Executive Compensation Linked To Stock Performance

Citigroup gave its CEO Michael Corbat $11.5 million for 2012, but Corbat's compensation going forward may be more closely tied to shareholder performance. After Citigroup lost its vote on say-on-pay last year, the company announced that it would link its executive pay to stock performance and return on assets. As one shareholder advocate group said, the new measure was "far from perfect, or even good, but it's less terrible than it used to be." Two of the reasons we would agree are the use of ROA and the exclusion of a risk measure. ROA is an accounting measure, which allows for leeway in calculating the inputs. Additionally, the plan does not account for risk, an important variable when examining returns.

The Grande Latte Index

By now, we hope that you are familiar with the Big Mac Index compiled by The Economist. Now, The Wall Street Journal has developed the Starbucks grande latte index, a measure of the price of a grande latte in dollars across various countries to examine purchasing power parity. Of course, we have the same dollar purchasing power parity problem since a grande latte costs $4.30 in New York and $3.55 in Detroit and San Francisco. As with any financial or economic estimate, there can be a great deal of disparity on the answer. In this case, one expert estimates the value of the yen will fall to ¥120/$, while another argues that the yen is already devalued 12 percent from its fair value of ¥84/$.

Spreadsheets And GIGO

JPMorgan Chase's recent $6 billion trading loss was viewed as a huge error in judgement. However, the company laid the blame for a portion of the loss on an error in a spreadsheet. Spreadsheets are a valuable tool in Finance, but the old adage of "Garbage in, garbage out" (GIGO) still applies. Software has helped improve the accuracy of spreadsheets. When you consider that companies may have 50,000 or more spreadsheets, you should recognize the sheer number of possible errors. And, if you are not sure why you should learn to use Excel, consider one number in the article: More than 59 percent of Finance employees spend more than one-half of their time working with spreadsheets.

Board Term Limits

While term limits for Congress are often discussed, voters do not get a choice on whether to implement term limits. In corporate governance, GE shareholders will be allowed to vote on term limits for the company's board of directors. The proposal would limit the term of an individual on the board to 15 years. Opponents have argued that the proposal is aimed at board members Andrea Jung and Ann Fudge.

Receivables Factoring

Many small business are strapped for cash. Banks are often reluctant to lend money to a company with an unproven track record and few assets, and while venture capital may be available, it is generally expensive. For online advertiser EQAL, the choice was to factor receivables. Even in the factoring market, EQAL faced problems because many factors like recurring receivables, which the company did not have. Fortunately, EQAL was able to find a factor that was comfortable enough with its business model. The cost of factoring for EQAL is a more than a bank loan, but less than venture capital, and has given the company access to cash flow.

Gold's Death Cross

Technical analysts believe that markets are not efficient and look for patterns in price charts in an effort to make abnormal returns. One technical trading tool is the "death cross" where the 50-day moving average falls below the 200-day moving average. The 50-day moving average is the average price over the past 50 days. The chart for gold prices is nearing a death cross. The last time there was a death cross in gold's price chart, gold declined about nine percent.

Seven The Hard Way

The Revel Casino, with about $1.5 billion in debt, is expected to file a prepack bankruptcy in the next several weeks, less than a year after the casino opened. The company's lenders are expected to have a significant equity position in the company when it emerges from bankruptcy, but will have much less in debt. The casino was originally started by Morgan Stanley, but the bank abandoned the project and wrote off its $1.2 billion investment.