the Compensation Committee took aggressive action in 2004 to retain Mr. Semel. This was done primarily through equity-based grants designed to position him in the top-quartile of major global-company CEOs, provided that the Company is in the top quartile of shareholder value creation and he remains employed as the Company”s CEO.

In determining Mr. Semel”s compensation, with the assistance and advice of the Independent Consultant, the Compensation Committee reviewed Mr. Semel”s compensation package in view of its philosophy described above and in comparison with the compensation packages of chief executive officers of selected Internet-related, technology and media companies. The Compensation Committee decided not to increase Mr. Semel”s base salary for 2005 despite finding it to be lower than that of comparable companies, consistent with the Committee”s philosophy of placing heavy emphasis on long-term incentive compensation.

In March 2004, the Compensation Committee addressed Mr. Semel”s 2003 performance. It awarded Mr. Semel a bonus nonstatutory stock option grant for 1,800,000 shares of common stock rather than a cash bonus for 2003 (the “Bonus Option”). The grant of the Bonus Option was based on the board”s positive assessment of Mr. Semel”s performance during 2003 and was also intended to provide an incentive for future performance. The Bonus Option was fully vested and exercisable as of the grant date. The Compensation Committee in March 2004 also granted Mr. Semel an annual review option to purchase 4,000,000 shares of the Company”s common stock, based upon, among other factors, the Compensation Committee”s positive assessment of Mr. Semel”s performance during 2003. The option becomes exercisable on the fourth anniversary of the date of grant, subject to acceleration on December 31, 2004 with regard to 2,000,000 of the covered shares, and on December 31, 2005 with regard to the remaining 2,000,000 covered shares if certain performance criteria regarding the Company”s adjusted earnings are satisfied during the prior-year periods. The Company satisfied the applicable performance criteria for performance through December 31, 2004, with the effect that Mr. Semel vested in 2,000,000 of the options as of that date.

In December 2004, the Compensation Committee addressed Mr. Semel”s 2004 performance. The Compensation Committee noted in particular the strengthening of the Company”s core businesses, including premium services and advertising; the completion of a number of strategic alliances and acquisitions both domestically and internationally, including 3721 Network Software Company Limited, Kelkoo, S.A. and MusicMatch Inc.; and the Company”s enhanced financial and stock performance. As part of such annual compensation review, the Compensation Committee granted Mr. Semel a fully vested option to purchase 1,200,000 shares of the Company”s common stock (rather than a cash bonus). Consistent with its provision of annual review grants to employees, the Compensation Committee also awarded Mr. Semel an annual review option grant to purchase 200,000 shares of the Company”s common stock, which grant vests over a four year period, with 25% of such shares becoming vested on the first anniversary of the date of grant and the remainder vesting ratably each quarter over the remaining three years.

As discussed above, in February 2005, the Compensation Committee determined to provide retention grants to certain of its key employees. The Compensation Committee granted Mr. Semel, as part of that program, a retention option to purchase 2,000,000 shares of the Company”s common stock and a retention grant of 250,000 restricted shares of the Company”s common stock. The option becomes exercisable on the fourth anniversary of the grant date, subject to acceleration with regard to 1,000,000 of the covered shares following December 31, 2005, and the remaining 1,000,000 covered shares following December 31, 2006, if certain performance criteria regarding the Company”s operating cash flow are satisfied during the prior-year periods. The restrictions on the restricted shares lapse in full on the third anniversary of the grant date, subject to pro rata accelerated vesting in the case of death.

There”s actually a reason why they granted him those stock options? Who knew? A lot fewer people if nobody had to look beyond a “headline” number, I”d bet.