WSJ: April’s large surplus, Vietnam’s policy rates and the yen

U.S. Posts Biggest Monthly Surplus in 5 Years

In April, the U.S. budget surplus was $112.89 billion, compared to $59.12 billion the previous year. Economists had previously forecast that the budget surplus would be $106.5 billion for the month. It isn’t unusual for there to be a larger monthly surplus in April, because people have filed their tax returns, although the April surpluses had disappeared immediately following the Great Recession. It is predicted that the U.S. government will run a deficit of $845 billion for the 2013 fiscal year (which ends in September). While that number is extraordinarily high, 2013 is predicted to be the first deficit in five years below $1 trillion, most likely because there is a higher revenue overall nationally, compared to previous years.

Some other reasons that could account for the narrowing deficit include higher payroll taxes, higher tax rates for households making more than $450,000, improved wages and many bonuses and divided payments were switched to December, which could have possibly distorted the figures for early 2013. Also important to note is that the U.S. government will be receiving a large cash influx from Fannie Mae and Freddie Mac, since they received massive bailouts during the financial crisis, which could mean less borrowing. The government will only be able to keep borrowing until September. The federal deficit over the last year is $856.93 billion, compared to $1.147 trillion the year before.

Vietnam Cuts Rates to Boost Lending

Yen’s New Weakness

The increased role of investors, stock performance in CEO compensation

Tanger Factory Outlet Centers is one example of a company that has modified its corporate governance policy, to assuage investors and base CEO compensation more heavily on stock performance. Image courtesy of charleston.com

Tanger Factory Outlet Centers is one example of a company that has modified its corporate governance policy, to assuage investors and base CEO compensation more heavily on stock performance. Image courtesy of Facebook.

It’s becoming more and more important for company CEOs to have strong financial or stock market performance if they hope to earn the best compensation, according to a recent Hay Group analysis of proxy statements. Regulating chief executive officers has been a top priority for investors, especially following the Enron and WorldCom scandals.

Tanger Outlets, Inc. (SKT), based out of Greensboro, N.C., has recently joined ranks with the growing number of companies who are tying top executives’ compensation with how well the company is doing in the stock market. As of Feb. 2013, Tanger Outlets developed new corporate governance policies, including a “clawback” and “anti-hedging” policies, both of which ensure that Steven Tanger (Tanger Outlets’ current CEO) has a minimum equity ownership in Tanger’s stock.

“We’re trying to align the senior management team with shareholder interest,” said Cyndi Holt, vice president of finance and investor relations at Tanger Outlets, Inc. “If the CEO owns 10 times his base salary [worth of stock], it’s in his best interest for the company to do well, which is in the best interest of the shareholders.”

Tanger is now required to own 10 times his base salary in stocks. Prior to February, he was only required to own five times his base salary, although Holt said he has generally owned more than that since becoming CEO, in Jan. 2009.

Tanger Outlets’ new policies that require its CEO and executive officers to own a certain percentage of shares shows the increased power of shareholders in the business world. The Hay Group’s recent analysis of proxy statements examined the compensation policies of 51 CEOs, more than half of which had specific stipulations about the number of shares owned by the CEO. The fraudulent scandals of Enron and WorldCom tightened not only SEC regulations on companies, but gave more power to investors.

“I think that, with those scams, institutional investors became more and more concerned,” Holt said. “If you look at the top executives, that’s a lot of money in the investment team. Investors want to make sure they know what they’re getting for that investment. Are those management teams, who are so well-compensated, being incentivized appropriately?”

Comparatively, in 2009, only 35 percent of the compensation of CEOs was tied to stock market success, according to the Hay Group analysis. Most of the CEO pay came from salaries and stock grants, but with little to no stipulations about how much ownership the CEO had in the company. Farient Advisors, an executive compensation consultant, also said that 64 percent of Standard & Poor’s 1500-stock indexes had performance-based pay policies attached to compensation criteria starting in 2011, up 20 percent from 2002.

Tanger’s 2012 base salary was $800,000, although his total compensation was $12.7 million. The majority of his compensation was found in share awards, which totaled $10 million. It has become more important for investors to feel as though Tanger’s pay is well-deserved and reflective of the company’s success.

One of Tanger Outlets’ competitors, CBL & Associates Properties Inc. (CBL), is another mall real-estate investment trust (REIT), managing 159 properties in the U.S. Unlike Tanger Outlets, which focuses on factory outlets, CBL’s properties include outdoor shopping centers, indoor malls as well as factory outlets, making their clientele less niche than Tanger’s clientele, as well as much larger.

But the CEO compensation of top executives in CBL differs from Tanger Outlets’ executive compensation. The CEO of CBL, Stephen D. Lebovitz, earned a total of $1,645,320 in 2012, with 28 percent of his salary coming from stock awards. Comparatively, Tanger’s stock award compensation is 79 percent of his total pay. CBL requires its executive officers to own three times worth the prior year’s base salary in stocks, instead of the 10 times amount Tanger Outlets requires of its CEO.

The new policies implemented by Tanger Outlets are not only aimed at the CEO, but the other top executive officers of the company. One such policy is an anti-hedging policy, which is usually established to prohibit company executives and directors from hedging against a decline in the company’s stock.

“The anti-hedging policy applies to any equity-based compensation,” Holt said. “We engage in compensation consulting to do market analysis and determine what our favorable equity compensation practices are for similar positions or companies.”

Holt said there is a relativity aspect to the new compensation policies as well – for instance, if a market-related incident has the entire market down 30 percent, and Tanger Outlets is only down 5 percent, the management has done something to outperform the peer group, so the compensation of executive officers will not be as adversely affected.

CEO Compensation: Tanger and Leibovitz (information courtesy of companies’ 2013 proxy statements)

2008-2012 Tanger Outlets Revenue and Net Income (information courtesy of companies’ 2008-2012 annual reports)

CEOStockOption (information courtesy of The Hay Group)

StockMovement (information courtesy of NYSE)

See Also:

Industry Report: The Retail Sector

Corporate Governance in the News:

‘Pay for Performance’ No Longer a Punchline

JPMorgan Boards Feels Heat in a Vote

Hess to Strip CEO of Chairman’s Role After Annual Meeting

WSJ: Asia’s cash flow, street artists and job availability in Germany

Asia Wrestles with a Flood of Cash

Recently, an influx of capital is keeping the central banks in Asia, Australia and New Zealand particularly strong, which is making it difficult to manage growth. Australia’s central bank has cut interest rates to a record low and New Zealand’s central bank has intervened in foreign-exchange markets to blunt the rise of currency. Both China and Thailand are curbing bets on their rising currencies as well – the Thai baht has not been this strong since 1997. South Korean government officials are concerned that there is a “one-sided” movement of foreign currency, which resulted in the cutting of interest rates by a quarter of a percentage point. Investors have added nearly $7 billion to Asian bond mutual funds this year alone.

Recent World Bank data shows that, additionally, Asian markets have added nearly $120 billion in foreign-exchange returns this year. It may seem as though this surge of capital influx and the investments Asian countries have put into foreign-exchange markets are good things, but it becomes much more difficult to keep track of how much inflow is actually coming in. As a result, local currencies become stronger – therefore, that country’s goods could become less competitive on a global scale. Since the money has come in so quickly, banks and government officials worry that local banks, stock markets and currency markets could become unstable as a result.

Street Artists Take on the Euro Crisis

Europe’s Job Seekers Flock to Germany

WSJ: ‘Spring swoons,’ post-Sandy struggles and labor force participation

The Myth of the ‘Spring Swoon’

The “spring swoon” narrative is not as consistent or as accurate as some have made it out to be. Starting in 2010, it seemed as though unemployment was at its lowest at the earlier part of the years, before it sharply increased over the summer months, until hiring picked up again in the early part of the following year. And while there were only 88,000 job gains last month, which might signify the start of another “spring swoon,” this pattern might not be as consistent or as predictable as it’s been made out to be. Previous years had different factors to take into account – in 2010, there was a surge in government payroll for the Census, which adds many jobs, but only for a short-term period. Additionally, it seems that, recently, the two biggest job employment slowdowns didn’t even take place during the spring – the most recent was July through September 2011, and another was November 2010 through January 2011.

The pattern that has been seen in job employment recently is that job growth does tend to be better during the colder months (October through March), but not necessarily significantly higher. It’s about, on average, 190,000 jobs versus 130,000 jobs in April through September. The jobs recovery following the Great Recession in 2008 has caused an endless series of starts and stops, making it impossible to determine what exactly is and isn’t an accurate pattern to predict and follow. In fact, it may be next to impossible to really say whether there is an exact unemployment pattern and job availability depending on the time of year. The job market, on average, provides between 100,000-250,000 jobs per three months in the last few years, and always fluctuating in the time of year it happens.

Six Months Later, They’re Still Struggling

Debate Over Labor Force Participation

WSJ: HAMP, Twitter hoax and economically uninformed teens

Despite Improvement in Loan-Mod Defaults, Report Raises Alarm

The Home Affordable Modification Program (HAMP) is a loan modification initiative set up by President Obama, which aims to assist homeowners pay off their mortgage debts. A Sigtarp report was released this Wednesday that raised a criticism about HAMP – although HAMP has reduced, on average, monthly payments by more than $400, borrowers aren’t always staying current on their modified payments. HAMP has received much criticism lately, but the report seemed to indicate that the number of homeowners who are defaulting after they receive a permanent mortgage modification is “alarming.” The longer a homeowner participates in HAMP, it seems it is more likely that he or she will redefault out of the program, which isn’t all that unusual for any mortgage modification program, but it seems there is some uncertainty about how successful HAMP actually is in the grand scheme of things.

Some of the criticisms of HAMP – excessive documentation, overwhelmed mortgage services, not enough attention on negative equity, etc. – have made people wonder if it really is worth keeping. According to the report, 46 percent of a few thousand permanent modifications made in 2009′s third quarter had redefaulted. About 39 percent of the final quarter in 2009 redefaulted. But while the new report, as well as HAMP’s history, may seem dismal, some industry experts are saying that HAMP did succeed in giving the industry a model for more sustainable loan modification. Mortgage modifications are performing better than the years prior to HAMP’s introduction – only about 25 percent of borrowers had fallen behind on payments in 2011, compared to 57 percent in 2008. It will be interesting to see if HAMP will flourish, despite the latest Sigtarp report.

Regulators Examine Trading after Twitter Hoax

Teens Talk More About Economics, but No Better Informed

Book Report: “24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America”

24daysThe book “24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America” by Rebecca Smith and John R. Emshwiller – the two reporters mentioned in the title – was a fascinating, exciting read. Although the story is non-fiction, it read like a novel – there was suspense, intrigue, an array of colorful characters and a plot full of dead-ends, twists and an eventual conclusion that forever changed how corporations are treated in America.

The book was full of lessons for any journalist, young or old, who reports on big business. For one, it’s incredibly apparent that, to crack a huge case and instigate major change, a reporter must be dogged. He or she cannot give up on what they believe to be true, even if they get rejection after rejection from executive officers, or are fed inaccuracies from the PR representation. The importance of confirming facts and ensuring one’s sources are legitimate cannot be stressed enough. A journalist must trust his or her gut, and run with it, but cannot assume or “jump the gun” in what they write – he or she must carefully write out what they are going to write, consider the implications behind what they are writing and ensure they have no obvious bias or ethical conflict in relation to the subject about which they are writing.

Smith and Emshwiller are as hallmark as Woodward and Bernstein, and both journalist pairings possessed a lot of the same qualities and faced similar challenges. Both pairs fiercely believed in what they were reporting on and worked day, night, holidays, weekends to get the story as detailed, accurate and timely as possible. The importance of asking questions, even ones that might seem pushy or pressing, can never be undermined – if Smith or Emshwiller simply took what they were being told by Enron representatives and officers at face value, I highly doubt they would have been so successful, which might have led to a longer delay in Enron’s collapse.

Lessons of how corporate governance operates were prevalent in every chapter in this book – particularly in how to deal with them professionally while still getting the story. For one, it’s apparent that corporations really don’t like talking to journalists. They recognize the watchdog role of the journalist and will conceal as many details, reports or facts about their company that could put them in a negative light (and, therefore, lose investors’ trust) in the papers. The Wall Street Journal in particular is without a doubt one of the most respected financial newspapers in the country – millions of readers look at the Journal’s financial papers, sometimes at a borderline obsessive level, and so even the slightest negative news about a corporation could decrease stock prices. “24 Days” shows perfect examples of what corporations will do to ensure journalists get the facts they want them to hear, as well as a well-practiced manner of speaking that will ensure trust and optimism in their own company. It is incredibly difficult to distinguish between what is actually positive about a company versus what the corporate officers want the public to believe, so reporters must take everything with a grain of salt, and examine as many SEC filings and other public documents as possible to see whether or not there is accuracy in the story they are being fed.

Ethics is, again, restated as the main theme of journalism in “24 Days.” Clearly, Enron was highly unethical in its illegal activities, but beyond corporate ethics, journalists must retain their standards of ethics (as issued by the publication they work for and the Society of Professional Journalists) when investigating big business. Smith and Emshwiller, even when they were desperately hitting into dead ends, never strayed from their ethical duty as a journalist and still ensured they got the story. Even when dealing with anonymous sources – the “mutual friend” described in this book, or even Deep Throat from the Woodward and Bernstein days – reporters must deal with them in a careful, respectful and ethical manner. Why are they anonymous? Can they be trusted? How can they back up the information they provide? Of course, in many instances, anonymous sources in scandalous stories can be of crucial importance. But all journalists must be careful with how they handle anonymity, especially when it involves accusing individuals of illegal or unethical activities.

“24 Days” is an excellent book for any journalist, but most especially business reporters, to read. It’s an engaging, exciting read, but also can be a valuable textbook (without actually being a textbook) for those who want to learn the right way to deal with corporations – whether they are as scandalous as Enron or not.

Industry Report: The Retail Sector (Tanger Outlets)

Tanger Outlets is considered to be a part of the retail industry, as it owns 43 shopping outlet malls across the United States and Canada. Tanger Outlets is also considered to be an REIT and it became the first publicly-traded outlet company (SKT) on the NYSE in 1993.

The retail sector is one of the major driving forces in American, as well as international, economies. The very basis of buying and selling goods through a supply chain is a process which benefits almost every sector of the economy (manufacturers, corporations, private citizens, etc.). Personal income, consumer confidence and interest rates all drive the retail sector and are the top determinants as to how profitable retailers will be. Other factors that determine how successful a retailer is the efficiency of its supply chain management, merchandising and marketing. Large companies often have the competitive advantage in the retail industry, as they have an easier time and more funds for purchasing, distributing and marketing. Smaller companies may have an advantage in offering a unique shopping experience, unique merchandise, providing more personal customer service or possibly serving a local market.

Retailers can be found selling hard goods, soft goods or food products, typically, in a variety of different settings, including department stores, discount stores, warehouse stores, etc. The top products sold in the retail sector are motor vehicles (17 percent), food and beverages (14 percent), drugs and cosmetics (10 percent each), fuel (9 percent) and women’s clothing (4 percent). The primary challenges associated with the retail sector include:

  • Regulatory barriers (real estate restrictions, foreign investment restrictions)
  • Unfavorable taxation structures
  • High competition
  • Lack of a properly educated workforce

But while the retail sector is one of the most integral portions of the economy, its success and profits is directly correlated to how well the economy is doing. For example, Tanger Outlets will suffer if the economy suffers because consumer spending is based on a number of factors, including personal income, consumer confidence and job growth. When the economy is growing, the retail industry typically flourishes. Of course, the Great Recession of 2008 put a damper on the retail sector of the economy, but as people still need to buy groceries and other products for their day-to-day existence, the retail sector did not plummet entirely. Tanger Outlets’ sales increased following the Great Recession – this may be because of their discounted designer brands (people may have brought brand names at lower prices, instead of through designer boutiques), but Tanger Outlets’ sales did not increase dramatically until 2011.

According to the latest industry forecast from INFORUM, the U.S. retail sector could grow 5 percent in 2013 from the total retail sales in 2012. Increased consumer confidence and lower unemployment rates are expected to result in moderate growth in 2013. A stronger Web presence and the increase of smartphones have increased the consumer experience – according to Internet Retailer, the top 400 retailers, travel companies and ticket sellers in mobile commerce were expected to grow their mobile sales by 101 percent in 2012 ($12 billion).

Increased accessibility to a retailer’s products and online-exclusive discounts are just two examples of how retailers are maximizing their profits and visibility to consumers in the digital age, and these strategies will steadily increase in 2013 and beyond, to more companies. It will no longer be a luxury to have a strong Web presence – it will become an industry standard.

WSJ: Central banks, high school grads and how to track inflation

Are Central Banks Putting Their Independence at Risk?

Looking at the “economy” section of the Wall Street Journal offers some different types of business stories, unlike the ones I have been reading thus far this semester. This particular article examined central banks and postulated that, perhaps, these banks will no longer be as independent from politicians as they have prided themselves on being for so many years. For some bankers affiliated with these central banks, which have grown enormously over the past several years, they have changed so that it might not be possible to stay independent of politicians. Banks are now much more concerned with financial stability than simply resisting inflation, which is the primary concern for central bankers in being independent from politicians (to keep inflation down, don’t let politicians interfere if banks have to move interest rates up or down).

A conference hosted by the International Monetary Fund was held this week presented a divided belief on how to go about this issue. One side argued that central banks are no longer independent because of their “aggressive bond-buying,” and other related policies not necessarily regarded as conventional. Former European Central Bank policymaker said it was “naïve” to believe that central banks could be independent from politics because it would be nearly impossible to resist political pressure to keep interest rates low. Another side argued that it is possible to retain independence, but only if banks move interest rates to resist inflation and by continuing to avoid booms and busts – which is exactly what central banks have been attempting to do for years, but has become much more difficult in the present day.

Smaller Share of High School Grads Going to College

To Track Inflation, Look at the Middle

WSJ: “Home,” soap and the trouble with new prenatal testing

Facebook Shows Off New Home App for Android

Every time I check out the business section of the Wall Street Journal, it’s almost definite that I will see a headline or two about Facebook, and today was no exception. Today, Mark Zuckerberg announced a new smartphone app, called “Home,” which places Facebook features front and center on Android devices. Because Facebook is built around providing its users a newsfeed, rather than a menu of apps, Zuckerberg and other Facebook executives feel users would prefer to have a newsfeed menu right at their fingertips – it’s much more people-based than browsing through different apps to get what a person wants, according to their product announcement. After the announcement, Facebook’s shares rose 3.3 percent (to $27.12).

Facebook is an interesting company because it is constantly trying to reinvent, expand or change its approach to the digital world. What started out as a simple place to connect with classmates has turned into a complete reinvention of how people view, share and interact with one another and their digital devices. And now, with rising threat of the younger generation not as invested in Facebook, the social media company feels the need to expand its presence, especially its mobile presence. Snapchat and other phone-based apps have taken the mobile world by storm, and Facebook has recently felt the pressure to increase its presence and usability on mobile devices as a result. But is the new “Home” app the solution Facebook needs? I’m not entirely sure, but it will be interesting to keep an eye on the success of the app as it continues to develop.

Is Innovation Killing the Soap Business?

Tough Calls on Prenatal Tests

WSJ: CEO pay, Dell and Suntech’s Chinese bankruptcy court

‘Pay for Performance’ No Longer a Punchline

It’s becoming more and more important for company CEOs to have strong financial or stock market performance if they hope to earn the best compensation, according to a Hay Group analysis of proxy statements. But only three years ago, CEO pay was determined 35 percent by performance conditions, with the rest of the pay coming from salaries and stock grants. This shift is an important indication that stock investors are becoming more and more important in the business world and, specifically, CEO compensation, which is causing many CEOs to be pressured into matching corporate results. With the exception of only a handful of companies, most CEO compensation (out of 50 companies examined) declined between 2011 and 2012.

Is it necessarily a good thing that investors are having such an influence in CEO pay? Is that how CEO pay should be determined? I’m not entirely sure. I think I would need to read more about this issue to formulate an intelligent opinion, but I think it’s interesting that, only recently, has there been a shift toward basing CEO pay more heavily on the stock market. Is it because of the 2008 stock market crash? Or some other reason? I think this is one of only a few Wall Street Journal articles that I’ve read where I wish there were more information provided, specifically about the implications (positive and negative) of basing CEO pay on investors. This article does a solid job of giving the facts, with specific examples, but I wish I could understand the implications just a bit better.

Dell Walks Fine Line in Pitch for Buyout

Suntech is Pushed into Chinese Bankruptcy Court

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