1. Director's compensation will be paid only in stock or stock options, to be vested 5 years into the future;
2. Change the Internal Revenue Code so that:
a. Compensation in stock or stock options is not taxable until the stock is sold;
b. Repeal the capital gains tax.

I think these would have a much better effect of aligning shareholder's interests to that of managers and directors.

My favorite board is Disney. They hired a bum, Michael Ovitz, at some salary like 70 million or so. He was there 14 months and just about ran them into chap 11, so they fired him and gave him his 190 M severance package. Then they just reelected each other to the board and back to business as usual. Walt Disney was a dedicated visionary, and if he could see the bums running his company today, he'd probably strangle Mickey Mouse for just being a part of it.

Agency Theory is supposed to be dealing with the kind of 'conflict of interest' that Martin mentions, between shareholders and managers of a corporation. That the current rewarding structure (cash + stock options) of managers of corporations is not resolving this conflict has become glaringly evident during the last Wall Street crisis.

The other inevitable phenomenon is that middle classes (no matter how much their savings rise) will be forced to depend on institutional investors who many mutual and trust funds. Any small individual investor – who trades in the stock market – knows that the amount of data & information that is out there to be first acquired and then processed to come up with optimum portfolio management is simply not possible. Hence, individuals are and will be more and more forced to rely on the data/information acquisition and processing powers of institutional investors. None of us can simply cannot come out of this inevitability.

As far as I can see, there is no option other than having an umbrella policy to curb obnoxious bonuses offered to managers. An umbrella policy will insure that all sectors are equally impacted – unless the government by design wants to push more skilled and better brains into selected sectors, say away from Wall Street toward Green Tech innovative companies.

Obnoxiously high bonuses (in cash or in stock options) will have to be taxed at prohibitive rates – such as, 75% tax rate on cash amounts above USD 450K (the President's salary) and 90% of the value of stocks on the offer day if the valuation crosses USD 0.5 million.

The above figures are merely illustrative. Actuarial methods may be used to arrive at the exact formula to prevent bleeding of corporations and shareholder wealth by competent or incompetent managers. If greed cannot be curbed then entrepreneurship will be pushed more and more to the back burners and the very driving forces of capitalism – hard work, thrift and innovation – will be reduced to ashes.

Hope somebody listens.

Give homeowners a tax credit of $3,000 for owning the home, regardless of wheter they have a mortgage or not. – Promote home ownership not mortgage debt.

What a threat, in 2010 some of the other 5,000 companies might get a say as well.

If you really want to fix the problem, you have to prohibit nepotism and conflict of interest. No spouses of Executives sitting on Boards of Directors for example. No execs from one company sitting on that board or any other board. prohibit elected official, and former elected officials from sitting on boards. End the process of "outside" directors. The only people who should be allowed on the boards are individual investors who have owned their shared for some long period of time. say 7 years. Likewise ban any member of a board from increasein or decreseing his number of shares during his stay on a board and for some period afterwards, again sy 7 years for example. Require positive votes from the shareholders to be elected to the board.
Most importantly require certain things be voted on by the shareholders in a"co-operative" manner, (each shareholder get 1 vote regardless of the number of shares), things like mergers and acquisitions, executive compensation, whether or not the executives earned theri bonus each year, wheter to spinn off or sell assets, splits and reverse splits, issuance of more stock, raisning coprorate debt, etc. basically anything that directly effects the shareholder.
There is nothing that makes me madder as an investor, than when the execs cut inside deals with themselves to the economic harm of the investors. For example when 2 companies merge and huge fees and bonuses are paid to the execs that did the deal, then a few years later it doesn't work out and the company splits off or sold at a loss, and the execs that made the bad deal and got the bonuses, not only don't have to pay them back, but get even more bonuses for selling or spinning it off. M&A rare now are done in the interest of the investors, they are done primarily to generate fees and bonuses for executives.

I think that compensation consultants need to be put on a leach, as they are the spark plugs for the larger pay checks that we keep talking about.

This would put an end to the Washington bloat, foreign policy adventuring, bailouts of failing enterprises . . . oh don't get me started! My feeling is less money, less power and both the political parties would have some high-stepping to do.

Board of Director nominees are selected by the Board Nominating Committee. The nominees are proposed by present Board members or members of Top Management – who are members of the Board and most probably proposed all members of the current Board (including the Nominating Committee). Top Management does not knowingly propose nominees who they believe will not support their proposals. Therefore, Top Management selects those who are supposed to monitor their performance and compensation – and those "monitors" serve pretty much at the pleasure of Top Management or the "monitors" are replaced.

Since they are effectively in full control of their decisions and compensation, they have few effective restraints on their actions. Therefore, they can and do structure their compensation plans as they choose. Their ultimate bosses should be the stockholders but stockholder interest are seldom a meaningful part of executive management's bonus plan factors. For example, changes in profit per share and share prices are seldom the most important parts of the bonus plans. Sales and profits are considered only as totals – if at all. Total sales and profits can be increased by buying companies for cash and/or stock even though profit per share and market price per share are not increased or even decreased.

But do not entirely blame Top Management. The present system gives top management legal and unrestricted access to a pool of cash. We ought not be surprised they take as much as they can get today and come back for another load tomorrow.

The answer to this deplorable behavior is (A) REQUIRE that stockholder oriented factors such as changes in profit per share and market price be major factors of management incentive plans, and (B) establish some INDEPENDENT method of incorporating these factors – to the extent the beneficiaries of a plan determine the structure of that plan there will be little restriction of its benefits.

One last thing regarding charities: I have to agree with some of your commenters. While charities run the gamet of efficiency and purpose, many do fill invaluable gaps that government shouldn't and couldn't do as well. Donors and members of such non-profits should hold managment accountable as they can. Unfortunately many big 501-C3s get tons of grant and government funding, again making them less willing to be accountable to smaller individuals and donors.

I agree with the elimination of mortgage interest. The decision to buy a home is a personal decision that ought not be affected by the income tax laws Allowing such deductions is an effort to torque personal decisions. This results in those who do not have a mortgage providing welfare to those who do have a mortgage.

Charitable deductions should be allowed. If you give it away to a TRUE charity, it ought not be taxed. The operable word here is "true". A true charity – in my opinion – excludes t hose supposed-to-be apolitical organizations that attempt to influence public policy but claim to be unbiased politically. A true charity would include gifts to eliminate poverty, hunger, disease and similar objectives.

Now, a comment the size of management compensation and the lack of stockholder control in other than closely held organizations

In the final analysis, Top Management selects the Board of Directors. The nominees are selected by the current Board (through its nominating committee). No nominee would be selected were it known that nominee would not support management and the current Board.

Top Management determines compensation in one of the following ways
1. They devise compensation plans and then present them to the Board. These plans are based on at least two rationales: (a) The base compensation is comparable with other similar companies ("Other people are paying their top management at this level, therefore, so should we.) or (b) We employed a consultant to evaluate/recommend compensation plans and this is in accordance with their recommendation (Of course, they would not stay in business if they regularly recommended plans not acceptable to Management.)

2. They devise "incentive/bonus" plans that are based on "targets" which Management determines. By low-balling the target, they assure themselves of a bonus. These plans seldom include such relevant things as growth in profits per share or growth in stock price. They do sometimes include in growth in total sales dollars and total profits. That growth may be achieved by mergers or purchase of other companies for stock – which may or may not result in increased profits per share or stock price. Inflation may cause a growth in dollar amounts but that is almost universally not a factor in these bonus plans.

It seems to me the higher in the organization is an executive the more should his/her bonus pay be affected by how the stockholders have fared!

In widely held stock, I know not how to give individual stockholders more input into these compensation plans. I believe there is presently a dollar limit on the amount of base compensation that is allowable as a deduction for corporate Federal income tax purposes. (Some companies pay their top executive more than this top limit and just forgo the deduction.) But there is no limit on the amount of "incentive" compensation that meets Federal guidelines that do not require the consideration of factors related to stockholder interests – such as profit per share and changes in stock price. Just like there is often a thin line between tax avoidance and tax evasion, these bonus plans are almost always manipulated to the advantage of Management.

Presently, the foxes are om charge of the hen house!!!! And it is difficult to blame them entirely for their deplorable behavior. They can thereby increase their compensation and there is no meaningful restriction on their power to do it. How many people who had legal and unrestricted access to a pool of cash would not take all they could carry – and continue coming back for more??????

There should definitely be a high correlation between the improvement in stockholder interests and management bonus compensation. How this is accomplished I do not know. One way might to be to establish an incentive pool that considered changes in profits per share and stock price – taking into account the current year and the average for some preceding period (to take into account negative changes also). This could then be distributed in accord with the Board's decision, the decision of the CEO, or a committee of the Board and management.

The best example of this was the $1 per year base compensation of Lee Iacocca, the new CEO of Chrysler many years ago when Chrysler was having serious difficulties and was facing probable failure. He accepted an incentive plan that depended almost entirely on growth in profits, profits per share, and stock price. I think no investor felt the resulting compensation was unreasonable – considering the alternative. He made money only because the stockholders did. A similar arrangement should be a major component of most bonus plans for top management. The problem is: WHO IS GOING TO MONITOR THE COMPLIANCE WITH THE SPIRIT OF THIS PRINCIPLE? Presently,