- [Chuck] Hello, this is Chuck Dalziel. I'm an attorney in Marietta, Georgia, a suburb of Atlanta, and, today, we're gonna talk about hot topics and trends in executive compensation. And this is a area that's garnered quite a bit of media attention lately, and we're gonna see that the press primarily, but other groups, you know, like unions and other people as well have been making more direct attacks on today's executive compensation practices. And later in the program, we're gonna find out that that's in part because of the contrast that we have in this country between this country and the practices in other countries, including Western Europe where the gaps are not as large. But the gap that we're dealing with as of 2016, it's probably larger now, but as of 2016, the gap was 346 times the average worker was what the executives were making. And in 1980, that CEO number, that's the number, actually, not the executives, but actually the CEOs, the number was only 42 times higher in 1980. And so the issue, which is not entirely a negative issue, but the issue is how steep the stock market has risen since 1980. And since the trend, one of the trends that we're talking about is the trend of executive compensation in the form of equity, be it stock options or warrants or restricted stock units and that sort of thing, the upside of those awards to the executives is very high based on the market appreciation. If the market, you know, was doing poorly, then the equity grants really wouldn't be worth anything, you know? You couldn't exercise an option at a profit or a warrant at a profit. Buying a restricted stock really wouldn't help you that much. But because of the dramatic increase, and some of it I guess too has to do with the fact that tech stocks in particular have driven prices way up, and so when their prices go way up, then you have extreme compensation for the people at the top of the pole. And so, anyway, in our society today and with our SEC that we have today and other factors, we have a push against this gap in the pay that commentators claim that executives receive, which is excessive. And so we're gonna first start this by talking about John D. Rockefeller and sort of the compensation system that he was in. And we're gonna see how that compares to today. And we're also gonna see that a lot of people, you know, sort of come in and out of the story of John D. Rockefeller who weren't in the center of it like he was, so that he was the one that really got the compensation out of the situation. Okay, so Rockefeller was born into an upper-middle class family in 1839, and his father is an herbalist doctor. He's described by a lot of people as a kind man, but he was sort of one of these rambler-gambler dudes that wasn't home that much. And his mom was a devout Baptist of a Rockefeller. Rockefeller bought in to the Baptist faith completely, and that would motivate some of the things that he did later in life. Just as an aside, after he amassed his fortune, he actually funded the University of Chicago into the place that it's in now. And the interesting part to me about that was it was a small Baptist college when he did that. Okay, so he was in Western New York, and his parents sent him to a business school in Cleveland in 1855. And he was a very frugal guy. So not long after he had been working as a clerk in a Cleveland shipping firm, he starts his own business selling produce. Now, this was in 1859, right before the Civil War. And so in order to not to be drafted, he bought a substitute to enroll in the Union Army instead of himself. And this is probably what you would call the first act of inequality in his life, because, actually, he was a big abolitionist. But he had draft avoidance, which, based on the timing of what you're gonna see here, you know, very quickly was very important to him amassing the fortune that he amassed. Okay, so we had oil in Pennsylvania, and where the oil was was sort of up in the northwest part of Pennsylvania. And, you know, you can look at a map and Erie, Pennsylvania is there. And sort of 50 miles below that and 125 miles east of Cleveland, there was a sort of an Indian type area, and, you know, the tribe, the Seneca tribe had been there. And so, at that particular location, what you would see is that oil was actually seeping to the surface of the ground in the time that we're talking about, which was around 1859. And so Rockefeller wasn't involved originally in the drilling for the oil, and the oil use that his company made was not really the use that you think about today. What the issue was was that they needed a source to burn inside homes for light. And so that's why you see, you know, like with "Moby Dick" and all kind of thing, people trying to harvest whale oil. And then, also, there were candles. But the oil that just came out of the ground, you know, if you were in that area, you could get a little bit of it. But it didn't burn well for lighting, and that was primarily because it caused too much smoke. And then there were also odious fumes in your house if you were using it. Okay, so British scientists in the 1840s distilled coal to make it illuminate. And this technology transferred to Eastern Canada. And the Canadian creator of the coal oil called his mixture keroselain, which is two Greek words. And so that was seen as a potential substitute for the whale oil even at that point. Okay, but how were you gonna get it into sufficient quantities where it could go to market? Okay, so in this town in Pennsylvania, Tarentum, they were mining salt and they were using salt wells, pushing up the salt with water. And the process had the nasty effect for the salt miners of bringing petroleum to the surface, not the surface, I'm sorry, the surface of the ground with the salt brine. And so they had what was actually a nasty byproduct of this effort to mine salt. And so what they ended up doing was taking the petroleum that they had in this situation and turning it into the commercial use, making the product of Vaseline, 'cause these Indians, the Seneca Indians had used the oil itself as a balm. And so that was a big market and a idea that petroleum products, you know, there was even beliefs that if you rubbed it on your arms or your legs, that it would loosen up your joints and stuff like that. So that was a market for it, but it just wasn't the market for actually burning it for light. Okay, so, really, the idea that we needed to drill for the oil was to try to get the problem of the petroleum coming out of the salt wells cured. Okay, so this vendor, Kier, who was selling the petroleum jelly, they sent a sample of the petroleum that was just coming out of the ground to James Curtis Booth, who was in the Franklin Institute. Not in Pittsburgh. You know, we're thinking of Western Pennsylvania, but this was actually in Philadelphia. And he had the first commercial chemical laboratory in the United States and he figured out how to distill the petroleum so that the byproduct could be used for lighting. And so Booth ended up going over to Pittsburgh and creating a still, basically, that was a very primitive refinery. And his still basically would only refine one barrel at a time. But the distilled petroleum that was called now coal oil, it sold for $1.50 a gallon for lighting. Okay, so Pittsburgh pretty much immediately decided that they didn't want the coal oil in in Pittsburgh 'cause it, you know, created a big risk of fire and they had a bigger risk of fire than they had fire protection. And so, you know, we're still in sort of a process where we're trying to get the product into a shape where it can be mass distributed. And so, you know, what we found at this point was that, yeah, the light was better from his coal oil that came from the still, but the odor of the fire was still horrible. And so what ended up happening was that, you know, the petroleum that was easily getting out of the ground and then put into the still, it became more scarce because, you know, they ran in and they sort of took out all the easy to get petroleum. And so what happened was, two lawyers, Bissell and Evofet, Eveleth, excuse me, started the Pennsylvania Rock Oil Company. and it was near Titusville, Pennsylvania, which is 123 miles from Cleveland and about 50 miles from Lake Erie. So it was relatively near to Rockefeller in Cleveland. And so they needed investors. So they got investors from New Haven, Connecticut, which was the area that Yale was in. And one of them was the bank president, James Townsend. Another was a chemistry professor, Silliman. And they developed a better, cheaper distillation process. And they actually changed the name of the product, and it was now called kerosene. And so they're gonna make kerosene to put in the lamps, but when they do this process, they're also going to have byproducts. And later, you know, what we're gonna find out is that a lot of the other competitive companies just put all the waste into rivers and streams and buried it and did all kinds of environmentally terrible things. And we're gonna find out that there was a distinction between those people and Rockefeller. But what ended up happening was that Townsend got this railway worker, Edwin Drake, involved. And one of the big reasons that he got him involved was that he could get free railroad trips. And so Drake would go over to Western Pennsylvania and, yeah, he was looking for oil, but he was also trying to secure title or mineral rights to the lands where the oil was. And so what ended up happening was, 'cause he was the front man, Drake ended up being the largest stockholder and the president of the company. And they changed the name of the company to the Seneca Oil Company. So now what he needed to do was he needed to drill into the salt wells so that they could take the petroleum out as a completely different thing than the salt water. And so he found the equipment, but he couldn't find a driller. And so what he ended up doing was he found a local blacksmith who, you know, was a metal worker that could help him with the drills. This guy's name was William Smith. And Drake got both William Smith and his son for $2.50 a day. Remember that we're talking about the compensation that people get from companies and new developments. Okay, so Smith, he ends up seeing that there's a 50, excuse me, a hole 150 feet from this creek called Oil Creek. And so, basically, it took them a while to figure out how to get the oil out of the water-filled hole that had the connection with the salt mines. And so the first thing that they did was they got a battering ram to drive a pipe 32 feet down past the water, but no oil came out. And so a lot of the investors in the original deal, they bailed. And when they bailed, they really didn't have any money. And so Drake is now, you know, sort the almost a sole person standing regarding the Seneca Oil Company. So he finds $500 to borrow from people around town. So with those funds, the $500, they got the drill 69 feet into the bedrock. They had the mechanical steam that helped him get down that far. Okay, so everybody thought that oil was still several feet, 100 feet down, so that basically what had happened is he had just set the $500 on fire and they would never get the oil. But what ended up happening was, on August 27th, 1859, the oil became gushing up the pipe. Okay, so what that means is that Drake, the one that found the oil and got it out of the ground, he was the one that got compensated, right? Well, no, no, no, he wasn't. He was quickly pushed out by the other shareholders of the Seneca Oil Company for $1,000. And then the other thing was is, this is almost like the Oklahoma land rush, you know, once oil was coming out, there was tons of people that wanted to buy the mineral rights. So there was a lot of people that actually beat him to the punch to get the oil rights to other lands. And so, over many years, this was not like the next day, over many years, he ended up being sick, so sick that he felt like he had to move to the East Coast, like in the sea air. And so he was poor, but the Pennsylvania legislature in the 1870s recognized that he had started this cash cow for the state of Pennsylvania. So they gave him a pension of $1,500 a year. Okay, so Drake got a little bit of compensation. In the story, what happened to Smith is not even mentioned. So he's the one that actually provided the technical expertise to get to the oil, but he didn't make that much money off of it. So other people got rich from oil, okay? So it was just like, overnight, oil was just flying out of the ground. And so, in 1860, and remember, this is when the Civil War is starting, you know, or maybe a year before. So the oil wells are producing several hundred thousand barrels per year. By 1862, there's 3 million barrels per year, okay? And they have a good use, but they gotta have somebody that knows how to use it to make money, and that is Mr. Rockefeller, okay? So he'd actually sold a lot of, remember what I told you, he was in the produce business, so he'd sold a lot of money, made a lot of money, excuse me, selling food to the Union Army in the Civil War. And so, obviously, he had wind of what was happening in Pennsylvania 125 miles away. So he built an oil refinery in Cleveland in this area called The Flats, which is a very low-lying area on the Cuyahoga River. And the Cuyahoga River connects to Lake Erie. And, you know, later on, what you're gonna find out is that the oil actually went down to New York City on the Erie Canal. And so when Rockefeller got involved, what he ended up doing was deciding that instead of, you know, getting vendors and other people to help him with what he wanted to do, he would just hire everybody that he needed. So he employed plumbers, you know, to do piping, he employed barrel makers to make barrels that the oil would be in. He bought all of his pipe himself, he bought all of his wood for his barrels himself, you know, that sort of thing. So he was a thinker as far as whether he could make more money using his own employees or, you know, buying stuff from vendors. And, over time, it proved that he was very much right about that. And then, unlike his competitors, he used the byproducts of the refining and so they made more products instead of dumping the waste into the river. And so what ended up happening was he started Standard Oil around 1870. But this is not an oil company like we would think of today. What he's selling is kerosene, okay? And because of the refining, during that era and the fire concerns, it was very important to the consumers and the government and everybody else that it be standard quality oil so it wouldn't create unnecessary risk. And so he was able to destroy the market for whale oil because the kerosene was cheaper. And so once he got his business going, he was also selling, like what I was telling you before, he's selling the waste, okay? So he's making paraffin so that people can make candles, you know, paraffin wax. He's selling lubricating oil. He's selling tar, he's selling petroleum jelly. And his competitors aren't doing any of this. And so what that means, of course, is that he, you know, has much more revenue than his competitors. And the railroad had a big role again at this point. And what it was was that he had to ship kerosene all over the country. And so his volume of shipments is huge. So what does he do? He demands rebates on his shipments, you know, on the cost of his shipments from the railroads. And the issue is that the smaller competitors, they can't ask for the rebates 'cause the volume of their shipments is not sufficiently high. And so what end up happening is that, over time, we have a real concentration of the ownership of the Standard Oil Company. And there's Rockefeller, one of his brothers, Rockefeller's brothers, had done a second refinery in Cleveland. So he got sucked into the business. And then Henry Flagg, if you go down to St. Augustine, you know, you'll see Flagger College and Flagger this and Flagger that, and the Ormond Beach area, which later Rockefeller was involved in, but Flagger was an investor and that's where he made the money. And then he also made the money in railroads down in Florida. But the other person that was heavily involved was this chemist, Samuel Andrews. Okay, so in February of 1865, I guess this is right about the end or close to the end of the Civil War, he had other shareholders in the business, the Clark brothers. And the Clark brothers made a whole lot of money selling their shares in Standard Old to Rockefeller. They made it what would be about a million dollars today. But that was a very, very foolish move because the Civil War's ending and people are coming back. They need lights. The new product, kerosene, is available, and a railroad boom is coming so that Rockefeller could ship it all over the place. And as I said, his brother built a second refinery. And so then there was a big core in a very small area where the refining centers were at at this time, and that was in Cleveland, Pittsburgh, and smaller places around, Titusville and Lake Erie. And so the actual creation of Standard Oil of Ohio was in January of 1870. And so once Rockefeller had Standard Oil of Ohio up and running, then he actually had railroads fixing shipping prices in a way where they could get more shipments and provide from and provide more rebates to Standard Oil of Ohio. And so, in 1872, in a four-month period, Standard Oil bought 22 of the 26 competitors in the kerosene business. And Rockefeller is a very religious man and he characterizes his purchases in his mind as acts of mercy, because the sellers, the selling companies couldn't compete with him. And what happened as a result of this for the market and for consumers in the market was that they benefited greatly. The oil prices were low, and any old average household could afford oil to light the house. And by this time, he's figured out, he and his chemists have figured out how to make 300 other oil-based products from the waste. And so, as I mentioned before, they had very little use for vendors. They did everything in-house. So that would be what we call vertical integration, all right? And so one of the things that Rockefeller did was he was always trying to stay one step ahead of costs and that sort of thing. And so he ended up, even though he had the best deal from the railroads, deciding that he was still paying too much to ship and so he started to build pipelines. And so the railroads actually tried to preempt him and build their own pipelines and, you know, start their own oil ventures. And so because he had such a huge presence in the market, when he started boycott railway companies, you know, he could get them into a position where, you know, they wanted mercy. So they was selling their oil ventures and their pipelines that they were building. And, at this point, everybody's getting pretty angry about how successful he's getting. So he gets indicted by the Commonwealth of Pennsylvania in 1879 because, now what's happening, the purchase of all of these competitors, we would call that horizontal integration. And, you know, so he's doing both horizontal and vertical integration. Then, he decides to make his distribution more vertically integrated. So he begins shipping on tank cars that he owns instead of railroad cars, or his Standard Oil of Ohio, I should say. And when they get to a destination, they're unloaded by people who work for Standard Oil of Ohio. Then, the oil gets put on tank wagons by employees of Standard Oil of Ohio. And then, employees of Standard Oil of Ohio deliver the oil directly to the consumers, okay? So Standard Oil of Ohio gets 90% of the market, is super convenient for the customers, and over time, the price for oil drops 80% over time. So, you know, what you have here is true capitalism and true capitalism that is benefiting, you know, the public at large, okay? But the antitrust movement and the progressive movement were beginning around this time. So around 1884, Rockefeller moved to New York, but pretty much wherever he went, because he was so successful, the press hated him. And before he moved to New York, he was kind of in a dilemma because, you know, part of the reason that it was called Standard Oil of Ohio was that the state laws didn't allow for corporations to be operating across state lines. And so, in 1882, he had 41 corporations under joint control. And so what he ended up doing was that he put all 41 corporations into a trust that the stockholders still controlled. And so, that way, they could sort of bypass the idea that they had to have separate corporations at each state. At this point, Rockefeller is dreaming of worldwide domination of the oil market, and a lot of the other areas of the world where later oil was developed had not been developed at this point. So 85% of the world's production was coming from the Western Pennsylvania area in the 1880s. And he moved to New York in 1884, okay? So, you know, as today, people in Congress, you know, wanted to sort of, quote, unquote, take him down. So the first thing they did was they passed the Interstate Commerce Commission Act in 1887. And what that did was, what it was intended to do was to set standard enforceable railroad rates so that he couldn't get better rates than his competitors. But by the time that the government, you know, the government is always a late arrival, or at least a lot of times they are. And so what ended up happening was, by the time they got this law in effect, he had moved almost entirely to pipeline transport. So it really didn't have any effect on him. And then a bunch of states enacted antitrust laws based in part on the progressive sentiments. And then, nationally, in 1890, the Sherman Act was enacted. First it was directed at unions, but then, later on, it got more directed to private companies. And so in response to that, what Rockefeller did was try to do a diversionary tactic. And so he got more into the iron ore business and steel production. And then Teddy Roosevelt makes a big progressive antitrust push as part of his presidential campaign, and he wins. And so, you know, now they've got interest in antitrust enforcement. And this Ida Tarbell, what they called in that era muckraker, and Ida published really nasty book called "The History of the Standard Oil Company." But she happened to be, one of Rockefeller's failed competitors, she happened to be that failed competitor's daughter. Okay, so what ended up happening was that, in 1911, the Supreme Court forced the break up of Standard Oil of Ohio. And what that did though was it didn't, you know, exact revenge on him like people wanted it to, because what happened was, once they broke up Standard Oil of Ohio, then now, you know, these are just the company names that are familiar today, Conoco, Amoco, Esso, which is now Exxon Mobil, and Sohio were among the many, many companies that came out of this. And so what ended up happening was, Rockefeller, very shortly after the breakup, his net worth exploded to 900 million in that day's dollars, not this day's dollars, 900 million in that day's dollars. So then he started becoming a philanthropist and he helped create Spelman College. His wife's maiden name was Spelman. He also gave 80 million to the University of Chicago and made it a worldwide presence. And he did a lot of stuff. I mean, he is in some ways what people would consider to be a good person. He was an abolitionist, he funded a lot of medical health stuff and that sort of thing. He's kind of a philanthropist, you know, like some of these people of today, the executives and these entities. And so what I went through all this for was to sort of kind of set the table for the idea that, just like in the Rockefeller story, he's a winner. And many other people, mainly, I mean, it could be even people that had more of a role in actually bringing oil to market, you know, a lot of those people hardly made any money and he made tons of money, okay? So that has a lot to say then about executive compensation even today. Okay, so some of the prominent thoughts of today about executive compensation are that it should be controlled, limited, it's unfair, we have income inequality, it's unfair management has so much control over its own pay, capitalism is bad, there are no societal benefits that capitalism delivers. And that one right there, you know, of course is a fantasy, because you've just heard, you know, the talk about how Rockefeller got it so that any old body, you know, could light their home with this kerosene. And, now, today, any old body, you know, for example, can go into Google and do a plain word search and, you know, find all the information they need lightning fast. And so the fact that Google or Rockefeller was driven by capitalism was actually a tremendous benefit to the public. Okay, so currently and historically, what has been utilized for executive compensation, for the model of executive compensation is pay for performance. And what that means is, you know, you compare the monetary results of the company, you know, to the extent that the company's revenues are good, stock price is going up, et cetera, et cetera, etcetera, then the executives are paid for that. And a recent trend is that officers often get paid more with equity now rather than guaranteed salary or guaranteed contributions to retirement plans or that sort of thing. And the equity, you know, like I said, it's like stock options or warrants or restricted stock units which they receive, you know, for values way under what they really are worth. And the idea, you know, in some areas is that, sure, it's a great idea for the executives to be paid based on the stock performance because, out there in the public, people own the stock and so they're, you know, getting the benefit as well. And what I'm saying is the shareholders, as owners, benefit in a parallel fashion from the officers and directors who are also owners, okay? And the problem with that is that a lot of people complain that the executives have too much control over the terms of these equity deals that they get. And you can also see that, you know, consumers who are now considered a stakeholder as far as corporate performance these days, they can also benefit greatly from excellent corporate performance. Today, this model of pay for performance is generally unique to the United States, because many of the countries of Western Europe and other places have taken an approach more in line with the fact that the company has to benefit all of society and all the stakeholders as opposed to just the owners. The main issues with pay for performance are that it's focused on short-term performance, not long-term performance and the value of the shares from equity grants could be manipulated by the recipient corporate executives. For example, you could do several different things. If you have free access to cash, you could pay more dividends or higher dividends to your stock owners, you could reinvest the money in the company and build up the company stronger in new areas and new business lines and new this and new that to make the company stronger for the long term. And, instead, what is is happening a lot of time these days is that companies are actually buying stock back, and that's what they do with the available cash. And so sometimes what that does is it creates a disproportionate benefit to the corporate executives because they have way more shares than most people, and they have these friendly equity grants, okay? And, you know, I mentioned this before but I'll said it again, short-term number concerns deter investments in the business that will make it stronger over time. And now we go back to Rockefeller, you know, like Rockefeller doing both vertical and horizontal integration to make the company stronger. Okay, so, today, we have a pretty much lack of organized resistance to excessive executive pay. And, you know, that's for two reasons. The union membership has dropped dramatically, and so you don't have a core of people in a union, you know, like an organization with a heft of people, you don't have them contesting the idea that executives should be paid so much. And so that's ended up creating a situation where press and other interest groups are the ones that are really attacking it today. There's really no organized opposition to excessive executive pay. At this point, it's more directed just to the idea of a corporation. Actually, I'm gonna talk about that in a minute. One thing that you could say about equity compensation, though, is that it puts executive pay at risk. It's not a situation where the company, you know, is gonna spend X dollars, okay? Instead, you know, in some of these instances, actually, the recipient is gonna have to put money in to get the shares, which are under-priced. And I guess you have dilution of the number of shares then, but the company's not coming off the hip with the money to pay. But this is a less transparent way to pay, you know, 'cause the people don't perceive really of what the price, you know, the options or warrants that the executives have received, they don't perceive what the price is. And so it's very difficult for them to understand how much money the executives can make exercising those options. But as we said before, if you did do it this way, then you conserve company cash in comparison to cash bonuses. Now, governments in a lot of other countries, you know, like even Canada but also Western Europe, they're going much more headlong fast toward a more collectivist system. And so, in that kind of situation, it's a lot easier for the people who wanna rein in executive compensation to demand that the interests of non-company owners be taken into account when evaluating company performance. So you have consumers, you have environmental groups, diversity promoters, government, they all become what they call stakeholders in the corporate performance world. And then you have, you know, people who are admirers of the Bill Gates and the Elon Musks and the Zuckerbergs and the Bezos of the world. And there's a large segment of the population now that's not jealous of these people anymore. And in fact, you know, what Bezos and Zuckerberg are doing is actually, and Elon Musk now, are all, you know, trying to get in front of how information is distributed so that, you know, a lot of things are changed, but one of them is that they can control the image of themselves, okay? We have political agitation in the country for accountability to non-owners for corporations. And like one of the examples is Elizabeth Warren, and this was an interesting thing I found in my research was that one of the arguments that she's making is, okay, if we're going to consider an entity, a quote, unquote, person, like even, you know, for political contribution reasons, then just like people have obligations to society, these entities also have obligations to society. And Bernie Sanders also agrees with that. And he particularly is pushing the idea that the non-owner workers who are not organized are really getting cheated. So what he ended up doing was he actually proposed a statute called the Accountable Capitalism Act, and it applied to corporations with a billion in revenues. And then what it would call for is co-determination. And what co-determination means is that employees elect 45% of the corporate directors so that they have a legally established right to have their voice on the board of the directors. And you think that's kind of a crazy scheme or idea, but Harvard Law School is basically saying, once you have a entity as big as some of these corporations, it's kinda like they're an entity that's as big as a government, and in a government, you have separation of powers in the ideal situation. So this will be a more ideal situation because you'd have separation of powers between the executives and the regular line employees. Other entities or people who are pushing, you know, the interests of stakeholders generally are BlackRock, BlackRock's got 10 million under management in mutual funds, Vanguard's got 7.2 trillion, Fidelity's got 4.2 trillion, and State Street's got 3.9 trillion. And they are making statements for the owners that have invested the money with them. And they are on the front that what we need is more consideration of societal factors in the executive compensation area as opposed to just profitability and that sort of thing. Of course, you have some other agitators that are less organized than what the unions were today. One of them is a website, or a group called Corporate Accountability. And they have a manifesto, and basically what their goal is is to change the world. And the change that they want is they want to make corporations answer for, quote, unquote, the destruction they cause. And so they come specifically with the mindset, to start off with, that corporations are evil. And they have particular corporations that they think are particularly evil, environmentally and otherwise, like Nestle and Exxon. And so the main avenue that they have to try to get what they want done is to work through the UN and the World Health Organization and people like that. And then you also have a situation where, in our country, a lot of people are just, you know, going very hard towards socialism. This outfit here is another group that's called the Socialist Project, and they actually want to abolish capitalism over time, which, of course, would cure the excess compensation problem. Okay, so it's recognized now then we would say, particularly with the Biden administration in, that it is a problem that corporate top execs just make too much money. So some of the proposals that have been put forth, or Biden's proposal, to have a billionaire minimum income tax of at least 20%. You know, you read a lot that these people that have concentrated positions in companies and they have the concentrated positions so that, you know, they have a tremendous net worth, what they actually do to avoid taxes is just borrow money to do the kind of things that they want to do in their lives. And so, because they're doing that, they don't incur income tax. And so Biden's administration says, "Well, yeah, let's put a 20% income tax on them," but you have to figure, well, then what are you gonna tax if they're not taking out, you know, salary? And so the idea is is that they would tax unrealized gains in capital investments, which would flip our tax system on its head and the tax will be levied on the wealth, not the income. And it would actually not just be confined to billionaires that would actually, this law would actually reach households with a net worth of $100 million. And so Senator Ron Wyden is the author of the bill, but in order to do this, you know, what you would have to do also is to set up a situation where just like unrealized gains are taxed, unrealized losses could be deducted. And so it is a kind of a senseless bill because if you had a bad year in the stock market, this would actually cut revenue, it wouldn't increase revenue. And the situation would also be that there would be a yo-yo effect. The amount of revenue could never be predicted with much accuracy because it could be loss, gain, loss, gain, loss, gain, and none of the losses or gains would be real. They'd just be unrealized losses that the IRS was getting involved in. And then this law also has the problem that the proponents act like all investments are publicly traded and they have publicly recognized value. But in actuality, for a lot of people like this with a net worth of $100 million, it comes from private assets. You know, like take Chick-fil-A, for example, is a private company. And so somebody would have to value the assets for this law being forced, and that would cause a lot of controversy and a lot of delay in actually getting to whatever amount would have to be paid. So that doesn't seem like a very, you know, smart idea. Another idea is that there's a large number of people who don't believe that it's fair that people inherit money. Right now, we have a situation where the exemption from the estate tax is 12 million plus for a single person, or 24 million plus for a married couple. And, you know, if they took it down to a very low number, what would end up happening would be that the heirs would either have to sell the inherited assets to create money to pay the taxes or the people would have to buy life insurance policies that would pay a lot of money to pay the insurance, I mean the estate tax when the person insured died. And, you know, but despite those problems, the Biden administration still wants to go forward with that. And one of the other horrible ideas that they have is that, right now when the heir receives the property, then they receive a stepped-up basis on the value of it and then they're only taxed on the gain that they received from the time that they inherit the property instead of, you know, when it was first put into the family. And so you could be in a situation where you had a large unrealized capital gain, you know, on a property that a relative owned, and then they held it for 40 years and then they died. Well, what this proposal would do is it would want to tax the estate, but what it really means is it would tax the heirs for the 40-year unrealized capital gain. And then another thing that they're wanting to do is to eliminate the deductibility of pay in excess of $1 million to five top executives in companies. And we had an issue that became severe with compensation in the COVID situation because somebody at this level that we're talking about, they're not gonna be an at-will employee, they're gonna have a written employment contract and some of their pay is not tied to performance. Some of it is and some of it's not. And so you had a situation where these companies were receiving massive amounts of loans and other benefits from the government for COVID. And, you know, the executives are fine because that money can be used to pay them, and at their expense, on the other hand, employees at will could be laid off or fired to save money because of the COVID issues. So there's a lot of possible responses that companies, you know, had been suggested to take, like cutting executive pay, deferring executive pay, seeking coverage and seeking money from the insurance company on the business interruption insurance. Another one is to establish that a lower employee, lower paid employees, excuse me, of a certain job type, they should get a market rate of compensation regardless of the revenue, and, you know, that's the fairest way to pay the employees regardless of the COVID situation. And so what's gonna end up happening post-COVID is that there's gonna be a lot more flexibility written in both of the executive contracts and the other corporate compensation plans. All right, now, this is what we're going to as a parallel component to pay for performance. It's not a substitute at this point, although the SEC has required that reporting being made about this, we want reports about ESG, and that stands for environmental, social and governance. And so what we want to do is we wanna rate the company based on how their environmental actions are and then based on the effect that they have on society and based on how well they're governed, okay? And so if you're gonna consider ESG, then that puts you in a situation, we have to decide, "Well, what I'm gonna do with pay for performance?" And so what a lot of companies are doing at this point is they're setting up parallel goals, parallel goals for ESG factors and financial factors with pay performance, okay? But the issue is that you can't measure mathematically ESG. And, you know, going back to like when I was my Sunday accountant's tutor, you have generally accepted accounting principles that established uniform accounting practices in our country. And those uniform accounting practices are used in making the registration statements and the other financial disclosures that the SEC requires for public companies. And so with those generally accepted accounting principles, you can basically have a standard calculation regarding financial performance, but you don't have that with ESG. So what's happened, you know, in that regard, I guess it's obvious if you really think about it, there's a free market solution to the lack of being able to measure ESG, and what it is is the rating services that, you know, rate stocks on other factors now are rating companies based on ESG, and they sell, you know, they come up with their formulas and then they go into the marketplace and say, "Hey, we've got ratings for ESG." These are companies like Bloomberg, Reuters, the Institutional Shareholders, S&P, Standard and Poor's. And what this is actually doing, if you think about it, is, you know, you could say, "Well, gosh, ESG's really aberrant and it's not measurable. So let's not have it as a factor." But once you have Bloomberg, Reuters, Standard and Poor's, Moody's and all these other people actually coming up with ESG ratings, that legitimizes the concept and it basically makes it a factor that's gonna be considered on into the future because, you know, it's been institutionalized. And ESG also has come up with this other system where relative performance evaluation ratings are done. That's birthed by ESG, but these companies that I just mentioned, they're the ones that are doing that. So now, in the environmental score, what you're talking about there is you're going from a baseline that climate change is real. And once you go from that baseline, then you see whether the company's actively responding to climate change. If they are, they get a good score. If they're not as actively responding, then the scores on the environmental item is negative. They talk about how energy efficient the company is, how effectively do they deal with their waste in that situation. Of course, Rockefeller would've done really good. Then we have the environmental justice movement, and mainly what you have in that situation is a possible class action. So if you're a defendant in a class action, obviously, that's not very good for your environmental score. For the social score, you know, this really affects more international companies because, you know, of all the manufacturing that's been, you know, put in to operation all over the world. And so there's concern about whether slave labor is used, whether child labor's restricted, what kind of safety measures the company has for the workers in these other countries, and then what kind of services, programs, et cetera do they supply in all the places that they're located. So they wanna have a good social effect where they are and wherever that is in the world. Okay, for the governance scores, it's how well is management willing to respond to non-shareholder stakeholders? And if the executives and the board are oblivious, you know, to non-owner shareholders, then they get a bad score on this. And one of the things that the raters want is that the company accepts that the outside shareholders or the outside stakeholders have an interest that they have to respond to. And then how well do they align to shareholder's and the stakeholder's interests for their actions? When we compare pay for performance to ESG, we see, as I mentioned before, that pay for performance is objectively verifiable. ESG is not, and so that creates an issue. The SEC adopted final rules on pay for performance on August 25th of 2022. It only took them 12 years. And so they want disclosure in proxies and information statements about the relationship between executive compensation actually paid and the financial performance. And that applies to all SEC-reporting companies. And then these rules where the bigger companies, in the year one, when this is effective, you have to consider the last three years, in year two, the last four years, and year three, the last five years. And they actually are gonna have to provide tables that show the comparison between the chief officer's pay and the other collateral executive officers, who are described as NEOs. And the table includes financial performance, total shareholder return, comparison of the total shareholder return for the company's peer group, the registrant's net income, and then another company-selected financial measure. And the table also needs to provide clear descriptions of the relationships between the compensation actually paid and the factors that they consider. And they also are required to disclose three to seven other financial performance measures that they use and that they believe are the most important to link executive compensation actually paid to company performance. Okay, we're gonna talk briefly about clawbacks. What clawbacks are is when a company can actually receive in return certain compensation that was paid to the executives. This would mainly be in a situation where you had a restatement of earnings. And, you know, so you had accounting issues. And the accounting issues actually hurt the public because people were buying the stocks based on the financial records that you were, you know, disclosing, which turned out to be inaccurate. And so the clawback policy has to be made public and it has to require that any incentive compensation paid to current or former executive officers would be subject to recoupment if you had a restatement. And, basically, in a situation like that, if incentive compensation had been overpaid for three years, then you can have the clawback. And when they do the reporting, they actually have to have, as a part of their reporting, the clawback policy. And the penalty for not having a clawback policy is being delisted. Okay, very quickly, let's to executive compensation. You have change of control provisions, where the executive contract actually says that your pay is accelerated if we get acquired. And the issue with that is that the people who are talking about whether we're getting acquired or not are actually the beneficiaries of these change in control provisions. Then, on the other side, you can have a situation where the compensation is forfeited when the executive is fired. So those are perils. So one of the things that smart companies do is they have an outside compensation consultant that sort of shields the board, and you can also have a executive committee doing a formal search of compensation for comparable employment in officer's positions. And then the executive compensation issues are driven to the board. That's where the board is most powerful and most subject to review. But, good news, they have directors and officers insurance. And then the SEC actually has implemented a situation under Dodd Frank where shareholders get to do advisory votes on executive compensation. And the essential fairness doctrine has been creeping into Delaware corporate law, and that's important because a lot of corporations and multinational corporations are in Delaware. And so that used to be they just had the business judgment rule and they only had to show the ordinary prudence of someone who was in the position, and they could say, "Well, we just did it on our business judgment." But now they've gotten into a much more extensive analysis that covers whether the compensation decision is essentially fair. And so that opens up a big can of worms. And finally, when you have deferred comp, a big issue is tax withholdings, because in situations where these overpaid executives leave, a lot of times, they want to get the company to pay taxes for them because they were under-withheld. So that's a big issue that's actually probably causing anger in other areas in the executive compensation world. So that's the presentation, and I appreciate your time and your attention, thank you.