Monday, February 9, 2009


When President Obama took the unprecedented initiative last week to cap corporate executive salaries, Wall Street balked, while middle America uttered a collective “Finally.” What on earth had gone so awry in the free enterprise system that could allow the top guy at a money-losing company to pocket up to $20 million a year? Does it mean that capitalism doesn’t work? Or does it signify a full lack of ethics in corporate America? Even worse, could it just simply mean that greed is indigenous to the human race? Any way you slice it, the no-possible-excuse imbalance in executive compensation has us riled up. Real riled up.

I worked in the corporate system for many years. I watched how the wheels turned. I came away from my too-long corporate experience with this observation: Ambition can be a powerful thing, and power? Well, power in the corporate system has more to do with income than anything else. Not company income, necessarily, but personal income. So when Merrill-Lynch is swallowed up at the eleventh hour by Bank of America, and ends up issuing a fourth quarter earnings report showing a $1.79 billion loss – we citizens out here are rightfully outraged (enraged?) to learn that the CEO, John Thain, took home combined income of about $20 million last year, and toward the end of the year suggested to savior Bank of America that they should ante up millions more for a bonus. John Thain’s salary was roughly 400 times that of the average Merill-Lynch employee. What’s wrong with this picture, you ask? Everything.

If Thain’s excessive greed and sub-standard job performance were not enough to heighten public awareness of the inequities in American business, consider Howard Schulz, chairman and CEO of Starbucks. As a reminder, the company had to close 600 stores in 2008. By early this year, the company announced 300 more closings, resulting in a projected 7,000 jobs lost. Why? Because the company reports its profits plunged by two-thirds in its first fiscal quarter reports. All of this happened in a company whose CEO took home $9.7 million last year. The company released prideful press releases touting the fact that its CEO’s compensation as decreased by 23 percent from the $12.6 million the boss pocketed the previous year.

There is plenty of anecdotal evidence that the corporate compensation system in America has serious unresolved issue . A few examples: Lehman Brothers may have bit the dust in 2008, but in 2007 its CEO, Richard Fuld, collected $45 million, according to Equilar, an executive pay research company. Just last week, Macy’s cut 7,000 jobs. Days later various media reports revealed that five top Macy’s execs just received the final installment of a $1.38 million performance bonus from 2004. (It begs the question why bonuses from 2004 are still being paid in 2009, but nevertheless, something wicked this way comes if you were to ask any of the newly unemployed Macy’s associates).

It is all about living large, is it not? Just ask Rick Waggoner, the CEO of General Motors. His company reported a loss of $38.7 billion in 2008, the same year his own compensation was increased by 33 percent. Hello?

In addition to the outlandish salaries and bonuses corporate execs enjoy in our culture, their spending habits are off the map. Late last year after the CEOs of the Big Three U.S. automakers (right) each flew to Washington in their private jets to beg for money to keep their industry alive, Americans started to sit up and pay attention. In rapid succession, we saw any number of major players in the U.S. business arena fess up about not just inexplicably high executive salaries, but also excessive spending on nothing more than creature comforts.

Even the U.S. government is not immune to crazed spending. Last week reported that the House Democratic Caucus spent half a million dollars of our money on retreats. Couldn’t they retreat to somebody’s palatial digs in D.C.? Or better yet, couldn’t they retreat to a private meeting space in a government building? I guess they figure what’s good for corporateland is good for our elected officials. After all, that was the same week that Wells Fargo, recently bailed out to the tune of $25 billion by the U.S. government, reluctantly cancelled its planned a 12-night junket to Vegas for some of its top performers. Who goes to Vegas for 12 nights anyway? That would have been the big over-spending news of the month, had it not been for Citibank, recently bailed out in the amount of $45 billion. Citibank was just about ready to take delivery on its shiny, new $50 million corporate jet, when they were forced (shamed) into cancelling the order.

The President’s new directive restricting CEO salaries to $500,000 is a step in the right direction, but only a baby step. What ever happened to tying executive compensation to job performance? When a company loses $38.7 billion, as GM did, then let’s find out where the buck stops. If it stops with the CEO, then the CEO either has to forgo a significant chunk of his cash, or he has to go to work somewhere else. Of course, that doesn’t always work either. Consider Bob Nardelli, the CEO of Home Depot who got canned from GE just to land on his feet at the Depot, and somehow negotiate a compensation package of $240 million. Home Depot’s stock didn’t plummet, but it didn’t climb. Nardelli got canned again. Where is he now? He’s CEO of rapidly-sinking Chrysler, salary unknown (because it’s a privately owned company).

What we really have to do here is speak up. “We” means you. You need to start writing to your elected representatives expressing your own angst about the imbalance in the American corporate compensation system. I’ll make this easy for you. Go to this Congressional email directory to quickly find the address of your elected senators and representatives. Write something brief. They don’t like to read much, you know. Tell them you’re mad as hell and you’re not going to take it anymore. Remind them they are there in Washington at your pleasure. You made it possible for them to be in the club. Tell them the money is yours and you want more of a voice in how it is spent. Tell them before anybody is allowed to make a half million dollars being a mucky muck, you want assurance they have performance standards they must meet in order to receive the money. Tell them you want built in step-downs in their salaries for each benchmark revenue point they fail to achieve. So, for every billion G.M. loses, perhaps Mr. Waggoner loses, say, $50,000. Or, perhaps his planned income is reduced by one percent. In 2008, had they used this calculation, Mr. Waggoner would not have realized any increase in his compensation, and he would be about six percent in the hole. We struggling car buyers out here like that formula. A lot.

Then, exercise your rights in the free enterprise system. If you are suitably pissed off that Citibank is so reckless as to order a $50 million jet, then don’t patronize Citibank. And then write to the board of directors at Citibank and tell them why you will not spend any money with their institution.

Before you start sending me mad-dog email messages calling me a “socialist,” consider this. It is not socialism when the free enterprise system has a value system built in. And it is not socialism when people are required to succeed in order to be rewarded. It is not socialism to resent the fact that a CEO earns 400 times what a regular employee earns.

As I have so often begged before: Get mad with me, willya? We can move mountains if we speak up and band together. You have to howl at the moon to get the clouds to move out of the way. Just do it.

1 comment:

Joan Eisenstodt said...

Get mad with you? Easy to do .. when my spouse, laid off in Dec., cannot collect unemployment bec. he worked for a religious organization that is exempt from paying into the unemployment system. Before that he worked for 15 years for a major corporation -- albeit in a low paying job but still .. he can't collect and we are thus up a creek. Oh mad doesn't even cover it!