TEK2day Podcast

Too few CEOs fully leverage the power of variable compensation to drive desired employee behavior and outcomes.

Last week we discussed the AI CEO vs. the Cyborg CEO. Assuming we could build a CEO with perfect intelligence there remains the question of how that CEO should communicate with his/her direct reports and employee base so as to achieve desired outcomes. For example, we structure M&A deals with detailed incentive compensation plans for acquired management teams. Those incentive compensation plans may incorporate various elements such as future Revenue and EBITDA levels, product launches and customer retention rates. Conversely, it is rare for a CEO’s direct reports to have that level of achievement-based detail built into their variable compensation plans. For example, in the case of a significant technology product launch it would make sense for a percentage of variable compensation to be at risk as it relates to those who worked on the budget, the product build and the product launch. Those with variable compensation at risk may include Product Managers, Software Developers, Sales Executives, Marketing Executives and Finance Executives. If you really want to go the extra mile, variable compensation for those employees would depend upon product performance over a defined period. “Product performance” could be defined as unit sales vs. budget, unit pricing vs. budget, and customer satisfaction (once the product has been deployed for a sufficient period so as to reasonably be able to conduct customer surveys). As the saying goes, “show me your compensation plan and I’ll predict your employees’ behavior.”

More Lines To Come With Price Controls:

It is starting to feel like the 1970’s with out of control fiscal spending, inflation and now gas lines. We only have gas lines in certain parts of the country today as local government officials exercised gas price controls during the Colonial Pipeline shutdown. We could very well see similar price control policies from the Biden Administration and State Governments in the coming weeks and months in an effort to control inflation.

The correct way to tame inflation would be to allow interest rates to float and to stop printing money to subsidize fiscal spending. Doing so would put an end to inflation and the debt double that grows worse by the day. If we are not going to allow interest rates to rise, then we ought to allow prices for goods and services to find a natural equilibrium. If Government decides to place its heavy hand on market prices as it has with gas prices, then the equal and opposite reaction will manifest itself in long lines at the grocery store, farmers’ markets, pharmacies and more. Perhaps we are on the cusp of another self-inflicted disaster that will benefit Amazon (AMZN), Walmart (WMT) and the various delivery services.

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Purchase our Amazon Kindle Book for $9.99 here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M/ref=sr_1_3

Our related TEK2day articles may be found below:

Workers Choose To Collect Federal Unemployment Benefits Rather Than Work: https://tek2day.com/2021/05/07/workers-choose-to-collect-federal-unemployment-benefits-rather-than-work/

Federal Transfer Payments To Americans Don’t Equal Economic Strength: https://tek2day.com/2021/05/02/federal-transfer-payments-to-americans-dont-equal-economic-strength/

Inflation Is Here To Stay. Powell Likely Has Lost Control.: https://tek2day.com/2021/04/29/inflation-is-here-to-stay-powell-likely-has-lost-control/

The Fed’s Vicious Cycle and Gold: https://tek2day.com/2021/04/20/the-feds-vicious-cycle/

Enhanced Unemployment Benefits Are Hurting Retailers: https://tek2day.com/2021/04/14/enhanced-unemployment-benefits-are-hurting-retailers/

Visit www.CEORater.com

Visit www.TEK2day.com

Purchase our Amazon Kindle Book for $9.99 here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M/ref=sr_1_3

Visit www.CEORater.com

Access our CEORater Personality Analytics report (referenced in this podcast episode), here: https://drive.google.com/file/d/1yVs6K5LUs0Ndyc0aep91OKtxYbLzVJy8/view?usp=sharing

Visit www.TEK2day.com

Purchase our Amazon Kindle Book for $9.99 here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M/ref=sr_1_3

Visit CEORater.com and TEK2day.com.

Purchase our Amazon Kindle Book for $9.99 here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M/ref=sr_1_3

Read our related TEK2day article “Put Your Strategic M&A Team On Ice” here: https://tek2day.com/2021/05/05/put-your-strategic-ma-team-on-ice/

Perhaps that recommendation is a bit harsh and unexpected coming from me, someone who is a staunch advocate of strategic M&A. However, the fact is that interest rates are historically low and valuations will remain historically high until such time as interest rates begin to rise. As we recently wrote, equity valuations have the looming double whammy of higher interest rates and higher corporate taxes which are sure to haircut valuations. Until such time valuations will remain historically high, especially within the Tech sector where valuations rival the dot-com Bubble of 1999-2000. Rather than chase expensive deals, smart alternatives may include investing in Product Development, investing in your salesforce, investing in employee recruiting and training and paying or increasing a dividend. Strategic acquirers must live with the downside risk associated with their acquisitions. Contrast this to Private Equity firms and SPAC sponsors which are perfectly happy to chase deals with other people’s money. Their returns are cushioned by cheap debt, double-digit percentage fees and elements that limit downside participation. Now is not the time to chase but rather to focus on that which is in your control. M&A teams would be wise to focus on building a robust M&A landscape and to strengthen relationships with potential targets for when the time is appropriate to act. Last, throw out the preceding advice if your company is valued at multiples of competitors’ enterprise value in which case you ought to leverage your rich currency and pursue accretive acquisitions.

Visit CEORater.com and TEK2day.com.

Purchase our Amazon Kindle Book for $9.99 here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M/ref=sr_1_3

Both Facebook (Facebook Blue and Instagram) and Twitter have an enormous Bot problem. Fake user accounts are included in active user counts and therefore contribute to Ad rates. Facebook said it took down 1.3 billion fake accounts October-December which is not to say it removed every last fake account or even a majority of them. Facebook has previously estimated that 5% of its active users are fake accounts but who is to say? No means exists by which to audit Facebook’s platform. Anecdotally, the Bot problem seemed to get worse in the few years that CEORater used Facebook before we exited the platform in 2020. Twitter to my knowledge has never self-reported the approximate number of fake accounts that exist on its platform. However, Twitter’s Bot problem seemed to grow in severity in our eight years on the platform before we exited in 2020. Further, Twitter has evolved from a platform primarily geared toward commercial activity where the Tech industry was the primary driver to a political platform marked by toxic political discourse. Commercial activity has been marginalized. The combination of Twitter’s toxic political discourse and fake account problem has placed Jack Dorsey’s company on a path to become a niche platform. What are Social Media Ad buyers truly getting in return for their Ad spend?

It would seem a better digital Ad buy would be “in-game” ad buys (i.e. product placement – it is more difficult to fudge the number of active gamers), and targeted ad purchases across premium content platforms – Amazon Prime, NY Times, Wall Street Journal, Bloomberg – where the buyer knows there is a paying, subscribing human on the receiving end.

Purchase our Amazon Kindle Book for $9.99 here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M/ref=sr_1_3

Inflation Is Here To Stay. Powell Likely Has Lost Control.: https://tek2day.com/2021/04/29/inflation-is-here-to-stay-powell-likely-has-lost-control/

Biden’s Long-Term Capital Gains Tax Increase Will Spur Selling: https://tek2day.com/2021/04/26/bidens-long-term-capital-gains-tax-increase/

U.S. Trade Deficit With China To Explode: https://tek2day.com/2021/04/24/u-s-trade-deficit-with-china-to-explode/

Biden’s Climate Plan Is A Tax On Companies And Individuals: https://tek2day.com/2021/04/23/bidens-climate-plan-is-a-tax-on-companies-and-individuals/

The Fed’s Vicious Cycle and Gold: https://tek2day.com/2021/04/20/the-feds-vicious-cycle/

A Corporate Tax Hike Will Be A Double Whammy On Valuations: https://tek2day.com/2021/04/16/a-corporate-tax-hike-will-be-a-double-whammy-on-valuations/

Enhanced Unemployment Benefits Are Hurting Retailers: https://tek2day.com/2021/04/14/enhanced-unemployment-benefits-are-hurting-retailers/

Yellen’s Minimum Global Corporate Tax Is A Big Deal: https://tek2day.com/2021/04/10/yellens-minimum-global-corporate-tax-is-a-big-deal/

A Breakdown of Biden’s $2.3 Trillion Green New Deal: https://tek2day.com/2021/04/02/a-breakdown-of-bidens-2-3-trillion-green-new-deal/

The Ugliest Chart I Have Ever Seen: https://tek2day.com/2021/03/31/the-ugliest-chart-i-have-ever-seen/

Stagflation Is Imminent: https://tek2day.com/2021/03/30/stagflation-is-imminent/

The Fed’s Options To Fight Inflation Are Limited: https://tek2day.com/2021/03/29/the-feds-options-to-fight-inflation-are-limited/

Powell Just Told Us Why Interest Rates Will Remain Low: https://tek2day.com/2021/03/25/powell-just-told-us-why-interest-rates-will-remain-low/

More Inflation Is Coming: https://tek2day.com/2021/03/18/more-inflation-is-coming/

A More Hawkish Fed Is Not In The Cards This Year: https://tek2day.com/2021/03/15/the-fed-becoming-more-hawkish-is-not-in-the-cards-this-year/

A Breakdown of Biden’s Debt-Funded COVID Relief Program: https://tek2day.com/2021/03/13/a-breakdown-of-bidens-debt-funded-covid-relief-program/

Brace for Anemic Long-Term Real GDP Growth: https://tek2day.com/2021/03/06/brace-for-anemic-long-term-real-gdp-growth/

The Fed’s Next Move Is To Ramp QE, Not Raise Rates.: https://tek2day.com/2021/03/04/the-feds-next-move-is-to-ramp-qe-not-raise-rates/

Long Rates Continue To Climb As Inflation Persists. Nothing To See Here.: https://tek2day.com/2021/02/18/long-rates-continue-to-climb-as-inflation-persists-nothing-to-see-here/

The Fed’s Evolution From Independent Agency to Treasury Subsidiary: https://tek2day.com/2021/02/08/the-feds-evolution-from-independent-agency-to-treasury-subsidiary/

The Biden Administration’s latest debt-funded spending program will create increasing inflation and therefore tax the American people as the price of goods and services climb ever higher. This latest program ($ 1.8 Trillion) will further penalize Americans via the inflation tax = taxation without representation. Between the Trump Administration’s two spending programs ($2.3 Trillion, $900 Billion) and Biden’s three spending programs ($1.9 Trillion, $2.3 Trillion, $1.8 Trillion), we are rapidly losing the country to an out-of-control Federal Government that is hell-bent on creating $Trillions out of thin air to pursue spending programs it believes will win voters at the end of the day. Translation: The Federal Government will play an increasingly larger role in our daily lives. Recent related TEK2day articles are listed below:

Purchase our Amazon Kindle Book for $9.99 here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M/ref=sr_1_3

Biden’s Long-Term Capital Gains Tax Increase Will Spur Selling: https://tek2day.com/2021/04/26/bidens-long-term-capital-gains-tax-increase/

U.S. Trade Deficit With China To Explode: https://tek2day.com/2021/04/24/u-s-trade-deficit-with-china-to-explode/

Biden’s Climate Plan Is A Tax On Companies And Individuals: https://tek2day.com/2021/04/23/bidens-climate-plan-is-a-tax-on-companies-and-individuals/

The Fed’s Vicious Cycle and Gold: https://tek2day.com/2021/04/20/the-feds-vicious-cycle/

A Corporate Tax Hike Will Be A Double Whammy On Valuations: https://tek2day.com/2021/04/16/a-corporate-tax-hike-will-be-a-double-whammy-on-valuations/

Enhanced Unemployment Benefits Are Hurting Retailers: https://tek2day.com/2021/04/14/enhanced-unemployment-benefits-are-hurting-retailers/

Yellen’s Minimum Global Corporate Tax Is A Big Deal: https://tek2day.com/2021/04/10/yellens-minimum-global-corporate-tax-is-a-big-deal/

A Breakdown of Biden’s $2.3 Trillion Green New Deal: https://tek2day.com/2021/04/02/a-breakdown-of-bidens-2-3-trillion-green-new-deal/

The Ugliest Chart I Have Ever Seen: https://tek2day.com/2021/03/31/the-ugliest-chart-i-have-ever-seen/

Stagflation Is Imminent: https://tek2day.com/2021/03/30/stagflation-is-imminent/

The Fed’s Options To Fight Inflation Are Limited: https://tek2day.com/2021/03/29/the-feds-options-to-fight-inflation-are-limited/

Powell Just Told Us Why Interest Rates Will Remain Low: https://tek2day.com/2021/03/25/powell-just-told-us-why-interest-rates-will-remain-low/

More Inflation Is Coming: https://tek2day.com/2021/03/18/more-inflation-is-coming/

A More Hawkish Fed Is Not In The Cards This Year: https://tek2day.com/2021/03/15/the-fed-becoming-more-hawkish-is-not-in-the-cards-this-year/

A Breakdown of Biden’s Debt-Funded COVID Relief Program: https://tek2day.com/2021/03/13/a-breakdown-of-bidens-debt-funded-covid-relief-program/

Brace for Anemic Long-Term Real GDP Growth: https://tek2day.com/2021/03/06/brace-for-anemic-long-term-real-gdp-growth/

The Fed’s Next Move Is To Ramp QE, Not Raise Rates.: https://tek2day.com/2021/03/04/the-feds-next-move-is-to-ramp-qe-not-raise-rates/

Long Rates Continue To Climb As Inflation Persists. Nothing To See Here.: https://tek2day.com/2021/02/18/long-rates-continue-to-climb-as-inflation-persists-nothing-to-see-here/

The Fed’s Evolution From Independent Agency to Treasury Subsidiary: https://tek2day.com/2021/02/08/the-feds-evolution-from-independent-agency-to-treasury-subsidiary/

A Corporate Tax Hike Will Be A Double Whammy On Valuations:

Consider the Fintech and Information Services sector. Depending upon how you define it, the sector trades at approximately 30x Operating Cash Flow (“OCF”). If Company X generates $1 billion in Operating Cash Flow today, the Net Income input will have been taxed at 28% under Biden’s proposal vs. the current 21% Federal corporate income tax (33% higher). Thus, 1.) the valuation multiple will be applied to a lower OCF figure all else held equal, and 2.) investors likely will apply a lower valuation multiple given the higher tax and lower cash flows. It feels to me that this phenomenon is not baked into Tech valuations and perhaps equity valuations more generally.

Federal programs such as the CARES Act/ Pandemic Unemployment Assistance and other COVID-related Federal handouts are hurting retail businesses. Retail used to be a great way for young people to gain valuable sales and customer experience early in their career. Many readers will have held hourly jobs at grocery stores, restaurants and the like during their high school and college years. Many adults work these jobs for additional income. The geniuses in Washington D.C. have turned this labor market on its head. Many Americans who would normally work these jobs now make more money collecting COVID-related Government benefits. As a result grocery stores, wine & liquor retailers, gyms, food service establishments and other retail operations are having difficulty staffing operations at a time when customers are returning. The penalty is two-fold: 1.) Opportunity Cost – lost revenue due to insufficient staff; 2.) Wage Inflation – businesses will be required to increase hourly wages in order to provide an incentive for people to return to work. Higher wages of course will cut into profits. It is one thing for a labor market to tighten due to a healthy, productive economy (the U.S. is not net productive as trade deficits are widening). However, it is quite another for labor markets to tighten because the Federal Government is competing with American businesses.

Check out our Amazon Kindle Book: "Stagflation Is Imminent": https://www.amazon.com/dp/B091NB9V7M/ref=cm_sw_em_r_mt_dp_D2TYT6MA6P6P3X7RH0YP