Shareholder votes against CEO pay are rare but dramatic

Q: How many companies so far have had their executive pay plans voted down by shareholders?

• 

  By Mark Lennihan, AP

  
  

  Protesters are escorted out of a Goldman Sachs office building in Jersey City, N.J. on May, 6, 2011, after they attempted to enter the financial company's shareholders meeting.

By Mark Lennihan, AP

Protesters are escorted out of a Goldman Sachs office building in Jersey City, N.J. on May, 6, 2011, after they attempted to enter the financial company's shareholders meeting.

A: It's common for people to grumble that CEOs are paid too much. But if you're a shareholder in the company, you can at least make your displeasure known.

For the first time this year, investors in companies are able to have a "say on pay," or vote on whether or not they approve of the way CEOs are getting paid.

These votes are non-binding, and companies can completely ignore the results if they choose.

• 
  

  STORY:CEO pay soars in 2010 while workers' pay stalls

  
  


• 
  

  STORY:Despite huge salaries, CEOs cling to their perks

  
  


• 
  

  MORE:Ask Matt column index

  
  

Since companies are owned by their shareholders, though, ignoring a resounding thumbs down on a CEO's pay package could be pretty uncomfortable, especially if there are active shareholders or board of directors.

A vote against a pay package is very unusual. Shareholders almost always vote in support of CEO pay packages. Companies hire consulting firms that claim they evaluate CEO pay and make sure it's in line with what rivals are paying.

Many large mutual funds, which typically own the biggest chunks of companies, often rely on third-party firms to do research and advise them on how to vote. Most of the time, these firms recommend supporting the CEO's pay packages.

However, there have been a number of cases of companies this year when shareholders have voted the executives' pay packages down. These condemnations are especially dramatic since they're so rare.

So far this year, 21 companies have seen investors vote down their executive pay packages, including:

• Ameron International (AMN)

• Beazer Homes USA, (BZH)

• Cincinnati Bell, (CBB)

• Cogent Communications, (CCOI)

• Cooper Industries, (CBE)

• Curtiss-Wright, (CW)

• Dex One, (DEXO)

• Helix Energy, (HLX)

• Hemispherx Biopharma, (HEB)

• Hewlett Packard, (HPQ)

• Intersil, (ISIL)

• Jacobs Engineering, (JEC)

• Janus Capital, (JNS)

• MDC Holdings, (MDC)

• Navigant Consulting, (NCI)

• NVR, (NVR)

• Penn Virginia, (PVA)

• Shuffle Master, (SHFL)

• Stanley Black Decker, (SWK)

• Stewart Information Services, (STC)

• Umpqua Holdings, (UMPQ)

Source: MoxyVote

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz

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Can you protect your portfolio against a U.S. debt default?

You can guard against some catastrophes. If you want to avoid being bitten by a rattlesnake, for example, you can wear sturdy boots, spray yourself with Snake-B-Gon, and limit your visits to snake dens. If you do get bitten, you can carry a cellphone so you can tweet about it.

• 

  Karen Bleier, AFP/Getty Images file

  
  

  The Treasury Department is urging Congress to act soon on the debt limit ceiling before the nation defaults.

Karen Bleier, AFP/Getty Images file

The Treasury Department is urging Congress to act soon on the debt limit ceiling before the nation defaults.

A default on U.S. debt would be a catastrophe. Can you protect your assets against it? Somewhat. But it's not easy, and the best protection would be to avoid it entirely.

The debt limit sets the amount that Congress can borrow, and it's determined by adding the amount we owe in Treasury securities the public debt and the amount owed to the Social Security and Medicare trust funds. The public debt is $9.65 trillion. The intergovernmental debt is $4.65 trillion. The total is $14.3 trillion.

When the nation hits the debt limit, it can't borrow new funds. This is problematic, because Congress has approved, and the president has signed, legislation that requires spending more money than we take in. In other words, the debt limit is a limit on spending that Congress authorized when it passed the budget.

• 
  

  STORY: Betting against the dollar for diversification

  
  


• 
  

  STORY: Does growing debt, deficits threaten stocks?

  
  


• 
  

  STORY: Standard and Poor's lowers outlook: Could U.S. default?

  
  

Those obligations are substantial. According to the Congressional Budget Office, the deficit the difference between revenue and outlays was $830 billion from October through March.

The Treasury estimates the nation will reach the debt ceiling on May 16. By doing some fiscal juggling, it can continue operating until July 8. If Congress doesn't raise the debt ceiling by then, Treasury will face some tough choices indeed.

Without the ability to borrow new funds, Congress would either have to slash spending or increase taxes. Neither option is particularly appealing in a weak economy.

Of the total $1.85 trillion in government outlays so far this fiscal year, $1.07 trillion, or 58%, was for defense, Social Security and Medicare/Medicaid. An additional $123 billion has gone to interest on the public debt. The remainder about $588 billion funds all other government activities, from NASA to janitorial service at the Capitol.

Cuts would have to be so deep that eventually even Social Security recipients and the military might have to go unpaid. In the worst-case scenario, the U.S. would not pay those who own its $9.6 trillion in public debt a group that includes not only foreigners, but U.S. savers, mutual funds and pension funds.

How bad would it be? "Horrible. There's no other way to put it," says Jonathan Lemco, principal and senior analyst at Vanguard. "It would be a tremendous embarrassment for Americans as a whole we'd be seen as deadbeats."

The financial reputation of the United States is a valuable asset. For one thing, it allows us to borrow short-term money for virtually nothing: The yield on a three-month Treasury bill is 0.04%, vs. 12.05% in Brazil.

"We'd lose our status as a reputable place to do business," says Axel Merk, manager of the Merk Hard Currency fund and no fan of U.S. fiscal policy. "And we'd have no access to money." When you have restricted access to money, you have to pay up for it. Merk figures short-term rates would soar to 20%.

The nation's spotless credit record also allows us to be the world's reserve currency the currency that is used in the vast majority of international transactions. Oil, for example, is priced in dollars. If we had to pay for it in, say, euros, we'd not only have to bear the burden of fluctuating commodity prices, but fluctuating currency values as well.

Higher interest rates would mean a slower economy, crushing the already weak housing industry and pushing up the cost of doing business for corporations. "The spillover would be tremendous," says Lemco. "Anyone who suggests it's no big deal just doesn't understand."

What can you do to protect yourself? You could buy foreign currencies, because the value of the dollar would plunge on the world markets. You could avoid Treasury securities and funds that invest in them. You could hoard gold or silver and hope that your local grocery store will exchange canned goods for them. (It might be more efficient to hoard canned goods.)

We can only hope that Congress does, in fact, understand what's at stake. The place to have a national debate on the budget is at the ballot box and during the budget process, not by playing chicken with the nation's good name. The World War II generation dealt with a larger debt relative to gross national product without threatening default. It's the adult thing to do.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays; for more of his columns go to usatoday.com/money/perfi. His book,Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. John's e-mail is jwaggoner@usatoday.com. Twitter: www.twitter.com/johnwaggoner.

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Betting against the dollar useful for diversification

If youve been to Europe lately, you know that $20 will get you a croissant, a cup of coffee and a pitying smile. The greenback has taken a pounding on the currency markets this year.

• 

  By Luca Bruno, AP file

  
  

  A currency exchange in Milan, Italy.

By Luca Bruno, AP file

A currency exchange in Milan, Italy.

Whats bad for U.S. tourists, however, is good for U.S. investors: A weak dollar amplifies gains from foreign investments.

If you bet against the dollar, youd be in good company: The dollar is nearly universally hated by investment advisers. But plenty of people have gone bust betting against the buck. If youre going to invest in currencies, buy a broadly diversified basket and use it for just that: diversification.

• 
  

  STORY: Should you play the currency market?

  
  


• 
  

  STORY: Is gold a better investment than bonds for reducing risks?

  
  


• 
  

  STORY: Beat the IRS: How to pay zero taxes on your stock gains

  
  

The St. Louis Federal Reserve bank tracks a basket of currencies against the U.S. dollar. Its trade-weighted dollar index sits at 96.32, within a whisker of its 10-year low, set in the depths of the 2008 financial meltdown.

A year ago, $10 would buy 7.30 euros. Today, $10 buys 6.90 euros, which is why U.S. tourists are bringing their own food when they go to Paris.

But the falling dollar is a wonderful thing for U.S. investors. Lets say you owned 1,000 shares of MooseCo, a fictional European hatrack maker. Every quarter, you got a dividend check from MooseCo for 100 euros. When you cashed your check a year ago, you got $137. When you cashed it Wednesday, you got $145. Although your dividend payout didnt change, converting euros to dollars netted you a 6% increase.

The dollar has been taking a dive for several reasons, most of which can be traced to the Federal Reserve. The Fed controls short-term interest rates. In an effort to keep the economy from slipping back into recession, the Fed has pushed short-term rates to nearly zero. And through its $600 billion round of buying Treasury securities, the Fed has pushed down longer-term rates, too.

Money usually flows to where it can get the highest returns. Currently, a three-month T-bill yields 0.06%, vs. 0.83% for a German three-month bill. Lower rates make it more attractive for banks to lend, because it increases the spread between what banks pay for money and what they charge to lend. Lower rates also drive money into other types of assets, such as stocks: Anything looks appealing compared with a 0.03% money fund yield.

By driving down rates, the Fed has also pushed the dollar down, which makes U.S. exports more attractive abroad and imports more expensive.

The question, then, is whether the dollar will start to rise. The chronic deficit argues for a lower dollar in the long term, says Axel Merk, manager of the Merk Hard Currency fund. The absolute deficit is not a good predictor of the exchange rate, Merk says. What is relevant is whether it finances it from foreigners. Japans huge deficit, for example, is largely financed by the Japanese; the U.S. relies on foreigners to buy its debt.

But dont think that a currency play is a sure thing: far from it. If the economy recovers, interest rates will rise, and that, in turn, could boost the dollar. A workable plan to trim the deficit over time could do the same. Hey, you never know.

Currency speculators tend to lose early and often, and the mutual fund industry gives you plenty of ways to speculate on currencies. To use a technical term, many of these vehicles are stupid. Theres no reason on Earth, for example, that an average investor should buy the ProShares Ultra Euro, which uses futures and options to gain 2% when the dollar gains 1% vs. the euro, and vice versa. You probably dont need the CurrencyShares Russian Ruble Trust, either.

But there is one reason to buy a broad-based currency fund: diversification. The Trade-Weighted Dollar index, for example, tends to rise when the stock market falls, and vice versa. A small position in a diversified currency fund could help to offset losses in the stock market. Like any hedge, however, it can also detract from your gains in an up market.

Currency funds are relatively new; the three leaders in the chart are actively managed, but highly diversified. The PowerShares DB G10 Currency Harvest (ticker: DBV), despite its slightly goofy name, has an interesting strategy, overweighting positions in currencies of countries with high short-term interest rates.

A currency fund probably wont get you a trip to Paris. But it might help keep your portfolio from heading too far south.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays; for more of his columns go to usatoday.com/money/perfi. His book,Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. John's e-mail is jwaggoner@usatoday.com. Twitter: www.twitter.com/johnwaggoner.

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View the original article here

Betting against the dollar useful for diversification

If youve been to Europe lately, you know that $20 will get you a croissant, a cup of coffee and a pitying smile. The greenback has taken a pounding on the currency markets this year.

• 

  By Luca Bruno, AP file

  
  

  A currency exchange in Milan, Italy.

By Luca Bruno, AP file

A currency exchange in Milan, Italy.

Whats bad for U.S. tourists, however, is good for U.S. investors: A weak dollar amplifies gains from foreign investments.

If you bet against the dollar, youd be in good company: The dollar is nearly universally hated by investment advisers. But plenty of people have gone bust betting against the buck. If youre going to invest in currencies, buy a broadly diversified basket and use it for just that: diversification.

• 
  

  STORY: Should you play the currency market?

  
  


• 
  

  STORY: Is gold a better investment than bonds for reducing risks?

  
  


• 
  

  STORY: Beat the IRS: How to pay zero taxes on your stock gains

  
  

The St. Louis Federal Reserve bank tracks a basket of currencies against the U.S. dollar. Its trade-weighted dollar index sits at 96.32, within a whisker of its 10-year low, set in the depths of the 2008 financial meltdown.

A year ago, $10 would buy 7.30 euros. Today, $10 buys 6.90 euros, which is why U.S. tourists are bringing their own food when they go to Paris.

But the falling dollar is a wonderful thing for U.S. investors. Lets say you owned 1,000 shares of MooseCo, a fictional European hatrack maker. Every quarter, you got a dividend check from MooseCo for 100 euros. When you cashed your check a year ago, you got $137. When you cashed it Wednesday, you got $145. Although your dividend payout didnt change, converting euros to dollars netted you a 6% increase.

The dollar has been taking a dive for several reasons, most of which can be traced to the Federal Reserve. The Fed controls short-term interest rates. In an effort to keep the economy from slipping back into recession, the Fed has pushed short-term rates to nearly zero. And through its $600 billion round of buying Treasury securities, the Fed has pushed down longer-term rates, too.

Money usually flows to where it can get the highest returns. Currently, a three-month T-bill yields 0.06%, vs. 0.83% for a German three-month bill. Lower rates make it more attractive for banks to lend, because it increases the spread between what banks pay for money and what they charge to lend. Lower rates also drive money into other types of assets, such as stocks: Anything looks appealing compared with a 0.03% money fund yield.

By driving down rates, the Fed has also pushed the dollar down, which makes U.S. exports more attractive abroad and imports more expensive.

The question, then, is whether the dollar will start to rise. The chronic deficit argues for a lower dollar in the long term, says Axel Merk, manager of the Merk Hard Currency fund. The absolute deficit is not a good predictor of the exchange rate, Merk says. What is relevant is whether it finances it from foreigners. Japans huge deficit, for example, is largely financed by the Japanese; the U.S. relies on foreigners to buy its debt.

But dont think that a currency play is a sure thing: far from it. If the economy recovers, interest rates will rise, and that, in turn, could boost the dollar. A workable plan to trim the deficit over time could do the same. Hey, you never know.

Currency speculators tend to lose early and often, and the mutual fund industry gives you plenty of ways to speculate on currencies. To use a technical term, many of these vehicles are stupid. Theres no reason on Earth, for example, that an average investor should buy the ProShares Ultra Euro, which uses futures and options to gain 2% when the dollar gains 1% vs. the euro, and vice versa. You probably dont need the CurrencyShares Russian Ruble Trust, either.

But there is one reason to buy a broad-based currency fund: diversification. The Trade-Weighted Dollar index, for example, tends to rise when the stock market falls, and vice versa. A small position in a diversified currency fund could help to offset losses in the stock market. Like any hedge, however, it can also detract from your gains in an up market.

Currency funds are relatively new; the three leaders in the chart are actively managed, but highly diversified. The PowerShares DB G10 Currency Harvest (ticker: DBV), despite its slightly goofy name, has an interesting strategy, overweighting positions in currencies of countries with high short-term interest rates.

A currency fund probably wont get you a trip to Paris. But it might help keep your portfolio from heading too far south.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays; for more of his columns go to usatoday.com/money/perfi. His book,Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. John's e-mail is jwaggoner@usatoday.com. Twitter: www.twitter.com/johnwaggoner.

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Can you protect your portfolio against a U.S. debt default?

You can guard against some catastrophes. If you want to avoid being bitten by a rattlesnake, for example, you can wear sturdy boots, spray yourself with Snake-B-Gon, and limit your visits to snake dens. If you do get bitten, you can carry a cellphone so you can tweet about it.

• 

  Karen Bleier, AFP/Getty Images file

  
  

  The Treasury Department is urging Congress to act soon on the debt limit ceiling before the nation defaults.

Karen Bleier, AFP/Getty Images file

The Treasury Department is urging Congress to act soon on the debt limit ceiling before the nation defaults.

A default on U.S. debt would be a catastrophe. Can you protect your assets against it? Somewhat. But it's not easy, and the best protection would be to avoid it entirely.

The debt limit sets the amount that Congress can borrow, and it's determined by adding the amount we owe in Treasury securities the public debt and the amount owed to the Social Security and Medicare trust funds. The public debt is $9.65 trillion. The intergovernmental debt is $4.65 trillion. The total is $14.3 trillion.

When the nation hits the debt limit, it can't borrow new funds. This is problematic, because Congress has approved, and the president has signed, legislation that requires spending more money than we take in. In other words, the debt limit is a limit on spending that Congress authorized when it passed the budget.

• 
  

  STORY: Betting against the dollar for diversification

  
  


• 
  

  STORY: Does growing debt, deficits threaten stocks?

  
  


• 
  

  STORY: Standard and Poor's lowers outlook: Could U.S. default?

  
  

Those obligations are substantial. According to the Congressional Budget Office, the deficit the difference between revenue and outlays was $830 billion from October through March.

The Treasury estimates the nation will reach the debt ceiling on May 16. By doing some fiscal juggling, it can continue operating until July 8. If Congress doesn't raise the debt ceiling by then, Treasury will face some tough choices indeed.

Without the ability to borrow new funds, Congress would either have to slash spending or increase taxes. Neither option is particularly appealing in a weak economy.

Of the total $1.85 trillion in government outlays so far this fiscal year, $1.07 trillion, or 58%, was for defense, Social Security and Medicare/Medicaid. An additional $123 billion has gone to interest on the public debt. The remainder about $588 billion funds all other government activities, from NASA to janitorial service at the Capitol.

Cuts would have to be so deep that eventually even Social Security recipients and the military might have to go unpaid. In the worst-case scenario, the U.S. would not pay those who own its $9.6 trillion in public debt a group that includes not only foreigners, but U.S. savers, mutual funds and pension funds.

How bad would it be? "Horrible. There's no other way to put it," says Jonathan Lemco, principal and senior analyst at Vanguard. "It would be a tremendous embarrassment for Americans as a whole we'd be seen as deadbeats."

The financial reputation of the United States is a valuable asset. For one thing, it allows us to borrow short-term money for virtually nothing: The yield on a three-month Treasury bill is 0.04%, vs. 12.05% in Brazil.

"We'd lose our status as a reputable place to do business," says Axel Merk, manager of the Merk Hard Currency fund and no fan of U.S. fiscal policy. "And we'd have no access to money." When you have restricted access to money, you have to pay up for it. Merk figures short-term rates would soar to 20%.

The nation's spotless credit record also allows us to be the world's reserve currency the currency that is used in the vast majority of international transactions. Oil, for example, is priced in dollars. If we had to pay for it in, say, euros, we'd not only have to bear the burden of fluctuating commodity prices, but fluctuating currency values as well.

Higher interest rates would mean a slower economy, crushing the already weak housing industry and pushing up the cost of doing business for corporations. "The spillover would be tremendous," says Lemco. "Anyone who suggests it's no big deal just doesn't understand."

What can you do to protect yourself? You could buy foreign currencies, because the value of the dollar would plunge on the world markets. You could avoid Treasury securities and funds that invest in them. You could hoard gold or silver and hope that your local grocery store will exchange canned goods for them. (It might be more efficient to hoard canned goods.)

We can only hope that Congress does, in fact, understand what's at stake. The place to have a national debate on the budget is at the ballot box and during the budget process, not by playing chicken with the nation's good name. The World War II generation dealt with a larger debt relative to gross national product without threatening default. It's the adult thing to do.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays; for more of his columns go to usatoday.com/money/perfi. His book,Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. John's e-mail is jwaggoner@usatoday.com. Twitter: www.twitter.com/johnwaggoner.

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