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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.