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Sunday, April 22, 2012

Applause for shareholders, president; boos for Europe, parents

Tony Paradiso

I’m going to jump around today, starting with a round of applause for shareholders of Citigroup.

They rejected a board-approved senior management compensation package that raised CEO Vikram Pandit pay from $1 million to $14.9 million. That 1,500 percent increase in base pay is a tad more than the company’s stock has appreciated during Mr. Pandit’s tenure.

The non-binding vote is only a moral victory but achieving the ultimate goal of holding executives accountable for performance will happen in baby steps. Given that Citigroup is the largest company by market cap to have been dealt a no vote on executive compensation, this represents a big baby step.

The vote was mandated by the say-on-pay provision of Dodd-Frank, which applies to about 9,000 public companies. In 2011, 41 companies in the Russell 3000 got a thumbs down from stockholders, baby steps.

Dodd-Frank is a rat’s nest of a bill that will likely cause a plethora of unintended consequences. Though better than having no say at all, the non-binding nature of the say-on-pay provision is akin to giving stockholders the sleeves from one’s vest.

But such is the world we live in. Stockholders theoretically own the company but they have no right to determine management’s compensation. That decision is reserved for a board of directors that is composed of members of the CEO “good old boys and girls” club.

Let’s also give the president a round of applause for his renewed efforts to end to oil speculation. Can you say political propaganda? The Republicans wrongfully blame the president for higher gas prices and in return Barack Obama plays the speculator card. As I recall, he vowed to bring the hammer down on oil profiteers during the last oil spike, but to my knowledge, nothing of substance was accomplished.

Nonetheless, now we are to believe the president means business. “We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick,” Obama said. No kidding.

The president’s solution: more government employees to do the job that the existing government employees are incapable of doing. He also wants to increase civil and criminal penalties. Brilliant! There’s only one problem: What oil speculators do isn’t illegal. It’s just an affront to society.

The president did call for one action of substance: an increase to the margin requirements. That would require oil traders to put up more money to execute trades. If the president is proposing that oil traders put up 100 percent of the value of the contract, then he’s got my vote.

No applause but boos for Europe. In an unforeseeable turn of events, last week it was revealed that the European Central Bank’s program to sweep Europe’s financial woes under the proverbial rug may require wall-to-wall carpeting.

Take Spain for example. They boosted their balance sheet by borrowing 200 billion euros from the ECB. However, 116 billion euros have exited via deposit withdrawals and repos, 76 billion euros were applied to government bond purchases and $41 billion euros were used to refinance debt. That leaves 21 billion euros to fund Spain’s remaining 2012 debt of 47 billion euros. Hence rates on Spanish bonds have been rising.

The ECB soon will be faced with the need to provide additional financing or watch government bond yields return to untenable levels. That will instigate another unpleasant conversation with Germany.

And finally, a big round of boos for the parents that received permission from the courts to pursue a class-action law suit against Apple for “addicting” their children to the iPhone. Seriously, you can’t make this stuff up.

The suit contends that Apple promoted certain game apps that use virtual coins that cost real money as “free.” One such app is Smurfs Village which requires the acquisition of smurfberries costing $59 to gain full enjoyment. The plaintiffs claim the limitations placed on kids from making an actual purchase were inadequate.

Apple required a password to make purchases but a purchase could be made within 15 minutes of the password being entered to download the app. Consequently, kids could buy stuff within that window without knowing the password. Apple eliminated the “hole” but the suit contends that Apple is promoting apps as “free or costing a nominal fee with the intent to induce minors to purchase in-app game currency.”

Here’s what I think: Apple should launch a counter-suit of parental neglect. The simple solution to the problem is for parents not to give a $400 phone to a 6-year old. Might I suggest a set of Legos instead?

I have another idea for Apple. Install an app that monitors how many hours a kid plays with the iPhone without a parent present. Then charge for babysitting services.

Author, professor, radio and TV commentator, Tony Paradiso can be reached at tparadiso@tds.net.