Tuesday, June 30, 2009

Hypocrite of the Day: American Federation of State, County and Municipal Employees

Clearly the head of the American Federation of State, County and Municipal Employees (“AFSCM”) union has no sense of irony, and perhaps no sense at all.

In a letter to the Chairman of the Board of Citigroup, the head of AFSCM dutifully exerts his unions influence as a significant shareholder (3% ownership by union pension funds) and urges Citigroup to change its compensation structure at its investment bank. All shareholders should have their views heard, and I applaud the AFSCM for taking an active role as a shareholder – a vital piece to restoring appropriate corporate governance in this environment.

However, the suggestions in the letter, coming from a union leader, takes the concept of unintentional comedy to a new level. Two phrases from the letter (can bee seen here: http://www.scribd.com/doc/16942549/Unions-Letter-to-Citigroup-on-Pay-Raises) made me laugh out loud considering the author was a union boss:

1) “a great deal more pay that has no tie to performance.”
2) “reward executives for long-term value creation, not just showing up for work”

First of all, there is no industry where the compensation is more directly linked to performance than the investment banking industry. If you produce profits, you are rewarded with your share of those profits, if you produce losses, you are likely to be fired, or at best, you can expect bonus day to pass you by. Citigroup will not be increasing the salary of traders who have lost millions (if they are even still around to collect a salary). What Citigroup and the rest of the industry is trying to do is insulate its best talent from the insane legislation spouting from Congress relating to compensation, because if they don’t, that talent, and all of its revenue producing ability (remember, many traders/bankers have continued to generate significant profits through the crisis) will leave to foreign competitors or hedge funds, both of which are not subject to Congress’ insanity. Defections like this will only hurt AFSCM’s investment in Citigroup.

The negative consequences of the historic concentration on short term profits is a valid critique, however, all banks have taken steps to start to address this (less cash, much more restricted stock, longer vesting periods).

Maybe the AFSCM is not directly responsible for the financial crisis resulting from the extortionate demands of unions at companies across the country (the bankrupt Auto and Airline industries are first to mind), but I’m sure its union contracts have contributed significantly to the fiscal crisis’ of states, counties and municipalities across the country. Isn’t the main tenant of any employee unions that compensation and benefits are explicitly linked to seniority rather than performance? Based on his logic, perhaps he should do the right thing and re-negotiate his union contracts to ensure the compensation of his membership is directly linked to the employees performance and the surplus(yea, right) or deficit their employers run.

There is a lot of hypocrisy floating around these days, but I’ve yet to see anything this blatant and comedic. The unions detachment from reality never ceases to amaze me.

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