
April 3rd / 5th, 2009
"Obama Plan Won’t End CEO Greed"
In February, President Obama officially launched his war on CEO greed. The
lynchpin of his program is a cap of $500,000 on executive pay. Pardon me if I
don’t celebrate this so-called reform.
First of all, the cap only applies to CEOs of companies who receive tax payer
bailout money. Second, those companies affected must have received what
Obama calls, “exceptional financial recovery assistance”. That’s
Barackspeak for “anything over $20 billion”. Third, the new caps don’t
apply to the companies who have already received federal assistance. Fourth, if
the pay cap were akin to cash in a bank vault, then the companies that it's meant
to keep out have access to the combination.
Graef Crystal, a former executive compensation consultant, scoffed at the
pay limits, telling the Los Angeles Times, “You’re pitting a group of
government bureaucrats against compensation consultants and lawyers who are paid lots
of money … to find ways around things like this”.
If Mr. Obama had only done his homework, he would have known that former
President Bill Clinton fell victim to these loophole lawyers when he attempted
(but failed) to reign in greedy executives back in 1993.
Clinton’s plan involved legislation that limited a company’s ability to
deduct more than one million dollars in CEO salary from their corporate taxes.
Instead, those companies just responded by lowering base salaries, and
augmenting them with outrageous stock options. They also created other sources of
CEO income. One example was when corporations would pay their executives’
taxes, a practice known as “grossing up”. Overall, the corporate reaction
to Clinton’s plan ushered in a new era of greed which gave rise to today’s
levels of pay disparity between executives and the working class.
In 2008, the Institute for Policy Studies and United for a Fair Economy
released a report showing that CEOs of large corporations make on average 364
times the salary of their employees. To make matters worse, many of the top
dogs making those obscene salaries weren’t always competent, and their greed
helped to trigger our current economic meltdown.
Men like James Cayne of Bear Stearns who earned $34 million per year. His
company’s demise cost taxpayers $2.7 billion dollars.
Richard Fuld of Lehman Brothers made $27 million annually as he oversaw the
collapse of a once-solid company. Charles Prince, CEO of Citigroup, paid
himself $25 million while managing to drive Citi’s stock prices into the ground.
And, Angelo Mozilo, head of Countrywide earned $43 million during a year in
which his company was the nation’s leading issuer of toxic sub prime
mortgages.
No doubt these snakes have garnered the majority of our collective ire, but
there were other executives who also contributed to our deep recession, and
who are less well known to the general public. Example, Richard Noll of
Hanesbrands who earned over $8 million in a year in which he laid off over
14,000 American workers and closed over 30 plants here at home. To add insult to
injury, he shifted those jobs and plants to third-world countries so that he
could boost his earnings on the backs of slave wage laborers. Noll’s greed
helped to make North Carolina one of the fastest growing states in
unemployment levels, as well as the state with the highest growth rate of uninsured
people.
Last Fall, Charlie Crystal, founder of the Pennsylvania software company
Mission Research, proposed that corporations cap CEO pay at seven times the
company’s median salary. Using Crystal’s formula, if the average worker is
making $40,000, then the top executives could never make more than $280,000.
Obama should embrace Crystal’s proposal, and push the private sector to adopt
it.
But there should also be a law against pay raises for CEOs in publicly
traded companies which are losing money, or where a significant number of layoffs
have occurred. Such a law would lighten the wallet of nearly every CEO in
the country, even those who are not public enemies. Example, Susan Ivey of
Reynolds American. In a year in which she laid off 570 people, Ivey has just
received a $900,000 pay raise, bringing her total salary to $8.8 million
dollars per year.
Ivey is a gracious woman who gives generously of her own money and time to
aid numerous community organizations. But accepting a pay raise of nearly
one million dollars is an ill-timed slap in the face to the very people she has
helped in her community service work.
Right now Americans are hurting, and they are justifiably angered by the
kind of corporate greed that has taken our jobs, our homes, and our health
insurance. We are like angry villagers from one of those old Frankenstein movies
who form a mob to hunt down and destroy the Monster. Unfortunately, Obama’s
toothless plan for dealing with greedy CEOs will do nothing to calm our
outrage, or ease our pain. The Monsters are still at large.
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