A national magazine recently featured a story about the paychecks of corporate CEOs. The cover featured a pink-faced pig dressed in a business suit, and the title said it all: “Oink!” The magazine bluntly labeled today’s executive class “a symbol of cartoonish greed,” asking in exasperation, “Have they no shame?”
The significance of this article is that it was not the cover story of some leftie rag . . . but the April 14 issue of Fortune, the very Bible of CEO-dom!Even some of the in-house set are astonished by the audacious avarice of America’s top corporate leaders, gaping open-mouthed at the miserable moral example of CEOs continuing to practice the imperious ethic of “I.”
These thieves in Guccis are grabbing all they can for themselves at a time when their corporate performance stinks, shareholders are being stiffed, millions of workers are being dumped, pensioners are ripped off, unemployment is skyrocketing, college graduates are trading mortarboards for hairnets, and the general economy is rolling into the ditch. The stickiest-fingered Iraqi looter with a big cart and two mules has better ethics than our current corporate crowd.
Apparently born without the blush gene, top CEOs and their apologists have resorted to old-fashioned flimflam to divert public and political attention from their looting. With the laudable exception of Fortune, most of the media establishment (itself headed by such grossly overpaid execs as Michael Eisner at Disney-owned ABC) would have us believe that CEOs have now seen the light, trimmed their excess, and begun to share the sacrifice of a down economy. “The days of the fantasyland CEO pay package appear to be in the past,” trumpeted Business Week in a typical comment.
Yet, if you’re like me, you might think that $50 million for a year’s work still qualifies as fantasyland. That’s the average haul last year for the 20 top-paid chiefs listed by Business Week itself, including several who drove their companies straight into bankruptcy, sank their shareholders’ stock value to worthless levels, and presently are under criminal investigation.
Fortune points out that far from coming down to earth, the median pay for CEOs at 100 of the largest corporations rose last year by 14%—while the performance of corporate stocks fell by 23%, and overall wages and benefits for employees barely kept up with inflation.
But look over there, cry the flimflammers, pointing to their 2003 Poster Boy for Corporate Responsibility. He’s Tom Siebel, top dog at the computer giant Siebel Systems Inc. With pink slips flying and his company on the ropes, Tom cut his salary to $1 last year and even gave back 26 million shares of stock that he’d previously been given. What a guy, say the flimflammers—proof that there’s a heart of gold in the executive suite, willing to share the pain as well as the gain.
Before reaching for a hankie to dry those tears of pride welling up at this demonstration of CEO esprit de corps, however, note that Tom’s stewardship of his company was so poor that those 26 million shares he so graciously gave back had no value.
He’s now been ranked number two by Business Week among executives who delivered the least for shareholders in ’02, yet while he loudly announced last year that he was taking only a buck in salary because of the company’s downturn, he quietly cashed in for nearly $35 million in something called “long-term compensation.” Nice work, if you can get it.
Meanwhile, a Louisiana pension fund is suing Siebel Systems for improperly enriching Tom at shareholder expense while everyone else was being soaked.
In today’s Enron economy, there’s a whole bag of tricks like “long-term compensation” to pump up the pay of the demi-gods roosting in the top suites. Take the fellow mentioned earlier—Michael Eisner of Disney Inc. Forbes magazine has just designated him the very worst-performing CEO of the past six years, having produced a nearly 5% loss for shareholders while pocketing an average of $122 million a year in personal pay.
The performance by Disney’s chief Mouseketeer was so poor that in both 2000 and 2001, he failed to meet the company’s criteria for earning a bonus; but last year—bingo!—he got a $5 million bonus. Had his performance improved? No. He simply had his board of directors lower the requirements for him to “earn” a bonus.
Wait . . . aren’t these corporate directors supposed to be the overseers of CEOs, the shareholders’ watchdog, the people’s stopgap against excess? Ha! Boards have become brother-in-law deals, with the members commonly hand-picked by the CEO and lavishly rewarded for attending a couple of meetings a year to rubber-stamp whatever the CEO proposes.
Most boards are made up of other CEOs, all of whom are golfing buddies and sit on each other’s boards. It’s an insider game, in which they wink and take care of each other’s puffed-up paychecks. “It’s sort of like the Golden Rule gone wrong,” observes a Harvard professor of business.
Serfs and SERPs
CEOs are always eager to have the public focus on their published salaries as the measure of how they’re doing compared to the corporate serfs—but the official salary is the least of it, for the bulk of executive pay these days is “stealth wealth,” such unpublicized payouts as bonuses, stock options, long-term comp, deferred compensation, a catchall category called “other,” and a new one called SERP—Supplemental Executive Retirement Plan.
Like others in the company, top execs draw regular corporate pensions, which pay all retirees a percentage of their annual salaries. But in the nineties, CEOs began to chafe at this, for federal law capped these payouts at $160,000 a year and . . . well, who can retire on such a paltry pension as that? So boards of directors began setting up supplemental, executive-only pensions.
It was a SERP that caused Don Carty to crash in April. As honcho of American Airlines, he had just engineered massive givebacks by the pilots, flight attendants, machinists and other employee unions, declaring that everyone had to sacrifice to avoid bankruptcy at the airline.
Noting that he and other top execs had accepted cuts in their salaries, Carty negotiated employee pay cuts of 16% to 23%, eliminated 7,000 jobs, slashed holidays and sick days, required longer hours for work, ruled that flight attendants would no longer get crew meals (even on long international flights), and decreed that pennies were so tight that baggage handlers no longer would be allowed to leave their company uniforms at work for laundering, but must take them home to be washed.
The unions swallowed hard and accepted all of this, since it was a musketeer deal—all for one and one for all. Then it was revealed that Carty had secretly gotten American’s pushover board to (1) provide bonuses for the top six executives, including $1.6 million for himself, and (2) create a $41 million SERP for the top 45 executives, also including himself. This surreptitious executive pension is to be paid even if American goes bankrupt—while the pensions of the serfs would be eliminated.
Such raw greed caused everyone to gag. The unions withdrew from Carty’s carefully crafted deal, American’s stock price fell by a third in one week, and there was such a stench that Carty had to be jettisoned by the board to save the airline. But the board kept the SERP in place, so Carty is still in line to get his extra pension payment.
He’s not alone among high-flying, low-life airline bosses. Glenn Tilton at United made a big show of cutting his salary to a “mere” $712,000 as part of the pain-sharing plan to keep his airline going—but behind the scenes, he’d arranged a personal deal to give him nearly $10 million in pay, including a $4.5 million special pension payment.
Likewise, Leo Mullins of Delta announced that his carrier was in such financial straits that it no longer could contribute to its workers’ pension plan . . . yet Leo drew a $1.4 million bonus for himself last year and received not only a generous SERP, but also got Delta’s board to pay for the taxes he’ll owe on his special pension.
Free the market
What we have here are people who must be snorting undiluted hubris two or three times a day, giving them a constant high that makes them feel entitled to any excess. They treat all other employees as disposable units, but they see themselves as The Source, the irreplaceable fount of genius from which corporate success flows. In their minds, such rare genius cannot be rewarded enough.
So even after the greed-induced collapse of the Enrons and WorldComs, even after the embarrassment of Tyco spending $6,000 to buy a shower curtain for its CEO ($6000! Could you ever let it get wet?), and even after they’ve destroyed trust and sowed suspicion throughout the workplace, destroying the ethos of egalitarianism that is essential to a democratic society—these executives still don’t get it, and are continuing to separate their personal enrichment from the common good.
Clearly these guys are out of control, and it’s time for an intervention to save them (and us shareholders, workers et al.) from a total CEO pig-out.
What to do? Aha . . . I’ve got it! Since our corporate chieftains are endlessly extolling the virtues of global free-market policies to workers, Third World nations, environmentalists, and everyone else, what say we give them a little pinch of globalism?
CEOs say they shouldn’t be bound by borders and have to pay U.S. wages or U.S. taxes. So here’s the question: Why should we be bound by U.S. CEOs? Just as they’ve been able to roam the globe in search of the cheapest labor possible (currently in Vietnam at a nickel an hour, unless you count China’s prison labor, which is “free”), so should we go a-roamin’ for cheaper execs.
The average top executive in our country grabs 400 times more in pay than the typical hourly employee in the same company. Compare this 400-to-1 ratio with those in countries competing with us in the global market, as reported recently by Business Week:
* Brazil 57 to 1
* Mexico 45 to 1
* Hong Kong 38 to 1
* Britain 25 to 1
* Australia 22 to 1
* China 21 to 1
* Italy 19 to 1
* Spain 18 to 1
* France 16 to 1
* Taiwan 16 to 1
* Germany 11 to 1
* South Korea 11 to 1
* Japan 10 to 1
So come on, you executive search committees, start thinking out of the box and apply a little global competition to the executive suite! Today’s princely CEOs say that their bloated paychecks are simply a product of what the market will bear. It’s time to broaden the market.
Just as U.S. companies are routinely bringing in software programmers from India and agricultural workers from Central America to lower the pay scales in these industries, so can they import some skilled executives from Brazil, Italy, or Japan who’ll work for a tenth or less of what our spoiled CEO workforce is getting.
We could create a special executive immigration program called something snappy, like ExecExpress, and instead of green cards, issue them platinum cards. We’ll get these astronomical pay packages down to earth in no time, the old-fashioned way: market magic.
OK, so executive importation is not likely to happen, since the system is too corrupt to fix itself. This is an issue that must be addressed politically, where the larger public can get hold of it.
Of course, the Bushites are not about to impede CEO greed, for they are creatures of the corporate suites and have enriched themselves with the same system. (Recall Cheney’s $40 million payout from Halliburton and George W.’s multimillion-dollar windfall from Harken Energy and the Texas Rangers Inc.)
But where are the Democrats? Alas, in the same corporate closet, counting campaign contributions from CEOs. They’ve been unwilling to confront the growing inequities caused by greed—which is politically stupid, because this is a widely popular issue.
In England, self-enrichment by corporate execs is a hot issue, and the people there are winning (see “Join the Rebellion!,” p. 1). In our country, a fed-up majority wants to rein in the greedheads and close up the widening chasm between the CEO class and the rest of us. It’s also an issue that cuts across the usual political divides, uniting shareholders, workers, true conservatives, and progressives.
Democrats even have at hand a modest proposal that would be both effective and politically palatable, raising the issue in a way that’s easy for everyone to grasp and that would discombobulate the Bushites.
It’s H.R. 2691, a bill by Rep. Martin Sabo, Democrat of Minnesota. Dubbed the Income Equity Act, it says that corporations can pay whatever ungodly sums they wish to lavish on their CEOs—but don’t expect us taxpayers to subsidize the extravagance.
Yes, all those gabillions for executive pay are now being treated by the IRS as a “reasonable business expense,” and they are fully deductible from a corporation’s income tax—no matter how huge the sum.
Sabo’s bill simply redefines “reasonable” to mean CEO compensation up to 25 times the pay of the lowest-paid worker in the corporation. Say the lowest pay is $20,000 a year: The company could then deduct $500,000 for the CEO’s pay—but anything above this level would have to come straight out of the corporation’s funds without any taxpayer subsidy.
That’s a good start. Come on, Democrats, let’s take Sabo’s bill and run with it—right over George W. Bush!