I don’t know whether to call it communism or crony capitalism . . .

by Andrew Gelman on April 26, 2013 · 15 comments

in Interest Groups

prisoner

. . . but either way it’s pretty ugly:

Last year was undoubtedly a challenging one for Consolidated Edison. There were heat waves and storms, a monthlong lockout of its unionized workers and the devastating effects of Hurricane Sandy. The response to the hurricane from Con Edison and other utilities led Gov. Andrew M. Cuomo to appoint a commission to investigate “the failure of utility performance” last year and to threaten to revoke their franchises.

But the utility’s directors had a much different appraisal: They gave Con Ed’s top executives more than $600,000 in extra bonuses for “exemplary” performance in 2012. . . . The discretionary payouts came on top of the annual bonuses the executives received. Kevin M. Burke, the company’s chairman and chief executive, got an additional $315,000, taking his total pay for the year to $7.4 million . . .

What gets me is this bit:

“In our judgment, the company performed in exemplary fashion,” the committee chairman, George Campbell Jr., said.

These executives are already being paid the big bucks. They’re supposed to behave in exemplary fashion, that’s what they’re being paid to do already.

Also, I hate when people tell untruths:

Mr. Campbell . . . declined to discuss how the directors arrived at their decision to give an additional 20 percent in bonus money to the senior executives. He said the reasoning was “spelled out in great detail” in the proxy statement.

But the 93-page document includes just two brief mentions of the extra payouts for “guiding Con Edison of New York through significant challenges” last year.

“These challenges included a series of extreme weather events including heat waves, a nor’easter and Superstorm Sandy, the most destructive storm in the history of the company’s service area, and a monthlong work stoppage,” it says.

I can’t say for sure that Campbell was lying. To lie is to knowingly tell an untruth. It’s possible that he didn’t actually read the proxy statement. Maybe, for example, he told whoever was writing that statement to “spell out in great detail” the reasoning behind the bonuses, but then the proxy-statement-writer didn’t do the job. No bonus for that guy, I’m sure!

And some background:

Con Edison’s executive-pay practices had already earned the company low marks from monitors of corporate boards. GMI Ratings gave the company a grade of “D,” citing it for, among other flaws, having over half of its directors on the board for more than 10 years and three of them for two decades.

{ 15 comments }

RobC April 26, 2013 at 9:41 pm

These guys are judged by their cronies, paid handsomely and treated as if they can’t be fired. It’s almost as if they were university professors.

Andrew Gelman April 27, 2013 at 8:23 am

Rob:

I have a job that I’m paid to do. They don’t give us bonuses. When I perform my job in exemplary fashion, people thank me. They might even give me an award with symbolic value. They don’t give me a 6-figure bonus just for doing my job the way it’s supposed to be done.

John Sides April 27, 2013 at 9:32 am

RobC: I’m happy to have you as a regular commenter, but I’d rather you comment on the substance — as you often do — rather than throw up ad hominem stuff that traffics in the usual cliches about professors, as you sometimes do.

Andy: This reminds me to pay you the 6-figure Monkey Cage bonus you so richly deserve.

RobC April 27, 2013 at 11:24 am

I apologize. I thought the tone of Andy”s comment was somewhat humorous, so I replied with what I intended as somewhat humorous teasing. In the future I’ll try to keep in mind everybody’s sensitivities, even though I would prefer a world where people put on their big boy pants and were able to take a little teasing in stride.

While I have discussed things about professors in other comments, I hope I’ve generally avoided cliches. I do believe political science professors, amd especially those with tenure, could and should take responsibility for changing incentives within the profession in ways that would result in greater rigor, more openness and better science, and I’ve said so. I fully understand these are things that many would rather not hear. Still, I think they need to be said, and I plan to keep saying them until my raggedy ass is tossed out.

John Sides April 27, 2013 at 11:36 am

RobC: I’m a plenty big boy and not particularly thin-skinned. But you’ve said something along the lines of “oh, you entitled academics with your comfy lifestyles” several times, so it’s begun to sound like your sincere animus against the profession, and not light-hearted teasing. (And, yes, these sorts of comments reflect the most basic cliches about academia.) Such sentiments would be appropriate if Andy or I were moaning on and on about how hard our lives as academics are. But they’re not, relatively speaking, and so we don’t.

In general, I tolerate a lot of low-quality comments on this blog. But I know you’re capable of high-quality comments, which is why I think this ad hominem stuff is beneath you and finally decided to say so. (And, as Andy points out, in this particular case your analogy isn’t even apt.)

Finally, as far as I can tell, we’re all advocates for rigor, and the blog’s whole raison d’etre is openness. So I certainly don’t disagree with those goals.

Andrew Gelman April 27, 2013 at 6:36 pm

Rob:

Believe it or not, my post was not intended to be humorous at all (except for the photo). The sort of corruption and dishonesty described in the NYT article really bothers me.

Andrew May 22, 2013 at 12:47 am

I’m fairly certain that some schools maintain salary-based incentives for publications in top journals. (Obviously you publish quite well without them).

Andrew C May 22, 2013 at 12:52 am

I left the previous comment and want to clarify that I am not Dr. Gelman.

marik7 April 27, 2013 at 12:22 am

One set of rules for the general citizenry. Another set of rules for the economic aristocracy. America the Beautiful. Today.

Scott Monje April 27, 2013 at 8:54 am

I’m not sure how Patrick McGoohan fits in.

ken April 27, 2013 at 9:34 am

” I don’t know whether to call it communism or crony capitalism . ..”

Socialism is the correct economic term [government control (not ownership) of the means of production/distribution in an economic sector(s)].

Electric utilities have been heavily controlled/regulated by state/federal governments for almost a century, under the false theory of natural-monopoly. Con Ed was granted a geographic monopoly by local government and basically operates on a comfortable cost-plus profit model, enforced by the government against the mass of retail electricity consumers.

Guaranteed monopoly profits tend to produce lethargic, self-centered management which is not hesitant to reward itself… regardless of its captive consumers.

WM April 27, 2013 at 11:14 am

You are flat out wrong here. There is no single definition of what constitutes socialism, but the common theme is that ownership – not control – by the state is central to the system.

Bob Savage April 27, 2013 at 3:28 pm

If this were an example of government control, as you say, then why is it that the people who made this poor decision are not government employees? The only part of the underlying story that seems to involve “government control” is a commission appointed by Gov. Andrew Cuomo, but that commission was specifically created because the governor did not like the performance of the company that is providing a service in the state — completely the opposite of the poor decision by the company to give Con Ed’s top executives additional bonuses for poor performance.

Todd April 27, 2013 at 11:02 am

I believe this is because as a publicly traded company there are millions of shareholders, each of who is extremely distant and disconnected from the inner-workings of the company. They own shares for the financial return only and their real participation in the company is zilch. The senior management is essentially not accountable to them and thus lack any accountability. There may be a few large shareholders, but they have their own self-interest, and undoubtedly the top management makes sure they get what they want, which is not necessarily what all of what the millions of other shareholders want, so they look the other way when management raids the treasury. Customers have little recourse since the company is a monopoly. (I don’t know much about this company so I am making some assumptions) This, of course, is a heck of a lot like democracy!

Ex Libertas May 15, 2013 at 9:43 pm

I believe its called corporate greed. There are few things in life that are more capitalistic than that.

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