Posted on 02/12/2009 4:36:03 PM PST by SJackson
President Obama is now three weeks into his new job -- annual salary $400,000 -- and already he and his team are working overtime to make sure that no one at the helm of a bailed-out firm will pocket much more than he does. It's time, the president said last week, for "restraint," not millions in bonuses.
The indignation over executive excess has mounted as the wretched indulgences stack up. Bank of America ($45 billion in bailout money) sponsored a five-day "NFL experience" at the Super Bowl; Wells Fargo ($25 billion in bailout funds) was planning 12 nights in Las Vegas for select employees.
With business executives seemingly oblivious to the nation's crisis, it's easy to see the appeal of capping exorbitant pay and wild spending. But corporate America's problem is more fundamental than that.
Since roughly the mid-1980s, the American public corporation has been run primarily for the purpose of creating vast wealth for its senior executives. True, executives have also sought to produce a return for shareholders and to deliver useful products or services to customers. And, of course, their businesses do provide jobs. But these concerns, for the most part, have been ancillary to the primary objective of enriching those at the very top.
Take the now-infamous example of the recently ousted Merrill Lynch chief John Thain, who not only splurged on his office decor but also had the audacity to propose a $10 million bonus for himself. In recognition of what? A year's work in which the company continued to make bad business decisions, lost about 80 percent of its value, sold itself to Bank of America to stave off possible collapse, and appears to have seriously damaged its buyer's franchise? After a less-than-heroic performance, Thain's grasping for $10 million -- presumably because he thought it could be had -- represents what has come to be expected from America's business leaders.
It wasn't always this way. In 1960, the ratio of CEO pay at large companies to that of the president of the United States was about 2 to 1. In 2007, it was more than 20 to 1. In 1980, executives at large companies made about 40 times what the average worker made. Last year, CEOs made about 360 times more than the average worker.
During the golden age of U.S. economic power, business schools taught future executives to see themselves as trustees of their companies and stewards of our economic resources.
But today, to the people who run them and the investors who own their stock (mostly very temporarily), public companies have become largely personal ATMs, machines from which to extract as much personal wealth as quickly as possible, within the boundaries of the law (usually). The distinction between creating something of enduring value and merely extracting as much value as possible has dissolved.
Senior executives don't simply want to be paid well. Especially in the past 15 years or so, they have aspired to personal fortunes that were previously attainable -- or even imaginable -- only by the entrepreneur who risks everything in launching the (rare) new venture that proves wildly successful. Ironically, immediately before joining Merrill, Thain had served as the rather modestly compensated CEO of the New York Stock Exchange, brought in to restore sanity following the Dick Grasso era. Grasso had secured almost $200 million in compensation from the NYSE -- a dubious windfall from an organization entrusted with a public regulatory mission.
But the grasping hand of the American executive is not confined to Wall Street. Just look at Robert Nardelli's conduct as head of Home Depot. Nardelli managed to leave his six-year tenure at the top with about $250 million in his pocket -- perfectly legally -- despite the company's lackluster performance in the stock market and against its competitors.
How did these leaders, legally accountable to shareholders, get away with such excessively lined pockets? For one, few investors in these companies have cared much about the underlying company or the business it conducts. They don't stick around long enough for that.
On the NYSE today, the average share is held for less than a year, as compared to about five years in 1960 and two years in 1990. What matters isn't what the companies are actually doing but the expectation that the shares can be unloaded to a "greater fool" at a higher price. In the prevailing business culture, little has been meaningfully valued by either executives or shareholders beyond the short-term accumulation of wealth. Notable exceptions abound, of course -- think Warren Buffett. But in general, there is little evidence of concern for the long-term health of a corporate institution or the welfare of employees. Nor has there been much concern for the impact of the firm's activities on the national economy.
"This is America," the president said last week. "We don't disparage wealth." True enough. But the contemporary business culture has distorted the spirit of traditional American capitalism -- ill at ease with unearned wealth -- by rewarding mediocrity and even failure.
As a society, we have bought into a system in which we ask little of corporate leaders beyond the aggressive pursuit of short-term self-interest. For two decades, this model has formed the core paradigm taught to our business school students. "Shareholder value" was of utmost importance. Notions of obligation to the society in which the corporation is embedded have been set aside, even mocked. CEOs loved this model, as it provided cover for their pursuit of kingly riches. And the rest of us have accepted it because it appeared, through the workings of the "invisible hand," to be consistent with a globally competitive economy.
This system -- and the predictably reckless choices made by some of its most powerful players -- has brought our economy to the brink of collapse. To scold business may feel good and may even help move legislation along. But we need much more than a good scolding and limits on sky-high paydays. We need to rethink how American business ought to be run, including changes to fiduciary duties, legal liability, takeover rules and business education, among many other areas.
We may decide, to borrow a bit from Churchill, that our current system is the worst way to conduct business, except for any other way we could try. But we still need to try. And for those on Wall Street smarting from the compensation caps announced last week, figuring out how best to move forward is the ideal course of action. As the president said: "We certainly believe that success should be rewarded."
What is interesting is movie stars are their own corporation and demand salaries of millions of dollars - don’t they then come under the same rules????
didn’t Fannie and Freddie execs get huge multi-million annual salaries and bonuses before the crash?? Anyone see liberals want THAT money back??
I believe this part is absolutely correct.
Since roughly the mid-1980s, the American public corporation has been run primarily for the purpose of creating vast wealth for its senior executives.
I would dearly love to know what is conservative about such behavior.
Yet I'm sure many here will spring to the defense of such opportunists with kneejerk enthusiasm.
GE also took a bailout from the federal govt. They need to limit all the salaries at GE, NBC, MSNBC and CNBC to 500k.
Same logic. Also take away their corp jets that fly them around.
the Dallas Mourning News ran an editorial attacking the state GOP for saying that the guy running the University of Texas Investment fund should not have gotten a $1 million bonus.
Of course I bet they are all for the exec cap unless its those quasi-govt orgs
Ayn Rand defined them as “Looters”.
I'm not sure the desire to acquire wealth differs amongst liberals and conservatives. The issue is the solution, and letting the market deal with these things is the conservative solution. Compensation can't be legislated, particularly in a global market.
and while we are at it, lets trim back those evil Senators and Reps !!!
If it's excessive they should, that's how you deal with these things.
I don’t think any ‘public servant’ should make more than $250,000 a year
And he hasn't fixed the world yet? We've been duped!!
Who would pay all the taxes we need to collect if they limited pay?
Also, lost in this discussion is that they are not limiting pay. They are limiting the deduction for the pay. A company that takes bailout funds can still pay their CEO $10M, but $9.5M will be taxed. The effect is a tax increase, because the government cannot nullify employment contracts.
Actors are not supposed to run a company. The Wall Street bankers should hang their heads in shame...the fact that they seem to think, they are being abused does not bode well for Wall Street. I lost a great deal of money with one particular banking stock...the CEO walked away with millions...my stock is pretty much worthless. I don’t see how I could ever trust the market again with my remaining funds.
The problem is the market did not deal with this...CEO’s essentially looted companies driving them into insolvency. I don’t want caps (unless you are bailed out), but this sort of behavior is going to destroy capitalism.
Anyone else hear of this?
I would dearly love to know what is conservative about such behavior.
Not much. Indeed, I noticed a change in the manager-types starting about then.
I'm from an earlier generation -- graduated college in 1961, formed my own advertising agency in 1972 and served some major national clients until I retired from the business in 1983. As such, I had an opportunity to meet with and observe high level management at a broad selection of mid-size and larger companies.
Early in the eighties, a new generation of manager started showing up in the board rooms. This was the late sixties/early seventies set -- schooled on politics, protest and advanced courses in relativism and situational ethics.
Immediately upon their arrival, loyalty vanished from the list of business virtues. Acquiring each position was an opportunity to start trying for another, better-paying job. They weren't loyal to their employer, nor their employees.
Of course, the next generation (today's) is even less rooted in ethics. And, thus, even more selfish and short-term.
This is the breed of managers who run many (though probably not most) of today's large corporations.
Within this group, ethics are old-fashioned, for "other people". Not just business ethics, but personal ethics, as well.
And they are as arrogant and ignorant as their politicians.
This guy earns $1,095.89 each DAY day on our dime. And he’s already had TWO weekends off in three weeks.
I’m sure it’s a pay cut for a ‘Community Organizer’ from Chicago though, LOL!
That's correct, and in the long run they'll pay what they have to pay to attract talent, like any tax increase it will work it's way into pricing. All that's accomplished is placing firms taking federal funds at a competitive disadvantage vs non funded and foreign firms. They're licking their chops in London. And a few banks have generated enough in loss' that taxes won't be a worry for a few years.
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