Pampered CEOs ruin others
By Al Lewis
Sunday, March 9, 2008
One lawmaker called it "a sanctimonious search for scapegoats."
CEOs Angelo Mozilo of Countrywide Financial Corp.; Stanley
O'Neal, formerly of Merrill Lynch & Co.; and Charles Prince,
formerly of Citigroup Inc. were dragged before a congressional
panel Friday to explain why they got paid so much money as their
companies lost billions of dollars and laid off thousands of
people in the subprime- mortgage debacle.
These guys got paid hundreds of millions of dollars to make
loans to deadbeats. And now that this mess has laid the nation's
economy to ruin, some members of the U.S. House Committee on
Oversight and Government Reform want answers.
And others don't.
"Punishing individual corporate executives with public floggings
like this may be a politically satisfying ritual — like an
island tribe sacrificing a virgin to a grumbling volcano," said
Virginia Rep. Tom Davis, the senior Republican on the committee.
"But in the end, it won't answer the questions that need to be
answered about corporate responsibility and economic stability."
Other Republicans on the committee argued it's none of the
government's business what private companies pay executives.
I suppose the government's business is just to sponsor Freddie
Mac and Fannie Mae to buy dubious loans from private companies,
so their CEOs can keep making enormous bonuses for their lending
Or maybe the government's business is to shell out more than
$150 billion to stimulate the economy to curb the sting of the
Or, if things get much worse, maybe the government's business
will be to start another bailout plan for home owners facing
foreclosure. Or a fund to prop up failed financial institutions
so we can avert something resembling the 1930s.
Frankly, it is anti-capitalist to suggest the government should
cap CEO pay. But it's also anti-capitalist not to ask hard
questions of people who get paid enormous sums of money to not
only underperform but fall straight into lockstep with a trend
that dashes the entire economy.
Said Rep. Henry Waxman, D-Calif., chairman of the committee:
"Countrywide lost $1.6 billion in 2007, and its stock lost 80
percent of its value. Merrill Lynch lost $10 billion, and its
stock lost 45 percent of its value. Citigroup also lost $10
billion, and its stock lost 48 percent of its value. . . . But
the pay (Mozilo, O'Neal and Prince) received from their
companies and their stock sales was extraordinary.
"Mr. O'Neal left Merrill Lynch with a $161 million retirement
package. Mr. Prince was awarded a $10 million bonus, $28 million
in unvested stock options and $1.5 million in annual perquisites
when he left Citigroup. And Mr. Mozilo received over $120
million in compensation and sales of Countrywide stock," Waxman
No matter how bad things get, there is one constant in the U.S. economy:
CEO pay keeps going up. CEOs at the largest 500 U.S. companies in 2006 averaged
$15.2 million in compensation, up 38 percent from 2005.
In 1980, CEOs earned 40 times what the average worker earned.
Today it's 600 times. "And incredibly, 10 percent of corporate
profits are now flowing to the top executives," Waxman said.
In the meantime, wages for the average U.S. worker are stagnant and jobs
are increasingly shipped overseas.
Richard Parsons, chairman of Citigroup's personnel and
compensation committee, told lawmakers that he was aware of how
such disparities harbor resentment. He said his committee often
considered the question, "How do we remain competitive without
contributing to something that could be tearing at the fabric of
Apologists for outrageous CEO pay typically argue that it's
determined by the market.
Never mind that the "market" is too often a tiny cartel of
like-minded board directors with a narcissistic view of the
value they bring.
Were they, in fact, worth what they were paid, their companies
would thrive in good times and bad — but this is rarely the
Because CEOs are so often able to con friends on the board of
their extraordinary value, they negotiate employment contracts
that ensure they are handsomely rewarded, no matter how poorly
they perform in the future.
The money these subprime CEOs were paid was assured with their
employment contracts many years before the flaws in their
business plans emerged. So in short, CEOs get paid
unconditionally to take enormous risks with other people's
It's one of the dumbest arrangements imaginable, and, yet, year
after year, U.S. investors
can't wait to give these corporate con artists their money.
"If you make compensation all upside and no downside, that will
affect the executives' assessment of risk," corporate-governance
expert Nell Minow told the House panel Friday.
"It will make it clear to him that he can easily off-load the
risk onto shareholders," she said. "It's heads they win, tails
That is, if there's even a coin left on the table.
Al Lewis' column appears Sundays, Tuesdays and Fridays.
Respond to him at
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