Category: Incentives

Musk “Could Be Completely Delusional”

(p. B2) Tesla Inc. on Tuesday [January 23, 2018] unleashed a bold pay package for Chief Executive Elon Musk that again ties his compensation entirely to key performance benchmarks. This time, the goals take the electric-car maker to cosmic heights, including an ultimate aim of hitting $650 billion in market value.
. . .
Mr. Musk could net billions of dollars by hitting only a few of the milestones. Tesla said in a proxy filing the 20.26 million stock options today would have a preliminary value of about $2.62 billion. But if Tesla were to reach the audacious market value of $650 billion–as much as Amazon.com Inc. is worth today–the company said Mr. Musk’s stock award would reap him as much as $55.8 billion fully vested.
That total, however, assumes the company’s shares outstanding won’t be diluted. Tesla has added tens of millions of shares over the past several years, so that total dollar figure is unlikely.
. . .
Mr. Musk is saying, “I want to set an audacious goal, and then if I achieve it, then pay me audaciously,” said John Challenger, a longtime expert in corporate compensation as chief executive of Challenger, Gray & Christmas. “He is in some ways capturing the spirit of Silicon Valley.”
. . .
Mr. Musk had previously committed the company to reaching a market cap of $700 billion, something he reiterated last year. “I could be completely delusional, but I think I see a clear path to that outcome,” he told analysts in May.

For the full story, see:
Higgins, Tim. “Tesla Primes Musk’s Pay for Blastoff.” The Wall Street Journal (Weds., January 24, 2018): B2.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the story has the date JAN. 23, 2018, and has the title “Elon Musk Could Net Billions by Hitting Tesla’s New Milestones.” Where the wording of the two versions differs, the passages quoted above follow the wording of the online version.)

Rise in Cobalt Price Will Increase Quantity Supplied, and Increase Search for Substitutes

(p. B14) . . . the dreaded shortage of cobalt, which is used in the cathode of the batteries, is a bit more complicated than industry projections would suggest.
. . .
Like cobalt, rare earths aren’t so rare. China’s move to restrict exports in 2010 exacerbated the perceived shortage, sending the prices of some varieties up 10-fold. Companies such as Molycorp, Rare Element Resources Ltd. and Quest Rare Mineral Ltd., which all had some connection to reserves, saw their shares surge based on supposedly rosy prospects. Since then, all have lost nearly all of their value.
Already, Mr. Heppel explains, other users of the metal, for example in the pigments industry, are searching for alternatives. Meanwhile, some batteries, such as a design by Tesla, use less of the metal. Lower-performing batteries use none at all, and those batteries’ capabilities may improve with technological tweaks.
Supply will react too. Companies that operate copper and nickel mines, where cobalt is co-produced, are targeting expansion, and there are some pure-play cobalt mines being planned that could start producing shortly after the projected shortage hits.
For electric vehicles, this looks more like a speed bump than a cliff.

For the full commentary, see:
Spencer Jakab. “Will a Shortage of Cobalt Kill Electric-Vehicle Makers?” The Wall Street Journal (Thurs., Nov. 30, 2017): B14.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Nov. 28, 2017, and has the title “Will Tesla Die for Lack of Cobalt?.”)

Monkeys Want More Information

(p. 13) In his book “The Compass of Pleasure,” the Johns Hopkins neurobiologist David J. Linden explicates the workings of these regions, known collectively as the reward system, elegantly drawing on sources ranging from personal experience to studies of brain activity to experiments with molecules and genes. . . ,
. . . the biggest surprise, and the one most relevant to current debates, is a “revolutionary” experiment Linden discusses near the end of his book. Researchers at the National Institutes of Health gave thirsty monkeys the option of looking at either of two visual symbols. No matter which they moved their eyes to, a few seconds later the monkeys would receive a random amount of water. But looking at one of the symbols caused the animals to receive an extra cue that indicated how big the reward would be. The monkeys learned to prefer that symbol, which differed from the other only by providing a tiny amount of information they did not already have. And the same dopamine neurons that initially fired only in anticipation of water quickly learned to fire as soon as the information-providing symbol became visible. “The monkeys (and presumably humans as well) are getting a pleasure buzz from the information itself,” Linden writes.

For the full review, see:
CHRISTOPHER F. CHABRIS. “Think Again.” The New York Times Book Review (Sunday, October 16, 2011): 12-13.
(Note: ellipses added.)
(Note: the online version of the review has the date OCT. 14, 2011, and has the title “Is the Brain Good at What It Does?”)

The book under review, is:
Linden, David J. The Compass of Pleasure: How Our Brains Make Fatty Foods, Orgasm, Exercise, Marijuana, Generosity, Vodka, Learning, and Gambling Feel So Good. New York: Viking Adult, 2011.

British Government Environmentalists Increase London Air Pollution

(p. A4) London is choking from record levels of pollution, much of it caused by diesel cars and trucks, as well as wood-burning fires in private homes, a growing trend.
. . .
London’s air pollution today is different from seven decades ago, and more insidious. No longer thick as “pea soup,” as it was traditionally described, the city’s air is now laced with nitrogen dioxide — a toxic gas mostly produced by vehicles with diesel engines.
. . .
The current problem is, in part, an unintended consequence of previous efforts to aid the environment.
The British government provided financial incentives to encourage a shift to diesel engines because laboratory tests suggested that would cut harmful emissions and combat climate change. Yet, it turned out that diesel cars emit on average five times as much emissions in real-world driving conditions as in the tests, according to a British Department for Transport study.
“No one at the time thought of the consequences of increased nitrogen dioxide emissions from diesel, and the policy of incentivizing diesel was so successful that an awful lot of people bought diesel cars,” said Anna Heslop, a lawyer at ClientEarth, an environmental law firm that last year forced the British government to produce a better plan to improve air quality.
. . .
Bob Miller, 69, a cabdriver who has crisscrossed London for 30 years, wasn’t convinced. He has lost faith in recommendations by policy makers and experts, he said.
“We were told how wonderful diesel is, how they were supposed to be cleaner than petrol,” Mr. Miller said, idling his cab in heavy traffic with the window open.
“The experts make the rules, then they’re wrong,” he said, shaking his head. “I give up.”

For the full story, see:
KIMIKO de FREYTAS-TAMURA. “A Push for Diesel Leaves London Gasping Amid Record Pollution.” The New York Times (Sat., FEB. 18, 2017): A4.
(Note: ellipses added.)
(Note: the online version of the story has the date FEB. 17, 2017.)

Wall Street Needs Return to Partnership Culture

(p. A17) Ever since the crisis of 2008, banks have been subject to ferocious attack and more regulation. In “Why Wall Street Matters,” William Cohan, the author of earlier books on Goldman Sachs and Lazard Frères, mounts a defense of Wall Street banking institutions and argues that much of the regulation after 2008 has been counterproductive. In his view, the main culprit in the financial meltdown was Wall Street’s compensation culture, and he presents some controversial proposals to reform it.
. . .
So what went wrong? Where did useful innovation morph into lunacy that almost brought down the whole system? The sea change began in 1969, Mr. Cohan says, when the first investment bank (Donaldson, Lufkin & Jenrette) sold equity to the public. Previously investment banks were partnerships whose capital came from the net worth of the individual partners, who would assume only the most modest risk since investment failure might endanger their life savings. But once a firm’s capital could be increased by debt and equity financing–in essence, by other people’s money–the calculus shifted.
. . .
Mr. Cohan’s solution is to replace Wall Street’s broken compensation system: the bonus culture that creates incentives to take big bets with other people’s money while avoiding accountability when the bets go bad. He says that we need to “return to a compensation system that more closely resembles that of the partnership culture” of earlier times. Going well beyond calls for a claw-back of bonuses when trouble hits, Mr. Cohan proposes that the leaders of Wall Street firms be required to put their entire net worth on the line. Their co-op apartments, houses in the Hamptons, art collections and bank accounts would all be “fodder for the bank’s creditors” if something goes wrong.

For the full review, see:
Burton G. Malkiel . “BOOKSHELF; Big Bonus, Big Problem; Dodd-Frank and the Volcker Rule address the wrong problems and did nothing to fix Wall Street’s broken compensation culture.” The Wall Street Journal (Weds., March 1, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the review has the date Feb, 28, 2017.)

The book under review, is:
Cohan, William D. Why Wall Street Matters. New York: Random House, 2017.

Doctors Lack Incentives to Use Best Ovarian Cancer Treatment

(p. 22) In 2006, the National Cancer Institute took the rare step of issuing a “clinical announcement,” a special alert it holds in reserve for advances so important that they should change medical practice.
In this case, the subject was ovarian cancer. A major study had just proved that pumping chemotherapy directly into the abdomen, along with the usual intravenous method, could add 16 months or more to women’s lives. Cancer experts agreed that medical practice should change — immediately.
Nearly a decade later, doctors report that fewer than half of ovarian cancer patients at American hospitals are receiving the abdominal treatment.
“It’s very unfortunate, but it’s the real world,” said Dr. Maurie Markman, the president of medicine and science at Cancer Treatment Centers of America. He added, “The word ‘tragic’ would be fair.”
Experts suggest a variety of reasons that the treatment is so underused: It is harder to administer than intravenous therapy, and some doctors may still doubt its benefits or think it is too toxic. Some may also see it as a drain on their income, because it is time-consuming and uses generic drugs on which oncologists make little money.

For the full story, see:
DENISE GRADY. “Ovarian Cancer Treatment Is Found Underused.” The New York Times (Tues., AUG. 4, 2015): A1 & A13.
(Note: the online version of the story has the date AUG. 3, 2015, and has the title “Effective Ovarian Cancer Treatment Is Underused, Study Finds.”)

“Patients Should Be the Owners of Their Own Medical Data”

(p. A21) THERE’S quite a paradox when it comes to our health data. Most of us still cannot readily look at it, but there’s been an epidemic of cybercriminals and thieves hacking and stealing this most personal information.
. . .
. . . , giving consumers control of their own medical data would revolutionize who owns medical data and how it is used. Concerns about researchers losing access to this amassed data are overstated. Patients have shown an overwhelming willingness to share their information for altruistic reasons (which far exceeds the track record of doctors and health systems when it comes to sharing data).
. . .
We need to move on from the days of health systems storing and owning all our health data. Patients should be the owners of their own medical data. It’s an entitlement and civil right that should be recognized.

For the full commentary, see:
KATHRYN HAUN and ERIC J. TOPOL. “The Health Data Conundrum.” The New York Times (Tues., January 3, 2017): A21.
(Note: ellipses added.)
(Note: the online version of the commentary has the date January 2, 2017.)

President Kenyatta Burns Ivory, Raising Its Price, and Increasing the Incentive for Poachers to Kill Elephants

If President Kenyatta wants to save elephants, instead of burning ivory, he should sell it on the open market, moving the supply curve to the right, and lowering the price of ivory. A lower price of ivory would reduce the incentive for poachers to kill elephants.

(p. 10) NAIROBI, Kenya — What do you do when you have more than $100 million worth of ivory sitting around, just collecting dust?
You burn it, of course.
That is what Kenya did on Saturday, when President Uhuru Kenyatta lit a huge pyre of elephant tusks as a way to show the world that Kenya is serious about ending the illegal ivory trade, which is threatening to push wild elephants to extinction.
“No one, and I repeat, no one, has any business in trading in ivory, for this trade means death — the death of our elephants and the death of our natural heritage,” Mr. Kenyatta said.

For the full story, see:
ELLEN BARRY. “A Year Later, Nepal Is Trapped in the Shambles of a Devastating Quake.” The New York Times, First Section (Sun., May 1, 2016): 10.
(Note: ellipses added.)
(Note: the online version of the story has the date APRIL 30, 2016, and has the title “A Year After Earthquake, Nepal’s Recovery Is Just Beginning.”)

Hidebound Banks Ride Uber, Hoping to Manage I.P.O.

(p. A1) Wall Street banks can be hidebound in their ways: insisting on suits and ties and handing out BlackBerries after everyone else has moved on to the iPhone. But if there is one thing that can push even the most conservative bank into the future, it is the prospect of business.
The latest reminder came this week when JPMorgan Chase announced that it would reimburse all of its employees for rides taken with Uber — offering access to “Uber’s expanding presence and seamless experience,” the company said in a news release.
JPMorgan made its decision long after other parts of corporate America were already hailing cars through the California start-up. But banks have recently shown a fondness for the service — with Goldman making the company part of its official travel policy in late May and Morgan Stanley putting out its own news release about its Uber use late last year.
Bank experts were quick to note that these moves come as the banks are jockeying to win a coveted spot managing Uber’s initial public offering — one that is not yet scheduled but that is assumed to be coming in the not-too-distant future. The I.P.O. for Uber, whose fund-raising so far has pegged its valuation at $50 billion, will most likely be the blockbuster I.P.O. in whatever year it takes place.

For the full story, see:
NATHANIEL POPPER. “An Uber I.P.O. Ahead, and Suddenly Bankers Are Using Uber. Coincidence?” The New York Times (Fri., JULY 10, 2015): B3.
(Note: bracketed date added.)
(Note: the online version of the story has the date JULY 9, 2015 and has the title “An Uber I.P.O. Looms, and Suddenly Bankers Are Using Uber. Coincidence?”)

Government: “One Vast Honey Pot with Thousands of Ants Lined Up Around the Rim”

(p. A21) Ms. Tolchin hit on the subject of patronage when Mr. Tolchin, then a reporter in the metropolitan news department of The New York Times, wrote a series of articles on the topic that several publishers urged him to turn into a book. Daunted, he turned to his wife for help.
“The political-science literature had an enormous hole on the subject,” she told The Washingtonian in 2011. “It’s such a critical part of the political process — it was wonderful virgin territory.”
Their combined efforts — he provided the reporting, she provided the scholarship — resulted in “To the Victor…: Political Patronage From the Clubhouse to the White House,” published in 1971.
In lively fashion, the book surveyed the history and examined the mechanisms of a system the authors described as “one of the occupational hazards of democracy.” They traced its influence, for good and ill, in city halls, statehouses, courthouses and, onward and upward, Congress and the White House.
The picture it painted was often bleak, presenting government at all levels as “one vast honey pot with thousands of ants lined up around the rim to get at the sweetener inside,” according to a review in The Times.
It was a rich subject to which the authors returned in “Pinstripe Patronage: Political Favoritism From the Clubhouse to the White House … and Beyond,” published in 2011. Patronage is “the major reason people go into politics,” Ms. Tolchin told The Washingtonian.”

For the full obituary, see:
WILLIAM GRIMES. “Susan Tolchin, Scholar and Author, Is Dead at 75.” The New York Times (Fri., May 20, 2016): A21.
(Note: ellipses in original.)
(Note: the online version of the obituary has the date May 19, 2016, and has the title “Susan Tolchin, Political Scientist Who Foresaw Voter Anger, Dies at 75.”)

The two books on government patronage that are mentioned above, are:
Tolchin, Martin, and Susan Tolchin. To the Victor: Political Patronage from the Clubhouse to the White House. New York: Random House, 1971.
Tolchin, Martin, and Susan Tolchin. Pinstripe Patronage: Political Favoritism from the Clubhouse to the White House and Beyond. Boulder, CO: Paradigm Publishers, 2011.