Uncertainty of a New Job (part 1)

Everyone knows the feeling – being in a job you don’t like well past the time you realized these feelings. But why? Why do people stay in a job that makes them unhappy? Almost everyone that takes a new job is happy they did. But how do you get from point A to point B?

The Amygdala.

The amygdala is part of the human brain. It is an almond shaped area in the medial temporal lobes, or for a better definition, it is basically right in the middle of your head.

The amygdala evolved to keep you alive. When it senses a risk to your life it kicks off a fear feeling and sends that to the frontal lobe for action. The key phrase is “risk to your life.” The amygdala doesn’t discriminate – harmless situations often give rise to a reaction in the amygdala.

So among other reasons, the amygdala is sabotaging your willingness to find a new job. The uncertainty of a new job affects your sense of security even though the new job will probably improve your living situation.

Evolving Thoughts Blog

Reading other people’s blogs is great for getting new perspectives. I’m currently really intrigued by a blog called Evolving Thoughts. The URL is http://scienceblogs.com/evolvingthoughts/. I don’t post over there or anything; just taking it in.

Olympic Prediction

Prediction Time:

The US economy will nose dive on August 25th of 2008.

Why do I pick that specific day? That is the day after the Summer Olympics ends.

Imagine this, Beijing is built to proportions of magnificence. The sky line is so high that you hurt your neck looking up and the sun is shimmering off the windows in a way that mimics an ocean sunset. The celebrations are jovial and each contestant’s face reveals relief, pride, and satisfaction. Somewhat like a gratified grandfather holding his infant granddaughter. The US finished second in gold medals to China and total medals. Several world records were broken, particularly in swimming. Wheaties is celebrating a US team that won gold in basketball and the break out star of the Olympics for the US is a gymnast.

So August 25th rolls around and markets start sluggish. But a realization sets in around lunch. The economic engine in Asia is now resting. The Olympics motivated China to put on a show that sets a high bar for others to rival. Now that the the Olympics are over and the workers building for it reenter a manufacturing workplace, the US isn’t buying. The job situation in the US is bleak. And now the job outlook in China looks bleak too. Commodity prices plunge and take the markets with it. The frail, but spry, US economy suffers the last blow it can take and goes into a very bad recession. About two months later companies from Asia and Europe begin to buy US corporations and the first seeds to recovery are planted – in the airline business. What the acquiring companies want out of their deals is the expertise that US personnel provide. To get it they fly them to their cities. Between three and nine months later (January to June of 2009) the second seed to recovery is planted – health care. After three months of traveling the baby boomer generation decides that retirement is better than 24 hour flights. So as this generation begins to retire they start using their vested 401K money to pay for life improvement procedures. This starts a huge period of medical innovation and the US leads the world to recovery by 2010.

And no one will remember 8/25/08.

Spinning Globalization the Other Way

In yesterday’s post I asked what is the next breakthrough? The prevailing idea in my mind for months is green technologies. A few breakthroughs in that area of energy will turn the world on its head. My reasoning is that until this happens the US economy will not really grow effectively again. As we are seeing now, the last growth period was really a growth of the upper class and a slight shrinking of the middle class economy.

But my vision is too narrow. There are billions of people now that have entrepreneurship concepts as their base. These same people also have no ties to current infrastructure establishments. They get to skip the foundational technologies and ride on the backs of others who are trying to lower the cost of the purchase and implementation in the first place. And it doesn’t matter where any of this is located. What is important now is the knowledge and application of that knowledge.

In the current issue of the New Yorker (1-28-08), James Surowiecki writes about Tata Motors. Tata Motors is part of the Tata Group; a company in India. This company has risen to high levels of success by selling to their people. The US didn’t really help build this company except for some consulting services. But what is important is that this company built themselves by meeting the needs of their own people and western companies didn’t beat them to it.

As we see a downturn in the US economy, companies like Tata Group are flush with cash to buy in. But they aren’t buying in necessarily to get into the US market like US companies do when they make a global acquisition. They are buying in to get the expertise that they lack. Once they get that know how, they can serve their current base even better and at higher margins than they did before. The return on their investments with US companies is simply gravy.

To Keep Economy Growing, President Bush to Push for Tax Rebates, Breaks for Businesses, and Foolishness

President Bush is wrong again. The White House plan to stimulate the economy is through tax rebates and breaks for businesses. The total boost to the economy is about $145 Billion or roughly 1% of GDP. I’m sure you’ll hear more about it in the State of the Union address on Monday (1-28-08).

Until recently I didn’t really have an idea of an alternative plan. I do understand that job creation and job security promote a confident consumer. A confident consumer buys goods.

Bob Herbert over at the NY Times hit on the job aspect of the economy in an opinion piece on Saturday (1-19-08) called Good Jobs Are Where the Money Is. Mr. Herbert points his readers to the Economic Policy Institute or EPI for more information on his opinion. The EPI published a marvelous plan to stimulate the economy called Strategy For Economic Rebound: Smart Stimulus to Counteract the Economic Slowdown. I agree with about 90% of the paper.

In summary, here is their plan – create jobs!

What the EPI wants is to fill the working void by employing thousands of people related to construction work and craft work (plumbing, painting, carpentry, tiling, and etc). This makes sense for two reasons. The first is the housing slow down has left many construction workers waiting for the next uptick in the housing market. These workers are readily available. The second is that the type of work the EPI envisions for them is infrastructure based. This is where I think the EPI really hits a home run. The US infrastructure is neglected. As I’ve wrote in other posts (Big Prizes, Risk Aversion, and Why No Changes), US businesses are avoiding high risk, high reward projects because of the complication of the infrastructure. Much of what happens now is the repackaging of tried and true ideas. It is only incremental innovation. No leaps. As the EPI writes, an update to the infrastructure of the US, whether it is repairing bridges, utilities, roads, or school projects, serves two ends. It gets many people back to working and it accomplishes work that needs to happen anyway. This will prompt more business development than a tax break.

The one area I wish the EPI focused on was the prodding of innovative business projects. With some of the funding allocated, the US government should provide interest free loans or incentives to businesses that launch green projects within the next six months. There is a backlog of projects ready to go, they just need the funding or the ability to get past the economies of scale barrier. These projects would spur the next wave of productivity in the US. Otherwise we pass this slow period and exit it into… what? What is the next breakthrough?

Here are some stats I pulled from Strategy For Economic Rebound: Smart Stimulus to Counteract the Economic Slowdown :

  • The EPI plan is $140 billion of stimulus or 1% of the GDP (less than the President’s plan)
  • Unemployment is likely to reach 5.5% by July
  • The EPI plan would add between 1.4 and 1.7 million jobs
  • Approximately, 10 cents per dollar is spent on imported goods in the US
    (this goes against offering just a tax rebate since 10% of every dollar
    goes to foreign suppliers)

  • While a rate cut would still likely be beneficial, it is unlikely to have the same stimulative impact as in the past.
  • Housing prices fell 6.7% on an annual basis and are expected to fall further
  • Slack demand caused construction employment to fall by more than 200,000 jobs in 2007

  • Eliminating the estate tax and extending the high income, capital gains, and dividend tax cuts beyond 2010 would do nothing for the economy in 2008
  • This country has a more unequal distribution of income than any other advanced country
  • Estimates by Moody’s Economy.com indicate that each $1 in tax cuts
    targeted to low-income households would increase demand by $1.19. In
    contrast, tax reductions for capital gains and dividends would yield
    just $0.09 per dollar

  • In 1999, the National Center of Education Statistics (NCES) put the average age of the main instructional public school building at 40 years
  • An industry standard for how much should be spent annually on maintenance and repair is 2% of the building’s replacement value
  • The US should be spending approximately $17 billion per year on public
    school facility maintenance and repair to catch up with and maintain
    its K-12 public education infrastructure repairs
  • The U.S. Department of Transportation has identified more than 6,000
    high-priority, structurally deficient bridges in the National Highway
    System that need to be replaced, at a total cost of about $30 billion.
    A relatively small acceleration of existing plans to address this
    need—appropriating $5 billion to replace the worst of these dangerous
    bridges—could employ 70,000 construction workers, stimulate demand for
    steel and other materials, and boost local economies across the nation

Commitment – Personal or Professional

I have to thank the writers over to Web Worker Daily, especially Mike Gunderloy who wrote about a website called stickK.com.

One tenet of achieving a goal is to write it down. Once you write it down, it becomes real. It is now an expression of thought that is documented. Ah, but I have my Outlook Tasks and there are always a few that get ignored into oblivion and I wrote them down? So, apparently there are goals that need something beyond merely writing them down. That is where stickK.com comes in. They provide a means for you to pay yourself based on your performance. Basically, you pay a set amount up front into an account. You write a contract where you are the payer for some work or goal that you as the payee will accomplish by some determined date. Once you deliver on that goal, you get your money. If you don’t, someone else (as you determine) will.

If the pure economics of the situation still don’t motivate you, then the final aspect is that you name a group you oppose to get your payer money. What this means is that if you are a strict vegetarian you would name the National Meat Association ( NMA) as your forfeiting charity. As the website says, you are now not only financially invested, you are now emotionally invested.

One final addition that I really like about the site is that they make you track your progress. This reinforces your behavior change. For the first couple of weeks writing this blog was difficult, but once I got over the mental hurdle of just doing it, it became much easier and now it is something I look forward to doing.

I’m committed personally and professionally.

AmEx Pays Ken Chenault After They Pay Their Shareholders

I’ve documented my thoughts on CEO Pay in prior posts ( CEO Pay, Next Generation CEO, and Productivity Pays – The CEO), but a recent article by Geoff Colvin really had me say out loud “WOW.” The article is called AmEx gets CEO pay right.

AmEx is deserving of the “WOW.” In this day of CEOs preaching performance pay and then receiving restricted stock (which is basically discounted stock awards), AmEx awarded their CEO, Ken Chenault, 2,750,000 shares of stock options. That is a very large number of stock options, but remember, stock options are only valuable should the stock rise and conditions are met. They aren’t guaranteed.

As Colvin notes, this style of compensation should be studied and perhaps copied as a means to incent the CEO over the long run (this deal is over a span of six years). Here is what Colvin writes regarding the consideration AmEx gave to the deal:

A
complex options grant like Chenault’s would be almost impossible to assemble
and consider on short notice; AmEx’s spokesman says it resulted from three
months of board discussions.

Colvin also writes:

What’s
key is the way the grant is structured. The first surprise is that it’s an
options grant at all. Options were all the rage in the ’90s as the market
roared, but lost favor after the bust. They’ve been replaced in CEOs’ hearts by
restricted stock, which is worth money even if the stock price goes nowhere.
Since options are worth money only if the stock rises, a big grant is notable
at a time when the market looks expensive by many measures and the economy is
weak.

The last sentence is also hit on by Colvin in his article, but what it is getting to is that AmEx seems to be on the forefront of responding to the backlash that is CEO pay. Normally the backlash is coming from the middle class and the employees, but AmEx has identified their shareholders as the ones who really suffer from the preposterous CEO pay structures.

Colvin writes these two items:

Chenault
can receive a fraction of the grant for lesser performance, but below certain
limits, which are still quite high, he gets nothing.

Now consider a couple of scenarios.
Chenault misses all the targets but the market booms, returning 10% a year, and
AmEx stock matches it. After their full term of ten years, his options would be
in the money by $258 million – but he wouldn’t get any of that. Why? Well,
AmEx’s stock presumably rode a rising tide, and his shareholders could have
done just as well with an index fund while exposed to less risk. Alternatively,
the market returns just 6% a year, in line with what many experts predict, but
under Chenault’s leadership AmEx hits all the targets and the stock returns 9%
a year. Chenault collects a pretax gain of $222 million after a decade – an
awful lot, but his shareholders are $35 billion richer than if they had chosen
an index fund, and he’s a hero.

 I pulled out some stats from the article to highlight what Chenault must do to get his award.

  • AmEx’s earnings per share must grow at least 15% a year on average
  • Revenues must grow at least 10% a year
  • Return on equity must average at least 36% per year
  • Total return to shareholders must beat the S&P 500 average by at least 2.5% a year

And here are some repeats of information I think is important

  • 2,750,000 shares
  • Six year deal
  • Shareholders are $35 billion richer than if they had chosen an index fund
  • Below certain limits he gets nothing

Finally, here are some links to stories regarding Chenault and AmEx:

AmEx gets CEO pay right
«Business» – Successful Leaders Need “Follower-ship” – 2008-01-02
American Express Sets CEO Compensation Standard
There’s No Ugly Penalty for Companies