Default, Merit pay & Visions!


Written by: Jon McGraw

The Markets

“It’s déjà vu all over again,” Yogi Berra reportedly said as he watched Yankee teammates Mickey Mantle and Roger Maris smack back-to-back home runs for the umpteenth time.

Americans are experiencing déjà vu all over again, too. Sure, the prospect of another fiscal showdown doesn’t electrify a crowd like a couple of major league home runs. All the same, investors’ response to the possibility the U.S. government might partially shut down on October 1 was muted. Some U.S. stock markets gave back a little for the week; others moved higher. All remained up year-to-date.

So, are investors confident America’s elected officials will do the right thing? Or, have they become complacent? Are they so accustomed to debate and delay that it doesn’t faze them? According to The Economist:

“[U.S.] Federal spending comes in two types: discretionary which must be authorized every year; and mandatory which is set in law. These labels are confusing because much discretionary spending is anything but: it includes funding for the justice system and defense. Since 1976 Congress has required itself to pass a dozen appropriations bills annually to cover this stuff. Unfortunately, it has missed its deadline every year since 1994. To keep the lights on it has resorted to temporary resolutions to finance discretionary spending at existing levels until agreement can be reached, sometimes after a brief pause for effect.”

As it turns out, government funding has expired 10 times since 1981, and the government has closed down each time. Nine of the 10 closures occurred over weekends so they had limited impact. The tenth lasted for 21 days during 1995 and 1996. To answer the question, “Should I worry about the government shutting down (again) or defaulting on its debt?” we posted a few thoughts earlier today.  Either way, we should learn how this round will turn out pretty quickly!


Data as of 9/27/13







Standard & Poor’s 500 (Domestic Stocks)







10-year Treasury Note (Yield Only)







Gold (per ounce)







DJ-UBS Commodity Index







DJ Equity All REIT TR Index








One definition for ‘merit’ in the Merriam-Webster Dictionary is: Character or conduct deserving reward, honor, or esteem (also: achievement). If someone performs well, we want to reward them. If they don’t, well, maybe we won’t.

Merit-based systems are everywhere. For companies trying to retain top talent, recognition and rewards systems are essential. Almost 83 percent of employers use merit raises, according to the Compdata BenchmarkPro 2012 survey. In 2012, the average worker pay increase for merit was 2.7 percent. That’s expected to increase to 2.8 percent for 2013.

Corporations aren’t the only ones who tie pay to performance. In some school districts, teachers’ income is linked to student performance, and about 20 percent of state aid for undergraduate students is tied to achievement in the United States. Under the Affordable Care Act, the income of public and private hospitals will be tied to performance measures such as patient outcomes and cost containment. Earlier this year, hospitals in New York City negotiated with physicians unions to link doctors pay to performance, too. A study published in The Journal of the American Medical Association in September found providing financial incentives to clinicians for achieving better health outcomes was effective over the short term.

One tricky thing about merit-based pay systems is deciding how to measure performance. According to The Wall Street Journal, CEO pay may be measured against a variety of benchmarks:

“Compensation awarded to CEOs of 300 U.S. companies rose a median 3.6% to $10.1 million, the analysis found. The total includes salary and annual bonuses, plus the value of restricted stock and stock options at the time they were granted… CEO pay increased slightly faster than profit which rose 2.1% at the companies surveyed. But, it lagged behind the median 14% increase in total shareholder return for those companies which includes share-price movement and dividends.”

The article reported investor influence exercised through ‘say-on-pay’ votes – annual non-binding votes on CEO pay – has inspired greater consistency in CEO pay. In fact, for the first time in the history of the survey cited, the largest piece of the CEO pay puzzle was linked to financial or stock performance.

Weekly Fun – Visions of the Flint Hills!

As the fall season gets underway Buttonwood Art Space is proud to host the 5th Annual “Visions of the Flint Hills Art Show & Sale”!  The National Geographic commented, “…when you get to the (Flint) Hills, when you rise onto the low shield of flint and limestone that defines them and walk up onto the highest brow and stand into the wind that’s trying to pry your ears apart, what do you see? Open sky, open land, and unending horizon…”

Visions of the Flint Hills Art Benefit and Sale is a juried exhibit featuring art of the Kansas Flint Hills. Sweeping paintings of sky and native prairie grass dominate the show, but sculpture pieces, fiber works, fused glass and photos are also featured.   The exhibit, complete with appetizers provided by The Kansas City Club, opens First Friday October 4th from 6p – 9p at Buttonwood Art Space.

Proceeds from the event benefit The Flint Hills Tourism Coalition (FHTC), a non-profit organization.  To be one of the first to view some of the work in the exhibit visit the Visions Website.

 MLB Baseball Jerseys